SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended SEPTEMBER 30, 1995
Commission File Number: 0-13322
UNITED BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
WEST VIRGINIA 55-0641179
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 UNITED CENTER
500 VIRGINIA STREET, EAST
CHARLESTON, WEST VIRGINIA 25301
(Address of Principal Executive Offices) Zip Code
Registrant's Telephone Number,
including Area Code: (304) 424-8761
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class--Common Stock, $2.50 Par Value; 11,954,451 shares outstanding as of
OCTOBER 31, 1995.
1
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
September 30, 1995 and December 31, 1994 ....................6
Consolidated Statements of Income (Unaudited) for the Three
Months and Nine Months Ended September 30, 1995 and 1994 ....7
Consolidated Statement of Changes in Shareholders'
Equity (Unaudited) for the Nine Months Ended
September 30, 1995 ..........................................8
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1995 and 1994 .......9
Notes to Consolidated Financial Statements .................10
Information required by Item 303 of Regulation S-K
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................21
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................Not Applicable
Item 2. Changes in Securities......................Not Applicable
Item 3. Defaults Upon Senior Securities ...........Not Applicable
2
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS--Continued
Page
Item 4. Submission of Matters to a
Vote of Security Holders..................Not Applicable
- -----------------------------------------------------------------
Item 5. Other Information ........................Not Applicable
- -----------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit 11 - Computation of Earnings Per Share.......32
Exhibit 27 - Financial Data Schedule.................33
(b) Reports on Form 8-K - On August 25, 1995, United
Bankshares, Inc., ("United") reported the signing of a
definitive Agreement and Plan of Merger dated August 18,
1995, (the "Agreement") with Eagle Bancorp, Inc.,
Charleston, West Virginia, ("Eagle"), which sets forth
the terms and conditions under which Eagle would merge
with and into United (the "Merger"). The Agreement
provides that upon consummation of the Merger, which is
anticipated to be in the second quarter of 1996, each
outstanding share of common stock of Eagle (other than
any shares held by United other than in a fiduciary
capacity or in satisfaction of a debt previously
contracted) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be
converted into the right to receive 1.15 shares of United
common stock, plus the right to receive cash in lieu of
any fractional share without interest. The transaction
is intended to be a tax-free exchange and accounted for
under the pooling of interests method of accounting.
Consummation of the Merger is subject to approval of the
shareholders of United and Eagle and the receipt of all
required regulatory approvals, as well as other
customary conditions.
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED BANKSHARES, INC.
(Registrant)
Date November 13, 1995 /s/ Richard M. Adams
--------------------- ----------------------
Richard M. Adams, Chairman of
the Board and Chief Executive
Officer
Date November 13, 1995 /s/ Steven E. Wilson
--------------------- ---------------------
Steven E. Wilson, Executive
Vice President, Treasurer and
Chief Financial Officer
4
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The September 30, 1995 and December 31, 1994, consolidated balance sheets of
United Bankshares, Inc. and Subsidiaries, and the related consolidated
statements of income for the three months and nine months ended September 30,
1995 and 1994, and the related consolidated statement of changes in
shareholders' equity for the nine months ended September 30, 1995, and condensed
consolidated statements of cash flows for the nine months ended September 30,
1995 and 1994, and the notes to consolidated financial statements appear on the
following pages.
5
CONSOLIDATED BALANCE SHEETS(UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
September 30 December 31
1995 1994
-------------- --------------
ASSETS
Cash and due from banks $ 73,757,000 $ 82,763,000
Federal funds sold 12,425,000
-------------- --------------
Total cash and cash equivalents 86,182,000 82,763,000
-------------- --------------
Securities available for sale(at market) 102,771,000 118,037,000
Investment securities(market value-$221,130,000
at September 30, 1995 and $231,461,000 at
December 31, 1994) 221,313,000 242,846,000
Loans
Commercial, financial, and agricultural 205,445,000 208,491,000
Real estate:
Single family residential 549,621,000 527,434,000
Commercial 311,068,000 300,679,000
Construction 15,171,000 16,919,000
Other 13,915,000 14,706,000
Installment 228,081,000 233,866,000
-------------- -------------
1,323,301,000 1,302,095,000
Less: Unearned income (4,240,000) (5,018,000)
Allowance for loan losses (20,044,000) (20,008,000)
-------------- -------------
Net loans 1,299,017,000 1,277,069,000
-------------- -------------
Bank premises and equipment 29,646,000 30,769,000
Interest receivable 12,205,000 10,943,000
Other assets 22,155,000 25,214,000
-------------- --------------
TOTAL ASSETS $1,773,289,000 $1,787,641,000
============== ==============
LIABILITIES
Domestic deposits
Noninterest-bearing $ 224,666,000 $ 244,591,000
Interest-bearing 1,210,682,000 1,190,261,000
-------------- --------------
TOTAL DEPOSITS 1,435,348,000 1,434,852,000
Short-term borrowings
Federal funds purchased 10,294,000 4,582,000
Securities sold under agreements
to repurchase 81,857,000 67,227,000
Federal Home Loan Bank borrowings 33,900,000 83,972,000
Accrued expenses and other liabilities 20,597,000 17,262,000
-------------- --------------
TOTAL LIABILITIES 1,581,996,000 1,607,895,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized-20,000,000 shares; issued and outstanding-11,954,451 at
September 30, 1995 and December 31, 1994, including 138,270 and
137,520 shares in treasury at September 30, 1995
and December 31, 1994, respectively 29,886,000 29,886,000
Surplus 31,972,000 32,331,000
Retained earnings 132,170,000 121,318,000
Net unrealized holding gain (loss) on
securities available for sale 690,000 (443,000)
Treasury stock (3,425,000) (3,346,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 191,293,000 179,746,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,773,289,000 $1,787,641,000
============== ==============
See notes to consolidated financial statements.
