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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2000
Commission File Number: 0-13322
United Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8704
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
Common Stock, $2.50 Par Value
-----------------------------
(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, 2001 was approximately $805,006,000.
As of February 28, 2001, United Bankshares, Inc. had 41,690,387 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, 2000
portions of which are incorporated by reference in Parts I, II and IV of this
Form 10-K.
2. Definitive Proxy Statement dated April 9, 2001 for the 2001 Annual
Shareholders' Meeting to be held on May 21, 2001, portions of which are
incorporated by reference in Part III of this Form 10-K.
Page 1 of 131 pages. Index to Exhibits is on page 30 .
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UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
As of the date of filing this Annual report, neither the annual shareholders'
report for the year ended December 31, 2000, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Page
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Part I
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Item 1. BUSINESS................................................ 3
Item 2. PROPERTIES.............................................. 3
Item 3. LEGAL PROCEEDINGS....................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 10
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS..................................... 11
Item 6. SELECTED FINANCIAL DATA................................. 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................... 13
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISK............................................. 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............. 23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES................. 23
Part III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 24
Item 11. EXECUTIVE COMPENSATION.................................. 25
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................. 25
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 25
Part VI
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Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K............................................. 26
2
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 1. Business
Item 2. Properties
The following discussion satisfies the reporting requirements of Items 1
and 2.
DESCRIPTION OF UNITED BANKSHARES, INC.
Organizational History and Subsidiaries
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United Bankshares, Inc. ("United") is a West Virginia corporation
registered as a bank holding company pursuant to the Bank Holding Company Act of
1956, as amended. United was incorporated on March 26, 1982, organized on
September 9, 1982, and began conducting business on May 1, 1984 with the
acquisition of three wholly-owned subsidiaries. Since its formation in 1982,
United has acquired twenty-four banking institutions. United has two banking
subsidiaries, United National Bank ("UNB") and United Bank. United also owns
nonbank subsidiaries that engage in mortgage banking, asset management,
investment banking and financial planning.
Offices
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The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia. United's executive offices are located
in Parkersburg, West Virginia at Fifth and Avery Streets. United operates
seventy-seven offices--fifty-two offices located throughout West Virginia,
twenty-two offices throughout the Northern Virginia, Maryland and Washington,
D.C. areas and three in Ohio. United owns all its West Virginia facilities
except for two in the Parkersburg area, three in the Wheeling area, three in the
Charleston area, two in the Beckley area and one each in Summersville and
Clarksburg, all of which are leased under operating leases. United leases all
of its facilities under operating lease agreements in the Northern Virginia,
Maryland and Washington, D.C. areas except for two offices, one each in Fairfax
and Vienna, Virginia which are owned facilities.
Employees
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As of December 31, 2000 United and its subsidiaries had approximately 1,253
full-time equivalent employees and officers. A collective bargaining unit
represents none of these employees, and management considers employee relations
to be excellent.
Business of United
- ------------------
As a bank holding company registered under the Bank Holding Company Act of
1956, as amended,
3
United's present business is community and mortgage banking. As of December 31,
2000, United's consolidated assets approximated $4.9 billion and total
shareholders' equity approximated $431 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, UNB and
United Bank offer credit card services including accounts issued under the name
of certain correspondent banks.
UNB and United Bank each maintains a trust department which acts as trustee
under wills, trust and pension and profit sharing plans, as executors and
administrators of estates, and as guardians for estates of minors and
incompetents, and in addition performs a variety of investment and security
services. Trust services are available to customers of affiliate banks. UNB
provides services to its correspondent banks such as check clearing, safekeeping
and the buying and selling of federal funds.
United Brokerage Services, Inc., a wholly-owned subsidiary of UNB, is a
fully-disclosed broker/dealer and a registered Investment Advisor with the
National Association of Securities Dealers, Inc. and the Securities and Exchange
Commission and a member of the Securities Investor Protection Corporation.
United Brokerage Services, Inc. offers a wide range of investment products as
well as comprehensive financial planning and asset management services to the
general public.
UNB is a member of a regional network of automated teller machines known as
the MAC ATM network while United Bank participates in the MOST network. Through
MAC and MOST, all of United's subsidiary banks are participants in a network
known as Cirrus, which provides banking on a nationwide basis.
Lending Activities
- ------------------
United's loan portfolio, net of unearned income, increased $22.4 million to
$3.19 billion in 2000 and is comprised of commercial, real estate and consumer
loans including credit card and home equity loans. Commercial and commercial
real estate loans increased $29.8 million or 5.6% and $69.8 million or 7.9%,
respectively. Consumer loans, net of unearned income, decreased $41.6 million or
11.7% while residential real estate loans also decreased $35.6 million or 2.6%.
4
As of December 31, 2000, approximately $348 million or 11% of United's loan
portfolio were real estate loans that met the regulatory definition of a high
loan-to-value loan. A high loan-to-value real estate loan is defined as any
loan, line of credit, or combination of credits secured by liens on or interests
in real estate that equals or exceeds 90% of the real estate's appraised value,
unless the loan has other appropriate credit support. Appropriate credit
support may include mortgage insurance, readily marketable collateral, or other
acceptable collateral that reduces the loan-to-value ratio below 90%.
The December 31, 2000 position in high loan-to-value loans is significantly
less than the December 31, 1999 and 1998 amounts of $401 million and $617
million, respectively, or 12% and 20% of total loans, respectively, of which
$456 million was held in the loans held for sale category on United's balance
sheet at December 31, 1998.
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. Coal mining
companies make up an insignificant portion of loans in the portfolio. Collateral
securing these loans include equipment, machinery, inventory, receivables,
vehicles and commercial real estate. Commercial loans are considered to contain
a higher level of risk than other loan types although care is taken to minimize
these risks. Numerous risk factors impact this portfolio including industry
specific risks such as economy, new technology, labor rates and cyclicality, as
well as customer specific factors, such as cash flow, financial structure,
operating controls and asset quality. United diversifies risk within this
portfolio by closely monitoring industry concentrations and portfolios to ensure
that it does not exceed established lending guidelines. Diversification is
intended to limit the risk of loss from any single unexpected economic event or
trend. Underwriting standards require a comprehensive review and independent
evaluation of virtually all larger balance commercial loans by the loan
committee prior to approval.
Real Estate Loans
- -----------------
Commercial real estate loans consist of commercial mortgages, which
generally are secured by nonresidential and multi-family residential properties.
Also included in this portfolio are loans that are secured by owner-occupied
real estate, but made for purposes other than the construction or purchase of
real estate. Commercial real estate loans carry many of the same customers and
industry risks as the commercial loan portfolio. Real estate mortgage loans to
consumers are secured primarily by a first lien deed of trust. These loans are
traditional one-to-four family residential mortgages. The loans generally do
not exceed an 80% loan to value ratio at the loan origination date and most are
at a variable rate of interest. These loans are considered to contain normal
risk.
Consumer Loans
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Consumer loans are secured by automobiles, boats, recreational vehicles,
and other personal property. Personal loans, home equity, student loans and
unsecured credit card receivables are also included as consumer loans. United
monitors the risk associated with these types of loans by monitoring such
factors as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors.
5
Underwriting Standards
- ----------------------
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, 2000, the balance of mortgage loans being
serviced by United for others was insignificant.
