Back to GetFilings.com
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, 2001
Commission File Number: 0-13322
United Bankshares, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
- ------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8704
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
-----------------------------
(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 28, 2002 was approximately $1,054,678,000.
As of February 28, 2002, United Bankshares, Inc. had 42,893,103 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, 2001
portions of which are incorporated by reference in Parts I, II and IV of this
Form 10-K.
2. Definitive Proxy Statement dated April 8, 2002 for the 2002 Annual
Shareholders' Meeting to be held on May 20, 2002, portions of which are
incorporated by reference in Part III of this Form 10-K.
Page 1 of 108 pages. Index to Exhibits is on page 29 .
------- --------
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, 2001, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Page
----
Part I
- ------
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
- -------
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
- --------
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
- -------
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
- ---------------------------------------
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-five banking institutions. At December 31, 2001, United had two banking
subsidiaries, United National Bank (UNB) and United Bank. At the close of
business on March 22, 2002, UNB converted its national banking association
charter to a State of West Virginia charter with membership in the Federal
Reserve System. Upon conversion, United has two banking subsidiaries (the
Banking Subsidiaries) each named United Bank, one operating under the laws of
West Virginia and the other operating under the laws of Virginia. United also
owns nonbank subsidiaries that engage in mortgage banking, asset management,
investment banking and financial planning.
Offices
- -------
United is headquartered in the 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
eighty-three offices--fifty offices located throughout West Virginia, thirty
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
- ---------
As of December 31, 2001 United and its subsidiaries had approximately 1,361
full-time equivalent employees and officers. A collective bargaining unit
represents none of these employees, and management considers employee relations
to be excellent.
3
Business of United
- ------------------
As a bank holding company registered under the Bank Holding Company Act of
1956, as amended, United's present business is community and mortgage banking.
As of December 31, 2001, United's consolidated assets approximated $5.6 billion
and total shareholders' equity approximated $507 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
- ----------------------------
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, the Banking
Subsidiaries offer credit card services including accounts issued under the name
of certain correspondent banks.
The Banking Subsidiaries each maintain 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. United
Bank (WV) 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 United Bank
(WV), 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.
United Bank (WV) is a member of a regional network of automated teller
machines known as the MAC ATM network while United Bank (VA) participates in the
MOST network. Through MAC and MOST, the Banking Subsidiaries are participants in
a network known as Cirrus, which provides banking on a nationwide basis.
Lending Activities
- ------------------
United's loan portfolio, net of unearned income, increased $309.8 million
to $3.50 billion in 2001 due
4
mainly to the acquisition of Century Bancshares, Inc. (Century) in the fourth
quarter of 2001. The loan portfolio is comprised of commercial, real estate and
consumer loans including credit card and home equity loans. Including the
acquisition of Century, commercial and commercial real estate loans increased
$97.2 million or 17.2% and $180.1 million or 25.3%, respectively. Consumer
loans, net of unearned income, increased $37.5 million or 11.9% while
residential real estate loans decreased $39.2 million or 2.9%.
As of December 31, 2001, approximately $321 million or 7.9% 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%.
Commercial Loans
- ----------------
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. 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 credit analysis and independent
evaluation of virtually all larger balance commercial loans by the loan
committee prior to approval.
Real Estate Loans
- -----------------
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
- --------------
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
5
evaluated and modified based upon these factors.
Underwriting Standards
- ----------------------
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
- -------------------------------
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, 2001, the balance of mortgage loans being
serviced by United for others was insignificant.
Secondary Markets
- -----------------
United Bank (WV) and George Mason Mortgage, LLC (GMMC), a wholly-owned
subsidiary of United Bank (VA), 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 United Bank (WV)'s originations are predominately
in its West Virginia markets. Mortgage loan originations are generally intended
to be sold in the secondary market.
During 2001, United originated $2.3 billion of real estate loans for sale
in the secondary market and sold $2.2 billion of loans designated as held for
sale in the secondary market. Proceeds received from the sales of these loans
during 2001 were $2.2 billion.
The principal sources of revenue from United's mortgage banking business
are: (i) loan origination
6
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.
Investment Activities
- ---------------------
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.
United recognized net losses of $518 thousand and $13.86 million for the
years of 2001 and 2000, respectively, from the available for sale portfolio. A
significant portion of the losses for 2000 was the result of United's
restructuring of its available for sale investment portfolio late during the
fourth quarter of 2001. United used a majority of the proceeds of approximately
$433 million from the sales to acquire investment securities that provided an
increased yield above those sold.
At December 31, 2001, 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
- -----------
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, Brooke, Hancock, Ohio, Marshall, Gilmer, Harrison, 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, Alexandria, Loudoun, Prince William and Fairfax Counties
in Virginia, located adjacent to the Washington D.C. area, which is in close
proximity to Jefferson and Berkeley Counties in 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,
7
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.
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, 2001, there were 60 bank holding companies operating 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 operating 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
- -----------------------------------------------
West Virginia's unemployment rate for all of 2001 averaged 4.9%, which was
the lowest average annual unemployment rate since the current statistical system
began in 1976, according to available information from the West Virginia Bureau
of Employment Programs. 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 29% of the manufacturing wages, according to West Virginia state records.
This diversified economy has contributed to a positive trend in unemployment
rates in recent years as the state's overall unemployment rate has declined from
10.5% in 1991 to 4.5% in December 2001. West Virginia's unemployment rate for
all of 2001 averaged 4.9%, which was the lowest average annual unemployment rate
since the current statistical system began in 1976, 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 2001 was 3.6%. The 3.6%
December 2001 unemployment rate, while above December 2000's 1.9% rate, was
still well below the U.S. December 2001 unemployment level of 5.4%. The 2001
unemployment rate average of 3.0% compared to 2.2% for 2000. Most of the 2001
unemployment increase came in the second half of the year, especially after
September 11. The Northern Virginia metropolitan area's unemployment rate was at
2.7%, second lowest among Virginia's eight metropolitan areas, as of December
2001.
Regulation and Supervision
- --------------------------
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").
8
The Bank Holding Company Act prohibits the acquisition by a bank holding
company of direct or indirect ownership of more than five percent of the voting
shares of any bank within the United States without prior approval of the Board
of Governors. With certain exceptions, a bank holding company also is prohibited
from acquiring direct or indirect ownership or control of more than five percent
of the voting shares of any company which is not a bank, and from engaging
directly or indirectly in business unrelated to the business of banking, or
managing or controlling banks.