6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ------------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
INTEREST INCOME
Interest and fees on loans $28,996,000 $25,661,000 $85,207,000 $72,296,000
Interest on federal funds sold 94,000 70,000 451,000 187,000
Interest and dividends on securities:
Taxable 4,338,000 4,656,000 13,378,000 14,141,000
Exempt from federal taxes 697,000 889,000 2,313,000 2,655,000
Other interest income 20,000 30,000 74,000 90,000
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME 34,145,000 31,306,000 101,423,000 89,369,000
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 12,421,000 9,638,000 35,718,000 28,490,000
Interest on short-term borrowings 964,000 740,000 2,817,000 1,810,000
Interest on long-term borrowings 493,000 712,000 2,019,000 1,710,000
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE 13,878,000 11,090,000 40,554,000 32,010,000
----------- ----------- ----------- -----------
NET INTEREST INCOME 20,267,000 20,216,000 60,869,000 57,359,000
PROVISION FOR POSSIBLE LOAN LOSSES 625,000 450,000 1,550,000 1,368,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 19,642,000 19,766,000 59,319,000 55,991,000
----------- ----------- ----------- -----------
OTHER INCOME
Trust department income 662,000 617,000 2,235,000 2,152,000
Other charges, commissions, and fees 2,400,000 2,157,000 6,884,000 6,314,000
Other income 93,000 108,000 390,000 458,000
Investment securities gains 152,000
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 3,155,000 2,882,000 9,509,000 9,076,000
----------- ----------- ----------- -----------
OTHER EXPENSES
Salaries and employee benefits 5,599,000 5,635,000 16,721,000 16,753,000
Net occupancy expense 1,325,000 1,178,000 3,795,000 3,516,000
Other expense 4,508,000 5,915,000 15,694,000 16,014,000
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSES 11,432,000 12,728,000 36,210,000 36,283,000
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 11,365,000 9,920,000 32,618,000 28,784,000
INCOME TAXES 4,178,000 3,478,000 11,492,000 10,038,000
----------- ----------- ----------- -----------
NET INCOME $ 7,187,000 $ 6,442,000 $21,126,000 $18,746,000
=========== ========== =========== ===========
Earnings per common share $0.60 $0.54 $1.77 $1.57
Dividends per share $0.29 $0.27 $0.87 $0.79
Average outstanding shares 11,938,942 11,998,261 11,933,975 12,011,662
See notes to consolidated financial statements.
7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY(UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1995
NET
UNREALIZED
GAIN ON
COMMON STOCK SECURITIES TOTAL
PAR RETAINED AVAILABLE TREASURY SHAREHOLDERS'
SHARES VALUE SURPLUS EARNINGS FOR SALE STOCK EQUITY
---------- ----------- ----------- ------------ --------- ----------- ---------
BALANCE AT
JANUARY 1, 1995 11,954,451 $29,886,000 $32,331,000 $121,318,000 ($443,000) ($3,346,000) $179,746,000
Net Income 21,126,000 21,126,000
Cash Dividends
($.87 per Share) (10,274,000) (10,274,000)
Net Change in
Unrealized Gain/
(Loss) on Securities
Available for Sale 1,133,000 1,133,000
Purchase of Treasury
Stock (974,000) (974,000)
Common Stock Options
Exercised (359,000) 895,000 536,000
---------- ----------- ----------- ------- ---------- ----------- ------------
Balance at
September 30, 1995 11,954,451 $29,886,000 $31,972,000 $132,170,000 $690,000 ($3,425,000) $191,293,000
========== =========== =========== ============ ========== ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
----------- --------
Net Cash Provided by Operating Activities $ 24,587,000 $ 25,193,000
Investing Activities
Proceeds from Maturities and Calls of
Investment Securities 21,175,000 72,809,000
Purchase of Investment Securities (55,155,000)
Proceeds from Sales of Securities
Available for Sale 2,714,000
Proceeds from Maturities and Calls of
Securities Available for Sale 39,610,000 21,267,000
Purchase of Securities Available for Sale (21,079,000) (4,532,000)
Net Purchase of Bank Premises and Equipment (889,000) (2,165,000)
Changes in:
Loans (20,039,000) (80,455,000)
----------- ------------
Net Cash Provided by (Used in) Investing Activities 18,778,000 (45,517,000)
----------- ------------
Financing Activities
Cash Dividends Paid (10,274,000) (9,408,000)
Acquisition of Treasury Stock (974,000) (2,015,000)
Proceeds from Exercise of Stock Options 536,000 436,000
Repayment of Long-Term Borrowings (50,072,000)
Proceeds from Long-Term Borrowings 35,840,000
Changes in:
Deposits 496,000 9,709,000
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase 20,342,000 1,504,000
----------- ------------
Net Cash (Used in) Provided by Financing Activities (39,946,000) 36,066,000
----------- ------------
Increase in Cash and Cash Equivalents 3,419,000 15,742,000
Cash and Cash Equivalents at Beginning of Period 82,763,000 60,850,000
----------- ------------
Cash and Cash Equivalents at End of Period $ 86,182,000 $ 76,592,000
============ ============
See Notes to Consolidated Financial Statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
1. GENERAL
The accompanying unaudited consolidated interim financial statements of United
Bankshares, Inc. and Subsidiaries ("United") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the financial information does not contain all of the information
and footnotes required by generally accepted accounting principles. The
financial statements presented in this report have not been audited. The
accounting and reporting policies followed in the presentation of these
financial statements are consistent with those applied in the preparation of the
1994 annual report of United Bankshares, Inc. on Form 10-K. In the opinion of
management, adjustments necessary for a fair presentation of financial position
and results of operations for the interim periods have been made. Such
adjustments are of a normal and recurring nature.
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan, "(SFAS No.
114)" which was amended by Statement No. 118 and is effective for fiscal years
beginning after December 15, 1994. Under the new standard, the 1995 allowance
for credit losses related to loans that are identified for evaluation in
accordance with SFAS No. 114 is based on discounted cash flows using the loan's
initial effective interest rate or the fair value of the collateral for certain
collateral dependent loans. Prior to 1995, the allowance for credit losses
related to these loans was not based on discounted cash flows or the fair value
of the collateral for collateral dependent loans. The adoption of SFAS No. 114
did not have a material impact on the allowance for loan losses, recognition of
revenue, accounting policies or nonperforming assets.
2. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements include
the accounts of United and its wholly-owned subsidiaries, UBC
Holding Company, Inc. and its wholly-owned subsidiary, United
National Bank ("UNB"), United National Bank-South ("UNB-S"), UBF
Holding Company, Inc. and its wholly-owned subsidiary, Bank First,
N.A., and United Venture Fund, Inc. ("UVF"). All significant
intercompany accounts and transactions have been eliminated.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
3. ACQUISITIONS
On October 31, 1995, United acquired all of the outstanding stock of First
Commercial Bank of Arlington, Virginia, in a cash and common stock exchange
valued at approximately $11,360,000. The acquisition is being accounted for
under the purchase method of accounting. Accordingly, the results of operations
of First Commercial Bank will be included in the consolidated totals from the
date of acquisition. At October 31, 1995, First Commercial Bank had total assets
of approximately $57,249,000 and shareholders' equity of $5,624,000. The
acquisition of First Commercial Bank will not materially impact United's
financial position or results of operations.
4. PENDING MERGER
United has signed a merger agreement dated August 18, 1995, to merge with Eagle
Bancorp, Inc., Charleston, West Virginia ("Eagle"). Pursuant to such agreement,
United is to acquire all of Eagle's outstanding common shares by exchanging 1.15
shares of United common stock for each share of Eagle common stock. The
transaction is expected to be accounted for under the pooling of interests
method of accounting. It is anticipated that the proposed merger will be
consummated during the second quarter of 1996. The proposed merger is subject to
the approval of the shareholders of United and Eagle and the receipt of all
required regulatory approvals, as well as other customary conditions.
The following are unaudited pro forma selected balance sheet categories as of
September 30, 1995, and December 31, 1994, and results of operations for the
nine months ended September 30, 1995, and the year ended December 31, 1994,
giving effect to the merger as though it had occurred at the beginning of the
earliest period presented. The pro forma information provided below does not
purport to be indicative of balances and results that would have been obtained
if the combination had occurred during the periods presented or of balances or
results that may occur in the future.
September 30, 1995 December 31, 1994
------------------ -----------------
Net interest income $ 71,442,000 $ 91,965,000
Net income 25,314,000 30,384,000
Earnings per share $ 1.68 $ 2.01
Net loans $ 1,639,978,000 $ 1,629,971,000
Total assets 2,146,939,000 2,170,340,000
Total deposits 1,741,715,000 1,712,515,000
Shareholders' equity 239,503,000 225,634,000
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
5. SECURITIES AVAILABLE FOR SALE
The book and estimated fair value of securities available for sale at September
30, 1995, by contractual maturity are as follows:
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 54,502,000 $ 54,478,000
Due after one year through five years 35,583,000 35,996,000
Due after five years through ten years 870,000 872,000
Due after ten years 8,332,000 8,101,000
Marketable equity securities 2,424,000 3,324,000
------------ ------------
Total $101,711,000 $102,771,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
September 30, 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 $ 89,944,000 $ 476,000 $ 87,000 $ 90,333,000
Marketable equity
securities 2,424,000 949,000 49,000 3,324,000
Other 9,343,000 2,000 231,000 9,114,000
------------- ---------- ----------- -------------
Total $ 101,711,000 $1,427,000 $ 367,000 $ 102,771,000
============= ========== =========== =============
At September 30, 1995, the net unrealized gains on securities available for sale
increased shareholders' equity by $690,000.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
5. SECURITIES AVAILABLE FOR SALE - continued
The book and estimated fair value of securities available for sale at December
31, 1994, by contractual maturity are as follows:
Estimated
Book Fair
Value Value
----------- ------------
Due in one year or less $ 57,934,000 $ 57,655,000
Due after one year through five years 45,408,000 44,991,000
Due after five years through ten years 1,040,000 1,043,000
Due after ten years 12,808,000 12,551,000
Marketable equity securities 1,529,000 1,797,000
------------ ------------
Total $118,719,000 $118,037,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
December 31, 1994
-------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ------------ -------------- ---------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 103,292,000 $ 127,000 $ 774,000 $ 102,645,000
Marketable equity
securities 1,529,000 293,000 25,000 1,797,000
Other 13,898,000 2,000 305,000 13,595,000
------------- --------- ----------- -------------
Total $ 118,719,000 $ 422,000 $ 1,104,000 $ 118,037,000
============= ========= =========== =============
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
6. INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities are
summarized as follows:
September 30, 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 $ 83,732,000 $ 757,000 $ 820,000 $ 83,669,000
State and political
subdivisions 43,474,000 1,656,000 69,000 45,061,000
Mortgage-backed
securities 87,148,000 153,000 1,873,000 85,428,000
Other 6,959,000 14,000 1,000 6,972,000
------------ ----------- ----------- ------------
Total $221,313,000 $ 2,580,000 $ 2,763,000 $221,130,000
============ =========== =========== ============
December 31, 1994
--------------------------------------------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------- ------------ -----------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 84,843,000 $ 66,000 $ 3,438,000 $ 81,471,000
State and political
subdivisions 53,297,000 971,000 1,076,000 53,192,000
Mortgage-backed
securities 97,644,000 7,805,000 89,839,000
Other 7,062,000 103,000 6,959,000
------------ ----------- ----------- ------------
Total $242,846,000 $ 1,037,000 $12,422,000 $231,461,000
============ =========== =========== ============
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
6. INVESTMENT SECURITIES - continued
The amortized cost and estimated fair value of debt securities at September 30,
1995, and December 31, 1994, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers may have
the right to call or prepay obligations with or without call or prepayment
penalties. Maturities of the mortgage-backed securities are based upon the
estimated average life.
September 30, 1995
-------------------------------------------
Estimated
Book Fair
Value Value
------------ ------------
Due in one year or less $ 37,369,000 $ 37,486,000
Due after one year through
five years 107,259,000 107,523,000
Due after five years
through ten years 29,049,000 29,173,000
Due after ten years 47,636,000 46,948,000
------------ ------------
Total $221,313,000 $221,130,000
============ ============
The table above includes $87,148,000 of mortgage-backed securities with an
estimated market value of $85,428,000.
December 31, 1994
-----------------------------------------
Estimated
Book Fair
Value Value
------------ -------------
Due in one year or less $ 11,317,000 $ 11,406,000
Due after one year through
five years 140,685,000 136,281,000
Due after five years
through ten years 36,565,000 33,994,000
Due after ten years 54,279,000 49,780,000
------------- -------------
Total $ 242,846,000 $ 231,461,000
============= =============
The table above includes $97,644,000 of mortgage-backed securities with an
estimated market value of $89,839,000.
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
6. INVESTMENT SECURITIES - continued
In October 1995, the Financial Accounting Standards Board (FASB) approved a
one-time "holiday" from FAS 115 restrictions over held-to-maturity securities.
