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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, 1999
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) 424-8704
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, 2000 was approximately $640,839,290.
As of February 29, 2000, United Bankshares, Inc. had 42,175,041 shares of
common stock outstanding with a par value of $2.50.
Documents Incorporated By Reference
1. Annual Report to Shareholders for the fiscal year ended December 31, 1999
portions of which are incorporated by reference in Parts I, II and IV of this
Form 10-K.
2. Definitive Proxy Statement dated April 3, 2000 for the 2000 Annual
Shareholders' Meeting to be held on May 15, 2000, portions of which are
incorporated by reference in Part III of this Form 10-K.
Page 1 of 82 pages. Index to Exhibits is on page 28 .
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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, 1999, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Page
Part I ----
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Item 1. BUSINESS ............................................... 3
Item 2. PROPERTIES ............................................. 3
Item 3. LEGAL PROCEEDINGS ...................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 10
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS .................................... 11
Item 6. SELECTED FINANCIAL DATA................................. 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................... 13
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISK ............................................ 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............ 23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES................. 23
Part III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 24
Item 11. EXECUTIVE COMPENSATION ................................. 24
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................. 24
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 24
Part VI
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Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K............................................. 25
2
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, organized on
September 9, 1982, and began conducting business on May 1, 1984 with the
acquisition of three wholly-owned subsidiaries. Since its formation in 1982,
United has acquired twenty-four banking institutions. United has two banking
subsidiaries, United National Bank ("UNB") and United Bank. United also owns
nonbank subsidiaries that engage in mortgage banking, asset management,
investment banking and financial planning.
Offices
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The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia. United's executive offices are located
in Parkersburg, West Virginia at Fifth and Avery Streets. United operates
seventy-eight offices--fifty-three offices located throughout West Virginia,
twenty-two offices throughout the Northern Virginia, Maryland and Washington,
D.C. areas and three in Ohio. United owns all its West Virginia facilities
except for two in the Parkersburg area, three in the Wheeling area, three in the
Charleston area, two in the Beckley area and one each in Summersville and
Clarksburg, all of which are leased under operating leases. United leases all
of its facilities under operating lease agreements in the Northern Virginia,
Maryland and Washington, D.C. areas except for two offices, one each in Fairfax
and Vienna, Virginia which are owned facilities.
Employees
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As of December 31, 1999 United and its subsidiaries had approximately 1,387
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,
3
United's present business is community and mortgage banking. As of December 31,
1999, United's consolidated assets approximated $5.1 billion and total
shareholders' equity approximated $396 million.
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.
Business of Subsidiary Banks
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United, through its subsidiaries, engages primarily in community banking
and mortgage banking and additionally offers 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 and United Bank each maintains a trust department which acts as trustee
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 performs a variety of investment and security
services. 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.
United Brokerage Services, Inc., a wholly-owned subsidiary of UNB, is a
fully-disclosed broker/dealer and a registered Investment Advisor 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. offers a wide range of investment products as
well as comprehensive financial planning and asset management services to the
general public.
UNB is a member 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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United's loan portfolio, net of unearned income, increased $518 million, or
19.52%, to $3.17 billion in 1999 and is comprised of commercial, real estate and
consumer loans including credit card and home equity loans. Commercial and
commercial real estate loans increased $26.5 million or 5.21% and $126.8 million
or 22.1%, respectively, while consumer loans, net of unearned income, increased
$49.8 million or 15.9%. Residential real estate loans increased $312.3 million
or 29.02%.
4
As of December 31, 1999, approximately $401 million or 13% of United's loan
portfolio were real estate loans that met the regulatory definition of a high
loan-to-value loan. A high loan-to-value real estate loan is defined as any
loan, line of credit, or combination of credits secured by liens on or interests
in real estate that equals or exceeds 90% of the real estate's appraised value,
unless the loan has other appropriate credit support. Appropriate credit
support may include mortgage insurance, readily marketable collateral, or other
acceptable collateral that reduces the loan-to-value ratio below 90%.
The December 31, 1999 position in high loan-to-value loans is significantly
less than the December 31, 1998 amounts of $617 million or 20% of total loans,
of which $456 million was held in the loans held for sale category on United's
balance sheet.
Commercial Loans
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The commercial loan portfolio consists of loans to corporate borrowers
primarily in 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 include 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.
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.
5
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, verify the source of
repayment and the ability of the applicant to repay, collateralize those loans
in which collateral is deemed to be required, exercise care in the documentation
of the application, review, approval, and origination process, and administer a
comprehensive loan collection program. The above guidelines are adhered to and
subject to the experience, background and personal judgment of the loan officer
assigned to the loan application. A loan officer may grant, with justification,
a loan with 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. As of December 31, 1999, the balance of mortgage loans being
serviced by United for others was insignificant.
Secondary Markets
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United National Bank and George Mason Mortgage Company ("GMMC"), a wholly-
owned subsidiary of United Bank, are engaged in the operation of a general
mortgage and agency business, including the conducting of mortgage loan
servicing activities for certain loans, the origination and acquisition of
residential real estate loans for resale and generally the activities commonly
conducted by a mortgage banking company. These loans are for single, owner-
occupied residences with either adjustable or fixed rate terms, with a variety
of maturities tailored to effectively serve its markets.
GMMC primarily originates permanent residential mortgage loans in the
northern Virginia market while UNB's originations are predominately in its West
Virginia markets. Mortgage loan originations are generally intended to be sold
in the secondary market.
During 1999, United originated $1.3 billion of real estate loans for sale
in the secondary market and sold $1.4 billion of loans designated as held for
sale in the secondary market. Proceeds received from the sales of these loans
during 1999 was $1.4 billion.
The principal sources of revenue from United's mortgage banking business
are: (i) loan origination fees; (ii) gains or losses from the sale of loans, if
any; (iii) interest earned on mortgage loans during the period that they are
held by United pending sale; and (iv) loan servicing fees.
6
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 and FHLB borrowings. Repurchase
agreements represent funds that are generally obtained as the result of a
competitive bidding process.
United's investment portfolio is comprised largely of mortgage-backed
securities. Additionally United has a substantial amount 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 1999, 1998 and 1997, United recognized net gains of $677 thousand,
$2.37 million, and $85 thousand, respectively, from the available for sale
portfolio. The net gain in 1998 included a $2.49 million gain recognized on an
available for sale equity security exchanged in an unaffiliated merger
transaction consummated at the end of the first quarter of 1998. Additionally,
the 1998 net gain included approximately $300 thousand of net losses from calls
of held to maturity securities.
At December 31, 1999, United had no open commitments to sell mortgage-
backed securities. As such, United is not exposed to significant risk nor will
it derive any significant benefit from changes in interest rates on the price of
the mortgage loan inventory.
Competition
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United faces a high degree of competition in all of the markets it serves.
