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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number: 0-13322
United Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8761
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
Common Stock, $2.50 Par Value
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(Title of Class)
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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of United Bankshares, Inc. common stock,
representing all of its voting stock, that was held by non-affiliates on
February 29, 1995 was approximately $270,056,000.
As of February 29, 1996, United Bankshares, Inc. had 12,156,571 shares of
common stock outstanding with a par value of $2.50.
The registrant does not elect to incorporate by reference any documents
other than certain exhibits as part of the Form 10-K.
Page 1 of 103 pages. Index to Exhibits is on page 94 .
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UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
As of the date of filing this Annual Report, neither the annual shareholders'
report for the year ended December 31, 1995, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Part I Page
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Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 14
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . 15
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction . . . . . . . . . . . . . . . . . . . . . . . 22
1995 Compared to 1994 . . . . . . . . . . . . . . . . . . . 22
Fourth Quarter Results . . . . . . . . . . . . . . . . . . 28
The Effect of Inflation . . . . . . . . . . . . . . . . . . 28
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . 28
Liquidity and Capital Resources . . . . . . . . . . . . . . 31
Commitments . . . . . . . . . . . . . . . . . . . . . . . . 32
1994 Compared to 1993 . . . . . . . . . . . . . . . . . . . 33
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 46
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
CROSS-REFERENCE INDEX - CONTINUED
Part III Page
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[S] [C]
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 75
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 82
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 75
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 91
Part VI
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Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 93
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 1. BUSINESS
Item 2. PROPERTIES
The following discussion satisfies the reporting requirements of
Items 1 and 2.
DESCRIPTION OF UNITED BANKSHARES, INC.
Organizational History and Subsidiaries
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United Bankshares, Inc. ("United") is a West Virginia corporation registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended. United was incorporated on March 26, 1982 and organized on September
9, 1982. United began conducting business on May 1, 1984 with the acquisition
of three wholly-owned subsidiaries. On October 1, 1985, these three
subsidiaries were merged and on November 1, 1985, were renamed United National
Bank ("UNB").
Since that time UNB has acquired through merger or consolidation the
following banks: Heritage Bancorp, Inc. (a holding company); First National
Bank of Ripley; Kanawha Banking and Trust Company; Ohio Valley National Bank;
Elk National Bank; Montgomery National Bank, the sole subsidiary of Liberty
Bancshares Inc., a bank holding company; First Bank of Ceredo, the bank
subsidiary of Financial Future Corporation, a bank holding company; CB&T
Westover Bank; and the Star City Branch of Community Bank & Trust, N. A.
On September 1, 1993, UBC Holding Company, ("UBC"), a United subsidiary, was
formed to effect the Financial Future Corporation transaction. UBC is a second
tier holding company with UNB currently being its only subsidiary.
On August 9, 1990, United acquired BankFirst Corporation ("BankFirst"), a
one bank holding company based in McLean, Virginia. BankFirst was merged with
UBF Holding Company, Inc. ("UBF"), a United subsidiary formed to effect this
acquisition. UBF acquired Bank First, N.A. ("Bank First"), the subsidiary of
BankFirst.
On October 11, 1995, United formed Commercial Interim Bank, Inc. ("Interim
Bank"), a state member bank located in Arlington, Virginia, to facilitate the
acquisition of First Commercial Bank of Arlington, Virginia ("FCB"). United
then merged Bank First into Interim Bank from its wholly owned subsidiary, UBF.
Concurrent with the merger of Bank First into Interim Bank, UBF was merged into
United. United acquired FCB on October 31, 1995 and merged it into Interim
Bank. United then effected a name change of Interim Bank to First Commercial
Bank. On March 18, 1996 First Commercial Bank's name was changed to United
Bank.
United National Bank-South ("UNB-S"), was formed on November 1, 1992, as a
part of United's acquisition of Summit Holding Corporation and their lead bank,
Raleigh County National Bank.
On January 27, 1996, UNB-S was merged into and became a part of UNB.
Offices of UNB-S became branch offices of UNB.
In late 1988, United chartered and capitalized United Venture Fund, Inc., a
West Virginia corporation which has qualified as a Capital Company under the
West Virginia Capital Company Act. This subsidiary makes loans and limited
equity investments, consistent with the Bank Holding Company Act, that will
result in or contribute to new jobs and/or industry in West Virginia.
Offices
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The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia.
The main office of UNB is located at 514 Market Street, Parkersburg, West
Virginia. United's corporate offices and UNB's executive offices are also
located in Parkersburg at Fifth and Avery Streets. Currently, all of UNB's
offices are located in West Virginia. UNB operates three branches in the
Parkersburg area, seven branches in the Charleston area, three branches in the
Morgantown area, two branches in Vienna, three branches in the Montgomery area,
two branches in Ripley, four branches in the Huntington, area and four branches
in the Beckley, area. UNB owns all of these facilities except for two in the
Parkersburg area, two in the Charleston area and one in the Beckley area, which
are leased under operating leases. UNB also owns and operates six branches
throughout West Virginia's northern panhandle. The main facility of UNB's
Wheeling office is leased from Ogden Newspapers, Inc. See Part III -
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Transactions with Management and Others. UNB also operates five branch
facilities in central West Virginia. UNB owns all five of these offices.
United Bank conducts business from an office located at 3801 Wilson
Boulevard, Arlington, Virginia with a branch office at 1301 Beverly Road,
McLean, Virginia under a lease agreement.
Employees
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As of December 31, 1995 United and its subsidiaries had approximately 819
full-time equivalent employees and officers. None of these employees is
represented by a collective bargaining unit, and management considers employee
relations to be excellent.
Business of United
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As a bank holding company registered under the Bank Holding Company Act of
1956, as amended, United's present business is the operation of its bank
subsidiaries. As of December 31, 1995, United's consolidated assets
approximated $1,815,443,000 and total shareholders' equity approximated
$201,222,000.
United is permitted to acquire other banks and bank holding companies, as
well as thrift institutions. United is also permitted to engage in certain non-
banking activities which are closely related to banking under the provisions of
the Bank Holding Company Act and the Federal Reserve Board's Regulation Y.
Management continues to consider such opportunities as they arise, and in this
regard, management from time to time makes inquiries, proposals, offers or
expressions of interest as to potential opportunities; although no agreements or
understandings to acquire other banks or bank holding companies or nonbanking
subsidiaries or to engage in other nonbanking activities, other than those
identified herein, presently exist. With regard to pending acquisitions, United
has executed a definitive merger agreement with Eagle Bancorp, Charleston, West
Virginia, dated as of August 18,
1995. For further discussion, see Note Q, Notes to Consolidated Financial
Statements.
Business of Subsidiary Banks
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All of United's subsidiary banks are full-service commercial banks and, as
such, engage in most types of business permitted by law and regulation.
Included among the banking services offered are the acceptance of deposits in
checking, savings, time and money market accounts; the making and servicing of
personal, commercial, floor plan and student loans; and the making of
construction and real estate loans. Also offered are individual retirement
accounts, safe deposit boxes, wire transfers and other standard banking products
and services. As a part of their lending function, UNB and United Bank offer
credit card services including accounts issued under the name of certain
correspondent banks.
UNB also maintain trust departments which act as trustees under wills, trust
and pension and profit sharing plans, as executors and administrators of
estates, and as guardians for estates of minors and incompetents, and in
addition perform a variety of investment and security services. UNB trust
services are available to customers of affiliate banks. UNB provides services
to its correspondent banks such as check clearing, safekeeping and the buying
and selling of federal funds.
UNB is members of a regional network of automated teller machines known as
the MAC ATM network while United Bank participates in the MOST network. Through
MAC and MOST, all of United's subsidiary banks are participants in a network
known as Cirrus which provides banking on a nationwide basis.
Lending Activities
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The total loan portfolio of United increased $76,928,000, or 5.93%, to
$1,374,005,000, in 1995 and is comprised of commercial, real estate and consumer
loans including credit card and home equity loans. Commercial and real estate
loans increased $10,309,000 or 4.94% and $74,411,000 or 8.66%, respectively,
while consumer loans, net of unearned income, decreased $7,792,000 or 3.40%.
Commercial Loans
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The commercial loan portfolio consists of loans to corporate borrowers in
the small to mid-size industrial and commercial companies, as well as automobile
dealers, service, retail and wholesale merchants. Coal mining companies make up
an insignificant portion of loans in the portfolio. Collateral securing these
loans includes equipment, machinery, inventory, receivables, vehicles and
commercial real estate. Commercial loans are considered to contain a higher
level of risk than other loan types although care is taken to minimize these
risks. Numerous risk factors impact this portfolio including industry specific
risks such as economy, new technology, labor rates and cyclicality, as well as
customer specific factors, such as cash flow, financial
structure, operating controls and asset quality. United diversifies risk within
this portfolio by closely monitoring industry concentrations and portfolios to
ensure that it does not exceed established lending guidelines. Diversification
is intended to limit the risk of loss from any single unexpected economic event
or trend. Underwriting standards require a comprehensive review and independent
evaluation of virtually all larger balance commercial loans by the loan
committee prior to approval with ongoing updates of the loan portfolio.