Companies will have a one-time opportunity to restructure their portfolios from
November 1 to December 31, 1995. Specifically, the FASB decided that companies
may sell or transfer securities from their held-to-maturity portfolio without
calling into question their intent to hold other debt securities to maturity in
the future or their past financial reporting. United has not yet completed its
analysis of the potential impact of the FAS 115 "holiday', however, United
intends to take advantage of the "holiday" if it will favorably impact its
interest rate risk management strategy.
7. NONPERFORMING LOANS
Nonperforming loans are summarized as follows:
September 30 December 31
1995 1994
-------------------------
(in thousands)
Loans past due 90 days or more
and still accruing interest $ 6,094 $ 2,303
Nonaccrual loans 3,594 3,733
------- -------
$ 9,688 $ 6,036
======= =======
8. ALLOWANCE FOR POSSIBLE LOAN LOSSES
A progression of the allowance for possible loan losses for the periods
presented is summarized as follows:
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ---------------------
1995 1994 1995 1994
------- -------- -------- -------
(in thousands)
Balance at beginning of period $20,079 $19,424 $20,008 $19,015
Provision charged to expense 625 450 1,550 1,368
------- ------- -------- --------
20,704 19,874 21,558 20,383
Loans charged-off (772) (303) (1,933) (1,157)
Less recoveries 112 428 419 773
------- ------- -------- --------
Net Charge-offs (660) 125 (1,514) (348)
------- ------- -------- --------
Balance at end of period $20,044 $19,999 $20,044 $19,999
======= ======= ======== ========
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan, "(SFAS No.
114). As a result of applying the new rules prescribed by SFAS No. 114, certain
loans are being reported at the present value of expected future cash flows
using the loan's effective interest rate, or as a practical expedient, at the
loan's observable market price or the fair value of the collateral if the loan
is collateral dependent. At the time of adoption of SFAS No. 114, United had
approximately $8,000,000 of loans which were considered impaired in accordance
with the guidelines prescribed by SFAS No. 114. Under SFAS No. 114, a loan is
considered impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due (contractual
interest and principal) according to the contractual terms of the loan
agreement. The adoption of SFAS No. 114 did not have a material impact on the
allowance for loan losses.
At September 30, 1995, the recorded investment in loans that are considered to
be impaired under SFAS No. 114 was $10,299,000 (of which $3,531,000 were on a
nonaccrual basis). Included in this amount is $6,168,000 of impaired loans for
which the related allowance for credit losses is $2,511,000 and $4,131,000 of
impaired loans that do not have an allowance for credit losses due to
management's estimate that the fair value of the underlying collateral of these
loans is sufficient for full repayment of the loan and interest. The average
recorded investment in impaired loans during the quarter ended September 30,
1995 was approximately $9,973,000. For the nine months ended September 30, 1995,
United recognized interest income on those impaired loans of approximately
$465,000, substantially all of which was recognized using the accrual method of
income recognition.
9. COMMITMENTS AND CONTINGENT LIABILITIES
There are outstanding commitments which include, among other things, commitments
to extend credit and letters of credit undertaken in the normal course of
business. Outstanding standby letters of credit amounted to approximately
$14,866,000 and $15,022,000 at September 30, 1995 and December 31, 1994,
respectively.
United and its subsidiaries are currently involved, in the normal course of
business, in various legal proceedings. Management is vigorously pursuing all of
its legal and factual defenses and, after consultation with legal counsel,
believes that all such litigation will be resolved without material effect on
financial position or results of operations.
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
10. ACCOUNTING CHANGES
During 1995, the FASB issued Statement No. 122, an Amendment to
Statement No. 65, ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. United
is not currently engaged in significant mortgage banking activities
and does not originate or acquire loans for resale. Accordingly,
Statement No. 122 will not have a significant impact on United's
financial statements.
In October 1995, the FASB issued Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. Statement No. 123 defines a fair value
based method of accounting for an employee stock option or similar
equity instrument or allows an entity to continue to measure the
compensation cost using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, Accounting for Stock
Issued to Employees. Statement No. 123 is effective for
transactions entered into in fiscal years that begin after December
15, 1995.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation is the excess, if any, of the quoted market price of the stock at
grant date or other measurement date over the amount an employee must pay to
acquire the stock. United maintains a fixed stock option plan and such options
have no intrinsic value at the grant date, and under Opinion 25 no compensation
cost is recognized for them.
As permitted by Statement No. 123, United has elected to continue accounting for
stock-based compensation under Opinion 25, and accordingly, will make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined in Statement 123 had been applied.
18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
11. EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three month periods ended September
30, 1995, and September 30, 1994, with the interest rate earned or paid on
such amount.
Three Months Ended Three Months Ended
September 30 September 30
1995 1994
------------------------- -------------------------------
(Dollars in Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets
Earning Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to
Resell and Other Short-Term
Investments $ 6,371 $ 93 5.78% $ 5,909 $ 70 4.70%
Investment Securities:
Taxable 280,420 4,349 6.20% 339,531 4,686 5.52%
Tax-Exempt (1) 44,159 1,087 9.85% 54,112 1,388 10.26%
---------- ------- ------ ---------- ------- ------
Total Securities 324,579 5,436 6.70% 393,643 6,074 6.17%
---------- ------- ------ ---------- ------- ------
Loans, Net of Unearned
Income (1) (2) 1,315,856 29,306 8.84% 1,241,592 25,940 8.29%
Allowance for Possible Loan
Losses (19,896) (19,774)
---------- ----------
Net Loans 1,295,960 8.97% 1,221,818 8.42%
---------- ------- ------ ---------- ------- ------
Total Earning Assets 1,626,910 $34,835 8.51% 1,621,370 $32,084 7.86%
------- ------ ------- ------
Other Assets 133,778 139,424
---------- ----------
Total Assets $1,760,688 $1,760,794
========== ==========
Liabilities
Interest-Bearing Funds:
Interest-Bearing Deposits $1,212,350 $12,421 4.06% $1,196,340 $9,638 3.20%
Federal Funds Purchased,
Repurchase Agreements and
Other Short-Term Borrowings 84,310 967 4.55% 82,805 740 3.55%
FHLB Advances 33,900 490 5.73% 54,003 712 5.23%
---------- ------- ------ ---------- ------- ------
Total Interest-Bearing Funds 1,330,560 13,878 4.14% 1,333,148 11,090 3.30%
------- ------ ------- ------
Demand Deposits 217,919 232,148
Accrued Expenses and Other
Liabilities 21,091 15,860
---------- ----------
Total Liabilities 1,569,570 1,581,156
Shareholders' Equity 191,118 179,638
---------- ----------
Total Liabilities and
Shareholders' Equity $1,760,688 $1,760,794
========== ==========
Net Interest Income $20,957 $20,994
======= =======
Interest Spread 4.37% 4.56%
Net Interest Margin 5.12% 5.15%
(1) THE INTEREST INCOME AND THE YIELDS ON NONTAXABLE LOANS AND
INVESTMENT SECURITIES ARE PRESENTED ON A TAX-EQUIVALENT BASIS
USING THE STATUTORY FEDERAL INCOME TAX RATE OF 35%.
