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, 1996
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; 15,157,640 shares outstanding as of
October 31, 1996.
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, 1996 and December 31, 1995 ....................................6
Consolidated Statements of Income (Unaudited) for the
Three and Nine Months Ended September 30, 1996 and 1995 .....................7
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) for the Nine Months Ended September 30, 1996 ....................8
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1996 and 1995 .......................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..................................20
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......................30
Exhibit 27 - Financial Data Schedule................................31
(b) Reports on Form 8-K - None
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED BANKSHARES, INC.
(Registrant)
Date November 14, 1996 /s/ Richard M. Adams
--------------------- -----------------------------
Richard M. Adams, Chairman of
the Board and Chief Executive
Officer
Date November 14, 1996 /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, 1996 and December 31, 1995, consolidated balance sheets of
United Bankshares, Inc. and Subsidiaries, and the related consolidated
statements of income for the three and nine months ended September 30, 1996 and
1995, and the related consolidated statement of changes in shareholders' equity
for the nine months ended September 30, 1996, and the related condensed
consolidated statements of cash flows for the nine months ended September 30,
1996 and 1995, and the notes to consolidated financial statements, all of which
have been restated to reflect the merger of Eagle Bancorp, Inc. on April 12,
1996, under the pooling of interests method of accounting, appear on the
following pages.
5
CONSOLIDATED BALANCE SHEETS(UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
September 30 December 31
1996 1995
-------------- --------------
ASSETS
Cash and due from banks $ 94,701,000 $ 85,864,000
Interest-bearing deposits with other banks 13,113,000
-------------- --------------
Total cash and cash equivalents 94,701,000 98,977,000
Securities available for sale at estimated
fair value (amortized cost-$170,081,000
at September 30, 1996 and $196,966,000 at
December 31, 1995) 170,435,000 199,130,000
Securities held to maturity(estimated fair
value -$174,658,000 at September 30, 1996
and $123,579,000 at December 31, 1995) 174,925,000 121,889,000
Loans
Commercial, financial, and agricultural 228,231,000 226,939,000
Real estate:
Single family residential 934,103,000 906,141,000
Commercial 347,689,000 334,791,000
Construction 38,134,000 26,225,000
Other 15,653,000 14,056,000
Installment 237,432,000 229,457,000
Loans held for sale at estimated fair value 5,262,000 345,000
-------------- --------------
1,806,504,000 1,737,954,000
Less: Unearned income (5,021,000) (4,968,000)
-------------- --------------
Loans, net of unearned income 1,801,483,000 1,732,986,000
Less: Allowance for loan losses (22,705,000) (22,545,000)
-------------- --------------
Net loans 1,778,778,000 1,710,441,000
Bank premises and equipment 33,799,000 34,766,000
Interest receivable 12,876,000 13,793,000
Other assets 33,756,000 31,234,000
-------------- --------------
TOTAL ASSETS $2,299,270,000 $2,210,230,000
============== ==============
LIABILITIES
Domestic deposits
Noninterest-bearing $ 252,205,000 $ 252,627,000
Interest-bearing 1,520,380,000 1,521,972,000
-------------- --------------
TOTAL DEPOSITS 1,772,585,000 1,774,599,000
Short-term borrowings
Federal funds purchased 22,318,000 26,378,000
Securities sold under agreements to repurchase 76,187,000 55,789,000
Federal Home Loan Bank borrowings 140,584,000 75,497,000
Accrued expenses and other liabilities 32,687,000 28,733,000
-------------- --------------
TOTAL LIABILITIES 2,044,361,000 1,960,996,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized-20,000,000 shares; issued and
outstanding-15,295,135 at September 30, 1996
and 15,295,275 at December 31, 1995, including
139,745 and 140,520 shares in treasury at
September 30, 1996 and December 31, 1995,
respectively 38,238,000 38,238,000
Surplus 41,601,000 41,861,000
Retained earnings 178,453,000 171,256,000
Net unrealized holding gain on securities
available for sale, net of deferred tax 230,000 1,409,000
Treasury stock (3,613,000) (3,530,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 254,909,000 249,234,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,299,270,000 $2,210,230,000
============== ==============
See notes to consolidated unaudited financial statements.
6
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
INTEREST INCOME
Interest and fees on loans $38,844,000 $35,831,000 $112,852,000 $106,151,000
Interest on federal funds sold 9,000 94,000 78,000 451,000
Interest and dividends on securities:
Taxable 5,166,000 4,547,000 13,388,000 14,069,000
Exempt from federal taxes 546,000 697,000 1,740,000 2,313,000
Other interest income 44,000 185,000 266,000 462,000
----------- ----------- ------------ -----------
TOTAL INTEREST INCOME 44,609,000 41,354,000 128,324,000 123,446,000
----------- ----------- ------------ ------------
INTEREST EXPENSE
Interest on deposits 15,921,000 16,001,000 47,464,000 45,948,000
Interest on short-term borrowings 970,000 964,000 2,795,000 2,817,000
Interest on Federal Home Loan
Bank borrowings 1,974,000 639,000 3,739,000 3,239,000
----------- ----------- ------------ ------------
TOTAL INTEREST EXPENSE 18,865,000 17,604,000 53,998,000 52,004,000
----------- ----------- ------------ ------------
NET INTEREST INCOME 25,744,000 23,750,000 74,326,000 71,442,000
PROVISION FOR POSSIBLE LOAN LOSSES 600,000 680,000 2,160,000 1,735,000
----------- ----------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 25,144,000 23,070,000 72,166,000 69,707,000
----------- ----------- ------------ ------------
OTHER INCOME
Trust department income 793,000 662,000 2,367,000 2,235,000
Other charges, commissions, and fees 2,898,000 2,582,000 8,334,000 7,399,000
Other income 112,000 197,000 364,000 702,000
Loss on sales of securities (50,000) (98,000)
Gain/(loss) on sales of loans 802,000 638,000 (1,103,000) 960,000
----------- ----------- ------------ ------------
TOTAL OTHER INCOME 4,555,000 4,079,000 9,864,000 11,296,000
----------- ----------- ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 7,236,000 6,536,000 22,077,000 19,530,000
Net occupancy expense 1,440,000 1,486,000 4,501,000 4,258,000
Other expense 7,864,000 5,560,000 22,966,000 18,465,000
----------- ----------- ------------ ------------
TOTAL OTHER EXPENSES 16,540,000 13,582,000 49,544,000 42,253,000
----------- ----------- ------------ ------------
INCOME BEFORE INCOME TAXES 13,159,000 13,567,000 32,486,000 38,750,000
INCOME TAXES 1,936,000 4,866,000 11,910,000 13,436,000
----------- ----------- ------------ ------------
NET INCOME $11,223,000 $ 8,701,000 $ 20,576,000 $ 25,314,000
=========== =========== ============ ============
Earnings per common share $0.74 $0.58 $1.35 $1.68
=========== =========== ============ ============
Dividends per share $0.31 $0.29 $0.92 $0.87
=========== =========== ============ ============
Average outstanding shares 15,229,497 15,071,576 15,227,962 15,048,569
=========== =========== ============ ============
See notes to consolidated unaudited financial statements.