These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson,
Cabell, Hancock, Ohio, Marshall, Gilmer, Lewis, Webster, Boone, Logan,
Nicholas, Fayette and Raleigh Counties in West Virginia; Lawrence, Belmont,
Jefferson and Washington Counties in Ohio; Montgomery County in Maryland and
Arlington, Loudoun, Prince William 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 West Virginia markets are the five largest West Virginia Metropolitan
Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington
MSA, the Wheeling MSA and the Weirton MSA. United's Virginia markets include
the Washington, D.C. Metropolitan area. United considers the above counties and
MSA's to be the primary market area for the business of its banking
subsidiaries.
7
With prior regulatory approval, West Virginia and Virginia banks are
permitted unlimited branch banking throughout the state. In addition,
interstate acquisitions of and by West Virginia and Virginia banks and bank
holding companies are permissible on a reciprocal basis, as well as reciprocal
interstate acquisitions by thrift institutions. These conditions serve to
intensify competition within United's market.
As of December 31, 1999, there were 58 bank holding companies in the State
of West Virginia registered with the Federal Reserve System and the West
Virginia Board of Banking and Financial Institutions and 74 bank holding
companies in the Commonwealth of Virginia registered with the Federal Reserve
System and the Virginia Corporation Commission. These holding companies are
headquartered in various West Virginia and Virginia cities and control banks
throughout West Virginia and Virginia, 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 encompasses 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 with the chemical manufacturing
industry accounting for 17% of the entire manufacturing workforce and 30% of the
manufacturing wages, according to West Virginia state records. This diversified
economy has contributed to the positive trends in the number of payroll jobs
created and unemployment rates in recent years as the number of payroll jobs
increased 6,400 during calendar year 1999 and the state's overall unemployment
rate has declined from 10.5% in 1991 to 6.0% in December 1999. West Virginia's
unemployment rate for all of 1999 averaged 6.6%, which ties 1998 for the lowest
average annual unemployment rate since 1978, according to available information
from the West Virginia Bureau of Employment Programs.
United's northern Virginia subsidiary banking offices are located in
markets that reflect very low unemployment rate levels and increased wage levels
over a year ago. According to information available from the Virginia
Employment Commission, Virginia's unemployment rate as of December 1999 was
2.6%. The 2.6% rate was the lowest rate reported for the month of December in 30
years. Additionally, the Virginia Employment Commission reported that record
levels were set with increased nonagricultural employment and increased
production workers' salaries in December 1999.
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
8
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.
On November 12, 1999 the Gramm-Leach-Bliley Act was signed into law. The Act
modernizes the regulatory framework for financial services in the United States
and allows banks, securities firms, and insurance companies to affiliate more
directly than they have been permitted to do in the past. Under the Act, a bank
holding company may become a "financial holding company" to offer a much broader
range of financial products and services than had been previously possible under
the traditional banking structure, provided that the bank holding company meets
certain certification requirements of the Federal Reserve. United is presently
in the process of analyzing the opportunities, requirements, and pitfalls the
Act presents.
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 that
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.
9
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 3. Legal Proceedings
Litigation
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Information relating to litigation on page 28 of the Annual Report to
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Shareholders for the year ended December 31, 1999, is incorporated herein by
reference.
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.
10
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
Stock
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As of December 31, 1999, 100,000,000 shares of common stock, par value
$2.50 per share, were authorized for United, of which 43,381,769 were issued,
including 894,661 shares held as treasury shares. The outstanding shares are
held by approximately 11,778 shareholders of record as of December 31, 1999. 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. In addition to the above
incentive plans, United is occasionally involved in certain mergers in which
additional shares could be issued and recognizes that additional shares could be
issued 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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On November 24, 1997, the Board of Directors of United declared a two for
one stock split in the form of a 100% stock dividend payable on March 27, 1998,
to shareholders of record as of March 13, 1998. The change in capital structure
due to the 100% stock dividend was given retroactive effect in the December 31,
1997 balance sheet and all references to shares and per share data reflect the
effect of the 100% stock dividend.
The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Dividends
were $0.82 per share in 1999, $0.75 per share in 1998
11
and $0.68 per share in 1997. 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 current 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 M - Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
Market and Stock Prices of United
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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 high and low prices listed below page 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.
The following table presents the dividends and high and low prices of
United's common stock during the periods set forth below:
2000 Dividends High Low
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First Quarter through February 29, 2000 (1) $24.44 $17.25
1999
----
Fourth Quarter $0.21 $26.25 $22.63
Third Quarter $0.21 $27.25 $23.38
Second Quarter $0.20 $27.38 $22.88
First Quarter $0.20 $27.69 $22.75
1998
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Fourth Quarter $0.20 $29.88 $20.75
Third Quarter $0.19 $31.50 $24.00
Second Quarter $0.18 $34.19 $23.25
First Quarter $0.18 $26.19 $22.75
(1) On February 28, 2000, United declared a dividend of $0.21 per share, payable
April 1, 2000, to shareholders of record as of March 10, 2000.
12
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
Information relating to selected financial data on page 37 of the Annual
--
Report to Shareholders for the year ended December 31, 1999, is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 38 through 51 inclusive, of the Annual Report to
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Shareholders for the year ended December 31, 1999, is incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk on pages 43
-----
through 45 inclusive, of the Annual Report to Shareholders for the year
------
ended December 31, 1999, is incorporated herein by reference.
13
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, 1999,
1998 and 1997 with the interest and rate earned or paid on such amount.
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------------------- ---------------------------------
Average Avg. Average Avg.
Balance Interest Rate Balance Interest Rate
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ASSETS
Earning Assets:
Federal funds sold, securities
repurchased under agreements to
resell & other short-term investments $ 8,390 $ 522 6.22% $ 28,270 $ 1,472 5.21%
Investment Securities:
Taxable 1,295,851 85,392 6.59% 876,167 55,550 6.34%
Tax-exempt (1) (2) 202,435 14,402 7.11% 66,019 5,262 7.97%
------------------------------- ----------------------------
Total Securities 1,498,286 99,794 6.66% 942,186 60,812 6.45%
Loans, net of unearned
Income (1) (2) (3) 3,110,785 262,622 8.44% 3,053,948 267,186 8.75%
Allowance for loan losses (39,615) (35,598)
------------ ----------
Net loans 3,071,170 8.55% 3,018,350 8.85%
------------------------------- ----------------------------
Total earning assets 4,577,846 $362,938 7.93% 3,988,806 $329,470 8.26%
-------- --------
Other assets 289,675 250,002
------------ ----------
TOTAL ASSETS $4,867,521 $4,238,808
============ ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,890,065 $122,651 4.24% $2,791,996 $128,976 4.62%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 367,342 17,104 4.66% 228,923 10,732 4.69%
FHLB advances 653,579 34,647 5.30% 282,741 15,646 5.53%
------------------------------- ----------------------------
Total Interest-Bearing Funds 3,910,986 174,402 4.46% 3,303,660 155,354 4.70%
-------- --------
Demand deposits 468,238 452,300
Accrued expenses and other liabilities 68,478 70,572
----------
------------
TOTAL LIABILITIES 4,447,702 3,826,532
SHAREHOLDERS' EQUITY 419,819 412,276
------------ ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,867,521 $4,238,808
============ ==========
NET INTEREST INCOME $188,536 $174,116
============ ============
INTEREST SPREAD 3.47% 3.56%
NET INTEREST MARGIN 4.12% 4.37%
Year Ended
December 31, 1997
--------------------------------
Average Avg.