Real Estate Loans
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Commercial real estate loans consist of commercial mortgages, which
generally are secured by nonresidential and multi-family residential properties.
Also included in this portfolio are loans that are secured by owner-occupied
real estate, but made for purposes other than the construction or purchase of
real estate. Commercial real estate loans carry many of the same customers and
industry risks as the commercial loan portfolio. Real estate mortgage loans to
consumers are secured primarily by a first lien deed of trust. These loans are
traditional one-to-four family residential mortgages. The loans generally do
not exceed an 80% loan to value ratio at the loan origination date and most are
at a variable rate of interest. These loans are considered to contain normal
risk.
Consumer Loans
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Consumer loans are secured by automobiles, boats, recreational vehicles, and
other personal property. Personal loans, home equity, student loans and
unsecured credit card receivables are also included as consumer loans. United
monitors the risk associated with these types of loans by monitoring such
factors as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors. Historically, losses on these types of loans have been minimal.
Underwriting Standards
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United's loan underwriting guidelines and standards are updated periodically
and are presented for approval by each of the respective Boards of Directors of
its subsidiary banks. The purpose of the standards and guidelines is to grant
loans on a sound and collectible basis; to invest available funds in a safe,
profitable manner; to serve the legitimate credit needs of the communities of
United's primary market area; and ensure that all loan applicants receive fair
and equal treatment in the lending process. It is the intent of the
underwriting guidelines and standards: to minimize loan losses by carefully
investigating the credit history of each applicant, verifying the source of
repayment and the ability of the applicant to repay, collateralizing those loans
in which collateral is deemed to be required, exercising care in the
documentation of the application, review, approval, and origination process, and
administering a comprehensive loan collection program. The above guidelines are
adhered to and subject to the experience, background and personal judgement of
the loan officer assigned to the loan application. A loan officer may grant and
justify
a loan with slight variances from the underwriting guidelines and standards.
However, the loan officer may not exceed their respective lending authority
without obtaining the prior, proper approval from a superior, a regional
supervisor, or the Loan Committee, whichever is deemed appropriate for the
nature of the variance.
Loan Origination and Processing
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United generally originates loans within the primary market area of its
banking subsidiaries. United may from time to time make loans to borrowers
and/or on properties outside of its primary market area as an accommodation to
its customers. Processing of all loans is centralized in the Charleston, West
Virginia office. United also has a limited number of loans that are processed
for other institutions for which United receives a processing fee. As of
December 31, 1995, the balance of mortgage loans being processed by United for
other institutions was $30,000.
Secondary Markets
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Historically, United has not been in the business of selling or purchasing
loans and has not originated loans with the intent to sell them in the secondary
market. During 1995, United did not purchase or sell any loans in the secondary
market.
Investment Activities
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United's investment policy stresses the management of the investment
securities portfolio, which includes both securities held to maturity and
securities available for sale, to maximize return over the long-term in a manner
that is consistent with good banking practices and relative safety of principal.
United currently does not engage in trading account activity. The
Asset/Liability Committee of United is responsible for the coordination and
evaluation of the investment portfolio.
Sources of funds for investment activities include "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.
United's investment portfolio remains comprised largely of U.S. Treasury
securities and obligations of U.S. Agencies and Corporations. Obligations of
States and Political Subdivisions are comprised of municipal securities with an
average quality of not less than an "A" rating.
During 1994, United realized net losses from sales in the securities
available for sale portfolio. The sales of these securities occurred as United,
in response to the substantial rise in interest
rates during 1994, readjusted the securities available for sale portfolio in
order to increase interest income without extending the duration of the
portfolio. The proceeds from these sales were reinvested in similar securities
yielding a higher rate of return. The net losses from the sales of the
securities were fully recovered within the first eight months of 1995 through
the repurchase of higher yielding securities. There were no securities sales in
1995.
Additionally, United has used an off-balance-sheet instrument known as an
interest rate swap, to further aid in interest rate risk management. The use of
the interest rate swap is a cost effective means of synthetically altering the
repricing structure of certain balance sheet items. The interest rate swap
transaction involves the exchange of a floating interest rate payment based on
the one month London inter-bank offered rate (LIBOR) for a fixed rate receipt
based on the U. S. three year Treasury note. The net pay and receive amount is
calculated on an underlying notional amount without the exchange of the
underlying principal amount. The interest rate swap subjects United to market
risk associated with changes in interest rates, as well as the risk that the
counterparty will fail to perform. Performance risk is considered nominal by
virtue of the caliber of the parties involved. Only the interest payments are
exchanged, and therefor, cash requirements and exposure to credit risk are
significantly less than the notional amount.
The interest rate swap was entered into early in 1994 in response to
tactical asset/liability management considerations; specifically, in response to
declining market interest rates during 1993 and United's net interest margin
being compressed due to the asset sensitivity position of the balance sheet.
The interest rate swap was to adjust the asset sensitivity to within United's
policy of +10% or -10% of earning assets. The interest rate swap was entered
into specifically to hedge prime rate indexed loans and swap a variable rate for
a fixed rate.
At December 31, 1995, the total notional amount of the interest rate swap in
effect was only $50 million. The current maturity of the swap portfolio is one
year and one month. During 1995, the interest rate swap reduced net interest
income by $787,000. This impact was offset by higher net interest revenue
generated by the on-balance sheet instruments hedged by the interest rate swap
and produced a higher rate of return and net interest margin. At December 31,
1995, the estimated unrealized loss on the swap, which may reduce interest
income in future periods, approximated $738,000. A key assumption utilized in
computing the unrealized loss is that interest rates will remain at the December
31, 1995 level throughout the term of the agreement. United did not have
interest rate swaps prior to 1994. For further details, see Interest Rate
Sensitivity and the related Interest Rate Sensitivity Gap in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note L to the Consolidated Financial Statements.
Operating Subsidiaries
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UNB is currently in the process of forming two operating subsidiaries,
United Brokerage Services, Inc. and United Mortgage Company, Inc. United
anticipates that both of these operating subsidiaries of UNB will be chartered
and will have obtained all necessary regulatory approvals for operations to
begin during the second quarter of 1996.
United Brokerage Services, Inc. will be a fully-disclosed broker/dealer and
a registered Investment Advisor registered with the National Association of
Securities Dealers, Inc. and the Securities and Exchange Commission and a member
of the Securities Investor Protection Corporation. United Brokerage Services,
Inc. will offer a wide range of investment products as well as comprehensive
financial planning and asset management services to the general public.
United Mortgage Company, Inc. is being formed in connection with the pending
merger of Eagle Bancorp, Inc. ("Eagle") with and into United and the related
merger of First Empire Federal Savings and Loan Association ("First Empire")
with and into UNB. In accordance with the merger agreement, UNB will request
regulatory approval to form and operate United Mortgage Company, Inc. The
business of United Mortgage Company, Inc. will be 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.
Competition
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United faces a high degree of competition in nearly all of the markets it
serves. These markets may generally be defined as Wood, Kanawha, Putnam,
Monongalia, Jackson, Cabell, Wayne, Hancock, Brooke, Ohio, Marshall, Gilmer,
Braxton, Lewis, Webster, Fayette and Raleigh Counties in West Virginia;
Lawrence, Belmont, Jefferson and Washington Counties in Ohio; and Arlington and
Fairfax Counties in Virginia, located adjacent to the Washington D.C. area,
which is in close proximity to West Virginia's eastern panhandle. United
competes in Ohio markets because of the close proximity to the Ohio border of
certain subsidiary offices. Included in United's markets are the Parkersburg
Metropolitan Statistical Area (MSA), the Charleston MSA, the Huntington MSA, the
Wheeling MSA and the Weirton MSA. These represent the five largest West
Virginia MSA's. United considers the above counties and MSA's to be the primary
market area for the business of its banking subsidiaries.
West Virginia banks are permitted unlimited branch banking throughout the
state. In addition, interstate acquisitions of and by West Virginia banks and
bank holding companies are permissible on a reciprocal basis. West Virginia
also allows reciprocal interstate acquisitions by thrift institutions. These
conditions serve to intensify competition within United's market.
As of December 31, 1995, there were 14 multi-bank holding companies and 33
one-bank holding companies in the State of West Virginia registered with the
Federal Reserve System. United presently ranks fourth among these bank holding
companies and second among holding companies headquartered in West Virginia
based on both asset and deposit size. These holding companies are headquartered
in various West Virginia cities and control banks throughout the state,
including banks which compete for business as well as for the acquisition of
additional banks.
Economic Characteristics of Primary Market Area
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Although the market area of the banking subsidiaries encompass a portion of
the coal fields located in southern West Virginia, an area of the state which
has been economically depressed, the coal related loans in the loan portfolio of
the banking subsidiaries constitute less than 2% of United's total loans
outstanding. The state of West Virginia has a more diversified economy than it
had during the peak periods of coal production. This diversified economy has
contributed to the positive trends in the personal income and unemployment rates
in recent years as personal income has increased from $14,315 in 1991 to $17,096
in 1994 and the state's overall unemployment rate has declined from 10.5% in
1991 to 7.8% in 1995, according to available information from the West Virginia
Bureau of Employment Programs.