The Board of Governors of the Federal Reserve System, in its Regulation Y,
permits bank holding companies to engage in non-banking activities closely
related to banking or managing or controlling banks. Approval of the Board of
Governors is necessary to engage in these activities or to make acquisitions of
corporations engaging in these activities. In addition, on a case by case basis,
the Board of Governors may approve other non-banking activities.
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.
The Banking Subsidiaries, as state member banks, are subject to
supervision, examination and regulation by the Federal Reserve System, and as
such, are subject to applicable provisions of the Federal Reserve Act and
regulations issued thereunder. Each bank is subject to regulation by their state
banking authority.
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
- ----------
Information relating to litigation on page 33 of the Annual Report to
----
Shareholders for the year ended December 31, 2001, 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
- -----
As of December 31, 2001, 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 455,258 shares held as treasury shares. The outstanding shares are
held by approximately 11,474 shareholders of record as of December 31, 2001. 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
- ---------
The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Dividends were
$0.91 per share in 2001, $0.84 per share in 2000 and $0.82 per share in 1999.
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.
11
Payment of dividends by United's state member banks 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 the FRB is required when a 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 FRB may prohibit dividends
if it deems the payment to be an unsafe or unsound banking practice. The FRB has
issued guidelines for dividend payments by state member banks emphasizing that
proper dividend size depends on the bank's earnings and capital. See Note O -
Notes to Consolidated Financial Statements, which is incorporated herein by
reference.
Market and Stock Prices of United
- ---------------------------------
United Bankshares, Inc. stock is traded over the counter on the National
Association of Securities Dealers Automated Quotations System (NASDAQ) under the
trading symbol UBSI.
The high and low prices listed below 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:
2002 Dividends High Low
---- --------- ------ ------
First Quarter through February 28, 2002 (1) $29.50 $27.56
2001
----
Fourth Quarter $0.23 $29.50 $26.25
Third Quarter $0.23 $28.33 $23.20
Second Quarter $0.23 $27.00 $21.55
First Quarter $0.22 $23.25 $19.44
2000
----
Fourth Quarter $0.21 $22.13 $17.25
Third Quarter $0.21 $20.88 $18.38
Second Quarter $0.21 $22.38 $16.38
First Quarter $0.21 $24.44 $17.00
(1) On February 25, 2002, United declared a dividend of $0.23 per share, payable
April 1, 2002, to shareholders of record as of March 8, 2002.
12
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
Information relating to selected financial data on page 43 of the Annual
----
Report to Shareholders for the year ended December 31, 2001, 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 44 through 57 inclusive, of the Annual Report to
---- ----
Shareholders for the year ended December 31, 2001, is incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk on pages 50
----
through 52 inclusive, of the Annual Report to Shareholders for the year ended
----
December 31, 2001, 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, 2001, 2000
and 1999 with the interest and rate earned or paid on such amount.
Year Ended Year Ended
December 31, 2001 December 31, 2000
---------------------------- -----------------------------
Average Avg. Average Avg.
Balance Interest Rate Balance Interest Rate
---------------------------- -----------------------------
ASSETS
Earning Assets:
Federal funds sold, securities
repurchased under agreements to
resell & other short-term investments $ 15,637 $ 674 4.31% $ 17,362 $ 1,171 6.74%
Investment Securities:
Taxable 1,187,212 77,390 6.52% 1,163,824 79,190 6.80%
Tax-exempt (1) (2) 193,758 14,856 7.67% 198,943 14,282 7.18%
---------------------------- -----------------------------
Total Securities 1,380,970 92,246 6.68% 1,362,767 93,472 6.86%
Loans, net of unearned
Income (1) (2) (3) 3,421,881 279,330 8.16% 3,320,065 294,297 8.86%
Allowance for loan losses (41,790) (39,437)
---------- ----------
Net loans 3,380,091 8.26% 3,280,628 8.98%
---------------------------- -----------------------------
Total earning assets 4,776,698 $372,250 7.79% 4,660,757 $388,940 8.34%
-------- --------
Other assets 264,498 275,848
---------- ----------
TOTAL ASSETS $5,041,196 $4,936,605
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,911,237 $117,605 4.04% $2,775,938 $125,847 4.53%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 410,531 14,188 3.46% 370,679 19,898 5.37%
FHLB advances 696,346 43,714 6.28% 851,486 52,021 6.11%
---------------------------- -----------------------------
Total Interest-Bearing Funds 4,018,114 175,507 4.37% 3,998,103 197,766 4.95%
-------- --------
Demand deposits 495,681 473,205
Accrued expenses and other liabilities 70,568 55,992
---------- ----------
TOTAL LIABILITIES 4,584,363 4,527,300
SHAREHOLDERS' EQUITY 456,833 409,305
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $5,041,196 $4,936,605
========== ==========
NET INTEREST INCOME $196,743 $191,174
======== ========
INTEREST SPREAD 3.42% 3.40%
NET INTEREST MARGIN 4.12% 4.11%
Year Ended
December 31, 1999
----------------------------
Average Avg.
Balance Interest Rate
----------------------------
ASSETS
Earning Assets:
Federal funds sold, securities
repurchased under agreements to
resell & other short-term investments $ 8,390 $ 522 6.22%
Investment Securities:
Taxable 1,295,851 85,392 6.59%
Tax-exempt (1) (2) 202,435 14,402 7.11%
----------------------------
Total Securities 1,498,286 99,794 6.66%
Loans, net of unearned
Income (1) (2) (3) 3,110,785 262,622 8.44%
Allowance for loan losses (39,615)
----------
Net loans 3,071,170 8.55%
----------------------------
Total earning assets 4,577,846 $362,938 7.93%
--------
Other assets 289,675
----------
TOTAL ASSETS $4,867,521
==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,890,065 $122,651 4.24%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 367,342 17,104 4.66%
FHLB advances 653,579 34,647 5.30%
----------------------------
Total Interest-Bearing Funds 3,910,986 174,402 4.46%
--------
Demand deposits 468,238
Accrued expenses and other liabilities 68,478
----------
TOTAL LIABILITIES 4,447,702
SHAREHOLDERS' EQUITY 419,819
----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,867,521
==========
NET INTEREST INCOME $188,536
========
INTEREST SPREAD 3.47%
NET INTEREST MARGIN 4.12%
(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
RATE/VOLUME ANALYSIS
The following table sets forth a summary of the changes in interest earned and
interest paid detailing the amounts attributable to (i) changes in volume
(change in the average volume times the prior year's average rate), (ii) changes
in rate (change in the average rate times the prior year's average volume), and
(iii) changes in rate/volume (change in the average volume times the change in
average rate).