Balance Interest Rate
--------------------------------
ASSETS
Earning Assets:
Federal funds sold, securities
repurchased under agreements to
resell & other short-term investments $ 27,991 $ 1,456 5.20%
Investment Securities:
Taxable 884,541 57,868 6.54%
Tax-exempt (1) (2) 54,361 4,753 8.74%
--------------------------------
Total Securities 938,902 62,621 6.67%
Loans, net of unearned
Income (1) (2) (3) 2,526,849 219,588 8.69%
Allowance for loan losses (30,438)
--------------
Net loans 2,496,411 8.80%
--------------------------------
Total earning assets 3,463,304 $283,665 8.19%
--------
Other assets 218,998
--------------
TOTAL ASSETS $3,682,302
==============
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,528,103 $113,472 4.49%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 195,390 8,911 4.56%
FHLB advances 149,899 8,739 5.83%
--------------------------------
Total Interest-Bearing Funds 2,873,392 131,122 4.56%
--------
Demand deposits 390,020
Accrued expenses and other liabilities 43,403
-------------
TOTAL LIABILITIES 3,306,815
SHAREHOLDERS' EQUITY 375,487
--------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,682,302
==============
NET INTEREST INCOME $152,543
============
INTEREST SPREAD 3.62%
NET INTEREST MARGIN 4.40%
(1) The interest income and the yields on federally nontaxable loans and
investment securities are presented on a tax-equivalent basis using the
statutory federal income tax rate of 35%.
(2) The interest income and the yields on state nontaxable loans and investment
securities are presented on a tax-equivalent basis using the statutory
state income tax rate of 9%.
(3) Nonaccruing loans are included in the daily average loan amounts
outstanding
14
UNITED BANKSHARES, INC. AND SUBSIDIARIES
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).
1999 Compared to 1998 1998 Compared to 1997
--------------------------------------------- ------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------------------------- ------------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
--------------------------------------------- ------------------------------------------
Interest income:
Federal funds sold, securities purchased
under agreements to resell and other
short-term investments ($1,035) $ 287 ($202) ($950) $ 15 $ 1 $ 0 $ 16
Investment securities:
Taxable 26,608 2,186 1,048 29,842 (548) (1,787) 17 (2,318)
Tax exempt (1), (2) 10,873 (565) (1,168) 9,140 1,019 (420) (90) 509
Loans (1),(2),(3) 4,676 (9,081) (159) (4,564) 45,908 1,398 292 47,598
--------------------------------------------- ------------------------------------------
TOTAL INTEREST INCOME 41,122 (7,173) (481) 33,468 46,394 (808) 219 45,805
--------------------------------------------- ------------------------------------------
Interest expense:
Interest-bearing deposits $ 4,530 ($10,487) ($368) ($6,325) $11,845 $ 3,313 $ 346 $15,504
Federal funds purchased, repurchase
Agreements, and other short-term
Borrowings 6,489 (73) (44) 6,372 1,529 251 43 1,823
FHLB advances 20,521 (658) (862) 19,001 7,746 (446) (395) 6,905
--------------------------------------------- ------------------------------------------
TOTAL INTEREST EXPENSE 31,540 (11,218) (1,274) 19,048 21,120 3,118 (6) 24,232
--------------------------------------------- ------------------------------------------
NET INTEREST INCOME $ 9,582 $ 4,045 $ 793 $ 14,420 $25,274 ($3,926) $ 225 $21,573
============================================= ==========================================
(1) Yields and interest income on federally tax exempt loans and investment
securities are computed on a fully tax-equivalent basis using the statutory
federal income tax rate of 35%.
(2) Yields and interest income on state tax exempt loans and investment
securities are computed on a fully tax-equivalent basis using the statutory
state income tax rate of 9%.
(3) Nonaccruing loans are included in the daily average loan amounts
outstanding.
15
UNITED BANKSHARES, INC. AND SUBSIDIARIES
LOAN PORTFOLIO
TYPES OF LOANS
The following is a summary of loans outstanding at December 31:
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
(In thousands)
Commercial, financial
and agricultural $ 535,116 $ 508,601 $ 487,706 $ 328,248 $ 295,929
Real estate mortgage 2,134,370 1,696,233 1,693,819 1,611,801 1,502,096
Real estate construction 144,634 141,026 150,429 90,817 66,810
Consumer 363,272 313,464 364,951 328,928 293,741
Less: Unearned interest (7,296) (6,933) (7,066) (5,223) (5,427)
-------------------------------------------------------------------------------
Total loans 3,170,096 2,652,391 2,689,839 2,354,571 2,153,149
Allowance for loan losses (39,599) (39,189) (31,936) (29,376) (29,531)
-------------------------------------------------------------------------------
TOTAL LOANS, NET $3,130,497 $2,613,202 $2,657,903 $2,325,195 $2,123,618
===============================================================================
Loans held for sale $ 117,825 $ 720,607 $ 97,619 $ 74,465 $ 55,827
===============================================================================
The following is a summary of loans outstanding as a percent of total loans at
December 31:
1999 1998 1997 1996 1995
----------------------------------------------------
Commercial, financial
and agricultural 16.88% 19.18% 18.13% 13.94% 13.74%
Real estate mortgage 67.33% 63.95% 62.97% 68.45% 69.76%
Real estate construction 4.56% 5.32% 5.59% 3.86% 3.10%
Consumer 11.23% 11.55% 13.31% 13.75% 13.40%
----------------------------------------------------
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,
1999:
Less Than One To Greater Than
One Year Five Years Five Years Total
------------------ ------------------ ------------------ ------------------
(In thousands)
Commercial, financial
and agricultural $186,571 $201,514 $147,031 $535,116
Real estate construction 144,634 144,634
------------------ ------------------ ------------------ ------------------
Total $331,205 $201,514 $147,031 $679,750
================== ================== ================== ==================
16
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 1999, 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 $114,762 $ 93,051
Outstanding with adjustable rates 86,752 53,980
--------------- ---------------
$201,514 $147,031
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 or disclosed elsewhere herein 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
-------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------
(In thousands)
Nonaccrual loans $12,327 $ 9,139 $ 5,815 $ 6,373 $10,062
Troubled debt restructurings 95 744
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 8,415 9,528 12,877 6,317 5,070
-------------------------------------------------------
TOTAL $20,742 $18,667 $18,692 $12,785 $15,876
=======================================================
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 D to the consolidated financial statements for
additional information regarding nonperforming loans, impaired loans and credit
risk concentration. Other real estate owned is not material.