Secondary Markets
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United National Bank and George Mason Mortgage, LLC ("GMMC"), a wholly-
owned subsidiary of United Bank, are engaged in the operation of a general
mortgage and agency business, including the conducting of mortgage loan
servicing activities for certain loans, the origination and acquisition of
residential real estate loans for resale and generally the activities commonly
conducted by a mortgage banking company. These loans are for single, owner-
occupied residences with either adjustable or fixed rate terms, with a variety
of maturities tailored to effectively serve its markets.
GMMC primarily originates permanent residential mortgage loans in the
northern Virginia market while UNB's originations are predominately in its West
Virginia markets. Mortgage loan originations are generally intended to be sold
in the secondary market.
During 2000, United originated $1.2 billion of real estate loans for sale
in the secondary market and sold $1.1 billion of loans designated as held for
sale in the secondary market. Proceeds received from the sales of these loans
during 2000 were $1.1 billion.
The principal sources of revenue from United's mortgage banking business
are: (i) loan origination fees; (ii) gains or losses from the sale of loans, if
any; (iii) interest earned on mortgage loans during the period that they are
held by United pending sale; and (iv) loan servicing fees.
6
Investment Activities
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United's investment policy stresses the management of the investment
securities portfolio, which includes both securities held to maturity and
securities available for sale, to maximize return over the long-term in a manner
that is consistent with good banking practices and relative safety of principal.
United currently does not engage in trading account activity. The
Asset/Liability Committee of United is responsible for the coordination and
evaluation of the investment portfolio.
Sources of funds for investment activities include "core deposits". Core
deposits include certain demand deposits, statement and special savings and NOW
accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase and FHLB borrowings. Repurchase
agreements represent funds that are generally obtained as the result of a
competitive bidding process.
United's investment portfolio is comprised largely of mortgage-backed
securities. Additionally United has a substantial amount of U.S. Treasury
securities and obligations of U.S. Agencies and Corporations. Obligations of
States and Political Subdivisions are comprised of municipal securities with an
average quality of not less than an "A" rating.
During 2000 United recognized net losses of $13.86 million from the
available for sale portfolio. A significant portion of the losses was the
result of United's restructuring of its available for sale investment portfolio
late during the fourth quarter of 2000. United used the proceeds of
approximately $542 million from the sales to acquire investment securities that
will provide an increased yield above those sold. During 1999 and 1998, United
recognized net gains of $677 thousand, $2.37 million, respectively, from the
available for sale portfolio. The net gain in 1998 included a $2.49 million
gain recognized on an available for sale equity security exchanged in an
unaffiliated merger transaction consummated at the end of the first quarter of
1998. Additionally, the 1998 net gain included approximately $300 thousand of
net losses from calls of held to maturity securities.
At December 31, 2000, United had no open commitments to sell mortgage-
backed securities. As such, United is not exposed to significant risk nor will
it derive any significant benefit from changes in interest rates on the price of
the mortgage loan inventory.
Competition
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United faces a high degree of competition in all of the markets it serves.
These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson,
Cabell, 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, 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
7
Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington
MSA, the Wheeling MSA and the Weirton MSA. United's Virginia markets include the
Washington, D.C. Metropolitan area. United considers the above counties and
MSA's to be the primary market area for the business of its banking
subsidiaries.
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, 2000, there were 48 bank holding companies in the State
of West Virginia registered with the Federal Reserve System and the West
Virginia Board of Banking and Financial Institutions and 76 bank holding
companies in the Commonwealth of Virginia registered with the Federal Reserve
System and the Virginia Corporation Commission. These holding companies are
headquartered in various West Virginia and Virginia cities and control banks
throughout West Virginia and Virginia, which compete for business as well as for
the acquisition of additional banks.
Economic Characteristics of Primary Market Area
- -----------------------------------------------
Although the market area of the banking subsidiaries encompasses a portion
of the coal fields located in southern West Virginia, an area of the state which
has been economically depressed, the coal related loans in the loan portfolio of
the banking subsidiaries constitute less than 2% of United's total loans
outstanding. The state of West Virginia has a more diversified economy than it
had during the peak periods of coal production with the chemical manufacturing
industry accounting for 18% of the entire manufacturing workforce and 30% of the
manufacturing wages, according to West Virginia state records. This diversified
economy has contributed to the positive trends in the number of payroll jobs
created and unemployment rates in recent years as the number of payroll jobs
increased 4,000 during calendar year 2000 and the state's overall unemployment
rate has declined from 10.5% in 1991 to 5.5% in December 2000. West Virginia's
unemployment rate for all of 2000 averaged 5.5%, 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 2000 was
1.9%. The 1.9% unemployment rate was the first time the rate fell below 2.0% in
48 years. Additionally, the Virginia Employment Commission reported that record
levels were set with increased nonagricultural employment and increased factory
wages in December 2000. The Northern Virginia metropolitan area's unemployment
rate was at 1.1%, lowest among Virginia's eight metropolitan areas, as of
December 2000.
Regulation and Supervision
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United, as a bank holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956, as amended, and is registered pursuant to its
provisions. As such, United is subject to the reporting requirements of and
examination by the Board of Governors of the Federal Reserve System ("Board of
8
Governors").
The Bank Holding Company Act prohibits the acquisition by a bank holding
company of direct or indirect ownership of more than five percent of the voting
shares of any bank within the United States without prior approval of the Board
of Governors. With certain exceptions, a bank holding company also is
prohibited from acquiring direct or indirect ownership or control of more than
five percent of the voting shares of any company which is not a bank, and from
engaging directly or indirectly in business unrelated to the business of
banking, or managing or controlling banks.
The Board of Governors of the Federal Reserve System, in its Regulation Y,
permits bank holding companies to engage in non-banking activities closely
related to banking or managing or controlling banks. Approval of the Board of
Governors is necessary to engage in these activities or to make acquisitions of
corporations engaging in these activities. In addition, on a case by case
basis, the Board of Governors may approve other non-banking activities.
On November 12, 1999 the Gramm-Leach-Bliley Act was signed into law. The
Act modernizes the regulatory framework for financial services in the United
States and allows banks, securities firms, and insurance companies to affiliate
more directly than they have been permitted to do in the past. Under the Act, a
bank holding company may become a "financial holding company" to offer a much
broader range of financial products and services than had been previously
possible under the traditional banking structure, provided that the bank holding
company meets certain certification requirements of the Federal Reserve. United
is presently in the process of analyzing the opportunities, requirements, and
pitfalls the Act presents.
As a bank holding company doing business in West Virginia, United is also
subject to regulation and examination by the West Virginia Board of Banking and
Financial Institutions (the "West Virginia Banking Board") and must submit
annual reports to the department. Further, any acquisition application that
United must submit to the Board of Governors must also be submitted to the West
Virginia Banking Board for approval.
United is also registered under and is subject to the requirements of the
Securities Exchange Act of 1934, as amended.
UNB, as national banking associations, is subject to supervision,
examination and regulation by the Office of the Comptroller of the Currency.
UNB is also a member of the Federal Reserve System, and as such, is subject to
applicable provisions of the Federal Reserve Act and regulations issued
thereunder.
United Bank, as a Virginia state member bank, is subject to supervision,
examination and regulation by the Federal Reserve System, and as such, is
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder. United Bank is subject to regulation by the Virginia
Corporation Commission's Bureau of Financial Institutions.
The deposits of United's wholly-owned banking subsidiaries are insured by
the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by
law. Accordingly, these banks are also subject to regulation by the FDIC.