2001 Compared to 2000 2000 Compared to 1999
---------------------------------------- ----------------------------------------
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 ($116) ($423) $ 42 ($497) $ 558 $ 44 $ 47 $ 649
Investment securities:
Taxable 1,591 (3,325) (67) (1,801) (8,701) 2,782 (283) (6,202)
Tax exempt (1), (2) (372) 972 (25) 575 (249) 131 (2) (120)
Loans (1),(2),(3) 8,923 (23,187) (703) (14,967) 17,911 12,885 879 31,675
------- -------- ------- -------- -------- ------- ------ -------
TOTAL INTEREST INCOME 10,026 (25,963) (753) (16,690) 9,519 15,842 641 26,002
------- -------- ------- -------- -------- ------- ------ -------
Interest expense:
Interest-bearing deposits $ 6,134 ($13,708) ($668) ($8,242) ($4,843) $ 8,370 ($331) $ 3,196
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 2,139 (7,087) (762) (5,710) 155 2,615 24 2,794
FHLB advances & other
long-term borrowings (9,478) 1,432 (261) (8,307) 10,491 5,283 1,600 17,374
------- -------- ------- -------- -------- ------- ------ -------
TOTAL INTEREST EXPENSE (1,205) (19,363) (1,691) (22,259) 5,803 16,268 1,293 23,364
------- -------- ------- -------- -------- ------- ------ -------
NET INTEREST INCOME $11,231 ($6,600) $ 938 $ 5,569 $ 3,716 ($426) ($652) $ 2,638
======= ======== ======= ======== ======== ======= ====== =======
(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:
2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- -----------
(In thousands)
Commercial, financial
and agricultural $ 662,070 $ 564,887 $ 535,116 $ 508,601 $ 487,706
Real estate mortgage 2,293,318 2,148,751 2,134,370 1,696,233 1,693,819
Real estate construction 195,063 164,505 144,634 141,026 150,429
Consumer 354,934 319,351 363,272 313,464 364,951
Less: Unearned interest (3,051) (5,000) (7,296) (6,933) (7,066)
----------- ----------- ----------- ----------- -----------
Total loans 3,502,334 3,192,494 3,170,096 2,652,391 2,689,839
Allowance for loan losses (47,408) (40,532) (39,599) (39,189) (31,936)
----------- ----------- ----------- ----------- -----------
TOTAL LOANS, NET $ 3,454,926 $ 3,151,962 $ 3,130,497 $ 2,613,202 $ 2,657,903
=========== =========== =========== =========== ===========
Loans held for sale $ 368,625 $ 203,831 $ 117,825 $ 720,607 $ 97,619
=========== =========== =========== =========== ===========
The following is a summary of loans outstanding as a percent of total loans at
December 31:
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Commercial, financial
and agricultural 18.90% 17.69% 16.88% 19.18% 18.13%
Real estate mortgage 65.48% 67.31% 67.33% 63.95% 62.97%
Real estate construction 5.57% 5.15% 4.56% 5.32% 5.59%
Consumer 10.05% 9.85% 11.23% 11.55% 13.31%
------ ------ ------ ------ ------
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,
2001:
Less Than One To Greater Than
One Year Five Years Five Years Total
--------- ---------- ------------ --------
(In thousands)
Commercial, financial
and agricultural $356,813 $184,464 $120,793 $662,070
Real estate construction 195,063 195,063
-------- -------- -------- --------
Total $551,876 $184,464 $120,793 $857,133
======== ======== ======== ========
16
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 2001, 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 $ 99,120 $ 86,427
Outstanding with adjustable rates 85,344 34,366
-------- --------
$184,464 $120,793
======== ========
There were no real estate construction loans with maturities greater than one
year.
RISK ELEMENTS
Nonperforming Assets
Nonperforming assets include loans and securities on which no interest is
currently being accrued, principal or interest has been in default for a period
of 90 days or more and, in the case of 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 or securities, groups of
loans or securities, or segments of the loan or investment portfolio not
included below or disclosed elsewhere herein where there are serious doubts as
to the ability of the borrowers or issuers to comply with the present repayment
terms of the debt. The following table summarizes nonperforming assets for the
indicated periods.
December
-----------------------------------------------
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(In thousands)
Nonaccrual loans $ 8,068 $ 8,131 $12,327 $ 9,139 $ 5,815
Loans which are contractually past due 90
days or more as to interest or
principal,and are still accruing interest 9,522 4,717 8,415 9,528 12,877
------- ------- ------- ------- -------
Total Nonperforming Loans 17,590 12,848 20,742 18,667 18,692
Nonaccrual investment securities 10,000
Other real estate owned 2,763 2,109 3,764 3,850 2,519
------- ------- ------- ------- -------
TOTAL NONPERFORMING ASSETS $30,353 $14,957 $24,506 $22,517 $21,211
======= ======= ======= ======= =======
Loans and securities are designated as nonaccrual when, in the opinion of
management, the collection of principal or interest is doubtful. This generally
occurs when a loan or security becomes 90 days past due as to principal or
interest unless the loan or security 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, in the case of loans, unpaid
interest accrued in prior years is charged to the allowance for loan losses. See
Note E to the consolidated financial statements for additional information
regarding nonperforming loans, impaired loans and credit risk concentration.
17
UNITED BANKSHARES, INC. AND SUBSIDIARIES
INVESTMENT PORTFOLIO
The following is a summary of the amortized cost of held to maturity securities
at December 31,:
2001 2000 1999
-------- -------- --------
(In thousands)
U.S. Treasury and other U.S. Government
agencies and corporations $ 29,935 $ 55,724 $ 56,734
States and political subdivisions 89,540 93,006 97,824
Mortgage-backed securities 4,278 70,279 90,850
Other 157,683 161,059 19,782
-------- -------- --------
TOTAL HELD TO MATURITY SECURITIES $281,436 $380,068 $265,190
======== ======== ========
The following is a summary of the amortized cost of available for sale
securities at December 31,:
2001 2000 1999
---------- -------- ----------
(In thousands)
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $ 61,082 $160,702 $ 276,558
States and political subdivisions 62,188 52,095 48,914
Mortgage-backed securities 861,799 574,292 693,828
Marketable equity securities 8,254 8,551 8,369
Other 140,392 69,723 229,277
---------- -------- ----------
TOTAL AVAILABLE FOR SALE SECURITIES $1,133,715 $865,363 $1,256,946
========== ======== ==========
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 net unrealized gains of $15,800 and $2,318 on all mortgage-backed
securities at December 31, 2001 and 2000, respectively.
