<PAGE>
FORM 10-K/A
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, 1994
Commission File Number: 0-13322
United Bankshares, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
- ------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8761
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
-----------------------------
(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 require-ments 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 January
31, 1995 was approximately $212,682,000.
As of January 31, 1995, United Bankshares, Inc. had 11,954,453 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>
UNITED BANKSHARES, INC.
FORM 10-K/A
(Continued)
CROSS-REFERENCE INDEX
Part I Page
- ------ ----
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 3
Part II
- -------
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Introduction . . . . . . . . . . . . . . . . . . . . . . . . 18
1994 Compared to 1993 . . . . . . . . . . . . . . . . . . . . 18
Fourth Quarter Results . . . . . . . . . . . . . . . . . . . 22
The Effect of Inflation . . . . . . . . . . . . . . . . . . . 23
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . 23
Liquidity and Capital Resources . . . . . . . . . . . . . . . 25
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 27
1993 Compared to 1992 . . . . . . . . . . . . . . . . . . . . 27
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K/A, PART I
Item 1. BUSINESS
Item 2. PROPERTIES
The following discussion satisfies the reporting requirements of
Items 1 and 2.
<PAGE>
DESCRIPTION OF UNITED BANKSHARES, INC.
Organizational History and Subsidiaries
- ---------------------------------------
United Bankshares, Inc. ("United") is a West Virginia corporation registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended. United was incorporated on March 26, 1982 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.
United National Bank-North ("UNB-N"), now merged into UNB, was formed on
August 31, 1987, through the merger of Half Dollar Trust and Savings Bank, a
previously acquired subsidiary of United, and First National Bank of
Moundsville. Since that time the First National Bank of Weirton had also been
merged into UNB-N.
United National Bank-Central ("UNB-C"), now merged into UNB, was formed on
July 1, 1989, with the merger of Kanawha Union Bank, Webster County Bank and
Weston National Bank, all previously acquired subsidiaries of United.
On January 1, 1993, UNB-N and UNB-C were merged into and became a part of UNB.
Offices of UNB-N and UNB-C became branch offices of UNB.
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.
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.
<PAGE>
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
- -------
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. UNB operates three branches
in the Parkersburg area, seven branches in the Charleston area, four branches in
the Morgantown West Virginia area, two branches in Vienna, West Virginia, three
branches in the Montgomery, West Virginia area, two branches in Ripley, West
Virginia, and five branches in the Huntington, West Virginia area. UNB owns all
of these facilities except for two in the Parkersburg area, and two in the
Charleston 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 area is leased from Ogden Newspapers, Inc. See Part
III - Transactions with Management and Others. UNB also operates five branch
facilities in central West Virginia. UNB owns all five of these offices.
Bank First conducts business from an office located at 1301 Beverly Road,
McLean, Virginia under a lease agreement.
The main office of UNB-S is located at 129 Main Street, Beckley, West
Virginia. UNB-S operates four branches in southern West Virginia. UNB-S owns all
of these facilities except for one in the Beckley area which is leased under an
operating lease.
Employees
- ---------
As of December 31, 1994 United and its subsidiaries had approximately 834
full-time equivalent employees and officers. Management considers employee
relations to be excellent.
Business of United
- ------------------
As a bank holding company registered under the Bank Holding Company Act of
1956, as amended, United's present business is the operation of its bank
subsidiaries. As of December 31, 1994, United's consolidated assets
approximated $1,787,641,000 and total shareholders' equity approximated
$179,746,000.
<PAGE>
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 First Commercial Bank,
Arlington, Virginia, dated as of March 7, 1995. For further discussion, see
Note Q, Notes to Consolidated Financial Statements.
Business of Subsidiary Banks
- ----------------------------
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, UNB-S and Bank First
offer credit card services including accounts issued under the name of certain
correspondent banks.
UNB and UNB-S 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 and UNB-S are members of a regional network of automated teller machines
known as the MAC ATM network while Bank First 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
- ------------------
The total loan portfolio of United increased $116,290,000, or 9.85%, to
$1,297,077,000, in 1994 and is comprised of commercial, real estate and consumer
loans including credit card and home equity loans. Commercial loans decreased
$10,068,000 or 4.61%, while real estate and consumer increased $120,929,000 or
16.37% and $4,019,000 or 1.75%, respectively.
<PAGE>
Commercial Loans
- ----------------
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 commercial loans by the loan committee prior to approval with
ongoing updates of the loan portfolio.
Real Estate Loans
- -----------------
Commercial real estate loans consist of commercial mortgages, which generally
are secured by nonresidential and multi-family residential properties. Also
included in this portfolio are loans that are secured by owner-occupied real
estate, but made for purposes other than the construction or purchase of real
estate. Commercial real estate loans carry many of the same customers and
industry risks as the commercial loan portfolio. Real estate mortgage loans to
consumers are secured primarily by a first lien deed of trust. These loans are
traditional one-to-four family residential mortgages. The loans generally do
not exceed an 80% loan to value ratio at the loan origination date and most are
at a variable rate of interest. These loans are considered to contain normal
risk.