7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Nine Months Ended September 30, 1996
----------------------------------------------------------------------------------------------------
Net
Unrealized
Holding
Gain/
Common Stock (Loss) on
------------------------- Securities Total
Par Retained Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
---------- ----------- ----------- ------------ ---------- ----------- -------------
Balance at
January 1, 1996 15,295,275 $38,238,000 $41,861,000 $171,256,000 $1,409,000 ($3,530,000) $249,234,000
Net income 20,576,000 20,576,000
Cash dividends
($.92 per share) (12,997,000) (12,997,000)
Cash dividends of
acquired banks (382,000) (382,000)
Net change in
unrealized gain
on securities
available for sale (1,179,000) (1,179,000)
Purchase of treasury
stock (829,000) (829,000)
Common stock options
exercised (257,000) 746,000 489,000
Fractional shares
adjustment (140) (3,000) (3,000)
---------- ----------- ----------- ------------ ---------- ----------- ------------
Balance at
September 30, 1996 15,295,135 $38,238,000 $41,601,000 $178,453,000 $ 230,000 ($3,613,000) $254,909,000
========== =========== =========== ============ ========== =========== ============
See notes to consolidated unaudited financial statements
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Nine Months Ended
September 30
1996 1995
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 55,556,000 $ 29,349,000
INVESTING ACTIVITIES
Proceeds from maturities and calls of
securities held to maturity 18,838,000 24,371,000
Proceeds from sales of securities
available for sale 79,748,000
Proceeds from maturities and calls of
securities available for sale 67,619,000 39,941,000
Purchases of securities available for sale (113,944,000) (24,490,000)
Purchases of securities held to maturity (78,135,000)
Proceeds from sales of loans 49,127,000
Net purchase of bank premises and equipment (1,543,000) (1,496,000)
Net change in loans (98,276,000) (57,221,000)
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (125,693,000) 30,232,000
------------ ------------
FINANCING ACTIVITIES
Cash dividends paid (12,997,000) (10,274,000)
Cash dividends paid by acquired banks (382,000) (1,965,000)
Acquisition of treasury stock (829,000) (974,000)
Proceeds from exercise of stock options 489,000 536,000
Proceeds from Federal Home Loan Bank advances 264,092,000 71,136,000
Repayment of Federal Home Loan Bank advances (199,005,000) (160,130,000)
Acquisition of fractional shares (3,000)
Changes in:
Deposits (1,842,000) 28,681,000
Federal funds purchased and securities
sold under agreements to repurchase 16,338,000 20,342,000
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 65,861,000 (52,648,000)
------------ -------------
(DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (4,276,000) 6,933,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 98,977,000 95,022,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 94,701,000 $101,955,000
============ ============
See notes to consolidated unaudited 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 statements do 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 1995 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.
Historically, United has not engaged in significant mortgage banking activities
and did not generally originate or acquire loans for resale. However, with the
merger of Eagle Bancorp, Inc. ("Eagle") and the formation of United Mortgage
Company, Inc., and its wholly-owned subsidiary, United Home Lending Services,
Inc., United has expanded mortgage banking activities. The business of United
Home Lending Services, Inc. is the origination and acquisition of residential
real estate loans for resale, the conducting of mortgage loan servicing
activities for certain loans, and, generally, the activities commonly conducted
by a mortgage banking company. Rights to service mortgage loans for others,
whether those rights were acquired through purchase or through origination are
recognized as separate assets upon subsequent sale of loans with servicing
rights retained. United allocates the total cost of the mortgage loans to the
mortgage servicing rights and the loans, based on their relative fair values, if
it is practicable to estimate those fair values. United periodically assesses
capitalized servicing rights for impairment based on the fair value of those
rights.
Eagle adopted Statement No. 122, "Accounting for Mortgage Servicing Rights"
(SFAS No. 122), an Amendment to Statement No. 65, "Accounting for Certain
Banking Activities," effective for its financial statements for the quarter
ended June 30, 1995. The impact of Eagle's adoption of SFAS No. 122 was an
increase in income before income taxes of approximately $412,000, representing
capitalization of servicing rights on the sale of mortgage loans.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
In June 1996, the FASB issued Statement No. 125, (SFAS No. 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which supersedes SFAS No. 76, "Extinguishment of Debt." 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, while prior rules emphasized the
economic risks or rewards of ownership of the assets. Additionally, SFAS No. 125
applies to repurchase agreements, securities lending, loan participations, and
other financial component transfers and exchanges. Under the financial
components approach of SFAS No. 125, both the transferor and transferee will
recognize on its balance sheet the assets and liabilities, or components
thereof, that it controls and derecognize from the balance sheet the assets and
liabilities that were surrendered or extinguished in the transfer.