9
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 3. Legal Proceedings
Litigation
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Information relating to litigation on page 30 of the Annual Report to
Shareholders for the year ended December 31, 2000, 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, 2000, 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 1,616,498 shares held as treasury shares. The outstanding shares are
held by approximately 12,006 shareholders of record as of December 31, 2000. The
unissued portion of United's authorized common stock (subject to registration
approval by the SEC) and the treasury shares are available for issuance as the
Board of Directors determines advisable. United offers its shareholders the
opportunity to invest dividends in shares of United stock through its dividend
reinvestment plan. United has also established stock option plans and a stock
bonus plan as incentive for certain eligible officers. In addition to the above
incentive plans, United is occasionally involved in certain mergers in which
additional shares could be issued and recognizes that additional shares could be
issued for other appropriate purposes.
The Board of Directors believes that the availability of authorized but
unissued common stock of United is of considerable value if opportunities should
arise for the acquisition of another business through the issuance of United's
stock. Shareholders do not have preemptive rights, which allows United to issue
additional authorized shares without first offering them to current
shareholders.
United has only one class of stock and all voting rights are vested in the
holders of United's stock. On all matters subject to a vote of shareholders,
the shareholders of United will be entitled to one vote for each share of common
stock owned. Shareholders of United have cumulative voting rights with regard
to election of directors. At the present time, no senior securities of United
are outstanding, nor does the Board of Directors presently contemplate issuing
senior securities.
There are no preemptive or conversion rights or, redemption or sinking fund
provisions with respect to United's Stock. All of the issued and outstanding
shares of United's stock are fully paid and non- assessable.
Dividends
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The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Dividends
were $0.84 per share in 2000, $0.82 per share in 1999 and $0.75 per share in
1998. Dividends are paid from funds legally available; therefore, the payment
of dividends is subject to the restrictions set forth in the West Virginia
Corporation Act. See "Market and Stock Prices of United" for quarterly dividend
information.
Payment of Dividends by United is dependent upon payment of dividends to it
by its subsidiary banks. The ability of national banks to pay dividends is
subject to certain limitations imposed by the national banking
11
laws. Generally, the most restrictive provision requires approval by the Office
of the Comptroller of the Currency ("OCC") if dividends declared in any year
exceed the current year's net income, as defined, plus the retained net profits
of the two preceding years. Payment of dividends by United's state member bank
is regulated by the Federal Reserve System and generally, the prior approval of
the Federal Reserve Board ("FRB") is required if the total dividends declared by
a state member bank in any calendar year exceeds its net profits, as defined,
for that year combined with its retained net profits for the preceding two
years. Additionally, prior approval of both the OCC and the FRB is required when
a national bank or state member bank has deficit retained earnings but has
sufficient current year's net income, as defined, plus the retained net profits
of the two preceding years. The OCC and FRB may prohibit dividends if it deems
the payment to be an unsafe or unsound banking practice. The OCC has issued
guidelines for dividend payments by national banks, emphasizing that proper
dividend size depends on the bank's earnings and capital while the FRB has
issued similar guidelines pertaining to state member banks. See Note N - 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:
2001 Dividends High Low
---- --------- ---- ---
First Quarter through February 28, 2001 (1) $23.13 $20.19
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
1999
----
Fourth Quarter $0.21 $26.25 $22.63
Third Quarter $0.21 $27.25 $23.38
Second Quarter $0.20 $27.38 $22.88
First Quarter $0.20 $27.69 $22.75
(1) On February 26, 2001, United declared a dividend of $0.22 per share,
payable April 2, 2001, to shareholders of record as of March 9, 2001.
12
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
Information relating to selected financial data on page 38 of the Annual
Report to Shareholders for the year ended December 31, 2000, 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 39 through 51 inclusive, of the Annual Report to
Shareholders for the year ended December 31, 2000, is incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk on pages 44
through 46 inclusive, of the Annual Report to Shareholders for the year ended
December 31, 2000, is incorporated herein by reference.
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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, 2000, 1999
and 1998 with the interest and rate earned or paid on such amount.
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
-------------------------- -------------------------- ---------------------------
Average Avg. Average Avg. Average Avg.
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------------------------- -------------------------- ---------------------------
ASSETS
Earning Assets:
Federal funds sold, securities repurchased
under agreements to resell & other
short-term investments $ 17,362 $ 1,171 6.74% $ 8,390 $ 522 6.22% $ 28,270 $ 1,472 5.21%
Investment Securities:
Taxable 1,163,824 79,190 6.80% 1,295,851 85,392 6.59% 876,167 55,550 6.34%
Tax-exempt (1) (2) 198,943 14,282 7.18% 202,435 14,402 7.11% 66,019 5,262 7.97%
-------------------------- -------------------------- ---------------------------
Total Securities 1,362,767 93,472 6.86% 1,498,286 99,794 6.66% 942,186 60,812 6.45%
Loans, net of unearned
Income (1) (2) (3) 3,320,065 294,297 8.86% 3,110,785 262,622 8.44% 3,053,948 267,186 8.75%
Allowance for loan losses (39,437) (39,615) (35,598)
---------- --------- ---------
Net loans 3,280,628 8.98% 3,071,170 8.55% 3,018,350 8.85%
-------------------------- -------------------------- ---------------------------
Total earning assets 4,660,757 $388,940 8.34% 4,577,846 $362,938 7.93% 3,988,806 $329,470 8.26%
-------- -------- --------
Other assets 275,848 289,675 250,002
---------- ---------- ----------
TOTAL ASSETS $4,936,605 $4,867,521 $4,238,808
========== ========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,775,938 $125,847 4.53% $2,890,065 $122,651 4.24% $2,791,996 $128,976 4.62%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 370,679 19,898 5.37% 367,342 17,104 4.66% 228,923 10,732 4.69%
FHLB advances 851,486 52,021 6.11% 653,579 34,647 5.30% 282,741 15,646 5.53%
-------------------------- -------------------------- ---------------------------
Total Interest-Bearing Funds 3,998,103 197,766 4.95% 3,910,986 174,402 4.46% 3,303,660 155,354 4.70%
-------- -------- --------
Demand deposits 473,205 468,238 452,300
Accrued expenses and other liabilities 55,992 68,478 70,572
---------- ---------- ----------
TOTAL LIABILITIES 4,527,300 4,447,702 3,826,532
SHAREHOLDERS' EQUITY 409,305 419,819 412,276
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,936,605 $4,867,521 $4,238,808
========== ========== ==========
NET INTEREST INCOME $191,174 $188,536 $174,116
======== ======== ========
INTEREST SPREAD 3.40% 3.47% 3.56%
NET INTEREST MARGIN 4.11% 4.12% 4.37%
(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).