Consumer Loans
- --------------
Consumer loans are secured by automobiles, boats, recreational vehicles, and
other personal property. Personal loans, home equity, student loans and
unsecured credit card receivables are also included as consumer loans. United
monitors the risk associated with these types of loans by monitoring such
factors as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors. Historically, losses on these types of loans have been minimal.
Underwriting Standards
- ----------------------
United's loan underwriting guidelines and standards are updated periodically
and are presented for approval by the loan committee of 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
<PAGE>
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
- -------------------------------
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, WV
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,
1994, the balance of mortgage loans being processed by United for other
institutions was $204,000.
Secondary Markets
- -----------------
Historically, United has not generally 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 1994, United did not purchase or sell any loans in
the secondary market.
Investment Activities
- ---------------------
United's investment policy stresses the management of the investment
securities portfolio, which includes both securities held to maturity and
securities available for sale, to maximize return over the long-term in a manner
that is consistent with good banking practices and relative safety of principal.
United currently does not engage in trading account activity. The
Asset/Liability Committee of United is responsible for the coordination and
evaluation of the investment portfolio.
Sources of funds for investment activities 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
<PAGE>
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 are expected to be fully recovered
within the first eight months of 1995.
Additionally, United has begun using 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 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, 1994, the total notional amount of the interest rate swap in
effect was only $50 million. The current maturity of the swap portfolio is two
years and one month. During 1994, the interest rate swap reduced net interest
income by $1,000. This impact was offset
<PAGE>
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, 1994, the estimated unrealized loss on the
swap, which may reduce interest income in future periods, approximated
$3,120,000. A key assumption utilized in computing the unrealized loss is that
interest rates will remain at the December 31, 1994 level throughout the term of
the agreement. United did not have interest rate swaps during 1993. 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 M to the Consolidated Financial Statements.
Competition
- -----------
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 Fairfax County
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 allowed 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, 1994, there were 16 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
- -----------------------------------------------
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
<PAGE>
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. The West Virginia
economy has a relatively slow growth rate, but is predicted by economists to
continue on an upward path.
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
- --------------------------
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, UNB-S and Bank First, as national banking associations, are subject to
supervision, examination and regulation by the Office of the Comptroller of the
Currency. They are also members of the Federal Reserve System, and as such, are
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder.
<PAGE>
The deposits of United's three wholly-owned national 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.
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K/A, PART I
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
<PAGE>
Dividends
- ---------
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 $1.06 per share in 1994, $.95 per share in 1993 and $.85 per
share in 1992. Dividends are paid out of 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. 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. The Office of the
Comptroller of the Currency ("OCC") 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. See Note C - Notes to
Consolidated Financial Statements.
Stock
- -----
As of December 31, 1994, 20,000,000 shares of common stock, par value $2.50
per share, were authorized for United, of which 11,954,453 were issued and
outstanding including 137,520 shares held as treasury shares. These shares are
held by approximately 5,087 shareholders of record as of December 31, 1994. 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. 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 no present plans, understandings, arrangements or
agreements, except for the above incentive plans, to issue any additional shares
of United stock, 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
<PAGE>
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.
As a bank holding company, United is permitted by Regulation Y of the Federal
Reserve Board, under certain circumstances, to purchase up to 10% of its common
stock as treasury stock without obtaining prior approval of the Federal Reserve
Board. In March 1994, United approved a plan to repurchase up to $10 million of
its common stock on the open market. The timing, price, and quantity of any
such purchases may be made at the discretion of the Company and the program may
be discontinued or suspended at any time. Through January 31, 1995, 378,900
shares have been repurchased at a cost of $7,030,086 and 238,880 shares have
been reissued for proceeds of $3,566,323 under this program. Total treasury
shares at January 31, 1995 amount to 140,020 at a cost of $3,403,979.
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 present the dividends and high and low prices of United's
common stock during the periods set forth below:
<TABLE>
<CAPTION>
United Historical
Basis
-----------------
1995 Dividends High Low
---- --------- ---- ---
<S> <C> <C> <C>
First Quarter through February 28, 1995 $0.29 $24.50 $23.50
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
1993
----
Fourth Quarter $0.25 $28.50 $25.25
Third Quarter $0.24 $25.75 $21.50
Second Quarter $0.23 $22.75 $19.75
First Quarter $0.23 $23.50 $19.25
</TABLE>
<PAGE>
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 accurately represent the amounts at which
United's stock was traded during the periods indicated.
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K/A, PART II
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
<PAGE>
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.
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 of 1.42% makes United one of the
nation's most profitable regional banking companies. Dividends per share
increased 11.6% from $.95 in 1993 to a record level of $1.06 per share in 1994.
This was the twenty-first 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 19.7% for 1994 compared to 1993.