Eleven of the 17 counties within United's primary West Virginia market area
rank among the state's top twenty counties in terms of personal income and low
unemployment rates. United generally serves the stronger economic areas of the
state while maintaining a satisfactory CRA rating.
Regulation and Supervision
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United, as a bank holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956, as amended, and is registered pursuant to its
provisions. As such, United is subject to the reporting requirements of and
examination by the Board of Governors of the Federal Reserve System ("Board of
Governors").
The Bank Holding Company Act prohibits the acquisition by a bank holding
company of direct or indirect ownership of more than five percent of the voting
shares of any bank within the United States without prior approval of the Board
of Governors. With certain exceptions, a bank holding company also is
prohibited from acquiring direct or indirect ownership or control of more than
five percent of the voting shares of any company which is not a bank, and from
engaging directly or indirectly in business unrelated to the business of
banking, or managing or controlling banks.
The Board of Governors of the Federal Reserve System, in its Regulation Y,
permits bank holding companies to engage in non-banking activities closely
related to banking or managing or controlling banks. Approval of the Board of
Governors is necessary to engage in these activities or to make acquisitions of
corporations engaging in these
activities. In addition, on a case by case basis, the Board of Governors may
approve other non-banking activities.
As a bank holding company doing business in West Virginia, United is also
subject to regulation and examination by the West Virginia Board of Banking and
Financial Institutions (the "West Virginia Banking Board") and must submit
annual reports to the department. Further, any acquisition application which
United must submit to the Board of Governors must also be submitted to the West
Virginia Banking Board for approval.
United is also registered under and is subject to the requirements of the
Securities Exchange Act of 1934, as amended.
UNB, as national banking associations, is subject to supervision,
examination and regulation by the Office of the Comptroller of the Currency.
UNB is also a member of the Federal Reserve System, and as such, is subject to
applicable provisions of the Federal Reserve Act and regulations issued
thereunder.
United Bank, as a Virginia state member bank, is subject to supervision,
examination and regulation by the Federal Reserve System, and as such, is
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder. United Bank is subject to regulation by the Virginia
Corporation Commission's Bureau of Financial Institutions.
The deposits of United's wholly-owned banking subsidiaries are insured by
the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by
law. Accordingly, these banks are also subject to regulation by the FDIC.
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 3. Legal Proceedings
Litigation
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The reader is directed to Note L - Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
Stock
- - -----
As of December 31, 1995, 20,000,000 shares of common stock, par value $2.50
per share, were authorized for United, of which 12,156,571 were issued and
outstanding including 140,520 shares held as treasury shares. These shares are
held by approximately 4,844 shareholders of record as of December 31, 1995. The
unissued portion of United's authorized common stock (subject to registration
approval by the SEC) and the treasury shares are available for issuance as the
Board of Directors determines advisable. United offers its shareholders the
opportunity to invest dividends in shares of United stock through its dividend
reinvestment plan. United has also established stock option plans and a stock
bonus plan as incentive for certain eligible officers. Additionally, United is
presenting an incentive stock option plan to its shareholders for their approval
at the 1996 Annual Meeting. See PART III - Succession Management Stock Bonus
------------
Plan and Incentive Stock Option Plans. United offers an employee stock purchase
plan for all employees. See PART III - Employee Benefit Plans. While there are
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no present plans, understandings, arrangements or agreements, except for the
above incentive plans, additional shares could be issued for the purpose of
raising capital, in connection with acquisitions of other businesses, or for
other appropriate purposes.
The Board of Directors believes that the availability of authorized but
unissued common stock of United is of considerable value if opportunities should
arise for the acquisition of another business through the issuance of United's
stock. Shareholders do not have preemptive rights, which allows United to issue
additional authorized shares without first offering them to current
shareholders.
United has only one class of stock and all voting rights are vested in the
holders of United's stock. On all matters subject to a vote of shareholders,
the shareholders of United will be entitled to one vote for each share of common
stock owned. Shareholders of United have cumulative voting rights with regard
to election of directors. At the present time, no senior securities of United
are outstanding, nor does the Board of Directors presently contemplate issuing
senior securities.
There are no preemptive or conversion rights or, redemption or sinking fund
provisions with respect to United's Stock. All of the issued and outstanding
shares of United's stock are fully paid and non-assessable.
Dividends
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The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Aggregate
dividends were $1.17 per share in 1995, $1.06 per share in 1994 and $.95 per
share in 1993. Dividends are paid from funds legally available; therefore, the
payment of dividends is subject to the restrictions set forth in the West
Virginia Corporation Act. See "Market and Stock Prices of United" for quarterly
dividend information.
Payment of Dividends by United is dependent upon payment of dividends to it by
its subsidiary banks. The ability of national banks to pay dividends is subject
to certain limitations imposed by the national banking laws. Generally, the
most restrictive provision requires approval by the Office of the Comptroller of
the Currency ("OCC") if dividends declared in any year exceed the year's net
income, as defined, plus the retained net profits of the two preceding years.
Payment of dividends by United's state member bank is regulated by the Federal
Reserve System and generally, the prior approval of the Federal Reserve Board
("FRB") is required if the total dividends declared by a state member bank in
any calendar year exceeds its net profits, as defined, for that year combined
with its retained net profits for the preceding two years. Additionally, prior
approval of both the OCC and the FRB is required when a national bank or state
member bank has deficit retained earnings but has sufficient current year's net
income, as defined, plus the retained net profits of the two preceding years.
The OCC and FRB may prohibit dividends if it deems the payment to be an unsafe
or unsound banking practice. The OCC has issued guidelines for dividend
payments by national banks, emphasizing that proper dividend size depends on the
bank's earnings and capital while the FRB has issued similar guidelines
pertaining to state member banks. See Note C - Notes to Consolidated Financial
Statements.
Market and Stock Prices of United
- - ---------------------------------
United Bankshares, Inc. stock is traded over the counter on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") under
the trading symbol UBSI.
The following table presents the dividends and high and low prices of
United's common stock during the periods set forth below:
United Historical
Basis
-----------------
1996 Dividends High Low
---- --------- ---- ---
First Quarter through
February 29, 1996 (1) $30.00 $29.00
1995
----
Fourth Quarter $0.30 $31.00 $29.00
Third Quarter $0.29 $30.50 $26.25
Second Quarter $0.29 $27.75 $25.25
First Quarter $0.29 $26.00 $23.25
1994
----
Fourth Quarter $0.27 $24.75 $23.00
Third Quarter $0.27 $25.75 $24.00
Second Quarter $0.26 $26.75 $25.00
First Quarter $0.26 $27.25 $25.50
(1) On February 26, 1996, United declared a dividend of $0.30 per share, payable
April 1, 1996, to shareholders of record as of March 8, 1996.
The high and low prices listed above are based upon information available to
United's management from NASDAQ listings. No attempt has been made by United's
management to ascertain the prices for every sale of its stock during the
periods indicated. However, based on the information available, United's
management believes that the prices fairly represent the amounts at which
United's stock was traded during the periods indicated.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands except for per share data)
Five Year Summary
---------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
Total interest income $ 136,460 $ 121,157 $ 116,505 $ 113,502 $ 126,863
Total interest expense 54,770 43,887 45,009 49,897 64,851
Net interest income 81,690 77,270 71,496 63,605 62,012
Provision for possible
loan losses 2,075 1,818 4,332 4,242 7,635
Other income 12,616 11,222 12,673 11,123 10,051
Other expenses 48,881 48,676 49,690 46,991 45,102
Income taxes 15,271 13,096 9,770 7,136 5,555
Income before cumulative
effect of accounting change 28,079 24,902 20,377 16,359 13,771
Net income 28,079 24,902 21,706 16,359 13,771
Cash dividends(1) 13,817 12,604 10,918 7,914 7,077
Per common share:
Income before cumulative
effect of accounting change 2.35 2.08 1.71 1.52 1.31
Net income 2.35 2.08 1.82 1.52 1.31
Cash dividends(1) 1.17 1.06 0.95 0.85 0.81
Book value per share 16.75 15.21 14.34 13.44 12.66
Return on average
shareholders' equity 14.81% 13.98% 13.00% 11.60% 10.73%
Return on average assets 1.58% 1.42% 1.27% 1.09% 0.97%
Average assets 1,779,331 1,753,324 1,706,639 1,496,148 1,417,506
Investment securities 309,473 360,883 430,427 390,017 311,298
Net loans 1,374,005 1,297,077 1,161,772 1,097,785 940,413
Total assets 1,815,443 1,787,641 1,720,184 1,688,903 1,425,006
Total deposits 1,473,266 1,434,852 1,430,529 1,411,892 1,212,619
Long-term borrowings 33,900 83,972 32,203 28,067 2,025
Total borrowings
and other liabilities 140,955 173,043 118,683 116,791 80,006
Shareholders' equity 201,222 179,746 170,972 160,220 132,381
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
UNITED BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and analysis should be read in
conjunction with the audited financial statements and accompanying notes
thereto, which are included elsewhere in this document. All references to
United in this discussion and analysis are considered to refer to United and its
wholly-owned subsidiaries, unless otherwise indicated.
1995 COMPARED TO 1994
The following Earnings Summary is a broad overview of the financial condition
and results of operations and is not intended to replace the more detailed
discussion which is presented under specific headings on the following pages.
