UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
Five Year Summary
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Summary of Operations:
Total interest income $ 172,358 $ 165,815 $ 147,637 $ 140,624 $ 136,429
Total interest expense 73,185 70,167 55,672 55,037 60,819
Net interest income 99,173 95,648 91,965 85,587 75,610
Provision for loan losses 2,610 2,320 2,202 4,830 4,808
Other income 14,189 14,752 12,238 14,300 11,889
Other expense 63,549 57,481 55,908 56,107 52,626
Income taxes 16,691 17,782 15,709 12,482 9,280
Income before cumulative
effect of accounting change 30,512 32,817 30,384 26,468 20,785
Net income 30,512 32,817 30,384 27,797 20,785
Cash dividends(1) 17,847 13,817 12,604 10,918 7,914
Per common share:
Income before cumulative
effect of accounting change $ 2.00 $ 2.18 $ 2.01 $ 1.75 $ 1.51
Net income 2.00 2.18 2.01 1.84 1.51
Cash dividends(1) 1.24 1.17 1.06 0.95 0.85
Book value per share 17.13 16.45 15.09 14.21 13.22
Selected Ratios:
Return on average
shareholders' equity 11.98% 13.86% 13.67% 13.41% 11.80%
Return on average assets 1.35% 1.52% 1.44% 1.39% 1.18%
Dividend payout ratio (1) 58.49% 49.21% 50.61% 50.30% 49.80%
Selected Balance Sheet Data:
Average assets $2,263,428 $2,162,760 $2,107,476 $2,006,875 $1,762,981
Investment securities 332,331 321,019 372,069 439,699 402,652
Total loans 1,847,604 1,732,986 1,652,275 1,462,574 1,363,583
Total assets 2,326,877 2,210,230 2,170,340 2,035,452 1,968,276
Total deposits 1,827,554 1,774,599 1,714,190 1,699,131 1,649,713
Long-term borrowings 25,621 34,497 84,374 32,564 28,691
Total borrowings
and other liabilities 240,809 186,397 230,516 122,274 120,272
Shareholders' equity 258,514 249,234 225,634 214,047 198,291
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
78
UNITED BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and the consolidated financial
statements and the notes to consolidated financial statements include the
accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, and
reflect the merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the
pooling of interests method of accounting. Accordingly, all prior period
financial statements have been restated to include Eagle. United exchanged 1.15
shares of its common stock for each of the 2,729,377 common shares of Eagle or
3,138,704 shares. This discussion and analysis should be read in conjunction
with the audited 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.
1996 COMPARED TO 1995
The following Earnings Summary is a broad overview of the financial condition
and results of operations and is not intended to replace the more detailed
discussion which is presented under the specific headings below.
EARNINGS SUMMARY
For the year ended December 31, 1996, net income decreased 7.0% to $30,512,000.
Net income per share of $2.00 for the year decreased 8.3% from $2.18 in 1995.
Dividends per share increased 6.0% from $1.17 in 1995 to a record level of $1.24
per share in 1996. This was the twenty-third consecutive year of dividend
increases to shareholders.
During 1996, United recorded approximately $6,845,000 of merger-related one-time
special charges associated with the Eagle merger. The merger-related and one-
time charges that reduced United's 1996 earnings in the first, second and third
quarters, were planned forward-looking moves to give United a broader and
stronger foundation for the future. These charges included, among other items,
severance pay and benefits for displaced Eagle officers and employees, costs to
consolidate duplicate facilities, employee training, new product promotions,
computer conversions and additional deposit insurance as a result of the Savings
Association Insurance Fund ("SAIF") recapitalization legislation.
Despite these significant one-time expenses, United's return on average assets
of 1.35% compared very favorably with regional and national peer grouping
information provided by Wheat, First Securities, Inc. of 1.19% and 1.18%.
United's return on average shareholders' equity of 11.98%,
79
as compared with regional and national peer group information of 15.56% and
15.14%, is indicative of United's very strong capital levels. United, one of the
nation's most profitable regional banking companies, has a strong capital
position, and is well positioned to take advantage of future growth
opportunities.
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 represents the primary component of United's earnings. It
is the difference between interest and fee income related to earning assets and
interest expense incurred to fund these earning assets. Net interest income is
impacted by changes in the volume and mix of interest-earning assets and
interest-bearing liabilities, as well as changes in market interest rates. Such
changes, and their impact on net interest income in 1996, are summarized below.
For the years ended December 31, 1996 and 1995, net interest income approximated
$99,173,000 and $95,648,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.85% in 1996 and 4.90% in 1995.
Total interest income of $172,358,000 increased 4.0% in 1996 over 1995 as a
result of higher volumes of interest-earning assets. Higher average loan
volumes of approximately $113 million, resulting primarily from an acquisition,
contributed to the increase. From December 31, 1995 to December 31, 1996,
United experienced a moderate increase in consumer loans of 1.1%, while
commercial loans and mortgage loans showed increases of 13.7% and 6.4%,
respectively.
Total interest expense increased $3,018,000 or 4.3% in 1996. This increase was
attributed primarily to United's competitive pricing of interest-bearing
deposits in its markets and continued change in the retail deposit mix as
customers shifted funds into products offering higher yields. United's average
interest-bearing deposits increased by $25,761,000 or 1.7% in 1996, while its
average FHLB advances increased $29,604,000 or 42.6% and average short-term
borrowings increased $3,999,000 or 4.8%. United made greater use of FHLB
advances as the cost of those advances declined from 5.93% in 1995 to 5.54% in
1996. United utilized FHLB advances during 1996 to fund the growth in the
mortgage loan portfolio. The average cost of funds, which increased from 4.22%
in 1995 to 4.25% in 1996, reflected the general upward trend in market interest
rates during 1996.
Provision for Loan Losses
United evaluates the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio. United's process of evaluating the
allowance is a formal company-wide process that focuses on early identification
of potential problem credits and procedural
80
discipline in managing and accounting for those credits. See Note D to the
Consolidated Financial Statements for a discussion of concentrations of credit
risk.
Nonperforming loans were $10,192,000 at December 31, 1996 and $10,990,000 at
December 31, 1995, a decrease of 7.3%. The level of nonperforming assets
decreased as a result of the charge-off of certain large balance commercial
credits. The components of nonperforming loans include nonaccrual loans and
loans that are contractually past due 90 days or more as to interest or
principal, but have not been placed on nonaccrual. Loans past due 90 days or
more increased $1,139,000 or 24.3% during 1996; nonaccrual loans decreased
$1,937,000 or 30.8% since year-end 1995. Nonperforming loans represented 0.44%
of total assets at the end of 1996, as compared to 0.52% for United's national
peer group.
At year-end 1996 and 1995 the allowance for loan losses was 1.21% and 1.30% of
total loans, net of unearned income. At December 31, 1996 and 1995, the ratio
of the allowance for loan losses to nonperforming loans was 218.6% and 205.1%,
respectively.
Management believes that the allowance for loan losses of $22,283,000 at
December 31, 1996, is adequate to provide for potential losses on existing loans
based on information currently available.
For the years ended December 31, 1996 and 1995 the provision for loan losses was
$2,610,000 and $2,320,000, respectively. The increase in the provision for 1996
when compared to 1995 was to conform the allowance for loan losses on Eagle's
loan portfolio with United's loan valuation policies and in response to growth
in the portfolio. The provision for loan losses charged to operations is based
on management's evaluation of individual credits, 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 include
growth and composition of the loan portfolio, known deterioration in certain
classes of loans or collateral, trends in delinquencies and current economic
conditions.
Total net charge-offs were $2,872,000 in 1996 and $3,096,000 in 1995, which
represents 0.16% and 0.18% of average loans for the respective years. United's
ratio of net charge-offs to average loans was better than its peer group's ratio
of 0.23% in 1996 and was comparable to its peer group's ratio of 0.19% in 1995.
Management is not aware of any potential problem loans, trends or uncertainties
which it reasonably expects will materially impact future operating results,
liquidity, or capital resources which have not been disclosed. Additionally,
management has disclosed all known material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment schedules.
81
At December 31, 1996, impaired loans were $10,317,000, an increase of $1,525,000
or 17.4% from the $8,792,000 in impaired loans at December 31, 1995. For
further details, see Note D to the Consolidated Financial Statements.
Other Income
Noninterest income has been and will continue to be an important factor for
improving United's profitability. Accordingly, management continues to evaluate
areas where noninterest income can be enhanced. Noninterest income decreased
$563,000 or 3.8% for 1996 when compared to 1995. Other income consists of all
revenues which are not included in interest and fee income related to earning
assets. The decrease in noninterest income for 1996 was primarily the result of
the approximate $2,000,000 loss on loans sold in United's newly formed mortgage
banking subsidiary. These sales were necessary to strategically align the
mortgage banking operations with United's interest rate risk position.
Excluding gains and losses on sales of securities and mortgage banking
activities, noninterest income increased $978,000 or 7.1% in 1996 primarily as a
result of increased service charges and fees from customer accounts.
Trust income increased $275,000 or 9.5% in 1996 due to repricing of services and
an increased volume of trust business.
Service charges, commissions and fees increased by $1,396,000 or 14.1% in 1996.
The increase was primarily attributable to conforming the former Eagle offices'
service charge and fee structures to United's and increased return check charges
and bankcard fees. This income includes charges and fees related to various
banking services provided by United. The increase was primarily due to a
combination of increased fees in bankcard accounts and an increased fee
structure for sales of checking related products.
Securities transactions resulted in a net loss of $98,000 in 1996. The proceeds
from these sales of approximately $17 million were reinvested in similar
securities yielding a higher rate of return. There were no securities sales in
1995. The $872,000 of net securities losses realized in 1994 related primarily
to available for sale debt securities losses of approximately $1,024,000. For
further details, see Notes C and L to the Consolidated Financial Statements.
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provision of that Special
Report, United chose to reclassify securities with an amortized cost of
$103,595,000 from held to maturity to available for sale. At the date of the
transfer, the $242,000 unrealized gain on those securities was included in
shareholders' equity, net of related income taxes. This enabled United to take
advantage of certain interest rate risk management strategies.
82
Other Expense
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations and thus reduce
operating costs. United's cost control efforts have been very successful
resulting in an efficiency ratio of 52.6%, which is well below the 57.9%
reported by United's national peer group banks. United's ratio was higher in
1996 as a result of the merger and related expenses.
Other expense includes all items of expense other than interest expense, the
provision for loan losses and income tax expense. In total, other expense
increased $6,068,000 or 10.6%. The increase was primarily due to the one-time
and merger-related charges recorded in the first and second quarters and the
additional third quarter deposit insurance expense as a result of the SAIF
recapitalization legislation.
Salaries and employee benefits expense increased $2,887,000 or 11.2% in 1996.