These strong core earnings are 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 include 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 is in the process of realigning its interest rate
sensitivity for 1995 to a more interest-rate-neutral position. This investment
strategy may reduce current earnings, but will enhance United's future earnings
momentum.
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
<PAGE>
assets of 1.42% makes 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. 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 1994, are explained below.
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 remains 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 can be attributed
primarily to 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 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. See Note F to the Consolidated Financial
Statements for a discussion of concentrations of credit risk.
<PAGE>
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, which is less one-half of the national peer levels.
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, the ratio of the allowance for loan losses to nonperforming loans was
331.5% as compared to 140.7% as of December 31, 1993.
Management believes that the allowance for loan losses of $20,008,000 as of
December 31, 1994, is adequate to provide for potential losses on existing loans
based on information currently available.
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 can be attributed 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 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.
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.
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.
The Financial Accounting Standards Board has issued SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan-Income Recognition and
<PAGE>
Disclosures." The requirements of SFAS No.'s 114 and 118 are effective for
fiscal years beginning after December 15, 1994. SFAS No. 114 requires that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or fair value of the collateral
if the loan is collateral dependent. SFAS No. 118 clarified creditor reporting
of income on an impaired loan and disclosure requirements. The adoption of SFAS
No. 114, which will occur in the first quarter of 1995, is not expected to have
a material effect on United's allowance for loan losses.
Other Income
Noninterest income has been and will continue to be an important factor for
improving United's profitability. Recognizing this importance, 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 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% is 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. For further details, see Note D to the
Consolidated Financial Statements.
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
<PAGE>
been very successful with an efficiency ratio of 53.2%, which is well below that
reported by peer group averages in the December 31, 1994 SNL Securities
Comparison Report.
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. As
of December 31, 1994 and 1993, United employed 834 and 889 full-time equivalent
employees, respectively.
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.
Other expense decreased $1,228,000 or 5.4% in 1994 compared to 1993. The
decrease in other expenses for the year relates 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, combined
with higher statutory federal tax rates in 1994. 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. The allowance for loan losses and various accrued liabilities
represent the most significant temporary differences. Based on management's
evaluation at December 31, 1994, no valuation allowance has been allocated to
deferred tax assets.
Fourth Quarter Results
Net income for the fourth quarter of 1994 was $6,156,000, an increase of 20.0%
from the $5,130,000 earned in the fourth quarter of 1993. On a per share basis,
fourth quarter earnings were $.51 per share in 1994 and $.43 per share in 1993.
Net income was higher in 1994 than in 1993 because of the factors previously
discussed herein relative to annual results.
Additional quarterly financial data for 1994 and 1993 may be found in Note S to
the Consolidated Financial Statements.
<PAGE>
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 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. This relationship has become very important,
given the volatility in interest rates over the last several years, due to the
potential impact on earnings. 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 $124,816,000 or 7.53% 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
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
The following table shows the interest rate sensitivity GAP as of December
31, 1994:
Interest Rate Sensitivity Gap
<TABLE>
<CAPTION>
Days
------------------------------------- Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
--------- ------------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS (In Thousands)
Interest-Earning Assets:
Investment and Marketable
Equity Securities:
Taxable $ 25,472 $ 10,673 $ 45,222 $ 81,367 $ 162,115 $ 64,782 $ 308,264
Tax-exempt 1,440 2,953 5,883 10,276 21,379 20,964 52,619
Loans, net of unearned
income 527,711 81,089 129,862 738,662 409,341 149,074 1,297,077
--------- ---------- --------- ---------- --------- ---------- ----------
Total Interest-Earning
Assets $ 554,623 $ 94,715 $ 180,967 $ 830,305 $ 592,835 $ 234,820 $1,657,960
========= ========== ========= ========== ========= ========== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 658,187 $ 658,187 $ 658,187
Time deposits of
$100,000 & over 22,654 $ 13,875 $ 11,504 48,033 $ 27,565 75,598
Other time deposits 114,102 91,208 81,641 286,951 169,525 456,476
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 71,809 71,809 71,809
FHLB advances and
other long-term
borrowings 73,972 10,000 83,972 83,972
--------- ---------- --------- ---------- --------- ---------- ----------
Total Interest-Bearing
Funds $ 940,724 $ 115,083 $ 93,145 $1,148,952 $ 197,090 $1,346,042
========= ========== ========= ========== ========= ========== ==========
Interest Sensitivity
Gap $(386,101) $ (20,368) $ 87,822 $ (318,647) $ 395,745 $ 234,820 $ 311,918
========= ========== ========= ========== ========= ========== ==========
Cumulative Gap $(386,101) $ (406,469) $(318,647) $ (318,647) $ 77,098 $ 311,918 $ 311,918
========= ========== ========= ========== ========= ========== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -23.29% -24.52% -19.22% -19.22% 4.65% 18.81% 18.81%
Management
Adjustments 616,828 (41,121) (82,244) 493,463 (493,463) 0
Off-Balance
Sheet Activities (50,000) (50,000) 50,000 0
--------- ---------- --------- ---------- --------- ---------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 180,727 $ 119,238 $ 124,816 $ 124,816 $ 77,098 $ 311,918 $ 311,918
========= ========== ========= ========== ========= ========== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 10.90% 7.19% 7.53% 7.53% 4.65% 18.81% 18.81%
</TABLE>
<PAGE>
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.