EARNINGS SUMMARY
For the year ended December 31, 1995, net income increased 12.8% to a record
$28,079,000. Net income per share of $2.35 for the year was up 13.0% from $2.08
in 1994. United's return on average assets of 1.58% makes United one of the
nation's most profitable regional banking companies. Dividends per share
increased 10.4% from $1.06 in 1994 to a record level of $1.17 per share in 1995.
This was the twenty-second consecutive year of dividend increases to
shareholders. Core earnings, or earnings before taxes, security transactions,
cumulative effect of change in accounting principle and the provision for
possible loan losses, were strong and increased 11.6% for 1995 compared to 1994.
These strong core earnings are indicative of the 5.7% increase in net interest
income driven by an increase in average net earning assets with significant
growth of 7.3% in average net loans.
Factors contributing to the 1995 earnings increase include an improved net
interest margin, partially resulting from a $27,511,000 increase in average
earning assets from 1994 and an overall increase in noninterest income which
included fewer losses on the sale of securities. The favorable impact of the
above items was partly offset by increased occupancy expenses and increased
income taxes as a result of the higher level of pre-tax earnings. United is in
the process of realigning its interest rate sensitivity for 1996 to a more
interest-rate-neutral position. This investment strategy may reduce current
earnings, but should enhance United's future earnings momentum.
United's key performance measures, return on average assets and return on
average equity, improved significantly from 1994 and remained very strong in
comparison to industry standards. United's return on average assets of 1.58%
and return on average shareholders' equity of 14.81% both compare excellently
with regional peer grouping ratios of 1.17% and
12.56% and national peer group ratios of 1.21% and 13.47%, respectively,
according to information provided by Wheat, First Securities, Inc. United is one
of the nation's most profitable regional banking companies. United has a strong
capital position and is well positioned to take advantage of future growth
opportunities.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
Net interest income represents the primary component of United's earnings. It
is the difference between interest and fee income related to earning assets and
interest expense incurred to fund these earning assets. Net interest income is
impacted by changes in the volume and mix of interest-earning assets and
interest-bearing liabilities, as well as changes in market interest rates. Such
changes, and their impact on net interest income in 1995, are explained below.
For the years ended December 31, 1995 and 1994, net interest income approximated
$81,690,000 and $77,270,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 5.15% in 1995 and 4.97% in 1994. Higher average
loan volumes of approximately $89 million resulting primarily from an
acquisition contributed to the increase in net interest income. At 5.15%,
United's net interest margin remains well above peer group averages.
Total interest income of $136,460,000 increased 12.6% in 1995 over 1994 as a
result of higher volumes of interest-earning assets. Comparing year-end 1995 to
year-end 1994, a moderate decrease occurred in consumer loans of 3.8% while
commercial loans and mortgage loans showed increases of 4.9% and 8.7%,
respectively.
Total interest expense increased $10,883,000 or 24.8% in 1995. This increase
can be attributed primarily to United's competitive pricing of interest-bearing
deposits in its markets and continued change in the retail deposit mix as
customers shift funds into products offering higher yields. United's average
interest-bearing deposits increased by 1.9% in 1995, while its average long-term
borrowings decreased 23.5% and average short-term borrowings increased 5.50%.
United made greater use of short-term funds as the Federal Reserve held short-
term rates steady at approximately 6.0% for nearly half of 1995. The average
cost of funds, which increased from 3.30% in 1994 to 4.07% in 1995, reflected
the general upward trend in market interest rates during 1995.
Provision for Possible Loan Losses
United evaluates the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio. United's process of evaluating the
allowance is a formal company-wide process that focuses on early identification
of potential problem credits and procedural discipline in managing and
accounting for those credits. See Note F to the Consolidated Financial
Statements for a discussion of concentrations of credit risk.
Nonperforming loans were $9,089,000 at December 31, 1995 and $6,036,000 at
December 31, 1994, an increase of 50.6%. The level of nonperforming assets
increased as a result of delinquencies on certain large balance commercial
creditors and nonperforming assets purchased in a recent acquisition. 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. United has no significant troubled debt
restructurings. Loans past due 90 days or more increased $1,853,000 or 80.5%
during 1995; nonaccrual loans increased $1,201,000 or 32.2% since year-end 1994.
Much of the increase in nonaccrual loans was the result of the addition of a
single large commercial loan to nonaccrual status. United is currently
negotiating workout terms with the borrowers and will closely monitor the
ongoing status. Nonperforming loans represented 0.50% of total assets at the
end of 1995, which is approximately one-half of the national peer levels.
At year-end 1995 and 1994 the allowance for possible loan losses was 1.46% and
1.54% of total loans, net of unearned income, respectively. At December 31,
1995 and 1994, the ratio of the allowance for loan losses to nonperforming loans
was 220.2% and 331.5%, respectively.
Management believes that the allowance for loan losses of $20,017,000 as of
December 31, 1995, is adequate to provide for potential losses on existing loans
based on information currently available.
For the years ended December 31, 1995 and 1994 the provision for loan losses was
$2,075,000 and $1,818,000, respectively. The slight increase can be attributed
to the higher net charge-offs and the increase in nonperforming loans during
1995. 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 judgement, deserve recognition in
estimating possible loan losses. Such other factors considered by management
include growth and composition of the loan portfolio, known deterioration in
certain classes of loans or collateral, trends in delinquencies, and current
economic conditions.
Total net charge-offs were $3,083,000 in 1995 and $825,000 in 1994, which
represents 0.23% and 0.07% of average loans for the respective years. United's
ratio of net charge-offs to average loans is comparable to its peers' ratio of
0.19% in 1995 and compared very favorably with its peers' ratio of 0.22% in
1994.
Management is not aware of any potential problem loans, trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources which have not been disclosed.
Additionally, management has disclosed all known material credits which cause
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayments. Management is not aware of any current recommendations
by regulatory authorities which, if implemented, would have a material effect on
liquidity, capital resources or operations.
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"(SFAS No.
114), as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," collectively SFAS 114. As a result
of applying the rules prescribed by SFAS No. 114, certain loans are being
reported at the present value of their expected future cash flows using the
loan's effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. At the time of adoption of SFAS No. 114, United had
approximately $8,000,000 of loans which were considered impaired in accordance
with the guidelines prescribed by SFAS No. 114. The adoption of SFAS No. 114 did
not have a material impact on the allowance for loan losses, the provision for
possible loan losses, the charge-off policy or the comparability of credit risk.
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the original
terms of the loan agreement. The specific factors that influence management's
judgement in determining when a loan is impaired include the evaluation that the
loan is classified as "substandard" or worse, also the strength of the borrower
and the net realizable value of the collateral. A valuation allowance is
required to the extent that the measure of the impaired loans is less than the
recorded investment. A specifically reviewed loan is not impaired during a
period of "minimum delay" in payment, regardless of the amount of shortfall, if
the ultimate collectibility of all amounts due is expected. United defines
"minimum delay" as past due less than 90 days.
SFAS 114 does not apply to smaller balance, larger groups of homogeneous loans
such as consumer installment, bank card and real estate mortgage loans, which
are collectively evaluated for impairment. Impaired loans are therefore
primarily business loans, which include commercial loans and income property.
United applies the measurement methods described above to these loans on a loan-
by-loan basis. Smaller balance populations of business loans, loans with a
balance of $100,000 or less, which are not specifically reviewed in accordance
with United's normal credit review procedures, are also excluded from the
application of SFAS 114.
Impaired loans are charged-off when the impaired loan, or a portion thereof, is
considered uncollectible or is transferred to other real estate owned.
Consistent with United's existing method of income recognition for loans,
interest receipts on impaired loans, except those classified also as nonaccrual,
are recognized as interest income using the accrual method of income
recognition. United's method of income recognition for impaired loans that are
classified as nonaccrual is to recognize interest income on the cash method of
income recognition or apply the cash receipt to principal when the ultimate
collectibility of principal is in doubt. The average recorded investment in
impaired loans during the year ended December 31, 1995 was approximately
$9,545,000. For the year ended December 31, 1995, United recognized interest
income on those
impaired loans of approximately $412,000, substantially all of which was
recognized using the accrual method of income recognition. The amount of
interest income which would have been recorded under the original terms for the
above loans was $633,000.
At December 31, 1995, the recorded investment in loans that were considered to
be impaired under SFAS No. 114 was $8,792,000 (of which $4,934,000 were on a
nonaccrual basis). Included in this amount was $4,793,000 of impaired loans for
which the related allowance for credit losses was $1,918,000 and $3,999,000 of
impaired loans that did not have an allowance for credit losses. The impact of
adopting SFAS 114 was immaterial to the financial condition and operations of
United as of and for the year ended December 31, 1995, and had no material
impact on the comparability of the credit risk as presented herein.
United has commercial real estate loans, including owner occupied, income
producing real estate and land development loans, of approximately $328,226,000
and $300,679,000 as of December 31, 1995 and 1994, respectively. The loans are
primarily secured by real estate located in West Virginia, Southeastern Ohio,
and Virginia. The loans were originated by United's subsidiary banks using
underwriting standards as set forth by management. United's loan administration
policies are focused on the risk characteristics of the loan portfolio,
including commercial real estate loans, in terms of loan approval and credit
quality. It is the opinion of management that these loans do not pose any
unusual risks and that adequate consideration has been given to the above loans
in establishing the allowance for loan losses.
Other Income
Noninterest income has been and will continue to be an important factor
contributing to United's profitability. Accordingly, management continues to
evaluate areas where noninterest income can be enhanced. Other income consists
of all revenues which are not included in interest and fee income related to
earning assets. In 1995, other income, excluding securities transactions,
increased when compared to 1994. The overall increase in noninterest income of
$1,394,000 or 12.4% is primarily attributed to the absence of net losses on
securities transactions incurred in 1994 and a $541,000 increase in service
charges, commissions and fees.
Trust income increased $43,000 or 1.5% in 1995. This was due to repricing of
services and an increased volume of trust business.
Service charges, commissions and fees increased by $541,000 or 6.3% in 1995.
This income consists of charges and fees related to various banking services
provided by United. The increase was primarily due to a combination of
increased fees in bankcard accounts and an increased fee structure for sales of
checking related products.
Securities transactions resulted in a net loss of $872,000 in 1994. The
proceeds from these sales were reinvested in similar securities yielding a
higher rate of return. The net losses from the sales of the securities were
fully recovered within the first eight months of 1995. There were no securities
sales in 1995.
On January 1, 1994, United adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
(SFAS No. 115) which was effective for fiscal years beginning after December 15,
1993. The $872,000 of net securities losses for 1994 relates primarily to debt
securities losses of approximately $1,024,000 which were classified as available
for sale. For further details, see Note D to the Consolidated Financial
Statements.
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provision of that Special
Report, United chose to reclassify securities from held-to-maturity to
available-for-sale. At the date of the transfer the amortized cost of those
securities was $103,595,000, and the unrealized gain on those securities was
$242,000, which is included in shareholders' equity. This enabled United to
take advantage of certain interest rate risk management strategies.
Other Expense
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations and thus reduce
operating costs. United's cost control efforts have been very successful with
an efficiency ratio of 50.1%, which is well below the 64.7% reported by peer
group averages.
Other expenses include all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. In total, other expenses
were flat in 1995, and management was successful in controlling costs. The
income statement reflects a 0.4% increase in 1995 as compared to 1994.
Salaries and employee benefits expense increased $20,000 or 0.1% in 1995. As of
December 31, 1995 and 1994, United employed 819 and 834 full-time equivalent
employees, respectively.
Net occupancy expense in 1995 exceeded 1994 levels by $235,000 or 4.8% primarily
due to decreased rental income from vacancies and an increase in real property
repairs and utilities expense.
Remaining other expenses decreased $50,000 or 0.2% in 1995 compared to 1994.
The decrease in other expenses for the year relates primarily to lower data
processing fees and FDIC insurance expense as a result of the Federal Deposit
Insurance Corporation's decision to lower deposit insurance premiums from $0.23
to $0.04 per $100 in Bank Insurance Fund (BIF) deposits for well capitalized and
well managed banks. The premium change resulted in a refund of approximately
$910,000 which was received in September 1995. The overall decrease in FDIC
insurance premiums for 1995 when compared to 1994 was $1,542,000. United's two
banking subsidiaries are assessed at the lowest FDIC insurance premium rate. The
decrease in FDIC insurance premiums and data processing fees was offset by
higher advertising, postage, bankcard and nonrecurring legal expenses which
included certain merger related expenses for the First
Commercial acquisition consummated by United during 1995 and the pending Eagle
merger to be consummated during 1996.
Income Taxes
For the year ended December 31, 1995, income taxes approximated $15,271,000
compared to $13,096,000 for 1994. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income. United's
effective tax rates in these two years were 35.2% and 34.5%, respectively.
At December 31, 1995, gross deferred tax assets totaled approximately $11.6
million. The allowance for loan losses and various accrued liabilities
represent the most significant temporary differences. Based on management's
evaluation at December 31, 1995, no valuation allowance has been allocated to
deferred tax assets.
Fourth Quarter Results
Net income for the fourth quarter of 1995 was $6,953,000, an increase of 13.0%
from the $6,156,000 earned in the fourth quarter of 1994. On a per share basis,
fourth quarter earnings were $.58 per share in 1995 and $.51 per share in 1994.
Net income was higher in 1995 than in 1994 because of the factors previously
discussed herein relative to annual results.
Additional quarterly financial data for 1995 and 1994 may be found in Note P to
the Consolidated Financial Statements.
The Effect of Inflation
United's income statements generally reflect the effects of inflation. Since
interest rates, loan demand, and deposit levels are related to inflation, the
resulting changes in the interest sensitive assets and liabilities are included
in net interest income. Similarly, operating expenses such as salaries, rents,
and maintenance include changing prices resulting from inflation. One item
which would not reflect inflationary changes is depreciation expense.
Subsequent to the acquisition of depreciable assets, inflation causes price
levels to rise; therefore, historically presented dollar values do not reflect
this inflationary condition. With inflation levels at relatively low levels and
monetary and fiscal policies being implemented to keep the inflation rate
increases within an acceptable range, management expects the impact of inflation
would continue be minimal in the near future.
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. United closely monitors the sensitivity of
its assets and liabilities on an on-going basis and projects the effect of
various interest rate changes on its net interest margin.
The difference between rate sensitive assets and rate sensitive liabilities for
specified periods of time is known as the "GAP".
A primary objective of Asset/Liability Management is managing interest rate
risk. At United, interest rate risk is managed to minimize the impact of
fluctuating interest rates on earnings. As shown in the interest rate
sensitivity gap table on the following page of this report, United was liability
sensitive (excess of liabilities over assets) in the one year horizon. United,
however, has not experienced the kind of earnings volatility indicated from the
cumulative gap. This is because a significant portion of United's retail
deposit base does not reprice on a contractual basis. Management has estimated,
based upon historical analyses, that savings deposits are less sensitive to
interest rate changes than are other forms of deposits. The GAP table presented
herein has been adapted to show the estimated differences in interest rate
sensitivity which result when the retail deposit base is assumed to reprice in a
manner consistent with historical trends. (See "Management Adjustments" in the
GAP table). Using these estimates, United was asset sensitive in the one year
horizon in the amount of $136,372,000 or 8.10% of the cumulative gap to related
earning assets. The primary method of measuring the sensitivity of earnings to
changing market interest rates is to simulate expected cash flows using varying
assumed interest rates while also adjusting the timing and magnitude of non-
contractual deposit repricing to more accurately reflect anticipated pricing
behavior. These simulations include adjustments for the lag in prime loan
repricing and the spread and volume elasticity of interest-bearing deposit
accounts, regular savings and money market deposit accounts. To aid in interest
rate management, United's lead bank, UNB, is a member of the Federal Home Loan
Bank of Pittsburgh (FHLB). The use of FHLB advances provides United with a low
risk means to match maturities of earning assets and interest-bearing funds to
achieve a desired interest rate spread over the life of the earning assets.
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
--------- --------- ---------- ---------- --------- -------- ----------
ASSETS (In thousands)
Interest-Earning Assets:
Investment and Marketable
Equity Securities:
Taxable $ 34,328 $ 33,456 $ 54,674 $ 122,458 $ 92,779 $ 51,255 $ 266,492
Tax-exempt 3,462 2,546 2,919 8,927 14,460 19,594 42,981
Loans, net of unearned
income 515,788 76,320 132,531 724,639 461,601 187,766 1,374,006
--------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Earning
Assets $ 553,578 $ 112,322 $ 190,124 $ 856,024 $ 568,840 $258,615 $1,683,479
========= ========= ========== ========== ========= ======== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 602,098 $ 602,098 $ 602,098
Time deposits of
$100,000 & over 39,910 $ 17,972 $ 17,941 75,823 $ 26,068 101,891
Other time deposits 128,868 91,538 109,222 327,628 193,851 $ 9,230 530,709
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 82,167 82,167 82,167
FHLB advances 33,900 33,900 33,900
--------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Bearing
Funds $ 884,943 $ 109,510 $ 127,163 $1,121,616 $ 219,919 $ 9,230 $1,350,765
========= ========= ========== ========== ========= ======== ==========
Interest Sensitivity
Gap $(331,365) $ 2,812 $ 62,961 $ (265,592) $ 348,921 $249,385 $ 332,714
========= ========= ========== ========== ========= ======== ==========
Cumulative Gap $(331,365) $(328,553) $ (265,592) $ (265,592) $ 83,329 $332,714 $ 332,714
========= ========= ========== ========== ========= ======== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -19.68% -19.52% -15.78% -15.78% 4.95% 19.76% 19.76%
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 $ 183,590 $ 148,738 $ 136,372 $ 136,372 $ 33,329 $282,714 $ 332,714
========= ========= ========== ========== ========= ======== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 10.91% 8.84% 8.10% 8.10% 1.98% 16.79% 19.76%
Additionally, United is using certain off-balance-sheet instruments known as
interest rate swaps, to further aid in interest rate risk management. The use
of interest rate swaps is a cost effective means of synthetically altering the
repricing structure of balance sheet items. The interest rate swap transaction
involves the exchange of a floating rate payment based on the one month London
inter-bank offered rate (LIBOR) for a fixed rate receipt based on the U. S.
three year treasury note. The net pay and receive amount is calculated on an
underlying notional amount without the exchange of the underlying principal
amount. The interest rate swap subjects United to market risk associated with
changes in interest rates, as well as the risk that the counterparty will fail
to perform. Only the interest payments are exchanged, and therefore, cash
requirements and exposure to credit risk are significantly less than the
notional amount.