17
UNITED BANKSHARES, INC. AND SUBSIDIARIES
INVESTMENT PORTFOLIO
The following is a summary of the amortized cost of held to maturity securities
held to maturity at December 31,:
1999 1998 1997
--------------- --------------- ---------------
(In thousands)
U.S. Treasury and other U.S. Government
agencies and corporations $ 56,734 $121,474 $123,186
States and political subdivisions 97,824 82,011 51,560
Mortgage-backed securities 90,850 139,002 212,254
Other 19,782 19,664 7,816
--------------- --------------- ---------------
TOTAL HELD TO MATURITY SECURITIES $265,190 $362,151 $394,816
=============== =============== ===============
The following is a summary of the amortized cost of available for sale
securities at December 31,:
1999 1998 1997
--------------- --------------- ---------------
(In thousands)
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $ 276,558 $198,151 $191,473
States and political subdivisions 48,914 27,474 4,093
Mortgage-backed securities 693,828 279,618 379,452
Marketable equity securities 8,369 9,211 4,730
Other 229,277 43,120 22,161
--------------- --------------- ---------------
TOTAL AVAILABLE FOR SALE SECURITIES $1,256,946 $557,574 $601,909
=============== =============== ===============
The fair 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
estimated maturity. Therefore, investors may not be able to invest at current
higher market rates due to the extended expected maturity of the security.
United had a net unrealized loss of $24,438 on all mortgage-backed securities at
December 31, 1999, as compared to a net unrealized gain of $3,983 at December
31, 1998.
The following table sets forth the maturities of all securities at December 31,
1999, 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
------ ------ ------- ------ -------- ------ -------- ------
(Dollars in thousands)
U.S. Treasury and other U.S.
Government agencies and corporations $4,328 6.32% $99,811 6.08% $183,783 6.39% $ 31,568 6.40%
States and political subdivisions (1) 2,308 7.82% 11,998 8.23% 30,966 7.87% 97,406 7.47%
Mortgage-backed securities 3,555 5.99% 27,611 6.63% 134,602 6.32% 594,977 6.39%
Other 1,000 8.74% 9,784 6.69% 36,944 6.71% 201,911 6.55%
(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.
18
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
--------------------- ---------------------
(Dollars in thousands)
At December 31:
1999 $44,120 $349,129
1998 7,260 236,535
1997 40,961 184,718
Weighted average interest rate
at year end:
1999 5.0% 5.0%
1998 5.6% 4.6%
1997 6.6% 4.5%
Maximum amount outstanding at
any month's end:
1999 $64,921 $440,281
1998 35,416 236,535
1997 47,900 215,205
Average amount outstanding during
the year:
1999 $27,774 $335,908
1998 24,334 201,475
1997 24,550 167,688
Weighted average interest rate
During the year:
1999 5.4% 4.6%
1998 5.6% 4.7%
1997 5.6% 4.4%
At December 31, 1999, repurchase agreements include $199,741 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.
19
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:
1999 1998 1997
--------------------------------- --------------------------------- ---------------------------------
Amount Rate Amount Rate Amount Rate
--------------- ------------- --------------- ------------- --------------- -------------
(Dollars in thousands)
Noninterest bearing
demand deposits $ 468,238 $ 452,300 $ 390,020
Interest bearing
demand deposits 335,231 1.60% 312,317 2.37% 205,040 2.64%
Savings deposits 865,351 3.36% 817,852 3.49% 858,980 3.07%
Time deposits 1,689,483 5.28% 1,661,827 5.60% 1,464,083 5.53%
--------------- --------------- ---------------
TOTAL $3,358,303 4.24% $3,244,296 4.62% $2,918,123 4.49%
=============== =============== ===============
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows:
(In thousands)
3 months or less $ 44,864
Over 3 through 6 months 23,781
Over 6 through 12 months 65,306
Over 12 months 50,000
---------------
TOTAL $183,951
===============
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:
1999 1998 1997
----------- ---------- ----------
Return on average assets 1.44% 1.05% 1.42%
Return on average equity 16.73% 10.77% 13.92%
Dividend payout ratio (1) 50.35% 63.77% 49.69%
Average equity to average
assets ratio 8.63% 9.73% 10.20%
(1) Based on historical results of United before the effects of restatements for
pooling of interests business combinations.
20
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:
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
(Dollars in thousands)
Balance of allowance for possible loan
losses at beginning of year $39,189 $31,936 $29,376 $29,531 $29,521
Allowance of purchased company at date
of acquisition 2,695 1,017
Loans charged off:
Commercial, financial and agricultural 3,896 800 1,352 2,310 2,051
Real estate 3,290 3,070 447 406 1,049
Real estate construction 63
Consumer and other 2,050 2,400 2,436 1,199 1,075
--------------------------------------------------------------------------
TOTAL CHARGE-OFFS 9,236 6,270 4,235 3,915 4,238
Recoveries:
Commercial, financial and agricultural 341 729 292 283 245
Real estate 156 217 263 237 189
Real estate construction 20
Consumer and other 349 421 265 359 319
--------------------------------------------------------------------------
TOTAL RECOVERIES 846 1,367 820 879 773
--------------------------------------------------------------------------
NET LOANS CHARGED OFF 8,390 4,903 3,415 3,036 3,465
Addition to allowance (1) 8,800 12,156 3,280 2,881 2,458
--------------------------------------------------------------------------
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR $39,599 $39,189 $31,936 $29,376 $29,531
==========================================================================
Loans outstanding at the end of period (gross) $3,170,096 $2,652,391 $2,689,839 $2,354,571 $2,153,149
Average loans outstanding during
period (net of unearned income) $2,975,116 $2,668,460 $2,472,293 $2,245,292 $2,052,268
Net charge-offs as a percentage of
average loans outstanding 0.28% 0.18% 0.14% 0.14% 0.17%
Allowance for loan losses as
a percentage of nonperforming loans 190.9% 209.9% 170.9% 229.8% 186.0%
(1) The amount charged to operations and the related balance in the allowance
for 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 probable 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 loan losses is adequate
to absorb anticipated losses.