United does not expect the new rules to have a material effect on its financial
position and results of operations. SFAS No. 125 is effective for transactions
occurring after December 31, 1996.
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.
Under the fair value method, compensation expense is measured based upon the
estimated value of the award as of the grant date and is recognized over the
service period. SFAS No. 123 provides companies with the option of accounting
for stock-based compensation under APB Opinion No. 25, "Accounting for Stock
Issued to Employees," or applying the provisions of SFAS No. 123. United has
decided to continue to apply the provisions of APB No. 25 to account for
stock-based compensation. The disclosure requirements of SFAS No. 123 require
entities applying APB Opinion No. 25 to provide pro forma disclosures of net
income and earnings per share as if the fair value method of accounting had been
applied. The disclosure requirements of SFAS No. 123, which are not applicable
to interim reporting, will be included in United's annual report to
shareholders.
2. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements include the accounts
of United and its wholly-owned subsidiaries, UBC Holding Company, Inc. ("UBC"),
United Bank and United Venture Fund ("UVF"). UBC includes its wholly-owned
subsidiary, United National
11
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Bank ("UNB"). On June 1, 1996, United commenced operations of a new
wholly-owned subsidiary of UNB, United Mortgage Company, Inc. ("UMC") and its
wholly-owned subsidiaries, United Home Lending Services, Inc. ("UHLSI") and
United Mortgage Center, Inc. ("UMCI"). UHLSI will service loans and hold loans
available for sale. United considers all of its principal business activities
to be bank related. All significant intercompany accounts and transactions have
been eliminated in the consolidated financial statements.
3. ACQUISITION
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 the financial
condition and results of operations of Eagle. United exchanged 1.15 shares of
United common stock for each of the 2,729,377 common shares of Eagle or
3,138,704 shares.
The following are pro forma selected balance sheet categories as of March 31,
1996, and December 31, 1995, and results of operations for the three months
ended March 31, 1996, and the year ended December 31, 1995, 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.
United Eagle Combined
-------------- ------------ --------------
For the Three Months
Ended March 31, 1996
(Unaudited):
Net interest income $ 20,886,000 $ 3,663,000 $ 24,549,000
Net income 7,504,000 584,000 8,088,000
Earnings per share $ 0.62 $ 0.21 $ 0.53
Net loans 1,358,650,000 366,885,000 1,725,535,000
Total assets 1,798,455,000 392,620,000 2,191,075,000
Total deposits $1,480,276,000 $304,159,000 $1,784,435,000
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
Net loans 1,374,006,000 358,980,000 1,732,986,000
Total assets 1,815,443,000 394,787,000 2,210,230,000
Total deposits $1,473,266,000 $301,333,000 $1,774,599,000
12
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
4. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair value of securities available for sale at
September 30, 1996, by contractual maturity are as follows:
Estimated
Amortized Fair
Cost Value
------------ ------------
Due in one year or less $ 61,960,000 $ 62,042,000
Due after one year through five years 62,733,000 62,444,000
Due after five years through ten years 472,000 480,000
Due after ten years 41,405,000 40,252,000
Marketable equity securities 3,511,000 5,217,000
------------ ------------
Total $170,081,000 $170,435,000
============ ============
The preceding table includes $26,344,000 of mortgage-backed securities at
estimated fair value with an amortized cost of $27,224,000. Maturities of
mortgage-backed securities are based upon the estimated average life.
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
September 30, 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 $120,483,000 $ 382,000 $ 601,000 $120,264,000
Mortgage-backed securities 27,224,000 65,000 945,000 26,344,000
Marketable equity
securities 3,511,000 1,706,000 5,217,000
Other 18,863,000 6,000 259,000 18,610,000
------------ ---------- ---------- ------------
Total $170,081,000 $2,159,000 $1,805,000 $170,435,000
============ ========== ========== ============
At September 30, 1996, the cumulative net unrealized holding gain on available
for sale securities resulted in an increase to shareholders' equity of $230,000,
net of deferred income taxes.
13
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The book and estimated fair value of securities available for sale at December
31, 1995, by contractual maturity are as follows:
Estimated
Amortized Fair
Cost Value
------------ ------------
Due in one year or less $105,885,000 $106,262,000
Due after one year through five years 52,928,000 53,684,000
Due after five years through ten years 169,000 172,000
Due after ten years 35,322,000 35,191,000
Marketable equity securities 2,662,000 3,821,000
------------ ------------
Total $196,966,000 $199,130,000
============ ============
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
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
============ ========== ========== ============
5. SECURITIES HELD TO MATURITY
The amortized cost and estimated fair values of securities held to maturity are
summarized as follows:
September 30, 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 $ 78,007,000 $ 195,000 $ 276,000 $ 77,926,000
State and political
subdivisions 37,138,000 1,250,000 79,000 38,309,000
Mortgage-backed securities 57,906,000 48,000 1,405,000 56,549,000
Other 1,874,000 1,874,000
------------ ---------- ---------- ------------
Total $174,925,000 $1,493,000 $1,760,000 $174,658,000
============ ========== ========== ============
14
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
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 securities held to maturity at
September 30, 1996, and December 31, 1995, 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.