Nearly all of the increase for 1996 was attributable to severance and benefit
pay of displaced Eagle executive officers, employment contracts and employees at
locations where United consolidated certain branches. As of December 31, 1996
and 1995, United employed 893 and 946 full-time equivalent employees,
respectively.
Net occupancy expense in 1996 exceeded 1995 levels by $319,000 or 5.5% primarily
due to decreased rental income and an increase in real property repairs and
utilities expense. The overall changes in net occupancy expense for 1996 were
insignificant with no material increase or decrease in any one expense category.
Remaining other expense increased $2,862,000 or 11.1% in 1996 compared to 1995.
The increase in other expense for 1996 related primarily to the additional
deposit insurance expense as a result of the SAIF recapitalization legislation,
higher insurance expense, advertising, consulting and legal expense, losses on
sales and write-downs of assets, EDP fees, office supplies, and goodwill
amortization. Included in these increased costs was $1,483,000 of one-time
charges which related to reengineering costs incurred to improve efficiency,
productivity and strengthen United's competitiveness. Additionally, the added
expenses of a purchase accounting acquisition included in 1996, but not in the
first ten months of 1995, have contributed to the overall increase in
noninterest expense.
Income Taxes
For the year ended December 31, 1996, income taxes approximated $16,691,000
compared to $17,782,000 for 1995. The decrease of $1,091,000 or 6.7% for 1996
when compared to 1995 was primarily the result of decreased pretax income.
United's effective tax rates were approximately 35% for 1996 and 1995.
83
At December 31, 1996, gross deferred tax assets totaled approximately $13.6
million. The allowance for loan losses and various accrued liabilities
represent the most significant temporary differences.
Quarterly Results
The first, second, and third quarters of 1996 contained significant
reengineering and merger-related and one-time special charges associated with
the Eagle merger. These charges included, among other items, severance pay and
benefits for retiring and displaced Eagle officers and employees, investment
banker fees, costs to consolidate duplicate facilities, employee training, new
product promotions and computer conversions.
In the second quarter of 1996, United recorded additional income tax expense of
$3,086,000 due to the recapture of Eagle's bad debt expense into taxable income.
However, as a result of legislation enacted during the third quarter of 1996,
United was relieved of the $3,086,000 of additional income tax expense that was
recorded in the second quarter.
Net income for the fourth quarter of 1996 was $9,936,000, an increase of 32.4%
from the $7,503,000 earned in the fourth quarter of 1995. On a per share basis,
fourth quarter earnings were $0.65 per share in 1996 and $.50 per share in 1995.
Fourth quarter net income was higher in 1996 than in 1995 because of a return to
more normal levels of core income and expenses.
Additional quarterly financial data for 1996 and 1995 may be found in Note O to
the Consolidated Financial Statements.
The Effect of Inflation
United's income statements generally reflect the effects of inflation. Since
interest rates, loan demand and deposit levels are impacted by inflation, the
resulting changes in the interest sensitive assets and liabilities are included
in net interest income. Similarly, operating expenses such as salaries, rents
and maintenance include changing prices resulting from inflation. One item that
would not reflect inflationary changes is depreciation expense. Subsequent to
the acquisition of depreciable assets, inflation causes price levels to rise;
therefore, historically presented dollar values do not reflect this inflationary
condition. With inflation levels at relatively low levels and monetary and
fiscal policies being implemented to keep the inflation rate increases within an
acceptable range, management expects the impact of inflation would continue to
be minimal in the near future.
84
Interest Rate Sensitivity
Interest sensitive assets and liabilities are defined as those assets
or liabilities that mature or are repriced within a designated time-frame. The
principal function of interest rate risk management is to maintain an
appropriate relationship between those assets and liabilities that are sensitive
to changing market interest rates. 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."
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
in this section, United was liability sensitive (excess of liabilities over
assets) in the one year horizon. On the surface, this would indicate that
rising market interest rates would reduce United's earnings and declining market
interest rates would increase earnings. 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 $2,631,000 or 0.12% of the cumulative gap to related earning assets.
The primary method of measuring the sensitivity of earnings to changing market
interest rates is to simulate expected cash flows using varying assumed interest
rates while also adjusting the timing and magnitude of non-contractual deposit
repricing to more accurately reflect anticipated pricing behavior. These
simulations include adjustments for the lag in prime loan repricing and the
spread and volume elasticity of interest-bearing deposit accounts, regular
savings and money market deposit accounts. To aid in interest rate management,
United's lead bank, UNB, is a member of the Federal Home Loan Bank of Pittsburgh
(FHLB). The use of FHLB advances provides United with a low risk means of
matching maturities of earning assets and interest-bearing funds to achieve a
desired interest rate spread over the life of the earning assets.
85
The following table shows the interest rate sensitivity GAP as of December
31, 1996:
Interest Rate Sensitivity Gap
Days
------------------------------------- Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
---------- --------- ---------- ---------- --------- --------- ----------
(Dollars in Thousands)
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other short-
term investments $ 3,192 $ 3,192 $ 3,192
Investment and marketable
equity securities:
Taxable 24,534 $ 2,982 $ 5,538 33,054 $ 131,633 $131,507 296,194
Tax-exempt 1,125 1,806 2,205 5,136 15,601 15,400 36,137
Loans, net of unearned
income 547,797 146,635 259,278 953,710 508,750 385,145 1,847,605
---------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Earning
Assets $ 576,648 $ 151,423 $ 267,021 $ 995,092 $ 655,984 $532,052 $2,183,128
========== ========= ========== ========== ========= ======== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 714,307 $ 714,307 $ 714,307
Time deposits of
$100,000 & over 41,124 $ 30,412 $ 32,333 103,869 $ 33,826 $ 741 138,436
Other time deposits 193,196 143,764 175,560 512,520 182,508 18,735 713,763
Federal funds purchased,
repurchase agreements
and other short-term
borrowing 75,582 75,582 75,582
FHLB advances 104,011 15 25,031 129,057 228 3,346 132,631
---------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Bearing
Funds $1,128,220 $ 174,191 $ 232,924 $1,535,335 $ 216,562 $ 22,822 $1,774,719
========== ========= ========== ========== ========= ======== ==========
Interest Sensitivity Gap $ (551,572) $ (22,768) $ 34,097 $ (540,243) $ 439,422 $509,230 $ 408,409
========== ========= ========== ========== ========= ======== ==========
Cumulative Gap $ (551,572) $(574,340) $ (540,243) $ (540,243) $(100,821) $408,409 $ 408,409
========== ========= ========== ========== ========= ======== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets (25.27%) (26.31%) (24.75%) (24.75%) (4.62%) 18.71% 18.71%
Management
Adjustments $ 678,592 $ (45,262) $ (90,456) $ 542,874 $(542,874) $ 0
Off-Balance
Sheet Activities (50,000) 50,000 0 0
---------- --------- ---------- ---------- --------- -------- ----------
Cumulative Management
Adjusted Gap and Off-
Balance Sheet Activities $ 77,020 $ 58,990 $ 2,631 $ 2,631 $(100,821) $408,409 $ 408,409
========== ========= ========== ========== ========= ======== ==========
Cumulative Management
Adjusted Gap and Off-
Balance Sheet Activities
as a Percentage of Total
Earning Assets 3.53% 2.70% 0.12% 0.12% (4.62%) 18.71% 18.71%
========== ========= ========== ========== ========= ======== ==========
86
Additionally, United is using certain off-balance-sheet instruments known as
interest rate swaps, to further aid in interest rate risk management.
For further details, see Note J to the Consolidated Financial Statements.
Liquidity and Capital Resources
In the opinion of management, United maintains 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 is "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 as well as advances from the
FHLB. Repurchase agreements represent funds that are generally 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 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 FHLB
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 of utilizing any long-term funding sources other than FHLB advances and
long-term certificates of deposit.
Cash flows from operations in 1996 of $66,449,000 were 60.5% higher than the
$41,404,000 in 1995 as a result of an increase of approximately $23,067,000 of
excess proceeds from the sale of loans over loans
87
originated for sale. In 1996, investing activities resulted in a use of cash of
$160,168,000 as compared to 1995 in which investing activities resulted in a
source of cash of $18,885,000. The primary reason for the increase in the use
of cash for investing activities is that the net difference of security
purchases over proceeds from sales, maturities and calls of securities increased
from a net source of $63,589,000 in 1995 to a net use of $11,702,000 in 1996 or
a decrease of $75,291,000. Additionally, net loan originations increased by
$56,345,000 in 1996 as compared to 1995. Financing activities resulted in a
source of cash in 1996 of $84,262,000 primarily due to a $57,134,000 increase in
net borrowings from the FHLB of Pittsburgh and a $53,184,000 increase in
deposits. These sources of cash for financing activities were partially offset
by payment of $16,541,000 of cash dividends to shareholders and a net decrease
of $6,585,000 in other short-term borrowings. See the Consolidated Statement of
Cash Flows in the Consolidated Financial Statements.
United has signed a definitive agreement to acquire all of the outstanding
common stock of First Patriot Bankshares Corporation for $17.00 per share or
approximately $39 million in cash. United has not yet finalized the sources of
funding for this acquisition; however, it could involve a combination of funds
currently available, short-term borrowings, and long-term borrowings. United
believes it has adequate sources of funding available to complete this
acquisition. See Note B, Notes to Consolidated Financial Statements.
United anticipates no problems in its ability to service its obligations over
the next 12 months. There are no known trends, demands, commitments, or events
that will result in or that are reasonably likely to result in United's
liquidity increasing or decreasing in any material way. United also has
significant lines of credit available to it. See Note G, Notes to Consolidated
Financial Statements.
Management is not aware of any current recommendations by regulatory authorities
which, if implemented, would have a material effect on liquidity, capital
resources or operations.
The asset and liability committee monitors liquidity to ascertain that a strong
liquidity position is maintained. In addition, variable rate loans are a
priority. These policies should help to protect net interest income against
fluctuations in interest rates.
United also seeks to maintain a proper relationship between capital and total
assets to support growth and sustain earnings. United's average equity to
average asset ratio was 11.25% in 1996 and 10.94% in 1995. United's risk-based
capital ratio was 16.54% in 1996 and 16.80% in 1995 which are both significantly
higher than the minimum regulatory requirements. United's Tier 1 capital and
leverage ratios of 15.29% and 10.84%, respectively, at December 31, 1996, are
also strong relative to its peers and are well above regulatory minimums. See
Note M, Notes to Consolidated Financial Statements.
88
Commitments
The following table indicates the outstanding loan commitments of United
in the categories stated:
December 31
1996
------------
Lines of credit authorized, but unused $340,338,000
Letters of Credit 22,081,000
------------
$362,419,000
============
Past experience has shown that, of the foregoing commitments, approximately 12-
15% can reasonably be expected to be funded within a one year period. For more
information, see Note J to the Consolidated Financial Statements.