2000 Compared to 1999 1999 Compared to 1998
------------------------------------------ -----------------------------------------
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 $ 558 $ 44 $ 47 $ 649 ($1,035) $ 287 ($202) ($950)
Investment securities:
Taxable (8,701) 2,782 (283) (6,202) 26,608 2,186 1,048 29,842
Tax exempt (1), (2) (249) 131 (2) (120) 10,873 (565) (1,168) 9,140
Loans (1),(2),(3) 17,911 12,885 879 31,675 4,676 (9,081) (159) (4,564)
--------- ------- ------- -------- --------- --------- ------- --------
TOTAL INTEREST INCOME 9,519 15,842 641 26,002 41,122 (7,173) (481) 33,468
--------- ------- ------- -------- --------- --------- ------- --------
Interest expense:
Interest-bearing deposits ($4,843) $ 8,370 ($331) $ 3,196 $ 4,530 ($10,487) ($368) ($6,325)
Federal funds purchased, repurchase
Agreements, and other short-term
Borrowings 155 2,615 24 2,794 6,489 (73) (44) 6,372
FHLB advances 10,491 5,283 1,600 17,374 20,521 (658) (862) 19,001
--------- ------- ------- -------- --------- --------- ------- --------
TOTAL INTEREST EXPENSE 5,803 16,268 1,293 23,364 31,540 (11,218) (1,274) 19,048
--------- ------- ------- -------- --------- --------- ------- --------
NET INTEREST INCOME $ 3,716 ($426) ($652) $ 2,638 $ 9,582 $ 4,045 $ 793 $ 14,420
========= ======= ======= ======== ========= ========= ======= ========
(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:
2000 1999 1998 1997 1996
----------- ------------ ------------ -------------- ------------
(In thousands)
Commercial, financial
and agricultural $ 564,887 $ 535,116 $ 508,601 $ 487,706 $ 328,248
Real estate mortgage 2,148,751 2,134,370 1,696,233 1,693,819 1,611,801
Real estate construction 164,505 144,634 141,026 150,429 90,817
Consumer 319,351 363,272 313,464 364,951 328,928
Less: Unearned interest (5,000) (7,296) (6,933) (7,066) (5,223)
------------ ------------ ------------ ------------ ------------
Total loans 3,192,494 3,170,096 2,652,391 2,689,839 2,354,571
Allowance for loan losses (40,532) (39,599) (39,189) (31,936) (29,376)
------------ ------------ ------------ ------------ ------------
TOTAL LOANS, NET $ 3,151,962 $ 3,130,497 $ 2,613,202 $ 2,657,903 $ 2,325,195
============ ============ ============ ============ ============
Loans held for sale $ 203,831 $ 117,825 $ 720,607 $ 97,619 $ 74,465
============ ============ ============ ============ ============
The following is a summary of loans outstanding as a percent of total loans at
December 31:
2000 1999 1998 1997 1996
------------ ------------ ------------ -------------- ------------
Commercial, financial
and agricultural 17.69% 16.88% 19.18% 18.13% 13.94%
Real estate mortgage 67.31% 67.33% 63.95% 62.97% 68.45%
Real estate construction 5.15% 4.56% 5.32% 5.59% 3.86%
Consumer 9.85% 11.23% 11.55% 13.31% 13.75%
------------ ------------ ------------ ------------ ------------
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,
2000:
Less Than One To Greater Than
One Year Five Years Five Years Total
------------------ ------------------ ------------------ ------------------
(In thousands)
Commercial, financial
and agricultural $329,920 $131,522 $103,445 $564,887
Real estate construction 164,505 164,505
------------------ ------------------ ------------------ ------------------
Total $494,425 $131,522 $103,445 $729,392
================== ================== ================== ==================
16
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 2000, 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 $ 77,596 $ 63,429
Outstanding with adjustable rates 53,926 40,016
------------------ ------------------
$131,522 $103,445
There were no real estate construction loans with maturities greater than one
year.
RISK ELEMENTS
Nonperforming Loans
Nonperforming loans include loans on which no interest is currently being
accrued, loans which are past due 90 days or more as to principal or interest
payments, and loans for which the terms have been modified due to a
deterioration in the financial position of the borrower. Management is not aware
of any other significant loans, groups of loans, or segments of the loan
portfolio not included below or disclosed elsewhere herein where there are
serious doubts as to the ability of the borrowers to comply with the present
loan repayment terms. The following table summarizes nonperforming loans for the
indicated periods.
December
-------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- -------------- ---------------- -------------- --------------
(In thousands)
Nonaccrual loans $ 8,131 $12,327 $ 9,139 $ 5,815 $ 6,373
Troubled debt restructurings 95
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 4,717 8,415 9,528 12,877 6,317
----------- -------------- ---------------- -------------- --------------
TOTAL $12,848 $20,742 $18,667 $18,692 $12,785
=========== ============== ================ ============== ==============
Loans are designated as nonaccrual when, in the opinion of management, the
collection of principal or interest is doubtful. This generally occurs when a
loan becomes 90 days past due as to principal or interest unless the loan is
both well secured and in the process of collection. When interest accruals are
discontinued, unpaid interest credited to income in the current year is
reversed, and unpaid interest accrued in prior years is charged to the allowance
for loan losses. See Note D to the consolidated financial statements for
additional information regarding nonperforming loans, impaired loans and credit
risk concentration. Other real estate owned is not material.
17
UNITED BANKSHARES, INC. AND SUBSIDIARIES
INVESTMENT PORTFOLIO
The following is a summary of the amortized cost of held to maturity securities
at December 31,:
2000 1999 1998
---------- ---------- ----------
(In thousands)
U.S. Treasury and other U.S. Government
agencies and corporations $ 55,724 $ 56,734 $121,474
States and political subdivisions 93,006 97,824 82,011
Mortgage-backed securities 70,279 90,850 139,002
Other 161,059 19,782 19,664
---------- ---------- ----------
TOTAL HELD TO MATURITY SECURITIES $380,068 $265,190 $362,151
========== ========== ==========
The following is a summary of the amortized cost of available for sale
securities at December 31,:
2000 1999 1998
---------- ---------- ----------
(In thousands)
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $160,702 $ 276,558 $198,151
States and political subdivisions 52,095 48,914 27,474
Mortgage-backed securities 574,292 693,828 279,618
Marketable equity securities 8,551 8,369 9,211
Other 69,723 229,277 43,120
---------- ---------- ----------
TOTAL AVAILABLE FOR SALE SECURITIES $865,363 $1,256,946 $557,574
========== ========== ==========
The fair value of mortgage-backed securities is affected by changes in interest
rates and prepayment risk. When interest rates decline, prepayment speeds
generally accelerate due to homeowners refinancing their mortgages at lower
interest rates. This may result in the proceeds being reinvested at lower
interest rates. Rising interest rates may decrease the assumed prepayment speed.
Slower prepayment speeds may extend the maturity of the security beyond its
estimated maturity. Therefore, investors may not be able to invest at current
higher market rates due to the extended expected maturity of the security.
United had a net unrealized gains of $2,318 on all mortgage-backed securities at
December 31, 2000, as compared to a net unrealized loss of $23,932 at December
31, 1999.
The following table sets forth the maturities of all securities at December 31,
2000, 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 $24,876 6.18% $70,367 6.38% $85,129 7.07% $ 34,776 7.33%
States and political subdivisions (1) 3,031 7.97% 11,743 8.26% 37,961 7.58% 92,098 7.51%
Mortgage-backed securities 465 6.09% 22,653 6.70% 79,840 6.38% 543,931 6.78%
Other 11,337 7.01% 34,681 6.62% 192,446 7.82%
(1) Tax-equivalent adjustments (using a 35% federal rate) have been made in
calculating yields on obligations of states and political subdivisions.
NOTE: There are no securities with a single issuer whose book value in the
aggregate exceeds 10% of total shareholders' equity.
18
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
The following table shows the distribution of United's short-term borrowings and
the weighted average interest rates thereon at the end of each of the last three
years. Also provided are the maximum amount of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years.