(2) NONACCRUING LOANS ARE INCLUDED IN THE DAILY AVERAGE LOAN AMOUNTS
OUTSTANDING.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
UNITED BANKSHARES, INC. AND SUBSIDIARIES
11. EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table shows the daily average balance of major categories of
assets and liabilities for each of the nine month periods ended September
30, 1995, and September 30, 1994, with the interest rate earned or paid on
such amount.
Nine Months Ended Nine Months Ended
September 30 September 30
1995 1994
---------------------------------- -------------------------------------
(Dollars in Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets
Earning Assets:
Federal Funds Sold and Securities
Purchased Under Agreements to
Resell and Other Short-Term
Investments $ 9,880 $ 451 6.10% $ 6,492 $ 187 3.85%
Investment Securities:
Taxable 290,700 13,423 6.16% 349,564 14,231 5.43%
Tax-Exempt (1) 48,475 3,604 9.91% 53,140 4,103 10.29%
---------- ------- ------ ---------- ------- ------
Total Securities 339,175 17,027 6.69% 402,704 18,334 6.07%
---------- ------- ------ ---------- ------- ------
Loans, Net of Unearned
Income (1) (2) 1,307,565 86,129 8.81% 1,217,003 73,171 8.04%
Allowance for Possible Loan
Losses (20,086) (19,431)
---------- ----------
Net Loans 1,287,479 8.94% 1,197,572 8.17%
---------- ------- ------ ---------- ------- ------
Total Earning Assets 1,636,534 103,607 8.46% 1,606,768 $91,692 7.63%
------- ------ ------- ------
Other Assets 134,473 137,607
---------- ----------
Total Assets $1,771,007 $1,744,375
========== ==========
Liabilities
Interest-Bearing Funds:
Interest-Bearing Deposits $1,217,435 $35,718 3.92% $1,198,957 $28,490 3.18%
Federal Funds Purchased,
Repurchase Agreements and
Other Short-Term Borrowings 81,897 2,830 4.62% 78,969 1,810 3.06%
FHLB Advances 43,452 2,006 6.17% 44,577 1,710 5.13%
---------- ------- ------ ---------- ------- ------
Total Interest-Bearing Funds 1,342,784 40,554 4.04% 1,322,503 32,010 3.24%
------- ------ ------- ------
Demand Deposits 220,419 228,996
Accrued Expenses and Other
Liabilities 20,756 15,586
---------- ----------
Total Liabilities 1,583,959 1,567,085
Shareholders' Equity 187,048 177,290
---------- ----------
Total Liabilities and
Shareholders' Equity $1,771,007 $1,744,375
========== ==========
Net Interest Income $63,053 $59,682
======= =======
Interest Spread 4.42% 4.39%
Net Interest Margin 5.15% 4.96%
(1) THE INTEREST INCOME AND THE YIELDS ON NONTAXABLE LOANS AND
INVESTMENT SECURITIES ARE PRESENTED ON A TAX-EQUIVALENT BASIS
USING THE STATUTORY FEDERAL INCOME TAX RATE OF 35%.
(2) NONACCRUING LOANS ARE INCLUDED IN THE DAILY AVERAGE LOAN AMOUNTS
OUTSTANDING.
20
UNITED BANKSHARES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
United Bankshares, Inc. ("United") is a multi-bank holding company.
United's wholly-owned banking subsidiaries include UBC Holding
Company, Inc. and its wholly-owned subsidiary, United National Bank
("UNB"), United National Bank-South ("UNB-S") and UBF Holding
Company, Inc. with its wholly-owned banking subsidiary, Bank First,
N.A.("Bank First"). United also owns all of the stock of United
Venture Fund, Inc. ("UVF"). UVF is a West Virginia Capital Company
formed to make loans and equity investments in qualified companies
under the West Virginia Capital Company Act and to promote economic
welfare and development in the State of West Virginia.
United is a registered bank holding company subject to the supervision of and
examination by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. Its present business is the operation of its wholly-owned
subsidiaries.
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and analysis should be read in
conjunction with the unaudited financial statements and accompanying notes
thereto which are included elsewhere in this document. All references to United
in this discussion and analysis are considered to refer to United and its
wholly-owned subsidiaries, unless otherwise indicated.
EARNINGS SUMMARY
Net income for the third quarter of 1995 was a record $7.19 million or $.60 per
share compared to $6.44 million or $.54 per share for the third quarter of 1994.
This represents an 11.80% increase in net income and an 11.11% increase in
earnings per share. Net income per share for the first nine months of 1995 was
$1.77, or a 12.74% increase over $1.57 for the first nine months of 1994. Net
income for the first nine months of 1995 was a record $21.13 million, which is a
12.69% increase over the $18.75 million earned in the same period of 1994.
United's annualized return on average assets of 1.59% and return on average
shareholders' equity of 15.10% are both near the top of its regional and
national peer groups.