September 30, 1996 December 31, 1995
------------------------------ -------------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------- ------------- ------------- --------------
Due in one year or less $ 11,282,000 $ 11,292,000 $ 11,603,000 $ 11,697,000
Due after one year
through five years 60,941,000 60,565,000 56,320,000 56,688,000
Due after five years
through ten years 78,408,000 78,717,000 27,568,000 28,356,000
Due after ten years 24,294,000 24,084,000 26,398,000 26,838,000
------------ ------------ ------------ ------------
Total $174,925,000 $174,658,000 $121,889,000 $123,579,000
============ ============ ============ ============
Maturities of the mortgage-backed securities are based upon the estimated
average life. There were no sales of held to maturity securities.
The amortized cost of securities pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes as required or
permitted by law, approximated $200,981,000 and $176,855,000 at September 30,
1996 and December 31, 1995, respectively.
15
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
6. NONPERFORMING LOANS
Nonperforming loans are summarized as follows:
September 30 December 31
1996 1995
------------ -----------
(in thousands)
Loans past due 90 days or more
and still accruing interest $ 5,310 $ 4,692
Nonaccrual loans 4,691 6,298
------- -------
Total nonperforming loans $10,001 $10,990
======= =======
7. ALLOWANCE FOR POSSIBLE LOAN LOSSES
The adequacy of the allowance for possible loan losses is based on management's
evaluation of the relative risks inherent in the loan portfolio. A progression
of the allowance for possible loan losses for the periods presented is
summarized as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1996 1995 1996 1995
------- ------- ------- ------
(in thousands)
Balance at beginning of
period $22,723 $22,509 $22,545 $22,304
Provision charged to expense 600 680 2,160 1,735
------- ------- ------- -------
23,323 23,189 24,705 24,039
Loans charged-off (695) (773) (2,476) (1,934)
Less recoveries 77 112 476 423
------- ------- ------- -------
Net Charge-offs (618) (661) (2,000) (1,511)
------- ------- ------- --------
Balance at end of period $22,705 $22,528 $22,705 $22,528
======= ======= ======= =======
The average recorded investment in impaired loans during the quarter ended
September 30, 1996 and for the year ended December 31, 1995 was approximately
$9,330,000 and $9,545,000, respectively. For the quarters ended September 30,
1996 and 1995, United recognized interest income on the impaired loans of
approximately $349,000 and $144,000, respectively, and $$578,000 and $465,000
for the nine months ended September 30, 1996 and 1995, respectively,
substantially all of which was recognized using the accrual method of income
recognition.
At September 30, 1996, the recorded investment in loans that are considered to
be impaired under SFAS No. 114 was $10,163,000 (of
16
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
which $4,691,000 were on a nonaccrual basis). Included in this amount is
$4,773,000 of impaired loans for which the related allowance for possible loan
losses is $1,353,000 and $5,390,000 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 amount of interest income which would have been recorded under the original
terms for the above loans was $514,000 and $275,000 for the quarters ended
September 30, 1996 and 1995, respectively and $1,141,000 and $838,000 for the
nine months ended September 30, 1996 and 1995, respectively.
United had commercial real estate loans, including owner occupied, income
producing real estate and land development loans, of approximately $347,689,000
and $334,791,000 as of September 30, 1996 and December 31, 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 possible loan losses.
8. COMMITMENTS AND CONTINGENT LIABILITIES
United has outstanding commitments which include, among other things,
commitments to extend credit and letters of credit undertaken in the normal
course of business. Outstanding standby letters of credit amounted to
approximately $18,246,000 and $17,047,000 at September 30, 1996 and December 31,
1995, 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 FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
9. 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, 1996, and September 30, 1995, with the interest rate earned or paid on
such amount.
Three Months Ended Three Months Ended
September 30 September 30
1996 1995
------------------------------- -----------------------------
(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 $ 3,731 $ 53 5.65% $ 15,779 $ 258 6.49%
Investment Securities:
Taxable 309,680 5,166 6.64% 291,883 4,558 6.25%
Tax-exempt (1) 37,344 840 9.00% 44,159 1,087 9.85%
---------- ------- ------ ---------- ------- ------
Total Securities 347,024 6,006 6.92% 336,042 5,645 6.72%
Loans, net of unearned
income (1) (2) 1,820,267 39,135 8.55% 1,656,971 36,141 8.65%
Allowance for possible loan
losses (22,702) (22,364)
---------- ----------
Net loans 1,797,565 8.66% 1,634,607 8.77%
---------- ------- ------ ---------- ------- ------
Total earning assets 2,148,320 $45,194 8.38% 1,986,428 $42,044 8.41%
------- ------ ------- ------
Other assets 175,834 147,190
---------- ----------
TOTAL ASSETS $2,324,154 $2,133,618
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,522,991 $15,921 4.16% $1,505,774 $16,001 4.22%
Federal funds purchased,
repurchase agreements and
other short-term borrowing 84,972 970 4.54% 84,310 964 4.55%
FHLB advances 143,228 1,974 5.48% 46,042 639 5.48%
---------- ------- ------ ---------- ------- ------
Total Interest-Bearing Funds 1,751,191 18,865 4.29% 1,636,126 17,604 4.27%
------- ------ ------- ------
Demand deposits 276,997 230,931
Accrued expenses and other
liabilities 42,006 27,560
---------- ----------
TOTAL LIABILITIES 2,070,194 1,894,617
Shareholders' Equity 253,960 239,001
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,324,154 $2,133,618
========== ==========
NET INTEREST INCOME $26,329 $24,440
======= =======
INTEREST SPREAD 4.09% 4.14%
NET INTEREST MARGIN 4.88% 4.89%
(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.
18
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
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, 1996, and September 30, 1995, with the interest rate earned or paid on
such amount.