Additionally, United has begun 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, 1994, the total notional amount of interest rate swaps in effect
was only $50 million. The current maturity of the swap portfolio is two years
and one month. During 1994, interest rate swaps reduced net interest income by
$1,000. United did not have interest rate swaps during 1993. For further
details, see Note M 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.
<PAGE>
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 to utilize any long-term funding sources other than FHLB advances and long-
term certificates of deposit.
Cash flows from operations in 1994 of $34,458,000 were 12.4% higher than the
$30,657,000 in 1993 as a result of a $3.2 million increase in net income. In
1994, investing activities resulted in a use of cash of $52,200,000 as compared
to 1993 in which investing activities resulted in a use of cash of $50,647,000.
The primary reason for the slight increase in the use of cash for investing
activities is that the $88.3 million increase in net loan originations was
almost entirely offset by a net $85.2 million in excess of proceeds from sales,
maturities and calls of securities over security purchases. Financing
activities resulted in a source of cash in 1994 of $39,655,000 primarily due to
a $47,633,000 increase in net borrowings from the FHLB of Pittsburgh and an
increase in deposits of $4,372,000. 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 J, 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 10.16% in 1994 and 9.78% in 1993. United's risk-
based capital ratio was 15.52% in 1994 and 15.28% in 1993 which are both
significantly higher than the minimum regulatory requirements. United's Tier 1
capital and leverage ratios of 14.27% and 9.55%, respectively, at December 31,
1994, are also strong relative to its peers and are well above regulatory
minimums.
<PAGE>
Commitments
The following table indicates the outstanding loan commitments of United in the
categories stated:
<TABLE>
<CAPTION>
December 31
1994
-------------
<S> <C>
Lines of credit authorized,
but unused $ 244,975,000
Letters of Credit 15,022,000
-------------
$ 259,997,000
=============
</TABLE>
Past experience has shown that, of the foregoing commitments, approximately 12-
15% would reasonably be expected to be funded within a one year period. For
more information, see Note M to the Consolidated Financial Statements.
1993 COMPARED TO 1992
EARNINGS SUMMARY
For the year ended December 31, 1993, net income increased 32.7% to $21,706,000.
Net income per share of $1.82 for the year was up 19.7% from 1992 levels.
United's return on average assets was 1.27%. Dividends declared per share
increased 11.8% from $.85 in 1992 to $.95 per share in 1993. Earnings before
taxes, security transactions, the cumulative effect of a change in accounting
principle and the provision for possible loan losses were strong and increased
24.4% for 1993 compared to 1992. This reflected a 12.4% improvement in net
interest income driven by a significant increase in average net earning assets.
Noninterest expenses were flat in 1993 as compared to 1992 as management was
effective in its ability to control expenses. Income taxes increased by 36.9%
from 1992, principally because of increased pretax income, decreases in income
from investment securities exempt from federal taxes and higher statutory
federal income tax rates. During 1993 the market price for United stock
increased from $20.00 to $26.50 or 31%.
Earnings for 1993 included certain nonrecurring income and expense items. The
nonrecurring income item, which is reported as a cumulative effect of change in
accounting principle of $1,329,000, is the result of United's adoption of SFAS
No. 109, "Accounting for Income Taxes," during the first quarter of 1993. For
further details, see Note K to the Consolidated Financial Statements. The
nonrecurring expense items were primarily the result of management's
conservative review of certain credits which resulted in additional provisions
being made to the reserve for other real estate owned and the allowance for loan
losses. Additional nonrecurring expenses resulted from the mergers consummated
by United.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
<PAGE>
Net Interest Income
For the years ended December 31, 1993 and 1992, net interest income approximated
$71,496,000 and $63,605,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.75% in 1993 and 4.83% in 1992. Higher average
loan volumes of $143 million contributed to the increase in net interest income.
United also experienced significant decreases in its overall cost of funds. At
4.75%, United's net interest margin remained well above peer group averages.
Total interest income of $116,505,000 increased 2.6% in 1993 over 1992 as a
result of higher volumes of interest-earning assets. Comparing year-end 1993 to
year-end 1992, moderate decreases in commercial and consumer loans of 6.5% and
5.7%, respectively, which resulted from lower commercial and consumer demand,
were offset by significant mortgage loan growth of 15.3%.
