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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995
Commission File Number: 0-13322
United Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8761
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
Common Stock, $2.50 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of United Bankshares, Inc. common stock,
representing all of its voting stock, that was held by non-affiliates on
February 29, 1995 was approximately $270,056,000.
As of February 29, 1996, United Bankshares, Inc. had 12,156,571 shares of
common stock outstanding with a par value of $2.50.
The registrant does not elect to incorporate by reference any documents
other than certain exhibits as part of the Form 10-K.
Page 1 of 103 pages. Index to Exhibits is on page 94 .
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UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
As of the date of filing this Annual Report, neither the annual shareholders'
report for the year ended December 31, 1995, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Part I Page
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Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 14
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . 15
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction . . . . . . . . . . . . . . . . . . . . . . . 22
1995 Compared to 1994 . . . . . . . . . . . . . . . . . . . 22
Fourth Quarter Results . . . . . . . . . . . . . . . . . . 28
The Effect of Inflation . . . . . . . . . . . . . . . . . . 28
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . 28
Liquidity and Capital Resources . . . . . . . . . . . . . . 31
Commitments . . . . . . . . . . . . . . . . . . . . . . . . 32
1994 Compared to 1993 . . . . . . . . . . . . . . . . . . . 33
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 46
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
CROSS-REFERENCE INDEX - CONTINUED
Part III Page
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[S] [C]
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 75
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 82
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 75
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 91
Part VI
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Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 93
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 1. BUSINESS
Item 2. PROPERTIES
The following discussion satisfies the reporting requirements of
Items 1 and 2.
DESCRIPTION OF UNITED BANKSHARES, INC.
Organizational History and Subsidiaries
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United Bankshares, Inc. ("United") is a West Virginia corporation registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended. United was incorporated on March 26, 1982 and organized on September
9, 1982. United began conducting business on May 1, 1984 with the acquisition
of three wholly-owned subsidiaries. On October 1, 1985, these three
subsidiaries were merged and on November 1, 1985, were renamed United National
Bank ("UNB").
Since that time UNB has acquired through merger or consolidation the
following banks: Heritage Bancorp, Inc. (a holding company); First National
Bank of Ripley; Kanawha Banking and Trust Company; Ohio Valley National Bank;
Elk National Bank; Montgomery National Bank, the sole subsidiary of Liberty
Bancshares Inc., a bank holding company; First Bank of Ceredo, the bank
subsidiary of Financial Future Corporation, a bank holding company; CB&T
Westover Bank; and the Star City Branch of Community Bank & Trust, N. A.
On September 1, 1993, UBC Holding Company, ("UBC"), a United subsidiary, was
formed to effect the Financial Future Corporation transaction. UBC is a second
tier holding company with UNB currently being its only subsidiary.
On August 9, 1990, United acquired BankFirst Corporation ("BankFirst"), a
one bank holding company based in McLean, Virginia. BankFirst was merged with
UBF Holding Company, Inc. ("UBF"), a United subsidiary formed to effect this
acquisition. UBF acquired Bank First, N.A. ("Bank First"), the subsidiary of
BankFirst.
On October 11, 1995, United formed Commercial Interim Bank, Inc. ("Interim
Bank"), a state member bank located in Arlington, Virginia, to facilitate the
acquisition of First Commercial Bank of Arlington, Virginia ("FCB"). United
then merged Bank First into Interim Bank from its wholly owned subsidiary, UBF.
Concurrent with the merger of Bank First into Interim Bank, UBF was merged into
United. United acquired FCB on October 31, 1995 and merged it into Interim
Bank. United then effected a name change of Interim Bank to First Commercial
Bank. On March 18, 1996 First Commercial Bank's name was changed to United
Bank.
United National Bank-South ("UNB-S"), was formed on November 1, 1992, as a
part of United's acquisition of Summit Holding Corporation and their lead bank,
Raleigh County National Bank.
On January 27, 1996, UNB-S was merged into and became a part of UNB.
Offices of UNB-S became branch offices of UNB.
In late 1988, United chartered and capitalized United Venture Fund, Inc., a
West Virginia corporation which has qualified as a Capital Company under the
West Virginia Capital Company Act. This subsidiary makes loans and limited
equity investments, consistent with the Bank Holding Company Act, that will
result in or contribute to new jobs and/or industry in West Virginia.
Offices
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The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia.
The main office of UNB is located at 514 Market Street, Parkersburg, West
Virginia. United's corporate offices and UNB's executive offices are also
located in Parkersburg at Fifth and Avery Streets. Currently, all of UNB's
offices are located in West Virginia. UNB operates three branches in the
Parkersburg area, seven branches in the Charleston area, three branches in the
Morgantown area, two branches in Vienna, three branches in the Montgomery area,
two branches in Ripley, four branches in the Huntington, area and four branches
in the Beckley, area. UNB owns all of these facilities except for two in the
Parkersburg area, two in the Charleston area and one in the Beckley area, which
are leased under operating leases. UNB also owns and operates six branches
throughout West Virginia's northern panhandle. The main facility of UNB's
Wheeling office is leased from Ogden Newspapers, Inc. See Part III -
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Transactions with Management and Others. UNB also operates five branch
facilities in central West Virginia. UNB owns all five of these offices.
United Bank conducts business from an office located at 3801 Wilson
Boulevard, Arlington, Virginia with a branch office at 1301 Beverly Road,
McLean, Virginia under a lease agreement.
Employees
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As of December 31, 1995 United and its subsidiaries had approximately 819
full-time equivalent employees and officers. None of these employees is
represented by a collective bargaining unit, and management considers employee
relations to be excellent.
Business of United
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As a bank holding company registered under the Bank Holding Company Act of
1956, as amended, United's present business is the operation of its bank
subsidiaries. As of December 31, 1995, United's consolidated assets
approximated $1,815,443,000 and total shareholders' equity approximated
$201,222,000.
United is permitted to acquire other banks and bank holding companies, as
well as thrift institutions. United is also permitted to engage in certain non-
banking activities which are closely related to banking under the provisions of
the Bank Holding Company Act and the Federal Reserve Board's Regulation Y.
Management continues to consider such opportunities as they arise, and in this
regard, management from time to time makes inquiries, proposals, offers or
expressions of interest as to potential opportunities; although no agreements or
understandings to acquire other banks or bank holding companies or nonbanking
subsidiaries or to engage in other nonbanking activities, other than those
identified herein, presently exist. With regard to pending acquisitions, United
has executed a definitive merger agreement with Eagle Bancorp, Charleston, West
Virginia, dated as of August 18,
1995. For further discussion, see Note Q, Notes to Consolidated Financial
Statements.
Business of Subsidiary Banks
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All of United's subsidiary banks are full-service commercial banks and, as
such, engage in most types of business permitted by law and regulation.
Included among the banking services offered are the acceptance of deposits in
checking, savings, time and money market accounts; the making and servicing of
personal, commercial, floor plan and student loans; and the making of
construction and real estate loans. Also offered are individual retirement
accounts, safe deposit boxes, wire transfers and other standard banking products
and services. As a part of their lending function, UNB and United Bank offer
credit card services including accounts issued under the name of certain
correspondent banks.
UNB also maintain trust departments which act as trustees under wills, trust
and pension and profit sharing plans, as executors and administrators of
estates, and as guardians for estates of minors and incompetents, and in
addition perform a variety of investment and security services. UNB trust
services are available to customers of affiliate banks. UNB provides services
to its correspondent banks such as check clearing, safekeeping and the buying
and selling of federal funds.
UNB is members of a regional network of automated teller machines known as
the MAC ATM network while United Bank participates in the MOST network. Through
MAC and MOST, all of United's subsidiary banks are participants in a network
known as Cirrus which provides banking on a nationwide basis.
Lending Activities
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The total loan portfolio of United increased $76,928,000, or 5.93%, to
$1,374,005,000, in 1995 and is comprised of commercial, real estate and consumer
loans including credit card and home equity loans. Commercial and real estate
loans increased $10,309,000 or 4.94% and $74,411,000 or 8.66%, respectively,
while consumer loans, net of unearned income, decreased $7,792,000 or 3.40%.
Commercial Loans
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The commercial loan portfolio consists of loans to corporate borrowers in
the small to mid-size industrial and commercial companies, as well as automobile
dealers, service, retail and wholesale merchants. Coal mining companies make up
an insignificant portion of loans in the portfolio. Collateral securing these
loans includes equipment, machinery, inventory, receivables, vehicles and
commercial real estate. Commercial loans are considered to contain a higher
level of risk than other loan types although care is taken to minimize these
risks. Numerous risk factors impact this portfolio including industry specific
risks such as economy, new technology, labor rates and cyclicality, as well as
customer specific factors, such as cash flow, financial
structure, operating controls and asset quality. United diversifies risk within
this portfolio by closely monitoring industry concentrations and portfolios to
ensure that it does not exceed established lending guidelines. Diversification
is intended to limit the risk of loss from any single unexpected economic event
or trend. Underwriting standards require a comprehensive review and independent
evaluation of virtually all larger balance commercial loans by the loan
committee prior to approval with ongoing updates of the loan portfolio.
Real Estate Loans
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Commercial real estate loans consist of commercial mortgages, which
generally are secured by nonresidential and multi-family residential properties.
Also included in this portfolio are loans that are secured by owner-occupied
real estate, but made for purposes other than the construction or purchase of
real estate. Commercial real estate loans carry many of the same customers and
industry risks as the commercial loan portfolio. Real estate mortgage loans to
consumers are secured primarily by a first lien deed of trust. These loans are
traditional one-to-four family residential mortgages. The loans generally do
not exceed an 80% loan to value ratio at the loan origination date and most are
at a variable rate of interest. These loans are considered to contain normal
risk.
Consumer Loans
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Consumer loans are secured by automobiles, boats, recreational vehicles, and
other personal property. Personal loans, home equity, student loans and
unsecured credit card receivables are also included as consumer loans. United
monitors the risk associated with these types of loans by monitoring such
factors as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors. Historically, losses on these types of loans have been minimal.
Underwriting Standards
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United's loan underwriting guidelines and standards are updated periodically
and are presented for approval by each of the respective Boards of Directors of
its subsidiary banks. The purpose of the standards and guidelines is to grant
loans on a sound and collectible basis; to invest available funds in a safe,
profitable manner; to serve the legitimate credit needs of the communities of
United's primary market area; and ensure that all loan applicants receive fair
and equal treatment in the lending process. It is the intent of the
underwriting guidelines and standards: to minimize loan losses by carefully
investigating the credit history of each applicant, verifying the source of
repayment and the ability of the applicant to repay, collateralizing those loans
in which collateral is deemed to be required, exercising care in the
documentation of the application, review, approval, and origination process, and
administering a comprehensive loan collection program. The above guidelines are
adhered to and subject to the experience, background and personal judgement of
the loan officer assigned to the loan application. A loan officer may grant and
justify
a loan with slight variances from the underwriting guidelines and standards.
However, the loan officer may not exceed their respective lending authority
without obtaining the prior, proper approval from a superior, a regional
supervisor, or the Loan Committee, whichever is deemed appropriate for the
nature of the variance.
Loan Origination and Processing
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United generally originates loans within the primary market area of its
banking subsidiaries. United may from time to time make loans to borrowers
and/or on properties outside of its primary market area as an accommodation to
its customers. Processing of all loans is centralized in the Charleston, West
Virginia office. United also has a limited number of loans that are processed
for other institutions for which United receives a processing fee. As of
December 31, 1995, the balance of mortgage loans being processed by United for
other institutions was $30,000.
Secondary Markets
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Historically, United has not been in the business of selling or purchasing
loans and has not originated loans with the intent to sell them in the secondary
market. During 1995, United did not purchase or sell any loans in the secondary
market.
Investment Activities
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United's investment policy stresses the management of the investment
securities portfolio, which includes both securities held to maturity and
securities available for sale, to maximize return over the long-term in a manner
that is consistent with good banking practices and relative safety of principal.
United currently does not engage in trading account activity. The
Asset/Liability Committee of United is responsible for the coordination and
evaluation of the investment portfolio.
Sources of funds for investment activities include "core deposits". Core
deposits include certain demand deposits, statement and special savings and NOW
accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase. Repurchase agreements represent
funds which are generally obtained as the result of a competitive bidding
process.
United's investment portfolio remains comprised largely of U.S. Treasury
securities and obligations of U.S. Agencies and Corporations. Obligations of
States and Political Subdivisions are comprised of municipal securities with an
average quality of not less than an "A" rating.
During 1994, United realized net losses from sales in the securities
available for sale portfolio. The sales of these securities occurred as United,
in response to the substantial rise in interest
rates during 1994, readjusted the securities available for sale portfolio in
order to increase interest income without extending the duration of the
portfolio. The proceeds from these sales were reinvested in similar securities
yielding a higher rate of return. The net losses from the sales of the
securities were fully recovered within the first eight months of 1995 through
the repurchase of higher yielding securities. There were no securities sales in
1995.
Additionally, United has used an off-balance-sheet instrument known as an
interest rate swap, to further aid in interest rate risk management. The use of
the interest rate swap is a cost effective means of synthetically altering the
repricing structure of certain balance sheet items. The interest rate swap
transaction involves the exchange of a floating interest rate payment based on
the one month London inter-bank offered rate (LIBOR) for a fixed rate receipt
based on the U. S. three year Treasury note. The net pay and receive amount is
calculated on an underlying notional amount without the exchange of the
underlying principal amount. The interest rate swap subjects United to market
risk associated with changes in interest rates, as well as the risk that the
counterparty will fail to perform. Performance risk is considered nominal by
virtue of the caliber of the parties involved. Only the interest payments are
exchanged, and therefor, cash requirements and exposure to credit risk are
significantly less than the notional amount.
The interest rate swap was entered into early in 1994 in response to
tactical asset/liability management considerations; specifically, in response to
declining market interest rates during 1993 and United's net interest margin
being compressed due to the asset sensitivity position of the balance sheet.
The interest rate swap was to adjust the asset sensitivity to within United's
policy of +10% or -10% of earning assets. The interest rate swap was entered
into specifically to hedge prime rate indexed loans and swap a variable rate for
a fixed rate.
At December 31, 1995, the total notional amount of the interest rate swap in
effect was only $50 million. The current maturity of the swap portfolio is one
year and one month. During 1995, the interest rate swap reduced net interest
income by $787,000. This impact was offset by higher net interest revenue
generated by the on-balance sheet instruments hedged by the interest rate swap
and produced a higher rate of return and net interest margin. At December 31,
1995, the estimated unrealized loss on the swap, which may reduce interest
income in future periods, approximated $738,000. A key assumption utilized in
computing the unrealized loss is that interest rates will remain at the December
31, 1995 level throughout the term of the agreement. United did not have
interest rate swaps prior to 1994. For further details, see Interest Rate
Sensitivity and the related Interest Rate Sensitivity Gap in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Note L to the Consolidated Financial Statements.
Operating Subsidiaries
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UNB is currently in the process of forming two operating subsidiaries,
United Brokerage Services, Inc. and United Mortgage Company, Inc. United
anticipates that both of these operating subsidiaries of UNB will be chartered
and will have obtained all necessary regulatory approvals for operations to
begin during the second quarter of 1996.
United Brokerage Services, Inc. will be a fully-disclosed broker/dealer and
a registered Investment Advisor registered with the National Association of
Securities Dealers, Inc. and the Securities and Exchange Commission and a member
of the Securities Investor Protection Corporation. United Brokerage Services,
Inc. will offer a wide range of investment products as well as comprehensive
financial planning and asset management services to the general public.
United Mortgage Company, Inc. is being formed in connection with the pending
merger of Eagle Bancorp, Inc. ("Eagle") with and into United and the related
merger of First Empire Federal Savings and Loan Association ("First Empire")
with and into UNB. In accordance with the merger agreement, UNB will request
regulatory approval to form and operate United Mortgage Company, Inc. The
business of United Mortgage Company, Inc. will be the origination and
acquisition of residential real estate loans for resale, the conducting of
mortgage loan servicing activities for certain loans, and generally the
activities commonly conducted by a mortgage banking company.
Competition
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United faces a high degree of competition in nearly all of the markets it
serves. These markets may generally be defined as Wood, Kanawha, Putnam,
Monongalia, Jackson, Cabell, Wayne, Hancock, Brooke, Ohio, Marshall, Gilmer,
Braxton, Lewis, Webster, Fayette and Raleigh Counties in West Virginia;
Lawrence, Belmont, Jefferson and Washington Counties in Ohio; and Arlington and
Fairfax Counties in Virginia, located adjacent to the Washington D.C. area,
which is in close proximity to West Virginia's eastern panhandle. United
competes in Ohio markets because of the close proximity to the Ohio border of
certain subsidiary offices. Included in United's markets are the Parkersburg
Metropolitan Statistical Area (MSA), the Charleston MSA, the Huntington MSA, the
Wheeling MSA and the Weirton MSA. These represent the five largest West
Virginia MSA's. United considers the above counties and MSA's to be the primary
market area for the business of its banking subsidiaries.
West Virginia banks are permitted unlimited branch banking throughout the
state. In addition, interstate acquisitions of and by West Virginia banks and
bank holding companies are permissible on a reciprocal basis. West Virginia
also allows reciprocal interstate acquisitions by thrift institutions. These
conditions serve to intensify competition within United's market.
As of December 31, 1995, there were 14 multi-bank holding companies and 33
one-bank holding companies in the State of West Virginia registered with the
Federal Reserve System. United presently ranks fourth among these bank holding
companies and second among holding companies headquartered in West Virginia
based on both asset and deposit size. These holding companies are headquartered
in various West Virginia cities and control banks throughout the state,
including banks which compete for business as well as for the acquisition of
additional banks.
Economic Characteristics of Primary Market Area
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Although the market area of the banking subsidiaries encompass a portion of
the coal fields located in southern West Virginia, an area of the state which
has been economically depressed, the coal related loans in the loan portfolio of
the banking subsidiaries constitute less than 2% of United's total loans
outstanding. The state of West Virginia has a more diversified economy than it
had during the peak periods of coal production. This diversified economy has
contributed to the positive trends in the personal income and unemployment rates
in recent years as personal income has increased from $14,315 in 1991 to $17,096
in 1994 and the state's overall unemployment rate has declined from 10.5% in
1991 to 7.8% in 1995, according to available information from the West Virginia
Bureau of Employment Programs.
Eleven of the 17 counties within United's primary West Virginia market area
rank among the state's top twenty counties in terms of personal income and low
unemployment rates. United generally serves the stronger economic areas of the
state while maintaining a satisfactory CRA rating.
Regulation and Supervision
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United, as a bank holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956, as amended, and is registered pursuant to its
provisions. As such, United is subject to the reporting requirements of and
examination by the Board of Governors of the Federal Reserve System ("Board of
Governors").
The Bank Holding Company Act prohibits the acquisition by a bank holding
company of direct or indirect ownership of more than five percent of the voting
shares of any bank within the United States without prior approval of the Board
of Governors. With certain exceptions, a bank holding company also is
prohibited from acquiring direct or indirect ownership or control of more than
five percent of the voting shares of any company which is not a bank, and from
engaging directly or indirectly in business unrelated to the business of
banking, or managing or controlling banks.
The Board of Governors of the Federal Reserve System, in its Regulation Y,
permits bank holding companies to engage in non-banking activities closely
related to banking or managing or controlling banks. Approval of the Board of
Governors is necessary to engage in these activities or to make acquisitions of
corporations engaging in these
activities. In addition, on a case by case basis, the Board of Governors may
approve other non-banking activities.
As a bank holding company doing business in West Virginia, United is also
subject to regulation and examination by the West Virginia Board of Banking and
Financial Institutions (the "West Virginia Banking Board") and must submit
annual reports to the department. Further, any acquisition application which
United must submit to the Board of Governors must also be submitted to the West
Virginia Banking Board for approval.
United is also registered under and is subject to the requirements of the
Securities Exchange Act of 1934, as amended.
UNB, as national banking associations, is subject to supervision,
examination and regulation by the Office of the Comptroller of the Currency.
UNB is also a member of the Federal Reserve System, and as such, is subject to
applicable provisions of the Federal Reserve Act and regulations issued
thereunder.
United Bank, as a Virginia state member bank, is subject to supervision,
examination and regulation by the Federal Reserve System, and as such, is
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder. United Bank is subject to regulation by the Virginia
Corporation Commission's Bureau of Financial Institutions.
The deposits of United's wholly-owned banking subsidiaries are insured by
the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by
law. Accordingly, these banks are also subject to regulation by the FDIC.
UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 3. Legal Proceedings
Litigation
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The reader is directed to Note L - Notes to Consolidated Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
Stock
- - -----
As of December 31, 1995, 20,000,000 shares of common stock, par value $2.50
per share, were authorized for United, of which 12,156,571 were issued and
outstanding including 140,520 shares held as treasury shares. These shares are
held by approximately 4,844 shareholders of record as of December 31, 1995. The
unissued portion of United's authorized common stock (subject to registration
approval by the SEC) and the treasury shares are available for issuance as the
Board of Directors determines advisable. United offers its shareholders the
opportunity to invest dividends in shares of United stock through its dividend
reinvestment plan. United has also established stock option plans and a stock
bonus plan as incentive for certain eligible officers. Additionally, United is
presenting an incentive stock option plan to its shareholders for their approval
at the 1996 Annual Meeting. See PART III - Succession Management Stock Bonus
------------
Plan and Incentive Stock Option Plans. United offers an employee stock purchase
plan for all employees. See PART III - Employee Benefit Plans. While there are
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no present plans, understandings, arrangements or agreements, except for the
above incentive plans, additional shares could be issued for the purpose of
raising capital, in connection with acquisitions of other businesses, or for
other appropriate purposes.