At December 31, 1995, the total notional amount of United's interest rate swap
was $50 million. The current maturity of the swap portfolio is one year and one
month. The interest rate swap reduced net interest
income by $787,000 and $1,000, in 1995 and 1994, respectively. For further
details, see Note L to the Consolidated Financial Statements.
Liquidity and Capital Resources
In the opinion of management, United maintains liquidity which is sufficient to
satisfy its depositors' requirements and the credit needs of its customers.
Like all banks, United depends upon its ability to renew maturing deposits and
other liabilities on a daily basis and to acquire new funds in a variety of
markets. A significant source of funds available to United 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 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 of utilizing any long-term funding sources other than FHLB advances and
long-term certificates of deposit.
Cash flows from operations in 1995 of $35,666,000 were 3.5% higher than the
$34,458,000 in 1994 as a result of approximately $3,200,000 million increase in
net income. In 1995, investing activities resulted in a source of cash of
$23,280,000 as compared to 1994 in which investing activities resulted in a use
of cash of $52,200,000. The primary reason for the decrease in the use of cash
for investing activities is that net loan originations decreased by $79,827,000
in 1995 as compared to 1994 while the net excess of proceeds from sales,
maturities and calls of securities over security purchases decreased from
$67,103,000 in 1994 to
$63,739,000 in 1995 for a decrease of $3,364,000. Financing activities resulted
in a use of cash in 1995 of $62,800,000 primarily due to a $50,072,000 decrease
in net borrowings from the FHLB of Pittsburgh, payment of $10,273,000 of cash
dividends to shareholders and a net decreases in deposits of $12,206,000. These
uses of cash for financing activities were partially offset by a net increase of
$10,358,000 in other short-term borrowings. See the Consolidated Statement of
Cash Flows in the Consolidated Financial Statements.
United anticipates no problems in its ability to service 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 to it. See Note I, Notes to Consolidated Financial Statements.
The asset and liability committee monitors liquidity to ascertain that a strong
liquidity position is maintained. In addition, variable rate loans are a
priority. These policies should help to protect net interest income against
fluctuations in interest rates.
United also seeks to maintain a proper relationship between capital and total
assets in order to support growth and sustain earnings. United's average equity
to average asset ratio was 10.65% in 1995 and 10.16% in 1994. United's risk-
based capital ratio was 15.91% in 1995 and 15.52% in 1994 which are both
significantly higher than the minimum regulatory requirements. United's Tier 1
capital and leverage ratios of 14.66% and 10.27%, respectively, at December 31,
1995, are also strong relative to its peers and are well above regulatory
minimums.
Commitments
The following table indicates the outstanding loan commitments of United in the
categories stated:
December 31
1995
-------------
Lines of credit authorized,
but unused $262,836,000
Letters of Credit 16,533,000
------------
$279,369,000
============
Past experience has shown that, of the foregoing commitments, approximately 12-
15% can reasonably be expected to be funded within a one year period. For more
information, see Note L to the Consolidated Financial Statements.
1994 COMPARED TO 1993
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
For the year ended December 31, 1994, net income increased 14.7% to a record
$24,902,000. Net income per share of $2.08 for the year was up 14.3% from $1.82
in 1993. United's return on average assets was 1.42%. Dividends per share
increased 11.6% from $.95 in 1993 to $1.06 per share in 1994. Core earnings,
or earnings before taxes, security transactions, cumulative effect of change in
accounting principle and the provision for possible loan losses, were strong and
increased 19.7% for 1994 as compared to 1993. These strong core earnings were
indicative of the 8.1% increase in net interest income driven by an increase in
average net earning assets with significant growth of 8.6% in average net loans.
Factors contributing to the 1994 earnings increase included an improved net
interest margin, partially resulting from a $39,338,000 increase in average
earning assets from 1993, a lower loan loss provision due to improved credit
quality and increased earnings from 1993 acquisitions. The favorable impact of
the above items was partly offset by increased occupancy expenses, decreased fee
income from customer accounts for which a fee is charged and losses from the
sale of securities.
United's key performance measures, return on average assets and return on
average equity, improved significantly from 1993 and remained very strong in
comparison to industry standards. United's return on average assets of 1.42%
made United one of the nation's most profitable regional banking companies. In
the December 31, 1994, Bank Holding Company Performance Report, which is
prepared by the Federal Reserve Board's Division of Banking Supervision and
Regulation, United was ranked in the 85th percentile of bank holding companies
nationwide in terms of return on average assets for the year ended December 31,
1994.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
For the years ended December 31, 1994 and 1993, net interest income approximated
$77,270,000 and $71,496,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.97% in 1994 and 4.75% in 1993. Higher average
loan volumes of $98 million contributed to the increase in net interest income.
United also experienced modest decreases in its overall cost of funds. At
4.97%, United's net interest margin was well above peer group averages.
Total interest income of $121,157,000 increased 4.0% in 1994 over 1993 as a
result of higher volumes of interest-earning assets. Comparing
year-end 1994 to year-end 1993, a moderate decrease in commercial loans of 4.6%
and a slight increase in consumer loans of 1.8%, which resulted from lower
commercial and consumer demand, were offset by significant mortgage loan growth
of 16.4%.
Total interest expense decreased 2.5% in 1994. This decrease was primarily the
result of lower rates paid on interest-bearing funds. United's average interest-
bearing deposits increased only slightly or 0.5% in 1994, while its average
long-term borrowings increased 25.1% as United made greater use of these funds
in order to meet the demand for mortgage loan products with matching maturities.
The average cost of funds reflected the general downward trend in market
interest rates in 1994, falling from 3.44% in 1993 to 3.30% in 1994.
Provision for Possible Loan Losses
United evaluated the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio.
Nonperforming loans were $6,036,000 at December 31, 1994 and $13,517,000 at
December 31, 1993, a decrease of 55.4%. The level of nonperforming assets
declined as a result of the recovering of the regional economy and management's
continual monitoring of problem loans. The components of nonperforming loans
include nonaccrual loans, loans which are contractually past due 90 days or more
as to interest or principal, but have not been put on a nonaccrual basis and
troubled debt restructurings. Loans past due 90 days or more decreased $173,000
or 7.0% during 1994; while troubled debt restructurings decreased $2,453,000 or
100.0% and nonaccrual loans decreased $4,855,000 or 56.5% since year-end 1993.
Nonperforming loans continue to decline and represented less than 0.34% of total
assets at the end of 1994.
At year-end 1994 and 1993 the allowance for possible loan losses was 1.54% and
1.61% of total loans, net of unearned income, respectively. As of December 31,
1994 and 1993, the ratio of the allowance for loan losses to nonperforming loans
was 331.5% and 140.7%, respectively.
For the years ended December 31, 1994 and 1993 the provision for loan losses was
$1,818,000 and $4,332,000, respectively. The decrease was attributable to the
general improvement in all areas of asset quality and the increased coverage
ratio of the allowance for loan losses to nonperforming loans. 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 judgement, deserve recognition in estimating possible loan losses.
Such other factors considered by management include growth and composition of
the loan portfolio, known deterioration in certain classes of loans or
collateral, trends in delinquencies, and current economic conditions.
Total net charge-offs were $825,000 in 1994 and $1,773,000 in 1993, which
represents .07% and .16% of average loans for the respective years. United's
ratio of net charge-offs to average loans compares very favorably with its
peers.
Other Income
Other income consists of all revenues which are not included in interest and fee
income related to earning assets. In 1994, other income, excluding securities
transactions, was flat when compared to 1993. The overall decrease in
noninterest income of $1,451,000 or 11.4% was primarily attributed to the net
losses on securities transactions.
Trust income increased $229,000 or 8.7% in 1994. This was due to repricing of
services and an increased volume of trust business.
Service charges, commissions and fees decreased by $194,000 or 2.2% in 1994.
This income consists of charges and fees related to various banking services
provided by United. The decrease was primarily due to a combination of
decreased activity in customer accounts and a decline in net account analysis
fees.
Securities transactions resulted in a net loss of $872,000 in 1994 and a net
gain of $479,000 in 1993. As evidenced by the Statement of Cash Flows, the
volume of securities sold increased significantly in 1994. The primary reason
for this increased sales activity was to restructure a portion of the investment
portfolio to reflect current market rates in response to the rising interest
rate environment in order to enhance United's future earnings momentum.
On January 1, 1994, United adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
(SFAS No. 115) which was effective for fiscal years beginning after December 15,
1993. The $872,000 of net securities losses for 1994 relates primarily to debt
securities losses of approximately $1,024,000 which were reclassified to
available for sale at January 1, 1994.