The following table sets forth the maturities of all securities at December 31,
2001, 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 $21,892 4.00% $18,538 5.88% $25,527 6.10% $ 25,423 7.12%
States and political subdivisions(1) 1,922 8.28% 13,936 7.97% 53,129 7.32% 82,007 7.54%
Mortgage-backed securities 673 7.50% 11,453 6.25% 94,859 6.49% 774,760 6.93%
Other (2) 50 8.00% 22,174 6.31% 23,456 6.61% 258,917 6.65%
(1) Tax-equivalent adjustments (using a 35% federal rate) have been made in
calculating yields on obligations of states and political subdivisions.
(2) Includes marketable equity securities available for sale.
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:
2001 $43,831 $477,796
2000 15,720 313,349
1999 44,120 349,129
Weighted average interest rate at year end:
2001 1.7% 2.0%
2000 6.6% 5.2%
1999 5.0% 5.0%
Maximum amount outstanding at any month's end:
2001 $43,831 $503,887
2000 45,515 417,866
1999 64,921 440,281
Average amount outstanding during the year:
2001 $16,290 $390,545
2000 15,332 351,816
1999 27,774 335,908
Weighted average interest rate
During the year:
2001 2.9% 3.5%
2000 6.3% 5.3%
1999 5.4% 4.6%
At December 31, 2001, repurchase agreements include $346,957 in overnight
accounts. The remaining balance principally consists of agreements having
maturities under 2 years. 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:
2001 2000 1999
----------------- ----------------- -----------------
Amount Rate Amount Rate Amount Rate
---------- ---- ---------- ---- ---------- ----
(Dollars in thousands)
Noninterest bearing
demand deposits $ 495,681 $ 473,205 $ 468,238
Interest bearing
demand deposits 463,925 0.91% 354,771 1.35% 335,231 1.60%
Savings deposits 759,424 2.71% 784,005 3.65% 865,351 3.36%
Time deposits 1,687,888 5.50% 1,637,162 5.65% 1,689,483 5.28%
---------- ---------- ----------
TOTAL $3,406,918 4.04% $3,249,143 4.53% $3,358,303 4.24%
========== ========== ==========
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 2001 are summarized as follows:
(In thousands)
3 months or less $ 91,024
Over 3 through 6 months 90,804
Over 6 through 12 months 108,261
Over 12 months 108,843
--------
TOTAL $398,932
========
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:
2001 2000 1999
----- ----- -----
Return on average assets 1.59% 1.19% 1.44%
Return on average equity 17.51% 14.41% 16.73%
Dividend payout ratio (1) 47.63% 59.83% 50.35%
Average equity to average
assets ratio 9.06% 8.29% 8.62%
(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:
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Balance of allowance for possible loan
losses at beginning of year $ 40,532 $ 39,599 $ 39,189 $ 31,936 $ 29,376
Allowance of purchased company at date
of acquisition 4,673 2,695
Loans charged off:
Commercial, financial and agricultural 2,578 2,482 3,896 800 1,352
Real estate 7,090 10,570 3,290 3,070 447
Real estate construction 76
Consumer and other 2,615 2,793 2,050 2,400 2,436
---------- ---------- ---------- ---------- ----------
TOTAL CHARGE-OFFS 12,359 15,845 9,236 6,270 4,235
Recoveries:
Commercial, financial and agricultural 681 374 341 729 292
Real estate 557 226 156 217 263
Real estate construction 1
Consumer and other 490 433 349 421 265
---------- ---------- ---------- ---------- ----------
TOTAL RECOVERIES 1,729 1,033 846 1,367 820
---------- ---------- ---------- ---------- ----------
NET LOANS CHARGED OFF 10,630 14,812 8,390 4,903 3,415
Provision for loan losses 12,833 15,745 8,800 12,156 3,280
---------- ---------- ---------- ---------- ----------
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR $ 47,408 $ 40,532 $ 39,599 $ 39,189 $ 31,936
========== ========== ========== ========== ==========
Loans outstanding at the end of period
(gross) (1) $3,505,385 $3,197,494 $3,170,096 $2,652,391 $2,689,839
Average loans outstanding during
period (net of unearned income)(1) $3,218,191 $3,198,090 $2,975,116 $2,668,460 $2,472,293
Net charge-offs as a percentage of
average loans outstanding 0.33% 0.46% 0.28% 0.18% 0.14%
Allowance for loan losses as
a percentage of nonperforming loans 269.5% 315.5% 190.9% 209.9% 170.9%
(1) Excludes loans held for sale.
21
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for loan losses
December 31
---------------------------------------------------
2001 2000 1999 1998 1997
Commercial, financial and
Agricultural $22,605 $12,762 $14,432 $13,772 $10,115
Real estate 10,795 12,713 9,861 3,587 3,452
Real estate construction 2,097 1,372 754 1,086 674
Consumer and other 4,004 3,533 2,735 3,747 3,221
Unallocated 7,907 10,152 11,817 16,997 14,474
------- ------- ------- ------- -------
Total $47,408 $40,532 $39,599 $39,189 $31,936
======= ======= ======= ======= =======
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 11 through 41
-- --
inclusive of the Annual Report to Shareholders for the year ended December 31,
2001, is incorporated herein by reference.
(b) - SUPPLEMENTARY FINANCIAL INFORMATION
(1) Selected Quarterly Financial Data
Information relating to selected quarterly financial data on page 42 of the
--
Annual Report to Shareholders for the year ended December 31, 2001, is
incorporated herein by reference.
(2) Information on the Effects of Changing Prices
Information relating to effects of changing prices on page 49 of the Annual
--
Report to Shareholders for the year ended December 31, 2001, 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 2 through 4 inclusive, pages 14 though 16 inclusive, and page 19 , of the
- - -- -- --
Proxy Statement for the 2002 Annual Shareholders' Meeting is incorporated herein
by reference.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 10 through 13
-- --
inclusive, of the Proxy Statement for the 2002 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 2 through 4 inclusive and pages 9 and 11 , of the Proxy
- - - --
Statement for the 2002 Annual Shareholders' Meeting is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions on
pages 2 , 7 , 8 , and 13 of the Proxy Statement for the 2002 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,
2001 at Item 8a. Page references are to such Annual report.
