UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
þ
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For Quarter Ended March 31, 2005
o
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period
Commission File Number: 0-13322
United Bankshares, Inc.
| West Virginia | 55-0641179 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 300 United Center 500 Virginia Street, East Charleston, West Virginia |
25301 |
|
| (Address of Principal Executive Offices) | Zip Code |
Registrant’s Telephone Number, including Area Code: (304) 424-8800
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes þ No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class — Common Stock, $2.50 Par Value; 42,715,523 shares outstanding as of April 30, 2005.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
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UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS—Continued
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3
PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (UNAUDITED)
The March 31, 2005 and December 31, 2004, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, the related consolidated statements of income for the three months ended March 31, 2005 and 2004, the related consolidated statement of changes in shareholders’ equity for the three months ended March 31, 2005, the related condensed consolidated statements of cash flows for the three months ended March 31, 2005 and 2004, and the notes to consolidated financial statements appear on the following pages.
4
CONSOLIDATED BALANCE
SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
| March 31 | December 31 | |||||||
| 2005 | 2004 | |||||||
| (Dollars in thousands, except par value) | (Unaudited) | (Note 1) | ||||||
Assets |
||||||||
Cash and due from banks |
$ | 135,786 | $ | 132,306 | ||||
Interest-bearing deposits with other banks |
38,839 | 21,159 | ||||||
Total cash and cash equivalents |
174,625 | 153,465 | ||||||
Securities available for sale at estimated fair value (amortized cost-$1,162,437 at
March 31, 2005 and $1,266,931 at December 31, 2004) |
1,156,442 | 1,277,160 | ||||||
Securities held to maturity (estimated fair value-$238,109 at
March 31, 2005 and $241,592 at December 31, 2004) |
232,710 | 233,282 | ||||||
Loans held for sale |
4,488 | 3,981 | ||||||
Loans |
4,397,454 | 4,424,702 | ||||||
Less: Unearned income |
(6,361 | ) | (6,426 | ) | ||||
Loans net of unearned income |
4,391,093 | 4,418,276 | ||||||
Less: Allowance for loan losses |
(43,570 | ) | (43,365 | ) | ||||
Net loans |
4,347,523 | 4,374,911 | ||||||
Bank premises and equipment |
40,892 | 41,564 | ||||||
Goodwill |
166,852 | 166,926 | ||||||
Accrued interest receivable |
27,576 | 27,371 | ||||||
Other assets |
160,200 | 157,311 | ||||||
| TOTAL ASSETS | $ | 6,311,308 | $ | 6,435,971 | ||||
Liabilities |
||||||||
Deposits: |
||||||||
Noninterest-bearing |
$ | 880,602 | $ | 885,339 | ||||
Interest-bearing |
3,469,837 | 3,412,224 | ||||||
Total deposits |
4,350,439 | 4,297,563 | ||||||
Borrowings: |
||||||||
Federal funds purchased |
88,315 | 131,106 | ||||||
Securities sold under agreements to repurchase |
524,274 | 546,425 | ||||||
Federal Home Loan Bank borrowings |
557,283 | 669,322 | ||||||
Other short-term borrowings |
2,024 | 4,427 | ||||||
Other long-term borrowings |
89,303 | 89,433 | ||||||
Allowance for lending-related commitments |
7,854 | 7,988 | ||||||
Accrued expenses and other liabilities |
65,133 | 58,200 | ||||||
| TOTAL LIABILITIES | 5,684,625 | 5,804,464 | ||||||
Shareholders’ Equity |
||||||||
Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-44,320,832 at
March 31, 2005 and December 31, 2004, including 1,529,878 and 1,312,387 shares in
treasury at March 31, 2005 and December 31, 2004, respectively |
110,802 | 110,802 | ||||||
Surplus |
99,381 | 99,773 | ||||||
Retained earnings |
473,015 | 459,393 | ||||||
Accumulated other comprehensive (loss) income |
(6,684 | ) | 3,739 | |||||
Treasury stock, at cost |
(49,831 | ) | (42,200 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | 626,683 | 631,507 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 6,311,308 | $ | 6,435,971 | ||||
See notes to consolidated unaudited financial statements.