Federal Securities Sold
Funds Under Agreements
Purchased To Repurchase
------------ -------------------
(Dollars in thousands)
At December 31:
2000 $15,720 $313,349
1999 44,120 349,129
1998 7,260 236,535
Weighted average interest rate
at year end:
2000 6.6% 5.2%
1999 5.0% 5.0%
1998 5.6% 4.6%
Maximum amount outstanding at
any month's end:
2000 $45,515 $417,866
1999 64,921 440,281
1998 35,416 236,535
Average amount outstanding during
the year:
2000 $15,332 $351,816
1999 27,774 335,908
1998 24,334 201,475
Weighted average interest rate
During the year:
2000 6.3% 5.3%
1999 5.4% 4.6%
1998 5.6% 4.7%
At December 31, 2000, repurchase agreements include $235,096 in overnight
accounts. The remaining balance principally consists of agreements having
maturities ranging from 2-90 days. The rates offered on these funds vary
according to movements in the federal funds and short-term investment market
rates.
19
UNITED BANKSHARES, INC. AND SUBSIDIARIES
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the years ended December 31:
2000 1999 1998
----------------------------- ------------------------------ ---------------------------
Amount Rate Amount Rate Amount Rate
------------ ------------ ------------ ----------- ------------- ----------
(Dollars in thousands)
Noninterest bearing
demand deposits $ 473,205 $ 468,238 $ 452,300
Interest bearing
demand deposits 354,771 1.35% 335,231 1.60% 312,317 2.37%
Savings deposits 784,005 3.65% 865,351 3.36% 817,852 3.49%
Time deposits 1,637,162 5.65% 1,689,483 5.28% 1,661,827 5.60%
------------ ------------ ------------ ----------- ------------- ----------
TOTAL $3,249,143 4.53% $3,358,303 4.24% $3,244,296 4.62%
============ ============ =============
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 2000 are summarized as follows:
(In thousands)
3 months or less $ 76,246
Over 3 through 6 months 80,712
Over 6 through 12 months 115,530
Over 12 months 116,969
------------
TOTAL $ 389,457
============
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:
2000 1999 1998
-------- -------- --------
Return on average assets 1.19% 1.44% 1.05%
Return on average equity 14.41% 16.73% 10.77%
Dividend payout ratio (1) 59.83% 50.35% 63.77%
Average equity to average
assets ratio 8.29% 8.63% 9.73%
(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:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Balance of allowance for possible loan
losses at beginning of year $ 39,599 $ 39,189 $ 31,936 $ 29,376 $ 29,531
Allowance of purchased company at date
of acquisition 2,695
Loans charged off:
Commercial, financial and agricultural 2,482 3,896 800 1,352 2,310
Real estate 10,570 3,290 3,070 447 406
Real estate construction
Consumer and other 2,793 2,050 2,400 2,436 1,199
---------- ---------- ---------- ---------- ----------
TOTAL CHARGE-OFFS 15,845 9,236 6,270 4,235 3,915
Recoveries:
Commercial, financial and agricultural 374 341 729 292 283
Real estate 226 156 217 263 237
Real estate construction
Consumer and other 433 349 421 265 359
---------- ---------- ---------- ---------- ----------
TOTAL RECOVERIES 1,033 846 1,367 820 879
---------- ---------- ---------- ---------- ----------
NET LOANS CHARGED OFF 14,812 8,390 4,903 3,415 3,036
Addition to allowance (1) 15,745 8,800 12,156 3,280 2,881
---------- ---------- ---------- ---------- ----------
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR $ 40,532 $ 39,599 $ 39,189 $ 31,936 $ 29,376
========== ========== ========== ========== ==========
Loans outstanding at the end of period (gross) $3,197,494 $3,170,096 $2,652,391 $2,689,839 $2,354,571
Average loans outstanding during
period (net of unearned income) $3,320,065 $2,975,116 $2,668,460 $2,472,293 $2,245,292
Net charge-offs as a percentage of
average loans outstanding 0.45% 0.28% 0.18% 0.14% 0.14%
Allowance for loan losses as
a percentage of nonperforming loans 315.5% 190.9% 209.9% 170.9% 229.8%
(1) The amount charged to operations and the related balance in the allowance
for loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior
loan loss experience and management's estimation of probable losses.
Quarterly reviews of individual loans as well as the loan portfolio as a
whole are made by management and the credit department. Management performs
extensive procedures in granting and monitoring loans on a continual basis.
Further, management believes that the allowance for loan losses is adequate
to absorb anticipated losses.
21
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for loan losses
December 31
------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
Commercial, financial and
Agricultural $12,762 $14,432 $13,772 $10,115 $ 8,261
Real estate 12,713 9,861 3,587 3,452 4,239
Real estate construction 1,372 754 1,086 674 511
Consumer and other 3,533 2,735 3,747 3,221 1,688
Unallocated 10,152 11,817 16,997 14,474 14,677
------- ------- ------- ------- -------
Total $40,532 $39,599 $39,189 $31,936 $29,376
======= ======= ======= ======= =======
22
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 8. Financial Statements and Supplementary Data
(a) - FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X
Information relating to financial statements on pages 9 through 37
inclusive of the Annual Report to Shareholders for the year ended December 31,
2000, is incorporated herein by reference.
(b) - SUPPLEMENTARY FINANCIAL INFORMATION
(1) Selected Quarterly Financial Data
Information relating to selected quarterly financial data on page 37 of the
Annual Report to Shareholders for the year ended December 31, 2000, is
incorporated herein by reference.
(2) Information on the Effects of Changing Prices
Information relating to effects of changing prices on page 44 of the Annual
Report to Shareholders for the year ended December 31, 2000, is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
23
UNITED BANKSHARES, INC.
FORM 10-K, PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the registrant on
pages 4 through 9 inclusive and page 24, of the Proxy Statement for the 2001
Annual Shareholders' Meeting is incorporated herein by reference.
Change of Control Agreements
- ----------------------------
In August of 2000, United entered into agreements with Richard M. Adams,
Jr., Kendal E. Carson, James J. Consagra, Jr., and John Neuner, III to encourage
those executive officers not to seek other employment because of the possibility
that United might be acquired by another entity. The Board of Directors
determined that such an arrangement was appropriate especially in view of recent
and anticipated changes in the banking industry. The agreements were not
undertaken in the belief that a change of control was imminent.
Generally, the agreements provide severance compensation to those officers
if their employment should end under certain specified conditions after a change
of control of United. Compensation is paid upon any involuntary termination
following a change of control unless the officer is terminated for cause. In
addition, compensation will be paid after a change of control if the officer
voluntarily terminates employment because of a decrease in the total amount of
the officer's base salary below the level in effect on the date of consummation
of the change of control, without the officer's consent; a material reduction in
the importance of the officer's job responsibilities without the officer's
consent; geographical relocation of the officer without consent to an office
more than fifty (50) miles from the officer's location at the time of a change
of control; failure by United to obtain assumption of the contract by its
successor or any termination of employment within thirty-six (36) months after
consummation of a change of control which is effected for any reason other than
good cause.
Under the agreements, a change of control is deemed to occur in the event
of a change of ownership of United which must be reported to the Securities and
Exchange Commission as a change of control, including but not limited to the
acquisition by any "person" (as such term is used in Sections 13(d) and 14(d) of
the Securities and Exchange Act of 1934 (the "Exchange Act")) of direct or
indirect "beneficial ownership" (as defined by Rule 13d-3 under the Exchange
Act) of twenty-five percent (25%) or more of the combined voting power of
United's then outstanding securities, or the failure during any period of two
(2) consecutive years of individuals who at the beginning of such period
constitute the Board for any reason to constitute at least a majority thereof,
unless the election of each director who was not a director at the beginning of
such period has been approved in advance by directors representing at least two-
thirds (2/3) of the directors at the beginning of the period.