1995 COMPARED TO 1994
The following Earnings Summary is a broad overview of the financial condition
and results of operations and is not intended to replace the more detailed
discussion that is presented under the specific headings below. This discussion
includes the accounts of United Bankshares, Inc. and its wholly-owned
subsidiaries, and reflects the merger of Eagle Bancorp, Inc. (Eagle) on April
12, 1996, under the pooling of interests method of accounting. Accordingly, all
information presented includes Eagle.
EARNINGS SUMMARY
For the year ended December 31, 1995, net income increased 8.0% to a record
$32,817,000. Net income per share of $2.18 for the year was up 8.5% from $2.01
in 1994. United's return on average assets was 1.52%. Dividends per share
increased 10.4% from $1.06 in 1994 to a record level of $1.17 per share in 1995.
Core earnings, or earnings before taxes, loan sales, security transactions, and
the provision for loan losses, were strong and increased 5.8% for 1995 compared
to 1994. These strong core earnings are indicative of the 4.0% increase in net
interest income driven by an increase in average net earning assets with
significant growth of 7.5% in average net loans.
Factors that contributed to the 1995 earnings increase included an improved net
interest margin, partially resulting from a $56,050,000 increase in average
earning assets from 1994 and an overall increase in noninterest income which
included fewer losses on the sale of securities and higher gains on the sales of
loans. The favorable impact of the above items was partly offset by increased
personnel and occupancy expenses and increased income taxes as a result of the
higher level of pre-tax earnings.
United's key performance measures, return on average assets and return on
average equity, improved from 1994 and remained very strong in comparison to
industry standards. United's return on average assets of 1.52% and return on
average shareholders' equity of 13.86% both compared
89
very favorably with regional peer group ratios of 1.17% and 12.56% and national
peer group ratios of 1.21% and 13.47%, respectively, according to information
provided by Wheat, First Securities, Inc.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
For the years ended December 31, 1995 and 1994, net interest income approximated
$95,648,000 and $91,965,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.90% in 1995 and 4.85% in 1994. Higher average
loan volumes of approximately $117 million resulting primarily from an
acquisition and higher consumer demand for mortgage loans contributed to the
increase in net interest income. At 4.90%, United's net interest margin was
well above peer group averages.
Total interest income of $165,815,000 increased 12.3% in 1995 over 1994 as a
result of higher volumes of interest-earning assets. Comparing year-end 1995 to
year-end 1994, a moderate decrease occurred in consumer loans of 3.0% while
commercial loans and mortgage loans showed increases of 3.1% and 6.7%,
respectively.
Total interest expense increased $14,495,000 or 26.0% in 1995. This increase
can be attributed primarily to United's competitive pricing of interest-bearing
deposits in its markets and continued change in the retail deposit mix as
customers shift funds into products offering higher yields. United's average
interest-bearing deposits increased by 3.1% in 1995, while its average long-term
borrowings decreased 11.6% and average short-term borrowings increased 5.5%.
United made greater use of short-term funds as the Federal Reserve held short-
term rates steady at approximately 6.0% for nearly half of 1995. The average
cost of funds, which increased from 3.43% in 1994 to 4.22% in 1995, reflected
the general upward trend in market interest rates during 1995.
Provision for Loan Losses
United evaluated the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio.
Nonperforming loans were $10,990,000 at December 31, 1995 and $7,570,000 at
December 31, 1994, an increase of 45.2%. The level of nonperforming assets
increased as a result of delinquencies on certain large balance commercial
credits and nonperforming assets acquired in an acquisition. Loans past due 90
days or more increased $1,841,000 or 64.6% during 1995; nonaccrual loans
increased $1,579,000 or 33.5% since year-end 1994. Much of the increase in
nonaccrual loans was the result of the addition of a single large commercial
loan to nonaccrual status. United is currently negotiating workout terms with
the borrowers and will closely monitor the ongoing status. Nonperforming loans
represented
90
0.50% of total assets at the end of 1995, which is approximately one-half of the
national peer group level.
At year-end 1995 and 1994 the allowance for loan losses was 1.30% and 1.35% of
total loans, net of unearned income, respectively. At December 31, 1995 and
1994, the ratio of the allowance for loan losses to nonperforming loans was
205.1% and 294.6%, respectively.
For the years ended December 31, 1995 and 1994 the provision for loan losses was
$2,320,000 and $2,202,000, respectively. The slight increase can be attributed
to the higher net charge-offs and the increase in nonperforming loans during
1995.
Total net charge-offs were $3,096,000 in 1995 and $873,000 in 1994, which
represents 0.18% and 0.06% of average loans, net of unearned income, for the
respective years. United's ratio of net charge-offs to average loans, net of
unearned income, is comparable to its peers' ratio of 0.19% in 1995 and compared
very favorably with its peers group's ratio of 0.22% in 1994.
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 amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," collectively SFAS No. 114. As a
result of applying the rules prescribed by SFAS No. 114, certain loans are being
reported at the present value of their 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 prescribed by SFAS No. 114. The adoption of SFAS No. 114 did
not have a material impact on the allowance for loan losses, the provision for
loan losses, the charge-off policy or the comparability of credit risk.
Consistent with United's existing method of income recognition for loans,
interest receipts on impaired loans, except those classified also as nonaccrual,
are recognized as interest income using the accrual method of income
recognition. United's method of income recognition for impaired loans that are
classified as nonaccrual is to recognize interest income on the cash method of
income recognition or apply the cash receipt to principal when the ultimate
collectibility of principal is in doubt. The average recorded investment in
impaired loans during the year ended December 31, 1995 was approximately
$9,545,000. For the year ended December 31, 1995, United recognized interest
income on those impaired loans of approximately $412,000, substantially all of
which was recognized using the accrual method of income recognition. The amount
of interest income which would have been recorded under the original terms for
the above loans was $633,000.
91
At December 31, 1995, the recorded investment in loans that were considered to
be impaired was $8,792,000 (of which $4,934,000 were on a nonaccrual basis).
Included in this amount was $4,793,000 of impaired loans for which the related
allowance for credit losses was $1,918,000 and $3,999,000 of impaired loans that
did not have an allowance for credit losses. The impact of adopting SFAS No.
114 was immaterial to the financial condition and operations of United as of
and for the year ended December 31, 1995, and had no material impact on the
comparability of the credit risk as presented herein.
Other Income
In 1995, other income, excluding securities transactions, increased when
compared to 1994. The overall increase in noninterest income of $2,514,000 or
20.5% was primarily attributed to the absence of net losses on securities
transactions incurred in 1994, a $642,000 increase in service charges,
commissions and fees and an $891,000 increase in net gains from sales of loans.
Trust income increased $43,000 or 1.5% in 1995 due to repricing of services and
an increased volume of trust business.
Service charges, commissions and fees increased by $642,000 or 6.9% in 1995.
This income consisted of charges and fees related to various banking services
provided by United. The increase was primarily due to a combination of
increased fees in bankcard accounts and an increased fee structure for sales of
checking related products.
Securities transactions resulted in a net loss of $872,000 in 1994. The
proceeds from these sales were reinvested in similar securities yielding a
higher rate of return. The net losses from the sales of the securities were
fully recovered within the first eight months of 1995. There were no securities
sales in 1995.
During 1995, gains on sales of loans increased $891,000 over the amount of gains
reported in 1994 due to increased secondary market loan activity. Additionally,
the adoption of Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights," (SFAS No. 122) at June 30, 1995, resulted in an
increase in gains on the sales of loans sold of approximately $412,000, before
tax, due to the recognition of servicing rights related to such loan sales.
The $872,000 of net securities losses for 1994 related primarily to available
for sale debt securities losses.
Other Expense
Other expense includes all items of expense other than interest expense, the
provision for loan losses, and income taxes. In total, other expense increased
slightly in 1995, and management was successful in controlling costs. The
income statement reflects a 2.8% increase in 1995 as compared to 1994.
92
Salaries and employee benefits expense increased $331,000 or 1.3% in 1995.
Net occupancy expense in 1995 exceeded 1994 levels by $263,000 or 4.8% primarily
due to decreased rental income from vacancies and an increase in real property
repairs and utilities expense.
Remaining other expense increased $979,000 or 3.9% in 1995 compared to 1994.
The increase in other expense for the year related primarily to higher
advertising, postage, bankcard and nonrecurring legal expenses which included
certain merger related expenses. The increase in other expense was partially
offset by lower data processing fees and FDIC insurance expense as a result of
the Federal Deposit Insurance Corporation's decision to lower deposit insurance
premiums from $0.23 to $0.04 per $100 in Bank Insurance Fund (BIF) deposits for
well capitalized and well managed banks. The premium change resulted in a refund
of approximately $910,000 which was received in September 1995. The overall
decrease in FDIC insurance premiums for 1995 when compared to 1994 was
$1,475,000. United's two banking subsidiaries are assessed at the lowest FDIC
insurance premium rate.
Income Taxes
For the year ended December 31, 1995, income taxes approximated $17,782,000
compared to $15,709,000 for 1994. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income. United's
effective tax rates for the years ended December 31, 1995 and 1994 were 35% and
34%, respectively.
93
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
United Bankshares, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of United
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United
Bankshares, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Charleston, West Virginia
February 24, 1997
94
CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31
--------------------------------
1996 1995
--------------- ---------------
ASSETS
Cash and due from banks $ 86,328,000 $ 85,864,000
Interest-bearing deposits with other banks 195,000 13,113,000
Federal funds sold 2,997,000
--------------- ---------------
Total cash and cash equivalents 89,520,000 98,977,000
Securities available for sale at estimated
fair value (amortized cost-$160,161,000
at December 31, 1996 and $196,966,000 at
December 31, 1995) 161,629,000 199,130,000
Securities held to maturity (estimated fair
value-$173,697,000 at December 31, 1996
and $123,579,000 at December 31, 1995) 170,702,000 121,889,000
Loans 1,852,770,000 1,737,954,000
Less: Unearned income (5,165,000) (4,968,000)
-------------- --------------
Loans net of unearned income 1,847,605,000 1,732,986,000
Less: Allowance for loan losses (22,283,000) (22,545,000)
-------------- --------------
Net loans 1,825,322,000 1,710,441,000
Bank premises and equipment 33,550,000 34,766,000
Accrued interest receivable 13,508,000 13,793,000
Other assets 32,646,000 31,234,000
-------------- --------------
TOTAL ASSETS $2,326,877,000 $2,210,230,000
============== ==============
LIABILITIES
Domestic deposits:
Noninterest-bearing $ 261,048,000 $ 252,627,000
Interest-bearing 1,566,506,000 1,521,972,000
-------------- --------------
TOTAL DEPOSITS 1,827,554,000 1,774,599,000
Borrowings:
Federal funds purchased 4,491,000 26,378,000
Securities sold under agreements
to repurchase 71,091,000 55,789,000
Federal Home Loan Bank borrowings 132,631,000 75,497,000
Accrued expenses and other liabilities 32,596,000 28,733,000
-------------- --------------
TOTAL LIABILITIES 2,068,363,000 1,960,996,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized-20,000,000 shares; issued-
15,295,130 at December 31, 1996 and
15,295,275 at December 31, 1995, including
205,495 and 140,520 shares in treasury at
December 31, 1996 and 1995, respectively 38,238,000 38,238,000
Surplus 41,438,000 41,861,000
Retained earnings 183,539,000 171,256,000
Net unrealized holding gain on securities available
for sale, net of deferred income taxes 954,000 1,409,000
Treasury stock, at cost (5,655,000) (3,530,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 258,514,000 249,234,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,326,877,000 $2,210,230,000
============== ==============
See notes to consolidated financial statements.