Other Expense
Other expense includes all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. In total, other expenses
were flat in 1994, and management was successful in controlling costs. The
income statement reflects a 2.0% decrease in 1994 as compared to 1993.
Salaries and employee benefits expense decreased $176,000 or 1.0% in 1994.
Net occupancy expense in 1994 exceeded 1993 levels by $390,000 or 8.7% primarily
due to decreased rental income from vacancies and an increase in real property
taxes.
The remaining other expense decreased $1,228,000 or 5.4% in 1994 compared to
1993. The decrease in other expenses for the year related primarily to
nonrecurring expenses during 1993 which included certain merger expenses for the
two acquisitions consummated by United during 1993, a lower provision for other
real estate owned and the realization of further economies from recent mergers.
Income Taxes
For the year ended December 31, 1994, income taxes approximated $13,096,000
compared to $9,770,000 for 1993. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income. United's
effective tax rates in these two years were 34.5% and 32.4%, respectively.
At December 31, 1994, gross deferred tax assets totaled approximately $11.5
million compared to $10.4 million at December 31, 1993. The allowance for loan
losses and various accrued liabilities represent the most significant temporary
differences. Based on management's evaluation at December 31, 1994 and 1993, no
valuation allowance had been allocated to deferred tax assets.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL:
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three years ended December 31, 1995,
1994 and 1993 with the interest and rate earned or paid on such amount.
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1995 1994 1993
---------------------------------- ---------------------------------- -------------------------------
(Dollars in Average Avg. Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------- ---------- --------- ----------- ----------- -------- ---------- --------- --------
ASSETS
Earning assets:
Federal funds sold and
securities purchased
under agreements to
resell and other
short-term
investments $ 9,679 $ 575 5.94% $ 6,125 $ 250 4.08% $ 29,747 $ 898 3.02%
Investment Securities:
Taxable 286,597 17,526 6.12% 345,166 18,589 5.39% 371,583 20,531 5.53%
Tax exempt (1) 46,924 4,560 9.72% 52,709 5,429 10.30% 59,307 6,360 10.72%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total Securities 333,521 22,086 6.62% 397,875 24,018 6.04% 430,890 26,891 6.24%
Loans, net of unearned
income (1) (2) 1,320,506 116,666 8.83% 1,231,525 99,850 8.11% 1,134,001 92,168 8.13%
Allowance for possible loan
losses (20,265) (19,595) (18,046)
---------- ---------- ----------
Net Loans 1,300,241 8.96% 1,211,930 8.24% 1,115,955 8.26%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total earning assets 1,643,441 139,327 8.48% 1,615,930 124,118 7.68% 1,576,592 119,957 7.61%
---------- ---------- ---------
Other assets 135,890 137,394 130,047
---------- ---------- ----------
TOTAL ASSETS $1,779,331 $1,753,324 $1,706,639
========== ========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,221,835 $ 48,445 3.96% $1,199,355 $ 38,614 3.22% $1,193,622 $ 40,837 3.42%
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 83,016 3,809 4.59% 78,699 2,571 3.27% 75,496 2,152 2.85%
FHLB advances 41,044 2,516 6.13% 50,702 2,702 5.33% 40,528 2,020 4.98%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total Interest-Bearing
Funds 1,345,895 54,770 4.07% 1,328,756 43,887 3.30% 1,309,646 45,009 3.44%
---------- ---------- ---------
Demand deposits 222,427 229,936 213,544
Accrued expenses and
other liabilities 21,454 16,567 16,474
---------- ---------- ----------
TOTAL LIABILITIES 1,589,776 1,575,259 1,539,664
Shareholders' Equity 189,555 178,065 166,975
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,779,331 $1,753,324 $1,706,639
========== ========== ==========
NET INTEREST INCOME $ 84,557 $ 80,231 $ 74,948
========== ========== ==========
INTEREST SPREAD 4.41% 4.38% 4.17%
NET INTEREST MARGIN 5.15% 4.97% 4.75%
(1) The interest income and the yields on nontaxable loans and investment
securities are presented on a tax-equivalent basis using the statutory
federal income tax rate of 35%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
RATE/VOLUME ANALYSIS
The following table sets forth a summary of the changes in interest earned and
interest paid detailing the amounts attributable to (i) changes in volume
(change in the average volume times the prior year's average rate), (ii) changes
in rate (change in the average rate times the prior year's average volume), and
(iii) changes in rate/volume (change in the average volume times the change in
average rate).
1995 Compared to 1994 1994 Compared to 1993
----------------------------------- -------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- -------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------- ------- ------- ----- ------- ------- ------- -------
(In thousands) (In thousands)
Interest income:
Federal funds sold, securities purchased
under agreements to resell and other
short-term investments $ 145 $ 115 $ 65 $ 325 $ (713) $ 315 $(250) $ (649)
Investment securities:
Taxable (3,157) 2,520 (426) (1,063) (1,461) (520) (39) (1,942)
Tax exempt (1) (596) (306) 33 (869) (708) (249) 26 (931)
Loans (1),(2) 7,216 8,867 733 16,816 7,929 (227) (20) 7,682
------- ------- ----- ------- ------- ------- ----- -------
TOTAL INTEREST INCOME 3,608 11,196 405 15,209 5,047 (681) (205) 4,161
------- ------- ----- ------- ------- ------- ----- -------
Interest expense:
Interest-bearing deposits 724 8,875 232 9,831 196 (2,387) (32) (2,223)
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 142 1,039 57 1,238 91 317 11 419
FHLB advances (515) 406 (77) (186) 507 142 33 682
------- ------- ----- ------- ------- ------- ----- -------
TOTAL INTEREST EXPENSE 351 10,320 212 10,883 794 (1,928) 12 (1,122)
------- ------- ----- ------- ------- ------- ----- -------
NET INTEREST INCOME $ 3,257 $ 876 $ 193 $ 4,326 $ 4,253 $ 1,247 $(217) $ 5,283
======= ======= ===== ======= ======= ======= ===== =======
(1) Yields and interest income on tax exempt loans and investment securities
are computed on a fully tax-equivalent basis using the statutory federal
income tax rate of 35%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
LOAN PORTFOLIO
TYPES OF LOANS
The following is a summary of loans outstanding at December 31:
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------
(In thousands)
Commercial, financial
and agricultural $ 218,800 $ 208,491 $ 218,559 $ 218,370 $203,864
Real estate mortgage 912,917 842,819 726,122 640,838 514,316
Real estate construction 21,232 16,919 12,687 15,680 12,174
Consumer 225,077 233,866 229,847 246,673 226,657
Less: Unearned interest (4,021) (5,018) (6,428) (7,824) (2,528)
---------- ---------- ---------- ---------- --------
Total loans 1,374,005 1,297,077 1,180,787 1,113,737 954,483
Allowance for possible
loan losses (20,017) (20,008) (19,015) (15,952) (14,070)
---------- ---------- ---------- ---------- --------
TOTAL LOANS, NET $1,353,988 $1,277,069 $1,161,772 $1,097,785 $940,413
========== ========== ========== ========== ========
At December 31, 1995, real estate mortgage loans include $570,635,000 in single
family residential real estate loans and $328,226,000 in commercial real estate
loans.
The following is a summary of loans outstanding as a percent of total loans at
December 31:
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Commercial, financial
and agricultural 15.88% 16.01% 18.41% 19.47% 21.30%
Real estate mortgage 66.25% 64.73% 61.16% 57.14% 53.75%
Real estate construction 1.54% 1.30% 1.07% 1.40% 1.27%
Consumer 16.33% 17.96% 19.36% 21.99% 23.68%
------ ------ ------ ------ ------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
REMAINING LOAN MATURITIES
The following table shows the maturity of commercial, financial, and
agricultural loans and real estate construction outstanding as of December 31,
1995:
Less Than One To Greater Than
One Year Five Years Five Years Total
--------- ---------- ------------ --------
Commercial, financial
and agricultural $51,063 $83,625 $84,112 $218,800
Real estate construction 21,232 21,232
------- ------- ------- --------
Total $72,295 $83,625 $84,112 $240,032
======= ======= ======= ========
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 1995, commercial, financial and agricultural loans maturing
within one to five years and in more than five years are interest sensitive as
follows:
One to Over
Five Years Five Years
---------- ----------
(In thousands)
Outstanding with fixed interest rates $38,648 $ 9,904
Outstanding with adjustable rates 44,977 74,208
------- -------
$83,625 $84,112
======= =======
There were no real estate construction loans with maturities greater than one
year.
RISK ELEMENTS
Nonperforming Loans
Nonperforming loans include loans on which no interest is currently being
accrued, loans which are past due 90 days or more as to principal or interest
payments, and loans for which the terms have been modified due to a
deterioration in the financial position of the borrower. Management is not aware
of any other significant loans, groups of loans, or segments of the loan
portfolio not included below where there are serious doubts as to the ability
of the borrowers to comply with the present loan repayment terms. The following
table summarizes nonperforming loans for the indicated periods.