Under the agreements, severance benefits include: (a) cash payment equal to
the officers monthly base salary in effect on either (i) the date of
termination; (ii) the date immediately preceding the change of control,
whichever is higher, multiplied by the number of full months between the date
24
of termination and the date that is thirty-six (36) months after the date of
consummation of the change of control; (b) payment of cash incentive award, if
any, under United's Incentive Plan; (c) continuing participation in employee
benefit plans and programs such as retirement, disability and medical insurance
for a period of thirty-six (36) months following the date of termination. (See
Exhibit 10.2 beginning on page 124.)
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 10 through 14
inclusive, of the Proxy Statement for the 2001 Annual Shareholders' Meeting is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management on pages 7 through 9 inclusive and pages 19 and 24, of the Proxy
Statement for the 2001 Annual Shareholders' Meeting is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions on
pages 5, 6, 7, 14 and 18 of the Proxy Statement for the 2001 Annual
Shareholders' Meeting is incorporated herein by reference.
25
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, 2000 at
Item 8a. Page references are to such Annual report.
Financial Statements: Page References
- -------------------- ---------------
Report of Independent Auditors........................................................................ 9
Consolidated Balance Sheets........................................................................... 10
Consolidated Statements of Income..................................................................... 11
Consolidated Statements of Changes in Shareholders' Equity............................................ 12
Consolidated Statements of Cash Flows................................................................. 13
Notes to Consolidated Financial Statements............................................................ 14
(2) Financial Statement Schedules
United is not filing separate financial statement schedules because of the
absence of conditions under which they are required or because the required
information is included in the consolidated financial statements or notes
thereto.
(3) Exhibits Required by Item 601
Listing of Exhibits - See the Exhibits' Index on page 30 of this Form
10-K.
(b) Reports on Form 8-K
On December 27, 2000, United Bankshares, Inc. filed a Current Report
under Items 5 and 7 to report a restructuring of its balance sheet.
On January 22, 2001, 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 2000.
(c) Exhibits -- The exhibits to this Form 10-K begin on page 79.
26
(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.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITED BANKSHARES, INC.
(Registrant)
By /s/ Richard M. Adams
----------------------
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signatures Title Date
/s/ Richard M. Adams Chairman of the Board, Director, March 27, 2001
- ------------------------------
and Chief Executive Officer
/s/ Steven E. Wilson Chief Financial Officer March 27, 2001
- ------------------------------
Chief Accounting Officer
/s/ John M. McMahon Director March 27, 2001
- ------------------------------
/s/ Warren A. Thornhill, III Director March 27, 2001
- ------------------------------
/s/ H. Smoot Fahlgren Director March 27, 2001
- ------------------------------
/s/ William C. Pitt, III Director March 27, 2001
- ------------------------------
/s/ Theodore J. Georgelas Director March 27, 2001
- ------------------------------
/s/ F.T. Graff, Jr. Director March 27, 2001
- ------------------------------
/s/ Russell L. Isaacs Director March 27, 2001
- ------------------------------
/s/ Harry L. Buch Director March 27, 2001
- ------------------------------
/s/ P. Clinton Winter, Jr. Director March 27, 2001
- ------------------------------
/s/ Robert G. Astorg Director March 27, 2001
- ------------------------------
28
SIGNATURES
(continued)
Signatures Title Date
/s/ Thomas J. Blair, III Director March 27, 2001
- --------------------------
/s/ James W. Word, Jr. Director March 27, 2001
- --------------------------
/s/ I.N. Smith, Jr. Director March 27, 2001
- --------------------------
/s/ G. Ogden Nutting Director March 27, 2001
- --------------------------
29
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 (g)
(b) Articles of Incorporation (f)
Investments (4) N/A
Voting Trust Agreement (9) N/A
Material Contracts (10)
(a) Employment Agreement with
I. N. Smith, Jr. (b)
(b) Employment Agreement with
Richard M. Adams (e)
(c) Lease on Branch Office in
Charleston Town Center,
Charleston, West Virginia (b)
(d) Lease on United Center,
Charleston, West Virginia (h)
(e) Lease and Agreement between
Valley Savings and Loan
Company (Lessor) and Dorothy
Adams, Richard M. Adams and
Douglass H. Adams (Lessees) (c)
(f) Agreement between Dorothy
D. Adams (Lessors) and Valley
Savings and Loan Company (Lessees) (c)
30
Sequential
S-K Item 601 Page
Description Table Reference Number (a)
- ----------- --------------- ----------
(g) Employment Contract with
Douglass H. Adams (d)
(h) Employment Contract with
Thomas A. McPherson (d)
(i) Data processing contract
with FISERV (10.1) 79
(j) Supplemental Retirement
Contract with Richard M.
Adams (i)
(k) Supplemental Retirement
Contract with Douglass H.
Adams (i)
(l) Executive Officer Change (j)
of Control Agreements (10.2) 124
(m) Employment Contract with
Bernard H. Clineburg (k)
Statement Re: Computation of
Ratios (12) 129
Annual Report to Security Holders,
et al. (13) 33
Letter Re: Change in accounting
principles (18) N/A
Previously Unfiled Documents (19) N/A
Subsidiaries of the Registrant (21) 130
Published Report Regarding Matters
Submitted to a Vote of Security
Holders (22) N/A
Consent of Ernst & Young LLP (23) 131
31
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 Exhibit 10 of the 1986 Form
10-K for United Bankshares, Inc., File No. 0-13322
(d) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 33-19968
filed February 3, 1988
(e) Incorporated into this filing by reference to Exhibits to the 1988 10-K for
United Bankshares, Inc., File No. 0-13322
(f) Incorporated into this filing by reference to Exhibits to the 1989 10-K for
United Bankshares, Inc., File No. 0-13322
(g) Incorporated into this filing by reference to Exhibits to the 1990 10-K for
United Bankshares, Inc., File No. 0-13322
(h) Incorporated into this filing by reference to Exhibits to the 1991 10-K for
United Bankshares, Inc., File No. 0-13322
(i) Incorporated into this filing by reference to Exhibits to the 1992 10-K for
United Bankshares, Inc., File No. 0-13322
(j) Incorporated into this filing by reference to Exhibits to the 1993 10-K for
United Bankshares, Inc., File No. 0-13322
(k) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 333-
44993 filed January 27, 1998
32
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
Five Year Summary
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Summary of Operations:
Total interest income $ 377,847 $ 354,665 $ 325,647 $ 280,452 $ 250,641
Total interest expense 197,766 174,402 155,354 131,122 112,256
Net interest income 180,081 180,263 170,293 149,330 138,385
Provision for loan losses 15,745 8,800 12,156 3,280 2,881
Other income 33,786 51,078 41,752 37,068 29,654
Other expense 110,422 117,519 137,964 103,852 104,385
Income taxes 28,724 34,774 17,523 27,005 21,054
Net income 58,976 70,248 44,402 52,261 39,719
Cash dividends(1) 35,286 35,367 28,317 20,344 17,847
Per common share:
Net income:
Basic 1.41 1.63 1.04 1.24 0.94
Diluted 1.40 1.61 1.02 1.22 0.93
Cash dividends(1) 0.84 0.82 0.75 0.68 0.62
Book value per share 10.32 9.32 9.74 9.35 8.59
Selected Ratios:
Return on average
shareholders' equity 14.41% 16.73% 10.77% 13.92% 11.17%
Return on average assets 1.19% 1.44% 1.05% 1.42% 1.18%
Dividend payout ratio (1) 59.83% 50.35% 63.77% 49.69% 58.49%
Selected Balance Sheet Data:
Average assets $4,936,605 $4,867,521 $4,238,808 $3,682,302 $3,352,594
Investment securities 1,245,334 1,472,553 927,316 1,006,735 865,020
Loans held for sale 203,831 117,825 720,607 97,619 74,465
Total loans 3,192,494 3,170,096 2,652,391 2,689,839 2,354,571
Total assets 4,904,547 5,069,160 4,567,899 4,094,836 3,541,244
Total deposits 3,391,449 3,260,985 3,493,058 3,185,963 2,770,833
Long-term borrowings 698,204 343,847 240,867 46,674 44,877
Total borrowings
and other liabilities 1,082,228 1,412,245 653,310 512,817 407,579
Shareholders' equity 430,870 395,930 421,531 396,056 362,832
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
33
UNITED BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage
corporations to provide investors with information about the company's
anticipated future financial performance, goals, and strategies. The act
provides a safe harbor for such disclosure; in other words, protection from
unwarranted litigation if actual results are not the same as management
expectations.