Financial Statements: Page References
- -------------------- ---------------
Report of Independent Auditors............................... 11
Consolidated Balance Sheets.................................. 12
Consolidated Statements of Income............................ 13
Consolidated Statements of Changes in Shareholders' Equity... 14
Consolidated Statements of Cash Flows........................ 15
Notes to Consolidated Financial Statements................... 16
(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 29 of this
--
Form 10-K.
(b) Reports on Form 8-K
On December 10, 2001, United Bankshares, Inc. filed a Current
Report under Items 5 and 7 to report the completion of its
acquisition of Century Bancshares, Inc.
On January 22, 2002, United Bankshares, Inc. filed a Current
Report under Items 5 and 7 to report the results of operations
for the fourth quarter and year of 2002.
On February 28, 2002, United Bankshares, Inc. filed a Current
Report under Items 5 and 7 to announce a stock repurchase plan.
25
(c) Exhibits -- The exhibits to this Form 10-K begin on page 79.
--
(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.
26
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 26, 2002
- ---------------------------------- and Chief Executive Officer
/s/ Steven E. Wilson Chief Financial Officer March 26, 2002
- ---------------------------------- Chief Accounting Officer
/s/ F.T. Graff, Jr. Director March 26, 2002
- ----------------------------------
/s/ Theodore J. Georgelas Director March 26, 2002
- ----------------------------------
/s/ I.N. Smith, Jr. Director March 26, 2002
- ----------------------------------
/s/ P. Clinton Winter, Jr. Director March 26, 2002
- ----------------------------------
/s/ Warren A. Thornhill, III Director March 26, 2002
- ----------------------------------
/s/ G. Ogden Nutting Director March 26, 2002
- ----------------------------------
/s/ Russell L. Isaacs Director March 26, 2002
- ---------------------------------
/s/ William C. Pitt, III Director March 26, 2002
- ----------------------------------
/s/ James W. Word, Jr. Director March 26, 2002
- ----------------------------------
/s/ Joseph S. Bracewell Director March 26, 2002
- ----------------------------------
27
SIGNATURES
(continued)
Signatures Title Date
/s/ John M. McMahon Director March 26, 2002
- ----------------------------------
/s/ Alan E. Groover Director March 26, 2002
- ----------------------------------
/s/ Thomas J. Blair, III Director March 26, 2002
- ----------------------------------
/s/ H. Smoot Fahlgren Director March 26, 2002
- ----------------------------------
/s/ Harry L. Buch Director March 26, 2002
- ----------------------------------
28
UNITED BANKSHARES, INC.
FORM 10-K
INDEX TO EXHIBITS
Item 14.
Sequential
S-K Item 601 Page
Description Table Reference Number (a)
- ----------- --------------- ----------
Articles of Incorporation and
Bylaws: (3)
(a) Bylaws (e)
(b) Articles of Incorporation (d)
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 (10.1) 79
(c) Supplemental Retirement
Agreement with
Richard M. Adams (10.2) 93
(d) Lease on Branch Office in
Charleston Town Center,
Charleston, West Virginia (b)
(e) Lease on United Center,
Charleston, West Virginia (f)
(f) Employment Contract with
Douglass H. Adams (c)
29
Sequential
S-K Item 601 Page
Description Table Reference Number (a)
- ----------- --------------- ----------
(g) Data processing contract
with FISERV (j)
(h) Supplemental Retirement
Contract with
Douglass H. Adams (g)
(i) Executive Officer Change (h)
of Control Agreements (j)
(j) Employment Contract with
Bernard H. Clineburg (i)
(k) Employment Contract with
Joseph S. Bracewell (10.3) 101
Statement Re: Computation of
Ratios (12) 106
Annual Report to Security Holders,
et al. (13) 32
Letter Re: Change in accounting
principles (18) N/A
Previously Unfiled Documents (19) N/A
Subsidiaries of the Registrant (21) 107
Published Report Regarding Matters
Submitted to a Vote of Security
Holders (22) N/A
Consent of Ernst & Young LLP (23) 108
30
Sequential
S-K Item 601 Page
Description Table Reference Number (a)
- ----------- --------------- ----------
Power of Attorney (24) N/A
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 Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No.
33-19968 filed February 3, 1988
(d) Incorporated into this filing by reference to Exhibits to the 1989 10-K for
United Bankshares, Inc., File No. 0-13322
(e) Incorporated into this filing by reference to Exhibits to the 1990 10-K for
United Bankshares, Inc., File No. 0-13322
(f) Incorporated into this filing by reference to Exhibits to the 1991 10-K for
United Bankshares, Inc., File No. 0-13322
(g) Incorporated into this filing by reference to Exhibits to the 1992 10-K for
United Bankshares, Inc., File No. 0-13322
(h) Incorporated into this filing by reference to Exhibits to the 1993 10-K for
United Bankshares, Inc., File No. 0-13322
(i) 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
(j) Incorporated into this filing by reference to Exhibits to the 2000 10-K for
United Bankshares, Inc., File No. 0-13322
31
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
Five Year Summary
------------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
Summary of Operations:
Total interest income $ 360,610 $ 377,847 $ 354,665 $ 325,647 $ 280,452
Total interest expense 175,507 197,766 174,402 155,354 131,122
Net interest income 185,103 180,081 180,263 170,293 149,330
Provision for loan losses 12,833 15,745 8,800 12,156 3,280
Other income 62,205 33,786 51,078 41,752 37,068
Other expense 115,745 110,422 117,519 137,964 103,852
Income taxes 38,739 28,724 34,774 17,523 27,005
Net income 79,991 58,976 70,248 44,402 52,261
Cash dividends(1) 38,096 35,286 35,367 28,317 20,344
Per common share:
Net income:
Basic 1.93 1.41 1.63 1.04 1.24
Diluted 1.90 1.40 1.61 1.02 1.22
Cash dividends(1) 0.91 0.84 0.82 0.75 0.68
Book value per share 11.80 10.32 9.32 9.74 9.35
Selected Ratios:
Return on average
shareholders' equity 17.51% 14.41% 16.73% 10.77% 13.92%
Return on average assets 1.59% 1.19% 1.44% 1.05% 1.42%
Dividend payout ratio (1) 47.63% 59.83% 50.35% 63.77% 49.69%
Selected Balance Sheet Data:
Average assets $5,041,196 $4,936,605 $4,867,521 $4,238,808 $3,682,302
Investment securities 1,428,716 1,245,334 1,472,553 927,316 1,006,735
Loans held for sale 368,625 203,831 117,825 720,607 97,619
Total loans 3,502,334 3,192,494 3,170,096 2,652,391 2,689,839
Total assets 5,631,775 4,904,547 5,069,160 4,567,899 4,094,836
Total deposits 3,787,793 3,391,449 3,260,985 3,493,058 3,185,963
Long-term borrowings 809,977 698,204 343,847 240,867 46,674
Total borrowings
and other liabilities 1,337,453 1,082,228 1,412,245 653,310 512,817
Shareholders' equity 506,529 430,870 395,930 421,531 396,056
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
32
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 haven 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.