Total interest expense decreased 9.8% in 1993. This decrease can be attributed
primarily to lower rates paid on interest-bearing funds. United's average
interest-bearing deposits increased 12.46% in 1993, while its average long-term
borrowings increased 160.88% as United made greater use of these funds in order
to meet the demand for mortgage loan products while matching maturities. The
average cost of funds reflected the general downward trend in market interest
rates in 1993, falling from 4.27% in 1992 to 3.44% in 1993.
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 $13,517,000 at December 31, 1993 and $15,955,000 at
December 31, 1992, a decrease of 15.3%. 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.
At year-end 1993 and 1992 the allowance for possible loan losses was 1.61% and
1.43% of total loans, net of unearned income, respectively. As of December 31,
1993, the ratio of the allowance for loan losses to nonperforming loans was
140.7% as compared to 100.0% as of December 31, 1992.
For the years ended December 31, 1993 and 1992 the provision for loan losses was
$4,332,000 and $4,242,000, respectively. The provision for loan losses charged
to operations was based on management's evaluation of individual credits, the
past loan loss experience, and other factors which, in management's judgment,
deserved recognition in estimating possible loan losses. Such other factors
considered by management included growth and composition of the loan portfolio,
known deterioration in certain classes of loans or collateral, trends in
delinquencies, and current economic conditions.
<PAGE>
Total net charge-offs were $1,773,000 in 1993 and $5,144,000 in 1992, which
represents .16% and .52% of average loans for the respective years. United's
ratio of net charge-offs to average loans compared 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 1993, other income increased by $1,550,000
or 13.94%. The overall increase in noninterest income is primarily attributed
to the October 20, 1992, acquisition of UNB-South and increased activity in
customer accounts for which a fee is charged.
Trust income increased $124,000 or 4.93% in 1993. This was due to repricing of
services and an increased volume of trust business.
Service charges, commissions and fees increased by $1,430,000 or 19.32% in 1993.
This income consisted of charges and fees related to various banking services
provided by United and was primarily due to a restructuring of fees and the
acquisition of UNB-South.
Securities transactions resulted in a net gain of $479,000 in 1993 and a net
gain of $403,000 in 1992. As evidenced by the Statement of Cash Flows in the
Consolidated Financial Statements, the volume of securities sold increased
significantly in 1993. The primary reason for this increased sales activity was
a one-time restructuring of the portfolio of an acquired subsidiary. Included
in the 1993 gains are debt securities gains of approximately $332,000 which were
realized primarily on sales of mortgage-backed security obligations which were
experiencing accelerated prepayments.
Other Expense
Other expense included all items of expense other than interest expense, the
provision for possible loan losses, and income taxes. In total, other expenses
were flat in 1993, and management was successful in controlling costs. The
income statement reflected a 5.7% increase in 1993 as compared to 1992. The
increase was due to certain nonrecurring costs and certain other costs in
connection with the mergers of FFC, Westover and Star City into United during
1993. The October 20, 1992 acquisition of UNB-South also increased reported
expenses for 1993.
Salaries and employee benefits expense increased 6.26% in 1993 due to the
acquisitions of UNB-South, Westover and Star City. As of December 31, 1993 and
1992, United employed 889 and 879 full-time equivalent employees, respectively.
Other expense increased 5.63% in 1993 compared to 1992. This increase was
mainly due to the acquisition of UNB-South, nonrecurring merger expenses and
provisions for estimated losses on other real estate owned.
<PAGE>
Income Taxes
For the year ended December 31, 1993, income taxes approximated $9,770,000
compared to $7,136,000 for 1992. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income, combined
with higher statutory federal tax rates in 1993. United's effective tax rates
in these two years were 32.4% and 30.4%, respectively.
Effective January 1, 1993, United prospectively adopted FASB Statement No. 109,
"Accounting for Income Taxes." Under Statement 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
reporting and the tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Prior to the adoption of Statement 109, income tax expense was determined using
the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and was measured at the tax rate in effect in the year the
differences originated.
As permitted by Statement 109, United has elected not to restate the financial
statements of any prior years. The effect of the change on pretax income for
the year ended December 31, 1993 was not material; however, the cumulative
effect of the change increased net income by $1,329,000 or $0.11 per share.
At December 31, 1993, gross deferred tax assets totaled approximately $10.4
million. The allowance for loan losses and various accrued liabilities
represented the most significant temporary differences. Based on management's
evaluation at December 31, 1993, no valuation allowance had been allocated to
deferred tax assets.
<PAGE>
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, 1994,
1993 and 1992 with the interest and rate earned or paid on such amount.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31 December 31 December 31
1994 1993 1992
------------------------------------- ---------------------------------- ------------------------------
(Dollars in Average Avg. Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
------------ ---------- ----------- ----------- ----------- -------- ----------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Federal funds sold
and securities
purchased under
agreements to
resell and other
short-term
investments $ 6,125 $ 250 4.08% $ 29,747 $ 898 3.02% $ 50,051 $ 1,860 3.72%
Investment
Securities:
Taxable 345,166 18,589 5.39% 371,583 20,531 5.53% 288,014 19,333 6.71%
Tax exempt (1) 52,709 5,429 10.30% 59,307 6,360 10.72% 69,056 7,508 10.87%
---------- -------- ---------- ---------- ---------- ------- ----------- --------- -----
Total
Securities 397,875 24,018 6.04% 430,890 26,891 6.24% 357,070 26,841 7.52%
Loans, net of
unearned
income (1) (2) 1,231,525 99,850 8.11% 1,134,001 92,168 8.13% 990,999 88,121 8.89%
Allowance for possible
loan losses (19,595) (18,046) (14,453)
---------- ---------- ----------
Net Loans 1,211,930 8.24% 1,115,955 8.26% 976,546 9.02%
---------- -------- ---------- ---------- ---------- ------- ----------- --------- -----
Total earning assets 1,615,930 124,118 7.68% 1,576,592 119,957 7.61% 1,383,667 116,822 8.44%
Other assets 137,394 130,047 112,481
TOTAL ASSETS $1,753,324 $1,706,639 $1,496,148
========== ========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing
deposits $1,199,355 $ 38,614 3.22% $1,193,622 $ 40,837 3.42% $1,061,358 $ 46,106 4.34%
Federal funds
purchased,
repurchase
agreements and
other short-term
borrowings 78,699 2,571 3.27% 75,496 2,152 2.85% 92,878 2,824 3.04%
FHLB advances 50,702 2,702 5.33% 40,528 2,020 4.98% 15,535 967 6.22%
---------- -------- ---------- ---------- ---------- ------- ----------- --------- -----
Total Interest-Bearing
Funds 1,328,756 43,887 3.30% 1,309,646 45,009 3.44% 1,169,771 49,897 4.27%
-------- ---------- ---------
Demand deposits 229,936 213,544 178,923
Accrued expenses and
other liabilities 16,567 16,474 6,385
---------- ---------- ----------
TOTAL
LIABILITIES 1,575,259 1,539,664 1,355,079
Shareholders' Equity 178,065 166,975 141,069
---------- ---------- ----------
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $1,753,324 $1,706,639 $1,496,148
========== ========== ==========
NET INTEREST INCOME $ 80,231 $ 74,948 $ 66,925
========== ======== ==========
INTEREST SPREAD 4.38% 4.17% 4.17%
NET INTEREST MARGIN 4.97% 4.75% 4.83%
</TABLE>
(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% in 1994 and 1994 and 34% in 1992.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
<PAGE>
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).
<TABLE>
<CAPTION>
1994 Compared to 1993 1993 Compared to 1992
----------------------------------- -------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- -------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------- ------- ----- ------- ------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands) (In thousands)
Interest income:
Federal funds sold, securities purchased
under agreements to resell and other
short-term investments ($713) $ 315 ($250) ($649) ($705) ($225) ($32) ($962)
Investment securities:
Taxable (1,461) (520) 39 (1,942) 5,649 (3,543) (908) 1,198
Tax exempt (1) (708) (249) 26 (931) (1,060) (104) 16 (1,148)
Loans (1),(2) 7,929 (227) (20) 7,682 12,713 (7,532) (1,134) 4,047
------- ------- ----- ------- ------- ------- ------ -------
TOTAL INTEREST INCOME 5,047 (681) (205) 4,161 16,597 (11,404) (2,058) 3,135
------- ------- ----- ------- ------- ------- ------ -------
Interest expense:
Interest-bearing deposits 196 (2,387) (32) (2,223) 5,740 (9,764) (1,245) (5,269)
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 91 317 11 419 (535) (214) 195 (554)
FHLB advances 507 142 33 682 1,555 (193) (427) 935
------- ------- ----- ------- ------- ------- ------ -------
TOTAL INTEREST EXPENSE 794 (1,928) 12 (1,122) 6,760 (10,171) (1,477) (4,888)
------- ------- ----- ------- ------- ------- ------ -------
NET INTEREST INCOME $ 4,253 $ 1,247 ($217) $ 5,283 $ 9,837 ($1,233) ($581) $ 8,023
======= ======= ===== ======= ======= ======= ====== =======
</TABLE>
(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% in 1994 and 1993 and 34% in 1992.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
LOAN PORTFOLIO
TYPES OF LOANS
The following is a summary of loans outstanding at December 31, (Construction
loans are not shown separately due to the insignificant amounts in all
periods presented):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands)
Commercial, financial
and agricultural $ 208,491 $ 218,559 $ 218,370 $203,864 $229,430
Real estate mortgage 842,819 726,122 640,838 514,316 489,832
Real estate construction 16,919 12,687 15,680 12,174 7,362
Consumer 233,866 229,847 246,673 226,657 226,705
Less: Unearned interest (5,018) (6,428) (7,824) (2,528) (3,651)
---------- ---------- ---------- -------- --------
Total loans 1,297,077 1,180,787 1,113,737 954,483 949,678
Allowance for possible
loan losses (20,008) (19,015) (15,952) (14,070) (12,187)
---------- ---------- ---------- -------- --------
TOTAL LOANS, NET $1,277,069 $1,161,772 $1,097,785 $940,413 $937,491
========== ========== ========== ======== ========
</TABLE>
At December 31, 1994, United had $527,434,000 in single family residential real
estate loans and $300,679,000 in commercial real estate loans included in the
above total loans.
The following is a summary of loans outstanding as a percent of total loans at
December 31:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural 16.01% 18.41% 19.47% 21.30% 24.07%
Real estate mortgage 64.73% 61.16% 57.14% 53.75% 51.38%
Real estate construction 1.30% 1.07% 1.40% 1.27% 0.77%
Consumer 17.96% 19.36% 21.99% 23.68% 23.78%
------ ------ ------ ------ ------
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
REMAINING LOAN MATURITIES
The following table shows the maturity of commercial, financial, and
agricultural loans outstanding as of December 31, 1994:
<TABLE>
<CAPTION>
Less Than One To Greater Than
One Year Five Years Five Years Total
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $27,291 $88,087 $93,113 $208,491
======= ======= ======= ========
</TABLE>
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 1994, commercial, financial and agricultural loans maturing
within one to five years and in more than five years are interest sensitive as
follows:
<TABLE>
<CAPTION>
One to Over
Five Years Five Years
---------- ----------
<S> <C> <C>
(In thousands)
Outstanding with fixed interest rates $23,149 $24,470
Outstanding with adjustable rates 64,938 68,643
------- -------
$88,087 $93,113
======= =======
</TABLE>
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.
<TABLE>
<CAPTION>
December 31
------------------------------------------
1994 1993 1992 1991 1990
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(In thousands)
Nonaccrual loans $3,733 8,588 12,446 11,719 15,200
Troubled debt restructurings 2,453 1,355 1,928 2,063
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 2,303 2,476 2,154 3,525 5,578
------ ------- ------- ------- -------
TOTAL $6,036 $13,517 $15,955 $17,172 $22,841
====== ======= ======= ======= =======
</TABLE>
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.
<PAGE>
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, 1994 and all securities at December 31, 1993 and
1992:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 84,843 $220,805 $215,511
State and political subdivisions 53,297 55,209 67,553
Mortgage-backed securities 97,644 131,322 78,710
Marketable equity securities 2,182 2,226
Other 7,062 20,909 26,017
-------- -------- --------
TOTAL INVESTMENT SECURITIES $242,846 $430,427 $390,017
======== ======== ========
</TABLE>
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. As presented in Note E--Investment Securities to the Consolidated
Financial Statements, United had an unrealized loss of $7,805,000 on the
mortgage-backed securities at December 31, 1994, as compared to a net unrealized
gain of $241,000 at December 31, 1993. This decline in value from 1993 to 1994
is consistent with the increase in interest rates during 1994 and indicates that
United's mortgage-backed securities are subject to a decreased assumed
prepayment risk.
The following is a summary of the amortized cost, unrealized gains and losses
and market value or available for sale securities at December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
(In thousands)
U.S. Treasury and other U.S. Government
agencies and corporations $103,292 $127 $ 774 $102,645
Marketable equity securities 1,529 293 25 1,797
Other 13,898 2 305 13,595
-------- ---- ------ --------
TOTAL AVAILABLE-FOR-SALE SECURITIES $118,719 $422 $1,104 $118,037
======== ==== ====== ========
</TABLE>
The following table sets forth the maturities of the above securities at
December 31, 1994, 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).
<TABLE>
<CAPTION>
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
------- ------ ------- --------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(In thousands)
U.S. Treasury and other
U.S. Government agencies
and corporations $50,388 6.45% $131,672 6.00% $5,428 6.16%
States and political
subdivisions (1) 10,277 11.66% 20,567 9.76% 8,492 8.63% 13,961 9.60%
Other 23,494 4.53% 32,501 6.19% 22,906 6.45% 41,197 6.40%
</TABLE>
(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.
<PAGE>
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.
<TABLE>
<CAPTION>
Federal Securities Sold
Funds Under Agreements
Purchased to Repurchase
---------- -----------------
<S> <C> <C>
(In thousands)
At December 31:
1994 $ 4,582 $ 67,227
1993 5,339 67,271
1992 8,218 64,233
Weighted average interest rate
at year end:
1994 5.7% 4.1%
1993 2.9% 2.7%
1992 3.1% 2.9%
Maximum amount outstanding at
any month's end:
1994 $25,089 $103,486
1993 7,509 85,515
1992 20,937 83,127
Average amount outstanding during
the year:
1994 $10,178 $ 68,521
1993 7,808 67,688
1992 20,016 70,972
Weighted average interest rate
during the year:
1994 4.3% 3.1%
1993 3.0% 2.8%
1992 3.3% 3.1%
</TABLE>
At December 31, 1994, repurchase agreements include $66,780,000 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.
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- --------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 229,936 $ 213,544 $ 178,923
Interest bearing
demand deposits 230,402 2.26% 222,226 2.59% 302,794 3.47%
Savings deposits 449,142 2.84% 444,788 3.06% 245,052 3.89%
Time deposits 519,811 3.97% 526,608 4.08% 513,512 5.06%
---------- ---------- ----------
TOTAL $1,429,291 3.22% $1,407,166 3.42% $1,240,281 4.34%
========== ========== ==========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
3 months or less $23,122
Over 3 through 6 months 12,212
Over 6 through 12 months 11,504
Over 12 months 28,760
-------
TOTAL $75,598
=======
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Return on average assets 1.42% 1.27% 1.09%
Return on average equity 13.98% 13.00% 11.60%
Dividend payout ratio (1) 50.61% 50.30% 49.80%
Average equity to average
assets ratio 10.16% 9.78% 9.43%
</TABLE>
(1) Based on historical results of United before the effects of restatements for
pooling of interests business combinations.
<PAGE>
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:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
(In thousands)
Balance of allowance for possible loan
losses at beginning of year $ 19,015 $ 15,952 $ 14,070 $ 12,187 $ 10,137
Allowance of purchased company at date
of acquisition 504 2,784 198
Loans charged off:
Commercial, financial and agricultural 708 1,088 3,108 4,636 4,244
Real estate 65 649 1,477 175 321
Consumer and other 943 1,004 1,286 1,785 1,736
---------- ---------- ---------- -------- --------
TOTAL CHARGE-OFFS 1,716 2,741 5,871 6,596 6,301
Recoveries:
Commercial, financial and agricultural 577 438 168 403 407
Real estate 13 231 154 48 25
Consumer and other 301 299 405 393 280
---------- ---------- ---------- -------- --------
TOTAL RECOVERIES 891 968 727 844 712
---------- ---------- ---------- -------- --------
NET LOANS CHARGED OFF 825 1,773 5,144 5,752 5,589
Addition to allowance (1) 1,818 4,332 5,242 7,635 7,441
BALANCE OF ALLOWANCE FOR POSSIBLE
LOAN LOSSES AT END OF YEAR 20,008 19,015 15,952 14,070 12,187
---------- ---------- ---------- -------- --------
Loans outstanding at the end of period (gross) $1,302,095 $1,187,215 $1,121,561 $957,010 $953,329
========== ========== ========== ======== ========
Average loans outstanding during
period (net of unearned income) $1,231,525 $1,134,001 $ 990,999 $949,784 $910,685
========== ========== ========== ======== ========
Net charge-offs as a percentage of
average loans outstanding 0.07% 0.16% 0.52% 0.61% 0.61%
Allowance for possible loan losses as
a percentage of nonperforming loans 331.5% 140.7% 100.0% 81.9% 53.4%
</TABLE>
(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.
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
<TABLE>
<CAPTION>
Allocation of allowance for
possible loan losses at
years ending: 1994 1993 1992 1991 1990
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $7,526 $ 8,109 $ 6,406 $ 6,534 $ 5,750
Real estate 499 476 1,375 1,382 1,093
Consumer and other 1,313 1,733 5,481 5,434 4,694
------ ------- ------- ------- -------
Total $9,338 $10,318 $13,262 $13,350 $11,537
====== ======= ======= ======= =======
</TABLE>
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.
<TABLE>
<CAPTION>
% of Loans Per Category 1994 1993 1992 1991 1990
----------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural 80.60% 78.59% 48.30% 48.94% 49.84%
Real estate 5.34% 4.61% 10.37% 10.35% 9.47%
Consumer and other 14.06% 16.80% 41.33% 40.71% 40.69%
------ ------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 33-22941 and Form S-8, No. 33-32522) pertaining to the Incentive
Stock Option Plan and the Savings and Stock Investment Plan of United
Bankshares, Inc. and subsidiaries, respectively, and the related Prospectus of
our report dated February 10, 1995, with respect to the consolidated financial
statements of United Bankshares, Inc. and subsidiaries included in this Annual
Report (Form 10-K/A), as amended, for the year ended December 31, 1994.
/s/ERNST & YOUNG LLP
Charleston, West Virginia
February 6, 1996
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm, in the December 31, 1994 Annual
Securities Report (Form 10-K/A), as amended, of United Bankshares, Inc., as
Independent Certified Public Accountants and to the use of our report dated
January 25, 1993 with respect to the consolidated financial statements of
Financial Future Corporation and Subsidiaries as of December 31, 1992, and for
each of the three years in the period ended December 31, 1992.
/s/Somerville & Company
Huntington, West Virginia
February 6, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements 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)
Date February 8, 1996 /s/ Joseph Wm. Sowards
-------------------- ----------------------------
Joseph Wm Sowards, Executive
Vice President and Secretary