Nine Months Ended Nine Months Ended
September 30 September 30
1996 1995
------------------------------- -----------------------------
(Dollars in Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate
ASSETS
Earning Assets:
Federal funds sold and securities
purchased under agreements to
resell and other short-term
investments $ 8,796 $ 344 5.22% $ 17,174 $ 839 6.53%
Investment Securities:
Taxable 284,133 13,388 6.28% 303,117 14,115 6.21%
Tax-exempt (1) 38,935 2,677 9.17% 48,475 3,604 9.91%
---------- -------- ------ ---------- -------- ------
Total Securities 323,068 16,065 6.63% 351,592 17,719 6.72%
Loans, net of unearned
income (1) (2) 1,772,053 113,764 8.58% 1,659,713 107,073 8.63%
Allowance for possible loan
losses (22,709) (22,502)
---------- ----------
Net loans 1,749,344 8.69% 1,637,211 8.74%
---------- -------- ------ ---------- -------- ------
Total earning assets 2,081,208 $130,173 8.35% 2,005,977 $125,631 8.37%
-------- ------ -------- ------
Other assets 160,537 147,304
---------- ----------
TOTAL ASSETS $2,241,745 $2,153,281
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,535,726 $ 47,464 4.13% $1,507,371 $ 45,948 4.08%
Federal funds purchased,
repurchase agreements and
other short-term borrowing 84,485 2,795 4.42% 81,897 2,817 4.62%
FHLB advances 91,133 3,739 5.48% 70,080 3,239 6.15%
---------- ------- ------ ---------- ------- ------
Total Interest-Bearing Funds 1,711,344 53,998 4.21% 1,659,348 52,004 4.19%
------- ------ ------- ------
Demand deposits 244,228 232,525
Accrued expenses and other
liabilities 32,710 27,531
---------- ----------
TOTAL LIABILITIES 1,988,282 1,919,404
Shareholders' Equity 253,463 233,877
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,241,745 $2,153,281
========== ==========
NET INTEREST INCOME $76,175 $73,627
======= =======
INTEREST SPREAD 4.14% 4.18%
NET INTEREST MARGIN 4.89% 4.90%
(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
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. ("UBC") and
United Bank. UBC includes its wholly-owned subsidiary, United National Bank
("UNB"), and its wholly- owned subsidiary, United Mortgage Company, Inc. ("UMC")
and its wholly-owned subsidiaries, United Mortgage Center, Inc. ("UMCI") and
United Home Lending Services, Inc. ("UHLSI"). United also owns all of the stock
of United Venture Fund, Inc. ("UVF"). UVF is a West Virginia Capital Company
formed to make loans and equity investments in qualified companies under the
West Virginia Capital Company Act and to promote economic welfare and
development in the State of West Virginia.
United is a registered bank holding company subject to the supervision of and
examination by the Federal Reserve Board under the Bank Holding Company Act of
1956, as amended. Its present business is the operation of its wholly-owned
subsidiaries.
The following discussion and analysis present the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and analysis should be read in
conjunction with the unaudited financial statements and accompanying notes
thereto which are included elsewhere in this document. All references to United
in this discussion and analysis are considered to refer to United and its
wholly-owned subsidiaries, unless otherwise indicated.
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 specific headings on the following pages.
EARNINGS SUMMARY
Net income for the third quarter of 1996 was $11.22 million or $0.74 per share
compared to $8.70 million or $0.58 per share for the third quarter of 1995. This
represents a 28.99% increase in net income and a 27.59% increase in earnings
per share. Net income per share for the first nine months of 1996 was $1.35 per
share, or a 19.64% decrease from the $1.68 for the first nine months of 1995.
Net income for the first nine months of 1996 was $20.58 million, which is a
18.72% decrease from the $25.31 million earned in the same period last year.
United's annualized return on average assets was 1.23% and return on average
shareholders' equity was 10.85% as compared 1.57% and 14.47% for 1995,
respectively.
20
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 that related to the bad debt recapture. Also,
United recorded $2,441,000 of additional deposit insurance expense in the third
quarter of 1996 as a result of the Savings Association Insurance Fund ("SAIF")
recapitalization legislation which requires a one-time 65.7 basis point
assessment to be paid on the SAIF assessable deposit base that United acquired
from Eagle.
United has strong core earnings driven by a net interest margin of 4.89% for the
first nine months of 1996. Net interest income increased $2,884,000 or 4.04% for
the first nine months of 1996 as compared to the same period for 1995. The
provision for possible loan losses increased $425,000 or 24.50% when comparing
the first nine months of 1996 to the first nine months of 1995. The additional
loan loss provision was to conform the allowance for loan losses on Eagle's loan
portfolio with United's loan valuation policies. Noninterest income, including
losses on sales of securities and loans held for sale, decreased 12.68% for the
first nine months of 1996 when compared to the first nine months of 1995. This
overall decrease in noninterest income is primarily attributed to the
approximate $2,000,000 write down to estimated fair value of loans held for sale
at June 30, 1996. Noninterest expenses increased $7,291,000 or 17.26% for the
first nine months compared to the same period in 1995. This increase was due to
the restructuring and merger related charges recorded in the second quarter and
the additional third quarter deposit insurance expense as a result of the SAIF
recapitalization legislation. However, exclusive of the approximate $6,845,000
of merger, nonrecurring and restructuring charges incurred through the third
quarter of 1996, noninterest expenses have increased only $446,000 or 1.06%.
Additionally, the added expenses of a purchase accounting acquisition included
in the first nine months of 1996, but not in the first nine months of 1995, have
contributed to the overall increase in noninterest expense. Income taxes were
lower for the first nine months than for the same period of 1995 due to lower
pretax earnings.
The following discussion explains in more detail the results of operations and
changes in financial position by major category.
