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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number: 0-13322
United Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8761
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
Common Stock, $2.50 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of United Bankshares, Inc. common stock,
representing all of its voting stock, that was held by non-affiliates on
February 28, 1997 was approximately $382,124,000.
As of February 28, 1997, United Bankshares, Inc. had 15,016,035 shares of
common stock outstanding with a par value of $2.50.
Documents Incorporated By Reference
1. Annual Report to Shareholders for the fiscal year ended December 31, 1996,
portions of which are incorporated by reference in Parts I, II and IV of this
Form 10-K.
2. Definitive Proxy Statement dated April 11, 1997 for the 1997 Annual
Shareholders' Meeting to be held on May 19, 1997, portions of which are
incorporated by reference in in Part III of this Form 10-K.
Page 1 of 109 pages. Index to Exhibits is on page 32 .
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UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
As of the date of filing this Annual Report, neither the annual shareholders'
report for the year ended December 31, 1996, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Part I Page
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Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 15
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . 16
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 20
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 30
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . 30
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UNITED BANKSHARES, INC.
FORM 10-K
(Continued)
CROSS-REFERENCE INDEX - CONTINUED
Part III Page
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 31
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 31
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 31
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 31
Part VI
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Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 32
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UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 1. BUSINESS
Item 2. PROPERTIES
The following discussion satisfies the reporting requirements of
Items 1 and 2.
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DESCRIPTION OF UNITED BANKSHARES, INC.
Organizational History and Subsidiaries
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United Bankshares, Inc. ("United") is a West Virginia corporation registered
as a bank holding company pursuant to the Bank Holding Company Act of 1956, as
amended. United was incorporated on March 26, 1982 and organized on September
9, 1982. United began conducting business on May 1, 1984 with the acquisition
of three wholly-owned subsidiaries. On October 1, 1985, these three
subsidiaries were merged and on November 1, 1985, were renamed United National
Bank ("UNB").
Since that time UNB has acquired through merger or consolidation the
following banks: Heritage Bancorp, Inc. (a holding company); First National
Bank of Ripley; Kanawha Banking and Trust Company; Ohio Valley National Bank;
Elk National Bank; Montgomery National Bank, the sole subsidiary of Liberty
Bancshares Inc., a bank holding company; First Bank of Ceredo, the bank
subsidiary of Financial Future Corporation, a bank holding company; CB&T
Westover Bank; the Star City Branch of Community Bank & Trust, N. A.; and First
Empire Federal Savings & Loan Association, the sole subsidiary of Eagle Bancorp,
Inc., a bank holding company.
On June 30, 1996 United formed United Mortgage Company, Inc., a wholly-owned
subsidiary of UNB, with its wholly-owned subsidiaries United Mortgage Center,
Inc. and United Home Lending Services, Inc. The business of United Mortgage
Company, Inc. and its subsidiaries is the origination of residential real estate
loans for resale, the conducting of mortgage loan servicing activities for
certain loans, and generally the activities commonly conducted by a mortgage
banking company.
On September 1, 1993, UBC Holding Company, ("UBC"), a United subsidiary, was
formed to effect the Financial Future Corporation transaction. UBC is a second
tier holding company with UNB currently being its only subsidiary.
On August 9, 1990, United acquired BankFirst Corporation ("BankFirst"), a
one bank holding company based in McLean, Virginia. BankFirst was merged with
UBF Holding Company, Inc. ("UBF"), a United subsidiary formed to effect this
acquisition. UBF acquired Bank First, N.A. ("Bank First"), the subsidiary of
BankFirst.
On October 11, 1995, United formed Commercial Interim Bank, Inc. ("Interim
Bank"), a state member bank located in Arlington, Virginia, to facilitate the
acquisition of First Commercial Bank of Arlington, Virginia ("FCB"). United
then merged Bank First into Interim Bank from its wholly owned subsidiary, UBF.
Concurrent with the merger of Bank First into Interim Bank, UBF was merged into
United. United acquired FCB on October 31, 1995 and merged it into Interim
Bank. United then effected a name change of Interim Bank to First Commercial
Bank. On March 18, 1996 First Commercial Bank's name was changed to United
Bank.
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United National Bank-South ("UNB-S"), was formed on November 1, 1992, as a
part of United's acquisition of Summit Holding Corporation and its lead bank,
Raleigh County National Bank. On January 27, 1996, UNB-S was merged into and
became a part of UNB. Offices of UNB-S became branch offices of UNB.
In December 1996, United Brokerage Services, Inc., a wholly-owned subsidiary
of UNB began operations. United Brokerage Services, Inc. is a fully-disclosed
broker/dealer and is a registered Investment Advisor with the National
Association of Securities Dealers, Inc. and the Securities and Exchange
Commission and a member of the Securities Investor Protection Corporation.
United Brokerage Services, Inc. offers a wide range of investment products as
well as comprehensive financial planning and asset management services to the
general public.
In late 1988, United chartered and capitalized United Venture Fund, Inc., a
West Virginia corporation which has qualified as a Capital Company under the
West Virginia Capital Company Act. This subsidiary makes loans and limited
equity investments, consistent with the Bank Holding Company Act, that will
result in or contribute to new jobs and/or industry in West Virginia.
Offices
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The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia.
The main office of UNB is located at 514 Market Street, Parkersburg, West
Virginia. United's corporate offices and UNB's executive offices are also
located in Parkersburg at Fifth and Avery Streets. Currently, all of UNB's
offices are located in West Virginia. UNB operates three branches in the
Parkersburg area, seven branches in the Charleston area, three branches in the
Morgantown area, two branches in Vienna, four branches in the Montgomery area,
two branches in Ripley, four branches in the Huntington area, four branches in
the Beckley area, five offices in the central region of West Virginia, one
office in the Danville area, three offices in the Logan area. UNB owns all of
these facilities except for two in the Parkersburg area, three in the Charleston
area, two in the Beckley area and one in Summersville, all of which are leased
under operating leases. UNB also owns and operates five branches throughout West
Virginia's northern panhandle. The main facility of UNB's Wheeling office is
leased from Ogden Newspapers, Inc. UNB also operates five branch facilities in
central West Virginia. UNB owns all five of these offices. Additionally, UNB
operates six loan production offices located in Beckley, Bridgeport, Charleston,
Martinsburg, Parkersburg, and Teays Valley, West Virginia.
United Bank conducts business from an office located at 3801 Wilson
Boulevard, Arlington, Virginia with a branch office at 1301 Beverly Road,
McLean, Virginia under a lease agreement.
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Employees
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As of December 31, 1996 United and its subsidiaries had approximately 893
full-time equivalent employees and officers. None of these employees is
represented by a collective bargaining unit, and management considers employee
relations to be excellent.
Business of United
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As a bank holding company registered under the Bank Holding Company Act of
1956, as amended, United's present business is the operation of its bank
subsidiaries. As of December 31, 1996, United's consolidated assets
approximated $2,326,877,000 and total shareholders' equity approximated
$258,514,000.
United is permitted to acquire other banks and bank holding companies, as
well as thrift institutions. United is also permitted to engage in certain non-
banking activities which are closely related to banking under the provisions of
the Bank Holding Company Act and the Federal Reserve Board's Regulation Y.
Management continues to consider such opportunities as they arise, and in this
regard, management from time to time makes inquiries, proposals, offers or
expressions of interest as to potential opportunities; although no agreements or
understandings to acquire other banks or bank holding companies or nonbanking
subsidiaries or to engage in other nonbanking activities, other than those
identified herein, presently exist.
Business of Subsidiary Banks
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All of United's subsidiary banks are full-service commercial banks and, as
such, engage in most types of business permitted by law and regulation.
Included among the banking services offered are the acceptance of deposits in
checking, savings, time and money market accounts; the making and servicing of
personal, commercial, floor plan and student loans; and the making of
construction and real estate loans. Also offered are individual retirement
accounts, safe deposit boxes, wire transfers and other standard banking products
and services. As a part of their lending function, UNB and United Bank offer
credit card services including accounts issued under the name of certain
correspondent banks.
UNB also maintains a trust department which acts as trustee under wills,
trust and pension and profit sharing plans, as executors and administrators of
estates, and as guardians for estates of minors and incompetents, and in
addition performs a variety of investment and security services. 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.
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UNB is member of a regional network of automated teller machines known as
the MAC ATM network while United Bank participates in the MOST network. Through
MAC and MOST, all of United's subsidiary banks are participants in a network
known as Cirrus which provides banking on a nationwide basis.
Lending Activities
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United's total loan portfolio, net of unearned income, increased
$114,619,000, or 6.6%, to $1,847,605,000, in 1996 and is comprised of
commercial, real estate and consumer loans including credit card and home equity
loans. Commercial and real estate loans increased $29,962,000 or 13.7% and
$92,307,000 or 7.2%, respectively, while consumer loans, net of unearned income,
increased $2,350,000 or 1.1%.
Commercial Loans
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The commercial loan portfolio consists of loans to corporate borrowers in
small to mid-size industrial and commercial companies, as well as automobile
dealers, service, retail and wholesale merchants. Coal mining companies make up
an insignificant portion of loans in the portfolio. Collateral securing these
loans includes equipment, machinery, inventory, receivables, vehicles and
commercial real estate. Commercial loans are considered to contain a higher
level of risk than other loan types although care is taken to minimize these
risks. Numerous risk factors impact this portfolio including industry specific
risks such as economy, new technology, labor rates and cyclicality, as well as
customer specific factors, such as cash flow, financial structure, operating
controls and asset quality. United diversifies risk within this portfolio by
closely monitoring industry concentrations and portfolios to ensure that it does
not exceed established lending guidelines. Diversification is intended to limit
the risk of loss from any single unexpected economic event or trend.
Underwriting standards require a comprehensive review and independent evaluation
of virtually all larger balance commercial loans by the loan committee prior to
approval with ongoing updates of the loan portfolio.
Real Estate Loans
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Commercial real estate loans consist of commercial mortgages, which
generally are secured by nonresidential and multi-family residential properties.
Also included in this portfolio are loans that are secured by owner-occupied
real estate, but made for purposes other than the construction or purchase of
real estate. Commercial real estate loans carry many of the same customers and
industry risks as the commercial loan portfolio. Real estate mortgage loans to
consumers are secured primarily by a first lien deed of trust. These loans are
traditional one-to-four family residential mortgages. The loans generally do
not exceed an 80% loan to value ratio at the loan origination date and most are
at a variable rate of interest. These loans are considered to contain normal
risk.
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Consumer Loans
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Consumer loans are secured by automobiles, boats, recreational vehicles, and
other personal property. Personal loans, home equity, student loans and
unsecured credit card receivables are also included as consumer loans. United
monitors the risk associated with these types of loans by monitoring such
factors as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors.
Underwriting Standards
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United's loan underwriting guidelines and standards are updated periodically
and are presented for approval by each of the respective Boards of Directors of
its subsidiary banks. The purpose of the standards and guidelines is to grant
loans on a sound and collectible basis; to invest available funds in a safe,
profitable manner; to serve the legitimate credit needs of the communities of
United's primary market area; and ensure that all loan applicants receive fair
and equal treatment in the lending process. It is the intent of the underwriting
guidelines and standards to: minimize loan losses by carefully investigating the
credit history of each applicant, verify the source of repayment and the ability
of the applicant to repay, collateralize those loans in which collateral is
deemed to be required, exercise care in the documentation of the application,
review, approval, and origination process, and administer a comprehensive loan
collection program. The above guidelines are adhered to and subject to the
experience, background and personal judgment of the loan officer assigned to the
loan application. A loan officer may grant and justify a loan with slight
variances from the underwriting guidelines and standards. However, the loan
officer may not exceed their respective lending authority without obtaining the
prior, proper approval from a superior, a regional supervisor, or the Loan
Committee, whichever is deemed appropriate for the nature of the variance.
Loan Origination and Processing
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United generally originates loans within the primary market area of its
banking subsidiaries. United may from time to time make loans to borrowers
and/or on properties outside of its primary market area as an accommodation to
its customers. Processing of all loans is centralized in the Charleston, West
Virginia office. United with the formation of United Home Lending Service, Inc.
has entered the mortgage banking business. As of December 31, 1996, the balance
of mortgage loans being serviced by United for others was $137,057,000.