5
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (Dollars in thousands, except per share data) | 2005 | 2004 | ||||||
Interest income |
||||||||
Interest and fees on loans |
$ | 63,066 | $ | 55,559 | ||||
Interest on federal funds sold and other short-term investments |
126 | 76 | ||||||
Interest and dividends on securities: |
||||||||
Taxable |
14,006 | 13,462 | ||||||
Tax-exempt |
2,078 | 2,054 | ||||||
| Total interest income | 79,276 | 71,151 | ||||||
Interest expense |
||||||||
Interest on deposits |
14,687 | 10,907 | ||||||
Interest on short-term borrowings |
3,414 | 1,579 | ||||||
Interest on long-term borrowings |
8,185 | 8,914 | ||||||
| Total interest expense | 26,286 | 21,400 | ||||||
| Net interest income | 52,990 | 49,751 | ||||||
Provision for credit losses |
1,111 | 1,357 | ||||||
| Net interest income after provision for credit losses | 51,879 | 48,394 | ||||||
Other income |
||||||||
Income from mortgage banking operations |
126 | 168 | ||||||
Service charges, commissions, and fees |
7,822 | 8,483 | ||||||
Fees from trust and brokerage services |
2,758 | 2,570 | ||||||
Security gains |
924 | 714 | ||||||
Other income |
1,289 | 1,628 | ||||||
| Total other income | 12,919 | 13,563 | ||||||
Other expense |
||||||||
Salaries and employee benefits |
14,066 | 14,111 | ||||||
Net occupancy expense |
3,095 | 3,213 | ||||||
Other expense |
11,580 | 12,300 | ||||||
| Total other expense | 28,741 | 29,624 | ||||||
| Income from continuing operations before income taxes | 36,057 | 32,333 | ||||||
| Income taxes | 11,297 | 9,726 | ||||||
| Income from continuing operations | 24,760 | 22,607 | ||||||
| Income from discontinued operations before income taxes | — | 1,243 | ||||||
| Income taxes | — | 346 | ||||||
| Income from discontinued operations | — | 897 | ||||||
| Net income | $ | 24,760 | $ | 23,504 | ||||
6
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - continued
UNITED BANKSHARES, INC. AND SUBSIDIARIES
| Three Months Ended | ||||||||
| March 31 | ||||||||
| (Dollars in thousands, except per share data) | 2005 | 2004 | ||||||
Earnings per common share from continuing operations: |
||||||||
Basic |
$ | 0.58 | $ | 0.52 | ||||
Diluted |
$ | 0.57 | $ | 0.51 | ||||
Earnings per common share from discontinued operations: |
||||||||
Basic |
— | $ | 0.02 | |||||
Diluted |
— | $ | 0.02 | |||||
Earnings per common share: |
||||||||
Basic |
$ | 0.58 | $ | 0.54 | ||||
Diluted |
$ | 0.57 | $ | 0.53 | ||||
Dividends per common share |
$ | 0.26 | $ | 0.25 | ||||
Average outstanding shares: |
||||||||
Basic |
42,900,416 | 43,680,837 | ||||||
Diluted |
43,418,579 | 44,258,584 | ||||||
See notes to consolidated unaudited financial statements.