21
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for loan losses
December 31
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
Commercial, financial and
Agricultural $14,432 $13,772 $10,115 $ 8,261 $ 7,736
Real estate 9,861 3,587 3,452 4,239 4,845
Real estate construction 754 1,086 674 511 729
Consumer and other 2,735 3,747 3,221 1,688 1,993
Unallocated 11,817 16,997 14,474 14,677 14,228
--------------- --------------- --------------- --------------- ---------------
Total $39,599 $39,189 $31,936 $29,376 $29,531
=============== =============== =============== =============== ===============
22
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 8. Financial Statements and Supplementary Data
(a) - FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X
Information relating to financial statements on pages 9 through 36
--- ----
inclusive of the Annual Report to Shareholders for the year ended December 31,
1999, is incorporated herein by reference.
(b) - SUPPLEMENTARY FINANCIAL INFORMATION
(1) Selected Quarterly Financial Data
Information relating to selected quarterly financial data on page 36 of the
-----
Annual Report to Shareholders for the year ended December 31, 1999, is
incorporated herein by reference.
(2) Information on the Effects of Changing Prices
Information relating to effects of changing prices on page 43 of the Annual
----
Report to Shareholders for the year ended December 31, 1999, is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
23
UNITED BANKSHARES, INC.
FORM 10-K, PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the registrant on
pages 4 through 9 inclusive and page 20 , of the Proxy Statement for the
--- --- ----
2000 Annual Shareholders' Meeting is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 10 through 14
---- ----
inclusive, of the Proxy Statement for the 2000 Annual Shareholders' Meeting is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management on pages 7 through 9 inclusive and pages 19 and 20, of the
---- --- ---- ----
Proxy Statement for the 2000 Annual Shareholders' Meeting is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions on pages
5 , 6 , 7 , 14 and 18 of the Proxy Statement for the 2000 Annual
- --- ---- ---- ---- ----
Shareholders' Meeting is incorporated herein by reference.
24
UNITED BANKSHARES, INC.
FORM 10-K, PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) List of Documents Filed as Part of This Report:
(1) Financial Statements
The financial statements listed below are incorporated herein by
reference from the Annual Report to Shareholders for the year ended December 31,
1999 at Item 8a. Page references are to such Annual report.
Financial Statements: Page References
- -------------------- ----------------
Report of Independent Auditors.................................................. 9
Consolidated Balance Sheets..................................................... 10
Consolidated Statements of Income.............................................. 11
Consolidated Statements of Changes in Shareholders'Equity....................... 12
Consolidated Statements of Cash Flows........................................... 13
Notes to Consolidated Financial Statements..................................... 14
(2) Financial Statement Schedules
United is not filing separate financial statement schedules because of
the absence of conditions under which they are required or because the required
information is included in the consolidated financial statements or notes
thereto.
(3) Exhibits Required by Item 601
Listing of Exhibits - See the Exhibits' Index on page
28 of this Form 10-K.
---
(b) Reports on Form 8-K
None
(c) Exhibits -- The exhibits to this Form 10-K begin on page 31 .
-------
(d) Consolidated Financial Statement Schedules -- All other schedules
for which provision is made in the applicable accounting regulation
of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable or pertain to items as
to which the required disclosures have been made elsewhere in the
financial statements and notes thereto, and therefor have been
omitted.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITED BANKSHARES, INC.
(Registrant)
By /s/ Richard M. Adams
--------------------------------
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title Date
/s/ Richard M. Adams Chairman of the Board, Director, March 27, 2000
- ------------------------------ and Chief Executive Officer
/s/ Steven E. Wilson Chief Financial Officer March 27, 2000
- ------------------------------ Chief Accounting Officer
/s/ Robert G. Astorg Director March 27, 2000
- ------------------------------
/s/ William W. Wagner Director March 27, 2000
- ------------------------------
/s/ James W. Word, Jr. Director March 27, 2000
- ------------------------------
/s/ P. Clinton Winter, Jr. Director March 27, 2000
- ------------------------------
/s/ F.T. Graff, Jr. Director March 27, 2000
- ------------------------------
/s/ Russell L. Isaacs Director March 27, 2000
- ------------------------------
/s/ Warren A. Thornhill, III Director March 27, 2000
- ------------------------------
/s/ I.N. Smith, Jr. Director March 27, 2000
- ------------------------------
/s/ Alan E. Groover Director March 27, 2000
- ------------------------------
/s/ H. Smoot Fahlgren Director March 27, 2000
- ------------------------------
26
SIGNATURES
(continued)
/s/ John M. McMahon Director March 27, 2000
- ---------------------------
/s/ Thomas J. Blair, III Director March 27, 2000
- ---------------------------
/s/ G. Ogden Nutting Director March 27, 2000
- ---------------------------
/s/ Harry L. Buch Director March 27, 2000
- ---------------------------
/s/ William C. Pitt, III Director March 27, 2000
- ---------------------------
27
UNITED BANKSHARES, INC.
FORM 10-K
INDEX TO EXHIBITS
Item 14.
S-K Item 601 Sequential Page
Description Table Reference Number (a)
- ------------- ---------------- ----------
Articles of Incorporation and
Bylaws: (3)
(a) Bylaws (g)
(b) Articles of Incorporation (f)
Investments (4) N/A
Voting Trust Agreement (9) N/A
Material Contracts (10)
(a) Employment Agreement with
I. N. Smith, Jr. (b)
(b) Employment Agreement with
Richard M. Adams (e)
(c) Lease on Branch Office in
Charleston Town Center,
Charleston, West Virginia (b)
(d) Lease on United Center,
Charleston, West Virginia (h)
(e) Lease with Polymerland, Inc.
on UNB Square (h)
(f) Lease and Agreement between
Valley Savings and Loan
Company (Lessor) and Dorothy
Adams, Richard M. Adams and
Douglass H. Adams (Lessees) (c)
(g) Agreement between Dorothy
D. Adams (Lessors) and Valley
Savings and Loan Company (Lessees) (c)
28
S-K Item 601 Sequential Page
Description Table Reference Number (a)
----------- --------------- ----------------
(h) Employment Contract with
Douglass H. Adams (d)
(i) Employment Contract with
Thomas A. McPherson (d)
(j) Data processing contract
with FISERV (k)
(k) Supplemental Retirement
Contract with Richard M.
Adams (i)
(l) Supplemental Retirement
Contract with Douglass H.