2001 COMPARED TO 2000
OVERVIEW
At the close of business on December 7, 2001, United acquired 100% of the
outstanding common stock of Century Bancshares, Inc., Washington, D.C. (Century)
in a transaction valued at approximately $63.8 million. The transaction was
accounted for using the purchase method of accounting and, accordingly, the
following discussion includes the financial position and results of operations
of Century from the effective merger date forward. At consummation, Century had
assets of approximately $414 million, loans of $295 million, deposits of $330
million and shareholders' equity of $20 million.
33
EARNINGS SUMMARY
For the year ended December 31, 2001, net income increased 35.63% to $80.0
million from $59.0 million for the year ended December 31, 2000. On a diluted
per share basis, net income of $1.90 for 2001 increased 35.71% from $1.40 in
2000.
Results for 2000 include the recognition of approximately $20.09 million ($13.51
million after tax) of balance sheet restructuring and other charges. Excluding
these charges, United earned $72.5 million or $1.72 per diluted share for the
year 2000.
The 2001 results represented a return on average shareholders' equity of 17.51%
and a return on average assets of 1.59%. These key financial performance
indicators compare favorably with national peer grouping information provided by
Keefe, Bruyette, & Woods, of 16.39% and 1.25%, respectively. United continues to
be one of the nation's best-performing regional banking companies.
Dividends per share increased from $0.84 in 2000 to a record level of $0.91 per
share in 2001. United paid approximately $37.0 million in dividends to common
shareholders in 2001 compared with $35.5 million in 2000. This was the
twenty-eighth consecutive year of dividend increases to shareholders.
Net interest income grew $5.0 million or 2.79% for the year of 2001 when
compared to 2000. Noninterest income increased $28.4 million or 84.11% for 2001
when compared to 2000 while noninterest expense increased $5.3 million or 4.82%
over the same time period. However, for the year 2000, noninterest income
included balance sheet restructuring losses of $15.01 million ($10.10 million
after tax) resulting from losses on sales and write-downs on securities, while
noninterest expense includes other significant charges of $3.99 million ($2.68
million after tax), primarily related to litigation expense of $1.63 million
($1.09 million after tax) and $2.36 million ($1.59 million after tax) of other
charges that mostly include salary incentive and benefit plan costs.
The effective tax rate of 32.63% for the year ended December 31, 2001 was
comparable to 32.75% for 2000.
FINANCIAL CONDITION SUMMARY
Including the acquisition of Century, United's total assets as of December 31,
2001 were $5.63 billion, an increase of $727.2 million or 14.83% from year end
2000. United's available for sale securities portfolio increased $282.01 million
while securities held to maturity decreased $98.63 million as compared to year
end 2000. Total loans, including loans held for sale, increased $474.6 million
or 13.98%. Cash and cash equivalents increased $12.78 million while nonearning
assets increased $63.31 million in 2001.
Total deposits at December 31, 2001 increased $396.34 million or 11.69% since
year end 2000. In terms of composition, interest-bearing deposits increased
$281.97 million while noninterest-bearing deposits increased $114.37 million
from December 31, 2000. United's total borrowed funds increased $232.16 million,
or 22.32%, as short-term borrowings increased $193.41 million. United increased
these borrowings to take advantage of lower short-term interest rates. FHLB
borrowings increased $29.94 million. Accrued expenses and other liabilities
increased $23.07 million or 54.93% since year end 2000.
Shareholders' equity increased $75.66 million or 17.56% from December 31, 2000
translating into a book
34
value per share of $11.80. The increase in shareholders' equity was due to net
retained earnings in excess of dividends for the year of $41.90 million and a
decrease in treasury stock of $25.36 million as 1,981,423 shares were issued
from treasury stock for the acquisition of Century. During 2001, 1,080,000
shares were repurchased under a plan announced by United in May of 2000
authorizing the repurchase of up to 1.675 million shares of its common stock on
the open market. Through December 31, 2001, 1,299,300 shares have been
repurchased since the plan's inception. United continues to balance capital
adequacy and the return to shareholders. At December 31, 2001, 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 2001, are summarized below.
Tax-equivalent net interest income of $196.74 million for the year 2001
increased $5.57 million from $191.17 million for the year of 2000. The main
reason for the increase from the previous year was due to an increase in average
earning assets of $115.94 million. United's tax-equivalent net interest margin
was 4.12% for the year of 2001 and 4.11% for the same time period in 2000.
United maintains a fairly balanced portfolio of interest-rate sensitive assets
and liabilities in order to manage interest rate risk and thus minimize the
impact of fluctuating interest rates. In 2001, the net interest margin
percentage increased one basis point for the year despite 11 Federal Funds
interest rate reductions. In 2000, the net interest margin percentage declined
only one basis point for the year despite six Federal Funds rate increases from
mid 1999 through mid 2000.
Total interest income of $360.61 million decreased 4.56% for the year 2001 as a
result of a lower yield on average interest-earning assets. Overall, the yield
on average interest-earning assets decreased 55 basis points from 8.34% in 2000
to 7.79% in 2001. The yield on average loans, net of unearned income, decreased
71 basis points to 8.16% in the year 2001 from to 8.87% in 2000. The yield on
average securities was 6.68% for the year 2001 as compared to 6.86% for 2000.
Total interest expense decreased $22.26 million or 11.26% in 2001 compared to
2000. This decrease was attributed primarily to changes in the funding mix
during 2001. During 2001, United utilized lower cost deposits and short-term
wholesale funding sources to support asset growth rather than long-term, higher
cost FHLB advances. The average cost of funds decreased from 4.95% in 2000 to
4.37% in 2001. United's average interest-bearing deposits increased $135.30
million and average short-term borrowings increased $39.85 million while average
FHLB and other long-term borrowings decreased $155.14 million.