Secondary Markets
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Historically, United had not been in the business of selling or purchasing
loans and had not originated loans with the intent to sell them in the secondary
market. During 1996, with the acquisition of
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Eagle Bancorp, Inc. and the formation of United Mortgage Company, Inc., During
1996, United originated $26,157,000 of real estate loans for sale in the
secondary market, designated $38,611,000 of existing real estate loans as held
for sale, and sold $63,631,000 of loans designated as held for sale in the
secondary market.
The principal sources of revenue from United's mortgage banking business are:
(i) loan origination fees; (ii) gains or losses from the sale of loans, if any;
(iii) interest earned on mortgage loans during the period that they are held by
United pending sale; (iv) loan servicing fees; and (v) gain or loss on the close
out of the hedge instrument used to offset the risk that changes in interest
rate may have on the value of United's mortgage loan inventory.
Investment Activities
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United's investment policy stresses the management of the investment
securities portfolio, which includes both securities held to maturity and
securities available for sale, to maximize return over the long-term in a manner
that is consistent with good banking practices and relative safety of principal.
United currently does not engage in trading account activity. The
Asset/Liability Committee of United is responsible for the coordination and
evaluation of the investment portfolio.
Sources of funds for investment activities include "core deposits". Core
deposits include certain demand deposits, statement and special savings and NOW
accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase and FHLB borrowings. Repurchase
agreements represent funds 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 1996, United realized net losses of $98,000 from sales in the
securities available for sale portfolio. The sales of these securities occurred
as United adjusted the securities available for sale portfolio, including those
acquired in the Eagle Bancorp, Inc. merger, 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. There
were no securities sales in 1995.
Additionally, United has used an off-balance-sheet instrument known as an
interest rate swap, to further aid in interest rate risk
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management. The use of the interest rate swap is a cost effective means of
synthetically altering the repricing structure of certain balance sheet items.
The interest rate swap transaction involves the exchange of a floating interest
rate payment based on the one month London inter-bank offered rate (LIBOR) for a
fixed rate receipt based on the U. S. three year Treasury note. The net pay and
receive amount is calculated on an underlying notional amount without the
exchange of the underlying principal amount. The interest rate swap subjects
United to market risk associated with changes in interest rates, as well as the
risk that the counterparty will fail to perform. Performance risk is considered
nominal by virtue of the caliber of the parties involved. Only the interest
payments are exchanged, and therefor, cash requirements and exposure to credit
risk are significantly less than the notional amount.
The interest rate swap was entered into early in 1994 in response to
tactical asset/liability management considerations; specifically, in response to
declining market interest rates during 1993 and United's net interest margin
being compressed due to the asset sensitivity position of the balance sheet.
The interest rate swap was to adjust the asset sensitivity to within United's
policy of +10% or -10% of earning assets. The interest rate swap was entered
into specifically to hedge prime rate indexed loans and swap a variable rate for
a fixed rate.
At December 31, 1996, the total notional amount of the interest rate swap in
effect was only $50 million. The swap matured in February 1997. During 1996,
the interest rate swap reduced net interest income by $526,000. This impact was
offset by higher net interest revenue generated by the on-balance sheet
instruments hedged by the interest rate swap and produced a higher rate of
return and net interest margin. United did not have interest rate swaps prior to
1994. For further details, see Interest Rate Sensitivity and the related
Interest Rate Sensitivity Gap in Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note J to the Consolidated
Financial Statements.
Additionally, United enters into hedging transactions to offset the risk
that a change in interest rates will result in a decrease in the value of
United's current mortgage loan inventory or its commitments to originate
mortgage loans (the "pipeline"). The pipeline is analyzed on a loan-by-loan
basis to estimate the exposure to loss based on the market price, commitment
price and time to expiration. The risk of loss is then matched with the
appropriate hedge vehicle. United primarily utilizes forward contracts for the
delivery of mortgage-backed securities as hedge vehicles. United's policies
generally require that it hedge substantially all of its inventory of conforming
and government loans and the maximum portion of its pipeline that may close.
The mortgage-backed securities that are to be delivered under these contracts
are fixed or adjustable-rate, corresponding with the composition of United's
inventory and pipeline. The correlation between the price performance of the
hedge vehicles and the inventory being hedged is very high due to the similarity
of the asset and the related hedge vehicle. At December 31, 1996, United had
open commitments
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amounting to approximately $6,000,000 to sell mortgage-backed securities with
varying settlement dates generally not extending beyond March 1997. As such,
United is not exposed to significant risk nor will it derive any significant
benefit from changes in interest rates on the price of the mortgage loan
inventory, net of gains or losses of associated hedge positions.
Operating Subsidiaries
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During 1996, UNB chartered two operating subsidiaries, United Brokerage
Services, Inc. and United Mortgage Company, Inc.
United Brokerage Services, Inc. is a fully-disclosed broker/dealer and a
registered Investment Advisor with the National Association of Securities
Dealers, Inc. and the Securities and Exchange Commission and a member of the
Securities Investor Protection Corporation. United Brokerage Services, Inc.
offers a wide range of investment products as well as comprehensive financial
planning and asset management services to the general public.
United Mortgage Company, Inc. was formed in connection with the merger of
Eagle Bancorp, Inc. ("Eagle") with and into United and the related merger of
First Empire Federal Savings and Loan Association ("First Empire") with and into
UNB. In accordance with the merger agreement, UNB requested and received
regulatory approval to form and operate United Mortgage Company, Inc. The
business of United Mortgage Company, Inc. will be the origination and
acquisition of residential real estate loans for resale, the conducting of
mortgage loan servicing activities for certain loans, and generally the
activities commonly conducted by a mortgage banking company.
Competition
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United faces a high degree of competition in nearly all of the markets it
serves. These markets may generally be defined as Wood, Kanawha, Monongalia,
Jackson, Cabell, Hancock, Ohio, Marshall, Gilmer, Lewis, Webster, Boone, Logan,
Nicholas, Fayette and Raleigh Counties in West Virginia; Lawrence, Belmont,
Jefferson and Washington Counties in Ohio; and Arlington and Fairfax Counties in
Virginia, located adjacent to the Washington D.C. area, which is in close
proximity to West Virginia's eastern panhandle. United competes in Ohio markets
because of the close proximity to the Ohio border of certain subsidiary offices.
Included in United's markets are the Parkersburg Metropolitan Statistical Area
(MSA), the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton
MSA. These represent the five largest West Virginia MSA's. United considers
the above counties and MSA's to be the primary market area for the business of
its banking subsidiaries.
West Virginia banks are permitted unlimited branch banking throughout the
state. In addition, interstate acquisitions of and by West Virginia banks and
bank holding companies are permissible on a reciprocal basis. West Virginia
also allows reciprocal interstate acquisitions by thrift institutions. These
conditions serve to intensify competition within United's market.
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As of December 31, 1996, there were 14 multi-bank holding companies and 37
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, which
compete for business as well as for the acquisition of additional banks.
Economic Characteristics of Primary Market Area
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Although the market area of the banking subsidiaries encompass a portion of
the coal fields located in southern West Virginia, an area of the state which
has been economically depressed, the coal related loans in the loan portfolio of
the banking subsidiaries constitute less than 2% of United's total loans
outstanding. The state of West Virginia has a more diversified economy than it
had during the peak periods of coal production with the chemical manufacturing
industry accounting for 19% of the entire manufacturing workforce and 33% of the
manufacturing wages, according to West Virginia state records. This diversified
economy has contributed to the positive trends in the personal income and
unemployment rates in recent years as personal income has increased from $14,315
in 1991 to $18,672 in mid-1996 and the state's overall unemployment rate has
declined from 10.5% in 1991 to 6.5% in July 1996 -the lowest unemployment rate
in nearly 20 years, according to available information from the West Virginia
Bureau of Employment Programs.
Eleven of the 16 counties within United's primary West Virginia market area
rank among the state's top twenty counties in terms of personal income and low
unemployment rates. United generally serves the stronger economic areas of the
state while maintaining a satisfactory CRA rating.
Regulation and Supervision
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United, as a bank holding company, is subject to the restrictions of the
Bank Holding Company Act of 1956, as amended, and is registered pursuant to its
provisions. As such, United is subject to the reporting requirements of and
examination by the Board of Governors of the Federal Reserve System ("Board of
Governors").
The Bank Holding Company Act prohibits the acquisition by a bank holding
company of direct or indirect ownership of more than five percent of the voting
shares of any bank within the United States without prior approval of the Board
of Governors. With certain exceptions, a bank holding company also is
prohibited from acquiring direct or indirect ownership or control of more than
five percent of the voting shares of any company which is not a bank, and from
engaging directly or indirectly in business unrelated to the business of
banking, or managing or controlling banks.
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The Board of Governors of the Federal Reserve System, in its Regulation Y,
permits bank holding companies to engage in non-banking activities closely
related to banking or managing or controlling banks. Approval of the Board of
Governors is necessary to engage in these activities or to make acquisitions of
corporations engaging in these activities. In addition, on a case by case
basis, the Board of Governors may approve other non-banking activities.
As a bank holding company doing business in West Virginia, United is also
subject to regulation and examination by the West Virginia Board of Banking and
Financial Institutions (the "West Virginia Banking Board") and must submit
annual reports to the department. Further, any acquisition application which
United must submit to the Board of Governors must also be submitted to the West
Virginia Banking Board for approval.
United is also registered under and is subject to the requirements of the
Securities Exchange Act of 1934, as amended.
UNB, as national banking associations, is subject to supervision,
examination and regulation by the Office of the Comptroller of the Currency.
UNB is also a member of the Federal Reserve System, and as such, is subject to
applicable provisions of the Federal Reserve Act and regulations issued
thereunder.
United Bank, as a Virginia state member bank, is subject to supervision,
examination and regulation by the Federal Reserve System, and as such, is
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder. United Bank is subject to regulation by the Virginia
Corporation Commission's Bureau of Financial Institutions.
The deposits of United's wholly-owned banking subsidiaries are insured by
the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by
law. Accordingly, these banks are also subject to regulation by the FDIC.
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UNITED BANKSHARES, INC.
FORM 10-K, PART I
Item 3. Legal Proceedings
Litigation
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Information relating to litigation on page 33 of the Annual Report to
Shareholders for the year ended December 31, 1996, is incorporated herein by
reference.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.
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UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
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Stock
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As of December 31, 1996, 20,000,000 shares of common stock, par value $2.50
per share, were authorized for United, of which 15,295,130 were issued,
including 205,495 shares held as treasury shares. The outstanding shares are
held by approximately 5,217 shareholders of record as of December 31, 1996. 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. While there are no
present plans, understandings, arrangements or agreements, except for the above
incentive plans, additional shares could be issued for the purpose of raising
capital, in connection with acquisitions of other businesses, or for other
appropriate purposes.
The Board of Directors believes that the availability of authorized but
unissued common stock of United is of considerable value if opportunities should
arise for the acquisition of another business through the issuance of United's
stock. Shareholders do not have preemptive rights, which allows United to issue
additional authorized shares without first offering them to current
shareholders.
United has only one class of stock and all voting rights are vested in the
holders of United's stock. On all matters subject to a vote of shareholders,
the shareholders of United will be entitled to one vote for each share of common
stock owned. Shareholders of United have cumulative voting rights with regard
to election of directors. At the present time, no senior securities of United
are outstanding, nor does the Board of Directors presently contemplate issuing
senior securities.
There are no preemptive or conversion rights or, redemption or sinking fund
provisions with respect to United's Stock. All of the issued and outstanding
shares of United's stock are fully paid and non-assessable.
Dividends
- ---------
The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Dividends were
$1.24 per share in 1996, $1.17 per share in 1995 and $1.06 per share in 1994.
Dividends are paid from funds legally available; therefore, the payment of
dividends is subject to the restrictions set forth in the West Virginia
Corporation Act. See "Market and Stock Prices of United" for quarterly dividend
information.
17
<PAGE>
Payment of Dividends by United is dependent upon payment of dividends to it by
its subsidiary banks. The ability of national banks to pay dividends is subject
to certain limitations imposed by the national banking laws. Generally, the
most restrictive provision requires approval by the Office of the Comptroller of
the Currency ("OCC") if dividends declared in any year exceed the year's net
income, as defined, plus the retained net profits of the two preceding years.
Payment of dividends by United's state member bank is regulated by the Federal
Reserve System and generally, the prior approval of the Federal Reserve Board
("FRB") is required if the total dividends declared by a state member bank in
any calendar year exceeds its net profits, as defined, for that year combined
with its retained net profits for the preceding two years. Additionally, prior
approval of both the OCC and the FRB is required when a national bank or state
member bank has deficit retained earnings but has sufficient current year's net
income, as defined, plus the retained net profits of the two preceding years.
The OCC and FRB may prohibit dividends if it deems the payment to be an unsafe
or unsound banking practice. The OCC has issued guidelines for dividend
payments by national banks, emphasizing that proper dividend size depends on the
bank's earnings and capital while the FRB has issued similar guidelines
pertaining to state member banks. See Note M - Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
Market and Stock Prices of United
- ---------------------------------
United Bankshares, Inc. stock is traded over the counter on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") under
the trading symbol UBSI.
The following table presents the dividends and high and low prices of
United's common stock during the periods set forth below:
<TABLE>
<CAPTION>
United Historical
Basis
-------------------
1997 Dividends High Low
---- --------- ------ ------
<S> <C> <C> <C>
First Quarter through
February 28, 1997 (1) $34.50 $32.25
1996
----
Fourth Quarter $0.32 $33.00 $29.25
Third Quarter $0.31 $30.25 $26.25
Second Quarter $0.31 $29.75 $26.75
First Quarter $0.30 $30.00 $28.50
1995
----
Fourth Quarter $0.30 $31.00 $29.00
Third Quarter $0.29 $30.50 $26.25
Second Quarter $0.29 $27.75 $25.25
First Quarter $0.29 $26.00 $23.25
</TABLE>
(1) On February 27, 1997, United declared a dividend of $0.33 per share, payable
April 1, 1997, to shareholders of record as of March 14, 1997.
18
<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 fairly represent the amounts at which
United's stock was traded during the periods indicated.
19
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
Information relating to selected financial data on page 41 of the Annual
Report to Shareholders for the year ended December 31, 1996, is incorporated
herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 42 through 54 inclusive, of the Annual Report to
Shareholders for the year ended December 31, 1996, is incorporated herein by
reference.
20
<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, 1996,
1995 and 1994 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
1996 1995 1994
---------------------------------- ---------------------------------- ------------------------------
(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 $ 2,996 $ 157 5.24% $ 18,365 $ 1,107 6.03% $ 15,325 $ 703 4.59%
Investment Securities:
Taxable 292,339 18,455 6.31% 297,963 18,516 6.21% 354,930 19,397 5.47%
Tax exempt (1) 38,282 3,603 9.41% 46,924 4,560 9.72% 52,709 5,429 10.30%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total Securities 330,621 22,058 6.67% 344,887 23,076 6.69% 407,639 24,826 6.09%
Loans, net of unearned
income (1) (2) 1,786,376 152,615 8.54% 1,673,568 144,594 8.64% 1,556,844 125,184 8.04%
Allowance for possible loan
losses (22,660) (22,685) (21,723)
---------- ---------- ----------
Net Loans 1,763,716 8.65% 1,650,883 8.76% 1,535,121 8.15%
---------- ---------- -------- ----------- ---------- ------- ---------- --------- -------
Total earning assets 2,097,333 174,830 8.34% 2,014,135 168,777 8.38% 1,958,085 150,713 7.70%
---------- ---------- ---------
Other assets 166,095 148,625 149,391
-------- ---------- ----------
TOTAL ASSETS $2,263,428 $2,162,760 $2,107,476
========== ========== ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $1,536,641 $ 63,917 4.16% $1,510,880 $ 62,231 4.12% $1,465,203 $ 49,136 3.35%
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 87,015 3,770 4.33% 83,016 3,809 4.59% 78,699 2,571 3.27%
FHLB advances 99,184 5,498 5.54% 69,580 4,127 5.93% 78,701 3,965 5.04%
---------- ---------- -------- ---------- ---------- ------- ---------- --------- -------
Total Interest-Bearing
Funds 1,722,840 73,185 4.25% 1,663,476 70,167 4.22% 1,622,603 55,672 3.43%
---------- ---------- ---------
Demand deposits 251,641 234,455 240,062
Accrued expenses and
other liabilities 34,292 28,115 22,524
---------- ---------- ----------
TOTAL LIABILITIES 2,008,773 1,926,046 1,885,189
Shareholders' Equity 254,655 236,714 222,287
---------- ---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,263,428 $2,162,760 $2,107,476
========== ========== ==========
NET INTEREST INCOME $ 101,645 $ 98,610 $ 95,041
========== ========== =========
INTEREST SPREAD 4.09% 4.16% 4.27%
NET INTEREST MARGIN 4.85% 4.90% 4.85%
</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.
21
<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>
1996 Compared to 1995 1995 Compared to 1994
------------------------------------- --------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------- --------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
------- -------- ------ ------- ------- -------- ----- -------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold, securities purchased
under agreements to resell and other
short-term investments ($926) ($ 145) $ 121 ($ 950) $ 139 $ 221 $ 44 $ 404
Investment securities:
Taxable (349) 294 (6) (61) (3,113) 2,659 (427) (861)
Tax exempt (1) (840) (144) 27 (957) (596) (307) 34 (869)
Loans (1),(2) 9,881 (1,741) (119) 8,021 9,440 9,271 699 19,410
------- -------- ----- ------- ------- -------- ----- -------
TOTAL INTEREST INCOME 7,766 (1,736) 23 6,053 5,870 11,844 350 18,064
------- -------- ----- ------- ------- -------- ----- -------
Interest expense:
Interest-bearing deposits $ 1,061 $ 641 $ 11 $ 1,686 1,532 11,214 350 13,096
Federal funds purchased, repurchase
agreements, and other short-term
borrowings 183 (212) (10) (39) 141 1,040 56 1,237
FHLB advances 1,756 (270) (115) 1,371 (460) 703 (81) 162
------- -------- ----- ------- ------- -------- ----- -------
TOTAL INTEREST EXPENSE 3,000 132 (114) 3,018 1,213 12,957 325 14,495
------- -------- ----- ------- ------- -------- ----- -------
NET INTEREST INCOME $ 4,766 ($1,868) $ 137 $ 3,035 $ 4,657 ($1,113) $ 25 $ 3,569
======= ======== ===== ======= ======= ======== ===== =======
</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%.
(2) Nonaccruing loans are included in the daily average loan amounts
outstanding.
22
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
LOAN PORTFOLIO
TYPES OF LOANS
The following is a summary of loans outstanding at December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 248,762 $ 218,800 $ 208,491 $ 218,559 $ 218,370
Real estate mortgage 1,329,661 1,267,889 1,194,805 1,003,546 887,444
Real estate construction 42,343 21,808 17,523 14,651 16,632
Consumer 232,004 229,457 237,928 233,698 250,527
Less: Unearned interest (5,165) (4,968) (6,472) (7,880) (9,390)
---------- ---------- ---------- ---------- ----------
Total loans 1,847,605 1,732,986 1,652,275 1,462,574 1,363,583
Allowance for possible
loan losses (22,283) (22,545) (22,304) (20,975) (17,485)
---------- ---------- ---------- ---------- ----------
TOTAL LOANS, NET $1,825,322 $1,710,441 $1,629,971 $1,441,599 $1,346,098
========== ========== ========== ========== ==========
</TABLE>
At December 31, 1996, real estate mortgage loans include $954,482,000 in single
family residential real estate loans and $355,431,000 in commercial real estate
loans.
The following is a summary of loans outstanding as a percent of total loans at
December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural 13.46% 12.59% 12.57% 14.86% 15.90%
Real estate mortgage 71.97% 72.96% 72.03% 68.25% 64.64%
Real estate construction 2.29% 1.25% 1.06% 1.00% 1.21%
Consumer 12.28% 13.20% 14.34% 15.89% 18.25%
------ ------ ------ ------ ------
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 and real estate construction outstanding as of December 31,
1996:
<TABLE>
<CAPTION>
Less Than One To Greater Than
One Year Five Years Five Years Total
--------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 64,403 $92,050 $92,309 $248,762
Real estate construction 42,343 42,343
-------- ------- ------- --------
Total $106,746 $92,050 $92,309 $291,105
======== ======= ======= ========
</TABLE>
23
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 1996, 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
---------- ----------
(In thousands)
<S> <C> <C>
Outstanding with fixed interest rates $53,066 $21,324
Outstanding with adjustable rates 38,984 70,985
------- -------
$92,050 $92,309
======= =======
</TABLE>
There were no real estate construction loans with maturities greater than one
year.
RISK ELEMENTS
Nonperforming Loans
Nonperforming loans include loans on which no interest is currently being
accrued, loans which are past due 90 days or more as to principal or interest
payments, and loans for which the terms have been modified due to a
deterioration in the financial position of the borrower. Management is not aware
of any other significant loans, groups of loans, or segments of the loan
portfolio not included below where there are serious doubts as to the ability
of the borrowers to comply with the present loan repayment terms. The following
table summarizes nonperforming loans for the indicated periods.
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------ ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 4,361 $ 6,298 $4,719 $ 9,687 $13,382
Troubled debt restructurings 2,453 1,355
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 5,831 4,692 2,851 3,080 2,516
------- ------- ------ ------- -------
TOTAL $10,192 $10,990 $7,570 $15,220 $17,253
======= ======= ====== ======= =======
</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 D to the consolidated financial statements for
additional information regarding nonperforming loans and credit risk
concentration.
24
<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,:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 77,704 $ 15,897 $ 87,848
States and political subdivisions 36,136 43,324 53,297
Mortgage-backed securities 54,977 56,416 99,144
Other 1,885 6,252 11,112
-------- -------- --------
TOTAL INVESTMENT SECURITIES $170,702 $121,889 $251,401
======== ======== ========
</TABLE>
The following is a summary of the amortized cost of available for sale
securities at December 31,:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $115,018 $150,460 $103,292
Mortgage-backed securities 24,982 30,036 2,663
Marketable equity securities 3,655 2,662 1,529
Other 16,506 13,808 13,898
-------- -------- --------
TOTAL AVAILABLE-FOR-SALE SECURITIES $160,161 $194,696 $121,382
======== ======== ========
</TABLE>
The fair value of mortgage-backed securities is affected by changes in interest
rates and prepayment risk. When interest rates decline, prepayment speeds
generally accelerate due to homeowners refinancing their mortgages at lower
interest rates. This may result in the proceeds being reinvested at lower
interest rates. Rising interest rates may decrease the assumed prepayment
speed. Slower prepayment speeds may extend the maturity of the security beyond
its assumed prepayment speed. Therefore, investors may not be able to invest at
current higher market rates due to the extended expected maturity of the
security. United had a net unrealized loss of $977,000 on all mortgage-backed
securities at December 31, 1996, as compared to a net unrealized loss of
$158,000 at December 31, 1995. This decrease in value from 1995 to 1996 is
consistent with the increase in interest rates during 1996.
The following table sets forth the maturities of all securities at December 31,
1996, 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
------- ------ -------- ------ -------- ------ ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government agencies
and corporations $29,006 5.64% $135,940 6.27% $68,670 7.53% $38,592 6.66%
States and political
subdivisions (1) 5,142 9.53% 12,277 9.10% 8,820 9.09% 9,897 9.13%
Other 6,830 3.88% 2,726 7.74% 126 6.47% 14,305 6.27%
</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.
25
<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
---------- -----------------
(In thousands)
<S> <C> <C>
At December 31:
1996 $ 4,491 $ 71,091
1995 26,378 55,789
1994 4,582 67,227
Weighted average interest rate
at year end:
1996 6.8% 4.2%
1995 5.9% 4.4%
1994 5.7% 4.1%
Maximum amount outstanding at
any month's end:
1996 $33,510 $ 79,664
1995 33,941 81,720
1994 25,089 103,486
Average amount outstanding during
the year:
1996 $20,685 $ 66,463
1995 12,264 70,752
1994 10,178 68,521
Weighted average interest rate
during the year:
1996 5.6% 4.0%
1995 6.0% 4.3%
1994 4.3% 3.1%
</TABLE>
At December 31, 1996, repurchase agreements include $65,561,000 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.
26
<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>
1996 1995 1994
----------------- ---------------- --------------
Amount Rate Amount Rate Amount Rate
--------- ---- -------- ---- --------- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 251,641 $ 234,455 $ 240,062
Interest bearing
demand deposits 127,867 2.50% 268,108 2.33% 285,354 2.43%
Savings deposits 581,117 2.69% 464,107 3.16% 537,783 2.99%
Time deposits 827,657 5.45% 778,665 5.31% 642,066 4.06%
---------- ---------- ----------
TOTAL $1,788,282 4.16% $1,745,335 4.12% $1,705,265 3.35%
========== ========== ==========
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
3 months or less $ 41,124
Over 3 through 6 months 30,412
Over 6 through 12 months 32,333
Over 12 months 34,567
--------
TOTAL $138,436
========
</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>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Return on average assets 1.35% 1.52% 1.44%
Return on average equity 11.98% 13.86% 13.67%
Dividend payout ratio (1) 58.49% 49.21% 50.61%
Average equity to average
assets ratio 11.25% 10.94% 10.55%
</TABLE>
(1) Based on historical results of United before the effects of restatements for
pooling of interests business combinations.
27
<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>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance for possible loan
losses at beginning of year $ 22,545 $ 22,304 $ 20,975 $ 17,485 $ 15,114
Allowance of purchased company at date
of acquisition 1,017 504 2,784
Loans charged off:
Commercial, financial and agricultural 2,207 1,952 708 1,088 3,108
Real estate 230 722 82 711 1,537
Real estate construction
Consumer and other 1,087 950 980 1,015 1,304
---------- ---------- ---------- ---------- ----------
TOTAL CHARGE-OFFS 3,524 3,624 1,770 2,814 5,949
Recoveries:
Commercial, financial and agricultural 219 189 577 438 168
Real estate 135 65 13 231 154
Real estate construction
Consumer and other 298 274 307 301 406
---------- ---------- ---------- ---------- ----------
TOTAL RECOVERIES 652 528 897 970 728
NET LOANS CHARGED OFF 2,872 3,096 873 1,844 5,221
Addition to allowance (1) 2,610 2,320 2,202 4,830 4,808
---------- ---------- ---------- ---------- ----------
BALANCE OF ALLOWANCE FOR POSSIBLE
LOAN LOSSES AT END OF YEAR $ 22,283 $ 22,545 $ 22,304 $ 20,975 $ 17,485
========== ========== ========== ========== ==========
Totals loans outstanding at the end of period $1,847,605 $1,732,986 $1,652,275 $1,462,574 $1,363,583
Average loans outstanding during
period (net of unearned income) $1,786,376 $1,673,568 $1,556,844 $1,402,609 $1,219,039
Net charge-offs as a percentage of
average loans outstanding 0.16% 0.18% 0.06% 0.13% 0.43%
Allowance for possible loan losses as
a percentage of nonperforming loans 218.6% 205.1% 294.6% 137.8% 101.3%
</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 loan losses is adequate
to absorb anticipated losses.
28
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
<TABLE>
<CAPTION>
Allocation of allowance for
possible loan losses at
December 31,: 1996 1995 1994 1993 1992
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $7,175 $6,891 $7,526 $ 8,109 $ 6,406
Real estate 667 771 613 476 1,375
Real estate construction
Consumer and other 1,072 1,484 1,313 1,733 5,481
------ ------ ------ ------- -------
Total $8,914 $9,146 $9,452 $10,318 $13,262
====== ====== ====== ======= =======
</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 Allowance per Category To
Total Allocated Allowance
- ------------------------------
1996 1995 1994 1993 1992
------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural 80.49% 74.62% 79.62% 78.59% 48.30%
Real estate 7.48% 8.66% 6.49% 4.61% 10.37%
Real estate construction
Consumer and other 12.03% 16.72% 13.89% 16.80% 41.33%
------ ------ ------ ------ ------
Total 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ======
</TABLE>
29
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 8. Financial Statements and Supplementary Data
(a) -- FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X
Information relating to financial statements on pages 11 through 40
inclusive of the Annual Report to Shareholders for the year ended December 31,
1996, is incorporated herein by reference.
(b) -- SUPPLEMENTARY FINANCIAL INFORMATION
(1) Selected Quarterly Financial Data
Information relating to selected quarterly financial data on page 40 of
the Annual Report to Shareholders for the year ended December 31, 1996, is
incorporated herein by reference.
(2) Information on the Effects of Changing Prices
Information relating to effects of changing prices on page 47 of the
Annual Report to Shareholders for the year ended December 31, 1996, is
incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
30
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K, PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the registrant on
pges 2 through 7 inclusive, of the Proxy Statement for the 1997 Annual
Shareholders' Meeting is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 8 through 11
inclusive, of the Proxy Statement for the 1997 Annual Shareholders' Meeting is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management on pages 2 through 6 inclusive, of the Proxy Statement for the 1997
Annual Shareholders' Meeting is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions on
pages 2, 3, 6 and 14 of the Proxy Statement for the 1997 Annual Shareholders'
Meeting is incorporated herein by reference.
The following discussion satisfies the reporting
requirements of Items 10 through 13.
31
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K, PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) List of Documents Filed as Part of This Report:
(1) Financial Statements
The financial statements listed below are incorporated herein by
reference from the Annual Report to Shareholders for the year ended December 31,
1996 at Item 8a. Page references are to such Annual report.
Financial Statements: Page Reference
- --------------------- --------------
Report of Independent Auditors ................................. 11
Consolidated Balance Sheets .................................... 12
Consolidated Statements of Income .............................. 13
Consolidated Statements of Changes in Shareholders' Equity...... 14
Consolidated Statements of Cash Flows........................... 15
Notes to Consolidated Financial Statements...................... 16
(2) Financial Statement Schedules
United is not filing separate financial statement schedules because
of the absence of conditions under which they are required or because the
required information is included in the consolidated financial statements or
notes thereto.
(3) Exhibits Required by item 601
Listing of Exhibits -- See the Exhibits' Index on page 34 of this
Form 10-K.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended
December 31, 1996.
(c) Exhibits
The exhibits to this Form 10-K begin on page 37.
(d) Consolidated Financial Statement Schedules -- All other schedules
for which provision is made in the applicable accounting regulation
of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable or pertain to items as to
which the required disclosures have been made elsewhere in the
financial statements and notes thereto, and therefor have been
omitted.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITED BANKSHARES, INC.
(Registrant)
By /s/ Richard M. Adams
--------------------------------
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Richard M. Adams Chairman of the Board, March 27, 1997
- ----------------------------- Director, Chief
Executive Officer
/s/ I. N. Smith President and Director March 27, 1997
- -----------------------------
/s/ Steven E. Wilson March 27, 1997
- ----------------------------- Chief Financial Officer
Chief Accounting Officer
/s/ William C. Pitt, III Director March 27, 1997
- -----------------------------
/s/ H. Smoot Fahlgren Director March 27, 1997
- -----------------------------
/s/ Russell L. Isaacs Director March 27, 1997
- -----------------------------
/s/ F. T. Graff, Jr. Director March 27, 1997
- -----------------------------
/s/ Warren A. Thornhill, III Director March 27, 1997
- -----------------------------
/s/ H. L. Wilkes Director March 27, 1997
- -----------------------------
/s/ Robert P. McLean Director March 27, 1997
- -----------------------------
/s/ G. Ogden Nutting Director March 27, 1997
- -----------------------------
/s/ Harry L. Buch Director March 27, 1997
- -----------------------------
/s/ Robert G. Astorg Director March 27, 1997
- -----------------------------
/s/ C. E. Goodwin Director March 27, 1997
- -----------------------------
</TABLE>
33
<PAGE>
SIGNATURES
(continued)
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ P. Clinton Winter, Jr. Director March 27, 1997
- -------------------------------
/s/ Douglass H. Adams Director March 27, 1997
- -------------------------------
/s/ R. Terry Butcher Director March 27, 1997
- -------------------------------
/s/ James W. Word, Jr. Director March 27, 1997
- -------------------------------
</TABLE>
34
<PAGE>
UNITED BANKSHARES, INC.
FORM 10-K
INDEX TO EXHIBITS
Item 14.
<TABLE>
<CAPTION>
S-K Item 601 Sequential Page
Description Table Reference Number (a)
- ----------- --------------- ---------------
<S> <C> <C>
Articles of Incorporation and
Bylaws: (3)
(a) Bylaws (g)
(b) Articles of Incorporation (f)
Investments (4) N/A
Voting Trust Agreement (9) N/A
Material Contracts (10)
(a) Employment Agreement with
I. N. Smith, Jr. (b)
(b) Employment Agreement with
Richard M. Adams (e)
(c) Lease on Branch Office in
Charleston Town Center,
Charleston, West Virginia (b)
(d) Lease on United Center,
Charleston, West Virginia (h)
(e) Lease with Polymerland, Inc.
on UNB Square (h)
(f) Lease and Agreement between
Valley Savings and Loan
Company (Lessor) and Dorothy
Adams, Richard M. Adams and
Douglass H. Adams (Lessees) (c)
(g) Agreement between Dorothy
D. Adams (Lessors) and Valley
Savings and Loan Company (Lessees) (c)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
S-K Item 601 Sequential Page
Description Table Reference Number (a)
- ----------- --------------- ---------------
<S> <C> <C>
(h) Employment Contract with
Douglass H. Adams (d)
(I) Employment Contract with
Thomas A. McPherson (d)
(j) Data processing contract
with FISERV (k)
(k) Supplemental Retirement
Contract with Richard M.
Adams (i)
(l) Supplemental Retirement
Contract with Douglass H.
Adams (i)
(m) Executive Officer Change
of Control Agreements (j)
(n) Data processing contract
with ALLTELL 54
Statement Re: Computation of Per
Share Earnings (11) 105
Statement Re: Computation of
Ratios (12) 106
Annual Report to Security Holders,
et al. (13) 78
Letter Re: Change in accounting
principles (18) N/A
Previously Unfiled Documents (19) N/A
Subsidiaries of the Registrant (22) 107
Published Report Regarding Matters
Submitted to a Vote of Security
Holders (23) N/A
Consent of Ernst & Young LLP (23) 108
Power of Attorney (25) N/A
Financial Data Schedule (27) 109
Additional Exhibits: (28) N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Footnotes
- ---------
<C> <S>
(a) N/A = Not Applicable
(b) Incorporated into this filing by reference to Exhibit 10 of the
1985 Form 10-K for Intermountain Bankshares, Inc., File No. 0-12356
(c) Incorporated into this filing by reference to Exhibit 10 of the
1986 Form 10-K for United Bankshares, Inc., File No. 0-13322
(d) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No.
33-19968 filed February 3, 1988
(e) Incorporated into this filing by reference to Exhibits to the 1988
10-K for United Bankshares, Inc., File No. 0-13322
(f) Incorporated into this filing by reference to Exhibits to the 1989
10-K for United Bankshares, Inc., File No. 0-13322
(g) Incorporated into this filing by reference to Exhibits to the 1990
10-K for United Bankshares, Inc., File No. 0-13322
(h) Incorporated into this filing by reference to Exhibits to the 1991
10-K for United Bankshares, Inc., File No. 0-13322
(i) Incorporated into this filing by reference to Exhibits to the 1992
10-K for United Bankshares, Inc., File No. 0-13322
(j) Incorporated into this filing by reference to Exhibits to the 1993
10-K for United Bankshares, Inc., File No. 0-13322
(k) Incorporated into this filing by reference to Exhibits to the 1994
10-K as amended by Form 10K/A filed February 8, 1996, for United
Bankshares, Inc., File No. 0-13322
</TABLE>
<PAGE>
Exhibit 10(n)
ALLTEL MORTGAGE INFORMATION
SERVICES, INC.
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
ALLTEL MORTGAGE
ALLTEL Information Services, Inc. - Mortgage Division
Post Office Box 2388 - Jacksonville, Florida 32231
(904) 359-5000
54
<PAGE>
ALLTEL MORTGAGE INFORMATION SERVICES, INC.
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
Agreement No.: 183-96BP
This ELECTRONIC DATA PROCESSING SERVICES AGREEMENT ("Agreement") is entered
into as of this 9th day Of May 1996 ("Effective Date") by and between ALLTEL
Mortgage Information Service Inc., ("ALLTEL Mortgage"), the address of which is
601 Riverside Avenue, Jacksonville, Florida 32204, and United Home Lending
Services, Inc. ("Client"), the address of which is 227 Capital Street,
Charleston, West Virginia 25321.
ALLTEL Mortgage and Client hereby agree as follows:
1. DEFINITION OF PROCESSING SERVICES
---------------------------------
1.1 The Software Systems ("Software or System") referred to by this Agreement
are a series of computer programs employed by ALLTEL Mortgage to perform
electronic data processing ("EDP") services for its clients. ALLTEL
Mortgage's Documentation User Manuals ("Documentation") for the Software are
incorporated herein by reference as a definition of the functions of the
Software.
1.2 ALLTEL Mortgage, using the Software, its EDP equipment and EDP skills,
will perform EDP services for Client. This Agreement includes the Addenda and
Schedules (specifically identified by an "X" below), which are attached
hereto and incorporated herein by reference:
<TABLE>
<CAPTION>
Pages
<C> <C> <S> <C>
x Addendum I - CPI Mortgage Servicing Package with On-line Services 1-2
x Addendum I - Schedule A - System Availability Times 1-1
x Addendum I - Schedule I - Estimated One Time Costs 1-1
x Addendum II - ALLTEL Mortgage Optional Processing and Support Services 1-6
Addendum III - CPI Residential Loan Inventory Control 1-2
Addendum III - Schedule I - Estimated One Time Costs 1-1
Addendum IV - Disaster Recovery Plan 1-6
Addendum V - CPI Passport 1-6
Addendum VI - CPI Navigator 1-3
Addendum VII - CPI Training Services 1-5
</TABLE>
2. TERM
----
2.1 Original Term. The original term of this Agreement shall be the period
-------------
beginning with the Effective Date of this Agreement through July 31, 1999
(the "Original Term"). For Agreements where the Original Term commences on a
date other than January 1, the first year of the Original Term shall be
deemed to be the period from the cunni of the Original Term through and
including the immediately succeeding December 31.
2.2 Extended Terms. Following the Original Term, the Agreement will
---------------
automatically renew for successive one year periods, unless terminated in
accordance with Paragraph 13 hereof, on the same terms and conditions (the
"Extended Term"); provided however, the Basic Processing Charges for such
Extended Term shall be at ALLTEL Mortgage's then published rates.
3. INPUT/OUTPUT SERVICES
----------------------
3.1 Input. Client shall perform the data entry requirements from items of
------
original entry (which items remain in the possession of Client). Client shall
create the input data and Client and/or Client's agent will transmit the
input data required by each System, as defined in the Documentation, to
ALLTEL Mortgage's computer facilities in Jacksonville via satellite or some
other mutually agreed upon method of data transmission. Input data is to be
received by ALLTEL Mortgage each business day, or other processing frequency
as required, at a mutually agreed upon time. Client shall be responsible for
verification of the data transmitted and for the release of the data to
ALLTEL Mortgage for processing.
3.2 Output. ALLTEL Mortgage will process the data using the Software and will
-------
have the output available to allow the Client to begin to print the output
data at Client's location at a mutually agreed upon time. ALLTEL Mortgage
will use its best efforts to complete the processing and transmission of
Client's data on schedule provided Client has transmitted and released its
input in accordance with Paragraph 3.1 of this Agreement.
1
55
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
---------------------------------------------
3.3 Rejected Transactions and System Balancing. Client shall correct and
-------------------------------------------
resubmit all transactions rejected by the Software and Client shall be
responsible for reconciling and adjusting differences in batch control totals
which result from rejected transactions and/or erroneous control totals.
Client is responsible for the system balancing on a daily basis.
3.4 Reasonable Care. Client agrees to exercise reasonable care in the use of
----------------
each service. "Reasonable care" includes, but is not limited to scheduling
certain reports and producing large volumes of output data only on selected
days. Certain reports identified in the Documentation have been blocked in
the Software System from being produced during peak cycles.
4. ON-LINE SERVICES
----------------
4.1 Description and Availability of Services. ALLTEL Mortgage agrees to
-----------------------------------------
provide to Client on-line access to information contained in Client's
mortgage master, history, and certain utility files from terminals located in
Client's office(s). The Documentation lists the inquiry displays and the
primary data entry menus to be provided by ALLTEL Mortgage. The on-line
systems access Client's files through the CICS tele-communication facility.
The data entered by Client is verified using logic tests. Errors found in the
data are immediately displayed to Client for correction. These on-line
services shall be available at the times specified in Addendum I Schedule A
attached to this Agreement. ALLTEL Mortgage shall put forth its best efforts
to maximize the availability of the on-line systems during the times
specified in Schedule A; provided, however, reasonable periods of system
outages shall not be construed as a default of this Agreement. Data accepted
by the on-line system generates transactions which are stored on ALLTEL
Mortgage's host computer. This transaction file serves as an input file for
the Client's update processing run. The on-line system includes on-line or
printed documentation for every screen in the System. Instructions for
operating the Software and for entering transactions are included therein.
4.2 Error Correction. ALLTEL Mortgage shall use its best efforts to minimize
-----------------
rejects due to program logic errors. The on-line systems also contain an on-
line interrogation feature. Client realizes that ALLTEL Mortgage will have w
control over conflicts affecting the same loan number within the same
processing cycle or correction and resubmission of all transactions
originally entered through the on-line system and rejected by the system.
Client shall be responsible for reconciling and adjusting any differences in
control totals which result from rejected transactions and/or erroneous
totals.
5. TRANSMISSION SERVICE & TERMINAL EQUIPMENT
-----------------------------------------
5.1 Transmission Service. Client will pay all costs for
---------------------
installation/deinstallation and for the data transmission service between
Client's office and ALLTEL Mortgage's site. ALLTEL Mortgage shall specify and
order the type of transmission service required and will bill Client for
those transmission services in accordance with the fees set forth on Addendum
E to this Agreement. In the event Client relocates its service center, Client
shall be responsible for the cost of deinstalling at Client's old site and
for reinstallation of such transmission service at Client's new site. Should
Client desire to terminate the data transmission service, Client shall give
ALLTEL Mortgage not less than ninety (90) days written notice. Client shall
be responsible for any deconversion costs of such transmission service at the
time of termination of such service.
5.2 Communication Devices. The communication devices, satellite or
----------------------
terrestrial, shall be specified and ordered by ALLTEL Mortgage. Such devices
will be leased in ALLTEL Mortgage's name or owned by ALLTEL Mortgage. ALLTEL
Mortgage, in turn, will bill Client for such devices located in Client's
office(s). Should Client desire to terminate the devices, Client shall give
ALLTEL Mortgage not less than ninety (90) days notice.
5.3 Terminal and Printing Equipment. ALLTEL Mortgage will specify the type of
--------------------------------
terminal equipment to be used by Client. Client may use its most cost
effective or efficient method for acquiring the equipment specified by ALLTEL
Mortgage. ALLTEL Mortgage, as an OEM dealer, may sell or lease the terminal
equipment to Client. In such case, ALLTEL Mortgage and Client will execute
ALLTEL Mortgage's "Master Agreement for Hardware Purchase" or ALLTEL
Mortgage's "Equipment Lease Agreement", whichever applies.
5.4 Transmission Problems. ALLTEL Mortgage shall use its best efforts in
----------------------
isolating data transmission problems and obtaining service from the terminal
hardware vendors and/or communication carriers. In situations where data
transmission is rendered impossible by virtue of equipment failure at ALLTEL
Mortgage's site, ALLTEL Mortgage agrees to print such data and ship to Client
at the expense of ALLTEL Mortgage. In the event of inability to transmit
because of the communication carrier, the cost to print and ship will be
borne equally by ALLTEL Mortgage and Client. In the event of equipment
failure at Client site, Client pays all printing and shipping costs.
5.5 Shipment of Output. Client may elect to have input/output functions
------------------
performed at ALLTEL Mortgage and to have the output shipped to Client by
ALLTEL Mortgage. The cost of such functions including postage and/or freight
incurred to ship output media to Client are billable to Client at ALLTEL
Mortgage's standard rates for Optional Processing and Support Services as
shown in Addendum II.
2
56
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
---------------------------------------------
6. BASIC PROCESSING CHARGES
------------------------
6.1 Basic Monthly Charges. In consideration for processing its data using the
----------------------
Software, Client agrees to pay a monthly charge and fee according to the
schedules contained in each of the Addenda attached hereto, but in no case
less than the minimum monthly charge set forth in the Schedules.
6.2 Software Modifications. The basic processing charges are for computer
-----------------------
processing and for other services as described in Addendum I, Article 2.
hereto. All reports described in the Documentation and processing provided by
the standard Software System are available to Client as of the date of
conversion. Custom or special modifications of the Software are available to
Client upon specification of the nature of such modification and payment of
fees to be negotiated between Client and ALLTEL Mortgage for each such
modification as more specifically described in Paragraph 8 of this Agreement.
7. OPTIONAL PROCESSING AND SUPPORT SERVICES
----------------------------------------
7.1 From time to time, Client may elect to use ALLTEL Mortgage's input/output
functions, such as data entry, printing, microfiche, special computer usage
for Easytrieve, consulting, etc. These services will be billed to Client in
accordance with the Schedule of Optional Processing and Support Services as
shown in Addendum II. Supplies, including rental charges for tapes and disks
dedicated to the storage of Client's data, and Client's usage of ALLTEL
Mortgage's electronic mail communication system known as "CIMON", will also
be charged according to ALLTEL Mortgage's Optional Processing and Support
Services as shown in Addendum II. ALLTEL Mortgage's Optional Processing and
Support Services, as described in Addendum II, may be increased upon thirty
(30) days written notice to Client.
8. PROGRAM MODIFICATIONS
---------------------
8.1 Customized Modifications. Report contents and processing logic in the
-------------------------
Software may be modified from time to time. Client may initiate such
modifications by defining the desired change on a System Service Request
("SSR") and submitting the SSR to ALLTEL Mortgage. ALLTEL Mortgage will
review the SSR and return it to Client with a fixed price, which will include
the cost of the programming definition, programming, testing, installation
and documentation. If the Client wishes to proceed with the programming and
installation of the modification, Client will execute the SSR, approving the
fixed price indicated and return it to ALLTEL Mortgage for implementation.
The CPI MSP 850 Report ("Mortgage Servicing Client Project Inventory") will
identify all approved SSRs to be invoiced to Client.
8.2 Standard Enhancements. Based on changes to government regulations, tax
----------------------
laws, mortgage industry and mortgage agencies' needs, as well as to increase
the efficiency of the System, ALLTEL Mortgage will issue, usually each month,
standard enhancement changes which are included as part of the Basic
Processing Charges described in Addendum 1, Article 2.
8.3 New System Offerings. In addition to any products made available to
---------------------
Client under Paragraphs 8. l and 8.2 of this Agreement, installation and
implementation of the new systems or subsystems comprising the "CPI
Renaissance" Architecture (the "Architecture") may be provided for an
additional fee or under a new pricing structure and subject to additional or
different terms and conditions. Such systems or subsystems will be
specifically identified as part of the Architecture. Implementation of any
such additional fee or pricing structure for the Architecture shall not be
restricted by the Consumer Price Index adjustment provision set forth in
Addendum I, Article 2 of this Agreement. ALLTEL Mortgage will present the
features of the Architecture to Client and will inform Client of any fees
related to their installation and implementation. Client shall be responsible
for any increase in charges (if any) associated with the Architecture. Any
additional services requested by Client, not offered as part of the
Architecture package, will be billable to Client at ALLTEL Mortgage's then
current rates for such services.
9. TAXES
-----
9.1 All taxes, however designated, arising from or based upon this Agreement
or the payments made to ALLTEL Mortgage by Client pursuant hereto,
including, but not limited to, all applicable sales, use and excise taxes,
shall be paid by Client as the same become due. Client shall, upon request
by ALLTEL Mortgage, pay the same either to ALLTEL Mortgage or to the
appropriate taxing authority at any time during or after the termination of
this Agreement. Client shall not be responsible for the payment of any
state, federal, or local franchise or income taxes based upon the net income
of ALLTEL Mortgage.
3
57
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
---------------------------------------------
10. AUTHORIZED EMPLOYEES
--------------------
10.1 Client shall designate in writing to ALLTEL Mortgage within thirty (30)
days of the execution of this Agreement and when requested by ALLTEL
Mortgage from time to time, employees who are authorized to contact ALLTEL
Mortgage support personnel, to release input data or request reports, to
approve System Service Requests (SSRs) and to authorize other requests for
services under this Agreement. ALLTEL Mortgage may rely on the actions and
representations of such authorized employees without performing any further
investigation or confirmation. Client shall be bound by all agreements both
written and verbal, entered into between ALLTEL Mortgage and such authorized
employees.
11. OWNERSHIP AND CONFIDENTIALITY
-----------------------------
11.1 Client acknowledges that the Software and all information, programs,
documentation and assistance concerning it are the sob property of ALLTEL
Mortgage, and that they constitute the valuable proprietary products and
trade secrets of ALLTEL Mortgage embodying substantial creative efforts,
ideas and expressions. Client further agrees to observe complete
confidentiality regarding all aspects of the Software including, without
limitation, agreeing not to disclose or otherwise permit any other person or
entity access to, in any manner, the Software or any part thereof, except
that such disclosure or access shall be permitted to an employee of the
Client requiring such access in the course of employment. Upon termination
of this Agreement, Client agrees to return the Software and all parts
thereof, to destroy any copies made by Client, and to certify to ALLTEL
Mortgage in writing that it has returned or destroyed all parts of the
Software information. Client acknowledges that the terms and conditions of
this Agreement and the related negotiations between Client and ALLTEL
Mortgage with respect to this Agreement shall be treated as confidential
pursuant to this Paragraph.
11.2 ALLTEL Mortgage acknowledges that the data is the sole property of the
Client, and agrees to take all such reasonable measures as may be necessary
to protect the confidentiality of such. Client consents to the use by ALLTEL
Mortgage of statistical data generated by the Software provided that such
use shall not directly or indirectly identify Client or any specific
individual.
11.3 All data stored by ALLTEL Mortgage's system remains the property of the
Client. At the request of Client, and upon payment to ALLTEL Mortgage of all
monies due under the terms of this Agreement, ALLTEL Mortgage shall transfer
this data to Client.
12. LIMITATION OF LIABILITY
-----------------------
12.1 ALLTEL MORTGAGE'S OBLIGATION IN THE EVENT OF NEGLIGENCE OR ERROR BY
ALLTEL MORTGAGE IN THE PERFORMANCE OR NON-PERFORMANCE OF ITS DUTIES
HEREUNDER SHALL BE LIMITED TO REPROCESSING THE DATA FOR CLIENT. CLIENT
AGREES TO NOTIFY ALLTEL MORTGAGE WITHIN TWO (2) BUSINESS DAYS OR TWO (2)
PROCESSING CYCLES AFTER THE RECEIPT OF ERRONEOUS DATA.
12.2 IN NO EVENT WILL ALLTEL MORTGAGE BE LIABLE FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL OR THIRD PARTY DAMAGES OF ANY KIND INCLUDING, BUT NOT LIMITED
TO LOST PROFITS, LOSS OF GOODWILL OR BUSINESS INTERRUPTION, ARISING OUT OF
THIS AGREEMENT OR THE USE OF ANY EQUIPMENT, THE SOFTWARE, DOCUMENTATION OR
SERVICE PROVIDED UNDER THIS AGREEMENT EVEN IF ALLTEL MORTGAGE HAS BEEN
ADVISED IN ADVANCE THAT SUCH DAMAGES MAY BE INCURRED.
13. TERMINATION
-----------
13.1 Written Notice During Extended Term. Either party may terminate this
------------------------------------
Agreement at the end of the Original Term or at the end of any Extended Term
by giving the other one hundred eighty (180) days advance written notice
prior to the end of the Original Term or the then current Extended Term.
13.2 Monetary Default. In the event Client shall default in the payment of
--------
any sums due by it hereunder, and such default is not cured within thirty
(30) days after written notice from ALLTEL Mortgage, then ALLTEL Mortgage
may terminate this Agreement. Either party may then invoke the provisions of
Article 21, Conflict Resolution. Amounts remaining & outstanding after such
--------
thirty (30) day period shall accrue interest at the highest rate allowed by
law.
13.3 Non-Monetary Default In the event ALLTEL Mortgage or Client shall
--------------------
materially default in the performance of any of their duties, and if such
party does not remedy the default within thirty (30) days after the receipt
of written notice from the other party, the non-defaulting party may
terminate this Agreement. Either party may then invoke the provisions of
Article 21, Conflict Resolution.
-------------------
4
58
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
---------------------------------------------
13.4 Extended Force Majeure. In the event the ability of either party to
-----------------------
perform its obligations under this Agreement is prevented by a Force Majeure
event as described in Paragraph 22.1 hereof, passage of any law or any other
similar force beyond the control of that party for a period of more than
thirty (30) days, then either party may terminate this Agreement upon
written notice to the other party. Ln the event the affected party elects
not to terminate this Agreement, Client and ALLTEL Mortgage will negotiate a
proration of monthly processing charges based on the period performance was
prevented.
13.5 Bankruptcy. In the event that either party files any petition for
-----------
protection under any Federal or state bankruptcy acts, or if an involuntary
petition in bankruptcy is filed against either party and is not discharged
in thirty (30) days, or if either party commits an act of bankruptcy, or if
a receiver, trustee or Marshall of either party's assets is appointed, or if
there is any material default under any bank credit agreement, the other
party may immediate terminate this Agreement by giving written notice of
termination to that party. The non-defaulting party shall be entitled to
pursue any and all remedies available to it at law or in equity.
13.6 Breach of Confidentiality In the event of a breach of the provisions of
-------------------------
Article 11 hereof, the non-defaulting party may immediately terminate this
Agreement and invoke the provisions of Article 21, Conflict Resolution.
--------------------
13.7 Regulatory Notices. In the event Client is a Federally Insured Savings
-------------------
and Loan Association and should the Agreement terminate or if there are any
material changes in the services to be performed by ALLTEL Mortgage, ALLTEL
Mortgage will provide notice to the RTC/OTS District Director or to the
Department of Treasury agency having jurisdiction.
13.8 Effect of Termination. Upon termination of this Agreement, Client's
----------------------
right to use the processing services contemplated hereunder shall end
immediately. Client and ALLTEL Mortgage agree that, notwithstanding any
certification required by this Paragraph, obligations of confidentiality
herein shall, upon termination of this Agreement, continue in full force and
effect and shall be binding upon Client and ALLTEL Mortgage following such
termination.
14. NON-SOLICITATION OF EMPLOYEES
-----------------------------
14.1 Client and ALLTEL Mortgage agree that neither party will solicit the
services of any employee of the other party during the Original Term or any
Extended Term of this Agreement, without first obtaining the written consent
of the other party. notwithstanding the foregoing, Client and ALLTEL
Mortgage understand and agree that the following shall not constitute
solicitation under this Article 14: (i) employment solicitations directed to
the general public at large, including without limitation newspaper, radio
and television advertisements, and (ho an employment solicitation directed
by a party to an employee of the other party, and any related communication,
the occurs after a communication regarding employment that was initiated by
the employee.
15. DOCUMENTATION AND REVIEW OF INTERNAL CONTROLS OF ALLTEL MORTGAGE
----------------------------------------------------------------
15.1 ALLTEL Mortgage, annually, will provide Client (and to the District
Director of the OTS if applicable) at no charge with one (1) copy of the
Documentation and Review of Internal Controls ("Third Party Review")
prepared by its Certified Public Accountants each year. The Third Party
Review is a review of ALLTEL Mortgage's internal procedures, and is not
intended in any way to replace or substitute Client's internal annual
review.
16. FINANCIAL INSTITUTIONS
----------------------
16.1 National Banks. If Client is a national bank, or is either directly or
--------------
indirectly owned by a national bank or its parent holding company is a
national bank, Client agrees to permit ALLTEL Mortgage to make available
Client's records, data and procedures to the EDP Examiners of the
Comptroller of the Currency, Administrator of National Banks, or to any
supervising agency which has the authority to examine the records of Client,
if so requested.
16.2 State Banks. If Client is a state chartered, non-member Federal Reserve
-----------
bank, a federal member state bank or a state chartered bank, Client agrees
to permit ALLTEL Mortgage to make available Client's records, data and other
procedures to the Federal Deposit Insurance Corporation ("FDIC"), to the
Federal Reserve System, or to the State Banking Department whichever is
applicable, or to any bank supervising agency which has the authority to
examine the records of Client, if so requested.
16.3 Savings Institutions. If Client is a state or Federally Insured Savings
---------------------
and Loan Association, Client agrees to permit ALLTEL Mortgage to make
available Client's records, data and other procedures to the OTS or RTC
and/or its examiners or to any supervising agency which has the authority to
examine the records of Client, if so requested.
5
59
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
---------------------------------------------
16.4 Other Institutions. Client agrees to permit ALLTEL Mortgage to make
-------------------
available Client's records, data and other procedures to the OTS or RTC
and/or its examiners and to the Federal Deposit Insurance Corporation
("FDIC") and/or its examiners, or to any supervising agency which has the
authority to examine the records of Client, if so requested by any of the
foregoing agencies. Further, ALLTEL Mortgage and Client agree by entering
into this Agreement, that the Office of Thrift Supervision will have the
authority and responsibility provided to the other regulatory agencies
pursuant to the Bank Service Corporation Act, 12 U.S.C. 1867 (C) relating to
services performed by contract or otherwise.
17. STORAGE OF DATA FILES
---------------------
17.1 ALLTEL Mortgage will provide off-site storage for Client's data files
so that they can be reconstructed in the event of loss or destruction of
Client's processing files at ALLTEL Mortgage's data center. Such off-site
storage will be in accordance with the guidelines set forth in ALLTEL
Mortgage's Third Party Review.
18. ASSIGNMENT
----------
18.1 Neither this AGREEMENT nor any rights or obligations hereunder may be
assigned by either party hereto without the prior written consent of the
other. Merger, consolidation or other business reorganization of either
party shall not be doomed an assignment hereunder; provided that the
Assignor is not an entity, or an affiliate or subsidiary of an entity, which
engages or attempts to engage in the business of providing any software or
services that compete with such software or services provided by the non-
assigning party. The assigning party hereby agrees to provide reasonable
advance notice to the other party of any assignment which does not require
the consent of such other party. This Agreement shall insure to the benefit
of and be binding upon the parties hereto and their respective successors
and permitted assigns. Neither the terms of this Agreement nor any
performance hereunder shall be construed to create any rights in any person
other than the parties to this Agreement.
19. FURTHER ASSURANCE
-----------------
19.1 ALLTEL Mortgage and Client agree to perform all acts and execute all
supplementary instruments or documents which may be necessary to carry out
the provisions of this Agreement.
20. INDEPENDENT CONTRACTOR
----------------------
20.1 ALLTEL Mortgage is an independent contractor which has the solo right
to supervise, manage, control and direct its performance of services. The
performance of activities by either party under this Agreement shall not
constitute either a joint venture or partnership of the parties. This
Agreement shall not be construed to limit in any way the rights of the
parties to pursue, independently and in accordance with their respective
management policies, any aspects of their respective businesses and
operations.
21. CONFLICT RESOLUTION
-------------------
21.1 Informal Dispute Resolution.
---------------------------
(a) ALLTEL Mortgage and Client agree to notify each other as promptly as
possible of any conflicts arising out of this Agreement or in the
interpretation of the provisions of this Agreement, or any dispute as to
whether or not an event of default has occurred. ALLTEL Mortgage and Client
further agree to attempt to resolve all such conflicts as promptly as
possible and in good faith before initiating any causes of action arising
out of this Agreement.
(b) If any dispute remains unresolved for any reason after thirty (30) days
following the initial request for informal dispute resolution, or such
other period of time as mutually agreed to, then the parties may agree to
continue informal efforts to resolve the dispute or either party may
initiate a binding arbitration proceeding as contemplated by Paragraph 21.2
of this Agreement.
21.2 Binding Arbitration. ALLTEL Mortgage and Client stipulate and agree that
--------------------
if they are unable to resolve any controversy arising under this Agreement as
contemplated by Paragraph 21.1 and if such controversy is not subject to
Paragraph 21.3 of this Agreement, then such controversy, and any ancillary
claims not so resolved and not so subject, shall be submitted to binding
arbitration at the election of either party (the "Disputing Party") pursuant to
the following conditions:
(a) Selection of Arbitrator. The Disputing Party shall notify the American
------------------------
Arbitration Association ("AAA") and the other party in writing describing
in reasonable detail the nature of the dispute (the "Dispute Notice"), and
shall request that AAA furnish to the parties a list of five (5) possible
arbitrators who shall be licensed to practice law in the United States and
shall have at least five (5) years of experience in data processing
matters. Each party shall have fifteen (15) days to reject two (2) of the
proposed arbitrators. If one (1) individual has not been so rejected, he or
she shall serve as arbitrator; if two (2) or more individuals have not been
so rejected, AAA shall select the arbitrator from those individuals.
6
60
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
---------------------------------------------
(b) Conduct of Arbitration. Arbitration will be conducted by the arbitrator
-----------------------
selected pursuant to subparagraph 21.2(a) with respect to the dispute
described in the Dispute Notice and any other disputes related to this
Agreement between the parties to this Agreement (i) pending at the inception
of such arbitration and not otherwise being arbitrated under this Paragraph
21.2; or (ii) arising during the pendency of such arbitration in accordance
with the rules of AAA, except as specifically provided otherwise in this
Paragraph 21.2. The arbitrator will allow reasonable discovery in the forms
permitted by the Federal Rules of Civil Procedure, to the extent consistent
with the purpose of the arbitration. The arbitrator will have no power or
authority, under the rules of AAA or otherwise, to amend or disregard any
provision of this Paragraph 21.2. The arbitration hearing shall be limited to
not more than ten (10) days, with each of Client and ALLTEL Mortgage being
allocated one-half of the time for the presentation of its case. Unless
otherwise agreed to by the parties, an arbitration hearing shall be conducted
on consecutive business days.
(c) Replacement of Arbitrator. Should the arbitrator refuse or be unable to
--------------------------
proceed with arbitration proceedings as called for by this Paragraph 21.2,
such arbitrator shall be replaced by an arbitrator selected from the other
four (4) arbitrators originally proposed by AAA and not rejected by the
parties, if any, or if there are no remaining proposed arbitrators who have
not been rejected, by repeating the process of selection described in
subparagraph 21.2(a) above. If an arbitrator is replaced pursuant to this
subparagraph 21.2(c), then a rehearing shall take place in accordance with
the provisions of this Paragraph 21.2 and the rules of AAA.
(d) Findings and Conclusions. The arbitrator rendering judgment upon
------------------------
disputes parties to this Agreement writing as provided in this Paragraph 21.2
shall, after reaching judgement and award, prepare and distribute to the
parties a describing the findings of fact and conclusions of law relevant to
such judgment and award and containing an opinion setting forth the reasons
for the giving or denial of any award.
(e) Place of Arbitration Hearings. Arbitration hearings contemplated by
------------------------------
subparagraph 21.2(b) shall be held in Jacksonville, Florida. If ALLTEL
Mortgage and Client agree, arbitration hearings may be held in another
location.
(f) Time of the Essence. The arbitrator is instructed that time is of the
--------------------
essence in the arbitration proceeding, and that the arbitrator shall have the
right and authority to issue monetary sanctions against either of the parties
if, upon a showing of good cause, the party is unreasonably delaying the
proceeding. The arbitrator shall render his or her judgment or award within
fifteen (15) days following the conclusion of the arbitration proceeding.
Recognizing the express desire of the parties for an expeditious means of
dispute resolution, the arbitrator shall limit or allow the parties to expand
the scope of discovery as may be reasonable under the circumstances.
(g) Limitation OD Authority of Arbitrator. If the arbitrator finds that a
--------------------------------------
material breach of this Agreement has occurred, the arbitrator shall not have
the authority to exclude the right of a party to terminate this Agreement by
virtue of such material breach. The arbitrator will have no power or
authority, under the rules of AAA or otherwise, to amend or disregard any
provisions set forth in this Agreement and shall be limited to rendering
judgement on the dispute being arbitrated pursuant to this Article 21.
21.3 Litigation
(a) Immediate Injunctive Relief. The parties to this Agreement agree that the
----------------------------
only circumstance in which disputes between them will not be subject to the
provisions of Paragraphs 21.1 and 21.2 is where ((i) a party defaults under
the provisions of Paragraph 13.5 of this Agreement or ii) a party makes a
good faith determination that a breach of the terms of this Agreement by the
adhere party is such that the damages to such party resulting therefrom will
be so immediate, so large or severe and 50 incapable of adequate redress
after the fact that a temporary restraining order and/or other immediate
injunctive relief is the only adequate remedy for such breach. If a party
making such a determination files a pleading with a court seeking such
immediate injunctive relief and this pleading is challenged by the other
party to this Agreement and the challenging party succeeds in such challenge,
the party filing such pleading seeking immediate injunctive relief shall pay
all of the costs and attorneys' fees of the party successfully challenging
such pleading.
21.4 Costs and Attorneys' Fees. Notwithstanding any rule of AAA to the
--------------------------
contrary, the arbitrator rendering judgment upon disputes between the parties to
this Agreement as provided in Paragraph 21.2 shall have the power to award all
cost and attorneys' fees between the pa ties subject to such disputes.
21.5 Continued Performance. Except where prevented from doing so by the matter
----------------------
in dispute, both parties Agee to continue performing their respective
obligations under this Agreement while the dispute is being resolved unless and
until such obligations are terminated by the expiration or termination of this
Agreement.
7
61
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
- ---------------------------------------------
22. FORCE MAJEURE
-------------
22.1 ALLTEL Mortgage or Client shall not be responsible for delays and
failures in performance resulting from act beyond their control. Such act
shall include but not be limited to act of God, strikes, lockout , riot,
acts of war, epidemics, governmental regulations superimposed after the
fact, fire, communication line failures, power failures, earthquakes, or
other disasters.
23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
23.1 The terms, provisions, representations, warranties and covenant
contained in this Agreement shall survive the delivery and acceptance of
those services to be delivered hereunder, the payment of any fees or other
charges hereunder, and the termination of this Agreement for any reason.
24. WAIVER
------
24.1 The waiver of a breach of, or a default under, any term or condition of
this Agreement shall not be construed as a continuing waiver of any such
term or condition, nor shall a waiver of a breach of, or a default under,
any term or condition be construed as a waiver of any breach or default
under any other term or condition, or in any manner affect any other term or
condition hereof.
25. ARTICLE HEADINGS
----------------
25.1 The article and other headings of this Agreement are inserted for
convenience only and in no way define, limit, or describe the scope or
intent of this Agreement, nor affect its terms or provisions.
26. SEVERABILITY OF PROVISIONS
--------------------------
26.1 The provisions of this Agreement are severable, and if any provision is
hereafter declared invalid or unenforceable by any court of competent
jurisdiction, such determination shall not affect the validity of any other
provision hereof.
27. NOTICES
-------
27.1 Whenever the giving of a written notice by ALLTEL Mortgage or Client is
required by this Agreement, such notice shall be given personally or sent by
certified mail or overnight courier, postage prepaid, addressed to the other
party in care of a designated officer and at the address listed in the
preamble of this Agreement or at such other address as may be specified by
ALLTEL Mortgage or Client in advance in writing to the other, and shall be
deemed to have been given on the date of receipt by the other.
28. SECURITY
--------
28.1 The System provides Client with built-in security through initial
access and through submenus. Client is responsible for the initial setup of
security levels and security codes as well as for the ongoing maintenance of
security codes and security levels within the System. Client agrees at the
time this Agreement is executed to identify in writing to ALLTEL Mortgage
the person who is responsible for the initiation and maintenance of the
security controls within the System.
29. BILLINGS
--------
29.1 ALLTEL Mortgage shall render invoices for services monthly. Invoices
for special charges incurred during the month will be rendered as of the
last day of that month. Invoices are due and payable by Client upon receipt.
30. WARRANTIES
----------
30.1 ALLTEL Mortgage represents and warrants that the mortgage loan
processing performed by the System conforms to the specifications set forth
in the Documentation. ALLTEL Mortgage further represents and warrants that
the System was developed by ALLTEL Mortgage for its own use, and that ALLTEL
Mortgage has all the necessary right to use such System to provide mortgage
loan servicing for Client under the terms of this Agreement. THE FOREGOING
WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
8
62
<PAGE>
ELECTRONIC DATA PROCESSING SERVICES AGREEMENT
- ---------------------------------------------
31. ATTORNEYS' FEES
---------------
31.1 In the event of any litigation between the parties to enforce the
provisions of this Agreement, the prevailing party shall be entitled to
reimbursement of all costs of such action including but not limited to
reasonable attorney's fees, whether incurred prior to or at trial or on
appeal.
32. DISASTER RECOVERY
-----------------
32.1 ALLTEL Mortgage will provide disaster recovery services for its batch
and on-line processing obligations to Client at a dedicated facility which
is equipped to handle ALLTEL Mortgage's data center processing in the event
disaster recovery is needed. Provided that Client is utilizing the ALLTEL
Mortgage telecommunication network, ALLTEL Mortgage agrees to provide data
communication access to the disaster recovery facility, including the
necessary communication devices (multiplexors, moderns, channel extenders,
dc.) to facilitate such communication; otherwise, Client shall be
responsible for providing, and paying for, the necessary communication lines
and devices. Throughout the term of this Agreement, ALLTEL Mortgage will
maintain in effect contracts and/or arrangements for disaster recovery which
are substantially equivalent to those which are currently in effect.
32.2 Client acknowledges that disaster recovery arrangements are designed to
deal with circumstances which are expected to cause a substantial portion of
the capabilities at the ALLTEL Mortgage Data Center to be unavailable for a
period exceeding seventy-two (72) hours. Should such an event or situation
occur, ALLTEL Mortgage shall execute the Disaster Recovery Plan in a time
frame and manner necessary to ensure the restoration of batch and on-line
processing service to Client within seventy-two (72) hours of service
interruption.
32.3 ALLTEL Mortgage will test its disaster recovery capabilities at least
once per calendar year. Client is allowed to participate in the disaster
recovery test when deemed appropriate by ALLTEL Mortgage.
33. PERFORMANCE AUDITS
------------------
33.1 ALLTEL Mortgage will cooperate fully with Client or its auditors,
internal or external, upon reasonable prior notice, for the purpose of
inspecting, examining, and auditing the performance of the services to be
rendered by ALLTEL Mortgage to Client hereunder (with the exception of any
records, information or procedures which are of a confidential nature with a
third party), provided, however, that any such inspection, examination
and/or audit shall take place only during normal business hours and in a
manner that will not disturb the ordinary transaction of ALLTEL Mortgage's
business. ALLTEL Mortgage reserves the right to charge Client on a time
and materials basis for any services required to be performed by ALLTEL
Mortgage in connection therewith. Client shall put forth best efforts to
limit any performance audits to a reasonable duration and to one per
calendar year. Client will provide, and instruct its auditors, internal and
external, to provide ALLTEL Mortgage with a copy of that portion of each
written report containing contents concerning ALLTEL Mortgage or the
services performed by ALLTEL Mortgage pursuant to this Agreement.
34. COMPLETE AGREEMENT AND GOVERNING LAW
------------------------------------
34.1 This agreement constitutes the constitutes understanding of ALLTEL
Mortgage and Client, and no other than is contained herein or in any
agreement referred to herein shall be binding on either patty. No
alteration, modification, or waiver of any provision hereof shall be valid
unless in writing and signed by the parties hereto.
34.2 This Agreement shall be considered s entered into in the State of
Florida and shall be governed by and construed in accordance with the laws
of the State of Florida Any action or proceeding in litigation based upon
this Agreement or arising out of its performance shall be brought in a
Federal or State court of competent Jurisdiction in Florida and no other
jurisdiction.
ALLTEL Mortgage and Client have executed this Agreement on the date set
forth above.
UNITED HOME LENDING ALLTEL MORTGAGE INFORMATION
SERVICES, INC. SERVICES, INC.
BY: BY:
/s/ J. Christopher Thomas 05/09/96 /s/ D. Robert Davis 05/13/96
---------------------------------- -------------------------------------
SIGNATURE DATE SIGNATURE DATE
J. Christopher Thomas D. Robert Davis
NAME NAME
Chairman & CEO Senior Vice President
TITLE TITLE
"CLIENT" "ALLTEL Mortgage"
63
<PAGE>
ADDENDUM I
CPI MORTGAGE SERVICING PACKAGE WITH ON-LINE SERVICES
To Agreement No.: 183-96BP
Original Term: 5/9/96 - 7/31/99
1. DEFINITION OF CPI MORTGAGE SERVICING PACKAGE
a. The CPI Mortgage Servicing Package ("CPI MSP") referred to by this
Agreement is a series of computer programs developed by ALLTEL Mortgage
and currently employed by ALLTEL Mortgage to perform EDP services for its
clients. ALLTEL Mortgage's Documentation is incorporated herein by
reference as a definition of the functions of CPI MSP. A list of the
standard output reports produced by the CPI MSP is included in the
Documentation.