Adams (i)
(m) Executive Officer Change
of Control Agreements (j)
(n) Data processing contract
with ALTELL (l)
(o) Employment Contract with
Bernard H. Clineburg (m)
Statement Re: Computation of
Ratios (12) 78
Annual Report to Security Holders,
et al. (13) 31
Letter Re: Change in accounting
principles (18) N/A
Previously Unfiled Documents (19) N/A
Subsidiaries of the Registrant (21) 79
Published Report Regarding Matters
Submitted to a Vote of Security
Holders (22) N/A
Consent of Ernst & Young LLP (23.1) 80
29
S-K Item 601 Sequential Page
Description Table Reference Number (a)
----------- --------------- ----------
Consent of KPMG LLP (23.2) 81
Power of Attorney (24) N/A
Financial Data Schedule (27) 82
Additional Exhibits: (28) N/A
Footnotes
- ---------
(a) N/A = Not Applicable
(b) Incorporated into this filing by reference to Exhibit 10 of the 1985 Form
10-K for Intermountain Bankshares, Inc., File No. 0-12356
(c) Incorporated into this filing by reference to Exhibit 10 of the 1986 Form
10-K for United Bankshares, Inc., File No. 0-13322
(d) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 33-19968
filed February 3, 1988
(e) Incorporated into this filing by reference to Exhibits to the 1988 10-K for
United Bankshares, Inc., File No. 0-13322
(f) Incorporated into this filing by reference to Exhibits to the 1989 10-K for
United Bankshares, Inc., File No. 0-13322
(g) Incorporated into this filing by reference to Exhibits to the 1990 10-K for
United Bankshares, Inc., File No. 0-13322
(h) Incorporated into this filing by reference to Exhibits to the 1991 10-K for
United Bankshares, Inc., File No. 0-13322
(i) Incorporated into this filing by reference to Exhibits to the 1992 10-K for
United Bankshares, Inc., File No. 0-13322
(j) Incorporated into this filing by reference to Exhibits to the 1993 10-K for
United Bankshares, Inc., File No. 0-13322
(k) Incorporated into this filing by reference to Exhibits to the 1994 10-K as
amended by Form 10K/A filed February 8, 1996, for United Bankshares, Inc.,
File No. 0-13322
(l) Incorporated into this filing by reference to Exhibits to the 1996 10-K for
United Bankshares, Inc., File No. 0-13322
(m) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 333-
44993 filed January 27, 1998
30
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
Five Year Summary
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
Summary of Operations:
Total interest income $ 354,665 $ 325,647 $ 280,452 $ 250,641 $ 232,956
Total interest expense 174,402 155,354 131,122 112,256 101,441
Net interest income 180,263 170,293 149,330 138,385 131,515
Provision for loan losses 8,800 12,156 3,280 2,881 2,458
Other income 51,078 41,752 37,068 29,654 25,735
Other expense 117,519 137,964 103,852 104,385 90,732
Income taxes 34,774 17,523 27,005 21,054 21,701
Net income 70,248 44,402 52,261 39,719 42,359
Cash dividends(1) 35,367 28,317 20,344 17,847 13,817
Per common share:
Net income:
Basic 1.63 1.04 1.24 0.94 1.01
Diluted 1.61 1.02 1.22 0.93 1.00
Cash dividends(1) 0.82 0.75 0.68 0.62 0.59
Book value per share 9.32 9.74 9.35 8.59 8.27
Selected Ratios:
Return on average
shareholders' equity 16.73% 10.77% 13.92% 11.17% 12.80%
Return on average assets 1.44% 1.05% 1.42% 1.18% 1.38%
Dividend payout ratio (1) 50.35% 63.77% 49.69% 58.49% 49.21%
Selected Balance Sheet Data:
Average assets $4,867,521 $4,238,808 $3,682,302 $3,352,594 $3,077,631
Investment securities 1,472,553 927,316 1,006,735 865,020 771,181
Loans held for sale 117,825 720,607 97,619 74,465 55,827
Total loans 3,170,096 2,652,391 2,689,839 2,354,571 2,153,149
Total assets 5,069,160 4,567,899 4,094,836 3,541,244 3,224,123
Total deposits 3,260,985 3,493,058 3,185,963 2,770,833 2,570,630
Long-term borrowings 343,847 240,867 46,674 44,877 44,445
Total borrowings
and other liabilities 1,412,245 653,310 512,817 407,579 304,232
Shareholders' equity 395,930 421,531 396,056 362,832 349,261
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
31
UNITED BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage
corporations to provide investors with information about the company's
anticipated future financial performance, goals, and strategies. The act
provides a safe harbor for such disclosure; in other words, protection from
unwarranted litigation if actual results are not the same as management
expectations.
United desires to provide its shareholders with sound information about past
performance and future trends. Consequently, any forward-looking statements
contained in this report, in a report incorporated by reference to this report,
or made by management of United in this report, in any other reports and
filings, in press releases and in oral statements, involves numerous
assumptions, risks and uncertainties. Actual results could differ materially
from those contained in or implied by United's statements for a variety of
factors including, but not limited to: changes in economic conditions; movements
in interest rates; competitive pressures on product pricing and services;
success and timing of business strategies; the nature and extent of governmental
actions and reforms; and rapidly changing technology and evolving banking
industry standards.
INTRODUCTION
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and the consolidated financial
statements and the notes to consolidated financial statements include the
accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless
otherwise indicated.
This discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes thereto, which are included
elsewhere in this document.
The following broad overview of the financial condition and results of
operations is not intended to replace the more detailed discussion which is
presented under specific headings on the following pages.
1999 COMPARED TO 1998
EARNINGS SUMMARY
For the year ended December 31, 1999, net income increased 58.21% to $70.2
million from $44.4 million for the year ended December 31, 1998. On a diluted
per share basis, net income of $1.61 for the year increased 57.85% from $1.02 in
1998.
32
Results for 1998 include the recognition of approximately $13.7 million ($8.2
million after tax) of merger-related and one-time charges associated with the
pooling of interests acquisitions of George Mason Bankshares, Inc. and Fed One
Bancorp, Inc.
For the year of 1999, United's return on average shareholders' equity of 16.73%
and a return on average assets of 1.44% compare favorably with national peer
grouping information provided by Keefe, Bruyette, & Woods, of 15.86 % and 1.35%,
respectively. United, one of the nation's most profitable regional banking
companies, has a strong capital position, and is well positioned to take
advantage of future growth opportunities.
Dividends per share increased 9.34% from $0.75 in 1998 to a record level of
$0.82 per share in 1999. United paid approximately $35.0 million in dividends
to common shareholders in 1999 compared with $24.65 million in 1998. This was
the twenty-sixth consecutive year of dividend increases to shareholders.
Growth in earnings was a result of increases in net interest and noninterest
income as well as a reduction of noninterest expenses. Net interest income
increased by $9.97 million or 5.85% for the year ended December 31, 1999 as
compared to the same period for 1998. Noninterest income, including income from
mortgage banking operations, increased $9.33 million or 22.34% for 1999 when
compared to 1998. Noninterest expenses decreased $20.45 million or 14.82% for
1999 compared to the same period in 1998.
The effective tax rate for the year ended December 31, 1999 approximated 33.12%
compared to 28.30% for 1998.