7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
| Three Months Ended March 31, 2005 | ||||||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||||||
| Common Stock | Other | Total | ||||||||||||||||||||||||||
| Par | Retained | Comprehensive | Treasury | Shareholders’ | ||||||||||||||||||||||||
| Shares | Value | Surplus | Earnings | Income (Loss) | Stock | Equity | ||||||||||||||||||||||
Balance at January 1, 2005 |
44,320,832 | $ | 110,802 | $ | 99,773 | $ | 459,393 | $ | 3,739 | ($42,200 | ) | $ | 631,507 | |||||||||||||||
Comprehensive income: |
||||||||||||||||||||||||||||
Net income |
– | – | – | 24,760 | – | – | 24,760 | |||||||||||||||||||||
Other comprehensive income,
net of tax: |
||||||||||||||||||||||||||||
Unrealized loss on
securities of $9,945 net
of reclassification
adjustment for gains
included in net income of
$601 |
– | – | – | – | (10,546 | ) | – | (10,546 | ) | |||||||||||||||||||
Accretion of the
unrealized loss for
securities transferred
from the available for
sale to the held to
maturity investment
portfolio |
– | – | – | – | 123 | – | 123 | |||||||||||||||||||||
Total comprehensive income |
14,337 | |||||||||||||||||||||||||||
Purchase of treasury stock
(245,294 shares) |
– | – | – | – | – | (8,534 | ) | (8,534 | ) | |||||||||||||||||||
Cash dividends ($0.26 per share) |
– | – | – | (11,138 | ) | – | – | (11,138 | ) | |||||||||||||||||||
Common stock options exercised
(27,803 shares) |
– | – | (392 | ) | – | – | 903 | 511 | ||||||||||||||||||||
Balance at March 31, 2005 |
44,320,832 | $ | 110,802 | $ | 99,381 | $ | 473,015 | ($6,684 | ) | ($49,831 | ) | $ | 626,683 | |||||||||||||||
See notes to consolidated unaudited financial statements
8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands)
| Three Months Ended | ||||||||
| March 31 | ||||||||
| 2005 | 2004 | |||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS |
$ | 35,180 | $ | 32,986 | ||||
INVESTING ACTIVITIES |
||||||||
Proceeds from maturities and calls of investment securities |
1,000 | 6,472 | ||||||
Purchases of investment securities |
(294 | ) | (405 | ) | ||||
Proceeds from sales of securities available for sale |
118,354 | 100,798 | ||||||
Proceeds from maturities and calls of securities available for sale |
54,657 | 67,221 | ||||||
Purchases of securities available for sale |
(69,081 | ) | (117,387 | ) | ||||
Net purchases of bank-owned life insurance |
— | (13,215 | ) | |||||
Net purchases of bank premises and equipment |
(668 | ) | (808 | ) | ||||
Net change in loans |
25,817 | (131,441 | ) | |||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF CONTINUING
OPERATIONS |
129,785 | (88,765 | ) | |||||
FINANCING ACTIVITIES |
||||||||
Cash dividends paid |
(11,198 | ) | (10,929 | ) | ||||
Acquisition of treasury stock |
(8,534 | ) | (9,489 | ) | ||||
Proceeds from exercise of stock options |
483 | 982 | ||||||
Repayment of long-term Federal Home Loan Bank borrowings |
(87 | ) | (55 | ) | ||||
Proceeds from long-term Federal Home Loan Bank borrowings |
100,000 | — | ||||||
Changes in: |
||||||||
Deposits |
52,876 | (80,047 | ) | |||||
Federal funds purchased, securities sold under agreements
to repurchase and other short-term borrowings |
(277,345 | ) | 83,310 | |||||
NET CASH USED IN FINANCING ACTIVITIES OF CONTINUING OPERATIONS |
(143,805 | ) | (16,228 | ) | ||||
NET CASH PROVIDED BY DISCONTINUED OPERATIONS |
— | 1,601 | ||||||
Increase (Decrease) in cash and cash equivalents |
21,160 | (70,406 | ) | |||||
Cash and cash equivalents at beginning of year, continuing operations |
153,465 | 249,118 | ||||||
Cash and cash equivalents at beginning of year, discontinued operations |
— | 5,823 | ||||||
Cash and cash equivalents at beginning of year |
153,465 | 254,941 | ||||||
Cash and cash equivalents at end of period, continuing operations |
$ | 174,625 | $ | 177,111 | ||||
Cash and cash equivalents at end of period, discontinued operations |
— | 7,424 | ||||||
Cash and cash equivalents at end of period |
$ | 174,625 | $ | 184,535 | ||||
See notes to consolidated unaudited financial statements.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
1. GENERAL
The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United”) have been prepared in accordance with accounting principles for interim financial information generally accepted in the United States and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The financial statements presented as of March 31, 2005 and 2004 and for the three-month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2004 has been extracted from the audited financial statements included in United’s 2004 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2004 Annual Report of United on Form 10-K. In the opinion of management, all adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.