95
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Year Ended December 31
-----------------------------------------
1996 1995 1994
------------- ------------ ------------
INTEREST INCOME
Interest and fees on loans $151,404,000 $143,228,000 $124,008,000
Interest on federal funds sold and other
short-term investments 157,000 1,107,000 703,000
Interest and dividends on securities:
Taxable 18,455,000 18,516,000 19,397,000
Exempt from federal taxes 2,342,000 2,964,000 3,529,000
------------ ------------ ------------
TOTAL INTEREST INCOME 172,358,000 165,815,000 147,637,000
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 63,917,000 62,231,000 49,136,000
Interest on short-term borrowings 3,770,000 3,809,000 2,571,000
Interest on Federal Home Loan Bank advances 5,498,000 4,127,000 3,965,000
------------ ------------ ------------
TOTAL INTEREST EXPENSE 73,185,000 70,167,000 55,672,000
------------ ------------ ------------
NET INTEREST INCOME 99,173,000 95,648,000 91,965,000
PROVISION FOR LOAN LOSSES 2,610,000 2,320,000 2,202,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 96,563,000 93,328,000 89,763,000
------------ ------------ ------------
OTHER INCOME
Trust department income 3,186,000 2,911,000 2,868,000
Service charges, commissions, and fees 11,298,000 9,902,000 9,260,000
Other (loss) income (295,000) 1,939,000 110,000
------------ ------------ ------------
TOTAL OTHER INCOME 14,189,000 14,752,000 12,238,000
------------ ------------ ------------
OTHER EXPENSE
Salaries and employee benefits 28,743,000 25,856,000 25,525,000
Net occupancy expense 6,071,000 5,752,000 5,489,000
Other expense 28,735,000 25,873,000 24,894,000
------------ ------------ ------------
TOTAL OTHER EXPENSE 63,549,000 57,481,000 55,908,000
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 47,203,000 50,599,000 46,093,000
INCOME TAXES 16,691,000 17,782,000 15,709,000
------------ ------------ ------------
NET INCOME $ 30,512,000 $ 32,817,000 $ 30,384,000
============ ============ ============
Earnings per common share $2.00 $2.18 $2.01
============ ============ ============
Dividends per share $1.24 $1.17 $1.06
============ ============ ============
Average outstanding shares 15,253,356 15,067,286 15,131,766
============ ============ ============
See notes to consolidated financial statements.
96
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Net Unrealized
Holding
Common Stock (Loss) Gain
------------------------ on Securities Total
Par Retained Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
----------- ----------- ----------- ------------ ------------- ------------ --------------
Balance at January 1,1994 15,093,202 $37,733,000 $37,011,000 $139,853,000 ($550,000) $214,047,000
Net income 30,384,000 30,384,000
Cash dividends ($1.06 per share) (12,604,000) (12,604,000)
Net change in unrealized holding
loss on securities available
for sale ($1,926,000) (1,926,000)
Fractional shares adjustment (45)
Change in method of accounting
for securities 1,462,000 1,462,000
Purchase of treasury stock (144,000 shares) (3,536,000) (3,536,000)
Common stock options
exercised (34,200 shares) (285,000) 740,000 455,000
Pre-merger dividends of
pooled company (2,648,000) (2,648,000)
---------- ---------- ----------- ------------ ------------ ----------- -------------
Balance at December 31, 1994 15,093,157 37,733,000 36,726,000 154,985,000 (464,000) (3,346,000) 225,634,000
Net income 32,817,000 32,817,000
Cash dividends ($1.17 per share) (13,817,000) (13,817,000)
Net change in unrealized holding
loss on securities available
for sale 1,873,000 1,873,000
Fractional shares adjustment (7)
Acquisition of First Commercial
Bank 202,125 505,000 5,558,000 6,063,000
Purchase of treasury stock
(47,500 shares) (1,273,000) (1,273,000)
Common stock options
exercised (44,500 shares) (423,000) 1,089,000 666,000
Pre-merger dividends of
pooled company (2,729,000) (2,729,000)
---------- ---------- ----------- ------------ ------------ ----------- -------------
Balance at December 31, 1995 15,295,275 38,238,000 41,861,000 171,256,000 1,409,000 (3,530,000) 249,234,000
Net income 30,512,000 30,512,000
Cash dividends ($1.24 per share) (17,847,000) (17,847,000)
Net change in unrealized holding
gain on securities available
for sale (455,000) (455,000)
Fractional shares adjustment (145) (4,000) (4,000)
Purchase of treasury stock
(113,000 shares) (3,395,000) (3,395,000)
Common stock options
exercised (48,025 shares) (419,000) 1,270,000 851,000
Pre-merger dividends of
pooled company (382,000) (382,000)
---------- ----------- ----------- ------------ ------------ ----------- -------------
Balance at December 31, 1996 15,295,130 $38,238,000 $41,438,000 $183,539,000 $ 954,000 ($5,655,000) $258,514,000
========== =========== =========== ============ ============ =========== =============
See notes to consolidated financial statements.
97
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Year Ended December 31
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
OPERATING ACTIVITIES
Net income $ 30,512,000 $ 32,817,000 $ 30,384,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 2,610,000 2,320,000 2,202,000
Provision for depreciation 3,080,000 2,926,000 3,071,000
Amortization, net of accretion 1,091,000 35,000 2,485,000
Loss (gain)on sales of bank premises and equipment 140,000 (35,000) (291,000)
Net losses on sales of securities available for sale 98,000 872,000
Loans originated for sale (26,157,000) (9,438,000) (5,360,000)
Proceeds from loans sold 49,839,000 10,053,000 4,713,000
Loss (gain) on sales of loans 728,000 (1,012,000) (121,000)
Deferred income tax (benefit) expense (9,000) 141,000 (501,000)
Originations of student loans (465,000) (292,000)
Proceeds from sales of student loans 4,580,000
Changes in:
Interest receivable 285,000 (766,000) (757,000)
Other assets 3,461,000 2,601,000 1,072,000
Accrued expenses and other liabilities 3,113,000 2,227,000 2,136,000
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 66,449,000 41,404,000 39,613,000
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from maturities and calls of
investment securities 23,053,000 32,624,000 56,170,000
Purchases of investment securities (78,177,000) (6,995,000) (28,990,000)
Proceeds from sales of securities available for sale 16,518,000 66,351,000
Proceeds from maturities and calls of
securities available for sale 203,395,000 108,706,000 70,526,000
Purchases of securities available for sale (176,491,000) (70,746,000) (98,871,000)
Proceeds from sales of loans 49,127,000
Net purchases of bank premises and equipment (2,004,000) (1,972,000) (2,487,000)
Net cash paid for acquired subsidiary (1,742,000)
Net change in loans (146,462,000) (90,117,000) (189,268,000)
------------- ------------- -------------
NET CASH (USED IN)PROVIDED BY
INVESTING ACTIVITIES (160,168,000) 18,885,000 (126,569,000)
------------- ------------- -------------
FINANCING ACTIVITIES
Cash dividends paid (16,541,000) (10,273,000) (12,604,000)
Acquisition of treasury stock (3,395,000) (1,273,000) (3,536,000)
Proceeds from exercise of stock options 851,000 666,000 455,000
Pre-merger dividends of pooled company (382,000) (2,729,000) (2,757,000)
Repayment of Federal Home Loan Bank borrowings (414,007,000) (379,134,000) (89,682,000)
Proceeds from Federal Home Loan Bank borrowings 471,141,000 316,257,000 195,601,000
Purchase of fractional shares (4,000)
Changes in:
Time deposits 25,161,000 127,570,000 10,246,000
Other deposits 28,023,000 (117,776,000) 4,871,000
Federal funds purchased and securities sold
under agreements to repurchase (6,585,000) 10,358,000 (801,000)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 84,262,000 (56,334,000) 101,793,000
------------- ------------- -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,457,000) 3,955,000 14,837,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 98,977,000 95,022,000 80,185,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 89,520,000 $ 98,977,000 $ 95,022,000
============= ============= =============
See notes to consolidated financial statements.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
United Bankshares, Inc. is a multi-bank holding company headquartered in
Charleston, West Virginia. The principal West Virginia markets of United
Bankshares, Inc. and subsidiaries (United) are located in Parkersburg,
Charleston, Huntington, Morgantown and Wheeling, West Virginia. United also
operates a banking subsidiary in Arlington, Virginia. United considers all of
its principal business activities to be bank related.
The accounting and reporting policies of United conform with generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. A description of the significant accounting policies is presented
below.
Basis of Presentation: The consolidated financial statements and the notes to
- ----------------------
consolidated financial statements include the accounts of United Bankshares,
Inc. and its wholly-owned subsidiaries, which have been restated to reflect the
merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the pooling of
interests method of accounting. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform with the 1996 presentation. The reclassifications had no effect on
net income or shareholders' equity.
Securities: Management determines the appropriate classification of securities
- -----------
at the time of purchase. Debt securities that United has the intent and the
ability to hold to maturity are carried at amortized cost. Securities to be
held for indefinite periods of time 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 net of deferred income taxes.
Gains or losses on sales of securities are recognized by the specific
identification method and are reported separately in the statements of income.
Loans: Interest on loans is accrued and credited to operations using methods
- ------
that produce a level yield on principal amounts outstanding. Loan origination
and commitment fees and related direct loan origination costs are deferred and
amortized as an adjustment of loan yield over the estimated life of the related
loan.
99
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The accrual of interest income on commercial and most consumer loans generally
is discontinued when a loan becomes 90 days past due as to principal or
interest. When interest accruals are discontinued, unpaid interest recognized
in income in the current year is reversed, and interest accrued in prior years
is charged to the allowance for loan losses. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral
exceeds the principal balance and accrued interest, and the loan is in the
process of collection.