NET INTEREST INCOME
Net interest income increased in the third quarter and first nine months of
1996, when compared to the same periods of 1995. The net interest margin
continues as the main factor in United's core profitability momentum. Net
interest income before the provision for possible loan losses increased
$1,994,000 or 8.40% and $2,884,000 or 4.04% for the third quarter and first nine
months of
21
1996 as compared to the same periods of 1995. The increases were largely due to
United's strong, stable net interest margin with higher average volumes of
interest-earning assets. Specifically, higher average volumes of loans for the
first nine months and especially for the third quarter have helped United
maintain a strong net interest margin. United's tax-equivalent net interest
margin of 4.88% for the third quarter of 1996 and 4.89% for the first nine
months of 1996 remained nearly constant to the 4.89% and 4.90% for the third
quarter and first nine months of 1995, respectively.
PROVISION FOR POSSIBLE LOAN LOSSES
For the quarters ended September 30, 1996 and 1995, the provision for possible
loan losses was $600,000 and $680,000, respectively, while the first nine months
provision was $2,160,000 for 1996 as compared to $1,735,000 for 1995. The
increase in provision for the first nine months of 1996 was to conform the
allowance for possible loan losses on Eagle's loan portfolio with United's loan
valuation policies. The allowance for possible loan losses as a percentage of
loans, net of unearned income, approximated 1.26% at September 30, 1996, 1.30%
at December 31, 1995, and 1.36% at September 30, 1995. Charge-offs exceeded
recoveries during the third quarter of 1996 and 1995 and resulted in net
charge-offs of $618,000 and $661,000, respectively. The first nine months of
1996 charge-offs exceeded recoveries by $2,000,000 as compared to $1,511,000 for
the first nine months of 1995. Note 7 to the accompanying unaudited consolidated
financial statements provides a progression of the allowance for possible loan
losses. Loans, net of unearned income, increased by $68,477,000 or 3.95% as
compared to year-end 1995.
Credit quality is another major factor in United's profitability. United's
continued excellent credit quality is evidenced by the low level of
nonperforming assets at the end of the third quarter of 1996. Nonperforming
loans were $10,001,000 at September 30, 1996 compared to $10,990,000 at
year-end 1995. Nonperforming loans, as a percentage of loans, net of unearned
income, decreased from 0.63% to 0.56% when comparing these two respective
periods. The components of nonperforming loans include nonaccrual loans and
loans which are contractually past due 90 days or more as to interest or
principal, but have not been put on a nonaccrual basis. Loans past due 90
days or more increased $618,000 or 13.17% during the first nine months of
1996; while nonaccrual loans decreased $1,607,000 or 25.52% since year-end
1995. Total nonperforming assets of $11,879,000, including OREO of $1,878,000
at September 30, 1996, represented 0.52% of total assets at the end of the third
quarter.
As of September 30, 1996, the ratio of the allowance for possible loan losses to
nonperforming loans was 227.0% as compared to 205.1% as of December 31, 1995.
Accordingly, management believes that the allowance for loan losses of
$22,705,000 as of September 30, 1996, is adequate to provide for potential
losses on existing loans based on information currently available.
22
United evaluates the adequacy of the allowance for possible loan losses on a
quarterly basis. The provision for loan losses charged to operations is based on
management's evaluation of individual credits, the past loan loss experience,
and other factors which, in management's judgment, deserve recognition in
estimating possible loan losses. Such other factors considered by management,
among other things, included growth and composition of the loan portfolio, known
deterioration in certain classes of loans or collateral, trends in
delinquencies, and current economic conditions. United's loan administration
policies are focused upon the risk characteristics of the loan portfolio, both
in terms of loan approval and credit quality.
OTHER INCOME
Other income consists of all revenues which are not included in interest and fee
income related to earning assets. Noninterest income has been and will continue
to be an important factor for improving United's profitability. Recognizing the
importance, management continues to evaluate areas where noninterest income can
be enhanced. Noninterest income decreased $1,432,000 or 12.68% for the first
nine months of 1996 while the third quarter of 1996 when compared to the third
quarter of 1995 showed an improvement of $476,000 or 11.67%. The decrease in
noninterest income for the first nine months of 1996 was primarily the result of
the approximate $2,000,000 write down to estimated fair value of loans held for
sale at June 30, 1996. Excluding gains and losses on sales of securities and
loans held for sale, noninterest income increased $729,000 or 7.05% and $362,000
or 10.52% for the first nine months and the third quarter of 1996,
respectively..
The overall decrease in noninterest income was partially offset in the areas of
fees from customer accounts for which a fee is charged. Other customer charges
increased by $935,000 or 12.64% for the first nine months and $316,000 or 12.24%
for the third quarter due to increased return check charges and bankcard fees.
OTHER EXPENSES
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations to reduce
costs. Other expenses include all items of expense other than interest expense,
the provision for possible loan losses, and income taxes. Other expenses
increased $2,958,000 or 21.78% and $7,291,000 or 17.26% for the third quarter
and nine months ending September 30, 1996 as compared to the same periods in
1995. These increases were primarily due to the restructuring 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.
23
Total salaries and benefits increased by 10.71% or $700,000 and 13.04% or
$2,547,000, for the third quarter and first nine months of 1996, respectively,
when compared to the same periods of 1995. Nearly all of the increase for the
quarter and first nine months was attributable to severance and benefit pay of
displaced Eagle executive officers, employment contracts, and employees at
locations where United consolidated certain branches.
In addition, net occupancy expense for the first nine months of 1996 increased
by $243,000 or 5.71% when compared to the first nine months of 1995. However,
net occupancy expense decreased $46,000 or 3.10% for the third quarter of 1996
when compared to the third quarter of 1995. The overall changes in net occupancy
expense for the quarter and first nine months of 1996 are insignificant with no
material increase or decrease in any one expense category.