The Board of Directors believes that the availability of authorized but
unissued common stock of United is of considerable value if opportunities should
arise for the acquisition of another business through the issuance of United's
stock. Shareholders do not have preemptive rights, which allows United to issue
additional authorized shares without first offering them to current
shareholders.
United has only one class of stock and all voting rights are vested in the
holders of United's stock. On all matters subject to a vote of shareholders,
the shareholders of United will be entitled to one vote for each share of common
stock owned. Shareholders of United have cumulative voting rights with regard
to election of directors. At the present time, no senior securities of United
are outstanding, nor does the Board of Directors presently contemplate issuing
senior securities.
There are no preemptive or conversion rights or, redemption or sinking fund
provisions with respect to United's Stock. All of the issued and outstanding
shares of United's stock are fully paid and non-assessable.
Dividends
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The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Aggregate
dividends were $1.17 per share in 1995, $1.06 per share in 1994 and $.95 per
share in 1993. Dividends are paid from funds legally available; therefore, the
payment of dividends is subject to the restrictions set forth in the West
Virginia Corporation Act. See "Market and Stock Prices of United" for quarterly
dividend information.
Payment of Dividends by United is dependent upon payment of dividends to it by
its subsidiary banks. The ability of national banks to pay dividends is subject
to certain limitations imposed by the national banking laws. Generally, the
most restrictive provision requires approval by the Office of the Comptroller of
the Currency ("OCC") if dividends declared in any year exceed the year's net
income, as defined, plus the retained net profits of the two preceding years.
Payment of dividends by United's state member bank is regulated by the Federal
Reserve System and generally, the prior approval of the Federal Reserve Board
("FRB") is required if the total dividends declared by a state member bank in
any calendar year exceeds its net profits, as defined, for that year combined
with its retained net profits for the preceding two years. Additionally, prior
approval of both the OCC and the FRB is required when a national bank or state
member bank has deficit retained earnings but has sufficient current year's net
income, as defined, plus the retained net profits of the two preceding years.
The OCC and FRB may prohibit dividends if it deems the payment to be an unsafe
or unsound banking practice. The OCC has issued guidelines for dividend
payments by national banks, emphasizing that proper dividend size depends on the
bank's earnings and capital while the FRB has issued similar guidelines
pertaining to state member banks. See Note C - Notes to Consolidated Financial
Statements.
Market and Stock Prices of United
- - ---------------------------------
United Bankshares, Inc. stock is traded over the counter on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") under
the trading symbol UBSI.
The following table presents the dividends and high and low prices of
United's common stock during the periods set forth below:
United Historical
Basis
-----------------
1996 Dividends High Low
---- --------- ---- ---
First Quarter through
February 29, 1996 (1) $30.00 $29.00
1995
----
Fourth Quarter $0.30 $31.00 $29.00
Third Quarter $0.29 $30.50 $26.25
Second Quarter $0.29 $27.75 $25.25
First Quarter $0.29 $26.00 $23.25
1994
----
Fourth Quarter $0.27 $24.75 $23.00
Third Quarter $0.27 $25.75 $24.00
Second Quarter $0.26 $26.75 $25.00
First Quarter $0.26 $27.25 $25.50
(1) On February 26, 1996, United declared a dividend of $0.30 per share, payable
April 1, 1996, to shareholders of record as of March 8, 1996.
The high and low prices listed above are based upon information available to
United's management from NASDAQ listings. No attempt has been made by United's
management to ascertain the prices for every sale of its stock during the
periods indicated. However, based on the information available, United's
management believes that the prices fairly represent the amounts at which
United's stock was traded during the periods indicated.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands except for per share data)
Five Year Summary
---------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
Total interest income $ 136,460 $ 121,157 $ 116,505 $ 113,502 $ 126,863
Total interest expense 54,770 43,887 45,009 49,897 64,851
Net interest income 81,690 77,270 71,496 63,605 62,012
Provision for possible
loan losses 2,075 1,818 4,332 4,242 7,635
Other income 12,616 11,222 12,673 11,123 10,051
Other expenses 48,881 48,676 49,690 46,991 45,102
Income taxes 15,271 13,096 9,770 7,136 5,555
Income before cumulative
effect of accounting change 28,079 24,902 20,377 16,359 13,771
Net income 28,079 24,902 21,706 16,359 13,771
Cash dividends(1) 13,817 12,604 10,918 7,914 7,077
Per common share:
Income before cumulative
effect of accounting change 2.35 2.08 1.71 1.52 1.31
Net income 2.35 2.08 1.82 1.52 1.31
Cash dividends(1) 1.17 1.06 0.95 0.85 0.81
Book value per share 16.75 15.21 14.34 13.44 12.66
Return on average
shareholders' equity 14.81% 13.98% 13.00% 11.60% 10.73%
Return on average assets 1.58% 1.42% 1.27% 1.09% 0.97%
Average assets 1,779,331 1,753,324 1,706,639 1,496,148 1,417,506
Investment securities 309,473 360,883 430,427 390,017 311,298
Net loans 1,374,005 1,297,077 1,161,772 1,097,785 940,413
Total assets 1,815,443 1,787,641 1,720,184 1,688,903 1,425,006
Total deposits 1,473,266 1,434,852 1,430,529 1,411,892 1,212,619
Long-term borrowings 33,900 83,972 32,203 28,067 2,025
Total borrowings
and other liabilities 140,955 173,043 118,683 116,791 80,006
Shareholders' equity 201,222 179,746 170,972 160,220 132,381
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
UNITED BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and analysis should be read in
conjunction with the audited financial statements and accompanying notes
thereto, which are included elsewhere in this document. All references to
United in this discussion and analysis are considered to refer to United and its
wholly-owned subsidiaries, unless otherwise indicated.
1995 COMPARED TO 1994
The following Earnings Summary is a broad overview of the financial condition
and results of operations and is not intended to replace the more detailed
discussion which is presented under specific headings on the following pages.
EARNINGS SUMMARY
For the year ended December 31, 1995, net income increased 12.8% to a record
$28,079,000. Net income per share of $2.35 for the year was up 13.0% from $2.08
in 1994. United's return on average assets of 1.58% makes United one of the
nation's most profitable regional banking companies. Dividends per share
increased 10.4% from $1.06 in 1994 to a record level of $1.17 per share in 1995.
This was the twenty-second consecutive year of dividend increases to
shareholders. Core earnings, or earnings before taxes, security transactions,
cumulative effect of change in accounting principle and the provision for
possible loan losses, were strong and increased 11.6% for 1995 compared to 1994.
These strong core earnings are indicative of the 5.7% increase in net interest
income driven by an increase in average net earning assets with significant
growth of 7.3% in average net loans.
Factors contributing to the 1995 earnings increase include an improved net
interest margin, partially resulting from a $27,511,000 increase in average
earning assets from 1994 and an overall increase in noninterest income which
included fewer losses on the sale of securities. The favorable impact of the
above items was partly offset by increased occupancy expenses and increased
income taxes as a result of the higher level of pre-tax earnings. United is in
the process of realigning its interest rate sensitivity for 1996 to a more
interest-rate-neutral position. This investment strategy may reduce current
earnings, but should enhance United's future earnings momentum.
United's key performance measures, return on average assets and return on
average equity, improved significantly from 1994 and remained very strong in
comparison to industry standards. United's return on average assets of 1.58%
and return on average shareholders' equity of 14.81% both compare excellently
with regional peer grouping ratios of 1.17% and
12.56% and national peer group ratios of 1.21% and 13.47%, respectively,
according to information provided by Wheat, First Securities, Inc. United is one
of the nation's most profitable regional banking companies. United has a strong
capital position and is well positioned to take advantage of future growth
opportunities.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
Net interest income represents the primary component of United's earnings. It
is the difference between interest and fee income related to earning assets and
interest expense incurred to fund these earning assets. Net interest income is
impacted by changes in the volume and mix of interest-earning assets and
interest-bearing liabilities, as well as changes in market interest rates. Such
changes, and their impact on net interest income in 1995, are explained below.
For the years ended December 31, 1995 and 1994, net interest income approximated
$81,690,000 and $77,270,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 5.15% in 1995 and 4.97% in 1994. Higher average
loan volumes of approximately $89 million resulting primarily from an
acquisition contributed to the increase in net interest income. At 5.15%,
United's net interest margin remains well above peer group averages.
Total interest income of $136,460,000 increased 12.6% in 1995 over 1994 as a
result of higher volumes of interest-earning assets. Comparing year-end 1995 to
year-end 1994, a moderate decrease occurred in consumer loans of 3.8% while
commercial loans and mortgage loans showed increases of 4.9% and 8.7%,
respectively.
Total interest expense increased $10,883,000 or 24.8% in 1995. This increase
can be attributed primarily to United's competitive pricing of interest-bearing
deposits in its markets and continued change in the retail deposit mix as
customers shift funds into products offering higher yields. United's average
interest-bearing deposits increased by 1.9% in 1995, while its average long-term
borrowings decreased 23.5% and average short-term borrowings increased 5.50%.
United made greater use of short-term funds as the Federal Reserve held short-
term rates steady at approximately 6.0% for nearly half of 1995. The average
cost of funds, which increased from 3.30% in 1994 to 4.07% in 1995, reflected
the general upward trend in market interest rates during 1995.
Provision for Possible Loan Losses
United evaluates the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio. United's process of evaluating the
allowance is a formal company-wide process that focuses on early identification
of potential problem credits and procedural discipline in managing and
accounting for those credits. See Note F to the Consolidated Financial
Statements for a discussion of concentrations of credit risk.
Nonperforming loans were $9,089,000 at December 31, 1995 and $6,036,000 at
December 31, 1994, an increase of 50.6%. The level of nonperforming assets
increased as a result of delinquencies on certain large balance commercial
creditors and nonperforming assets purchased in a recent acquisition. The
components of nonperforming loans include nonaccrual loans and loans which are
contractually past due 90 days or more as to interest or principal, but have not
been put on a nonaccrual basis. United has no significant troubled debt
restructurings. Loans past due 90 days or more increased $1,853,000 or 80.5%
during 1995; nonaccrual loans increased $1,201,000 or 32.2% since year-end 1994.
Much of the increase in nonaccrual loans was the result of the addition of a
single large commercial loan to nonaccrual status. United is currently
negotiating workout terms with the borrowers and will closely monitor the
ongoing status. Nonperforming loans represented 0.50% of total assets at the
end of 1995, which is approximately one-half of the national peer levels.
At year-end 1995 and 1994 the allowance for possible loan losses was 1.46% and
1.54% of total loans, net of unearned income, respectively. At December 31,
1995 and 1994, the ratio of the allowance for loan losses to nonperforming loans
was 220.2% and 331.5%, respectively.
Management believes that the allowance for loan losses of $20,017,000 as of
December 31, 1995, is adequate to provide for potential losses on existing loans
based on information currently available.
For the years ended December 31, 1995 and 1994 the provision for loan losses was
$2,075,000 and $1,818,000, respectively. The slight increase can be attributed
to the higher net charge-offs and the increase in nonperforming loans during
1995. The provision for loan losses charged to operations is based on
management's evaluation of individual credits, the past loan loss experience,
and other factors which, in management's judgement, deserve recognition in
estimating possible loan losses. Such other factors considered by management
include growth and composition of the loan portfolio, known deterioration in
certain classes of loans or collateral, trends in delinquencies, and current
economic conditions.
Total net charge-offs were $3,083,000 in 1995 and $825,000 in 1994, which
represents 0.23% and 0.07% of average loans for the respective years. United's
ratio of net charge-offs to average loans is comparable to its peers' ratio of
0.19% in 1995 and compared very favorably with its peers' ratio of 0.22% in
1994.
Management is not aware of any potential problem loans, trends or uncertainties
which management reasonably expects will materially impact future operating
results, liquidity, or capital resources which have not been disclosed.
Additionally, management has disclosed all known material credits which cause
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayments. Management is not aware of any current recommendations
by regulatory authorities which, if implemented, would have a material effect on
liquidity, capital resources or operations.
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"(SFAS No.
114), as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," collectively SFAS 114. As a result
of applying the rules prescribed by SFAS No. 114, certain loans are being
reported at the present value of their expected future cash flows using the
loan's effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. At the time of adoption of SFAS No. 114, United had
approximately $8,000,000 of loans which were considered impaired in accordance
with the guidelines prescribed by SFAS No. 114. The adoption of SFAS No. 114 did
not have a material impact on the allowance for loan losses, the provision for
possible loan losses, the charge-off policy or the comparability of credit risk.
Impaired loans are specifically reviewed loans for which it is probable that the
creditor will be unable to collect all amounts due according to the original
terms of the loan agreement. The specific factors that influence management's
judgement in determining when a loan is impaired include the evaluation that the
loan is classified as "substandard" or worse, also the strength of the borrower
and the net realizable value of the collateral. A valuation allowance is
required to the extent that the measure of the impaired loans is less than the
recorded investment. A specifically reviewed loan is not impaired during a
period of "minimum delay" in payment, regardless of the amount of shortfall, if
the ultimate collectibility of all amounts due is expected. United defines
"minimum delay" as past due less than 90 days.
SFAS 114 does not apply to smaller balance, larger groups of homogeneous loans
such as consumer installment, bank card and real estate mortgage loans, which
are collectively evaluated for impairment. Impaired loans are therefore
primarily business loans, which include commercial loans and income property.
United applies the measurement methods described above to these loans on a loan-
by-loan basis. Smaller balance populations of business loans, loans with a
balance of $100,000 or less, which are not specifically reviewed in accordance
with United's normal credit review procedures, are also excluded from the
application of SFAS 114.
Impaired loans are charged-off when the impaired loan, or a portion thereof, is
considered uncollectible or is transferred to other real estate owned.
Consistent with United's existing method of income recognition for loans,
interest receipts on impaired loans, except those classified also as nonaccrual,
are recognized as interest income using the accrual method of income
recognition. United's method of income recognition for impaired loans that are
classified as nonaccrual is to recognize interest income on the cash method of
income recognition or apply the cash receipt to principal when the ultimate
collectibility of principal is in doubt. The average recorded investment in
impaired loans during the year ended December 31, 1995 was approximately
$9,545,000. For the year ended December 31, 1995, United recognized interest
income on those
impaired loans of approximately $412,000, substantially all of which was
recognized using the accrual method of income recognition. The amount of
interest income which would have been recorded under the original terms for the
above loans was $633,000.
At December 31, 1995, the recorded investment in loans that were considered to
be impaired under SFAS No. 114 was $8,792,000 (of which $4,934,000 were on a
nonaccrual basis). Included in this amount was $4,793,000 of impaired loans for
which the related allowance for credit losses was $1,918,000 and $3,999,000 of
impaired loans that did not have an allowance for credit losses. The impact of
adopting SFAS 114 was immaterial to the financial condition and operations of
United as of and for the year ended December 31, 1995, and had no material
impact on the comparability of the credit risk as presented herein.
United has commercial real estate loans, including owner occupied, income
producing real estate and land development loans, of approximately $328,226,000
and $300,679,000 as of December 31, 1995 and 1994, respectively. The loans are
primarily secured by real estate located in West Virginia, Southeastern Ohio,
and Virginia. The loans were originated by United's subsidiary banks using
underwriting standards as set forth by management. United's loan administration
policies are focused on the risk characteristics of the loan portfolio,
including commercial real estate loans, in terms of loan approval and credit
quality. It is the opinion of management that these loans do not pose any
unusual risks and that adequate consideration has been given to the above loans
in establishing the allowance for loan losses.
Other Income
Noninterest income has been and will continue to be an important factor
contributing to United's profitability. Accordingly, management continues to
evaluate areas where noninterest income can be enhanced. Other income consists
of all revenues which are not included in interest and fee income related to
earning assets. In 1995, other income, excluding securities transactions,
increased when compared to 1994. The overall increase in noninterest income of
$1,394,000 or 12.4% is primarily attributed to the absence of net losses on
securities transactions incurred in 1994 and a $541,000 increase in service
charges, commissions and fees.
Trust income increased $43,000 or 1.5% in 1995. This was due to repricing of
services and an increased volume of trust business.
Service charges, commissions and fees increased by $541,000 or 6.3% in 1995.
This income consists of charges and fees related to various banking services
provided by United. The increase was primarily due to a combination of
increased fees in bankcard accounts and an increased fee structure for sales of
checking related products.
Securities transactions resulted in a net loss of $872,000 in 1994. The
proceeds from these sales were reinvested in similar securities yielding a
higher rate of return. The net losses from the sales of the securities were
fully recovered within the first eight months of 1995. There were no securities
sales in 1995.
On January 1, 1994, United adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
(SFAS No. 115) which was effective for fiscal years beginning after December 15,
1993. The $872,000 of net securities losses for 1994 relates primarily to debt
securities losses of approximately $1,024,000 which were classified as available
for sale. For further details, see Note D to the Consolidated Financial
Statements.
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provision of that Special
Report, United chose to reclassify securities from held-to-maturity to
available-for-sale. At the date of the transfer the amortized cost of those
securities was $103,595,000, and the unrealized gain on those securities was
$242,000, which is included in shareholders' equity. This enabled United to
take advantage of certain interest rate risk management strategies.
Other Expense
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations and thus reduce
operating costs. United's cost control efforts have been very successful with
an efficiency ratio of 50.1%, which is well below the 64.7% reported by peer
group averages.
Other expenses include all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. In total, other expenses
were flat in 1995, and management was successful in controlling costs. The
income statement reflects a 0.4% increase in 1995 as compared to 1994.
Salaries and employee benefits expense increased $20,000 or 0.1% in 1995. As of
December 31, 1995 and 1994, United employed 819 and 834 full-time equivalent
employees, respectively.
Net occupancy expense in 1995 exceeded 1994 levels by $235,000 or 4.8% primarily
due to decreased rental income from vacancies and an increase in real property
repairs and utilities expense.
Remaining other expenses decreased $50,000 or 0.2% in 1995 compared to 1994.
The decrease in other expenses for the year relates primarily to lower data
processing fees and FDIC insurance expense as a result of the Federal Deposit
Insurance Corporation's decision to lower deposit insurance premiums from $0.23
to $0.04 per $100 in Bank Insurance Fund (BIF) deposits for well capitalized and
well managed banks. The premium change resulted in a refund of approximately
$910,000 which was received in September 1995. The overall decrease in FDIC
insurance premiums for 1995 when compared to 1994 was $1,542,000. United's two
banking subsidiaries are assessed at the lowest FDIC insurance premium rate. The
decrease in FDIC insurance premiums and data processing fees was offset by
higher advertising, postage, bankcard and nonrecurring legal expenses which
included certain merger related expenses for the First
Commercial acquisition consummated by United during 1995 and the pending Eagle
merger to be consummated during 1996.
Income Taxes
For the year ended December 31, 1995, income taxes approximated $15,271,000
compared to $13,096,000 for 1994. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income. United's
effective tax rates in these two years were 35.2% and 34.5%, respectively.
At December 31, 1995, gross deferred tax assets totaled approximately $11.6
million. The allowance for loan losses and various accrued liabilities
represent the most significant temporary differences. Based on management's
evaluation at December 31, 1995, no valuation allowance has been allocated to
deferred tax assets.
Fourth Quarter Results
Net income for the fourth quarter of 1995 was $6,953,000, an increase of 13.0%
from the $6,156,000 earned in the fourth quarter of 1994. On a per share basis,
fourth quarter earnings were $.58 per share in 1995 and $.51 per share in 1994.
Net income was higher in 1995 than in 1994 because of the factors previously
discussed herein relative to annual results.
Additional quarterly financial data for 1995 and 1994 may be found in Note P to
the Consolidated Financial Statements.
The Effect of Inflation
United's income statements generally reflect the effects of inflation. Since
interest rates, loan demand, and deposit levels are related to inflation, the
resulting changes in the interest sensitive assets and liabilities are included
in net interest income. Similarly, operating expenses such as salaries, rents,
and maintenance include changing prices resulting from inflation. One item
which would not reflect inflationary changes is depreciation expense.
Subsequent to the acquisition of depreciable assets, inflation causes price
levels to rise; therefore, historically presented dollar values do not reflect
this inflationary condition. With inflation levels at relatively low levels and
monetary and fiscal policies being implemented to keep the inflation rate
increases within an acceptable range, management expects the impact of inflation
would continue be minimal in the near future.
Interest Rate Sensitivity
Interest sensitive assets and liabilities are defined as those assets
or liabilities that mature or are repriced within a designated time-frame. The
principal function of asset and liability management is to maintain an
appropriate relationship between those assets and liabilities that are sensitive
to changing market interest rates. United closely monitors the sensitivity of
its assets and liabilities on an on-going basis and projects the effect of
various interest rate changes on its net interest margin.