Consistent with United's existing method of income recognition for loans,
interest on impaired loans, except those classified as nonaccrual, is recognized
as income using the accrual method. United's method of income recognition for
impaired loans that are classified as nonaccrual is to recognize interest income
on the cash basis of income recognition or apply the cash receipt to principal
when the ultimate collectibility of principal is in doubt.
The principal sources of revenue from United's mortgage banking business are:
(i) loan origination fees; (ii) gains or losses from the sale of loans, if any;
(iii) interest earned on mortgage loans during the period that they are held by
United pending sale; (iv) loan servicing fees; and (v) gain or loss on the
close-out of the hedge instrument used to offset the risk that changes in
interest rate may have on the value of United's mortgage loan inventory.
Loans held for Sale: Loans held for sale consist of one-to-four family
- --------------------
residential loans originated for sale in the secondary market and are carried at
the lower of cost or fair value determined on an aggregate basis.
Allowance for Loan Losses: The allowance for loan losses related to loans that
- --------------------------
are identified as impaired is based on 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. In providing for loan losses, United considers all
significant factors that affect the collectibility of loans including the
evaluation of impaired loans. Such other factors considered by management
include growth and composition of the loan portfolio, known deterioration in
certain classes of loans or collateral, trends in delinquencies, and current
economic conditions.
Management believes that the allowance for loan losses is adequate to provide
for potential losses on existing loans based on information currently available.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
- ----------------------------
less allowances for depreciation and amortization. The provision for
depreciation is computed principally by the straight-line method over the
estimated useful lives of the respective assets.
100
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income Taxes: Deferred income taxes are provided for temporary differences
- -------------
between the tax basis of an asset or liability and its reported amount in the
financial statements at the statutory tax rate.
Stock-Based Compensation: In October 1995, the Financial Accounting Standards
- -------------------------
Board ("FASB"), issued Statement No. 123, (SFAS No. 123), "Accounting for Stock-
Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 defines a fair value based method of
accounting for stock-based compensation plans, with the option of continuing to
account for such plans under the intrinsic value method. United has elected to
continue to account for its plans under the intrinsic value method.
Trust Assets and Income: Assets held in a fiduciary or agency capacity for
- ------------------------
subsidiary bank customers are not included in the balance sheets since such
items are not assets of the subsidiary banks. Trust department income is
reported on a cash basis. Reporting such income on an accrual basis would not
materially affect United's consolidated financial position or its results of
operations as reported herein.
Cash Flow Information: For purposes of the statement of cash flows, United
- ----------------------
considers cash and due from banks and federal funds sold as cash and cash
equivalents.
Earnings Per Common Share: Earnings per common share is computed based on the
- --------------------------
weighted average number of common and common equivalent shares outstanding
during the applicable period. Options granted under United's stock option plans
are considered common stock equivalents for the purpose of computing earnings
per share.
Intangible Assets: Intangible assets relating to the estimated value of the
- ------------------
deposit base of the acquired institutions are being amortized on an accelerated
basis over a 7 to 10 year period. The excess of the purchase price over the
fair market value of the net assets of the banks acquired (goodwill) is being
amortized on a straight-line basis over 15 years. The carrying amount of
goodwill is evaluated if facts and circumstances suggest that it may be
impaired. If this evaluation indicates that goodwill will not be recoverable,
as determined based on the estimated undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying amount of goodwill
will be reduced.
The purchase prices of acquisitions have been allocated to the identifiable
tangible and intangible assets acquired based upon their fair values at the
acquisition dates. At December 31, 1996 and 1995, deposit base intangibles and
goodwill approximated $11,959,000 and $14,377,000 net of accumulated
amortization of approximately $9,888,000 and $7,470,000.
101
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Standards: In June 1996, the FASB issued Statement No. 125,
- -------------------------
(SFAS No. 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 prescribes the accounting
treatment for securitization transactions based on a financial components
approach with an emphasis on physical control, such as the ability to pledge or
exchange the securitized assets. SFAS No. 125 applies to repurchase agreements,
securities lending, loan participations, and other financial component transfers
and exchanges.
The new rules will not have a material effect on United's financial position and
results of operations. SFAS No. 125 is effective for transactions occurring
after December 31, 1996.
NOTE B--ACQUISITIONS
On April 12, 1996, United consummated the merger with Eagle Bancorp, Inc.,
Charleston, West Virginia ("Eagle"), in a common stock exchange accounted for
under the pooling of interests method of accounting and, accordingly, all prior
period financial statements have been restated to include Eagle. United
exchanged 1.15 shares of its common stock for each of the 2,729,377 common
shares of Eagle or 3,138,704 shares.
The following presents the separate results of United and Eagle for the three
months ended March 31, 1996 and for the years ended December 31, 1995 and 1994.
United Eagle Combined
------------ ------------ ------------
For the Three Months
Ended March 31, 1996
(Unaudited):
Net interest income $20,886,000 $ 3,605,000 $24,491,000
Net income 7,504,000 585,000 8,089,000
Earnings per share $ 0.62 $ 0.21 $ 0.53
For the Year Ended
December 31, 1995:
Net interest income $81,690,000 $13,958,000 $95,648,000
Net income 28,079,000 4,738,000 32,817,000
Earnings per share $ 2.35 $ 1.74 $ 2.18
For the Year Ended
December 31, 1994:
Net interest income $77,270,000 $14,695,000 $91,965,000
Net income 24,902,000 5,482,000 30,384,000
Earnings per share $ 2.08 $ 2.01 $ 2.01
102
NOTE B--ACQUISITIONS - continued
On October 31, 1995, United acquired 100% of the common stock of First
Commercial Bank("FCB") of Arlington, Virginia, in a combination cash and common
stock exchange accounted for using the purchase method of accounting. United
exchanged 202,125 shares of its common stock with an approximate fair value of
$6,063,000 plus cash of approximately $5,280,000 for all 201,100 of FCB's common
stock. As of the date of acquisition, FCB reported total assets of $76,964,000,
total net loans of $41,386,000 and deposits of $50,200,000. The results of
operations of FCB, which are not significant, have been included in the
consolidated results of operations from the date of acquisition.
United has entered into an agreement with First Patriot Bankshares Corporation,
Reston, Virginia ("Patriot") to acquire 100% of the outstanding common stock of
Patriot for $17.00 per share. The transaction valued at approximately
$39,247,000 will be accounted for using the purchase method of accounting. It
is anticipated that the proposed acquisition will be consummated during the
third quarter of 1997. Consummation of the transaction is subject to approval
of the shareholders of Patriot and the receipt of all required regulatory
approvals, as well as other customary conditions.
At December 31, 1996, Patriot had consolidated assets of approximately
$191,440,000 and shareholders' equity of approximately $14,335,000.
NOTE C--INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
December 31, 1996
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ----------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $115,018,000 $ 443,000 $ 444,000 $115,017,000
Mortgage-backed
securities 24,982,000 92,000 565,000 24,509,000
Marketable equity
securities 3,655,000 2,158,000 5,813,000
Other 16,506,000 7,000 223,000 16,290,000
------------ ---------- ---------- ------------
Total $160,161,000 $2,700,000 $1,232,000 $161,629,000
============ ========== ========== ============
103
NOTE C--INVESTMENT SECURITIES - continued
December 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 $150,460,000 $1,438,000 $341,000 $151,557,000
Mortgage-backed
securities 30,036,000 165,000 54,000 30,147,000
Marketable equity
securities 2,662,000 1,159,000 3,821,000
Other 13,808,000 21,000 224,000 13,605,000
------------ ---------- -------- ------------
Total $196,966,000 $2,783,000 $619,000 $199,130,000
============ ========== ======== ============
The amortized cost and estimated fair value of securities available for sale at
December 31, 1996, by contractual maturity are as follows:
Estimated
Amortized Fair
Cost Value
------------ ------------
Due in one year or less $ 23,847,000 $ 23,868,000
Due after one year through five years 93,788,000 93,776,000
Due after five years through ten years 603,000 616,000
Due after ten years 38,268,000 37,556,000
Marketable equity securities 3,655,000 5,813,000
------------ ------------
Total $160,161,000 $161,629,000
============ ============
The table above includes $24,982,000 of mortgage-backed securities at estimated
fair value with an amortized cost of $24,509,000. Maturities of mortgage-backed
securities are based upon the estimated average life.
Gross realized gains and losses from sales of securities available for sale were
$96,000 and $194,000 in 1996, and $152,000 and $1,024,000 in 1994, respectively.
There were no sales in 1995.
In accordance with a special report issued by the FASB, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," United chose to reclassify securities from held to
maturity to available for sale. At the date of the transfer, the amortized cost
of those securities was $103,595,000, and the unrealized gain on those
securities was $242,000, net of deferred income taxes, which is included in
shareholders' equity.
104
NOTE C--INVESTMENT SECURITIES - continued
The amortized cost and estimated fair values of securities held to maturity are
summarized as follows:
December 31, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 77,704,000 $2,131,000 $ 87,000 $ 79,748,000
State and political
subdivisions 36,136,000 1,487,000 32,000 37,591,000
Mortgage-backed
securities 54,977,000 250,000 754,000 54,473,000
Other 1,885,000 1,885,000
------------ ---------- -------- ------------
Total $170,702,000 $3,868,000 $873,000 $173,697,000
============ ========== ======== ============
December 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 $ 15,897,000 $ 22,000 $169,000 $ 15,750,000
State and political
subdivisions 43,324,000 2,124,000 33,000 45,415,000
Mortgage-backed
securities 56,416,000 348,000 617,000 56,147,000
Other 6,252,000 15,000 6,267,000
------------ ---------- -------- ------------
Total $121,889,000 $2,509,000 $819,000 $123,579,000
============ ========== ======== ============
The amortized cost and estimated fair value of debt securities held to maturity
at December 31, 1996 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.
Estimated
Amortized Fair
Cost Value
------------ ------------
Due in one year or less $ 11,296,000 $ 11,338,000
Due after one year through five years 57,167,000 57,590,000
Due after five years through ten years 77,000,000 79,236,000
Due after ten years 25,239,000 25,533,000
------------ ------------
Total $170,702,000 $173,697,000
============ ============
The table above includes $54,977,000 of mortgage-backed securities with an
estimated fair value of $54,473,000 at December 31, 1996. Maturities of the
mortgage-backed securities are based upon the estimated average life.
105
NOTE C--INVESTMENT SECURITIES - continued
There were no sales of held to maturity securities during 1996, 1995 and 1994.
The carrying value of securities pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes as required or
permitted by law, approximated $204,254,000 and $176,855,000 at December 31,
1996 and 1995, respectively.