Other expenses increased $2,304,000 or 41.44% and $4,501,000 or 24.38% for the
third quarter and first nine months of 1996, respectively, as compared to the
same periods of 1995. The increase in other expenses for the quarter related
primarily to the additional deposit insurance expense as a result of the SAIF
recapitalization legislation. The increase in other expenses for the first nine
months was attributable to higher deposit 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 were $1,483,000 of one-time restructuring charges which relate to United's
plan to reduce operating costs, increase revenues, and improve efficiency and
productivity to strengthen United's competitiveness. Additionally, the added
expenses of a purchase accounting acquisition included in the first nine months
of 1996, but not in the first nine months of 1995, have contributed to the
overall increase in noninterest expense.
INCOME TAXES
Income tax expense for the three months ended September 30, 1996 and 1995 was
$1,936,000 and $4,866,000, respectively. Income tax expense for the nine months
ended September 30, 1996 and 1995 was $11,910,000 and $13,436,000, respectively.
The decrease of $2,930,000 or 60.21% for the third quarter was the result of the
passage of recent legislation during the third quarter of 1996, which relieved
United of $3,086,000 of additional income tax expense recorded in the second
quarter that related to bad debt recapture associated with the Eagle Bancorp,
Inc. merger. The $1,526,000 or 11.36% decrease in income tax expense for the
first nine months was the result of decreased pretax income. United's effective
tax rate, excluding the reversal of the bad debt reserve recapture, was 38.16%
for the third quarter of 1996 compared to 35.87% for the third quarter of 1995.
The effective tax rate for the first nine months of 1996 was 36.66% as compared
to 34.67% for the first nine months of 1995.
24
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 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 ongoing basis and projects the effect of various
interest rate changes on its net interest margin.
The difference between rate sensitive assets and rate sensitive liabilities for
specified periods of time is known as the "gap". A primary objective of
Asset/Liability Management is managing interest rate risk. At United, interest
rate risk is managed to minimize the impact of fluctuating interest rates on
earnings. As shown in the interest rate sensitivity gap table contained herein,
United was liability sensitive (excess of liabilities over assets) in the one
year horizon. United, however, has not experienced the kind of earnings
volatility indicated from the cumulative gap. This is because a significant
portion of United's retail deposit base does not reprice on a contractual basis.
Management has estimated, based upon historical analyses, that savings deposits
are less sensitive to interest rate changes than are other forms of deposits.
The GAP table presented herein has been adapted to show the estimated
differences in interest rate sensitivity which result when the retail deposit
base is assumed to reprice in a manner consistent with historical trends. (See
Management Adjustments in the GAP table.) Using these estimates, United was less
liability sensitive in the one year horizon in the amount of $(12,060,000) or
- -0.56% of the cumulative gap to related total 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-linked loan repricing and the spread and volume
elasticity of interest-bearing deposit accounts, regular savings and money
market deposit accounts. To aid in interest rate management, United's lead bank,
UNB, is a member of the Federal Home Loan Bank of Pittsburgh (FHLB). The use of
FHLB advances provides United with a relatively low risk means to match
maturities of earning assets and interest-bearing funds to achieve a desired
interest rate spread over the life of the earning assets. At September 30, 1996,
United had $140,584,000 in FHLB advances.
25
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of September
30, 1996:
Interest Rate Sensitivity Gap
Days
---------------------------------- Total 1-5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
----------- ----------- --------- ---------- ---------- ----------- ---------
(In Thousands)
ASSETS
Interest-Earning Assets:
Investment and Marketable
Equity Securities:
Taxable $ 58,818 $ 13,705 $ 13,594 $ 86,117 $ 103,078 $119,027 $ 308,222
Tax-exempt 2,488 2,262 2,608 7,358 14,412 15,368 37,138
Loans, net of unearned
income 532,200 119,780 227,475 879,455 543,441 378,587 1,801,483
--------- --------- --------- ---------- --------- --------- -----------
Total Interest-Earning
Assets $ 593,506 $ 135,747 $ 243,677 $ 972,930 $ 660,931 $512,982 $2,146,843
========= ======== ======== ========= ========= ======== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 695,798 $ 695,798 $ 695,798
Time deposits of
$100,000 & over 40,917 $ 30,079 $ 32,318 103,314 $ 29,235 $ 240 132,789
Other time deposits 188,802 141,621 170,757 501,180 172,597 18,016 691,793
Federal funds purchased,
repurchase agreements
and other short-term
borrowing 98,505 98,505 98,505
FHLB advances 115,000 115,000 25,584 140,584
--------- --------- --------- ---------- --------- --------- ---------
Total Interest-Bearing
Funds $1,139,022 $ 171,700 $ 203,075 $1,513,797 $ 227,416 $ 18,256 $1,759,469
========== ========= ========= ========== ========= ======== ==========
Interest Sensitivity Gap $ (545,516) $ (35,953) $ 40,602 $ (540,867) $ 433,515 $494,726 $ 387,374
========== ========= ========= =========== ========= ======== ==========
Cumulative Gap $ (545,516) $(581,469) $(540,867) $ (540,867) $(107,352) $387,374 $ 387,374
========== ========= ========= =========== ========= ======== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -25.41% -27.08% -25.19% -25.19% -5.00% 18.04% 18.04%
Management
Adjustments 661,008 (44,089) (88,112) 528,807 (528,807) 0
Off-Balance
Sheet Activities (50,000) 50,000 0 0
--------- --------- --------- ---------- --------- --------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 65,492 $ 35,450 $ (12,060) $ (12,060) $(107,352) $387,374 $ 387,374
=========== ========== ========= =========== ========= ======== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 3.05% 1.65% -0.56% -0.56% -5.00% 18.04% 18.04%
26
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of December
31, 1995:
Interest Rate Sensitivity Gap
Days
---------------------------------- Total 1-5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
----------- ----------- --------- ---------- ---------- ----------- ---------
(In Thousands)