United desires to provide its shareholders with sound information about past
performance and future trends. Consequently, any forward-looking statements
contained in this report, in a report incorporated by reference to this report,
or made by management of United in this report, in any other reports and
filings, in press releases and in oral statements, involves numerous
assumptions, risks and uncertainties. Actual results could differ materially
from those contained in or implied by United's statements for a variety of
factors including, but not limited to: changes in economic conditions; movements
in interest rates; competitive pressures on product pricing and services;
success and timing of business strategies; the nature and extent of governmental
actions and reforms; and rapidly changing technology and evolving banking
industry standards.
INTRODUCTION
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and the consolidated financial
statements and the notes to consolidated financial statements include the
accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless
otherwise indicated.
This discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes thereto, which are included
elsewhere in this document.
The following broad overview of the financial condition and results of
operations is not intended to replace the more detailed discussion, which is
presented under specific headings on the following pages.
2000 COMPARED TO 1999
EARNINGS SUMMARY
For the year ended December 31, 2000, operating earnings were $72.5 million
compared to $70.2 million for the year ended December 31, 1999. On a diluted per
share basis, operating earnings were $1.72 in 2000 compared to $1.61 in 1999.
Operating earnings represent earnings before balance sheet restructuring and
other charges of approximately $20.09 million ($13.51 million after-tax)
incurred during the fourth quarter of 2000. United restructured its
34
balance sheet by selling lower yielding, fixed-rate securities, which had been
carried as available for sale. A majority of the proceeds of the sale was
reinvested in higher yielding, fixed-rate securities with an average maturity
comparable with those securities sold. A portion of the sale proceeds was also
used to pay down short-term borrowings and to repurchase shares of United's
common stock. Sales and write-downs of securities resulted in a loss of $15.01
million ($10.10 million after-tax) during the fourth quarter of 2000.
In addition to the restructuring losses, United incurred other significant
charges during the fourth quarter of 2000. United recorded an additional
provision for loan losses of approximately $1.09 million ($734 thousand after-
tax) due to the effects of a slowing economy on consumer and commercial loan
customers. United also incurred litigation expense of $1.63 million ($1.09
million after-tax) as a result of a building operating lease settlement. Other
charges, which related primarily to employee salary incentive and benefit plans,
totaled approximately $2.36 million ($1.59 million after-tax). After these
charges, diluted earnings per share were $1.40 for the year ended December 31,
2000, compared to $1.61 for the year ended December 31, 1999.
Operating earnings represent a return on average shareholders' equity of 17.66%
and a return on average assets of 1.47%, respectively, for the year ended
December 31, 2000. These operating ratios compare favorably with national peer
grouping information provided by Keefe, Bruyette, & Woods, of 14.82% and 1.16%,
respectively. United, one of the nation's most profitable regional banking
companies, has a strong capital position, and is well positioned to take
advantage of future growth opportunities.
Dividends per share increased from $0.82 in 1999 to a record level of $0.84 per
share in 1999. United paid approximately $35.3 million in dividends to common
shareholders in 2000 compared with $35.4 million in 1999. This was the twenty-
seventh consecutive year of dividend increases to shareholders.
The growth in operating earnings for the year of 2000 was a result of reducing
noninterest expenses while maintaining a stable net interest margin in a
challenging banking environment. Net interest income remained flat for the year
of 2000 when compared to 1999 as increased deposit and funding costs resulting
from six Federal Funds rate increases from mid 1999 through mid 2000 offset
growth in interest income. Noninterest income, including income from mortgage
banking operations, decreased $2.28 million or 4.47% for 2000 when compared to
1999 as the higher interest rates and a slowing economy caused a decline in
mortgage banking results. Noninterest expenses decreased $11.09 million or
9.43% for 2000 compared to the same period in 1999.
The effective tax rate for the year ended December 31, 2000 approximated 32.75%
compared to 33.12% for 1999.
FINANCIAL CONDITION SUMMARY
Total assets were $4.90 billion at December 31, 2000, down $164.61 million or
3.25% compared with year end 1999. United's available for sale securities
portfolio decreased $342.10 million while securities held to maturity increased
$114.88 million as compared to year end 1999. Loans held for sale increased $86
million during 2000. Loans, net of unearned income, reflected a $22.40 million
increase from 1999 to 2000 due mainly to a 6% growth rate in the commercial loan
portfolio. Cash and cash equivalents decreased $15.00 million while nonearning
assets increased $30.80 million in 2000 as compared with year end 1999.
35
Total deposits grew $130.46 million or 4% from year end 1999 as United realized
increases of $71.82 million and $58.65 million in interest-bearing deposits and
noninterest-bearing deposits, respectively. United's short-term borrowings
decreased $64.53 million and its FHLB borrowings declined $246.84 million as
United repaid these borrowings to restructure the balance sheet to better manage
interest rate risk.
Shareholders' equity increased $34.94 million or 8.82% from December 31, 1999
due to net retained earnings in excess of dividends for the year of $23.69
million and an increase in the fair value of United's securities available for
sale portfolio of approximately $26.90 million, net of deferred income taxes.
During 2000, United completed a plan announced in 1999 to repurchase up to 1.75
million shares of its common stock on the open market. In May of 2000, United
announced a new plan to repurchase up to an additional 1.675 million shares of
its common stock on the open market, of which 219,300 shares have been
repurchased since its implementation. United continues to balance capital
adequacy and the return to shareholders. At December 31, 2000, 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 2000, are summarized below.
Tax-equivalent interest income increased $26.0 million or 7.2% from $362.94
million for the year of 1999 to $388.94 million for the year of 2000. For the
years ended December 31, 2000 and 1999, tax-equivalent net interest income was
$191.17 million and $188.54 million, respectively. The main reason for only a
slight increase in tax-equivalent net interest income from the previous year was
increased deposit and funding costs resulting from six Federal Funds rate
increases from mid 1999 through mid 2000, which predominantly offset the growth
in interest income. United's tax-equivalent net interest margin was 4.11% for
the year of 2000 and 4.12% for the same time period in 1999.
Total interest income of $377.85 million increased 6.54% in 2000 over 1999 as a
result of a higher yield on average interest-earning assets. Overall, the yield
on average interest-earning assets increased 41 basis points from 7.93% in 1999
to 8.34% in 2000. The yield on average loans, net of unearned income, increased
43 basis points to 8.87% in the year 2000 from to 8.44% in 1999. The yield on
average securities was 6.86% for the year 2000 as compared to 6.66% for 1999.
The average volume of interest-earning assets remained relatively flat,
increasing only $82.91 million in the year of 2000.
Total interest expense increased $23.36 million or 13.40% in 2000 compared to
1999. This increase was attributed primarily to increased average wholesale
funding balances at higher average interest rates than in
36
1999. The average cost of funds increased from 4.46% in 1999 to 4.95% in 2000
due to higher interest rates. United's average FHLB borrowings increased $197.91
million and average short-term borrowings increased $2.79 million as average
interest-bearing deposits decreased $114.13 million.
Provision for Loan Losses
Asset quality improved significantly over the past year despite economic
pressures affecting the banking industry and United's markets. Nonperforming
loans were $12.85 million at December 31, 2000 as compared to $20.74 million at
December 31, 1999. Nonperforming loans represented 0.26% of total assets at the
end of the year 2000, as compared to 0.41% for United at the end of 1999. The
components of nonperforming loans include nonaccrual loans and loans which are
contractually past due 90 days or more as to interest or principal, but have not
been put on a nonaccrual basis. Nonaccrual loans decreased $4.19 million or
34.04% while loans past due 90 days or more decreased $3.70 million or 43.95%
since year end 1999. Total nonperforming assets of $14.96 million, including
OREO of $2.11 million at December 31, 2000, represented 0.30% of total assets at
the end of 2000.
At December 31, 2000, impaired loans were $12.50 million, a decrease of $3.14
million or 20.07% from the $15.64 million of impaired loans at December 31,
1999. 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.
Allocations are made for specific commercial loans based upon management's
estimate of the borrowers' ability to repay and other factors impacting
collectibility. Other commercial loans not specifically reviewed on an
individual basis are evaluated based on historical 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, 2000 produced increased allocations within
three of four loan categories from December 31, 1999. The components of the
allowance allocated to real estate increased $2.9 million, as a result of
changes in historical loss experience factors. Also the consumer loan and real
estate construction loan pools increased by $798 thousand and $618 thousand,
respectively, as a result of changes in volume and historical loss experience.
The components of the allowance allocated to commercial loans decreased $1.7
million as a result of a decrease in specific allocations on larger commercial
loans.
At year end 2000 and 1999, the allowance for loan losses was 1.27% and 1.25% of
total loans, net of unearned income, respectively. At December 31, 2000 and
1999, the ratio of the allowance for loan losses to nonperforming loans was
315.5% and 190.9%, respectively, reflecting the impact of the significant
decline in nonperforming loans.
37
Management believes that the allowance for loan losses of $40.53 million at
December 31, 2000, is adequate to provide for probable losses on existing loans
based on information currently available.
For the years ended December 31, 2000 and 1999, the provision for loan losses
was $15.75 million and $8.80 million, respectively. Net charge-offs were $14.81
million for the year of 2000 as compared to net charge-offs of $8.39 million for
the year of 1999. The increases in provision and net charge-offs for the year
were primarily attributed to the addition of junior-lien mortgage loans to the
loan portfolio as of October 1, 1999. The increased provision and charge-offs
were offset by increased interest income recognized on these high-interest rate
loans. At December 31, 2000, the balance of these junior-lien mortgage loans
approximated $173 million.
Management is not aware of any potential problem loans, trends or uncertainties
which it reasonably expects will materially impact future operating results,
liquidity, or capital resources which have not been disclosed. Additionally,
management has disclosed all known material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment schedules.
Other Income
Noninterest income has been and will continue to be an important factor for
improving United's profitability. Accordingly, management continues to evaluate
areas where noninterest income can be enhanced. 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 and mortgage
banking results, increased 11.79% for the year of 2000 when compared to the year
of 1999. These results were achieved primarily due to a combination of increased
revenues from the deposit services area and the trust department.
Service charges, commissions and fees from customer accounts increased $2.54
million or 12.78% from 1999 due mainly to a new checking account product
introduced late in 1999. This income includes charges and fees related to
various banking services provided by United.
Trust income and brokerage commissions increased $812 thousand or 16.43% and
$222 thousand or 20.50%, respectively, in 2000 due to an increased volume of
trust and brokerage business. United significantly broadened the scope and
activity of its trust and brokerage service areas, especially in the northern
Virginia market, to provide additional sources of fee income that complement
United's traditional banking products and services.
Mortgage banking results declined from the previous year due to higher interest
rates and a slowing economy, both of which adversely impacted the demand for
mortgage loan originations and the fees received on the sale of those mortgage
loans in the secondary market. Originations of mortgage loans fell 5% or $67.4
million for the year of 2000 as compared to the same period in 1999 while
proceeds from sales of mortgage loans declined 21% or $302.4 million in the year
of 2000 compared to last year.
During 2000, United incurred a net loss on the sale of investment securities of
$13.86 million as compared to a net gain of $677 thousand during 1999. As
previously mentioned, United restructured its balance sheet in the fourth
quarter of 2000 by selling lower yielding, fixed-rate securities which had been
carried as
38
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)
during the fourth quarter of 2000.
Overall, noninterest income, including net gains and losses from the sale of
securities and income from mortgage banking operations, decreased $2.28 million
or 4.47% for 2000 when compared to 1999.
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 44.8%, which is well below the 57.6%
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, excluding
one-time charges of $3.99 million recognized in the fourth quarter of 2000,
decreased $11.09 million or 9.43% for the year ended December 31, 2000 as
compared to the year ended 1999. Including these one-time charges, total
noninterest expense declined $7.10 million or 6.04% from 1999.
Total salaries and benefits, excluding one-time charges of $960 thousand,
decreased by 13.14% or $7.90 million for the year of 2000 compared to year of
1999. The decline was due to lower sales activity in the mortgage banking
segment as compensation and incentives for its personnel are significantly tied
to activity levels and a SFAS No. 87 pension benefit as a result of excess
earnings within United's plan. Including the one-time expenses, total salaries
and benefits declined $6.94 million or 11.54% from 1999. At December 31, 2000
and 1999, United employed 1,253 and 1,387 full-time equivalent employees,
respectively.
Net occupancy expense in 2000, excluding one-time charges of $108 thousand,
decreased from 1999 levels by $527 thousand or 4.32%. The overall change in net
occupancy expense for 2000 was mainly due to decreased building repair and
maintenance expenses.
Remaining other expense, excluding one-time charges of approximately $2.92
million, decreased $2.66 million or 5.89% in 2000 compared to 1999. Including
the aforementioned one-time expenses, other expense remained relatively flat
from 1999.
Income Taxes
For the years ended December 31, 2000 and 1999, United's effective tax rate
approximated 33%.
Quarterly Results
The first, second and third quarters of 2000 showed increases in earnings in
comparison to those same three quarters of 1999. On a per share basis, first
quarter 2000 earnings were $0.42 per share compared to $0.39 in 1999, second
quarter 2000 earnings were $0.43 per share compared to $0.40 in 1999 while third
quarter 2000 earnings were $0.44 compared to $0.41 per share in 1999.
39
In the fourth quarter of 2000, United reported earnings per share of $0.11 as
compared to $0.41 per share for the same period in 1999. Fourth quarter 2000
results included balance sheet restructuring and other one-time charges of
approximately $20.09 million ($13.51 million after-tax).
Additional quarterly financial data for 2000 and 1999 may be found in Note Q 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 tha