21
United has strong core earnings driven by a net interest margin of 5.15% for the
first nine months of 1995. Net interest income increased 6.12% and remained
strong while showing improvement when compared to the same period for 1994. The
provision for possible loan losses increased only slightly when comparing the
first nine months of 1995 to the first nine months of 1994 due to continued
excellent asset quality and low charge-offs. Noninterest income increased 9.47%
and 4.77% for the third quarter and first nine months of 1995, respectively,
when compared to the same periods of 1994. This overall increase in noninterest
income is primarily attributed to an increase in trust commissions and other
charges. Noninterest expenses decreased 10.18% for the third quarter compared to
the third quarter of 1994 and remained level for the first nine months of 1995
when compared to the first nine months of 1994. With increased merger and
reengineering expenses, management's cost containment efforts have continued to
be successful in controlling core noninterest expenses.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
NET INTEREST INCOME
Net interest income strengthened and improved in the third quarter and first
nine months of 1995, when compared to the same period of 1994. The net interest
margin is the key factor in United's profitability momentum. Net interest income
before the provision for possible loan losses increased $51,000 or 0.25% and
$3,510,000 or 6.12% for the third quarter and first nine months of 1995 as
compared to the third quarter and first nine months of 1994, respectively. The
increase is largely due to increased loan volumes and the repricing of variable
rate loans at higher interest rates. United's tax-equivalent net interest margin
decreased from 5.15% in the third quarter of 1994 to 5.12% in the third quarter
of 1995. However, the margin increased from 4.96% to 5.15% when comparing the
first nine months of 1994 to the same period of 1995. Additionally, the net
interest margin showed an improvement over that achieved for the year ended
December 31, 1994 of 4.97%. The modestly improved net interest spread helped
United generate a stronger interest margin.
PROVISION FOR POSSIBLE LOAN LOSSES
For the quarters ended September 30, 1995 and 1994, the provision for possible
loan losses was $625,000 and $450,000, respectively, while the first nine months
total provisions were $1,550,000 for 1995 as compared to $1,368,000 for 1994.
The allowance for possible loan losses as a percentage of loans, net of unearned
income, was 1.54% at September 30, 1995, and December 31, 1994, as compared to
1.61% at September 30, 1994.
22
Credit quality is another major factor in United's superior profitability.
United's continued good credit quality is evidenced by the low level of
nonperforming assets at the end of the third quarter of 1995. Charge-offs
exceeded recoveries during the third quarter of 1995 resulting in net
charge-offs of $660,000. Net charge-offs during the first nine months of 1995
and 1994 were $1,514,000 and $384,000, respectively. Note 6 to the accompanying
Unaudited Consolidated Financial Statements provides a progression of the
allowance for possible loan losses. Loans, net of unearned income, increased
$4,109,000 during the third quarter of 1995 and have increased $21,984,000 since
year end 1994. In the first nine months of 1995, management made only a modest
increase to the allowance for loan losses due to: (i) the continued high credit
quality; (ii) the adequacy of the coverage ratio of nonperforming loans; and
(iii) the allowance as a percentage of loans is at a strong level and closer to
national peer group levels.
Nonperforming loans were $9,688,000 at September 30, 1995 and $6,036,000 at
year-end 1994. Nonperforming loans, as a percentage of loans, net of unearned
income, increased from 0.47% to 0.73% respectively. The components of
nonperforming loans include nonaccrual loans and loans which are contractually
past due 90 days or more as to interest or principal, but have not been put on a
nonaccrual basis. Loans past due 90 days or more increased $3,791,000 or 164.61%
during the first nine months of 1995 due to four large credits becoming
delinquent. United is currently negotiating workout terms with the borrowers and
will closely monitor the ongoing status of them. Nonaccrual loans decreased
$139,000 or 3.72% since year-end 1994. Even with the increase in nonperforming
loans, total nonperforming assets represented only 0.55% of total assets at
September 30, 1995, which approximates only one-half of the national peer
levels.
As of September 30, 1995, the ratio of the allowance for loan losses to
nonperforming loans was 206.9% as compared to 331.5% as of December 31, 1994.
Management believes that the allowance for loan losses of $20,044,000 as of
September 30, 1995, is adequate to provide for potential losses on existing
loans based on information currently available.
United evaluates the adequacy of the allowance for possible loan losses on a
quarterly basis. The provision for loan losses charged to operations is based on
management's evaluation of individual credits, the past loan loss experience,
and other factors which, in management's judgment, deserve recognition in
estimating possible loan losses. 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. United's loan administration policies are focused upon the risk
characteristics of the loan portfolio, both in terms of loan approval and credit
quality.
23
OTHER INCOME
Other income consists of all revenues which are not included in interest and fee
income related to earning assets. Management's emphasis on improving noninterest
income continues. There was a modest increase realized in total noninterest
income for the third quarter and first nine months of 1995. As evidenced by the
Unaudited Condensed Consolidated Statement of Cash Flows included elsewhere
herein, the volume of securities sold was insignificant in both periods.
The slight increase in noninterest income was in the areas of trust income and
fees from customer accounts for which a fee is charged. Trust income increased
from the third quarter and first nine months of 1994 by 7.29% and 3.86%,
respectively. Fees from customer accounts for which a fee is charged represented
a $243,000 or 11.27% increase for the quarter and a $570,000 or 9.03% increase
for the first nine months of 1995 when compared to the same periods for 1994.
OTHER EXPENSES
Other expenses include all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. Other expenses decreased
$1,296,000 or 10.18% to $11,432,000 in the third quarter of 1995 as compared to
$12,728,000 for the third quarter of 1994. Other expenses were $36,210,000 for
the first nine months of 1995, which is nearly identical to the $36,283,000
recorded for the first nine months of 1994. The decrease for the third quarter
and first nine months of 1995 included an FDIC insurance premium rebate of
approximately $910,000 that was partially offset by increased merger expenses
related to the recently announced acquisitions of First Commercial Bank and
Eagle Bancorp, Inc. and expenses related to a reengineering study.
Total salaries and benefits remained virtually identical for the third quarter
and first nine months of 1995 when compared to the same periods of 1994 as
salaries and benefits expenses declined less than 1% for each of the respective
periods.
Net occupancy expense for the third quarter increased by $147,000 or 12.48% when
compared to the third quarter of 1994; the first nine months increased by
$279,000 or 7.94% when compared to the first nine months of 1994. This was
primarily due to a decrease in rental income on building office space and higher
utility and repair costs.
24
Other expenses decreased $1,407,000 or 23.79% for the third quarter of 1995 as
compared to the same period of 1994, and $320,000 or 2.00% for the first nine
months of 1995 when compared to the first nine months of 1994. A portion of the
decrease was attributable to the FDIC insurance premium rebate of approximately
$910,000. Increases in other expenses for the third quarter and nine month
period that related primarily to nonrecurring merger and reengineering expenses
partially offset the FDIC insurance premium rebate. Even allowing for the
reduction of noninterest expenses from the FDIC insurance rebate, other expenses
were still down 3.03% for the third quarter of 1995 and up only 3.68% for the
first nine months of 1995 when compared to the same periods of 1994 as
management's cost control efforts continue to be successful.