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other short-
term investments $ 13,113 $ 13,113 $ 13,113
Investment and Marketable
Equity Securities:
Taxable 39,736 $ 34,112 $ 55,174 129,022 $ 96,461 $ 52,212 277,695
Tax-exempt 3,462 2,546 2,919 8,927 14,803 19,594 43,324
Loans, net of unearned
income 534,165 88,129 162,399 784,693 559,942 388,351 1,732,986
----------- --------- --------- ---------- --------- --------- ----------
Total Interest-Earning
Assets $ 590,476 $ 124,787 $ 220,492 $ 935,755 $ 671,206 $ 460,157 $2,067,118
=========== ========= ========= ========== ========= ========= ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 675,629 $ 675,629 $ 675,629
Time deposits of
$100,000 & over 56,474 $ 24,605 $ 25,335 106,414 $ 26,068 132,482
Other time deposits 185,538 129,738 158,089 473,365 216,999 $ 23,497 713,861
Federal funds purchased,
repurchase agreements
and other short-term
borrowing 82,167 82,167 82,167
FHLB advances 74,915 15 30 74,960 239 298 75,497
----------- --------- --------- ---------- --------- --------- ----------
Total Interest-Bearing
Funds $ 1,074,723 $ 154,358 $ 183,454 $1,412,535 $ 243,306 $ 23,795 $1,679,636
=========== ========= ========= ========== ========= ========= ==========
Interest Sensitivity Gap $ (484,247) $ (29,571) $ 37,038 $ (476,780) $ 427,900 $ 437,309 $ 387,482
=========== ========= ========= ========== ========= ========= ==========
Cumulative Gap $ (484,247) $(513,818) $(476,780) $ (476,780) $ (48,880) $ 387,482 $ 387,482
=========== ========= ========= ========== ========= ========= ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -23.43% -24.86% -23.06% -23.06% -2.36% 18.75% 18.75%
Management
Adjustments 564,955 (37,664) (75,327) 451,964 (451,964) 0
Off-Balance
Sheet Activities (50,000) (50,000) 50,000 0
----------- --------- --------- ---------- --------- --------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 30,708 $ (36,527) $ (74,816) $ (74,816) $ (48,880) $ 387,482 $ 387,482
=========== ========= ========= ========== ========= ========= ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 1.49% -1.77% -3.62% -3.62% -2.36% 18.75% 18.75%
27
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, 1996, the total
notional amount of the interest rate swap in effect was $50 million. The current
maturity of the swap portfolio is four months. During the nine month period
ended September 30, 1996, interest rate swaps reduced net interest income by
$391,000 as compared to a decrease of $596,000 for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
United maintains, in the opinion of management, liquidity which is sufficient to
satisfy its depositors' requirements and the credit needs of its customers. Like
all banks, United depends upon its ability to renew maturing deposits and other
liabilities on a daily basis and to acquire new funds in a variety of markets. A
significant source of funds available to United are "core deposits." Core
deposits include certain demand deposits, statement and special savings and NOW
accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase. Repurchase agreements represent
funds which are obtained as the result of a competitive bidding process.
Liquid assets are cash and those items readily convertible to cash. All banks
must maintain sufficient balances of cash and near-cash items to meet the
day-to-day demands of customers. Other than cash and due from banks, the
available for sale securities portfolio, loans held for sale 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 borrowing
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 that are 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.
28
For the nine months ended September 30, 1996, United generated $55,556,000 of
cash from operations, which is indicative of solid earnings performance. During
the same period, net cash of $125,693,000 was used in investing activities which
was primarily due to $98,276,000 of net loan originations and $25,874,00 of net
purchases of securities. During the first nine months of 1996, net cash of
$65,861,000 was provided by financing activities, primarily due to additional
net borrowings of $65,087,000 of FHLB advances and an increase in other
short-term borrowings of $16,338,000. The increases in FHLB advances and other
short-term borrowings were used to offset a $1,842,000 decrease in deposits,
fund net purchases of securities and net loan originations, including
originations of loans held for sale. The net effect of this activity was a
decrease in cash and cash equivalents of $4,276,000 for the first nine months of
1996.
United anticipates no difficulty in meeting its obligations over the next 12
months and has no material commitments for capital expenditures. There are no
known trends, demands, commitments, or events that will result in or that are
reasonably likely to result in United's liquidity increasing or decreasing in
any material way. United also has significant lines of credit available.
The Asset and Liability Committee monitors liquidity to ascertain that a strong
liquidity position is maintained. In addition, variable rate loans are a
priority. These policies help to protect net interest income against
fluctuations in interest rates. No changes are anticipated in the policies of
United's Asset and Liability Committee.
Total shareholders' equity increased $5,675,000 to $254,909,000, which is an
increase of 2.28% from December 31, 1995. United's equity to assets ratio was
11.09% at September 30, 1996 and 11.28% at December 31, 1995. Capital and
reserves to total assets decreased from 12.28% at December 31, 1995, to 12.15%
at September 30, 1996.
The dividends of $0.31 per common share for the third quarter of 1996 and $0.92
for the nine month period ended September 30, 1996 represent an increase of
6.90% and 5.75% over the $.29 paid for third quarter of 1995 and $0.87 paid for
the first nine months of 1995. Total cash dividends paid were $4,697,000 for the
third quarter and $12,997,000 for the first nine months of 1996, an increase of
37.18% and 26.50% over the comparable periods of 1995.
United seeks to maintain a proper relationship between capital and total assets
in order to support growth and sustain earnings. United's average equity to
average asset ratio was 11.31% at September 30, 1996 and 10.86% at September 30,
1995. United's risk-based capital ratios of 16.58% at September 30, 1996 and
16.80% at December 31, 1995, are both significantly higher than the minimum
regulatory requirements. United's Tier I capital and leverage ratios of 15.32%
and 10.59%, respectively, at September 30, 1996, are also well above regulatory
minimum requirements.
29