NOTE D--LOANS
Major classifications of loans as of December 31 are as follows:
1996 1995
-------------- --------------
Commercial, financial, and
agricultural $ 248,762,000 $ 218,800,000
Real estate:
Single family residential 953,000,000 908,862,000
Commercial 355,431,000 344,626,000
Construction 42,343,000 21,808,000
Other 19,748,000 14,056,000
Installment 232,004,000 229,457,000
-------------- --------------
1,851,288,000 1,737,609,000
Loans held for sale 1,482,000 345,000
-------------- --------------
Total gross loans $1,852,770,000 $1,737,954,000
============== ==============
An analysis of the allowance for loan losses follows:
Year Ended December 31
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Balance at beginning of year $ 22,545,000 $ 22,304,000 $ 20,975,000
Allowance of purchased subsidiaries 1,017,000
Provision for loan losses 2,610,000 2,320,000 2,202,000
-------------- -------------- --------------
25,155,000 25,641,000 23,177,000
Loans charged off 3,524,000 3,624,000 1,770,000
Less recoveries 652,000 528,000 897,000
-------------- -------------- --------------
Net charge offs 2,872,000 3,096,000 873,000
-------------- -------------- --------------
Balance at end of year $ 22,283,000 $ 22,545,000 $ 22,304,000
============== ============== ==============
The average recorded investment in impaired loans during the year ended December
31, 1996 and 1995 was approximately $9,442,000 and $9,545,000, respectively.
At December 31, 1996, the recorded investment in loans that were considered to
be impaired was $10,317,000 (of which $5,461,000 was on a nonaccrual basis).
Included in this amount was $5,631,000 of impaired loans for which the related
allowance for credit losses was $1,451,000 and $4,686,000 of impaired loans that
did not have an allowance for credit losses. At December 31, 1995, the recorded
investment in loans that were considered to be impaired was $8,792,000 (of which
$4,934,000 was on a nonaccrual basis). Included in this amount was $4,793,000
of impaired loans for which the related allowance for credit losses was
$1,918,000 and $3,999,000 of impaired loans that did not have an allowance for
credit losses.
106
NOTE D--LOANS - continued
The amount of interest income that would have been recorded on impaired loans
under the original terms was $1,464,000, $1,045,000 and $346,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. For the years ended
December 31, 1996, 1995 and 1994, United recognized interest income on those
impaired loans of approximately $638,000, $412,000 and $1,000, respectively,
substantially all of which was recognized using the accrual method of income
recognition.
United has commercial real estate loans, including owner occupied, income
producing real estate and land development loans, of approximately $355,431,000
and $334,626,000 as of December 31, 1996 and 1995, respectively. The loans are
primarily secured by real estate located in West Virginia, Southeastern Ohio,
and Virginia. The loans were originated by United's subsidiary banks using
underwriting standards as set forth by management. United's loan administration
policies are focused on the risk characteristics of the loan portfolio,
including commercial real estate loans, in terms of loan approval and credit
quality. It is the opinion of management that these loans do not pose any
unusual risks and that adequate consideration has been given to the above loans
in establishing the allowance for loan losses.
United's subsidiary banks have made loans, in the normal course of business, to
the directors and officers of United and its subsidiaries, and to their
associates. Such related party loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and did not involve more than
normal risk of collectibility. The aggregate dollar amount of these loans was
$72,367,000 and $55,919,000 at December 31, 1996 and 1995, respectively. During
1996, $53,585,000 of new loans were made, repayments totaled $44,839,000, and
other changes due to the change in composition of United's board members and
executive officers approximated $7,702,000.
NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES
Bank premises and equipment are summarized as follows:
December 31
--------------------------
1996 1995
------------ ------------
Land $ 7,892,000 $ 7,924,000
Building and improvements 34,414,000 35,025,000
Leasehold improvements 5,784,000 5,345,000
Furniture, fixtures, and equipment 30,093,000 28,988,000
----------- -----------
78,183,000 77,282,000
Less allowance for depreciation
and amortization 44,633,000 42,516,000
----------- -----------
Net bank premises and equipment $33,550,000 $34,766,000
=========== ===========
107
NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES - continued
United and certain banking subsidiaries have entered into various noncancelable
operating leases. These noncancelable operating leases are subject to renewal
options under various terms and some leases provide for periodic rate
adjustments based on cost-of-living index changes. Rent expense for
noncancelable operating leases approximated $1,908,000, $1,822,000 and
$1,848,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases with initial or remaining terms of one year or more, for years
subsequent to December 31, 1996, consisted of the following:
1997 $ 1,752,000
1998 1,636,000
1999 1,543,000
2000 1,426,000
2001 1,381,000
Thereafter 1,393,000
----------
Total minimum lease payments $ 9,131,000
===========
NOTE F--DEPOSITS
The book value of deposits consisted of the following:
December 31
------------------------------
1996 1995
-------------- --------------
Noninterest bearing checking $ 261,048,000 $ 252,627,000
Interest bearing checking 62,783,000 239,100,000
Regular savings 293,755,000 328,509,000
Money market accounts 362,223,000 131,550,000
Time deposits under $100,000 709,309,000 672,667,000
Time deposits over $100,000 138,436,000 150,146,000
-------------- --------------
Total deposits $1,827,554,000 $1,774,599,000
============== ==============
Interest paid on deposits and borrowings approximated $72,568,000, $63,167,000
and $52,397,000 in 1996, 1995 and 1994, respectively.
At December 31, 1996, the scheduled maturities of time deposits are as follows:
1997 $599,255,000
1998 199,907,000
1999 16,950,000
2000 7,289,000
2001 and thereafter 24,344,000
------------
Total $847,745,000
============
United's subsidiary banks have received deposits, in the normal course of
business, from the directors and officers of United and its subsidiaries, and
their associates. Such related party deposits were accepted on substantially
the same terms, including interest rates and maturities, as those prevailing at
the time for comparable transactions with unrelated persons. The aggregate
dollar amount of these deposits was $18,335,000 and $16,655,000 at December 31,
1996 and 1995, respectively.
108
NOTE G--BORROWINGS
United's lead subsidiary, United National Bank (UNB), is a member of the Federal
Home Loan Bank of Pittsburgh (FHLB). Membership in the FHLB makes available
short-term and long-term borrowings from collateralized advances. At December
31, 1996, United had approximately $627,169,000 of available borrowings in the
form of collateralized advances from the FHLB at prevailing interest rates.
Approximately $104,000,000 of FHLB advances with an interest rate of 6.75% and
$25,000,000 of FHLB advances with an interest rate of 6.20% are scheduled to
mature in 1997. Additionally, $3,631,000 of FHLB advances with a weighted
average interest rate of 6.16% are scheduled to mature after one year.
UNB also has various unused lines of credit available from certain of its
correspondent banks in the aggregate amount of $79,500,000. These lines of
credit, which bear interest at prevailing market rates, permit UNB to borrow
funds in the overnight market, and are renewable annually provided that UNB does
not experience a material adverse change in its financial position or results of
operations.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
1996 1995
------------ -------------
Average balance during the year $66,463,000 $ 70,752,000
Average interest rate during the year 4.04% 4.30%
Maximum month-end balance during the year $79,664,000 $81,720,000
At December 31, 1996 and 1995, borrowings and the related weighted
average interest rate were as follows:
1996 1995
-------------------------- -------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------ ----------- ------------ -----------
Federal funds purchased $ 4,491,000 6.81% $ 26,378,000 5.86%
Securities sold under
agreements to repurchase 71,091,000 4.16% 55,789,000 4.35%
FHLB advances 132,631,000 6.63% 75,497,000 5.74%
------------ ------------
Total $208,213,000 $157,664,000
============ ============
NOTE H--INCOME TAXES
The income tax provisions included in the consolidated statements of
income are summarized as follows:
Year Ended December 31
----------------------------------------
1996 1995 1994
------------ ----------- ------------
Current expense:
Federal $15,271,000 $15,313,000 $13,998,000
State 1,429,000 2,328,000 2,212,000
Deferred (benefit) expense:
Federal and State (9,000) 141,000 (501,000)
------------ ----------- -----------
Income taxes $16,691,000 $17,782,000 $15,709,000
=========== ============ ===========
109
NOTE H--INCOME TAXES - continued
The following is a reconciliation of income tax expense to the amount computed
by applying the statutory federal income tax rate to income before income taxes:
Year Ended December 31
--------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- -----
Tax on income before taxes
at statutory federal rate $16,521,000 35.0% $17,710,000 35.0% $16,133,000 35.0%
Plus: State income taxes
net of federal tax
benefits 929,000 2.0 1,619,000 3.2 1,026,000 2.2
----------- ----- ----------- ----- ----------- -----
17,450,000 37.0 19,329,000 38.2 17,159,000 37.2
Increase (decrease)
resulting from:
Tax-exempt interest
income (1,464,000) (3.1) (1,683,000) (3.3) (1,830,000) (3.9)
Other items-net 705,000 1.5 136,000 0.2 380,000 0.8
----------- ----- ----------- ----- ----------- -----
Income taxes $16,691,000 35.4% $17,782,000 35.1% $15,709,000 34.1%
=========== ===== =========== ===== =========== =====
Federal income tax benefit applicable to securities transactions approximated
$34,000 and $305,000 in 1996 and 1994, respectively. There were no securities
transactions in 1995.
Income taxes paid approximated $14,035,000, $19,052,000 and $15,143,000 in 1996,
1995 and 1994, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of United's deferred tax assets and liabilities (included in other assets) at
December 31, 1996 and 1995 are as follows:
1996 1995
----------- -----------
Deferred tax assets:
Allowance for loan losses $ 8,889,000 $ 8,815,000
Accrued benefits payable 1,600,000 876,000
Other accrued liabilities 2,213,000 2,378,000
Net deferred loan fees 488,000 392,000
Other real estate owned 69,000 122,000
Other 363,000 232,000
----------- -----------
Total deferred tax assets 13,622,000 12,815,000
----------- -----------
Deferred tax liabilities:
Premises and equipment 1,784,000 1,676,000
Core deposit intangibles 417,000 816,000
Income tax allowance for
loan losses 1,462,000 1,678,000
Prepaid assets 149,000 117,000
Deferred mortgage points 1,582,000 675,000
Securities available for sale 514,000 708,000
Other 441,000 75,000
----------- -----------
Total deferred tax
liabilities 6,349,000 5,745,000
----------- -----------
Net deferred tax assets $ 7,273,000 $ 7,070,000
=========== ===========
110
NOTE I--EMPLOYEE BENEFIT PLANS
United has a defined benefit retirement plan covering substantially all
employees. The benefits are based on years of service and the average of the
employee's highest five consecutive plan years of basic compensation paid during
the ten plan years preceding the date of determination. United's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future.