The accompanying consolidated interim financial statements include the accounts of United and its wholly owned subsidiaries. United considers all of its principal business activities to be bank related. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars are in thousands, except per share and share data.
United has stock option plans for certain employees that are accounted for under the intrinsic value method. Because the exercise price at the date of the grant is equal to the market value of the stock, no compensation expense is recognized.
In December 2004, FASB enacted Statement of Financial Accounting Standards 123—revised 2004 (SFAS 123R), ‘‘Share-Based Payment’’ which replaces Statement of Financial Accounting Standards No. 123 (SFAS 123), “Accounting for Stock-Based Compensation’’ and supersedes APB Opinion No. 25 (APB 25), ‘‘Accounting for Stock Issued to Employees” and amends FASB Statement No. 95, “Statement of Cash Flows.’’ SFAS 123R requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value based method and the recording of such expense in our consolidated statements of income. In April 2005, the Securities and Exchange Commission (SEC) adopted a new rule amending the adoption date of SFAS 123R. Based on this new rule, registrants that are not small business issuers must adopt SFAS 123R no later than the beginning of the first fiscal year beginning after June 15, 2005. SFAS 123R may be adopted in one of two ways — the modified prospective transition method or the modified retrospective transition method. Prior to 2004, United disclosed pro forma compensation expense quarterly and annually by calculating the stock option grants’ fair value using the Black-Scholes model and disclosing the impact on net income and net income per share. For options granted in 2004, United used a binomial lattice model to value the options granted and determine the pro forma
10
compensation expense presented in the table below. United intends to use this binomial lattice model to value future grants. SFAS 123R defines a lattice model as a model that produces an estimated fair value based on the assumed changes in prices of a financial instrument over successive periods of time. A binomial lattice model assumes at least two price movements are possible in each period of time.
United, as does the FASB, believes the use of a binomial lattice model for option valuation is capable of more fully reflecting certain characteristics of employee stock options compared to the Black- Scholes options pricing model. For United, the difference in fair values calculated under each option pricing model is immaterial. The table below reflects the estimated impact the fair value method would have had on United’s net income and net income per share if SFAS 123R had been in effect for the three months ended March 31, 2005 and 2004. United will continue to evaluate the method of adoption and will begin to apply SFAS 123R as of the interim reporting period ending March 31, 2006, as required. United does expect the adoption to have an adverse impact on its consolidated statements of income and net income per share.
The following pro forma disclosures present United’s consolidated net income and diluted earnings per share, determined as if United had recognized compensation expense for its employee stock options based on the estimated fair value of the option at the date of grant amortized over the vesting period of the option:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2005 | 2004 | |||||||
Net Income, as reported |
$ | 24,760 | $ | 23,504 | ||||
Less pro forma expense related to options
granted, net of tax |
(301 | ) | (254 | ) | ||||
Pro forma net income |
$ | 24,459 | $ | 23,250 | ||||
Pro forma net income per share: |
||||||||
Basic – as reported |
$ | 0.58 | $ | 0.54 | ||||
Basic – pro forma |
$ | 0.57 | $ | 0.53 | ||||
Diluted – as reported |
$ | 0.57 | $ | 0.53 | ||||
Diluted – pro forma |
$ | 0.56 | $ | 0.53 | ||||
SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the company cannot estimate what those amounts will be in the future (because they depend on, among other things, the date employees exercise stock options), United did not recognize any such amounts in operating cash flows for the quarters ended March 31, 2005 and 2004.
In March of 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107), “Share-Based Payment.” SAB 107 provides guidance regarding the application of SFAS 123R including option valuation methods, the accounting for income tax effects of share-based payment arrangements upon the adoption of SFAS 123R, and the required disclosures within filings made with the SEC related to the accounting for share-
11
based payment transactions. United will provide SAB 107 required disclosures beginning in the interim reporting period ending March 31, 2006, as required.