INCOME TAXES
Income tax expense for the three months ended September 30, 1995 and 1994 was
$4,178,000 and $3,478,000, respectively. Income tax expense for the nine months
ended September 30, 1995 and 1994 was $11,492,000 and $10,038,000, respectively.
These increases of 20.13% for the third quarter and 14.48% for the first nine
months are primarily the results of increased levels of pretax income and
decreased tax-exempt income. United's effective tax rate was 36.8% for the third
quarter of 1995 compared to 35.1% for the third quarter of 1994. The effective
tax rate for the first nine months of 1995 was 35.2% as compared to 34.9% for
the fist nine months of 1994.
Interest Rate Sensitivity
Interest sensitive assets and liabilities are defined as those assets or
liabilities that mature or reprice within a designated timeframe. The principal
function of asset and liability management is to maintain an appropriate
relationship between those assets and liabilities that are sensitive to changing
market interest rates. This relationship has become very important, given the
volatility in interest rates over the last several years, due to the potential
impact on earnings. United closely monitors the sensitivity of its assets and
liabilities on an on-going basis and projects the effect of various interest
rate changes on its net interest margin.
The difference between rate sensitive assets and rate sensitive liabilities for
specified periods of time is known as the "gap".
25
A primary objective of Asset/Liability Management is managing interest rate
risk. At United, interest rate risk is managed to maximize profitability while
at the same time to minimize the negative impact of fluctuating interest rates
on earnings. As shown in the interest rate sensitivity gap table contained
herein, United was liability sensitive (excess of liabilities over assets) in
the one year horizon. United, however, has not experienced the kind of earnings
volatility indicated from the cumulative gap. This is because a significant
portion of United's retail deposit base does not reprice on a contractual basis.
Management has estimated, based upon historical analyses, that regular savings
deposits are much 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 $93,508,000
or 5.65% of the cumulative gap to related earning assets.
The primary method of measuring the sensitivity of earnings to changing market
interest rates is to simulate expected cash flows using varying assumed interest
rates while also adjusting the timing and magnitude of non-contractual deposit
repricing to more accurately reflect anticipated pricing behavior. These
simulations include adjustments for the lag in prime loan repricing and the
spread and volume elasticity of interest-bearing deposit accounts, regular
savings and money market deposit accounts. To aid in interest rate management,
United's lead bank, UNB, is a member of the Federal Home Loan Bank of Pittsburgh
(FHLB). The use of FHLB advances provides United with a relatively low risk
means of matching earning assets and interest-bearing funds to achieve a desired
interest rate spread over the life of the earning assets.
Additionally, United uses certain off-balance-sheet instruments known as
interest rate swaps, to further aid in interest rate risk management. The use of
interest rate swaps is a cost effective means of synthetically altering the
repricing structure of balance sheet items. At September 30, 1995, the total
notional amount of United's one interest rate swap in effect was only $50
million with an estimated unrealized loss of $1,072,000. The current maturity of
the swap portfolio is one year and four months. During the third quarter of
1995, interest rate swaps reduced net interest income by $194,000 as compared to
a decrease of $99,000 for the same period in 1994. For the nine month period
ended September 30, 1995, interest rate swaps reduced net interest income by
$596,000 as compared to an increase of $60,000 for the same period in 1994.
26
LIQUIDITY AND CAPITAL RESOURCES
United maintains, in the opinion of management, liquidity which is sufficient to
satisfy its depositors' requirements and the credit needs of its customers. Like
all banks, United depends upon its ability to renew maturing deposits and other
liabilities on a daily basis and to acquire new funds in a variety of markets. A
significant source of funds available to United are "core deposits." Core
deposits include certain demand deposits, statement and special savings and NOW
accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase. Repurchase agreements represent
funds which are 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 and investments are
the primary sources of liquidity.
The goal of liquidity management is to ensure the ability to access funding
which enables United to efficiently satisfy the cash flow requirements of
depositors and borrowers and meet United's cash needs. Liquidity is managed by
monitoring funds availability from a number of primary sources. Substantial
funding is available from cash and cash equivalents, unused short-term
borrowings and a geographically dispersed network of subsidiary banks providing
access to a diversified and substantial retail deposit market.
Short-term needs can be met through a wide array of sources such as
correspondent and downstream correspondent federal funds and utilization of
Federal Home Loan Bank advances.
Other sources of liquidity available to United to provide long-term as well as
short-term funding alternatives, in addition to FHLB advances, are long-term
certificates of deposit, lines of credit, and borrowings secured by bank
premises or stock of United's subsidiaries. United has no intention at this time
to utilize any long-term funding sources other than FHLB advances and long-term
certificate of deposits.
27
For the nine months ended September 30, 1995, United generated $24,587,000 of
cash from operations, which is indicative of continued solid earnings
performance. During the same period, net cash of $18,778,000 was provided by
investing activities which was primarily due to the proceeds from maturities and
calls of securities not being reinvested into the investment portfolio. Net uses
of cash and cash equivalents during the first nine months were used by financing
activities totaling $39,946,000, which were largely comprised of repayments of
$50,072,000 of FHLB advances which were offset by increases in federal funds
purchased and securities sold under agreements to repurchase. The net effect of
this activity was an increase in cash and cash equivalents of $3,419,000 during
the first nine months of 1995.
United anticipates no difficulty in meeting its obligations over the next 12
months and has no material commitments for capital expenditures. There are no
known trends, demands, commitments, or events that will result in or that are
reasonably likely to result in United's liquidity increasing or decreasing in
any material way. United also has significant lines of credit available.
The Asset and Liability Committee monitors liquidity to ascertain that a strong
liquidity position is maintained. In addition, variable rate loans are a
priority. These policies help to protect net interest income against
fluctuations in interest rates. No changes are anticipated in the policies of
United's Asset and Liability Committee.