Provision for Loan Losses
Although weakening economic conditions caused an increase in nonperforming loans
during the year of 2001, United's credit quality continues to compare favorably
with peer and industry averages. Nonperforming loans
35
were $17.59 million or 0.50% of loans, net of unearned income, at December 31,
2001 compared to $12.85 million or 0.40% of loans, net of unearned income at
December 31, 2000. Nonperforming loans represented 0.31% of total assets at the
end of the year 2001, as compared to 0.26% for United at the end of 2000. The
components of nonperforming loans include nonaccrual loans and loans that are
contractually past due 90 days or more as to interest or principal, but have not
been put on a nonaccrual basis. Nonaccrual loans remained relatively flat while
loans past due 90 days or more increased $4.81 million or 101.87% since year end
2000. Total nonperforming assets of $30.35 million, including nonperforming
securities of $10.0 million and OREO of $2.76 million at December 31, 2001,
represented 0.54% of total assets at the end of 2001.
At December 31, 2001, impaired loans were $12.59 million, which was a very
slight increase from the $12.50 million of impaired loans at December 31, 2000.
For further details, along with a discussion of concentrations of credit risk,
see Note E to the Consolidated Financial Statements.
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. This process determines the appropriate level of
the allowance for loan losses, allocation among loan types, and the resulting
provision for loan losses.
At December 31, 2001, the allowance for loan losses was $47.41 million, compared
to $40.53 million at December 31, 2000. As a percentage of loans, net of
unearned income, the allowance for loan losses was 1.35% and 1.27% at December
31, 2001 and 2000, respectively. The ratio of the allowance for loan losses to
nonperforming loans was 269.5% and 315.5% at December 31, 2001 and 2000,
respectively, which reflects the impact of the increase in nonperforming loans.
For the years ended December 31, 2001 and 2000, the provision for loan losses
was $12.83 million and $15.75 million, respectively. Net charge-offs were $10.63
million for the year of 2001 as compared to net charge-offs of $14.81 million
for the year of 2000. The decreases in provision and net charge-offs for the
year were based upon management's ongoing evaluation of the adequacy for the
loan losses and were primarily attributed to lower losses on junior-lien
mortgage loans.
Allocations are made for specific commercial loans based upon management's
estimate of the borrower's ability to repay and other factors impacting
collectibility. Other commercial loans not specifically reviewed on an
individual basis are evaluated based on historical loss percentages, which are
adjusted for current conditions and 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.
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, 2001 produced increased allocations within
three of four loan categories from December 31, 2000. The components of the
allowance allocated to commercial loans and consumer loans increased $9.8
million and $471 thousand, respectively, as a result of changes in the
composition and risk profile resulting from the Century merger, declining
economic conditions and changes in historical loss factors. The real estate
construction loan pool allocation increased $725 thousand as a result of
increased loan volume and changes in historical loss factors. The components of
the allowance allocated to real estate loans decreased $1.9 million as a result
of changes in volume and historical loss factors.
36
The unallocated portion of the allowance for loan losses has continually
declined over the past four years as more seasoned loss data has been developed
about specific pools of loans to facilitate assignment of the allowance to more
specific segments within the loan portfolio. Changes in economic conditions,
more specifically the events of September 11, 2001, and the economic downturn
that had begun prior to that date and continued throughout the fourth quarter of
2001, caused United to further refine its systematic methodology in the
determination of the allowance for loan losses to specific loans or groups.
Management believes that the allowance for loan losses of $47.41 million at
December 31, 2001 is adequate to provide for probable losses on existing loans
based on information currently available.
Management is not aware of any potential problem loans, trends or uncertainties
that 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 that 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. Other income consists of all
revenues that are not included in interest and fee income related to earning
assets. Noninterest income, excluding securities gains and losses, increased
31.63% for the year of 2001 when compared to the year of 2000. These results
were achieved primarily due to a combination of increased revenues from the
mortgage banking, wealth management and deposit services areas.
Income from mortgage banking operations increased $10.18 million or 62.29% from
the previous year. Mortgage loan origination activity increased 93.71% or $1.14
billion for the year of 2001 as compared to the same period in 2000 due to
declining interest rates. The higher level of originations during 2001 resulted
in increased loan sales in the secondary market of 94.07% or $1.06 billion
compared to last year.
Service charges, commissions and fees from customer accounts increased $4.22
million or 18.65% from 2000. This income includes charges and fees related to
various banking services provided by United.
Trust income and brokerage commissions increased $1.16 million or 16.45% due to
an increased volume of trust and brokerage business. United continues its
efforts to broaden 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.
During 2001, United incurred a net loss on the sale of investment securities of
$518 thousand as compared to a net loss of $13.86 million during 2000. United
restructured its balance sheet in the fourth quarter of 2000 by selling lower
yielding, fixed-rate securities that had been carried as available for sale.
Sales and write-downs of securities from this restructuring resulted in loss of
approximately $15.01 million ($10.10 million after-tax) in the fourth quarter of
2000.
Overall, noninterest income, including net losses from securities transactions,
increased $28.42 million or 84.11% for 2001 when compared to 2000.
37
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 43.1%, which is well below the 57.4%
reported by United's national peer group banks and its immediate in-market
competitors.
Other expense includes all items of expense other than interest expense, the
provision for loan losses and income tax expense. Noninterest expense increased
$5.32 million or 4.82% for the year ended December 31, 2001 as compared to the
year ended 2000. Results for 2000 include one-time charges of $3.99 million
associated with litigation and employee salary incentive and benefit plans.
Excluding these charges, total noninterest expense increased $9.31 million or
8.75% from 2000.
Total salaries and benefits increased $7.94 million or 14.92% for the year of
2001 compared to the year of 2000. The results for 2000 include one-time charges
of $960 thousand. The increase was due mainly to higher sales activity in the
mortgage banking segment, since compensation and incentives for its personnel
are significantly tied to activity levels. Excluding the one-time expenses,
total salaries and benefits increased $8.90 million or 17.04% from 2000. At
December 31, 2001 and 2000, United employed 1,361 and 1,253 full-time equivalent
employees, respectively.
Net occupancy expense in 2001 decreased from 2000 levels by $1.27 million or
10.80%. The lower net occupancy expense for 2001 was due mainly to decreases in
both real property taxes on owned premises and rental expense on leased offices.
Remaining other expense decreased $1.34 million or 2.95% in 2001 compared to
2000. The results for 2000 include one-time charges of approximately $2.92
million. Excluding the aforementioned one-time expenses, other expense increased
$1.58 million or 3.72% due mainly to expenses related to the Century merger and
planning initiatives.