FINANCIAL CONDITION SUMMARY
Total assets were $5.07 billion at December 31, 1999, up $501.26 million or
10.97% compared with year end 1998. United's available for sale securities
portfolio increased $642.20 million while securities held to maturity decreased
$96.96 million as compared to year end 1998. Loans held for sale decreased $603
million during 1999 due mainly to a securitization in the amount of
approximately $205 million, transfer of approximately $230 million to the loan
portfolio and sales of mortgage loans in the secondary market. Loans, net of
unearned income, reflected a $517.71 million increase from 1998 to 1999 due to
13% growth rates in both the commercial and consumer (non-mortgage) loan
portfolios, as well as the previously mentioned reclassification. Cash and cash
equivalents increased $18.51 million while nonearning assets increased $23
million in 1999 as compared with year end 1998.
Total deposits declined $232.07 million or 6.64% from year end 1998 as United
realized decreases of $169.85 million and $62.22 million in interest-bearing
deposits and noninterest-bearing deposits, respectively. United's short-term
borrowings increased $151.21 million and its FHLB borrowings increased $607.48
million as United utilized these sources of cash to fund investment and loan
growth.
Shareholders' equity decreased $25.60 million or 6.07% from December 31, 1998
due primarily to purchases of treasury stock of $26.19 million and a decline in
the fair value of United's securities available for sale portfolio of
approximately $37.16 million, net of deferred income taxes. In May of 1999,
United announced a 1.75 million share repurchase program, and by year end 1999,
United had purchased approximately 1.05
33
million shares. United continues to balance capital adequacy and the return to
shareholders. At December 31, 1999, United's regulatory capital ratios,
including those of its bank subsidiaries, exceeded the levels established for
well-capitalized institutions.
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 income from earning assets and interest
expense incurred to fund these 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 1998, are summarized below.
For the years ended December 31, 1999 and 1998, tax-equivalent net interest
income was $188.54 million and $174.12 million, respectively. On a tax-
equivalent basis the net interest margin was 4.12% for 1999 and 4.37% for 1998.
The decline in the margin percentage reflected a changing earning asset mix
primarily related to the securitization of higher yielding high loan-to-value
mortgage loans. As a result of the securitization, interest income on the
securities was recognized at a projected loss-adjusted yield that was
significantly less than the contractual yields of the underlying assets. Should
the actual performance of the underlying assets in future periods differ from
the current projections, interest income recognized on those assets may be
materially different.
Total interest income of $354.67 million increased 8.91% in 1999 over 1998 as a
result of higher volumes of interest-earning assets. Overall, average interest-
earning assets increased $589.04 million or 14.77% during 1999 from $3.99
billion in 1998 to $4.58 billion in 1999. In particular, the average volume of
investment securities increased $556.10 million at a slightly higher yield since
December 31, 1998. During 1999, United experienced growth in all three major
loan portfolios--commercial loans increased 13.85%, consumer loans increased
13.33% and mortgage loans increased 6.42%. Commercial loan growth was due to
the more active solicitation of commercial loan volume, while the increase in
the consumer loan portfolio was mainly attributable to the introduction of
certain loan products in United's northern Virginia market.
Total interest expense increased $19.05 million or 12.26% in 1999 compared to
1998. This increase was attributed primarily to increased average wholesale
funding balances at lower average interest rates than in 1998. The average cost
of funds decreased from 4.70% in 1998 to 4.46% in 1999 in light of a rising
interest rate environment. United's average FHLB borrowings increased $370.84
million and average short-term borrowings increased $138.42 million as United
implemented a strategy during 1999 to leverage its balance sheet. Average
interest-bearing deposits increased slightly by $98.07 million or 3.52% in 1999.
Provision for Loan Losses
Nonperforming loans were $20.74 million at December 31, 1999 and $18.67 million
at December 31, 1998. Nonperforming loans as a percentage of total assets
remained constant at 0.41% for United at the end of
34
1999 and 1998. 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. Nonaccrual loans
increased $3.19 million or 34.89% while loans past due 90 days or more decreased
$1.11 million or 11.69% since year end 1998. Total nonperforming assets of
$24.51 million, including OREO of $3.76 million at December 31, 1999,
represented 0.49% of total assets at the end of 1999.
At December 31, 1999, impaired loans were $15.64 million, an increase of $4.72
million or 43.20% from the $10.92 million of impaired loans at December 31, 1998
due primarily to three collateralized commercial loans totaling $4.1 million
being classified as nonaccrual. For further details, see Note D to the
Consolidated Financial Statements.
This decline in credit quality from 1998 was indicative of the trend in the
banking industry during 1999. The nonperforming assets to total assets ratio
among the nation's top-30 regional banks increased to approximately 0.42% at the
end of 1999 as compared to 0.35% at the end of 1998 according to information
from Wheat First Union Securities. Much of the deterioration nationwide has
occurred in the commercial lending area. However, credit quality remains strong
by historical standards. Bank credit quality has improved significantly since
the early 1990s in which the nonperforming assets to total assets ratio for the
30 largest regional banks reached a high of 1.67% in 1991.
See Note D to the Consolidated Financial Statements for a discussion of
concentrations of credit risk.
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 for 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.
Allocations are made for specific commercial loans based upon management's
estimate of the borrowers' ability to repay and other factors impacting
collectibility. Other commercial loans not specifically reviewed on an
individual basis are evaluated based on historical loan percentages applied to
loan pools that have been segregated by risk. Allocations for loans other than
commercial loans are made based upon historical loss experience adjusted for
current conditions. The unallocated portion of the allowance for loan losses
provides for risk arising in part from, but not limited to, declines in credit
quality resulting from sudden economic or industry shifts and changing economic
trends. Differences between actual loan loss experience and estimates are
reviewed on a quarterly basis and adjustments are made to those estimates.
United's formal company- wide process at December 31, 1999 produced increased
allocations within two of four loan categories. The components of the allowance
allocated to real estate increased $6.3 million, as a result of the addition to
the loan portfolio of a large block of junior-lien mortgage loans previously
held for sale. The components of the allowance allocated to commercial loans
increased $660 thousand as a result of the increased level of impaired assets
and changes in historical loss experience factors. Pools for consumer and real
estate construction loans decreased $1.0 million and $332 thousand,
respectively, as a result of changes in historical loss experience and volume
factors for these loan pools.
At year end 1999 and 1998, the allowance for loan losses was 1.25% and 1.47% of
total loans, net of unearned income, respectively. At December 31, 1999 and
1998, the ratio of the allowance for loan losses
35
to nonperforming loans was 190.9% and 209.9%, respectively.
Management believes that the allowance for loan losses of $39.60 million at
December 31, 1999, is adequate to provide for probable losses on existing loans
based on information currently available.
For the years ended December 31, 1999 and 1998, the provision for loan losses
was $8.80 million and $12.16 million, respectively. Total net charge-offs were
$8.4 million in 1999 and $4.9 million in 1998, which represents 0.28% and 0.18%
of average loans for the respective years. The increase was due to additional
net charge-offs of approximately $3.6 million in commercial loans during 1999 as
compared to 1998. Over half the increased charge-off in 1999 was due to the
charge-off of approximately $2.6 million associated with a single borrower.