28
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of September
30, 1995:
INTEREST RATE SENSITIVITY GAP
Days Total 1 - 5 Over 5
----------------------------------------
0 - 90 91 - 180 181 - 365 One Year Years Years Total
------------ ----------- ---------- ---------- ---------- ------------ ----------
Assets (In Thousands)
Interest-Earning Assets:
Federal funds sold $ 12,425 $ 12,425 $ 12,425
Investment and Marketable
Equity Securities:
Taxable 71,555 $ 25,384 $ 15,347 112,286 $110,922 $ 57,402 280,610
Tax-exempt 4,248 996 4,752 9,996 14,188 19,290 43,474
Loans, net of unearned
income 468,599 67,023 115,400 651,022 512,193 155,846 1,319,061
--------- ---------- --------- --------- ---------- --------- -----------
Total Interest-Earning
Assets $ 556,827 $ 93,403 $135,499 $785,729 $637,303 $232,538 $1,655,570
========= ======== ======== ======== ======== ======== ==========
LIABILITIES
INTEREST-BEARING FUNDS:
Savings and NOW
accounts $ 606,144 $606,144 $ 606,144
Time deposits of
$100,000 & over 23,017 $ 14,401 $ 28,286 65,704 $ 29,777 95,481
Other time deposits 107,991 88,899 102,040 298,930 210,127 509,057
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 92,151 92,151 92,151
FHLB advances and
other long-term
borrowings 33,900 33,900 33,900
--------- ---------------------------------------- ---------- -------- ----------
Total Interest-Bearing
Funds $ 863,203 $ 103,300 $ 130,326 $1,096,829 $239,904 $1,336,733
========= ========== =========== ========== ======== ======== ==========
Interest Sensitivity
Gap $(303,376) $ (9,898) $ 5,174 $(311,100) $397,399 $232,538 $ 318,837
========= ============ ========== ========= ======== ======== ===========
Cumulative Gap $(303,376) $(316,274) $(311,100) $(311,100) $ 86,299 $318,837 $ 318,837
========= ========= ========= ========= ========= ======== ===========
Cumulative Gap as
a Percentage of Total
Earning Assets -18.51% -19.10% -18.79% -18.79% 5.21% 19.26% 19.26%
Management
Adjustments 563,714 (36,369) (72,737) 454,608 (454,608) 0
Off-Balance
Sheet Activities (50,000) (50,000) 50,000 0
--------- -------------- ----------- --------- --------- -------------- -------------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $207,338 $161,071 $ 93,508 $ 93,508 $ 86,299 $ 318,837 $318,837
======== ======== ========= ========= ========= ========= ========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 12.52% 9.73% 5.65% 5.65% 5.21% 19.26% 19.26%
29
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of December
31, 1994:
INTEREST RATE SENSITIVITY GAP
DAYS TOTAL 1 - 5 OVER 5
---------------------------------------
0 - 90 91 - 180 181 - 365 ONE YEAR YEARS YEARS TOTAL
------------ ----------- ---------- ---------- ---------- ------------ ----------
ASSETS (IN THOUSANDS)
INTEREST-EARNING ASSETS:
Investment and Marketable
Equity Securities:
Taxable $25,472 $10,673 $45,222 $81,367 $162,115 $64,782 $308,264
Tax-exempt 1,440 2,953 5,883 10,276 21,379 20,964 52,619
Loans, net of unearned
income 527,711 81,089 129,862 738,662 409,341 149,074 1,297,077
---------- ---------- ----------- ------------- ---------- ----------- ------------
Total Interest-Earning
Assets $554,623 $94,715 $180,967 $830,305 $592,835 $234,820 $1,657,960
========= ========== ========== ============ ========= =========== ===========
LIABILITIES
INTEREST-BEARING FUNDS:
Savings and NOW
accounts $658,187 $658,187 $658,187
Time deposits of
$100,000 & over 22,654 $13,875 $11,504 48,033 $27,565 75,598
Other time deposits 114,102 91,208 81,641 286,951 169,525 456,476
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 71,809 71,809 71,809
FHLB advances and
other long-term
borrowings 73,972 10,000 83,972 83,972
----------- ----------- --------------------------- -------------- --------------------------
Total Interest-Bearing
Funds $940,724 $115,083 $93,145 $1,148,952 $197,090 $1,346,042
========= ========= ========== =========== ========= ==========================
Interest Sensitivity
Gap $(386,101) $(20,368) $87,822 $(318,647) $395,745 $234,820 $311,918
========== =========== =========== ============ ========= =========== ============
Cumulative Gap $(386,101) $(406,469) $(318,647) $(318,647) $77,098 $311,918 $311,918
========== ========== ========== ============ ========== =========== ============
Cumulative Gap as
a Percentage of Total
Earning Assets -23.29% -24.52% -19.22% -19.22% 4.65% 18.81% 18.81%
Management
Adjustments 616,828 (41,121) (82,244) 493,463 (493,463) 0
Off-Balance
Sheet Activities (50,000) (50,000) 50,000 0
------------ ------------------------------------------ ------------ ---------------- -----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $180,727 $119,238 $124,816 $124,816 $77,098 $311,918 $311,918
========== ========= ========== ============ ========== ========== ============
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 10.90% 7.19% 7.53% 7.53% 4.65% 18.81% 18.81%
30
The dividends of $.29 per common share for the third quarter of 1995 and $.87
per common share for the nine month period ended September 30, 1995, represent
an increase of 7.41% and 10.13% over the third quarter and the first nine months
of 1994, respectively. Total cash dividends paid were $3,424,000 for the third
quarter and $10,274,000 for the first nine months of 1995, an increase of 6.60%
and 9.19% over the comparable periods in 1994.
United's risk-based capital ratios of 16.01% at September 30, 1995 and 15.52% at
December 31, 1994, are double and nearly double the current requirement of
8.00%, respectively. Total risk-based capital at September 30, 1995 and December
31, 1994 of $196,890,000 and $184,595,000, respectively, exceeded the regulatory
minimum requirement by $98,519,000 and $89,470,000, respectively. United's Tier
I capital ratios are comparable to its total risk-based capital ratios and are
well above regulatory minimum requirements.
As a bank holding company, United is permitted by Regulation Y of the Federal
Reserve Board, under certain circumstances, to purchase up to 10% of its common
stock as treasury stock without obtaining prior approval of the Federal Reserve
Board. Total treasury shares as of September 30, 1995, amounted to 138,270
shares at a cost of $3,425,000. It is management's intention to purchase
treasury stock whenever it is beneficial to United based on such factors as cash
dividends, timing and stock availability. United announced a new repurchase
program in July, 1995.
31