Income Taxes
For the year ended December 31, 2001, income taxes were $38.74 million, compared
to $28.72 million for 2000. The increase of $10.02 million or 34.87% was
primarily the result of increased pretax income. For the years ended December
31, 2001 and 2000, United's effective tax rates were 32.63% and 32.75%,
respectively.
Quarterly Results
All four quarters of 2001 showed large increases in earnings in comparison to
each of the same four quarters of 2000. On a per share basis, first quarter 2001
earnings were $0.46 per share, compared to $0.42 in 2000, second quarter 2001
earnings were $0.47 per share, compared to $0.43 in 2000, third quarter 2001
earnings were $0.48, compared to $0.44 per share in 2000 while fourth quarter
2001 earnings were $0.49, compared to $0.11 per share in 2000.
Net income for the fourth quarter of 2001 was $21.08 mi1lion, compared to $4.30
million earned in the fourth quarter of 2000. The results for the fourth quarter
of 2000 included balance sheet restructuring and
38
other one-time charges of approximately $20.09 million ($13.51 million after
tax).
Additional quarterly financial data for 2001 and 2000 may be found in Note R 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 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
its assets and liabilities on an ongoing basis and projects the effect of
various interest rate changes on its net interest margin.
39
The difference between rate-sensitive assets and rate-sensitive liabilities for
specified periods of time is known as the "GAP."
As shown in the interest rate sensitivity GAP table in this section, United was
liability-sensitive (excess of liabilities over assets) in the one-year horizon.
This indicates that rising market interest rates would reduce United's earnings
and declining market interest rates would increase earnings. United, however,
has not experienced the kind of earnings volatility indicated from the
cumulative gap. This is because a significant portion of United's retail deposit
base does not reprice on a contractual basis. Management has estimated, based
upon historical analyses, that savings deposits are less sensitive to interest
rate changes than are other forms of deposits. The GAP table presented herein
has been adjusted to show the estimated differences in interest rate sensitivity
that result when the retail deposit base is assumed to reprice in a manner
consistent with historical trends. (See "Management Adjustments" in the GAP
table.) Using these estimates, United was liability-sensitive in the one-year
horizon in the amount of $124 million or (2.33%) of the cumulative gap to
related earning assets.
To aid in interest rate risk management, United's subsidiary banks are members
of the Federal Home Loan Bank (FHLB). The use of FHLB borrowings provides United
with a low risk means of matching maturities of earning assets and
interest-bearing funds to achieve a desired interest rate spread over the life
of the earning assets.
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board-approved policy limits. United's Asset/Liability
Management Committee (ALCO), which includes senior management representatives,
reports to the Board of Directors and monitors and manages interest rate risk to
maintain an acceptable level of change to net interest income as a result of
changes in interest rates. Policy established for interest rate risk is stated
in terms of the change in net interest income over a one-year and two-year
horizon given an immediate and sustained increase or decrease in interest rates.
The current limits approved by the Board of Directors are structured on a staged
basis with each stage requiring specific actions.
The following table shows United's estimated earnings sensitivity profile after
management's adjustments as of December 31, 2001 and 2000:
Change in Percentage Change in Net Interest Income
Interest Rates -----------------------------------------
(basis points) December 31, 2001 December 31, 2000
- -------------- ----------------- -------------------
+200 -1.61% -2.62%
-200 0.24% -3.57%
Given an immediate, sustained 200 basis point upward shock to the yield curve
used in the simulation model, it is estimated that net interest income for
United would decrease by 1.61% over one year as of December 31, 2001, as
compared to a decrease of 2.62% as of December 31, 2000. A 200 basis point
immediate, sustained downward shock in the yield curve would increase net
interest income by an estimated 0.24% over one year as of December 31, 2001, as
compared to a decrease of 3.57% as of December 31, 2000. All of these estimated
changes in net interest income are within the policy guidelines established by
the Board of Directors.
40
The following table shows the interest rate sensitivity GAP as of December
31, 2001:
Interest Rate Sensitivity Gap
Days
-------------------------------------- Total 1-5 Over 5
0-90 91-180 181-365 One Year Years Years Total
------------------------------------------------------------------------------------------------
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other
short-term investments $ 1,536 $ 1,536 $ 1,536
Investment and marketable
equity securities
Taxable 137,343 $ 2,758 $ 9,015 149,116 $ 370,846 $ 757,760 1,277,722
Tax-exempt 505 1,475 677 2,657 6,459 141,878 150,994
Loans, net of unearned
income 1,528,741 89,880 158,920 1,777,541 1,231,425 861,993 3,870,959
------------------------------------------------------------------------------------------------
Total Interest-Earning
Assets $1,668,125 $ 94,113 $ 168,612 $ 1,930,850 $ 1,608,730 $1,761,631 $5,301,211
================================================================================================
LIABILITIES
Interest-Bearing Funds:
Savings and NOW accounts $1,377,598 $ 1,377,598 $1,377,598
Time deposits of
$100,000 & over 91,607 $ 52,338 $ 146,673 290,618 $ 107,579 $ 1,219 399,416
Other time deposits 323,734 275,093 380,182 979,009 375,377 2,608 1,356,994
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 406,288 406,288 120,840 527,128
FHLB advances and trust
preferred securities 55,180 180 758 56,118 104,936 584,201 745,255
------------------------------------------------------------------------------------------------
Total Interest-Bearing
Funds $2,254,407 $ 327,611 $ 527,613 $ 3,109,631 $ 708,732 $ 588,028 $4,406,391
================================================================================================
Interest Sensitivity Gap ($586,282) ($233,498) ($359,001) ($1,178,781) $ 899,998 $1,173,603 $ 894,820
================================================================================================
Cumulative Gap ($586,282) ($819,780) ($1,178,781) ($1,178,781) ($278,783) $ 894,820 $ 894,820
================================================================================================
Cumulative Gap as a
Percentage of
Total Earning Assets (11.06%) (15.46%) (22.24%) (22.24%) (5.26%) 16.88% 16.88%
Management Adjustments $1,319,057 ($87,981) ($175,830) $ 1,055,246 ($1,055,246) $ 0
Off-Balance Sheet Activities
------------------------------------------------------------------------------------------------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 732,775 $ 411,296 ($123,535) ($123,535) ($278,783) $ 894,820 $ 894,820
================================================================================================
Cumulative Management
Adjusted Gap and Off-
Balance Sheet
Act