The difference between rate sensitive assets and rate sensitive liabilities for
specified periods of time is known as the "GAP".
A primary objective of Asset/Liability Management is managing interest rate
risk. At United, interest rate risk is managed to minimize the impact of
fluctuating interest rates on earnings. As shown in the interest rate
sensitivity gap table on the following page of this report, United was liability
sensitive (excess of liabilities over assets) in the one year horizon. United,
however, has not experienced the kind of earnings volatility indicated from the
cumulative gap. This is because a significant portion of United's retail
deposit base does not reprice on a contractual basis. Management has estimated,
based upon historical analyses, that savings deposits are less sensitive to
interest rate changes than are other forms of deposits. The GAP table presented
herein has been adapted to show the estimated differences in interest rate
sensitivity which result when the retail deposit base is assumed to reprice in a
manner consistent with historical trends. (See "Management Adjustments" in the
GAP table). Using these estimates, United was asset sensitive in the one year
horizon in the amount of $136,372,000 or 8.10% of the cumulative gap to related
earning assets. The primary method of measuring the sensitivity of earnings to
changing market interest rates is to simulate expected cash flows using varying
assumed interest rates while also adjusting the timing and magnitude of non-
contractual deposit repricing to more accurately reflect anticipated pricing
behavior. These simulations include adjustments for the lag in prime loan
repricing and the spread and volume elasticity of interest-bearing deposit
accounts, regular savings and money market deposit accounts. To aid in interest
rate management, United's lead bank, UNB, is a member of the Federal Home Loan
Bank of Pittsburgh (FHLB). The use of FHLB advances provides United with a low
risk means to match maturities of earning assets and interest-bearing funds to
achieve a desired interest rate spread over the life of the earning assets.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of December
31, 1995:
Interest Rate Sensitivity Gap
Days
------------------------------------- Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
--------- --------- ---------- ---------- --------- -------- ----------
ASSETS (In thousands)
Interest-Earning Assets:
Investment and Marketable
Equity Securities:
Taxable $ 34,328 $ 33,456 $ 54,674 $ 122,458 $ 92,779 $ 51,255 $ 266,492
Tax-exempt 3,462 2,546 2,919 8,927 14,460 19,594 42,981
Loans, net of unearned
income 515,788 76,320 132,531 724,639 461,601 187,766 1,374,006
--------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Earning
Assets $ 553,578 $ 112,322 $ 190,124 $ 856,024 $ 568,840 $258,615 $1,683,479
========= ========= ========== ========== ========= ======== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 602,098 $ 602,098 $ 602,098
Time deposits of
$100,000 & over 39,910 $ 17,972 $ 17,941 75,823 $ 26,068 101,891
Other time deposits 128,868 91,538 109,222 327,628 193,851 $ 9,230 530,709
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 82,167 82,167 82,167
FHLB advances 33,900 33,900 33,900
--------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Bearing
Funds $ 884,943 $ 109,510 $ 127,163 $1,121,616 $ 219,919 $ 9,230 $1,350,765
========= ========= ========== ========== ========= ======== ==========
Interest Sensitivity
Gap $(331,365) $ 2,812 $ 62,961 $ (265,592) $ 348,921 $249,385 $ 332,714
========= ========= ========== ========== ========= ======== ==========
Cumulative Gap $(331,365) $(328,553) $ (265,592) $ (265,592) $ 83,329 $332,714 $ 332,714
========= ========= ========== ========== ========= ======== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -19.68% -19.52% -15.78% -15.78% 4.95% 19.76% 19.76%
Management
Adjustments 564,955 (37,664) (75,327) 451,964 (451,964) 0
Off-Balance
Sheet Activities (50,000) (50,000) 50,000 0
--------- --------- ---------- ---------- --------- -------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 183,590 $ 148,738 $ 136,372 $ 136,372 $ 33,329 $282,714 $ 332,714
========= ========= ========== ========== ========= ======== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 10.91% 8.84% 8.10% 8.10% 1.98% 16.79% 19.76%
Additionally, United is using certain off-balance-sheet instruments known as
interest rate swaps, to further aid in interest rate risk management. The use
of interest rate swaps is a cost effective means of synthetically altering the
repricing structure of balance sheet items. The interest rate swap transaction
involves the exchange of a floating rate payment based on the one month London
inter-bank offered rate (LIBOR) for a fixed rate receipt based on the U. S.
three year treasury note. The net pay and receive amount is calculated on an
underlying notional amount without the exchange of the underlying principal
amount. The interest rate swap subjects United to market risk associated with
changes in interest rates, as well as the risk that the counterparty will fail
to perform. Only the interest payments are exchanged, and therefore, cash
requirements and exposure to credit risk are significantly less than the
notional amount.
At December 31, 1995, the total notional amount of United's interest rate swap
was $50 million. The current maturity of the swap portfolio is one year and one
month. The interest rate swap reduced net interest
income by $787,000 and $1,000, in 1995 and 1994, respectively. For further
details, see Note L to the Consolidated Financial Statements.
Liquidity and Capital Resources
In the opinion of management, United maintains liquidity which is sufficient to
satisfy its depositors' requirements and the credit needs of its customers.
Like all banks, United depends upon its ability to renew maturing deposits and
other liabilities on a daily basis and to acquire new funds in a variety of
markets. A significant source of funds available to United are "core deposits".
Core deposits include certain demand deposits, statement and special savings and
NOW accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase. Repurchase agreements represent
funds which are generally obtained as the result of a competitive bidding
process.
Liquid assets are cash and those items readily convertible to cash. All banks
must maintain sufficient balances of cash and near-cash items to meet the day-
to-day demands of customers. Other than cash and due from banks, the available
for sale securities portfolio and maturing loans are the primary sources of
liquidity.
The goal of liquidity management is to ensure the ability to access funding
which enables United to efficiently satisfy the cash flow requirements of
depositors and borrowers and meet United's cash needs. Liquidity is managed by
monitoring funds availability from a number of primary sources. Substantial
funding is available from cash and cash equivalents, unused short-term
borrowings and a geographically dispersed network of subsidiary banks providing
access to a diversified and substantial retail deposit market.
Short-term needs can be met through a wide array of sources such as
correspondent and downstream correspondent federal funds and utilization of
Federal Home Loan Bank advances.
Other sources of liquidity available to United to provide long-term as well as
short-term funding alternatives, in addition to FHLB advances, are long-term
certificates of deposit, lines of credit, and borrowings secured by bank
premises or stock of United's subsidiaries. United has no intention at this
time of utilizing any long-term funding sources other than FHLB advances and
long-term certificates of deposit.
Cash flows from operations in 1995 of $35,666,000 were 3.5% higher than the
$34,458,000 in 1994 as a result of approximately $3,200,000 million increase in
net income. In 1995, investing activities resulted in a source of cash of
$23,280,000 as compared to 1994 in which investing activities resulted in a use
of cash of $52,200,000. The primary reason for the decrease in the use of cash
for investing activities is that net loan originations decreased by $79,827,000
in 1995 as compared to 1994 while the net excess of proceeds from sales,
maturities and calls of securities over security purchases decreased from
$67,103,000 in 1994 to
$63,739,000 in 1995 for a decrease of $3,364,000. Financing activities resulted
in a use of cash in 1995 of $62,800,000 primarily due to a $50,072,000 decrease
in net borrowings from the FHLB of Pittsburgh, payment of $10,273,000 of cash
dividends to shareholders and a net decreases in deposits of $12,206,000. These
uses of cash for financing activities were partially offset by a net increase of
$10,358,000 in other short-term borrowings. See the Consolidated Statement of
Cash Flows in the Consolidated Financial Statements.
United anticipates no problems in its ability to service its obligations over
the next 12 months and has no material commitments for capital expenditures.
There are no known trends, demands, commitments, or events that will result in
or that are reasonably likely to result in United's liquidity increasing or
decreasing in any material way. United also has significant lines of credit
available to it. See Note I, Notes to Consolidated Financial Statements.
The asset and liability committee monitors liquidity to ascertain that a strong
liquidity position is maintained. In addition, variable rate loans are a
priority. These policies should help to protect net interest income against
fluctuations in interest rates.
United also seeks to maintain a proper relationship between capital and total
assets in order to support growth and sustain earnings. United's average equity
to average asset ratio was 10.65% in 1995 and 10.16% in 1994. United's risk-
based capital ratio was 15.91% in 1995 and 15.52% in 1994 which are both
significantly higher than the minimum regulatory requirements. United's Tier 1
capital and leverage ratios of 14.66% and 10.27%, respectively, at December 31,
1995, are also strong relative to its peers and are well above regulatory
minimums.
Commitments
The following table indicates the outstanding loan commitments of United in the
categories stated:
December 31
1995
-------------
Lines of credit authorized,
but unused $262,836,000
Letters of Credit 16,533,000
------------
$279,369,000
============
Past experience has shown that, of the foregoing commitments, approximately 12-
15% can reasonably be expected to be funded within a one year period. For more
information, see Note L to the Consolidated Financial Statements.
1994 COMPARED TO 1993
The following Earnings Summary is a broad overview of the financial condition
and results of operations and is not intended to replace the more detailed
discussion which is presented under specific headings on the following pages.
EARNINGS SUMMARY
For the year ended December 31, 1994, net income increased 14.7% to a record
$24,902,000. Net income per share of $2.08 for the year was up 14.3% from $1.82
in 1993. United's return on average assets was 1.42%. Dividends per share
increased 11.6% from $.95 in 1993 to $1.06 per share in 1994. Core earnings,
or earnings before taxes, security transactions, cumulative effect of change in
accounting principle and the provision for possible loan losses, were strong and
increased 19.7% for 1994 as compared to 1993. These strong core earnings were
indicative of the 8.1% increase in net interest income driven by an increase in
average net earning assets with significant growth of 8.6% in average net loans.
Factors contributing to the 1994 earnings increase included an improved net
interest margin, partially resulting from a $39,338,000 increase in average
earning assets from 1993, a lower loan loss provision due to improved credit
quality and increased earnings from 1993 acquisitions. The favorable impact of
the above items was partly offset by increased occupancy expenses, decreased fee
income from customer accounts for which a fee is charged and losses from the
sale of securities.
United's key performance measures, return on average assets and return on
average equity, improved significantly from 1993 and remained very strong in
comparison to industry standards. United's return on average assets of 1.42%
made United one of the nation's most profitable regional banking companies. In
the December 31, 1994, Bank Holding Company Performance Report, which is
prepared by the Federal Reserve Board's Division of Banking Supervision and
Regulation, United was ranked in the 85th percentile of bank holding companies
nationwide in terms of return on average assets for the year ended December 31,
1994.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
For the years ended December 31, 1994 and 1993, net interest income approximated
$77,270,000 and $71,496,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.97% in 1994 and 4.75% in 1993. Higher average
loan volumes of $98 million contributed to the increase in net interest income.
United also experienced modest decreases in its overall cost of funds. At
4.97%, United's net interest margin was well above peer group averages.
Total interest income of $121,157,000 increased 4.0% in 1994 over 1993 as a
result of higher volumes of interest-earning assets. Comparing
year-end 1994 to year-end 1993, a moderate decrease in commercial loans of 4.6%
and a slight increase in consumer loans of 1.8%, which resulted from lower
commercial and consumer demand, were offset by significant mortgage loan growth
of 16.4%.
Total interest expense decreased 2.5% in 1994. This decrease was primarily the
result of lower rates paid on interest-bearing funds. United's average interest-
bearing deposits increased only slightly or 0.5% in 1994, while its average
long-term borrowings increased 25.1% as United made greater use of these funds
in order to meet the demand for mortgage loan products with matching maturities.
The average cost of funds reflected the general downward trend in market
interest rates in 1994, falling from 3.44% in 1993 to 3.30% in 1994.
Provision for Possible Loan Losses
United evaluated the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio.
Nonperforming loans were $6,036,000 at December 31, 1994 and $13,517,000 at
December 31, 1993, a decrease of 55.4%. The level of nonperforming assets
declined as a result of the recovering of the regional economy and management's
continual monitoring of problem loans. The components of nonperforming loans
include nonaccrual loans, loans which are contractually past due 90 days or more
as to interest or principal, but have not been put on a nonaccrual basis and
troubled debt restructurings. Loans past due 90 days or more decreased $173,000
or 7.0% during 1994; while troubled debt restructurings decreased $2,453,000 or
100.0% and nonaccrual loans decreased $4,855,000 or 56.5% since year-end 1993.
Nonperforming loans continue to decline and represented less than 0.34% of total
assets at the end of 1994.
At year-end 1994 and 1993 the allowance for possible loan losses was 1.54% and
1.61% of total loans, net of unearned income, respectively. As of December 31,
1994 and 1993, the ratio of the allowance for loan losses to nonperforming loans
was 331.5% and 140.7%, respectively.
For the years ended December 31, 1994 and 1993 the provision for loan losses was
$1,818,000 and $4,332,000, respectively. The decrease was attributable to the
general improvement in all areas of asset quality and the increased coverage
ratio of the allowance for loan losses to nonperforming loans. The provision
for loan losses charged to operations is based on management's evaluation of
individual credits, the past loan loss experience, and other factors which, in
management's judgement, deserve recognition in estimating possible loan losses.
Such other factors considered by management include growth and composition of
the loan portfolio, known deterioration in certain classes of loans or
collateral, trends in delinquencies, and current economic conditions.
Total net charge-offs were $825,000 in 1994 and $1,773,000 in 1993, which
represents .07% and .16% of average loans for the respective years. United's
ratio of net charge-offs to average loans compares very favorably with its
peers.
Other Income
Other income consists of all revenues which are not included in interest and fee
income related to earning assets. In 1994, other income, excluding securities
transactions, was flat when compared to 1993. The overall decrease in
noninterest income of $1,451,000 or 11.4% was primarily attributed to the net
losses on securities transactions.
Trust income increased $229,000 or 8.7% in 1994. This was due to repricing of
services and an increased volume of trust business.
Service charges, commissions and fees decreased by $194,000 or 2.2% in 1994.
This income consists of charges and fees related to various banking services
provided by United. The decrease was primarily due to a combination of
decreased activity in customer accounts and a decline in net account analysis
fees.
Securities transactions resulted in a net loss of $872,000 in 1994 and a net
gain of $479,000 in 1993. As evidenced by the Statement of Cash Flows, the
volume of securities sold increased significantly in 1994. The primary reason
for this increased sales activity was to restructure a portion of the investment
portfolio to reflect current market rates in response to the rising interest
rate environment in order to enhance United's future earnings momentum.
On January 1, 1994, United adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities,"
(SFAS No. 115) which was effective for fiscal years beginning after December 15,
1993. The $872,000 of net securities losses for 1994 relates primarily to debt
securities losses of approximately $1,024,000 which were reclassified to
available for sale at January 1, 1994.
Other Expense
Other expense includes all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. In total, other expenses
were flat in 1994, and management was successful in controlling costs. The
income statement reflects a 2.0% decrease in 1994 as compared to 1993.
Salaries and employee benefits expense decreased $176,000 or 1.0% in 1994.
Net occupancy expense in 1994 exceeded 1993 levels by $390,000 or 8.7% primarily
due to decreased rental income from vacancies and an increase in real property
taxes.
The remaining other expense decreased $1,228,000 or 5.4% in 1994 compared to
1993. The decrease in other expenses for the year related primarily to
nonrecurring expenses during 1993 which included certain merger expenses for the
two acquisitions consummated by United during 1993, a lower provision for other
real estate owned and the realization of further economies from recent mergers.
Income Taxes
For the year ended December 31, 1994, income taxes approximated $13,096,000
compared to $9,770,000 for 1993. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income. United's
effective tax rates in these two years were 34.5% and 32.4%, respectively.
At December 31, 1994, gross deferred tax assets totaled approximately $11.5
million compared to $10.4 million at December 31, 1993. The allowance for loan
losses and various accrued liabilities represent the most significant temporary
differences. Based on management's evaluation at December 31, 1994 and 1993, no
valuation allowance had been allocated to deferred tax assets.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL:
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three years ended December 31, 1995,
1994 and 1993 with the interest and rate earned or paid on such amount.
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1995 1994 1993
---------------------------------- ---------------------------------- -------------------------------
(Dollars in Average Avg. Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
----------- ---------- --------- ----------- ----------- -------- ---------- --------- --------
ASSETS
Earning assets:
Federal funds sold and
securities purchased
under agreements to
resell and other
short-term
investments $ 9,679 $ 575 5.94% $ 6,125 $ 250 4.08% $ 29,747 $ 898 3.02%
Investment Securities:
Taxable 286,597 17,526 6.12% 345,166 18,589 5.39% 371,583 20,531 5.53%
Tax exempt (1) 46,924 4,560 9.72% 52,709 5,429 10.30% 59,307 6,360 10.72%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total Securities 333,521 22,086 6.62% 397,875 24,018 6.04% 430,890 26,891 6.24%
Loans, net of unearned
income (1) (2) 1,320,506 116,666 8.83% 1,231,525 99,850 8.11% 1,134,001 92,168 8.13%
Allowance for possible loan
losses (20,265) (19,595) (18,046)
---------- ---------- ----------
Net Loans 1,300,241 8.96% 1,211,930 8.24% 1,115,955 8.26%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total earning assets 1,643,441 139,327 8.48% 1,615,930 124,118 7.68% 1,576,592 119,957 7.61%
---------- ---------- ---------
Other assets 135,890 137,394 130,047
---------- ---------- ----------
TOTAL ASSETS $1,779,331 $1,753,324 $1,706,639
========== ========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,221,835 $ 48,445 3.96% $1,199,355 $ 38,614 3.22% $1,193,622 $ 40,837 3.42%
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 83,016 3,809 4.59% 78,699 2,571 3.27% 75,496 2,152 2.85%
FHLB advances 41,044 2,516 6.13% 50,702 2,702 5.33% 40,528 2,020 4.98%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total Interest-Bearing
Funds 1,345,895 54,770 4.07% 1,328,756 43,887 3.30% 1,309,646 45,009 3.44%
---------- ---------- ---------
Demand deposits 222,427 229,936 213,544
Accrued expenses and
other liabilities 21,454 16,567 16,474
---------- ---------- ----------
TOTAL LIABILITIES 1,589,776 1,575,259 1,539,664
Shareholders' Equity 189,555 178,065 166,975
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,779,331 $1,753,324 $1,706,639
========== ========== ==========
NET INTEREST INCOME $ 84,557 $ 80,231 $ 74,948
========== ========== ==========
INTEREST SPREAD 4.41% 4.38% 4.17%
NET INTEREST MARGIN 5.15% 4.97% 4.75%
(1) The interest income and the yields on nontaxable loans and investment
securities are presented on a tax-equivalent basis using the statutory
federal income tax rate of 35%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
RATE/VOLUME ANALYSIS
The following table sets forth a summary of the changes in interest earned and
interest paid detailing the amounts attributable to (i) changes in volume
(change in the average volume times the prior year's average rate), (ii) changes
in rate (change in the average rate times the prior year's average volume), and
(iii) changes in rate/volume (change in the average volume times the change in
average rate).
1995 Compared to 1994 1994 Compared to 1993
----------------------------------- -------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- -------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------- ------- ------- ----- ------- ------- ------- -------
(In thousands) (In thousands)
Interest income:
Federal funds sold, securities purchased
under agreements to resell and other
short-term investments $ 145 $ 115 $ 65 $ 325 $ (713) $ 315 $(250) $ (649)
Investment securities:
Taxable (3,157) 2,520 (426) (1,063) (1,461) (520) (39) (1,942)
Tax exempt (1) (596) (306) 33 (869) (708) (249) 26 (931)
Loans (1),(2) 7,216 8,867 733 16,816 7,929 (227) (20) 7,682
------- ------- ----- ------- ------- ------- ----- -------
TOTAL INTEREST INCOME 3,608 11,196 405 15,209 5,047 (681) (205) 4,161
------- ------- ----- ------- ------- ------- ----- -------
Interest expense:
Interest-bearing deposits 724 8,875 232 9,831 196 (2,387) (32) (2,223)
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 142 1,039 57 1,238 91 317 11 419
FHLB advances (515) 406 (77) (186) 507 142 33 682
------- ------- ----- ------- ------- ------- ----- -------
TOTAL INTEREST EXPENSE 351 10,320 212 10,883 794 (1,928) 12 (1,122)
------- ------- ----- ------- ------- ------- ----- -------
NET INTEREST INCOME $ 3,257 $ 876 $ 193 $ 4,326 $ 4,253 $ 1,247 $(217) $ 5,283
======= ======= ===== ======= ======= ======= ===== =======
(1) Yields and interest income on tax exempt loans and investment securities
are computed on a fully tax-equivalent basis using the statutory federal
income tax rate of 35%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
LOAN PORTFOLIO
TYPES OF LOANS
The following is a summary of loans outstanding at December 31:
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------
(In thousands)
Commercial, financial
and agricultural $ 218,800 $ 208,491 $ 218,559 $ 218,370 $203,864
Real estate mortgage 912,917 842,819 726,122 640,838 514,316
Real estate construction 21,232 16,919 12,687 15,680 12,174
Consumer 225,077 233,866 229,847 246,673 226,657
Less: Unearned interest (4,021) (5,018) (6,428) (7,824) (2,528)
---------- ---------- ---------- ---------- --------
Total loans 1,374,005 1,297,077 1,180,787 1,113,737 954,483
Allowance for possible
loan losses (20,017) (20,008) (19,015) (15,952) (14,070)
---------- ---------- ---------- ---------- --------
TOTAL LOANS, NET $1,353,988 $1,277,069 $1,161,772 $1,097,785 $940,413
========== ========== ========== ========== ========
At December 31, 1995, real estate mortgage loans include $570,635,000 in single
family residential real estate loans and $328,226,000 in commercial real estate
loans.