Management is not aware of any potential problem loans, trends or uncertainties
which it reasonably expects will materially impact future operating results,
liquidity, or capital resources which have not been disclosed. Additionally,
management has disclosed all known material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment schedules.
Other Income
Noninterest income has been and will continue to be an important factor for
improving United's profitability. Accordingly, management continues to evaluate
areas where noninterest income can be enhanced. Noninterest income increased
$9.33 million or 22.34% for 1999 when compared to 1998. Other income consists of
all revenues that are not included in interest and fee income related to earning
assets. The increase in noninterest income for 1999 was primarily the result of
an $8.18 million increase in the mortgage banking segment and a $1.44 million
increase in trust department income. These increases in noninterest income were
partially offset by a $1.69 million decline in net gains on securities due to a
$2.49 million recognized gain on an available for sale equity security exchanged
in an unaffiliated merger transaction consummated in 1998.
Service charges, commissions and fees from customer accounts increased $839
thousand or 4.41% from 1998 due mainly to a new checking account product
introduced during the third quarter of 1999. This income includes charges and
fees related to various banking services provided by United.
Trust income and brokerage commissions increased $820 thousand or 19.92% and
$618 thousand or 133.82%, respectively, in 1999 due to an increased volume of
trust and brokerage business. United significantly broadened the scope and
activity of its trust and brokerage service areas, especially in the northern
Virginia market, to provide additional sources of fee income that complement
United's traditional banking products and services.
Other Expense
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations and thus reduce
operating costs. United's cost control efforts have been very successful
resulting in an efficiency ratio of 50.8%, which is well below the 58.28%
reported by United's national peer group banks and its immediate in-market
competitors.
36
Other expense includes all items of expense other than interest expense, the
provision for loan losses and income tax expense. In total, other expense
decreased $20.45 million or 14.82%. This decrease was primarily due to the
merger-related and one-time charges associated with the George Mason and Fed One
acquisitions, as well as charges associated with the purchase acquisition of
branches in the eastern panhandle of West Virginia during 1998. These charges,
which totaled $13.7 million ($8.2 million after tax), consisted primarily of
employee benefits, severance, facilities and conversion costs to effect the
mergers. Excluding these charges, other expense still decreased $6.75 million
or 5.44%.
Salaries and employee benefits expense decreased $9.44 million or 13.57% in 1999
as compared to 1998. Much of this decrease was due to approximately $5.9 million
of severance pay and related benefits of displaced employees in the George Mason
and Fed One mergers in 1998. At December 31, 1999 and 1998, United employed
1,387 and 1,452 full-time equivalent employees, respectively.
Net occupancy expense in 1999 decreased from 1998 levels by $527 thousand or
4.14%. The overall changes in net occupancy expense for 1999 were insignificant
with no material increase or decrease in any one expense category.
Remaining other expense decreased $10.48 million or 18.82% in 1999 compared to
1998. Excluding the aforementioned merger-related expenses associated with the
George Mason and Fed One mergers and the costs associated with branch purchases
in 1998, other expense actually increased approximately $3.22 million or 7.67%.
Other expense categories that reflected increases over 1998 were collection
expenses on loans, armored car and carrier fees, ATM processing costs and
certain other general business taxes and licenses.
Income Taxes
For the year ended December 31, 1999, United's effective tax rate approximated
33% compared to 28% in 1998. The lower rate in 1998 was primarily the result of
dividends from certain subsidiaries that were liquidated in restructuring and
reorganizational initiatives.
Quarterly Results
The first and third quarters of 1999 showed large increases in earnings in
comparison to those same two quarters of 1998 as United returned to more normal
levels of core income and expenses after the merger transactions. On a per
share basis, first quarter 1999 earnings were $0.39 per share compared to $0.33
in 1998 while third quarter 1999 earnings were $0.41 compared to $0.38 per share
in 1998. The annual 1998 results, specifically the second and fourth quarters
of 1998, contained significant merger-related and one-time charges associated
with the George Mason and Fed One mergers that distorted United's true financial
performance.
In the second quarter of 1999, United reported earnings per share of $0.40 as
compared to $0.17 per share for the same period in 1998. Second quarter 1998
results include the recognition of approximately $7.1 million of merger-related
and one-time charges associated with the George Mason merger.
37
Net income for the fourth quarter of 1999 was $17.6 million or $0.41 per share
as compared to $6.1 million or $0.14 per share earned in the fourth quarter of
1998. Fourth quarter 1998 results include approximately $6.6 million of merger-
related charges associated with the Fed One merger and a lower of cost or market
accounting adjustment of $9.66 million for certain junior-lien mortgage loans
held for sale.
Additional quarterly financial data for 1999 and 1998 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 impacted by inflation, the
resulting changes in the interest sensitive assets and liabilities are included
in net interest income. Similarly, operating expenses such as salaries, rents
and maintenance include changing prices resulting from inflation. One item that
would not reflect inflationary changes is depreciation expense. Subsequent to
the acquisition of depreciable assets, inflation causes price levels to rise;
therefore, historically presented dollar values do not reflect this inflationary
condition. With inflation levels at relatively low levels and monetary and
fiscal policies being implemented to keep the inflation rate increases within an
acceptable range, management expects the impact of inflation would continue to
be minimal in the near future.
Market Risk
The objective of United's Asset/Liability Management function is to maintain
consistent growth in net interest income within United's policy guidelines.
This objective is accomplished through the management of balance sheet liquidity
and interest rate risk exposures due to changes in economic condition, interest
rate levels and customer preferences.
Management considers interest rate risk to be United's most significant market
risk. Interest rate risk is the exposure to adverse changes in the net interest
income of United as a result of changes in interest rates. Consistency in
United's earnings is largely dependent on the effective management of interest
rate risk.
United employs a variety of measurement techniques to identify and manage its
exposure to changing interest rates. One such technique utilizes an earnings
simulation model to analyze net interest income sensitivity to movements in
interest rates. The model is based on projected cash flows and repricing
characteristics for on and off-balance sheet instruments and incorporates
market-based assumptions regarding the impact of changing interest rates on the
prepayment rate of certain assets and liabilities. The model also includes
executive management projections for activity levels in product lines offered by
United. Assumptions based on the historical behavior of deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure net interest income or precisely predict the impact of
fluctuations in interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude and frequency of interest
rate changes as well as changes in market conditions and management strategies.
Interest sensitive assets and liabilities are defined as those assets or
liabilities that mature or are repriced
38
within a designated time-frame. The principal function of interest rate risk
management is to maintain an appropriate relationship between those assets and
liabilities that are sensitive to changing market interest rates. United closely
monitors the sensitivity of i