The following table sets forth the funded status of United's defined benefit
plan and amounts recognized in the respective consolidated balance sheets:
December 31
----------------------------
1996 1995
------------- -------------
Vested benefit obligation $(15,715,000) $(14,551,000)
Nonvested benefit obligation (408,000) (384,000)
------------ ------------
Accumulated benefit obligation (16,123,000) (14,935,000)
Effect of future pay increases (5,046,000) (5,007,000)
------------ ------------
Projected benefit obligation for
services rendered to date (21,169,000) (19,942,000)
Plan assets at fair value, primarily
marketable securities 23,109,000 20,526,000
------------ ------------
Excess of plan assets over projected
benefit obligation 1,940,000 584,000
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions (1,877,000) (476,000)
Unrecognized prior service cost 388,000 452,000
Unrecognized transition asset (826,000) (961,000)
------------ ------------
Accrued pension liability included
in other liabilities $ (375,000) $ (401,000)
============ ============
Net periodic pension cost included the following components:
Year Ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ -----------
Service cost $ 861,000 $ 718,000 $ 840,000
Interest cost on projected
benefit obligation 1,439,000 1,263,000 1,158,000
Actual (return) loss on plan assets (2,849,000) (3,499,000) 192,000
Net amortization and deferral 1,014,000 1,852,000 (1,582,000)
------------ ------------ -----------
Net periodic pension cost $ 465,000 $ 334,000 $ 608,000
============ ============ ===========
111
NOTE I--EMPLOYEE BENEFIT PLANS - continued
At December 31, 1996, the weighted average discount rate and rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 7.5% and 4.5%. At December 31, 1995, the
weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation ranged from 6.25% to 7.5% and 4.5% to 5.25%. The weighted average
expected long-term rate of return on United's plan assets ranged from 7.75% to
9.00% for the years ended December 31, 1996, 1995 and 1994.
The United Savings and Stock Investment Plan (the Plan) is a deferred
compensation plan under Section 401(k) of the Internal Revenue Code. All
employees who complete one year of service are eligible to participate in the
Plan. Each participant may contribute from 1% to 10% of pre-tax earnings to his
or her account which may be invested in any of four investment options chosen by
the employee. United matches 100% of the first 2% of salary deferred and 25% of
the next 2% of salary deferred with United common stock. Vesting is 100% for
employee deferrals and the United match at the time the employee makes his/her
deferral. United's expense relating to the Plan approximated $330,000, $297,000
and $336,000 in 1996, 1995 and 1994, respectively.
The assets of United's defined benefit plan and 401(k) Plan each include
investments in United common stock. At December 31, 1996, the combined plan
assets included 385,960 shares of United common stock with an approximate fair
value of $12,737,000.
United has certain other deferred compensation plans covering various key
employees. Periodic charges are made to operations so that the present value of
the liability due each employee is fully recorded as of the date of their
retirement. Amounts charged to expense have not been significant in any year.
United has three incentive stock option plans for key employees, the 1988, 1991
and 1996 plans. The plans provide for the granting of stock options of up to
100,000, 500,000 and 600,000 shares of common stock, respectively. No further
grants will be made under the 1988 and 1991 plans. At December 31, 1996,
490,514 options were available for future grant under the 1996 plan. Under the
provisions of the plans, the option price per share shall not be less than the
fair market value of United's common stock on the date of grant. Accordingly,
no compensation expense is recognized for these options.
112
NOTE I--EMPLOYEE BENEFIT PLANS - continued
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -----------------------------------------------------------------------------
$11.00 to $14.00 33,050 3 years $ 13.47 33,050 $13.47
13.75 to 19.75 90,350 6 years 17.21 90,350 17.21
23.00 to 30.00 257,235 7 years 26.83 186,599 26.42
29.75 109,486 10 years 29.75 - -
The following is a summary of activity of United's Incentive Stock
Option Plans:
Stock Range of
Options Exercise Prices
---------- -----------------
Outstanding at January 1, 1994 328,250 $27.00 $11.00
Granted 100,000 23.00
Exercised 34,200 19.75 11.00
Forfeited 9,375 27.00 13.75
-------
Outstanding at December 31, 1994 384,675 27.00 11.00
Granted 100,000 30.00
Exercised 44,500 27.00 11.00
Forfeited 9,450 27.00 19.75
-------
Outstanding at December 31, 1995 430,725 30.00 11.00
Granted 109,486 29.75
Exercised 48,025 27.00 11.00
Forfeited 2,065 30.00 23.00
-------
Outstanding at December 31, 1996 490,121 30.00 11.00
=======
Exercisable at:
December 31, 1994 226,113 $27.00 $11.00
December 31, 1995 263,637 $27.00 $11.00
December 31, 1996 309,999 $30.00 $11.00
As permitted, United has adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Pro forma net income and earnings per share have not been
presented because the effect of applying the fair value method prescribed by
SFAS 123 to the 1996 and 1995 options awarded produces amounts that are not
materially different from amounts reported herein.
United provides postemployment and postretirement benefits for certain employees
at subsidiaries acquired in prior years. United accounts for such costs as
expense when paid. Accounting for such costs when paid does not produce results
materially different from those which would result if such costs were accrued
during the period of employee service. United does not anticipate providing
postemployment or postretirement benefits to its currently active employees
after employment or retirement except on a fully contributory basis.
113
NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES
United is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
alter its own exposure to fluctuations in interest rates. These financial
instruments include loan commitments, standby letters of credit, forward
contracts for the delivery of mortgage-backed securities and interest rate swap
agreements. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
United's maximum exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for the loan commitments and standby
letters of credit is the contractual or notional amount of those instruments.
United uses the same policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary upon the extension of credit, is based on management's credit
evaluation of the counterparty. United had approximately $340,338,000 and
$271,738,000 of loan commitments outstanding as of December 31, 1996 and 1995,
respectively, substantially all of which expire within one year.
Standby letters of credit are agreements used by United's customers as a means
of improving their credit standing in their dealings with others. Under these
agreements, United guarantees certain financial commitments of its customers.
United has issued standby letters of credit of $22,081,000 and $17,047,000 as of
December 31, 1996 and 1995, respectively.
United enters into hedging transactions to offset the risk that a change in
interest rates will result in a decrease in the value of United's current
mortgage loan inventory or its commitments to originate mortgage loans (the
"pipeline"). The pipeline is analyzed on a loan-by-loan basis to estimate the
exposure to loss based on the market price, commitment price and time to
expiration. The risk of loss is then matched with the appropriate hedge
vehicle. United primarily utilizes forward contracts for the delivery of
mortgage-backed securities as hedge vehicles. United's policies generally
require that it hedge substantially all of its inventory of conforming and
government loans and the maximum portion of its pipeline that may close. The
mortgage-backed securities that are to be delivered under these contracts are
fixed or adjustable-rate, corresponding with the composition of United's
inventory and pipeline. The correlation between the price performance of the
hedge vehicles and the inventory being hedged is very high due to the similarity
of the asset and the related hedge vehicle. At December 31, 1996, United had
open commitments amounting to approximately $6,000,000 to sell mortgage-
114
NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES - continued
backed securities with varying settlement dates generally not extending beyond
March 1997. As such, United is not exposed to significant risk nor will it
derive any significant benefit from changes in interest rates on the price of
the mortgage loan inventory, net of gains or losses of associated hedge
positions.
In 1994 United entered into an interest rate swap agreement to manage its
interest rate exposure. The interest rate swap transaction involves the
exchange of a floating rate payment based on the one month London inter-bank
offered rate (LIBOR) for a fixed rate receipt based on the U. S. three year
treasury note. The net pay and receive amount is calculated on an underlying
notional amount without the exchange of the underlying principal amount. The
interest rate swap subjects United to market risk associated with changes in
interest rates, as well as the risk that the counterparty will fail to perform.
Only the interest payments are exchanged, and therefore, cash requirements and
exposure to credit risk are significantly less than the notional amount.
The notional amount shown below represents an agreed-upon amount on which
calculations of amounts to be exchanged are based. It does not represent direct
credit exposure. United's credit exposure is limited to the net difference
between the calculated pay and receive amounts on the transaction which is
netted monthly.
The swap, which closes in February 1997, is summarized as follows:
Notional value $50,000,000
Average receive rate during 1996 4.50%
Average pay rate during 1996 5.46%
During 1996, 1995 and 1994 the interest rate swap reduced interest income by
$526,000, $787,000 and $1,000,respectively. At December 31, 1996, the estimated
unrealized loss on the swap, which may reduce interest income in future periods,
approximated $51,000.
Management does not anticipate any material losses as a result of these loan
commitments, standby letters of credit, forward contracts for the delivery of
mortgage-backed securities and interest rate swap agreements.
In the normal course of business, United and its subsidiaries are currently
involved in various legal proceedings. Management is vigorously pursuing all
its legal and factual defenses and, after consultation with legal counsel,
believes that all such litigation will be resolved with no material effect on
United's financial position or results of operations.