The following is a summary of loans outstanding as a percent of total loans at
December 31:
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Commercial, financial
and agricultural 15.88% 16.01% 18.41% 19.47% 21.30%
Real estate mortgage 66.25% 64.73% 61.16% 57.14% 53.75%
Real estate construction 1.54% 1.30% 1.07% 1.40% 1.27%
Consumer 16.33% 17.96% 19.36% 21.99% 23.68%
------ ------ ------ ------ ------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
REMAINING LOAN MATURITIES
The following table shows the maturity of commercial, financial, and
agricultural loans and real estate construction outstanding as of December 31,
1995:
Less Than One To Greater Than
One Year Five Years Five Years Total
--------- ---------- ------------ --------
Commercial, financial
and agricultural $51,063 $83,625 $84,112 $218,800
Real estate construction 21,232 21,232
------- ------- ------- --------
Total $72,295 $83,625 $84,112 $240,032
======= ======= ======= ========
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 1995, commercial, financial and agricultural loans maturing
within one to five years and in more than five years are interest sensitive as
follows:
One to Over
Five Years Five Years
---------- ----------
(In thousands)
Outstanding with fixed interest rates $38,648 $ 9,904
Outstanding with adjustable rates 44,977 74,208
------- -------
$83,625 $84,112
======= =======
There were no real estate construction loans with maturities greater than one
year.
RISK ELEMENTS
Nonperforming Loans
Nonperforming loans include loans on which no interest is currently being
accrued, loans which are past due 90 days or more as to principal or interest
payments, and loans for which the terms have been modified due to a
deterioration in the financial position of the borrower. Management is not aware
of any other significant loans, groups of loans, or segments of the loan
portfolio not included below where there are serious doubts as to the ability
of the borrowers to comply with the present loan repayment terms. The following
table summarizes nonperforming loans for the indicated periods.
December 31
-----------------------------------------
1995 1994 1993 1992 1991
------ ------ ------- ------- -------
(In thousands)
Nonaccrual loans $4,934 $3,733 $ 8,588 $12,446 $11,719
Troubled debt restructurings 2,453 1,355 1,928
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 4,155 2,303 2,476 2,154 3,525
------ ------ ------- ------- -------
TOTAL $9,089 $6,036 $13,517 $15,955 $17,172
====== ====== ======= ======= =======
Loans are designated as nonaccrual when, in the opinion of management, the
collection of principal or interest is doubtful. This generally occurs when a
loan becomes 90 days past due as to principal or interest unless the loan is
both well secured and in the process of collection. When interest accruals are
discontinued, unpaid interest credited to income in the current year is
reversed, and unpaid interest accrued in prior years is charged to the allowance
for loan losses. See Note F to the consolidated financial statements for
additional information regarding nonperforming loans and credit risk
concentration.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
INVESTMENT PORTFOLIO
The following is a summary of the amortized cost of investment securities held
to maturity at December 31, 1995 and 1994 and all securities at December 31,
1993:
1995 1994 1993
-------- -------- --------
(In thousands)
U.S. Treasury and other U.S. Government
agencies and corporations $ 12,146 $ 84,843 $220,805
States and political subdivisions 43,324 53,297 55,209
Mortgage-backed securities 55,389 97,644 131,322
Marketable equity securities 2,182
Other 1,896 7,062 20,909
-------- -------- --------
TOTAL INVESTMENT SECURITIES $112,755 $242,846 $430,427
======== ======== ========
The following is a summary of the amortized cost of available for sale
securities at December 31,:
1995 1994
-------- --------
(In thousands)
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $150,460 $103,292
Mortgage-backed securities 27,766
Marketable equity securities 2,662 1,529
Other 13,808 13,898
-------- --------
TOTAL AVAILABLE-FOR-SALE SECURITIES $194,696 $118,719
======== ========
The market value of mortgage-backed securities is affected by changes in
interest rates and prepayment risk. When interest rates decline, prepayment
speeds generally accelerate due to homeowners refinancing their mortgages at
lower interest rates. This may result in the proceeds being reinvested at lower
interest rates. Rising interest rates may decrease the assumed prepayment
speed. Slower prepayment speeds may extend the maturity of the security beyond
its assumed prepayment speed. Therefore, investors may not be able to invest at
current higher market rates due to the extended expected maturity of the
security. United had an unrealized loss of $331,000 on all mortgage-backed
securities at December 31, 1995, as compared to a net unrealized loss of
$7,805,000 at December 31, 1994. This increase in value from 1994 to 1995 is
consistent with the decrease in interest rates during 1995.
The following table sets forth the maturities of all securities at December 31,
1995, and the weighted average yields of such securities (calculated on the
basis of the cost and the effective yields weighted for the scheduled maturity
of each security).
After 1 But After 5 But
Within 1 Year Within 5 Years Within 10 Years After 10 Years
--------------- --------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------- ------ ------- ------ ------- ------- ------- ------
(In thousands)
U.S. Treasury and other
U.S. Government agencies
and corporations $93,727 5.92% $62,405 5.85% $ 7,571 6.38%
States and political
subdivisions (1) 8,095 10.36% 14,492 9.20% $ 9,856 9.12% 10,881 9.15%
Other 13,687 6.29% 30,857 7.28% 17,884 6.48% 40,018 6.36%
(1) Tax-equivalent adjustments (using a 35% federal rate) have been made in
calculating yields on obligations of states and political subdivisions.
NOTE: There are no securities with a single issuer whose book value in the
aggregate exceeds 10% of total shareholders' equity.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
The following table shows the distribution of United's short-term borrowings and
the weighted average interest rates thereon at the end of each of the last three
years. Also provided are the maximum amount of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years.
Federal Securities Sold
Funds Under Agreements
Purchased to Repurchase
---------- -----------------
(In thousands)
At December 31:
1995 $26,378 $ 55,789
1994 4,582 67,227
1993 5,339 67,271
Weighted average interest rate
at year end:
1995 5.0% 3.6%
1994 5.7% 4.1%
1993 2.9% 2.7%
Maximum amount outstanding at
any month's end:
1995 $33,941 $ 81,720
1994 25,089 103,486
1993 7,509 85,515
Average amount outstanding during
the year:
1995 $12,264 $ 70,752
1994 10,178 68,521
1993 7,808 67,688
Weighted average interest rate
during the year:
1995 6.0% 4.3%
1994 4.3% 3.1%
1993 3.0% 2.8%
At December 31, 1995, repurchase agreements include $53,846,000 in overnight
accounts. The remaining balance principally consists of agreements having
maturities ranging from 2-90 days. The rates offered on these funds vary
according to movements in the federal funds and short-term investment market
rates.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
DEPOSITS
The average daily amount of deposits and rates paid on such deposits is
summarized for the years ended December 31:
1995 1994 1993
------------------ ------------------ -------------------
Amount Rate Amount Rate Amount Rate
---------- ------ ---------- ------ ---------- ------
(In thousands)
Noninterest bearing
demand deposits $ 222,427 $ 229,936 $ 213,544
Interest bearing
demand deposits 228,920 2.28% 230,402 2.26% 222,226 2.59%
Savings deposits 398,858 2.98% 449,142 2.84% 444,788 3.06%
Time deposits 594,057 5.28% 519,811 3.97% 526,608 4.08%
---------- ---------- ----------
TOTAL $1,444,262 3.96% $1,429,291 3.22% $1,407,166 3.42%
========== ========== ==========
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1995 are summarized as follows:
(In thousands)
3 months or less $ 39,910
Over 3 through 6 months 17,972
Over 6 through 12 months 17,941
Over 12 months 26,068
--------
TOTAL $101,891
========
RETURN ON EQUITY AND ASSETS
The following table shows selected consolidated operating and capital ratios for
each of the last three years ended December 31:
1995 1994 1993
------ ------ ------
Return on average assets 1.58% 1.42% 1.27%
Return on average equity 14.81% 13.98% 13.00%
Dividend payout ratio (1) 49.21% 50.61% 50.30%
Average equity to average
assets ratio 10.65% 10.16% 9.78%
(1) Based on historical results of United before the effects of restatements for
pooling of interests business combinations.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes United's loan loss experience for each of the
five years ended December 31:
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ---------
(In thousands)
Balance of allowance for possible loan
losses at beginning of year $ 20,008 $ 19,015 $ 15,952 $ 14,070 $ 12,187
Allowance of purchased company at date
of acquisition 1,017 504 2,784
Loans charged off:
Commercial, financial and agricultural 1,952 708 1,088 3,108 4,636
Real estate 722 65 649 1,477 175
Real estate construction
Consumer and other 933 943 1,004 1,286 1,785
---------- ---------- ---------- ---------- --------
TOTAL CHARGE-OFFS 3,607 1,716 2,741 5,871 6,596
Recoveries:
Commercial, financial and agricultural 189 577 438 168 403
Real estate 65 13 231 154 48
Real estate construction
Consumer and other 270 301 299 405 393
---------- ---------- ---------- ---------- --------
TOTAL RECOVERIES 524 891 968 727 844
NET LOANS CHARGED OFF 3,083 825 1,773 5,144 5,752
Addition to allowance (1) 2,075 1,818 4,332 4,242 7,635
---------- ---------- ---------- ---------- --------
BALANCE OF ALLOWANCE FOR POSSIBLE
LOAN LOSSES AT END OF YEAR $ 20,017 $ 20,008 $ 19,015 $ 15,952 $ 14,070
========== ========== ========== ========== ========
Loans outstanding at the end of period (gross) $1,378,026 $1,302,095 $1,187,215 $1,121,561 $957,010
Average loans outstanding during
period (net of unearned income) $1,320,506 $1,231,525 $1,134,001 $ 990,999 $949,784
Net charge-offs as a percentage of
average loans outstanding 0.23% 0.07% 0.16% 0.52% 0.61%
Allowance for possible loan losses as
a percentage of nonperforming loans 220.2% 331.5% 140.7% 100.0% 81.9%
(1) The amount charged to operations and the related balance in the allowance
for possible loan losses is based upon periodic evaluations of the loan
portfolio by management. These evaluations consider several factors
including, but not limited to, general economic conditions, loan portfolio
composition, prior loan loss experience and management's estimation of
future potential losses.
Quarterly reviews of individual loans as well as the loan portfolio as a
whole are made by management and the credit department. Management performs
extensive procedures in granting and monitoring loans on a continual basis.
Further, management believes that the allowance for possible loan losses is
adequate to absorb anticipated losses.
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for
possible loan losses at
years ending: 1995 1994 1993 1992 1991
- - ------------------------------ ------ ------ ------- ------- -------
Commercial, financial and
agricultural $6,891 $7,526 $ 8,109 $ 6,406 $ 6,534
Real estate 503 499 476 1,375 1,382
Real estate construction
Consumer and other 1,484 1,313 1,733 5,481 5,434
------ ------ ------- ------- -------
Total $8,878 $9,338 $10,318 $13,262 $13,350
====== ====== ======= ======= =======
The portion of the allowance for loan losses that is not specifically
allocated to individual credits has been apportioned among the separate loan
portfolios based on the relative risk of each portfolio.
% of Loans Per Category
- - ------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
Commercial, financial and
agricultural 77.62% 80.60% 78.59% 48.30% 48.94%
Real estate 5.67% 5.34% 4.61% 10.37% 10.35%
Real estate construction
Consumer and other 16.71% 14.06% 16.80% 41.33% 40.71%
------ ------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 8. Financial Statements and Supplementary Data
(A) - FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X
YEAR ENDED DECEMBER 31, 1995
UNITED BANKSHARES, INC.
Page
Report of Independent Auditors.............................. 47
Consolidated Balance Sheets................................. 48
Consolidated Statements of Income........................... 49
Consolidated Statements of Changes in Shareholders' Equity.. 50
Consolidated Statements of Cash Flows....................... 51
Notes to Consolidated Financial Statements.................. 52
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Board of Directors and Shareholders
United Bankshares, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of United
Bankshares, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United
Bankshares, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note J to the consolidated financial statements, United
Bankshares, Inc. changed its method of accounting for income taxes effective
January 1, 1993.
/s/ Ernst & Young LLP
Charleston, West Virginia
February 22, 1996
CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31
--------------------------------
1995 1994
--------------- ---------------
ASSETS
Cash and due from banks $ 78,909,000 $ 82,763,000
Securities available for sale at estimated
fair value (amortized cost-$194,696,000
at December 31, 1995 and $118,719,000 at
December 31, 1994 196,718,000 118,037,000
Securities held to maturity (estimated fair
value-$114,390,000 at December 31, 1995
and $231,461,000 at December 31, 1994) 112,755,000 242,846,000
Gross Loans 1,378,026,000 1,302,095,000
Less: Unearned income (4,021,000) (5,018,000)
-------------- --------------
Loans net of unearned income 1,374,005,000 1,297,077,000
Less: Allowance for loan losses (20,017,000) (20,008,000)
-------------- --------------
Net loans 1,353,988,000 1,277,069,000
Bank premises and equipment 30,575,000 30,769,000
Interest receivable 11,981,000 10,943,000
Other assets 30,517,000 25,214,000
-------------- --------------
TOTAL ASSETS $1,815,443,000 $1,787,641,000
============== ==============
LIABILITIES
Domestic deposits
Noninterest-bearing $ 238,568,000 $ 244,591,000
Interest-bearing 1,234,698,000 1,190,261,000
-------------- --------------
TOTAL DEPOSITS 1,473,266,000 1,434,852,000
Short-term borrowings
Federal funds purchased 26,378,000 4,582,000
Securities sold under agreements
to repurchase 55,789,000 67,227,000
Federal Home Loan Bank borrowings 33,900,000 83,972,000
Accrued expenses and other liabilities 24,888,000 17,262,000
-------------- --------------
TOTAL LIABILITIES 1,614,221,000 1,607,895,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized-20,000,000 shares; issued and
outstanding-12,156,571 at December 31, 1995 and
11,954,453 at December 31, 1994, including
140,520 and 137,520 shares in treasury at
December 31, 1995 and 1994, respectively 30,391,000 29,886,000
Surplus 37,466,000 32,331,000
Retained earnings 135,580,000 121,318,000
Net unrealized holding gain (loss) on
securities available for sale 1,315,000 (443,000)
Treasury stock (3,530,000) (3,346,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 201,222,000 179,746,000
COMMITMENTS AND CONTINGENCIES
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,815,443,000 $1,787,641,000
============== ==============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Year Ended December 31
----------------------------------------
1995 1994 1993
------------ ------------ ------------
INTEREST INCOME
Interest and fees on loans $115,300,000 $ 98,674,000 $ 90,942,000
Interest on federal funds sold 575,000 250,000 805,000
Interest and dividends on securities:
Taxable 17,526,000 18,589,000 20,531,000
Exempt from federal taxes 2,964,000 3,529,000 4,134,000
Other interest income 95,000 115,000 93,000
------------ ------------ ------------
TOTAL INTEREST INCOME 136,460,000 121,157,000 116,505,000
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 48,445,000 38,614,000 40,837,000
Interest on short-term borrowings 3,809,000 2,571,000 2,152,000
Interest on Federal Home Loan Bank Advances 2,516,000 2,702,000 2,020,000
------------ ------------ ------------
TOTAL INTEREST EXPENSE 54,770,000 43,887,000 45,009,000
------------ ------------ ------------
NET INTEREST INCOME 81,690,000 77,270,000 71,496,000
PROVISION FOR POSSIBLE LOAN LOSSES 2,075,000 1,818,000 4,332,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 79,615,000 75,452,000 67,164,000
------------ ------------ ------------
OTHER INCOME
Trust department income 2,911,000 2,868,000 2,639,000
Other charges, commissions, and fees 9,177,000 8,636,000 8,830,000
Other income 528,000 590,000 725,000
Investment securities (losses) gains (872,000) 479,000
------------ ------------ ------------
TOTAL OTHER INCOME 12,616,000 11,222,000 12,673,000
------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 22,101,000 22,081,000 22,257,000
Net occupancy expense 5,134,000 4,899,000 4,509,000
Other expense 21,646,000 21,696,000 22,924,000
------------ ------------ ------------
TOTAL OTHER EXPENSES 48,881,000 48,676,000 49,690,000
------------ ------------ ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES 43,350,000 37,998,000 30,147,000
INCOME TAXES 15,271,000 13,096,000 9,770,000
------------ ------------ ------------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 28,079,000 24,902,000 20,377,000
CUMULATIVE EFFECT, AS OF JANUARY 1, 1993, OF
CHANGE IN METHOD OF ACCOUNTING FOR INCOME TAXES 1,329,000
------------ ------------ ------------
NET INCOME $ 28,079,000 $ 24,902,000 $ 21,706,000
============ ============ ============
Earnings per common share:
Income before cumulative effect of accounting
change $2.35 $2.08 $1.71
Cumulative effect of accounting change 0.11
------------ ------------ ------------
Net Income $2.35 $2.08 $1.82
============ ============ ============
Dividends per share $1.17 $1.06 $0.95
============ ============ ============
Average outstanding shares 11,928,582 11,993,062 12,004,683
============ ============ ============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Net Unrealized
Common Stock Holding Loss
------------------------ on Securities Total
Par Retained Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
----------- ----------- ----------- ------------ ---------------- ------------ -------------
Balance at December 31, 1992 11,944,483 $29,861,000 $32,606,000 $ 98,232,000 $ 0 $(479,000) $160,220,000
Net income 21,706,000 21,706,000
Cash dividends ($.95 per share) (10,918,000) (10,918,000)
Purchase of treasury stock (300,000) (300,000)
Common stock options
exercised (85,000) 229,000 144,000
Pre-merger transactions of
pooled bank 10,015 25,000 95,000 120,000
---------- ----------- ----------- ------------ --------------- ------------ ------------
Balance at December 31, 1993 11,954,498 29,886,000 32,616,000 109,020,000 0 (550,000) 170,972,000
Net income 24,902,000 24,902,000
Cash dividends ($1.06 per
share) (12,604,000) (12,604,000)
Net change in unrealized
holding loss on securities
available for sale (1,727,000) (1,727,000)
Fractional shares adjustment (45)
Change in method of accounting
for securities 1,284,000 1,284,000
Purchase of treasury stock (3,536,000) (3,536,000)
Common stock options
exercised (285,000) 740,000 455,000
---------- ----------- ----------- ------------ --------------- ------------ ------------
Balance at December 31, 1994 11,954,453 29,886,000 32,331,000 121,318,000 (443,000) (3,346,000) 179,746,000
Net income 28,079,000 28,079,000
Cash dividends ($1.17 per
share) (13,817,000) (13,817,000)
Net change in unrealized
holding loss on securities
available for sale 1,758,000 1,758,000
Fractional shares adjustment (7)
Acquisition of First
Commercial Bank 202,125 505,000 5,558,000 6,063,000
Purchase of treasury stock (1,273,000) (1,273,000)
Common stock options
exercised (423,000) 1,089,000 666,000
---------- ----------- ----------- ------------ --------------- ------------ ------------
Balance at December 31, 1995 12,156,571 $30,391,000 $37,466,000 $135,580,000 $1,315,000 $(3,530,000) $201,222,000
========== =========== =========== ============ =============== =========== ============
See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Year Ended December 31
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
OPERATING ACTIVITIES
Net income $ 28,079,000 $ 24,902,000 $ 21,706,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Cumulative effect of change in accounting principle (1,329,000)
Provision for possible loan losses 2,075,000 1,818,000 4,332,000
Provision for possible OREO losses 45,000 100,000 496,000
Provision for depreciation 2,542,000 2,716,000 2,641,000
Amortization, net of accretion 406,000 2,904,000 2,095,000
Gain on sales of bank premises and equipment (245,000) (121,000)
Net losses on sales of securities available for sale 872,000
Net gains on sales of investment securities (479,000)
Deferred income tax benefit (250,000) (1,112,000) (2,427,000)
Originations of student loans (465,000) (292,000) (1,041,000)
Proceeds from sales of student loans 50,000
Changes in:
Interest receivable (613,000) (401,000) 260,000
Other assets 2,422,000 1,032,000 2,406,000
Accrued expenses and other liabilities 1,425,000 2,164,000 2,068,000
------------ ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,666,000 34,458,000 30,657,000
------------ ------------- -------------
INVESTING ACTIVITIES
Proceeds from sales of investment securities 37,084,000
Proceeds from maturities and calls of
investment securities 27,505,000 55,168,000 217,177,000
Purchases of investment securities (1,333,000) (25,430,000) (272,329,000)
Proceeds from sales of securities available for sale 66,351,000
Proceeds from maturities and calls of
securities available for sale 108,313,000 69,885,000
Purchases of securities available for sale (70,746,000) (98,871,000)
Net purchases of bank premises and equipment (1,293,000) (2,052,000) (1,562,000)
Net cash paid for acquired subsidiary (1,742,000) (2,088,000)
Net change in loans (37,424,000) (117,251,000) (28,929,000)
------------ ------------- -------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 23,280,000 (52,200,000) (50,647,000)
------------ ------------- -------------
FINANCING ACTIVITIES
Cash dividends paid (10,273,000) (12,604,000) (10,918,000)
Acquisition of treasury stock (1,273,000) (3,536,000) (300,000)
Proceeds from exercise of stock options 666,000 455,000 144,000
Issuance of common stock 120,000
Repayment of Federal Home Loan Bank borrowings (50,072,000)
Proceeds from Federal Home Loan Bank borrowings 51,769,000 4,136,000
Changes in:
Time deposits 73,897,000 (4,424,000) 6,427,000
Other deposits (86,103,000) 8,796,000 (47,299,000)
Federal funds purchased and securities
sold under agreements to repurchase 10,358,000 (801,000) (943,000)
------------ ------------- -------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (62,800,000) 39,655,000 (48,633,000)
------------ ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,854,000) 21,913,000 (68,623,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 82,763,000 60,850,000 129,473,000
------------ ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 78,909,000 $ 82,763,000 $ 60,850,000
============ ============= =============
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31, 1995
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
United Bankshares, Inc. is a multi-bank holding company headquartered in
Charleston, West Virginia. The principal West Virginia markets of United
Bankshares, Inc. and subsidiaries (United) are located in Parkersburg,
Charleston, Huntington and Wheeling. United also operates a banking subsidiary
in Arlington, Virginia.