2. DISCONTINUED OPERATIONS
On July 7, 2004, United closed the sale of its wholly owned mortgage banking subsidiary, George Mason Mortgage, LLC (Mason Mortgage) to Cardinal Financial Corporation (Cardinal) of McLean, Virginia for an amount equivalent to Mason Mortgage’s net worth plus cash of $17 million in exchange for all of the outstanding membership interests in Mason Mortgage. Mason Mortgage, which was previously reported as a separate segment, is presented as discontinued operations for all periods presented in these financial statements.
The results of Mason Mortgage are presented as discontinued operations in a separate category on the income statement following the results from continuing operations. All assets and liabilities of Mason Mortgage were sold as of July 7, 2004 and thus, were not included in the March 31, 2005 or December 31, 2004 consolidated balance sheets. No income from discontinued operations was recorded for the three months ended March 31, 2005 as the sale of Mason Mortgage occurred in 2004. Income from discontinued operations for the three months ended March 31, 2004 is presented below:
Statement of Income for Discontinued Operations
| March | ||||
| 2004 | ||||
Interest and fees on loans |
$ | 2,923 | ||
Interest expense |
572 | |||
Net interest income |
2,351 | |||
Other income: |
||||
Service charges, commissions, and fees |
214 | |||
Income from mortgage banking operations |
6,280 | |||
Total other income |
6,494 | |||
Other expense: |
||||
Salaries and employee benefits expense |
5,825 | |||
Net occupancy expense |
489 | |||
Other noninterest expense |
1,288 | |||
Total other expense |
7,602 | |||
Income from discontinued operations
before income taxes |
1,243 | |||
Income taxes |
346 | |||
Income from discontinued operations |
$ | 897 | ||
12
3. INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale are summarized as follows:
| March 31, 2005 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies |
$ | 7,286 | — | $ | 84 | $ | 7,202 | |||||||||
State and political subdivisions |
70,049 | $ | 1,946 | 288 | 71,707 | |||||||||||
Mortgage-backed securities |
896,750 | 6,537 | 16,300 | 886,987 | ||||||||||||
Marketable equity securities |
8,523 | 277 | 124 | 8,676 | ||||||||||||
Other |
179,829 | 2,510 | 469 | 181,870 | ||||||||||||
Total |
$ | 1,162,437 | $ | 11,270 | $ | 17,265 | $ | 1,156,442 | ||||||||
| December 31, 2004 | ||||||||||||||||
| Gross | Gross | Estimated | ||||||||||||||
| Amortized | Unrealized | Unrealized | Fair | |||||||||||||
| Cost | Gains | Losses | Value | |||||||||||||
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies |
$ | 13,395 | $ | 8 | $ | 20 | $ | 13,383 | ||||||||
State and political subdivisions |
67,054 | 2,387 | 91 | 69,350 | ||||||||||||
Mortgage-backed securities |
986,328 | 9,051 | 6,251 | 989,128 | ||||||||||||
Marketable equity securities |
8,597 | 1,500 | 39 | 10,058 | ||||||||||||
Other |
191,557 | 3,844 | 160 | 195,241 | ||||||||||||
Total |
$ | 1,266,931 | $ | 16,790 | $ | 6,561 | $ | 1,277,160 | ||||||||
In March 2004, the Financial Accounting Standards Board (FASB) ratified the consensus reached by the Emerging Issues Task Force (EITF) regarding Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (EITF 03-1). The issue provides guidance for evaluating whether an investment is other-than-temporarily impaired and requires certain disclosures with respect to these investments. The FASB has delayed the guidance in EITF 03-1 regarding measurement and recognition until application guidance is issued under a related FASB Staff Position; however, the disclosure requirements remain effective for annual periods ending after June 15, 2004. United will continue to evaluate the impact of EITF 03-1 once final guidance is issued.
13
Provided below is a summary of securities available-for-sale which were in an unrealized loss position at March 31, 2005 and December 31, 2004: