UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
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
--------------
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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class- Common Stock, $2.50 Par Value; 14,954,462 shares outstanding as of April
30, 1997.
1
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page
----
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements
- ----------------------------
Consolidated Balance Sheets (Unaudited)
March 31, 1997 and December 31, 1996 .........................6
Consolidated Statements of Income (Unaudited) for the
Three Months Ended March 31, 1997 and 1996 ...................7
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited) for the Three Months Ended March 31, 1997 ........8
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1997 and 1996 ...........9
Notes to Consolidated Financial Statements ..................10
Information required by Item 303 of Regulation S-K
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................17
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings..........................Not Applicable
- -------------------------
Item 2. Changes in Securities......................Not Applicable
- -----------------------------
Item 3. Defaults Upon Senior Securities............Not Applicable
- ---------------------------------------
2
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS--Continued
Page
----
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
- -----------------------------------------------------------------
Item 5. Other Information ........................Not Applicable
- -----------------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------------------------
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit 11 - Computation of Earnings Per Share.......24
Exhibit 27 - Financial Data Schedule.................25
(b) Reports on Form 8-K
None filed during the period.
3
<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 May 14, 1997 /s/ Richard M. Adams
--------------------- -----------------------------
Richard M. Adams, Chairman of
the Board and Chief Executive
Officer
Date May 14, 1997 /s/ Steven E. Wilson
--------------------- -----------------------------
Steven E. Wilson, Executive
Vice President, Treasurer and
Chief Financial Officer
4
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
The March 31, 1997 and December 31, 1996, consolidated balance sheets of United
Bankshares, Inc. and Subsidiaries, and the related consolidated statements of
income for the three months ended March 31, 1997 and 1996, and the related
consolidated statement of changes in shareholders' equity for the three months
ended March 31, 1997, and the related condensed consolidated statements of cash
flows for the three months ended March 31, 1997 and 1996, and the notes to
consolidated financial statements, of which all information for the three months
ended March 31, 1996, has been restated to reflect the merger of Eagle Bancorp,
Inc. on April 12, 1996, under the pooling of interests method of accounting,
appear on the following pages.
5
<PAGE>
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands, except per share data) March 31 December 31
1997 1996
---------- -----------
<S><C>
ASSETS
Cash and due from banks $ 74,737 $ 86,328
Interest-bearing deposits with other banks 314 195
Federal funds sold 15,000 2,997
---------- ----------
Total cash and cash equivalents 90,051 89,520
Securities available for sale at estimated fair
value (amortized cost-$164,635 at March 31,
1997 and $160,161 at December 31, 1996) 165,290 161,629
Securities held to maturity (estimated fair value
-$174,668 at March 31, 1997 and $173,697 at
December 31, 1996) 172,950 170,702
Loans
Commercial, financial, and agricultural 247,119 248,762
Real estate:
Single family residential 952,373 953,000
Commercial 358,703 355,431
Construction 46,532 42,343
Other 20,047 19,748
Installment 226,043 232,004
Loans held for sale at estimated fair value 1,104 1,482
---------- ----------
1,851,921 1,852,770
Less: Unearned income (5,458) (5,165)
---------- ----------
Loans, net of unearned income 1,846,463 1,847,605
Less: Allowance for loan losses (22,282) (22,283)
---------- ----------
Net loans 1,824,181 1,825,322
Bank premises and equipment 33,777 33,550
Interest receivable 14,721 13,508
Other assets 34,349 32,646
---------- ----------
TOTAL ASSETS $2,335,319 $2,326,877
========== ==========
LIABILITIES
Domestic deposits:
Noninterest-bearing $ 246,171 $ 261,048
Interest-bearing 1,633,798 1,566,506
---------- ----------
TOTAL DEPOSITS 1,879,969 1,827,554
Short-term borrowings:
Federal funds purchased 8,721 4,491
Securities sold under agreements to repurchase 72,062 71,091
Federal Home Loan Bank borrowings 78,668 132,631
Accrued expenses and other liabilities 36,301 32,596
---------- ----------
TOTAL LIABILITIES 2,075,721 2,068,363
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value; Authorized - 20,000,000 shares; issued -
15,295,130 at March 31, 1997 and December 31, 1996, including 306,668
and 205,495 shares in treasury at March 31, 1997 and December 31,
1996, respectively 38,238 38,238
Surplus 41,392 41,438
Retained earnings 188,622 183,539
Net unrealized holding gain on securities available
for sale, net of deferred income taxes 425 954
Treasury stock (9,079) (5,655)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 259,598 258,514
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,335,319 $2,326,877
========== ==========
</TABLE>
See notes to consolidated unaudited financial statements.
6
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended
March 31
-------------------------
1997 1996
---------- ---------
<S><C>
INTEREST INCOME
Interest and fees on loans $38,917 $37,292
Interest on federal funds sold and other
short term investments 63 215
Interest and dividends on securities:
Taxable 4,788 4,053
Exempt from federal taxes 532 628
---------- ----------
TOTAL INTEREST INCOME 44,300 42,188
---------- ----------
INTEREST EXPENSE
Interest on deposits 16,952 15,798
Interest on short-term borrowings 885 924
Interest on Federal Home Loan
Bank borrowings 1,321 975
---------- ----------
TOTAL INTEREST EXPENSE 19,158 17,697
---------- ----------
NET INTEREST INCOME 25,142 24,491
PROVISION FOR LOAN LOSSES 600 611
---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 24,542 23,880
---------- ----------
OTHER INCOME
Trust department income 853 795
Other charges, commissions, and fees 2,886 2,535
Income from mortgage banking operations 294 123
Other income 49 128
---------- ----------
TOTAL OTHER INCOME 4,082 3,581
---------- ----------
OTHER EXPENSES
Salaries and employee benefits 6,551 6,726
Net occupancy expense 1,432 1,378
Other expense 5,644 6,708
---------- ----------
TOTAL OTHER EXPENSES 13,627 14,812
---------- ----------
INCOME BEFORE INCOME TAXES 14,997 12,649
INCOME TAXES 4,949 4,560
---------- ----------
NET INCOME $10,048 $ 8,089
========== ==========
Earnings per common share $0.66 $0.53
========== ==========
Dividends per share $0.33 $0.30
========== ==========
Average outstanding shares 15,173,605 15,217,776
========== ==========
</TABLE>
See notes to consolidated unaudited financial statements.
7
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
----------------------------------------------------------------------------------------------------
Net
Unrealized
Holding
Common Stock Gain on
------------ Securities Total
Par Retained Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
---------- ------- ------- -------- --------- --------- -------------
<S><C>
Balance at
January 1, 1997 15,295,130 $38,238 $41,438 $183,539 $954 ($5,655) $258,514
Net income 10,048 10,048
Cash dividends
($.33 per share) (4,965) (4,965)
Net change in
unrealized gain
on securities
available for sale (529) (529)
Purchase of treasury
stock (100,600
shares) (3,551) (3,551)
Common stock options
exercised (4,427
shares) (46) 127 81
---------- ------- ------- -------- --------- --------- ------------
Balance at
March 31, 1997 15,295,130 $38,238 $41,392 $188,622 $425 ($9,079) $259,598
========== ======= ======= ======== ========= ========= ============
</TABLE>
See notes to consolidated unaudited financial statements
8
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands, except per share data) Three Months Ended
March 31
------------------------
1997 1996
-------- --------
<S><C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 12,431 $ 11,041
INVESTING ACTIVITIES
Proceeds from maturities and calls of
securities held to maturity 7,781 9,044
Proceeds from maturities and calls of
securities available for sale 45,795 33,330
Purchases of securities available for sale (50,248) (42,217)
Purchases of securities held to maturity (10,000) (500)
Net purchase of bank premises and equipment (979) (511)
Net change in loans 361 6,977
-------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (7,290) 6,123
-------- --------
FINANCING ACTIVITIES
Cash dividends paid (4,850) (3,604)
Cash dividends paid by acquired banks (382)
Acquisition of treasury stock (3,551) (829)
Proceeds from exercise of stock options 81 266
Proceeds from Federal Home Loan Bank advances 150,055 821,000
Repayment of Federal Home Loan Bank advances (204,018) (860,904)
Changes in:
Deposits 52,472 9,893
Federal funds purchased and securities
sold under agreements to repurchase 5,201 5,562
-------- --------
NET CASH (USED IN) FINANCING ACTIVITIES (4,610) (29,998)
-------- --------
INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 531 (11,834)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 89,520 98,977
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 90,051 $ 87,143
======== ========
</TABLE>
See notes to consolidated unaudited financial statements.
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
UNITED BANKSHARES, INC. AND SUBSIDIARIES
1. GENERAL
The accompanying unaudited consolidated interim financial statements of United
Bankshares, Inc. and Subsidiaries ("United") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, the financial statements do not contain all of the information and
footnotes required by generally accepted accounting principles. The financial
statements presented in this report have not been audited. The accounting and
reporting policies followed in the presentation of these financial statements
are consistent with those applied in the preparation of the 1996 annual report
of United Bankshares, Inc. on Form 10-K. In the opinion of management,
adjustments necessary for a fair presentation of financial position and results
of operations for the interim periods have been made. Such adjustments are of a
normal and recurring nature.
In February 1997, the FASB issued Statement No. 128, (SFAS No. 128), "Earnings
Per Share," which simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, (APB No. 15), "Earnings Per Share," and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic and diluted EPS computation.
Basic EPS, in accordance with SFAS No. 128, excludes dilution and is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is computed similarly
to fully diluted EPS pursuant to APB No. 15, which includes common stock
equivalents in the calculation of common shares outstanding for the period.
United does not expect application of the new rules to produce per share amounts
that are materially different from amounts calculated under current rules.
This statement is effective for financial periods beginning after December 15,
1997, including interim periods; earlier application is not permitted. SFAS No.
128 requires restatement of all prior period EPS data presented.
10
<PAGE>
In February 1997, the FASB issued Statement No. 129, (SFAS No. 129), "Disclosure
of Information about Capital Structure," the statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, "Omnibus Opinion" and No. 15 "Earnings Per Share,"
and FASB Statement No. 47, "Disclosure of Long-Term Obligations".
This statement is effective for financial periods beginning after December 15,
1997. SFAS No. 129 contains no change in disclosure requirements for entities
that were previously subject to the requirements of APB Opinions No. 10 and 15
and SFAS No. 47. Therefore, United does not anticipate that the provisions of
SFAS No. 129 will change its current disclosure requirements.
In June 1996, the FASB issued Statement No. 125, (SFAS No. 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,"
which supersedes SFAS No. 76, "Extinguishment of Debt." SFAS No. 125 prescribes
the accounting treatment for securitization transactions based on a financial
components approach with an emphasis on physical control, such as the ability to
pledge or exchange the securitized assets, while prior rules emphasize the
economic risks or rewards of ownership of the assets. Additionally, SFAS No. 125
applies to repurchase agreements, securities lending, loan participations, and
other financial component transfers and exchanges. Under the financial
components approach of SFAS No. 125, both the transferor and transferee will
recognize on its balance sheet the assets and liabilities, or components
thereof, that it controls and derecognize from the balance sheet the assets and
liabilities that were surrendered or extinguished in the transfer.
The new rules do not have a material effect on United's financial position and
results of operations. SFAS No. 125 is effective for transactions occurring
after December 31, 1996.
2. BASIS OF PRESENTATION
The accompanying consolidated interim financial statements include the accounts
of United 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. Dollars are in thousands, except per share and share data.
3. ACQUISITION
United has entered into an agreement with First Patriot Bankshares Corporation,
Reston, Virginia ("Patriot") to acquire 100% of the outstanding common stock of
Patriot for $17.00 per share. The transaction valued at approximately $39,247
will be accounted for using the purchase method of accounting. It is anticipated
that the proposed acquisition will be consummated during the third
11
<PAGE>
quarter of 1997. Consummation of the transaction is subject to approval of the
shareholders of Patriot and the receipt of all required regulatory approvals, as
well as other customary conditions.
At March 31, 1997, Patriot had consolidated assets of approximately $181,760 and
shareholders' equity of $14,744.
On April 12, 1996, United consummated the merger with Eagle Bancorp, Inc.,
Charleston, West Virginia ("Eagle"), in a common stock exchange accounted for
under the pooling of interests method of accounting and, accordingly, all prior
period financial statements were restated to include the financial condition and
results of operations of Eagle. United exchanged 1.15 shares of United common
stock for each of the 2,729,377 common shares of Eagle or 3,138,704 shares.
The following presents the separate results of United and Eagle for the three
months ended March 31, 1996, and the year ended December 31, 1995.
United Eagle Combined
------ ----- --------
For the Three Months
Ended March 31, 1996
(Unaudited):
Net interest income $ 20,886 $ 3,663 $ 24,549
Net income 7,504 584 8,088
Earnings per share $ 0.62 $ 0.21 $ 0.53
For the Year Ended
December 31, 1995:
Net interest income $ 81,690 $ 13,958 $ 95,648
Net income 28,079 4,738 32,817
Earnings per share $ 2.35 $ 1.74 $ 2.18
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S><C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $121,749 $248 $1,020 $120,977
Mortgage-backed securities 23,833 67 819 23,081
Marketable equity securities 3,754 2,387 6,141
Other 15,299 3 211 15,091
--------- ---------- ---------- ---------
Total $164,635 $2,705 $2,050 $165,290
========= ========== ========== =========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S><C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $115,018 $443 $444 $115,017
Mortgage-backed securities 24,982 92 565 24,509
Marketable equity securities 3,655 2,158 5,813
Other 16,506 7 223 16,290
--------- ---------- ---------- ---------
Total $160,161 $2,700 $1,232 $161,629
========= ========== ========== =========
</TABLE>
The cumulative net unrealized holding gain on available for sale securities
resulted in an increase to shareholders' equity of $425 and $954, net of
deferred income taxes at March 31, 1997 and December 31, 1996, respectively.
The amortized cost and estimated fair value of securities available for sale at
March 31, 1997 and December 31, 1996, by contractual maturity are as follows:
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------- -------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
<S><C>
Due in one year or less $27,130 $27,114 $23,847 $23,868
Due after one year through
five years 96,085 95,334 93,788 93,776
Due after five years through
ten years 456 463 603 616
Due after ten years 37,210 36,238 38,268 37,556
Marketable equity securities 3,754 6,141 3,655 5,813
--------- ---------- ---------- ---------
Total $164,635 $165,290 $160,161 $161,629
========= ========== ========== =========
</TABLE>
The preceding table includes $23,081 and $24,509 of mortgage-backed securities
at March 31, 1997 and December 31, 1996, respectively, with an amortized cost of
$23,833 and $24,982 at March 31, 1997 and December 31,1996, respectively.
Maturities of mortgage-backed securities are based upon the estimated average
life.
The amortized cost and estimated fair values of securities held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1997
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S><C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $83,754 $1,788 $316 $85,226
State and political subdivisions 34,779 1,006 62 35,723
Mortgage-backed securities 52,523 135 833 51,825
Other 1,894 1,894
--------- ---------- ---------- ----------
Total $172,950 $2,929 $1,211 $174,668
========= ========== ========== ==========
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S><C>
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $77,704 $2,131 $87 $79,748
State and political subdivisions 36,136 1,487 32 37,591
Mortgage-backed securities 54,977 250 754 54,473
Other 1,885 1,885
--------- ---------- ---------- ----------
Total $170,702 $3,868 $873 $173,697
========= ========== ========== ==========
</TABLE>
The amortized cost and estimated fair value of securities held to maturity at
March 31,1997, and December 31, 1996, by contractual maturity follow. 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.
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
----------------------------- ---------------------------
Estimated Estimated
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
<S><C>
Due in one year or less $20,144 $20,103 $11,296 $11,338
Due after one year
through five years 42,282 42,325 57,167 57,590
Due after five years
through ten years 86,781 88,454 77,000 79,236
Due after ten years 23,743 23,786 25,239 25,533
--------- --------- --------- ---------
Total $172,950 $174,668 $170,702 $173,697
========= ========= ========= =========
</TABLE>
Maturities of the mortgage-backed securities are based upon the estimated
average life. There were no sales of held to maturity securities.
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 $204,667 and $204,254 at March 31, 1997 and
December 31, 1996, respectively.
5. NONPERFORMING LOANS
Nonperforming loans are summarized as follows:
March 31 December 31
1997 1996
-------- -----------
Loans past due 90 days or more
and still accruing interest $ 6,141 $ 5,831
Nonaccrual loans 5,848 4,361
------- -------
Total nonperforming loans $11,989 $10,192
======= =======
14
<PAGE>
6. ALLOWANCE FOR LOAN LOSSES
The adequacy of the allowance for loan losses is based on management's
evaluation of the relative risks inherent in the loan portfolio. A progression
of the allowance for loan losses for the periods presented is summarized as
follows:
Three Months Ended
March 31
------------------------
1997 1996
------- -------
Balance at beginning of period $22,283 $22,545
Provision charged to expense 600 611
------- -------
22,883 23,156
Loans charged-off (684) (599)
Less recoveries 83 158
------- -------
Net Charge-offs (601) (441)
------- -------
Balance at end of period $22,282 $22,715
======= =======
The average recorded investment in impaired loans during the quarter ended March
31, 1997 and for the year ended December 31, 1996 was approximately $10,237 and
$9,442, respectively. For the quarters ended March 31, 1997 and 1996, United
recognized interest income on the impaired loans of approximately $117 and $143,
respectively, substantially all of which was recognized using the accrual method
of income recognition.
At March 31, 1997, the recorded investment in loans that are considered to be
impaired under SFAS No. 114 was $10,158 (of which $5,848 were on a nonaccrual
basis). Included in this amount is $5,157 of impaired loans for which the
related allowance for loan losses is $1,672 and $5,001 of impaired loans that do
not have an allowance for credit losses due to management's estimate that the
fair value of the underlying collateral of these loans is sufficient for full
repayment of the loan and interest.
The amount of interest income which would have been recorded under the original
terms for the above loans was $270 and $218 for the quarters ended March 31,
1997 and 1996, respectively.
7. COMMITMENTS AND CONTINGENT LIABILITIES
United and its subsidiaries are currently involved, in the normal course of
business, in various legal proceedings. Management is vigorously pursuing all of
its legal and factual defenses and, after consultation with legal counsel,
believes that all such litigation will be resolved without material effect on
financial position or results of operations.
15
<PAGE>
8. EARNING ASSETS AND INTEREST-BEARING LIABILITIES
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three month periods ended March 31,
1997, and March 31, 1996, with the interest rate earned or paid on such
amount.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31 March 31
1997 1996
------------------------------ ------------------------------
(Dollars in Average Avg. Average Avg.
Thousands) Balance Interest Rate Balance Interest Rate
<S><C>
ASSETS
Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other short-
term investments $ 4,599 $ 63 5.59% $ 12,189 $ 198 6.53%
Investment Securities:
Taxable 293,110 4,788 6.53% 269,592 4,053 6.01%
Tax-exempt (1) 35,112 819 9.33% 41,141 966 9.39%
---------- ------- ------ ---------- ------- ------
Total Securities 328,222 5,607 6.83% 310,733 5,019 6.46%
Loans, net of unearned
income (1) (2) 1,849,828 39,239 8.55% 1,739,491 37,651 8.71%
Allowance for loan
losses (22,272) (22,684)
---------- ----------
Net loans 1,827,557 8.66% 1,716,807 8.82%
---------- ------- ------ ---------- ------- ------
Total earning assets 2,160,377 $44,909 8.37% 2,039,729 $42,868 8.45%
------- ------ ------- ------
Other assets 139,446 152,816
---------- ----------
TOTAL ASSETS $2,299,823 $2,192,545
========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,591,906 $16,952 4.32% $1,521,865 $15,782 4.17%
Federal funds purchased,
repurchase agreements
and other short-term
borrowing 83,074 885 4.32% 82,476 932 4.54%
FHLB advances 93,311 1,321 5.74% 72,992 983 5.42%
---------- ------- ------ ---------- ------- ------
Total Interest-Bearing Funds 1,768,291 19,158 4.39% 1,677,333 17,697 4.24%
------- ------ ------- ------
Demand deposits 240,090 232,939
Accrued expenses and other
liabilities 29,866 29,476
---------- ----------
TOTAL LIABILITIES 2,038,247 1,939,748
Shareholders' Equity 261,576 252,797
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,299,823 $2,192,545
========== ==========
NET INTEREST INCOME $25,751 $25,171
======= =======
INTEREST SPREAD 3.98% 4.21%
NET INTEREST MARGIN 4.78% 4.96%
</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%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
16
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following 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.
OVERVIEW
Net income for the first quarter of 1997 was $10.05 million or $0.66 per share
compared to $8.09 million or $0.53 per share for the first quarter of 1996. This
represents a 24.22% increase in net income and a 24.53% increase in earnings per
share. United's annualized return on average assets was 1.77% and return on
average shareholders' equity was 15.58% as compared 1.48% and 12.97% for 1996,
respectively.
United has strong core earnings driven by a net interest margin of 4.78% for the
first three months of 1997. Net interest income increased $651 thousand or 2.66%
for the first three months of 1997 as compared to the same period for 1996. The
provision for loan losses decreased $11 thousand or 1.76% when comparing the
first three months of 1997 to the first three months of 1996. Noninterest
income, including income from mortgage banking operations, increased 13.99% for
the first three months of 1997 when compared to the first three months of 1996.
Noninterest expenses decreased $1.2 million or 8.00% for the first three months
compared to the same period in 1996. Income taxes were higher for the first
three months than for the same period of 1996 due to higher earnings before
taxes and nondeductible merger expenses in 1996.
Total assets were $2.3 billion at March 31, 1997, relatively flat with year-end,
but up 6.6% from one year ago. In terms of asset composition since year-end
1996, the March 31, 1997 balance sheet reflects a $12 million increase in
federal funds sold that was entirely offset by decreases in cash balances as
those funds were invested in short-term funds to maximize earnings from the
excess funds that United had temporarily available. Investment securities
reflected a $6 million increase while increases of $1.2 million and $1.7 million
were experienced in interest receivable and other assets, respectively. All
other categories of assets were moderately flat compared to year-end 1996.
Total deposits grew $52.4 million or 2.87% from year-end due to United's
introduction of new deposit products in late 1996. United's short-term
borrowings increased $5.2 million while its FHLB borrowings decreased $54
million as United utilized the increase in deposits to pay down the higher cost
FHLB borrowings. Accrued expenses and other liabilities reflect a $3.7 million
or 11.36% increase since year-end 1996 primarily as a result of increased
accrued interest payable due to the higher volume of interest-bearing deposits
at slightly higher interest rates for the first quarter of 1997.
17
<PAGE>
Shareholders' equity was relatively flat with December 31, 1996 as United
continues to maintain an appropriate balance between capital adequacy and
returns to shareholders. A primary tool used for capital management has been the
common stock repurchase program. At March 31, 1997, United's regulatory capital
ratios, including those of its bank subsidiaries, exceeded the levels
established for well-capitalized institutions.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income increased $651 thousand or 2.66% in the first quarter of
1997, when compared to the same period of 1996. The net interest margin
continues to drive United's core profitability and momentum. The increase was
primarily attributable to a $392 million increase in average earning assets for
the first quarter of 1997 when compared to the first quarter of 1996. United's
tax-equivalent net interest margin was 4.78% for the first quarter of 1997, 4
basis points higher than the immediately preceding quarter, but 18 basis points
less than the first three months of 1996. The lower net interest margin from one
year ago was the result of increased deposit and wholesale funding rates and a
reduced yield on the loan portfolio.
PROVISION FOR LOAN LOSSES
For the quarter ended March 31, 1997 and 1996, the provision for loan losses was
$600 thousand and $611 thousand, respectively. The allowance for loan losses as
a percentage of loans, net of unearned income, approximated 1.21% at both March
31, 1997 and December 31, 1996. Charge-offs exceeded recoveries during the first
quarter of 1997 and 1996 and resulted in net charge-offs of $601 thousand and
$441 thousand, respectively. Note 6 to the accompanying unaudited consolidated
financial statements provides a progression of the allowance for loan losses.
Loans, net of unearned income, decreased slightly by $1.1 million or 0.06% as
compared to year-end 1996.
Credit quality is another major factor in United's profitability. United's
continued excellent credit quality is evidenced by the low level of
nonperforming assets at the end of the first quarter of 1997. Nonperforming
loans increased $1.8 million or 17.63% to $12.0 million at March 31, 1997
compared to $10.2 million at year-end 1996 primarily due to a mid-sized
commercial loan being classified as nonaccrual during the quarter. Nonperforming
loans, as a percentage of loans, net of unearned income, increased from 0.55% to
0.65% when comparing these two respective periods. 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. Loans past due 90 days or more increased $310 thousand or
5.32% during the first quarter of 1997 and nonaccrual loans increased $1.5
million or 34.10% since year-end 1996. Total nonperforming assets of $13.9
million, including OREO of $1.9 million at March 31, 1997, represented 0.60% of
total assets at the end of the first quarter.
18
<PAGE>
As of March 31, 1997, the ratio of the allowance for loan losses to
nonperforming loans was 185.9% as compared to 218.6% as of December 31, 1996.
Accordingly, management believes that the allowance for loan losses of $22.3
million as of March 31, 1997, is adequate to provide for potential losses on
existing loans based on information currently available.
United evaluates the adequacy of the allowance for loan losses on a quarterly
basis. 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 loan losses. Such other factors considered by management, among
other things, included growth and composition of the loan portfolio, known
deterioration in certain classes of loans or collateral, trends in
delinquencies, and current economic conditions. United's loan administration
policies are focused upon the risk characteristics of the loan portfolio, both
in terms of loan approval and credit quality.
OTHER INCOME
Other income consists of all revenues which are not included in interest and fee
income related to earning assets. Noninterest income has been and will continue
to be an important factor for improving United's profitability. Recognizing the
importance, management continues to evaluate areas where noninterest income can
be enhanced. Noninterest income increased $501 thousand or 14.00% for the first
quarter of 1997 when compared to the first quarter of 1996. Excluding income
from mortgage banking operations, noninterest income increased $330 thousand or
9.54% for the first quarter primarily due to a combination of Eagle's former
offices conforming to United's higher fee structure and a higher volume of
customer transactions on accounts which are subject to a fee.
The overall increase in noninterest income was partially due to an increase in
the areas of income from mortgage banking operations, return check charges,
bankcard income and trust department commissions.
OTHER EXPENSES
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations to reduce
costs. Other expenses include all items of expense other than interest expense,
the provision for loan losses, and income taxes. Other expenses decreased
$1.2 million or 8.00% for the first quarter ending March 31, 1997 as compared
to the same periods in 1996.
Total salaries and benefits decreased by 2.60% or $175 thousand for the first
quarter of 1997, when compared to the same period of 1996.
Net occupancy expense for the first quarter of 1997 increased by $54 thousand or
3.92% when compared to the first quarter of 1996. The overall change in net
occupancy expense for the quarter of 1997 is primarily due to an increase in
building rental expense which was partially offset by lower utility bills.
19
<PAGE>
Other expenses decreased $1.1 million or 15.86% for the first quarter of 1997,
as compared to the same period of 1996. This overall decrease was primarily due
to decreases in advertising costs, merger related legal and accounting fees,
FDIC insurance and data processing fees. Most other major categories of other
expense were flat for the period.
INTEREST RATE SENSITIVITY
United seeks to achieve consistent growth in net interest income and net income
while managing volatility arising from shifts in interest rates. 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.
The difference between rate sensitive assets and rate sensitive liabilities for
specified periods of time is known as the "gap".
At United, interest rate risk is managed to minimize the impact of fluctuating
interest rates on earnings. At March 31, 1997, the results of United's internal
interest sensitivity analysis indicated that 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 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 results of management's assumption that the retail
deposit base is less sensitive to interest rate changes and reprices in a manner
consistent with historical trends. (See Management Adjustments in the GAP
table.) Using these estimates, United was liability sensitive in the one year
horizon in the amount of $(14.1) million or -0.64% of the cumulative gap to
related total 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-linked 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 relatively 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. At
March 31, 1997, United had $78.7 million in FHLB advances, which declined from
$132.6 million at December 31, 1996, as United paid down FHLB borrowings due to
sluggish loan growth during the first quarter of 1997.
20
<PAGE>
The following table shows the interest rate sensitivity GAP as of March 31,
1997:
Interest Rate Sensitivity Gap
<TABLE>
<CAPTION>
Days
---------------------------------- Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
----------------------- ---------- ---------- ---------- --------- ---------
(In Thousands)
<S><C>
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other short-
term investments $ 15,314 $ 15,314 $ 15,314
Investment and Marketable
Equity Securities:
Taxable 23,185 $ 7,445 $ 12,725 43,355 $ 121,546 $138,560 303,461
Tax-exempt 1,080 1,734 2,118 4,932 14,982 14,865 34,779
Loans, net of unearned
income 556,331 112,643 213,733 882,707 572,261 391,495 1,846,463
---------- ---------- --------- ---------- --------- -------- ----------
Total Interest-Earning
Assets $ 595,910 $ 121,822 $ 228,576 $ 946,308 $ 708,789 $544,920 $2,200,017
========== ========== ========= ========== ========= ======== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 736,891 $ 736,891 $ 736,891
Time deposits of
$100,000 & over 35,658 $ 35,805 $ 38,132 109,595 $ 41,025 $ 754 151,374
Other time deposits 173,672 155,115 189,416 518,203 207,017 20,313 745,533
Federal funds purchased,
repurchase agreements
and other short-term
borrowing 80,783 80,783 80,783
FHLB advances 50,000 25,000 75,000 3,668 78,668
---------- ---------- --------- ---------- --------- -------- ----------
Total Interest-Bearing
Funds $1,077,004 $ 215,920 $ 227,548 $1,520,472 $ 248,042 $ 24,735 $1,793,249
========== ========== ========= ========== ========= ======== ==========
Interest Sensitivity Gap $ (481,094) $ (94,098) $ 1,028 $ (574,164) $ 460,747 $520,185 $ 406,768
========== ========== ========= ========== ========= ======== ==========
Cumulative Gap $ (481,094) $ (575,192) $(574,164) $ (574,164) $(113,417) $406,768 $ 406,768
========== ========== ========= ========== ========= ======== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets -21.87% -26.14% -26.10% -26.10% -5.16% 18.49% 18.49%
Management
Adjustments 700,046 (46,693) (93,316) 560,037 (560,037) 0
Off-Balance
Sheet Activities ---------- ---------- --------- ---------- --------- -------- ----------
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities $ 218,952 $ 78,161 $ (14,127) $ (14,127) $(113,417) $406,768 $ 406,768
========== ========== ========= ========== ========= ======== ==========
Cumulative Management
Adjusted Gap and
Off-Balance Sheet
Activities as a
Percentage of Total
Earning Assets 9.95% 3.55% -0.64% -0.64% -5.16% 18.49% 18.49%
</TABLE>
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
United maintains, in the opinion of management, 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 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, loans held for sale and maturing loans
and investments 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 borrowing
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 that are 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 certificate of deposits for funding in the normal course of business.
United has signed a definitive agreement to acquire all of the outstanding
common stock of First Patriot Bankshares Corporation for $17.00 per share or
approximately $39 million in cash. United has not yet finalized the sources of
funding for this acquisition; however, it could involve a combination of funds
currently available, short-term borrowings, and long-term borrowings. United
believes it has adequate sources of funding available to complete this
acquisition.
22
<PAGE>
For the three months ended March 31, 1997, United generated $12.4 million of
cash from operations, which is indicative of solid earnings performance. During
the same period, net cash of $7.3 million was used in investing activities which
was primarily due to $6.7 million of net purchases of securities. During the
first three months of 1997 net cash of $4.6 million was used in financing
activities, primarily due to the net repayment of approximately $54 million of
FHLB advances, payment of approximately $5 million in cash dividends and $3.6
million for acquisitions of United shares under the stock repurchase program.
These uses of funds were partially offset by a $52.5 million increase in
deposits and a $5.2 million increase in other short-term borrowings. The net
effect of this activity was an increase in cash and cash equivalents of $531
thousand for the first three months of 1997.
United anticipates no difficulty in meeting 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.
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 help to protect net interest income against
fluctuations in interest rates. No changes are anticipated in the policies of
United's Asset and Liability Committee.
CAPITAL
Total shareholders' equity increased $1.1 million to $259.6 million, which is an
increase of 0.42% from December 31, 1996. United's equity to assets ratio was
11.11% at both March 31, 1997 and December 31, 1996. Capital and reserves to
total assets was 12.07% at both March 31, 1997 and December 31, 1996.
Cash dividends of $0.33 per common share for the first quarter of 1997 represent
an increase of 10.0% over the $.30 paid for first quarter of 1996. Total cash
dividends paid were approximately $5.0 million for the first quarter of 1997, an
increase of 21.68% over the comparable period of 1996.
United 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 11.37% at March 31, 1997 and 11.53 at March 31, 1996.
United's risk-based capital ratios of 16.47% at March 31, 1997 and 16.52% at
December 31, 1996, are both significantly higher than the minimum regulatory
requirements. United's Tier I capital and leverage ratios of 15.22% and 10.75%,
respectively, at March 31, 1997, are also well above regulatory minimum
requirements.
23
Exhibit 11
Statement Re: Computation of Earnings Per Share
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
For the Quarter Ended
March 31
------------------------------------
1997 1996
----------- ------------
<S><C>
PRIMARY:
Average Number of Common Shares 15,035,454 15,146,252
Average Number of Common Share
Equivalents 127,236 71,524
----------- -----------
Average Shares and Share
Equivalents Outstanding 15,162,690 15,217,776
=========== ===========
Net Income $10,048,000 $ 8,089,000
Preferred Dividends
----------- -----------
Available to Common Shares $10,048,000 $ 8,089,000
=========== ===========
Earnings Per Common Share: $0.66 $0.53
=========== ===========
FULLY DILUTED:
Average Number of Common Shares 15,035,454 15,146,252
Average Number of Common Share
Equivalents 138,151 71,524
----------- -----------
Average Shares and Share
Equivalents Outstanding 15,173,605 15,217,776
=========== ===========
Net Income $10,048,000 $ 8,089,000
Preferred Dividends
----------- -----------
Available to Common Shares $10,048,000 $ 8,089,000
=========== ===========
Earnings Per Common Share $0.66 $0.53
=========== ===========
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 74,737,000
<INT-BEARING-DEPOSITS> 314,000
<FED-FUNDS-SOLD> 15,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 165,290,000
<INVESTMENTS-CARRYING> 172,950,000
<INVESTMENTS-MARKET> 174,668,000
<LOANS> 1,846,463,000
<ALLOWANCE> 22,282,000
<TOTAL-ASSETS> 2,335,319,000
<DEPOSITS> 1,879,969,000
<SHORT-TERM> 80,783,000
<LIABILITIES-OTHER> 36,301,000
<LONG-TERM> 78,668,000
0
0
<COMMON> 38,238,000
<OTHER-SE> 221,360,000
<TOTAL-LIABILITIES-AND-EQUITY> 2,335,319,000
<INTEREST-LOAN> 38,917,000
<INTEREST-INVEST> 5,320,000
<INTEREST-OTHER> 63,000
<INTEREST-TOTAL> 44,300,000
<INTEREST-DEPOSIT> 16,952,000
<INTEREST-EXPENSE> 19,158,000
<INTEREST-INCOME-NET> 25,142,000
<LOAN-LOSSES> 600,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 13,627,000
<INCOME-PRETAX> 14,997,000
<INCOME-PRE-EXTRAORDINARY> 14,997,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,048,000
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 4.78
<LOANS-NON> 5,848,000
<LOANS-PAST> 6,141,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 22,283,000
<CHARGE-OFFS> 684,000
<RECOVERIES> 83,000
<ALLOWANCE-CLOSE> 22,282,000
<ALLOWANCE-DOMESTIC> 8,138,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,144,000
</TABLE>