The accounting and reporting policies of United conform with generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. A description of the significant accounting policies is presented
below.
Basis of Presentation: The consolidated financial statements include the
- - ----------------------
accounts of United Bankshares, Inc. and its wholly-owned subsidiaries. United
considers all of its principal business activities to be bank related. All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Certain amounts in the prior year's financial statements have been reclassified
to conform with the 1995 presentation. The reclassifications had no effect on
net income.
Securities: Management determines the appropriate classification of securities
- - -----------
at the time of purchase. Debt securities that management has the intent and
United has the ability to hold to maturity are carried at amortized cost.
Securities to be held for indefinite periods of time and all marketable equity
securities are classified as available for sale and carried at fair value.
Unrealized holding gains and losses on securities classified as available for
sale are carried as a separate component of shareholders' equity net of deferred
income taxes.
Gains or losses on sales of securities are recognized by the specific
identification method and are reported separately in the statements of income.
Loans: Interest on loans is accrued and credited to operations using methods
- - ------
that approximate a level yield on principal amounts outstanding. Loan
origination and commitment fees and related direct loan origination costs are
deferred and amortized as an adjustment of loan yield over the estimated life of
the related loan.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The accrual of interest income generally is discontinued when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, unpaid interest recognized in income in the current year is
reversed, and interest accrued in prior years is charged to the allowance for
loan losses. Management may elect to continue the accrual of interest when the
estimated net realizable value of collateral exceeds the principal balance and
accrued interest, and the loan is in the process of collection.
Allowance for Possible Loan Losses: In providing for loan losses, United
- - -----------------------------------
considers all significant factors that affect the collectibility of loans
including the evaluation of impaired loans under SFAS No. 114. The provision for
loan losses charged to operations is based on management's evaluation of
individual credits, the past loan loss experience, and other factors which, in
management's judgment, deserve recognition in estimating possible loan losses.
Such other factors considered by management include growth and composition of
the loan portfolio, known deterioration in certain classes of loans or
collateral, trends in delinquencies, and current economic conditions.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
- - ----------------------------
less allowances for depreciation and amortization. The provision for
depreciation is computed principally by the straight-line method over the
estimated useful lives of the respective assets.
Other Assets: Other real estate owned (OREO), acquired principally through
- - -------------
foreclosure on collateral securing loans made by United, is reported at the
lower of cost or fair value less costs estimated to sell and is included in
other assets. Any write-downs at the date of foreclosure are charged to the
allowance for possible loan losses. Expenses incurred in connection with
ownership, subsequent declines in estimated net realizable value, and realized
gains and losses upon sale of the properties are included in other expenses, or
other income, as appropriate.
United maintains an allowance for possible OREO losses. Such allowance is based
upon the estimated values of specific properties in consideration of prevailing
market conditions.
Income Taxes: Deferred income taxes are provided for temporary differences
- - -------------
between the financial reporting and tax bases of assets and liabilities at
statutory tax rates.
United and its subsidiaries file consolidated federal and state income tax
returns. The subsidiaries provide for income taxes on a separate return basis
and remit amounts to the parent company deemed to be currently payable.
Stock-Based Compensation: In October 1995, the Financial Accounting Standards
- - -------------------------
Board ("FASB"), issued Statement No. 123, (SFAS No. 123), "Accounting for Stock-
Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 defines a fair value based method of
accounting for stock-based compensation plans.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Under the fair value method, compensation expense is measured based upon the
estimated value of the award as of the grant date and is recognized over the
service period. SFAS No. 123 provides companies with the option of accounting
for stock-based compensation under APB Opinion No. 25, "Accounting for Stock
Issued to Employees," or applying the provisions of SFAS No. 123. United has
decided to continue to apply the provisions of APB No. 25 to account for stock-
based compensation. The disclosure requirements of SFAS No. 123 require
entities applying APB Opinion No. 25 to provide pro forma disclosures of net
income and earnings per share as if the fair value method of accounting had been
applied. United will provide these disclosures beginning in 1996.
Trust Assets and Income: Assets held in a fiduciary or agency capacity for
- - ------------------------
subsidiary bank customers are not included in the balance sheets since such
items are not assets of the subsidiary banks. Trust department income is
reported on a cash basis. Reporting such income on an accrual basis would not
materially affect United's consolidated financial position or its results of
operations as reported herein.
Cash Flow Information: For purposes of the statement of cash flows, United
- - ----------------------
considers cash and due from banks and federal funds sold as cash and cash
equivalents. Interest paid approximated $52,377,000, $43,478,000 and
$45,502,000 in 1995, 1994, and 1993, respectively. Income taxes paid
approximated $16,769,000, $13,033,000, and $10,363,000 in 1995, 1994, and 1993,
respectively. Noncash investing and financing activities were as follows:
$103,595,000 of securities were transferred to available for sale from the held
to maturity portfolio in 1995; and $6,063,000 of common stock was issued in 1995
in a purchase acquisition.
Interest Rate Swaps: Interest rate swaps are utilized by United to manage
- - --------------------
interest rate exposure. Income or expense derived from these instruments is
recognized as an adjustment to interest income of the underlying instrument.
Earnings Per Common Share: Earnings per common share is computed based on the
- - --------------------------
weighted average number of common and common equivalent shares outstanding
during the applicable period. Options granted under United's stock option plans
are considered common stock equivalents for the purpose of computing earnings
per share.
NOTE B--ACQUISITIONS
On October 31, 1995, United merged its Bank First office into Commercial
Interim Bank ("Interim"), and acquired 100% of the common stock of First
Commercial Bank("FCB") of Arlington, Virginia, in a combination cash and common
stock exchange accounted for using the purchase method of accounting. United
exchanged 202,125 shares of its common stock for all 201,100 of FCB's common
stock. United then renamed Interim to First Commercial Bank ("First
Commercial"). As of the date of acquisition, FCB reported total assets of
$76,964,000, total net loans of $41,386,000 and deposits of $50,200,000. The
results of operations of FCB, which are not significant, have been included in
the consolidated results of operations from the date of acquisition.
NOTE B--ACQUISITIONS - continued
The purchase prices of this acquisition and certain acquisitions made in prior
years were allocated to the identifiable tangible and intangible assets acquired
based upon their fair values at the acquisition dates. Intangible assets
relating to the estimated value of the deposit base of the acquired institutions
are being amortized on an accelerated basis over a 7 to 10 year period. The
excess of the purchase price over the fair market value of the net assets of the
banks acquired (goodwill) is being amortized on a straight-line basis over 15
years. Net intangible assets (deposit base intangibles and goodwill) of
approximately $14,998,000 and $10,276,000 at December 31, 1995 and 1994,
respectively, are included in other assets. The carrying amount of goodwill is
evaluated if facts and circumstances suggest that it may be impaired. If this
evaluation indicates that goodwill will not be recoverable, as determined based
on the estimated undiscounted cash flows of the entity acquired over the
remaining amortization period, the carrying amount of goodwill will be reduced.
NOTE C--REGULATORY RESTRICTIONS
The subsidiary banks are required to maintain average reserve balances with
their respective Federal Reserve Bank. The average amount of those reserve
balances for the year ended December 31, 1995 was approximately $34,021,000.
The primary source of funds for the dividends paid by United Bankshares, Inc. is
dividends received from its subsidiary banks. Dividends paid by United's
subsidiary national banks are subject to regulatory limitations imposed
primarily by the Comptroller of the Currency. Generally, the most restrictive
provision requires approval by the Comptroller of the Currency if dividends
declared in any year exceed the year's net income, as defined, plus the retained
net profits of the two preceding years. Payment of dividends by United's state
member bank is regulated by the Federal Reserve System and generally, the prior
approval of the Federal Reserve Board 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. During 1996, the retained net profits available for distribution to
United Bankshares, Inc., as dividends without regulatory approval, are
approximately $9,814,000, plus net income for the interim periods through the
date of declaration.
Under Federal Reserve regulation, the banking subsidiaries are also limited as
to the amount they may loan to affiliates, including the parent company. Loans
from the banking subsidiaries to the parent company are limited to 10% of the
banking subsidiaries' capital, and surplus, as defined, or $19,068,000 at
December 31, 1995, and must be secured by qualifying collateral.
NOTE D--SECURITIES AVAILABLE FOR SALE
Effective January 1, 1994, United adopted FASB Statement 115, "Accounting for
Certain Investments in Debt and Equity Securities," (SFAS No. 115). The effect
of adopting SFAS No. 115 as of January 1, 1994, was to increase shareholders'
equity by $1,284,000 for the net unrealized holding gains on securities
classified as available for sale which were previously carried at amortized
cost.
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provision of that Special
Report, United chose to reclassify securities from held to maturity to available
for sale. At the date of the transfer the amortized cost of those securities
was $103,595,000, and the unrealized gain on those securities was $242,000,
which is included in shareholders' equity.
The amortized cost and estimated fair value of securities available for sale at
December 31, 1995, by contractual maturity are as follows:
Estimated
Amortized Fair
Cost Value
------------ ------------
Due in one year or less $105,885,000 $106,262,000
Due after one year through five years 52,928,000 53,684,000
Due after five years through ten years 169,000 172,000
Due after ten years 33,052,000 32,779,000
Marketable equity securities 2,662,000 3,821,000
------------ ------------
Total $194,696,000 $196,718,000
============ ============
The table above includes $27,735,000 of mortgage-backed securities at estimated
fair value with an amortized cost of $27,766,000. Maturities of mortgage-backed
securities are based upon the estimated average life.
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
December 31, 1995
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $150,460,000 $1,438,000 $341,000 $151,557,000
Mortgage-backed
securities 27,766,000 23,000 54,000 27,735,000
Marketable equity
securities 2,662,000 1,159,000 3,821,000
Other 13,808,000 21,000 224,000 13,605,000
------------ ---------- -------- ------------
Total $194,696,000 $2,641,000 $619,000 $196,718,000
============ ========== ======== ============
NOTE D--SECURITIES AVAILABLE FOR SALE - continued
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
December 31, 1994
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ----------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $103,292,000 $127,000 $ 774,000 $102,645,000
Marketable equity
securities 1,529,000 293,000 25,000 1,797,000
Other 13,898,000 2,000 305,000 13,595,000
------------ -------- ---------- ------------
Total $118,719,000 $422,000 $1,104,000 $118,037,000
============ ======== ========== ============
Gross realized gains and losses from sales of securities available for sale in
1994 were $152,000 and $1,024,000, respectively.
NOTE E--SECURITIES HELD TO MATURITY
The amortized cost and estimated fair values of investment securities are
summarized as follows:
December 31, 1995
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ----------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 12,146,000 $ 13,000 $ 169,000 $ 11,990,000
State and political
subdivisions 43,324,000 2,124,000 33,000 45,415,000
Mortgage-backed
securities 55,389,000 316,000 616,000 55,089,000
Other 1,896,000 1,896,000
------------ ---------- ----------- -------------
Total $112,755,000 $2,453,000 $ 818,000 $114,390,000
============ ========== =========== =============
December 31, 1994
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ----------- -------------
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 84,843,000 $ 66,000 $ 3,438,000 $ 81,471,000
State and political
subdivisions 53,297,000 971,000 1,076,000 53,192,000
Mortgage-backed
securities 97,644,000 7,805,000 89,839,000
Other 7,062,000 103,000 6,959,000
------------ ---------- ----------- -------------
Total $242,846,000 $1,037,000 $12,422,000 $231,461,000
============ ========== =========== =============
NOTE E--SECURITIES HELD TO MATURITY - continued
The amortized cost and estimated fair value of debt securities at December 31,
1995 and 1994 by contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because the issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
December 31, 1995 December 31, 1994
--------------------------- ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
------------ ------------ ------------ ------------
Due in one year or less $ 9,247,000 $ 9,325,000 $ 11,317,000 $ 11,406,000
Due after one year through
five years 54,070,000 54,430,000 140,685,000 136,281,000
Due after five years through
ten years 27,568,000 28,356,000 36,565,000 33,994,000
Due after ten years 21,870,000 22,279,000 54,279,000 49,780,000
------------ ------------ ------------ ------------
Total $112,755,000 $114,390,000 $242,846,000 $231,461,000
============ ============ ============ ============
The table above includes $55,389,000 of mortgage-backed securities with an
estimated fair value of $55,089,000 at December 31, 1995 and mortgage-backed
securities of $97,644,000 with an estimated fair value of $89,839,000 at
December 31, 1994. Maturities of the mortgage-backed securities are based upon
the estimated average life.
Gross realized gains from sales of securities were $496,000 and gross realized
losses were $17,000 in 1993. There were no sales of held to maturity securities
during 1994 and 1995.
The amortized cost of securities pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes as required or
permitted by law, approximated $176,855,000 and $176,625,000 at December 31,
1995 and 1994, respectively.
NOTE F--LOANS
Major classifications of loans as of December 31 are as follows:
1995 1994
-------------- --------------
Commercial, financial, and
agricultural $ 218,800,000 $ 208,491,000
Real estate:
Single family residential 570,635,000 527,434,000
Commercial 328,226,000 300,679,000
Construction 21,232,000 16,919,000
Other 14,056,000 14,706,000
Installment 225,077,000 233,866,000
-------------- --------------
TOTAL GROSS LOANS $1,378,026,000 $1,302,095,000
============== ==============
NOTE F--LOANS - Continued
An analysis of the allowance for possible loan losses follows:
Year Ended December 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
Balance at beginning of year $20,008,000 $19,015,000 $15,952,000
Allowance of purchased subsidiaries 1,017,000 504,000
Provision for possible loan losses 2,075,000 1,818,000 4,332,000
----------- ----------- -----------
23,100,000 20,833,000 20,788,000
Loans charged off 3,607,000 1,716,000 2,741,000
Less recoveries 524,000 891,000 968,000
----------- ----------- -----------
Net charge offs 3,083,000 825,000 1,773,000
----------- ----------- -----------
BALANCE AT END OF YEAR $20,017,000 $20,008,000 $19,015,000
=========== =========== ===========
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"(SFAS No.
114), as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," collectively SFAS 114. As a result
of applying the new rules prescribed by SFAS No. 114, certain loans are being
reported at the present value of their expected future cash flows using the
loan's effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. At the time of adoption of SFAS No. 114, United had
approximately $8,000,000 of loans which were considered impaired in accordance
with the guidelines prescribed by SFAS No. 114. The adoption of SFAS No. 114 did
not have a material impact on the allowance for loan losses, the provision for
possible loan losses or the charge-off policy.
SFAS 114 does not apply to smaller balance, larger groups of homogeneous loans
such as consumer installment, bank card and real estate mortgage loans, which
are collectively evaluated for impairment. Impaired loans are therefore
primarily business loans, which include commercial loans
and income property. Smaller balance populations of business loans, loans with
a balance of $100,000 or less, which are not specifically reviewed in accordance
with United's normal credit review procedures, are also excluded from the
application of SFAS 114.
Consistent with United's existing method of income recognition for loans,
interest receipts on impaired loans, except those classified also as nonaccrual,
are recognized as interest income using the accrual method of income
recognition. United's method of income recognition for impaired loans that are
classified as nonaccrual is to recognize interest income on the cash method of
income recognition or apply the cash receipt to principal when the ultimate
collectibility of principal is in doubt. The average recorded investment in
impaired loans during the year ended December 31, 1995 was approximately
$9,545,000. For the year ended December 31, 1995, United recognized interest
income on those impaired loans of approximately $412,000, substantially all of
which was recognized using the accrual method of income recognition.
NOTE F--LOANS - Continued
At December 31, 1995, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $8,792,000 (of which $4,934,000 were on a
nonaccrual basis). Included in this amount is $4,793,000 of impaired loans for
which the related allowance for credit losses is $1,918,000 and $3,999,000 of
impaired loans that do not have an allowance for credit losses.
The amount of interest income which would have been recorded under the original
terms for the above loans was $1,045,000, $346,000 and $793,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. Amounts recorded as
interest income for these loans totaled $633,000, $1,000 and $183,000 for 1995,
1994 and 1993, respectively.
United has commercial real estate loans, including owner occupied, income
producing real estate and land development loans, of approximately $328,226,000
and $300,679,000 as of December 31, 1995 and 1994, respectively. The loans are
primarily secured by real estate located in West Virginia, Southeastern Ohio,
and Virginia. The loans were originated by United's subsidiary banks using
underwriting standards as set forth by management. United's loan administration
policies are focused on the risk characteristics of the loan portfolio,
including commercial real estate loans, in terms of loan approval and credit
quality. It is the opinion of management that these loans do not pose any
unusual risks and that adequate consideration has been given to the above loans
in establishing the allowance for loan losses.
United's subsidiary banks have made loans, in the normal course of business, to
the directors and officers of United and its subsidiaries, and to their
associates. Such related party loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and did not involve more than
normal risk of collectibility. The aggregate dollar amount of these loans was
$55,919,000 and $57,310,000 at December 31, 1995 and 1994, respectively. During
1995, $41,582,000 of new loans were made and repayments totaled $39,615,000.
NOTE G--BANK PREMISES AND EQUIPMENT AND LEASES
Bank premises and equipment are summarized as follows:
December 31
--------------------------
1995 1994
------------ ------------
Land $ 7,442,000 $ 7,628,000
Building and improvements 30,358,000 29,328,000
Leasehold improvements 5,345,000 5,180,000
Furniture, fixtures, and equipment 26,093,000 25,005,000
----------- -----------
69,238,000 67,141,000
Less allowance for depreciation
and amortization 38,663,000 36,372,000
----------- -----------
Net bank premises $30,575,000 $30,769,000
=========== ===========
NOTE G--BANK PREMISES AND EQUIPMENT AND LEASES - continued
United and certain banking subsidiaries have entered into various noncancelable
operating leases. These noncancelable operating leases are subject to renewal
options under various terms and some leases provide for periodic rate
adjustments based on cost-of-living index changes. Rent expense for
noncancelable operating leases approximated $1,721,000, $1,746,000 and
$1,620,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more, for years
subsequent to December 31, 1995 consisted of the following:
1996 $ 1,784,000
1997 1,662,000
1998 1,546,000
1999 1,464,000
2000 1,354,000
Thereafter 2,623,000
-----------
Total minimum lease payments $10,433,000
===========
United owns an office tower facility, known as "United Square." United occupies
a portion of this building and leases the remainder under agreements expiring
principally in 1998. The principal tenant has an option to renew its lease
agreement on a year-to-year basis for an additional period of five years beyond
the expiration date. United Square, including the portion under such operating
lease, is included in bank premises as follows:
December 31
----------------------
1995 1994
---------- ----------
Bank premises $5,104,000 $5,093,000
Less accumulated depreciation 3,297,000 3,181,000
---------- ----------
Net bank premises $1,807,000 $1,912,000
========== ==========
Rental income under such operating leases approximated $892,000, $986,000, and
$1,341,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
As of December 31, 1995, future minimum lease payments receivable under
noncancelable operating leases aggregated $1,426,000, of which $728,000 is due
in 1996.
NOTE H--DEPOSITS
The book value of deposits consisted of the following:
December 31
------------------------------
1995 1994
-------------- --------------
Non-interest bearing checking $ 238,568,000 $ 244,591,000
Interest bearing checking 224,088,000 229,118,000
Regular savings 269,990,000 309,406,000
Money market accounts 109,132,000 119,663,000
Time deposits under $100,000 529,597,000 456,476,000
Time deposits over $100,000 101,891,000 75,598,000
-------------- --------------
TOTAL DEPOSITS $1,473,266,000 $1,434,852,000
============== ==============
NOTE I--FEDERAL HOME LOAN BANK BORROWINGS
United's lead subsidiary, United National Bank (UNB), is a member of the Federal
Home Loan Bank of Pittsburgh, (the FHLB). As of December 31, 1995, UNB owns
57,525 shares of the FHLB stock at par value. Such stock ownership entitles
UNB to its pro rata share of the quarterly dividends declared by the FHLB and
provides an additional source of short-term and long-term funding, in the form
of collateralized advances. Based upon the shares presently held by UNB, as
well as its Qualifying Collateral and Mortgage Assets Ratio, as defined in the
Master Agreement with the FHLB (the Agreement), at December 31, 1995, UNB is
entitled to receive approximately $405,091,000 in collateralized advances from
the FHLB at prevailing interest rates, subject to satisfying the Capital Stock
Requirement provisions of the Agreement, as defined.
UNB also has various unused lines of credit available from certain of its
correspondent banks in the aggregate amount of $36,000,000. These lines of
credit, which bear interest at prevailing market rates, permit UNB to borrow
funds in the overnight market, and are renewable annually provided that UNB does
not experience a material adverse change in its financial position or results of
operations.
Approximately $33,900,000 of FHLB advances with an interest rate of 5.65% are
scheduled to mature in 1996.
NOTE J--INCOME TAXES
Effective January 1, 1993, United changed its method of accounting for income
taxes from the deferred method to the liability method required by FASB
Statement No. 109, "Accounting for Income Taxes." The cumulative effect of the
change increased net income by $1,329,000 or $0.11 per share.
The income tax provisions included in the consolidated statements of income are
summarized as follows:
Year Ended December 31
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Current Expense:
Federal $13,216,000 $12,022,000 $10,304,000
State 2,305,000 2,186,000 1,893,000
Deferred Benefit:
Federal and State (250,000) (1,112,000) (2,427,000)
----------- ----------- -----------
Total expense $15,271,000 $13,096,000 $ 9,770,000
=========== =========== ===========
NOTE J--INCOME TAXES - continued
The following is a reconciliation of income tax expense to the amount computed
by applying the statutory federal income tax rate to income before income taxes:
Year Ended December 31
-------------------------------------------------------------------------
1995 1994 1993
------------------------- ------------------------- -------------------
Amount % Amount % Amount %
------------ ----------- ------------ ----------- ------------ -----
Tax on income before taxes
at statutory federal rate $15,167,000 35.0% $13,299,000 35.0% $10,551,000 35.0%
Plus: State income taxes
net of federal tax
benefits 1,604,000 3.7 1,009,000 2.7 826,000 2.7
----------- ---------- ----------- ---------- ----------- ----
16,771,000 38.7 14,308,000 37.7 11,377,000 37.7
Increase (decrease)
resulting from:
Tax-exempt interest
income (1,683,000) (3.9) (1,830,000) (4.8) (2,069,000) (6.9)
Other items-net 183,000 0.4 618,000 1.6 462,000 1.6
----------- ---------- ----------- ---------- ----------- ----
Income taxes $15,271,000 35.2% $13,096,000 34.5% $ 9,770,000 32.4%
=========== ========== =========== ========== =========== ====
Federal income tax expense (benefit) applicable to securities transactions
approximated ($305,000) and $168,000 in 1994 and 1993, respectively. There were
no securities transactions in 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of United's deferred tax assets and liabilities as of December 31, 1995 and 1994
are as follows:
1995 1994
----------- -----------
Deferred tax assets:
Allowance for loan losses $ 7,956,000 $ 8,004,000
Accrued benefits payable 709,000 354,000
Other accrued liabilities 2,378,000 1,951,000
Net deferred loan fees 392,000 471,000
Securities available for sale 239,000
Other real estate owned 122,000 493,000
Other 68,000
----------- -----------
Total deferred tax assets 11,625,000 11,512,000
----------- -----------
Deferred tax liabilities:
Premises and equipment 1,535,000 1,450,000
Core deposit intangibles 685,000 999,000
Income tax allowance for
loan losses 838,000 798,000
Prepaid assets 117,000 171,000
Deferred mortgage points 532,000 741,000
Securities available for sale 708,000
Other 34,000
----------- -----------
Total deferred tax
liabilities 4,415,000 4,193,000
----------- -----------
Net deferred tax assets $ 7,210,000 $ 7,319,000
=========== ===========
NOTE K--EMPLOYEE BENEFIT PLANS
United has a defined benefit retirement plan covering substantially all
employees. The benefits are based on years of service and the average of the
employee's highest five consecutive plan years of basic compensation paid during
the ten plan years preceding the date of determination. United's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future.
The following table sets forth the funded status of United's defined benefit
plan and amounts recognized in the respective consolidated balance sheets:
December 31
----------------------------
Funded Status of Plan: 1995 1994
------------- -------------
Vested benefit obligation $ 12,061,000 $ 9,545,000
Nonvested benefit obligation 328,000 254,000
------------ ------------
Accumulated benefit obligation $ 12,389,000 $ 9,799,000
============ ============
Projected benefit obligation for
services rendered to date $(16,123,000) $(12,258,000)
Plan assets at fair value, primarily
marketable securities 17,318,000 14,372,000
------------ ------------
Excess of plan assets over projected
benefit obligation 1,195,000 2,114,000
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions (731,000) (1,824,000)
Unrecognized prior service cost 429,000 490,000
Unrecognized transition asset (914,000) (1,044,000)
------------ ------------
Accrued pension liability included in
other liabilities $ (21,000) $ (264,000)
============ ============
Net periodic pension cost included the following components:
Year Ended December 31,
----------------------------------------
1995 1994 1993
------------ ------------ ------------
Service cost $ 553,000 $ 638,000 $ 502,000
Interest cost on projected
benefit obligation 1,063,000 971,000 873,000
Actual (return)/loss on plan assets (3,119,000) 85,000 (1,292,000)
Net amortization and deferral 1,697,000 (1,245,000) 172,000
----------- ----------- -----------
Net periodic pension cost $ 194,000 $ 449,000 $ 255,000
=========== =========== ===========
NOTE K--EMPLOYEE BENEFIT PLANS - continued
The changes in unrecognized net gain, actual (return)/loss on plan assets and
net amortization and deferral are primarily due to differences in the expected
return and the actual return or loss on plan assets and a decrease in the
weighted average discount rate from 8.5% in 1994 to 7.5% in 1995.
The weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation were approximately 7.5% and 4.5% at December 31, 1995 and 8.5% and
4.5% at December 31, 1994. The weighted average expected long-term rate of
return on plan assets was 9.0% for the years ended December 31, 1995, 1994 and
1993.
The United Savings and Stock Investment Plan (the Plan) is a deferred
compensation plan under Section 401(k) of the Internal Revenue Code. All
employees who complete one year of service are eligible to participate in the
Plan. Each participant may contribute from 1% to 10% of pre-tax earnings to
his/her account which may be invested in any of four investment options chosen
by the employee. United matches 100% of the first 2% of salary deferred and 25%
of the next 2% of salary deferred with United common stock. Vesting is 100% for
employee deferrals and the United match at the time the employee makes his/her
deferral. United's expense relating to the Plan approximated $297,000, $336,000
and $280,000 in 1995, 1994, and 1993, respectively.
The assets of United's defined benefit plan and 401(k) Plan each include
investments in United common stock. At December 31, 1995, the combined plan
assets included 161,999 shares of United common stock with a market value of
approximately $4,738,000.
United has certain deferred compensation plans covering various key employees.
Periodic charges are made to operations so that the present value of the
liability due each employee is fully recorded as of the date of their
retirement. Amounts charged to expense have not been significant in any year.
During 1988, United formed the 1988 Incentive Stock Option Plan for key
employees. Stock option grants are awarded at the fair market value of United's
common stock on the date of the grant. The options are immediately exercisable
and have a maximum duration of 10 years. Options need not be exercised in the
order granted. The final 20,000 options under this plan were granted in January
1992 at the then current market price of $13.25.
During 1991, United formed the 1991 Incentive Stock Option Plan for key
employees. Five hundred thousand (500,000) shares were allocated to the plan
with no more than 100,000 options to be awarded each year. Stock option grants
were awarded at the fair market value of United's common stock on the date of
the grant. The options may be exercised in accordance with a three year vesting
schedule and have a maximum duration of 10 years. Options need not be exercised
in the order granted. The final 100,000 options under this plan were granted in
November 1995 at the then current market price of $30.00.
NOTE K--EMPLOYEE BENEFIT PLANS - continued
The following is a summary of the 1988 Incentive Stock Option Plan activity:
Range of
Year Ended December 31, Exercise Prices
-------------------------- ----------------
1995 1994 1993 High Low
------ ------ ------ ------ ------
Outstanding at beginning of year 68,800 86,250 95,700 $14.00 $11.00
Granted
Exercised 15,750 17,450 9,450 14.00 11.00
Forfeited
------ ------ ------
Outstanding at end of year 53,050 68,800 86,250 14.00 11.00
====== ====== ======
Exercisable at end of year 53,050 68,800 86,250 $14.00 $11.00
====== ====== ======
The following is a summary of the 1991 Incentive Stock Option Plan activity:
Range of
Year Ended December 31, Exercise Prices
-------------------------- ----------------
1995 1994 1993 High Low
------ ------ ------ ------ ------
Outstanding at beginning of year 315,875 242,000 158,500 $27.00 $13.75
Granted 100,000 100,000 85,750 30.00 13.75
Exercised 28,750 16,750 2,250 27.00 13.75
Forfeited 9,450 9,375 27.00 13.75
------- ------- -------
Outstanding at end of year 377,675 315,875 242,000 30.00 13.75
======= ======= =======
Exercisable at end of year 210,587 157,313 97,250 $27.00 $13.75
======= ======= =======
United provides postemployment and postretirement benefits for certain employees
at subsidiaries acquired in prior years. United accounts for such costs as
expense when paid. United's analysis indicates that accounting for such costs
when paid does not produce results materially different from those which would
result if such costs were accrued during the period of employee service. United
does not anticipate providing postemployment or postretirement benefits to its
currently active employees after employment or retirement except on a fully
contributory basis.
NOTE L--COMMITMENTS AND CONTINGENT LIABILITIES
United is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
alter its own exposure to fluctuations in interest rates. These financial
instruments include loan commitments, standby letters of credit and interest
rate swap agreements. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
financial statements.
United's maximum exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for the loan commitments and standby
letters of credit is represented by the contractual amount of those instruments.
United uses the same policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
NOTE L--COMMITMENTS AND CONTINGENT LIABILITIES - continued
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary upon the extension of credit, is based on management's credit
evaluation of the counterparty. United had approximately $262,836,000 and
$244,975,000 of loan commitments outstanding as of December 31, 1995 and 1994,
respectively, with substantially all of them expiring within one year.
Standby letters of credit are agreements used by United's customers as a means
of improving their credit standing in their dealings with others. Under these
agreements, United guarantees certain financial commitments of its customers.
United has issued standby letters of credit of $16,533,000 and $15,022,000 as of
December 31, 1995 and 1994, respectively.
Management does not anticipate any material losses as a result of these loan
commitments, standby letters of credit and interest rate swap agreements.
In 1994 United entered into an interest rate swap agreement to manage its
interest rate exposure. The interest rate swap transaction involves the
exchange of a floating rate payment based on the one month London inter-bank
offered rate (LIBOR) for a fixed rate receipt based on the U. S. three year
treasury note. The net pay and receive amount is calculated on an underlying
notional amount without the exchange of the underlying principal amount. The
interest rate swap subjects United to market risk associated with changes in
interest rates, as well as the risk that the counterparty will fail to perform.
Only the interest payments are exchanged, and therefore, cash requirements and
exposure to credit risk are significantly less than the notional amount.
The notional amount shown below represents an agreed upon amount on which
calculations of amounts to be exchanged are based. It does not represent direct
credit exposure. United's credit exposure is limited to the net difference
between the calculated pay and receive amounts on the transaction which is
netted monthly.
The swap, which matures in 1997, is summarized as follows:
Notional value $50,000,000
Average receive rate during 1995 4.50%
Average pay rate during 1995 6.07%
NOTE L--COMMITMENTS AND CONTINGENT LIABILITIES - continued
During 1995 and 1994 the interest rate swap reduced interest income by $787,000
and $1,000, respectively. At December 31, 1995, the estimated unrealized loss
on the swap, which may reduce interest income in future periods, approximated
$738,000. A key assumption utilized in computing the unrealized loss is that
interest rates will remain at the December 31, 1995 level throughout the term of
the agreement.
In the normal course of business, United and its subsidiaries are currently
involved in various legal proceedings. Management is vigorously pursuing all
its legal and factual defenses and, after consultation with legal counsel,
believes that all such litigation will be resolved with no material effect on
its financial position or results of operations.
NOTE M--OTHER INCOME AND EXPENSE
The following items of other income and expense exceeded one percent of total
revenue for the periods indicated:
Year Ended December 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
Other income:
- - -------------
Service charges and
fees on deposits $6,652,000 $6,644,000 $7,168,000
Other expense:
- - --------------
Data processing $1,610,000 $1,973,000 $2,065,000
Stationery and supplies 1,315,000 1,250,000 1,320,000
FDIC insurance expense 1,665,000 3,207,000 3,149,000
Legal and consulting 1,842,000 983,000 1,172,000
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by United in estimating its fair
value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
- - --------------------------
for cash and cash equivalents approximate those assets' fair values.
Securities: The estimated fair values of securities are based on quoted market
- - -----------
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: The estimated fair values of variable-rate loans that reprice frequently
- - ------
with no significant change in credit risk are based on carrying values. The
fair values of certain mortgage loans (e.g., one-to-four family residential),
credit card loans, and other consumer loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions, adjusted
for differences in loan
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued
characteristics. The fair values of other loans (e.g., commercial real state
and rental property mortgage loans, commercial and industrial loans, financial
institution loans, and agricultural loans) are estimated using discounted cash
flow analyses, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit worthiness.
Off-Balance-Sheet Instruments: Fair values of United's loan commitments are
- - ------------------------------
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing. The estimated fair values of these commitments approximate their
carrying values. The fair value of the interest rate swap agreement is
calculated with pricing models using current rate assumptions. A key assumption
utilized in computing the estimated fair value of the interest rate swap
agreement is that interest rates will remain at the December 31, 1995 level
throughout the term of the agreement.
Deposits: The fair values of demand deposits (e.g. interest and non-interest
- - ---------
checking, regular savings, and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.
their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate their fair values
at the reporting date. Fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term Borrowings: The carrying amounts of federal funds purchased,
- - ----------------------
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
Federal Home Loan Bank Borrowings: The fair values of United's Federal Home
- - ----------------------------------
Loan Bank borrowings are estimated using discounted cash flow analyses, based on
United's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying value of federal Home Loan Bank borrowings
approximates their fair value.
The estimated fair values of United's financial instruments are summarized
below:
December 31, 1995 December 31, 1994
------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------- ------------- -------------- --------------
Cash and cash equivalents $ 78,909,000 $ 78,909,000 $ 82,763,000 $ 82,763,000
Securities available for sale 196,718,000 196,718,000 118,037,000 118,037,000
Securities 112,755,000 114,390,000 242,846,000 231,461,000
Loans 1,378,026,000 1,397,250,000 1,302,095,000 1,290,249,000
Deposits 1,473,266,000 1,477,646,000 1,434,852,000 1,429,302,000
Short-term borrowings 82,167,000 82,167,000 71,809,000 71,809,000
FHLB borrowings 33,900,000 33,900,000 83,972,000 83,932,000
Interest rate swap agreement 738,000 3,120,000
NOTE O - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
Condensed Balance Sheets
December 31
--------------------------
1995 1994
----------- ------------
Assets
Cash $ 642,000 $ 1,265,000
Securities available for sale 12,216,000 2,887,000
Investment securities 677,000 677,000
Investment in subsidiaries
Bank subsidiaries 191,708,000 174,452,000
Non-bank subsidiaries 1,223,000 1,180,000
Other assets 156,000 243,000
------------ ------------
Total Assets $206,622,000 $180,704,000
============ ============
Liabilities
Accrued expenses and other liabilities $ 5,400,000 $ 958,000
Shareholders' Equity (including a net unrealized holding gain
of $1,315,000 and loss of $443,000 on securities available for sale at
December 31, 1995 and 1994, respectively) 201,222,000 179,746,000
------------ ------------
Total Liabilities and Shareholders' Equity $206,622,000 $180,704,000
============ ============
Condensed Statements of Income
Year Ended December 31
-----------------------------------------
1995 1994 1993
----------- ------------ ------------
Income
Dividends from bank subsidiaries $26,496,000 $ 17,525,000 $ 10,918,000
Management fees
Bank subsidiaries 3,018,000 2,226,000 2,257,000
Non-bank subsidiaries 12,000 12,000 12,000
Other Income 268,000 238,000 210,000
----------- ------------ ------------
Total Income 29,794,000 20,001,000 13,397,000
Expenses
Operating expenses 4,024,000 2,953,000 2,860,000
----------- ------------ ------------
Income Before Income Taxes, Equity in
Undistributed Net Income of Subsidiaries and
Cumulative Effect of Change in Accounting Principle 25,770,000 17,048,000 10,537,000
Applicable income taxes (benefit) (236,000) (73,000) (104,000)
----------- ------------ ------------
Income Before Equity in Undistributed Net
Income of Subsidiaries and Cumulative
Effect of Change in Accounting Principle 26,006,000 17,121,000 10,641,000
Cumulative Effect as of January 1, 1993 of
Change in Accounting Principle (99,000)
----------- ------------ ------------
Income Before Equity in Undistributed
Net Income of Subsidiaries 26,006,000 17,121,000 10,542,000
Equity in undistributed net income of subsidiaries
Bank subsidiaries 2,062,000 7,755,000 11,143,000
Non-bank subsidiaries 11,000 26,000 21,000
----------- ------------ ------------
Net Income $28,079,000 $ 24,902,000 $ 21,706,000
=========== ============ ============
NOTE O - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION - CONTINUED
Condensed Statements of Cash Flows
Year Ended December 31
-------------------------------------------
1995 1994 1993
------------- ------------- -------------
Operating Activities
Net income $ 28,079,000 $ 24,902,000 $ 21,706,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of subsidiaries (2,073,000) (7,781,000) (11,164,000)
Depreciation and net amortization 33,000 59,000 112,000
Net gain on sales of investment securities (107,000) (133,000)
Gain on sale of bank premises and equipment (49,000)
Net change in other assets and liabilities 337,000 96,000 30,000
------------ ------------ ------------
Net Cash Provided By Operating Activities 26,376,000 17,120,000 10,551,000
------------ ------------ ------------
Investing Activities
Net sales of investment securities 123,000 793,000
Net purchases of securities available for sale (8,439,000) (1,171,000)
Increase in investment in subsidiaries (2,400,000)
Acquisition of First Commercial Bank (5,280,000)
Proceeds from sale of bank premises and equipment 125,000
------------ ------------ ------------
Net Cash (Used In) Provided By Investing Activities (16,119,000) (923,000) 793,000
------------ ------------ ------------
Financing Activities
Cash dividends paid (10,273,000) (12,604,000) (10,918,000)
Acquisition of treasury stock (1,273,000) (3,536,000) (300,000)
Proceeds from exercise of stock options 666,000 455,000 144,000
Issuance of common stock 120,000
------------ ------------ ------------
Net Cash (Used In) Financing Activities (10,880,000) (15,685,000) (10,954,000)
------------ ------------ ------------
(Decrease) Increase in Cash (623,000) 512,000 390,000
Cash and Cash Equivalents at Beginning of Year 1,265,000 753,000 363,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $642,000 $1,265,000 $753,000
============ ============ ============
NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1995 and 1994 is summarized below (dollars in
thousands except for per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- ------------
1995
- - ----
Interest income $33,367 $33,911 $34,145 $35,037
Interest expense 12,941 13,735 13,878 14,216
Net interest income 20,426 20,176 20,267 20,821
Provision for possible loan losses 450 475 625 525
Other noninterest income 3,139 3,215 3,155 3,107
Noninterest expense 12,636 12,142 11,432 12,671
Income taxes 3,582 3,732 4,178 3,779
Net income 6,897 7,042 7,187 6,953
Per share data:
- - ---------------
Average shares outstanding (000s) 11,809 11,806 11,930 11,943
Net income per share $0.58 $0.59 $0.60 $0.58
Dividends per share $0.29 $0.29 $0.29 $0.30
1994
- - ----
Interest income $28,533 $29,530 $31,306 $31,788
Interest expense 10,384 10,536 11,090 11,877
Net interest income 18,149 18,994 20,216 19,911
Provision for possible loan losses 450 468 450 450
Securities gains(losses) 107 45 (1,024)
Other noninterest income 3,113 2,929 2,882 3,170
Noninterest expense 11,667 11,888 12,728 12,393
Income taxes 3,158 3,402 3,478 3,058
Net income 6,094 6,210 6,442 6,156
Per share data:
- - ---------------
Average shares outstanding (000s) 11,930 11,942 11,921 11,956
Net income per share $0.51 $0.52 $0.54 $0.51
Dividends per share $0.26 $0.26 $0.27 $0.27
NOTE Q--PENDING ACQUISITION (UNAUDITED)
United has entered into an agreement with Eagle Bancorp, Inc., Charleston, West
Virginia ("Eagle") to exchange 1.15 shares of United common stock for each of
the 2,729,468 common shares of Eagle. The transaction, valued at approximately
$95,000,000 based on recent market prices of United's stock, will be accounted
for using the pooling of interests method of accounting. It is anticipated that
the proposed acquisition will be consummated during the second quarter of 1996.
NOTE Q--PENDING ACQUISITION (UNAUDITED) - continued
The following represents selected pro forma financial information regarding the
effects of the transaction as though United and Eagle had been combined during
1995, 1994 and 1993:
1995 1994 1993
--------------- --------------- ---------------
Total interest income $ 165,815,000 $ 147,637,000 $ 140,624,000
Total interest expense 70,167,000 55,672,000 55,037,000
Net interest income 95,648,000 91,965,000 85,587,000
Income before income taxes 50,599,000 46,093,000 38,950,000
Income from continuing
operations 32,817,000 30,384,000 26,468,000
Earnings per common share 2.18 2.01 1.76
Return on average assets 1.52% 1.44% 1.32%
Return on average equity 13.86% 13.67% 12.77%
Net loans 1,730,457,000 1,652,275,000 1,443,559,000
Total assets 2,210,230,000 2,170,340,000 2,035,452,000
Total deposits 1,773,009,000 1,712,515,000 1,697,915,000
Total equity 245,147,000 225,634,000 214,047,000
The data set forth above is not necessarily indicative of the results of
operations or the combined financial position of United that would have resulted
had the merger been consummated at the beginning of the applicable periods
indicated, nor is it necessarily indicative of the results of operations in
future periods or the future financial position of the combined entities.
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
UNITED BANKSHARES, INC.
FORM 10-K, PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Item 11. EXECUTIVE COMPENSATION
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following discussion satisfies the reporting
requirements of Items 10 through 13.
Principal Shareholders of United
- - --------------------------------
The following table lists each shareholder of United who is the beneficial
owner of more than 5% of United's common stock, the only class of stock
outstanding, as of December 31, 1995.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Class
-------------------- -------------------- -----------
(1)United National Bank 910,895 7.59%
Trust Department
514 Market Street
Parkersburg, WV 26101
(855,997 shares or
7.14% are registered
under the nominee name
of Bank of New York)
(1) UNB is a wholly-owned subsidiary of United and its Trust Department
holds in fiduciary or agency capacity 910,895 shares of United's stock. The
voting and investment authority for the shares held by the Trust Department is
exercised by UNB's Board of Directors.
Board of Directors
- - ------------------
The Bylaws of United provide that its Board of Directors shall consist of not
fewer than five nor more than thirty-five persons, as may be determined, from
time to time, by resolution adopted by the shareholders or by a majority of the
Board of Directors. The twenty-three (23) persons listed below have been
elected or appointed to serve as directors of United until the 1996 Annual
Meeting of shareholders and until their successors are elected and qualified.
Each director has served continuously to date as a director beginning in
the indicated year.
Directors have sole voting and investment authority of directly owned
shares. The total of directly owned shares also includes stock options granted
to executive officers pursuant to incentive stock option plans. For four of the
directors who are executive officers, direct ownership includes options to
purchase shares as follows: Richard Adams, 84,714 shares, Douglass H. Adams,
9,066 shares, Thomas A. McPherson, 20,320 shares and I. N. Smith, Jr., 12,506
shares. The options to purchase shares included in the direct ownership of all
executive officers as a group total 245,554. For the executive offices held by
them, see the section of this document captioned "Executive Officers."
Indirect shares for each individual director include those owned by
spouses and immediate family members, shares held in any trust of which a
director is a beneficiary, and shares held by a corporation which the director
controls. These shares do not include the Trust Shares referred to in a
following footnote.
RICHARD M. ADAMS, who is Chairman and Chief Executive Officer of both
United and UNB, became a director of United in 1984. Mr. Adams is 49 years old.
He owns 235,611 shares of United directly and 91,670 shares indirectly, the
total of which represents 2.73 percent of the total outstanding shares of
United. Of the 90,861 shares indirectly owned by Mr. Adams, 25,590 shares are in
the Stevenson Trust over which he exercises voting power, 35,414 shares are
owned by the members of his immediate family and 30,666 shares are held in two
family trusts over which he exercises voting power but no investment authority.
Messrs. Richard M. Adams and Douglass H. Adams are brothers.
I. N. SMITH, JR., who is President of United, Vice Chairman of UNB, and
former President of UNB, became a director in 1986. Mr. Smith is 63 years old.
He owns 16,812 shares of United directly and 220,184 shares indirectly, the
total of which represents 1.98 percent of the total outstanding shares of
United. Of the 220,184 shares indirectly owned beneficially by Mr. Smith, 14,700
shares are owned by members of his immediate family and 4,000 shares are owned
by the mother of Mr. Smith over which he has power of attorney. The following
shares owned of record by others may be deemed to be owned by Mr. Smith under
the rules and regulations of the Securities and Exchange Commission: Kanawha
City Company 15,000 shares; Kanawha Company 56,000 shares; Roane Land Company
484 shares; Roxalana Land Company 75,000 shares; and West Virginia Coal Land
Company 55,000 shares.
DOUGLASS H. ADAMS, who is Executive Vice-President of United, became a
director in 1988. Mr. Adams is 57 years old. He owns 43,438 shares of United
directly and 2,551 shares indirectly, the total of which represents less than
one percent of the total outstanding shares of United. Messrs. Richard M. Adams
and Douglass H. Adams are brothers.
ROBERT G. ASTORG, who is a CPA and Managing Director of IDS Tax and
Business Services, a financial consultant and tax service, became director in
1991. Mr. Astorg is 52 years old. He owns 12,313 shares of United directly and
827 shares indirectly, the total of which represents less than one percent of
the total outstanding shares of United. Mr. Astorg is a former Partner of Astorg
and Altizer, CPAs.
THOMAS J. BLAIR, III, who is President and Chief Executive Officer of
Kelley, Gidley, Blair & Wolfe, Inc., former Chairman of the Board of UNB-
Central, Heritage and Weston National, became a director in 1988. Mr. Blair is
62 years old. He owns 135,860 shares of United directly and 7,100 shares
indirectly, the total of which represents 1.19 percent of the total outstanding
shares of United. Mr. Blair is a former president of the McDowell County Water
Company.
HARRY L. BUCH, who is an Attorney at Law, and Partner with Bailey, Riley,
Buch & Harman, became a director in 1990. Mr. Buch is 65 years old. He owns
6,063 shares of United directly which represents less than one percent of the
total outstanding shares of United. Mr. Buch is a former Partner with Gompers,
Buch, McCarthy & McLure.
R. TERRY BUTCHER, who is an Attorney at Law, and Partner with Butcher &
Butcher, became a director in 1988. Mr. Butcher is 48 years old. He owns
23,500 shares of United directly and 500 shares indirectly, the total of which
represents less than one percent of the total outstanding shares of United.
JOHN W. DUDLEY, who is President of J. W. Dudley Sons & Company, a retail
business, became a director in 1986. Mr Dudley is 49 years old. He owns 8,703
shares of United directly which represents less than one percent of the total
outstanding shares of United.
H. SMOOT FAHLGREN, who is Chairman and former Chief Executive Officer of
Fahlgren, Inc., became a director in 1984. Mr. Fahlgren is 65 years old. He
owns 135,974 shares of United directly which represents 1.13 percent of the
total outstanding shares of United. Mr. Fahlgren is Mr. Graff's father-in-law.
THEODORE J. GEORGELAS, who is Chairman of the Board of First Commercial
Bank, and President of Georgelas and Sons, Inc., a commercial real estate
development company, became a director in 1990. Mr. Georgelas is 49 years old.
He directly owns 49,666 shares of United which represents less than one percent
of the total outstanding shares of United.
C. E. GOODWIN, who is an Attorney at Law and Counsel with Goodwin &
Goodwin, became a director in 1985. Mr. Goodwin is 85 years old. He owns 15,620
shares of United directly and 1,272 shares indirectly, the total of which
represents less than one percent of the total outstanding shares of United.
F.T. GRAFF, JR., who is a practicing attorney and partner of Bowles Rice
McDavid Graff and Love, became a director of United in 1984. Mr. Graff is 56
years old. He owns 2,000 shares of United directly and 6,000 shares indirectly,
the total of which represents less than one percent of the total outstanding
shares of United. The indirectly owned shares are held by a bank in a trustee
account for Mr. Graff over which he exercises voting and dispositive power. Mr.
Graff is Mr. Fahlgren's son-in-law.
LEONARD A. HARVEY, who is a former Secretary of the West Virginia
Department of Commerce, Labor, and Environmental Resources, became a director of
United in 1990. Mr. Harvey is 69 years old. He owns 29,659 shares of United
directly and 859 shares indirectly, the total of which represents less than one
percent of the total outstanding shares of United.
ANDREW J. HOUVOURAS, who is President of A&L Industries, an investment
company, became a director of United in 1985. Mr. Houvouras is 76 years old. He
owns 439 shares of United directly and 27,745 shares indirectly, the total of
which represents less than one percent of the total outstanding shares of
United. The indirect shares are owned by a company in which Mr. Houvouras is a
partner.
RUSSELL L. ISAACS, who is the owner of Russell L. Isaacs and Company, a
consulting firm, became a director of United in 1984. Mr. Isaacs is 63 years
old. He owns 20,958 shares of United directly which represents less than one
percent of the total outstanding shares of United.
ROBERT P. MCLEAN, who is the President of Stanaford Acres, Inc. and Vice-
President of Sigmund-McLean, Inc. became a director of United in 1992. Mr.
McLean is 65 years old. He owns 4,633 shares of United directly and 1,399
shares indirectly, the total of which represents less than one percent of the
total outstanding shares of United.
THOMAS A. MCPHERSON, who is an Executive Vice President of United and the
former President and Chief Executive Officer of UNB-C, became a director of
United in 1988. Mr. McPherson is 59 years old. He owns 68,756 shares of United
directly which represents less than one percent of the total outstanding shares
of United.
G. OGDEN NUTTING, who is the former Chairman of the Board of UNB-N and
President of The Ogden Newspapers, Inc., became a director of United in 1986.
Mr. Nutting is 60 years old. He owns 326,328 shares of United indirectly which
represents 2.72 percent of the total outstanding shares of United. The voting
and investment authority for the indirectly owned shares of Mr. Nutting are as
follows: he has beneficial ownership, through shared investment or voting
authority of 326,328 shares consisting of 20,952 shares held by Mr. Nutting as
co-trustee, and 277,376 shares registered in the name of The Ogden Newspapers,
Inc. of which Mr. Nutting is President. He is also a settlor and sole
beneficiary of a trust which contains 28,000 shares.
WILLIAM C. PITT, III, who is a hotel and resort developer, became a
director of United in 1987. Mr. Pitt is 51 years old. He owns 5,000 shares of
United directly which represents less than one percent of the total outstanding
shares of United.
CHARLES E. STEALEY, who is a private consultant and former Assistant Vice
President and Director of Administration of Olsten Corporation, became a
director of United in 1986. Mr. Stealey is 55 years old. He owns 30,668 shares
of United directly and 48,362 shares indirectly, the total of which represents
less than one percent of the total outstanding shares of United. Mr. Stealey's
mother holds 7,354 of the indirect shares over which Mr. Stealey has power of
attorney and the other 41,008 indirect shares are held in a trustee account for
Mr. Stealey over which he exercises voting and investment authority.
WARREN A. THORNHILL, III, who is an Attorney at Law, former Chairman of
the Board of Summit Holding Corporation and Raleigh County National Bank and
UNBS, became a director of United in 1992. Mr. Thornhill is 67 years old. He
owns 131,997 shares of United directly and 92,730 shares indirectly, the total
of which represents 1.87 percent of the total shares outstanding of United. Mr.
Thornhill's indirectly owned shares are owned by the members of his immediate
family.
HAROLD L. WILKES, who is President of Little General Stores, Inc., a
convenience store chain, became a director of United in 1993. Mr. Wilkes is 55
years old. He directly owns 1,977 shares of United which represents less than
one percent of the total outstanding shares of United.
JAMES W. WORD, JR., who is President of Beckley Loan Company and Vice-
President of Beckley Loan and Industrial Corporation became a director of United
in 1992. He is 71 years old. He owns 33,680 shares of United directly and
26,337 shares indirectly, the total of which represents less than one percent of
the total outstanding shares of United. Mr. Word's indirectly owned shares are
owned by the members of his immediate family.
All directors and executive officers of United as a group, 28 persons,
own 1,182,119 shares of United directly and 1,771,161 shares indirectly, the
total of which represents 24.62 percent of the total shares outstanding for
United. Included in indirectly owned shares is 910,895 shares of United common
stock held by UNB's Trust Department serving in a fiduciary or agency capacity
(the "Trust Shares"). The voting and investment authority for the Trust Shares
held by the Trust Department is exercised by UNB's Board of Directors. The
members of UNB's Board of Directors who are also directors or executive officers
of United are: Richard M. Adams, I. N. Smith, Jr., and Gary L. Ellis.
Effective November 29, 1995, Joseph N. Gompers resigned from the Board of
Directors with no disagreements with management. Leonard A. Harvey and Thomas
A. McPherson have chosen not to stand for re-election for the 1996 Annual
Meeting. It is anticipated that Mr. Harvey will be named Director Emeritus.
Meetings and Committees of the Board of Directors
- - -------------------------------------------------
The Board of Directors of United met four times during 1995. The Board
reviews management reports and general corporate policy. During the calendar
year ended December 31, 1995, each director of United attended more than 75% of
the total number of meetings of the Board and Board Committees on which he or
she served during the period he or she served as a director, except for Harry L.
Buch, John W. Dudley, Joseph N. Gompers and Andrew J. Houvouras.
The Board has three standing committees--the Executive, Audit and
Compensation Committees. The Audit Committee met four times in 1995 to review
the quarterly reports of internal audit, all reports of external auditors, and
all reports of examination by federal and state bank regulatory authorities.
This committee consisted of: Robert G. Astorg, Chairman, R. Terry Butcher, C. E.
Goodwin and James W. Word, Jr.
The Executive Committee met five times during 1995. The Executive
Committee may exercise the power of the Board of Directors between meetings of
the full Board of Directors or upon the call of the Chairman, as directed by the
Board and consistent with the provisions of West Virginia corporate law and
United's articles of incorporation and bylaws. The committee consisted, during
1995, of Richard M. Adams, Chairman, I. N. Smith, Jr., Thomas J. Blair, III,
Harry L. Buch, H. Smoot Fahlgren, Theodore J. Georgelas, Leonard A. Harvey,
Russell L. Isaacs, G. Ogden Nutting, William C. Pitt, III, Warren A. Thornhill,
III and F.T. Graff, Jr., who also serves as secretary for the Executive
Committee.
The Compensation Committee met one time during 1995. The Compensation
Committee makes recommendations regarding officer compensation and budgetary
matters to the Board of Directors. The committee consisted of the same members
as served on the Executive Committee except for Messrs. R. Adams and Smith. Mr.
Isaacs is chairman of the Compensation Committee.
Compensation Committee Interlocks and Insider Participation
- - -----------------------------------------------------------
F.T. Graff, Jr., a member of the Board of Directors of United and the
Board's Compensation Committee, is a partner in the law firm of Bowles Rice
McDavid Graff & Love in Charleston, West Virginia. Bowles Rice McDavid Graff &
Love rendered legal services to United and UNB during 1995 and it is expected
that the firm will continue to render services to both in the future. The fees
paid to Bowles Rice McDavid Graff & Love represent less than 5% of that firm's
revenues for 1995.
Compensation of Directors
- - -------------------------
Directors other than executive officers of United receive a retainer of
$550 per month without regard to meeting attendance. In addition, each outside
director receives a fee of $550 for each United Board Committee attended except
for Mr. Isaacs. Mr. Isaacs, as chairman of the Compensation Committee, receives
an additional $550 for each committee meeting attended. Mr. Astorg, as chairman
of the Audit Committee, receives an additional retainer payment of $550 per
month without regard to meeting attendance.
SUMMARY COMPENSATION TABLE
The following table is a summary of certain information concerning the
compensation awarded or paid to, or earned by, the Company's chief executive
officer and each of the Company's other four most highly compensated executive
officers during the last three fiscal years.
Long-term
Annual Compensation Compensation
-------------------------------- ------------
Stock All Other
Name and Principal Position Year Salary Bonus Options(#) Compensation (3)
- - --------------------------------------------------- ------------ -------- -------- ---------- ----------------
Richard M. Adams Chairman of the Board 1995 $313,500 $147,000 12,714 $35,664 (2)
& Chief Executive Officer 1994 290,413 130,000 14,500 28,756
1993 257,948 80,000 10,000 25,320
I. N. Smith, Jr. President 1995 145,109 12,375 3,506 5,951 (1)
1994 145,109 15,900 3,000 4,052
1993 145,109 15,000 3,000 4,046
Gary L. Ellis Executive Vice President 1995 150,013 33,750 6,028 7,359 (1)
1994 144,672 45,000 5,000 4,749
1993 137,493 30,000 5,000 3,554
Steven E. Wilson Executive Vice President 1995 136,250 42,000 6,028 7,130 (1)
Chief Financial Officer 1994 122,542 36,000 5,500 3,794
& Treasurer 1993 113,540 25,000 4,000 2,783
Thomas A. McPherson Executive Vice President 1995 124,500 30,000 4,120 5,682 (1)
1994 120,000 25,000 4,700 3,482
1993 120,000 15,000 3,500 3,368
(1) All reported amounts indicate annual amounts accrued under the Company's
401(K) Plan.
(2) Included are $9,240 representing the Company's matching contribution to
the Company's 401(K) Plan and $26,424 accrued under a supplemental
executive retirement plan.
(3) The aggregate value of all perquisites and other personal benefits did not
exceed either $50,000 or 10% of the total annual salary and bonus reported
for the named executive officers; therefore, no disclosure has been made.
STOCK OPTION GRANTS TABLE
The following table sets forth information concerning individual grants
of options to purchase the Company's Common Stock made to the named executives
in 1995.
Stock Option Grants in Last Fiscal Year
------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
-------------------------------------------------------------- ---------------------------
Number of
Securities % of Total
Underlying Options Granted to Exercise or
Options All Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% ($) 10% ($)
- - ----------------------------- ----------- ------------------ --------------- ---------- ------- -------
Richard M. Adams 12,714 (1) 12.71% 30.00 11/27/2005 239,871 607,884
I. N. Smith, Jr. 3,506 (1) 3.51% 30.00 11/27/2005 66,147 167,630
Gary L. Ellis 6,028 (1) 6.03% 30.00 11/27/2005 113,728 288,212
Steven E. Wilson 6,028 (1) 6.03% 30.00 11/27/2005 113,728 288,212
Thomas A. McPherson 4,120 (1) 4.12% 30.00 11/27/2005 77,731 196,986
(1) Granted from the 1991 Incentive Stock Option Plan. The option exercise price
is the market value of United's stock at the date the option was granted. All
options granted under this plan are exercisable in accordance with a three year
vesting schedule: 50% after the first year; 75% after the second year and 100%
after three years.
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth certain information regarding individual
exercises of stock options during 1995 by each of the named executives.
Aggregate Stock Option Exercises in Last Fiscal Year and FY-End Stock Option Value
------------------------------------------------------------------------------------
Number of Unexercised Value of Unexercised
Stock Options's In-the-Money Stock
at FY-End (#) Option's at FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized Unexercisable Unexercisable
- - --------------------- ------------------- ----------- ------------------------ ------------------------
Richard M. Adams 7,500 $125,625 62,250/22,464 $742,188/$50,938
I. N. Smith, Jr. 5,250 $ 71,438 6,750/5,756 $ 42,938/$11,063
Gary L. Ellis 6,000 $ 79,500 20,250/9,778 $212,563/$18,438
Steven E. Wilson 6,500 $ 69,750 12,250/9,778 $100,063/$19,438
Thomas A. McPherson - - 12,975/7,345 $129,344/$16,656
Executive Officers
- - ------------------
Set forth below are the executive officers of United and relations that
exist with affiliates and others for the past five years.