115
NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Condensed Balance Sheets
December 31
----------------------------
1996 1995
------------- -------------
Assets
Cash $ 12,958,000 $ 13,778,000
Securities available for sale 10,813,000 12,216,000
Securities held to maturity 1,520,000 677,000
Investment in subsidiaries:
Bank subsidiaries 238,902,000 226,705,000
Non-bank subsidiaries 1,264,000 1,223,000
Other assets 272,000 189,000
------------ ------------
Total Assets $265,729,000 $254,788,000
============ ============
Liabilities and Shareholders' Equity
Accrued expenses and other liabilities $ 7,215,000 $ 5,554,000
Shareholders' equity (including a net unrealized holding gain
of $954,000 and $1,409,000 on securities available for sale at
December 31, 1996 and 1995, respectively) 258,514,000 249,234,000
------------ ------------
Total Liabilities and Shareholders' Equity $265,729,000 $254,788,000
============ ============
Condensed Statements of Income
Year Ended December 31
-----------------------------------------
1996 1995 1994
----------- ------------ ------------
Income
Dividends from bank subsidiaries $17,847,000 $ 26,496,000 $ 17,525,000
Management fees:
Bank subsidiaries 3,467,000 3,018,000 2,226,000
Non-bank subsidiaries 12,000 12,000 12,000
Other Income 557,000 268,000 238,000
----------- ------------ ------------
Total Income 21,883,000 29,794,000 20,001,000
Expenses
Operating expenses 4,725,000 4,606,000 3,072,000
----------- ------------ ------------
Income Before Income Taxes and Equity in
Undistributed Net Income of Subsidiaries 17,158,000 25,188,000 16,929,000
Applicable income tax benefit (12,000) (269,000) (113,000)
----------- ------------ ------------
Income Before Equity in Undistributed Net
Income of Subsidiaries 17,170,000 25,457,000 17,042,000
Equity in undistributed net income of subsidiaries
Bank subsidiaries 13,302,000 7,349,000 13,316,000
Non-bank subsidiaries 40,000 11,000 26,000
----------- ------------ ------------
Net Income $30,512,000 $ 32,817,000 $ 30,384,000
=========== ============ ============
116
NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION - continued
Condensed Statements of Cash Flows
Year Ended December 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
Operating Activities
Net income $ 30,512,000 $ 32,817,000 $ 30,384,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of subsidiaries (13,342,000) (7,360,000) (13,342,000)
Depreciation and net amortization 26,000 33,000 59,000
Net gain on sales of investment securities (24,000) (107,000)
Gain on sale of bank premises and equipment (49,000)
Net change in other assets and liabilities (106,000) 790,000 97,000
------------ ------------ ------------
Net Cash Provided By Operating Activities 17,066,000 26,280,000 17,042,000
------------ ------------ ------------
Investing Activities
Net sales of investment securities 123,000
Net purchases of securities available for sale 1,585,000 (8,439,000) (1,171,000)
Increase in investment in subsidiaries (2,400,000)
Cash paid in acquisition of subsidiary (5,280,000)
Proceeds from sale of bank premises and equipment 125,000
------------ ------------ ------------
Net Cash Provided By (Used In) Investing Activities 1,585,000 (16,119,000) (923,000)
------------ ------------ ------------
Financing Activities
Cash dividends paid (16,541,000) (10,273,000) (12,604,000)
Pre-merger dividends of pooled company (382,000) (2,729,000) (2,757,000)
Acquisition of treasury stock (3,395,000) (1,273,000) (3,536,000)
Purchase of fractional shares (4,000)
Proceeds from exercise of stock options 851,000 666,000 455,000
------------ ------------ ------------
Net Cash Used In Financing Activities (19,471,000) (13,609,000) (18,442,000)
------------ ------------ ------------
Decrease in Cash (820,000) (3,448,000) (2,323,000)
Cash and Cash Equivalents at Beginning of Year 13,778,000 17,226,000 19,549,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $12,958,000 $13,778,000 $17,226,000
============= ============= ============
117
NOTE L--OTHER INCOME AND EXPENSE
The following details certain items of other income and expense for the periods
indicated:
Year Ended December 31
------------------------------------
1996 1995 1994
----------- ---------- -----------
Other income:
- -------------
Service charges and
fees on deposits $8,014,000 $7,063,000 $6,991,000
Bankcard 2,048,000 1,739,000 1,011,000
Net (loss) income from mortgage
banking operations (431,000) 1,012,000 121,000
Loss on sales of investment securities (98,000) (872,000)
Other income 234,000 927,000 861,000
Other expense:
- --------------
Data processing $2,974,000 $2,548,000 $2,740,000
FDIC insurance expense 2,986,000 2,364,000 3,839,000
Legal and consulting 2,138,000 2,595,000 1,142,000
Advertising 2,173,000 1,747,000 1,545,000
Goodwill amortization 1,915,000 1,551,000 1,488,000
Equipment expense 3,191,000 3,021,000 3,121,000
NOTE M--REGULATORY MATTERS
The subsidiary banks are required to maintain average reserve balances with
their respective Federal Reserve Bank. The average amount of those reserve
balances for the year ended December 31, 1996 was approximately $24,414,000.
The primary source of funds for the dividends paid by United Bankshares, Inc. is
dividends received from its subsidiary banks. Dividends paid by United's
subsidiary banks are subject to regulatory limitations. Generally, the most
restrictive provision requires regulatory approval if dividends declared in any
year exceed the year's net income, as defined, plus the retained net profits of
the two preceding years.
During 1997, the retained net profits available for distribution to United
Bankshares, Inc., as dividends without regulatory approval, are approximately
$20,700,000, plus net income for the interim period through the date of
declaration.
Under Federal Reserve regulation, the banking subsidiaries are also limited as
to the amount they may loan to affiliates, including the parent company. Loans
from the banking subsidiaries to the parent company are limited to 10% of the
banking subsidiaries' capital, and surplus, as defined, or $10,000,000 at
December 31, 1996, and must be secured by qualifying collateral.
United's subsidiary banks are subject to various regulatory capital requirements
administered by federal banking agencies. Pursuant to capital adequacy
guidelines, United's subsidiary banks must meet specific capital guidelines that
involve quantitative measures of the banks' assets, liabilities, and certain
off-balance-sheet items as cal-
118
NOTE M--REGULATORY MATTERS - continued
culated under regulatory accounting practices. United's subsidiary banks'
capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require United to maintain minimum amounts and ratios of total and Tier I
capital, as defined in the regulations, to risk-weighted assets, as defined, and
of Tier I capital, as defined, to average assets, as defined. Management
believes, as of December 31, 1996, that United exceeds all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from its regulators,
United and its subsidiary banks were categorized as well capitalized. To be
categorized as well capitalized, United must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed United's category.
United's and United's lead bank's, United National Bank, capital amounts (in
thousands of dollars) and ratios are presented in the following table.
For Capital To Be Well
Actual Adequacy Purposes Capitalized
----------------- ----------------- --------------
Minimum Minimum
----------------- --------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- ------ ----- ------ -----
As of December 31, 1996:
- ---------------------------
Total Capital (to Risk-
Weighted Assets):
United Bankshares $263,759 16.5% $127,564 8.0% $159,455 10.0%
United National Bank 231,697 15.2% 122,000 8.0% 152,500 10.0%
Weighted Assets):
United Bankshares 243,827 15.3% 63,782 4.0% 95,673 6.0%
United National Bank 212,635 13.9% 61,000 4.0% 91,500 6.0%
Tier I Capital
(to Average Assets):
United Bankshares 243,827 10.8% 90,537 4.0% 113,171 5.0%
United National Bank 212,635 9.8% 86,902 4.0% 108,627 5.0%
As of December 31, 1995:
- ---------------------------
Total Capital ( to Risk-
Weighted Assets):
United Bankshares $247,125 16.8% $117,659 8.0% $147,074 10.0%
United National Bank 216,543 15.3% 113,397 8.0% 141,746 10.0%
Tier I Capital (to Risk-
Weighted Assets):
United Bankshares 228,741 15.6% 58,830 4.0% 88,244 6.0%
United National Bank 199,024 14.0% 56,698 4.0% 85,048 6.0%
Tier I Capital
(to Average Assets):
United Bankshares 228,741 10.6% 86,510 4.0% 108,138 5.0%
United National Bank 199,024 10.2% 77,700 4.0% 97,125 5.0%
119
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by United in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
- --------------------------
for cash and cash equivalents approximate those assets' fair values.
Securities: The estimated fair values of securities are based on quoted market
- -----------
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: The estimated fair values of variable-rate loans that reprice
- ------
frequently with no significant change in credit risk are based on carrying
values. The fair values of certain mortgage loans (e.g., one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
of other loans (e.g., commercial real estate and rental property mortgage loans,
commercial and industrial loans, financial institution loans, and agricultural
loans) are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit worthiness.
Off-Balance-Sheet Instruments: Fair values of United's loan commitments are
- ------------------------------
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing. The estimated fair values of these commitments approximate their
carrying values. The fair value of the interest rate swap agreement is
calculated with pricing models using current rate assumptions. The fair value
of forward contracts for the delivery of mortgage-backed securities in
connection with its mortgage banking activities is based upon quoted market
prices or prices of similar instruments when available.
Deposits: The fair values of demand deposits (e.g., interest and non-interest
- ---------
checking, regular savings and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate their fair values
at the reporting date. Fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term Borrowings: The carrying amounts of federal funds purchased,
- ----------------------
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
120
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued
Federal Home Loan Bank Borrowings: The fair values of United's Federal Home
- ----------------------------------
Loan Bank borrowings are estimated using discounted cash flow analyses, based on
United's current incremental borrowing rates for similar types of borrowing
arrangements
The estimated fair values of United's financial instruments are summarized
below:
December 31, 1996 December 31, 1995
----------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------ ---------------- --------------
Cash and cash equivalents $ 89,520,000 $ 89,520,000 $ 98,977,000 $ 98,977,000
Securities available for sale 161,629,000 161,629,000 199,130,000 199,130,000
Securities held to maturity 170,702,000 173,505,000 121,889,000 123,579,000
Loans 1,825,322,000 1,835,619,000 1,710,441,000 1,733,332,000
Deposits 1,827,554,000 1,827,609,000 1,774,599,000 1,779,824,000
Short-term borrowings 75,582,000 75,582,000 82,167,000 82,167,000
FHLB borrowings 132,631,000 132,553,000 75,497,000 75,447,000
December 31, 1996 December 31, 1995
----------------------------- --------------------------------
Notional Fair Notional Fair
Amount Value Amount Value
------------------------------ ---------------- --------------
Off-Balance-Sheet:
- ---------------------------------------------------------
Interest rate swap agreement $ 50,000,000 $ 50,051,000 $ 50,000,000 $ 50,738,000
Forward contracts related to
mortgage banking operations 6,000,000 6,022,000
121
NOTE O - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1996 and 1995 is summarized below (dollars in
thousands except for per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ------------ ----------- -----------
1996
- ----
Interest income $42,188 $41,527 $44,609 $44,034
Interest expense 17,697 17,436 18,865 19,187
Net interest income 24,491 24,091 25,744 24,847
Provision for possible loan losses 611 949 600 450
Gain (loss) on sales of loans, net 58 (1,963) 802 672
Other noninterest income 3,523 3,691 3,753 3,653
Noninterest expense 14,812 18,192 16,540 14,005
Income taxes (1) 4,560 5,414 1,936 4,781
Net income 8,089 1,264 11,223 9,936
Per share data:
- ---------------
Average shares outstanding (000s) 15,218 15,223 15,229 15,240
Net income per share $ 0.53 $ 0.08 $ 0.74 $ 0.65
Dividends per share $ 0.30 $ 0.31 $ 0.31 $ 0.32
1995
- ----
Interest income $40,732 $41,361 $41,354 $42,368
Interest expense 16,684 17,717 17,604 18,162
Net interest income 24,048 23,644 23,750 24,206
Provision for possible loan losses 520 535 680 585
Gain on sales of loans, net 34 288 638 52
Other noninterest income 3,401 3,495 3,441 3,403
Noninterest expense 14,600 14,072 13,582 15,227
Income taxes 4,198 4,372 4,866 4,346
Net income 8,165 8,448 8,701 7,503
Per share data:
- ---------------
Average shares outstanding (000s) 14,948 14,945 15,069 15,082
Net income per share $ 0.55 $ 0.56 $ 0.58 $ 0.50
Dividends per share $ 0.29 $ 0.29 $ 0.29 $ 0.30
(1) In the second quarter of 1996, United recorded additional income tax expense
of $3,086 due to the recapture of Eagle's bad debt reserve into taxable
income. However, as a result of legislation enacted during the third quarter
of 1996, United was relieved of the liability.
122