December 31
-----------------------------------------
1995 1994 1993 1992 1991
------ ------ ------- ------- -------
(In thousands)
Nonaccrual loans $4,934 $3,733 $ 8,588 $12,446 $11,719
Troubled debt restructurings 2,453 1,355 1,928
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 4,155 2,303 2,476 2,154 3,525
------ ------ ------- ------- -------
TOTAL $9,089 $6,036 $13,517 $15,955 $17,172
====== ====== ======= ======= =======
Loans are designated as nonaccrual when, in the opinion of management, the
collection of principal or interest is doubtful. This generally occurs when a
loan becomes 90 days past due as to principal or interest unless the loan is
both well secured and in the process of collection. When interest accruals are
discontinued, unpaid interest credited to income in the current year is
reversed, and unpaid interest accrued in prior years is charged to the allowance
for loan losses. See Note F to the consolidated financial statements for
additional information regarding nonperforming loans and credit risk
concentration.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
INVESTMENT PORTFOLIO
The following is a summary of the amortized cost of investment securities held
to maturity at December 31, 1995 and 1994 and all securities at December 31,
1993:
1995 1994 1993
-------- -------- --------
(In thousands)
U.S. Treasury and other U.S. Government
agencies and corporations $ 12,146 $ 84,843 $220,805
States and political subdivisions 43,324 53,297 55,209
Mortgage-backed securities 55,389 97,644 131,322
Marketable equity securities 2,182
Other 1,896 7,062 20,909
-------- -------- --------
TOTAL INVESTMENT SECURITIES $112,755 $242,846 $430,427
======== ======== ========
The following is a summary of the amortized cost of available for sale
securities at December 31,:
1995 1994
-------- --------
(In thousands)
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $150,460 $103,292
Mortgage-backed securities 27,766
Marketable equity securities 2,662 1,529
Other 13,808 13,898
-------- --------
TOTAL AVAILABLE-FOR-SALE SECURITIES $194,696 $118,719
======== ========
The market value of mortgage-backed securities is affected by changes in
interest rates and prepayment risk. When interest rates decline, prepayment
speeds generally accelerate due to homeowners refinancing their mortgages at
lower interest rates. This may result in the proceeds being reinvested at lower
interest rates. Rising interest rates may decrease the assumed prepayment
speed. Slower prepayment speeds may extend the maturity of the security beyond
its assumed prepayment speed. Therefore, investors may not be able to invest at
current higher market rates due to the extended expected maturity of the
security. United had an unrealized loss of $331,000 on all mortgage-backed
securities at December 31, 1995, as compared to a net unrealized loss of
$7,805,000 at December 31, 1994. This increase in value from 1994 to 1995 is
consistent with the decrease in interest rates during 1995.
The following table sets forth the maturities of all securities at December 31,
1995, and the weighted average yields of such securities (calculated on the
basis of the cost and the effective yields weighted for the scheduled maturity
of each security).
After 1 But After 5 But
Within 1 Year Within 5 Years Within 10 Years After 10 Years
--------------- --------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ ------- ------ ------- ------- ------- ------
(In thousands)
U.S. Treasury and other
U.S. Government agencies
and corporations $93,727 5.92% $62,405 5.85% $ 7,571 6.38%
States and political
subdivisions (1) 8,095 10.36% 14,492 9.20% $ 9,856 9.12% 10,881 9.15%
Other 13,687 6.29% 30,857 7.28% 17,884 6.48% 40,018 6.36%
(1) Tax-equivalent adjustments (using a 35% federal rate) have been made in
calculating yields on obligations of states and political subdivisions.
NOTE: There are no securities with a single issuer whose book value in the
aggregate exceeds 10% of total shareholders' equity.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
The following table shows the distribution of United's short-term borrowings and
the weighted average interest rates thereon at the end of each of the last three
years. Also provided are the maximum amount of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years.
Federal Securities Sold
Funds Under Agreements
Purchased to Repurchase
---------- -----------------
(In thousands)
At December 31:
1995 $26,378 $ 55,789
1994 4,582 67,227
1993 5,339 67,271
Weighted average interest rate
at year end:
1995 5.0% 3.6%
1994 5.7% 4.1%
1993 2.9% 2.7%
Maximum amount outstanding at
any month's end:
1995 $33,941 $ 81,720
1994 25,089 103,486
1993 7,509 85,515
Average amount outstanding during
the year:
1995 $12,264 $ 70,752
1994 10,178 68,521
1993 7,808 67,688
Weighted average interest rate
during the year:
1995 6.0% 4.3%
1994 4.3% 3.1%
1993 3.0% 2.8%
At December 31, 1995, repurchase agreements include $53,846,000 in overnight
accounts. The remaining balance principally consists of agreements having
maturities ranging from 2-90 days. The rates offered on these funds vary
according to movements in the federal funds and short-term investment market
rates.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the years ended December 31:
1995 1994 1993
------------------ ------------------ -------------------
Amount Rate Amount Rate Amount Rate
---------- ------ ---------- ------ ---------- ------
(In thousands)
Noninterest bearing
demand deposits $ 222,427 $ 229,936 $ 213,544
Interest bearing
demand deposits 228,920 2.28% 230,402 2.26% 222,226 2.59%
Savings deposits 398,858 2.98% 449,142 2.84% 444,788 3.06%
Time deposits 594,057 5.28% 519,811 3.97% 526,608 4.08%
---------- ---------- ----------
TOTAL $1,444,262 3.96% $1,429,291 3.22% $1,407,166 3.42%
========== ========== ==========
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1995 are summarized as follows:
(In thousands)
3 months or less $ 39,910
Over 3 through 6 months 17,972
Over 6 through 12 months 17,941
Over 12 months 26,068
--------
TOTAL $101,891
========
RETURN ON EQUITY AND ASSETS
The following table shows selected consolidated operating and capital ratios for
each of the last three years ended December 31:
1995 1994 1993
------ ------ ------
Return on average assets 1.58% 1.42% 1.27%
Return on average equity 14.81% 13.98% 13.00%
Dividend payout ratio (1) 49.21% 50.61% 50.30%
Average equity to average
assets ratio 10.65% 10.16% 9.78%
(1) Based on historical results of United before the effects of restatements for
pooling of interests business combinations.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes United's loan loss experience for each of the
five years ended December 31:
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------
(In thousands)
Balance of allowance for possible loan
losses at beginning of year $ 20,008 $ 19,015 $ 15,952 $ 14,070 $ 12,187
Allowance of purchased company at date
of acquisition 1,017 504 2,784
Loans charged off:
Commercial, financial and agricultural 1,952 708 1,088 3,108 4,636
Real estate 722 65 649 1,477 175
Real estate construction
Consumer and other 933 943 1,004 1,286 1,785
---------- ---------- ---------- ---------- --------
TOTAL CHARGE-OFFS 3,607 1,716 2,741 5,871 6,596
Recoveries:
Commercial, financial and agricultural 189 577 438 168 403
Real estate 65 13 231 154 48
Real estate construction
Consumer and other 270 301 299 405 393
---------- ---------- ---------- ---------- --------
TOTAL RECOVERIES 524 891 968 727 844
NET LOANS CHARGED OFF 3,083 825 1,773 5,144 5,752
Addition to allowance (1) 2,075 1,818 4,332 4,242 7,635
---------- ---------- ---------- ---------- --------
BALANCE OF ALLOWANCE FOR POSSIBLE
LOAN LOSSES AT END OF YEAR $ 20,017 $ 20,008 $ 19,015 $ 15,952 $ 14,070
========== ========== ========== ========== ========
Loans outstanding at the end of period (gross) $1,378,026 $1,302,095 $1,187,215 $1,121,561 $957,010
Average loans outstanding during
period (net of unearned income) $1,320,506 $1,231,525 $1,134,001 $ 990,999 $949,784
Net charge-offs as a percentage of
average loans outstanding 0.23% 0.07% 0.16% 0.52% 0.61%
Allowance for possible loan losses as
a percentage of nonperforming loans 220.2% 331.5% 140.7% 100.0% 81.9%
(1) The amount charged to operations and the related balance in the allowance
for possible loan losses is based upon periodic evaluations of the loan
portfolio by management. These evaluations consider several factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loan loss experience and management's estimation of
future potential losses.
Quarterly reviews of individual loans as well as the loan portfolio as a
whole are made by management and the credit department. Management performs
extensive procedures in granting and monitoring loans on a continual basis.
Further, management believes that the allowance for possible loan losses is
adequate to absorb anticipated losses.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for
possible loan losses at
years ending: 1995 1994 1993 1992 1991
- - ------------------------------ ------ ------ ------- ------- -------
Commercial, financial and
agricultural $6,891 $7,526 $ 8,109 $ 6,406 $ 6,534
Real estate 503 499 476 1,375 1,382
Real estate construction
Consumer and other 1,484 1,313 1,733 5,481 5,434
------ ------ ------- ------- -------
Total $8,878 $9,338 $10,318 $13,262 $13,350
====== ====== ======= ======= =======
The portion of the allowance for loan losses that is not specifically
allocated to individual credits has been apportioned among the separate loan
portfolios based on the relative risk of each portfolio.
% of Loans Per Category
- - ------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Commercial, financial and
agricultural 77.62% 80.60% 78.59% 48.30% 48.94%
Real estate 5.67% 5.34% 4.61% 10.37% 10.35%
Real estate construction
Consumer and other 16.71% 14.06% 16.80% 41.33% 40.71%