Principal Occupation and
Banking Experience During
Name Age Present Position The Last Five Years
- - -------------------------------- ------------------------ ------------------------- ----------------------------
Richard M. Adams 49 Chairman of the Chairman of the Board and
Board & Chief Chief Executive Officer-
Executive Officer- United; Chairman of the
United; Chairman Board and Chief
of the Board & Executive Officer-UNB
Chief Executive
Officer - UNB
I.N. Smith, Jr. 63 President-United; President-United (1991
Vice-Chairman - to present); President-
UNB, Director - UNB (1990 to October
United and UNB 1991); Vice-Chairman-UNB
(November 1991 to present)
Douglass H. Adams 57 Executive Vice- Executive Vice-President,
President - United (1991 to present);
United; Director- President-Vienna Office of
United; Executive United National Bank (1991
Vice-President-UNB to present)
Gary L. Ellis 54 Executive Vice- Executive Vice-President
President- United (1991 to present);
United; Director President-UNB (November
and President - 1991 to present); President
UNB; Director- Charleston Office, UNB
UNB-S (1990 to October 1991);
Executive Vice-President -
UNB (1990 to October 1991)
Chief Operating Officer -
UNB (1990 to October 1991)
James B. Hayhurst 49 Executive Vice- Executive Vice-President
President - -United (1991 to present);
United; Executive Executive Vice-President-
Vice-President- UNB (1991 to present);
UNB President-UNB Parkersburg
Offices (1991 to present)
Thomas A. McPherson 59 Executive Vice- Executive Vice-President-
McPherson President - United; United (1991 to present);
Director-United President and CEO - UNB-C
Executive Vice- (1990 to December 1992)
President-UNB
Principal Occupation and
Banking Experience During
Name Age Present Position The Last Five Years
- - -------------------------------- ------------------------ ------------------------- ----------------------------
Joseph Wm. Sowards 45 Executive Vice- Executive Vice President
President and and Secretary-United (1991
Secretary-United; to present); Executive Vice
Executive Vice- -Executive Vice- President
President-UNB UNB (1991 to present)
Joe L. Wilson 47 Executive Vice- Executive Vice-President-United
President-United (1991 to present); President-
Executive Vice- UNB-N (1990 to December 1992)
President-UNB
Steven E. Wilson 47 Executive Vice- Executive Vice-President and
President, Chief Chief Financial Officer-United
Financial Officer, (1991 to present); Treasurer-
and Treasurer- United (1991 to present);
United; Executive Executive Vice President
Vice-President, and Chief Financial Officer-
Chief Financial UNB (1991 to present)
Officer, Treasurer
and Secretary - UNB
Certain Reports
- - ---------------
Section 16(a) of the Securities and Exchange Act of 1934 requires
United's directors and executive officers and persons who beneficially own more
than ten percent of United's stock (currently, to the best of United's
knowledge, there are no such persons) to file initial forms of beneficial
ownership (Form 3), statements of changes in beneficial ownership (Form 4) and
annual statements of beneficial ownership (Form 5) with the Securities and
Exchange Commission ("SEC"). Persons filing such reports are required by SEC
regulations to furnish United with copies of all such beneficial ownership
statements filed under section 16(a) of the Exchange Act.
Based solely on a review of such reports and representations from United
directors and executive officers, United believes that during 1995 all such
reports were filed on a timely basis, with one exception: Director Leonard A.
Harvey did not file a Form 4 to report the purchase of 2,000 shares of common
stock in November 1995. Mr. Harvey reported the transaction on a subsequent
Form 4 in January of 1996.
United's contributions to the Pension Plan, a defined benefit plan, are
not and cannot be calculated separately for specific participants by the Pension
Plan's actuary. No company contributions to the Pension Plan are included in
the amounts shown as aggregate or contingent forms of remuneration. See the
section captioned, Employee Benefit Plans, on the pages following.
As of December 31, 1995, the persons named in the table above had
compiled and credited service under the Pension Plan as follows: R. Adams 27
years; I.N. Smith 36 years; G. Ellis 14 years; T. McPherson 33 years; S. Wilson
24 years.
Executive officers above are eligible to participate in the 401(K) Plan,
a defined contribution plan. Discretionary contributions made by the
individuals are matched in accordance with provisions of the plan as described
under the section entitled Employee Benefit Plans. Discretionary contributions,
made from the participant's regular pay, are reflected in Cash Compensation
above. United's matching contributions are not reflected in Cash Compensation.
Both the individual contributions and matching contributions are tax deferred
income.
Officer Employment Contracts
- - ----------------------------
Richard M. Adams, Chairman and Chief Executive Officer of United and UNB
entered into an employment contract with United effective April 11, 1986. This
contract was amended in 1989, again in January and November 1991, April 1992 and
again in November 1993. This most recent amendment also served to initiate a
new five year term. Under the contract Mr. Adams is required to devote his
full-time energies to performing his duties as Chairman and CEO on behalf of
United and UNB. The contract provides for a base compensation of $300,000 and
additional benefits consistent with the office. This base compensation may be
increased but not decreased. If the contract is terminated by Adams for change
in control, or for any reason other than mutual consent or criminal misconduct,
Mr. Adams, or his family or estate, is entitled to his base salary for the
remainder of the contract term.
On July 27, 1990, United also entered into a Supplemental Retirement Plan
with Mr. Adams. This plan provides for an annual supplemental retirement
benefit upon his reaching age 65 or upon the later termination of his employment
with United. The annual benefit will be equal to seventy percent of the average
of Mr. Adams' three highest base salaries during his employment with United,
reduced by benefits. The plan also provides for reduced benefits for early
retirement after age 62 as well as payments to his spouse in the event of his
death.
United and UNB entered into an employment agreement with I. N. Smith,
Jr., President of United and Vice-Chairman of UNB, on December 17, 1985. The
term of the agreement extends until Mr. Smith reaches the age of 75. Until
Smith becomes 65, he will be employed full-time by United as an executive
officer and will receive an annual salary of no less than $115,000. Upon
reaching the age of 65 and until he reaches the age of 75, Mr. Smith shall
render such consulting and advisory services as United may request, and shall
receive for such services an annual fee of $36,000 from age 65 until he reaches
age 70, and $30,000
thereafter. The agreement also contains provisions which address the issues of
disability, early retirement and the death of Mr. Smith. All of these events
carry reduced payment provisions. In addition, until Mr. Smith reaches age 65,
he has agreed to serve as, and United has agreed to use its best efforts to
nominate and elect him, a director of United and UNB.
Ohio Valley National Bank, (now a part of UNB as a result of its merger
with United) entered into a Salary Contribution Agreement with Douglass H.
Adams, Executive Vice President of United, on June 13, 1985. This agreement
provides at age 65 for an annual supplemental retirement equal to $30,000 for
life or fifteen years certain. This future liability is being funded with life
insurance. Provision is made for an early retirement benefit beginning at age
60 at a reduced percentage of the normal benefit. The agreement also provides
for payment to beneficiaries in the event of his death.
Change of Control Agreements
- - ----------------------------
In March of 1994, United entered into agreements with G. Ellis, S.
Wilson, T. McPherson, J. Hayhurst and J. Wilson to encourage those executive
officers not to terminate their employment with United 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 the recent entry of large regional bank holding companies into West
Virginia. The agreements were not undertaken in the belief that a change of
control of United 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 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.
Succession Management Stock Bonus Plan
- - --------------------------------------
In April 1989, the Executive Committee, which at that time also served as
the Compensation Committee, approved a management stock bonus plan. The purpose
of the plan is to retain certain key "junior" officers. The plan is intended to
encourage these individuals to stay with the company and to continue to develop
their potential for future management roles. The plan provides for grants of
the right to receive up to 500 shares per year, for five years, per officer.
The shares granted will be held in trust and the recipients have no ownership
rights until the shares are distributed. All granted stock was distributed to
the grantees at the beginning of 1994. In certain limited circumstances
distribution could have been earlier, such as, in the case of disability or
death. Shares have been purchased by United and are held in a trust account for
this plan. None of the individuals included in this plan were executive
officers of United. No grants have been made since 1990.
Incentive Stock Option Plan
- - ---------------------------
In February, 1988, the Board adopted an incentive stock option ("ISO")
plan which was approved by United's shareholders at the 1988 annual meeting.
The ISO plan was conceived by United's Board in order to retain and motivate key
management executives of United. The class of eligible employees is executive
officers of United and its subsidiaries owning less than 10% of United's issued
and outstanding stock. The Executive Committee of United, in its sole
discretion, will award stock options to eligible employees, will determine the
conditions for exercise, and will administer the ISO plan generally. One hundred
thousand (100,000) shares were allocated to the plan, with options for no more
than 20,000 shares to be awarded each year. The option exercise price was the
fair market value of United's stock at the time the option is granted. The last
grants under this plan were awarded in 1992. All options granted are vested.
Messrs. R. Adams, Smith, S. Wilson, J. Wilson, D. Adams, Sowards and Ellis have
exercised options.
In April, 1991, the Board adopted an incentive stock option plan ("1991
Plan") which was approved by United's shareholders at the 1991 annual meeting.
The 1991 Plan was intended to attract and retain qualified and motivated
management. The class of eligible employees was officers of United and its
subsidiaries owning less than 10% of United's issued and outstanding stock. The
Executive Committee of United, in its sole discretion, awarded stock options to
eligible employees and administered the 1991 Plan generally. Five hundred
thousand (500,000) shares were allocated to the plan, with options for no more
than 100,000 shares to be awarded each year. The option exercise prices were
the fair market value of United's stock at the time the option was granted. The
last grants under this plan were awarded in 1995.
In 1995, 100,000 shares were granted as follows: Richard M. Adams-12,714
shares; I. N. Smith, Jr.-3,506 shares; Gary L. Ellis-6,028 shares; Joe L.
Wilson-3,506 shares; Steven E. Wilson-6,028 shares; James B. Hayhurst-4,120
shares; Joseph Wm. Sowards-2,366 shares; Douglass H. Adams-2,366 shares and
Thomas A. McPherson-4,120 shares. Fifty-two nonexecutive officers received a
total of 55,246 shares. These shares were granted at the then current market
price of $30.00. The options granted become exercisable in accordance with a
three year vesting schedule: 50% year one; 75% year two and 100% year three.
Messrs. Ellis, Smith, S. Wilson, D. Adams, McPherson, Sowards and seventeen
nonexecutive officers have exercised options.
In August, 1995, the Board adopted an incentive stock option plan ("1996
Plan") which will be presented to United's shareholders at the 1996 annual
meeting to be voted on for their approval. The 1996 Plan is intended to attract
and retain qualified and motivated management. The class of eligible employees
is officers of United and its subsidiaries owning less than 10% of United's
issued and outstanding stock. The Executive Committee of United, in its sole
discretion, will award stock options to eligible employees and will administer
the 1996 Plan generally. Six hundred thousand (600,000) shares will be
allocated to the 1996 Plan. Each Plan year, 120,000 options will be considered
for award to eligible employees; however, not all of the 120,000 options are
required to be awarded in that year. Any ungranted options from the prior
year(s) will be added to the current year's options for the Executive
Committee's consideration for granting the options. The total number of options
that may be granted in any one year, with the exception of the first year
whereby 120,000 will be considered for award, is the current year's allocation
plus the cumulative total of all ungranted options of all prior years under the
1996 Plan. The option
exercise price of each grant will be the fair market value of United's stock at
the time the option is granted. The first grants under the 1996 Plan, subject
to shareholder approval, will be awarded in November 1996.
Employee Benefit Plans
- - ----------------------
No directors or principal shareholders of United and its subsidiaries,
other than those persons who are salaried officers, participate in any type of
benefit plan of United.
United's subsidiaries provide, on a substantially non-contributory basis
for all full-time employees, life, disability, hospital and dental insurance.
Life insurance with value of 250% of base salary is provided to all full-time
employees, including executive officers. The premiums paid by the subsidiaries
for life insurance on any individual which has a face value greater than $50,000
is properly reported as compensation. These plans do not discriminate, in
scope, terms or operation, in favor of the executive officers of United or its
subsidiaries and are available generally to all salaried employees of United and
its subsidiaries.
Each employee of United, or its participating subsidiaries, who completes
one year of eligible service and is 21 years of age is eligible to participate
in the Pension Plan. The plan is noncontribu-tory on the part of the employee.
Vesting is attained with five years of participation.
Normal retirement benefits under the United Plan are equal to:
1.25% of Average Final Compensation* plus 0.5% of Average Final
Compensation in excess of Covered Compensation** multiplied by years of service
not to exceed 25.
*Average Final Compensation = The average of the highest five consecutive
plan years of basic compensation paid during the ten plan years preceding the
date of determination.
**Covered Compensation = The average of the last 35 years of the social
security wage base prior to Social Security retirement age.
Each employee of United, or its participating subsidiaries, who completes
one year of eligible service is eligible to participate in the United Savings
and Stock Investment Plan, a deferred compensation plan under Section 401(k) of
the Internal Revenue Code. Each participant may contribute from 1% to 10% of
pre-tax earnings to his/her account which may be invested in one to four
investment options chosen by the employee. United matches 100% of the first 2%
of salary deferred and 25% of the second 2% of salary deferred with United
stock. Vesting is 100% for employee deferrals and the company match at the time
the employee makes his/her deferral.
United employees may participate in an employee stock purchase plan
whereby its employees may purchase shares of United's common stock. Purchases
made by employees under this plan are coordinated by the Trust Department of
UNB, and involve stock purchased at market price for this purpose.
Transactions with Management and Others
- - ---------------------------------------
United's subsidiaries have had, and expect to have in the future, banking
transactions with United and with its officers, directors, principal
shareholders, or their interests (entities in which they have more than a 10%
interest). The transactions were in the ordinary course of business and with
respect to loans were made on substantially the same terms, including interest
rates, collateral and repayment terms as those prevailing at the time for
comparable transactions. United's subsidiary banks are subject to federal
statutes and regulations governing loans to officers and directors and extend
loans in compliance with such laws and only with the approval of the Board of
Directors.
The building utilized by UNB to house its Rosemar Circle Branch in North
Parkersburg, West Virginia, is owned by Richard M. Adams, Chairman and Chief
Executive Officer of United and UNB, his brother, Douglass H. Adams, Executive
Vice President of United and their step-mother, Dorothy D. Adams. The Adams'
lease the land from UNB at a nominal annual rental and lease the branch facility
they constructed to UNB. The leases were entered into prior to UNB's ownership
of the branch facility and were assumed by UNB upon its acquisition of the
previous lessee, United Bank. Management believes the lease terms are
comparable with lease terms for similar property in the market area.
H. Smoot Fahlgren, a member of the Board of Directors of United, is
Chairman of Fahlgren Inc., an advertising agency with its headquarters
in Parkersburg, West Virginia. The agency has provided the advertising for
United since 1978. United utilizes an aircraft owned by Mr. Fahlgren, a member
of United's Board of Directors. During 1995, Mr. Fahlgren received $20,995 in
compensation for these services. Payment for the advertising by United to
Fahlgren Martin, Inc. was less than 5% of that firm's revenues during the year
1995.
F.T. Graff, Jr., a member of the Board of Directors of United, is a
partner in the law firm of Bowles Rice McDavid Graff & Love in Charleston, West
Virginia. Bowles Rice McDavid Graff & Love rendered legal services to United
and UNB during 1995 and it is expected that the firm will continue to render
certain services to both in the future. The fees paid to Bowles Rice McDavid
Graff & Love represent less than 5% of that firm's revenues for 1995.
R. Terry Butcher, a member of the Board of Directors of United, is a
partner in the law firm of Butcher & Butcher of Glenville, West Virginia.
Butcher & Butcher has rendered legal services to UNB, a United affiliate, during
1995 and it is expected that the firm will continue to render legal services in
the future. The fees paid to Butcher & Butcher represent less than 5% of the
firm's revenues for 1995.
UNB leases its northern region main banking premises from The Ogden
Newspapers, Inc. pursuant to a written lease agreement dated August 1, 1979 (the
"Lease"). The Ogden Newspapers, Inc. is a shareholder of United, and the voting
and investment authority for its shares are beneficially owned by its President,
G. Ogden Nutting who is a director of United. The Lease is on terms comparable
to market terms for similar rental space in Wheeling, West Virginia. The Lease
provides for five (5) successive options to renew and extend the terms of the
Lease for five (5) years each. United exercised its option to renew the Lease
for five (5) years in 1989 and again in 1994. In addition, during the year 1995
subsidiaries of United advertised, at market rates, in newspapers published by
The Ogden Newspaper, Inc. The fees paid in such advertising and the rent paid
to The Ogden Newspapers, Inc. represent less than 5% of that firm's revenue for
the year 1995.
UNITED BANKSHARES, INC.
FORM 10-K, PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Page
(a) (1) and (2) Financial Statements and Financial
Statement schedules . . . . . . . . . . . . . . . . 46
(3) Listing of Exhibits - See the Exhibits'
Index . . . . . . . . . . . . . . . . . . . . . . . 94
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
Form 8-K dated November 30, 1995
Item 5. Acquisition of First Commercial Bank.
Form 8-K dated December 13, 1995
Item 5. Director resignation with no
disagreements with management.
(c) Exhibits . . . . . . . . . . . . . . . . . . . . . . 99
(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.
UNITED BANKSHARES, INC.
FORM 10-K
INDEX TO EXHIBITS
Item 14.
S-K Item 601 Sequential Page
Description Table Reference Number (a)
- - ------------------------------------ ---------------- ---------------
Articles of Incorporation and
Bylaws: (3)
(a) Bylaws (g)
(b) Articles of Incorporation (f)
Investments (4) N/A
Voting Trust Agreement (9) N/A
Material Contracts (10)
(a) Employment Agreement with
I. N. Smith, Jr. (b)
(b) Employment Agreement with
Richard M. Adams (e)
(c) Lease on Branch Office in
Charleston Town Center,
Charleston, West Virginia (b)
(d) Lease on United Center,
Charleston, West Virginia (h)
(e) Lease with Polymerland, Inc.
on UNB Square (h)
(f) Lease and Agreement between
Valley Savings and Loan
Company (Lessor) and Dorothy
Adams, Richard M. Adams and
Douglass H. Adams (Lessees) (c)
(g) Agreement between Dorothy
D. Adams (Lessors) and Valley
Savings and Loan Company (Lessees) (c)
S-K Item 601 Sequential Page
Description Table Reference Number (a)
- - ------------------------------------ ---------------- ---------------
(h) Employment Contract with
Douglass H. Adams (d)
(i) Employment Contract with
Thomas A. McPherson (d)
(j) Data processing contract
with FISERV (k)
(k) Supplemental Retirement
Contract with Richard M.
Adams (i)
(l) Supplemental Retirement
Contract with Douglass H.
Adams (i)
(m) Executive Officer Change
of Control Agreements (j)
Statement Re: Computation of Per
Share Earnings (11) 99
Statement Re: Computation of
Ratios (12) 100
Annual Report to Security Holders,
et al. (13) N/A
Letter Re: Change in accounting
principles (18) N/A
Previously Unfiled Documents (19) N/A
Subsidiaries of the Registrant (22) 101
Published Report Regarding Matters
Submitted to a Vote of Security
Holders (23) N/A
Consent of Ernst & Young LLP (23) 102
Power of Attorney (25) N/A
Financial Data Schedule (27) 103
Additional Exhibits: (28) N/A
Footnotes
- - ---------
(a) N/A = Not Applicable
(b) Incorporated into this filing by reference to Exhibit 10 of the 1985 Form
10-K for Intermountain Bankshares, Inc., File No. 0-12356
(c) Incorporated into this filing by reference to Exhibit 10 of the 1986 Form
10-K for United Bankshares, Inc., File No. 0-13322
(d) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 33-
19968 filed February 3, 1988
(e) Incorporated into this filing by reference to Exhibits to the 1988 10-K
for United Bankshares, Inc., File No. 0-13322
(f) Incorporated into this filing by reference to Exhibits to the 1989 10-K
for United Bankshares, Inc., File No. 0-13322
(g) Incorporated into this filing by reference to Exhibits to the 1990 10-K
for United Bankshares, Inc., File No. 0-13322
(h) Incorporated into this filing by reference to Exhibits to the 1991 10-K
for United Bankshares, Inc., File No. 0-13322
(i) Incorporated into this filing by reference to Exhibits to the 1992 10-K
for United Bankshares, Inc., File No. 0-13322
(j) Incorporated into this filing by reference to Exhibits to the 1993 10-K
for United Bankshares, Inc., File No. 0-13322
(k) Incorporated into this filing by reference to Exhibits to the 1994 10-K as
amended by Form 10K/A filed February 8, 1996, for United Bankshares, Inc.,
File No. 0-13322
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, March 22, 1996
- - ------------------------------- Director, Chief Execu-
tive Officer
/s/ I. N. Smith President and Director March 22, 1996
- - -------------------------------
/s/ Steven E. Wilson Chief Financial Officer March 22, 1996
- - ------------------------------- Chief Accounting Officer
/s/ Thomas J. Blair, III Director March 22, 1996
- - -------------------------------
/s/ James W. Word, Jr. Director March 22, 1996
- - -------------------------------
/s/ F. T. Graff, Jr. Director March 22, 1996
- - -------------------------------
/s/ H. Smoot Fahlgren Director March 22, 1996
- - -------------------------------
/s/ William C. Pitt, III Director March 22, 1996
- - -------------------------------
/s/ G. Ogden Nutting Director March 22, 1996
- - -------------------------------
/s/ R. Terry Butcher Director March 22, 1996
- - -------------------------------
/s/ Harry L. Buch Director March 22, 1996
- - -------------------------------
/s/ Russell L. Isaacs Director March 22, 1996
- - -------------------------------
/s/ Leonard A. Harvey Director March 22, 1996
- - -------------------------------
/s/ C. E. Goodwin Director March 22, 1996
- - -------------------------------
SIGNATURES
(continued)
Signatures Title Date
/s/ Charles E. Stealey Director March 22, 1996
- - -------------------------------
/s/ Warren A. Thornhill, III Director March 22, 1996
- - -------------------------------
/s/ Robert P. McLean Director March 22, 1996
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/s/ Robert G. Astorg Director March 22, 1996
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/s/ Thomas A. McPherson Director March 22, 1996
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/s/ Douglass H. Adams Director March 22, 1996
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