2. BASIC PROCESSING CHARGES
------------------------
a. In consideration for processing data in accordance with the CPI MSP
and for Client's use of the Systems, Client shall be charged and shall
pay to ALLTEL Mortgage processing charges according to the following
table:
Minimum Monthly Number of Principal Balance Loans: 8,000
----------------------------------------------------- -----
<TABLE>
<CAPTION>
LOANS
-----
1996
Monthly Rate
From To Per Loan
<S> <C> <C>
0 10,000 0.793
10,001 20,000 0.679
20,001 30,000 0.566
30,001 50,000 0.533
50,001 75,000 0.437
75,001 100,000 0.406
100,001 150,000 0.367
150,001 250,000 0.335
</TABLE>
b. This charge is to cover regular monthly and normal year-end
processing. }which have been p~paid-in-full, foreclosed, or transferred
to a non-affiliated company, and are therefore inactive zero balance
loans, will be billed to Client at the rate of twelve cents ($0.12) @ per
loan per month until December 31st of that year (unless there is an open
paid-in-full tracking record).
c. The above fees cover total on-line transactions equal to a max mum of
ten (10) transactions per principal balance loan per month. For example,
if Client has a processing portfolio of 10,000 principal balance loans,
the above fees cover up to 100,000 transactions per month. ALLTEL
Mortgage shall have the right to bill Client and Client agrees to pay a
fee as described in Addendum II, Section 3 for the number of transactions
over and above the maximum number of transactions.
d. For the fees described above, the processing service will also include
the following:
1. All documentation updates, telephone support, and enhancement
videos (if applicable).
2. All shared standard CPI MSP enhancements added to the CPI MSP
Software System during the Original Term or any Extended Term of this
Agreement. (Note: Custom changes requested by Client shall be paid for
by Client as defined by Client's SSR (see Article 6) for such custom
changes.)
3. Up to one hundred (100) standard LetterWriter letters per each one
thousand (1,000) principal balance loans per month (the "Allowable
Amount"). Additional standard letters produced above the Allowable
Amount and all ARM letters will be billable as described in Addendum
II.
4. The Interest Accrual Subsystem Base monthly rate. (Note: Client
shall pay the installation charges for such system).
e. The Basic Processing Charges shall remain in effect for the first year
of the Original Term of this Agreement.
1
64
<PAGE>
ADDENDUM I
----------
f. Per Agreements where the Original Term's multi-year (where the "first
year" is as defined in Paragraph 2.1 and which may be less than one (1) year
in length), during the second and subsequent years of the Original Term,
ALLTEL Mortgage reserves the tight upon thirty (30) days written notice to
Client, to adjust the Basic Processing Charges and the Minimum Monthly Number
of Loans. Such adjustment to the Basic Processing Charges shall not exceed
the percent increase in the U.S. Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, U.S. City Average, for all Urban Consumers,
other goods and services ('82-'84 = 100 (the "CPI-U Index") between the
annual averages of the most recently published twelve (12) month period and
the immediately preceding twelve (12) month period. For purposes of
forecasting, documentation preparation, and advance notification
requirements, the "most recently published" period shall be deemed to be
the latest available published period at the time ALLTEL Mortgage begins its
price adjustment process for the upcoming year.
3. CONVERSION SERVICES
-------------------
3.1 General. Each party Agrees to use their best efforts to convert Client's
mortgage servicing portfolio by August 31, 1996.. Client agrees at the time
this Agreement is executed, to identify its Project Coordinator. The
Client's Project Coordinator will be responsible for the overall conversion
effort, for all communications with ALLTEL Mortgage and for identifying and
authorizing conversion critical programming modifications to the CPI MSP.
3.2 Project Management and Technical Services. ALLTEL Mortgage will provide
------------------------------------------
Client with specific project management and technical services during the
conversion process. ALLTEL Mortgage will charge Client for such services
based on the attached Schedule I. Services beyond the scope of those shown
in Schedule I, will be billed at the ALLTEL Mortgage Optional Processing and
Support Service Rates described in ADDENDUM II.
3.3 Conversion Programming ALLTEL Mortgage will provide file conversion
----------------------
programming to convert Client's servicing portfolio from the present method
of processing the data to the CPI MSP. Client will use its best efforts to
see that ALLTEL Mortgage is provided with documentation and cooperation with
respect to the preconverted data. ALLTEL Mortgage will be responsible for
the initial loading and balancing of the files, for performing file
validation tests on the converted files and for ensuring that all of the
Client's mortgage servicing computer files have been correctly converted to
the formats required by the CPI MSP.
3.4 Optional Conversion Services. ALLTEL Mortgage provides optional
-----------------------------
conversion services which have been identified to Client by ALLTEL Mortgage
in the ALLTEL Mortgage conducted planning session. Services rendered by
ALLTEL Mortgage to Client will be identified and described in ALLTEL
Mortgage's System Service Request ("SSR") which acts as a "Work Order".
ALLTEL Mortgage shall render Client an invoice for these services within
thirty (30) days from the date of completion. The CPI MSP "850 Report"
("Mortgage Servicing Client Project Inventory") will be provided
periodically to Client's Project Coordinator to identify all approved SSRs
to be billed to Client. Conversion critical software modifications requested
by Client must be identified, defined and a price approved by Client prior
to the final conversion critical SSR due date established by ALLTEL Mortgage
and Client in the published conversion schedule. ALLTEL Mortgage will
provide Client's Project Coordinator with a periodic report identifying all
conversion critical SSRs known to ALLTEL Mortgage. ALLTEL Mortgage will not
be obligated to complete software modifications requested by Client by final
conversion which are not received by ALLTEL Mortgage and approved by Client
prior to the critical SSR due date in the final conversions schedule.
4. SPECIAL PRICING CONSIDERATIONS
------------------------------
4.1 Basic Processing Credits. ALLTEL Mortgage shall grant to Client a credit
-----------------------------
equal to twenty five thousand three hundred and seventy six dollars
($25,376), such credits shall be applied against the Basic Processing
Charges beginning the month immediately following conversion, as calculated
against the rate table shown in Article 2, Paragraph a. of this Addendum I,
until fully expended. In no event shall such credit exceed twenty five
thousand three hundred and seventy six dollars ($25,376) The credit is given
in exchange for a three (3) year Original Term Agreement period. In the
event Client terminates the Agreement prior to the end of the Original Term
for reasons other than default by ALLTEL Mortgage, Client shall reimburse
the full amount of the credit to ALLTEL Mortgage.
2
65
<PAGE>
ADDENDUM I
SCHEDULE A
SYSTEM AVAILABILITY TIMES
To Agreement No.:183 96BP
1. ALLTEL MORTGAGE ON-LINE SYSTEMS SCHEDULED SYSTEM AVAILABILITY *
(Note: All times are Local Client time)
<TABLE>
<CAPTION>
Day of Week Start-Time Stop-Time
<S> <C> <C>
Monday 0800 2000
Tuesday 0700 2000
Wednesday 0700 2000
Thursday 0700 2000
Friday 0700 2000
Saturday 0700 1500
Sunday not available
</TABLE>
* Note: Alaska, Hawaii, or Puerto Rico Clients' hours may vary.
2. EXCEPTIONS TO NORMAL ON-LINE SYSTEMS USAGE AVAILABILITY
a. Holiday Schedules: ALLTEL Mortgage annually publishes the dates on which
ALLTEL Mortgage observes the following holidays via electronic mail (CIMON).
1. Memorial Day
2. Independence Day
3. Labor Day
4. Thanksgiving
5. Christmas
6. New Year's
There will be no support or regular systems processing available from 0700 on
the dates published until 0700 the following day. If Client observes
additional processing holidays, Client should notify ALLTEL Mortgage Client
Services in writing at least 15 days prior to the scheduled holiday.
b. Preventative maintenance will normally be conducted on the ALLTEL Mortgage
in-house equipment until 0800 each Monday morning. This schedule will
automatically change to Tuesday morning when ALLTEL Mortgage is closed for a
holiday on Monday. Occasionally, the systems may not be available on
Saturdays when ALLTEL Mortgage is making hardware/software upgrades or
change-overs. In such instances, ALLTEL Mortgage will provide notice via
electronic mail (CIMON).
c. Year-end Processing: ALLTEL Mortgage will publish a special year-end
processing schedule at least 60 days prior to each year-end. Client agrees to
cooperate in meeting the special year-end processing schedule.
66
<PAGE>
ADDENDUM II
ALLTEL MORTGAGE OPTIONAL PROCESSING AND SUPPORT SERVICES
BILLING RATES
(As of January 1, 1996)
TABLE OF CONTENTS
-----------------
<TABLE>
<C> <S> <C>
1. TECHNICAL SUPPORT 1
a. Project Management 1
b. Technical Installation/Integration/Support 1
c. Communication Equipment 2
d. Teleprocessing Support Charges 2
e. CPI Electronic Mail Communication System ("CIMON") 2
f. CPI On-Line Reporting Environment ("CORE") 2
g. CPI On-Line Training System 2
2. PERSONNEL AND RELATED 2
3. COMPUTER PROCESSING 3
4. MEDIA AND OTHER 3
5. SPECIAL PROCESSING & SERVICES 3
6. DOCUMENTATION 5
</TABLE>
67
<PAGE>
ALLTELL
INFORMATION SERVICES
Mortgage Division
United Home Lending Service, Inc.
ADDENDUM I
SCHEDULE I
Estimated One Time Cost
-----------------------
<TABLE>
<CAPTION>
8,000 Loan
Portfolio
<S> <C>
Project Initiation Phase (Data Analysis) $ 2,800
Planning Phase
Planning Session $ 1,680
Pre-definition & Data Mapping $ 8,400
Data Definition $ 8,400
Development Phase
Programming (ARMS) $ 5,600
Programming(MCP/Trans) $ 8,400
Test review (Investor) $ 2,800
Test review (All other) $ 5,600
Interactive Testing $ 11,200
Investor/Remittance Header $ 2,800
Implementation
Programming $ 5,600
Testing $ 2,800
Final Support $ 11,200
Project Management $ 5,600
Optional lP's $ 10,000
General Ledger Interface (existing format) ($5,000)
CIF file (existing format) ($5,000)
Hardware/Communications Installation $ 4,500
Training $ 11,400
--------
Total $108,780
</TABLE>
Optional Services: On-site functional review and testing support is $150 per
hour.
Note: Out of pocket expenses for travel, lodging, meals, and any application
sales tax are reimbursed based on actual expense. Freight, postage and shipping
are reimbursed based on actual expenses.
This proposal is proprietary information.
It is valid for ninety days and will expire on June 18, 1996
68
<PAGE>
ADDENDUM II
ALLTEL MORTGAGE OPTIONAL PROCESSING AND SUPPORT SERVICES BILLING RATES
Effective January 1, 1996
(These rates are subject to adjustment upon 30 days notice.)
<TABLE>
<CAPTION>
Hourly Charge*
--------------
<S> <C>
1. TECHNICAL SUPPORT
a. Project Management $140
Project Management consists of: site surveys,
configuration analysis, communications design,
Client/ALLTEL Mortgage coordination, Client/ALLTEL
Mortgage/Vendor coordination, quality assurance,
disaster recovery planning, project plan development
and distribution. Project Management effort is
typically categorized by one of the three following
levels:
1. Project Management-Small (5 person hours or less)
-------------------------------------------------
(e.g.: New Product standard additions - Laser Check
System, TeleVoice, RJE, 3270 gateway additions)
2. Project Management-Medium (6-10 person hours)
---------------------------------------------
(e.g.: Third Party - lockbox (i.e., lockbox banks),
client technical moves, mergers dc acquisitions -
technical components, disaster recovery consulting)
3. Project Management-Large ((greater than)10 person hours)
-------------------------------------------
(e.g.: New Client conversions, Non-standard technical
implementation - Advantis. Frame Relay)
b. Technical Installation/Integration/Support
Technical Installation/Integration/Support consists of:
hardware assembly, software loads or modifications,
installation or integration, testing, technical training,
Client/ALLTEL Mortgage/Vendor coordination, technical onsite
or telephone installation assistance, quality assurance.
1. Technical Support-Level One No Charge
---------------------------
Productivity Product support during normal business
hours (M-F), (ALLTEL Mortgage induced issues) for
adds or changes such as: signature cartridges,
logo changes, disaster recovery testing.
2. Technical Support-Standard $140
--------------------------
Onsite or telephone assisted installation or
configuration of ALLTEL Mortgage standard product
offerings such as: TeleVoice, Passport, Laser
Check, Post Payoff, RJE or 3270 workstations,
Graphical Workplace Shell, Customer Service
Desktop, Navigator, as well as: Late or out of
cycle system modifications (SYSMODS), disaster
recovery testing outside of business hours but
not during maintenance windows, and printer
configuration support.
3. Technical Support-Non Standard $175
------------------------------
Support of non-standard, non-certified configurations
of printers or non-ALLTEL Mortgage related problems,
LAN operating systems, non-standard desktop
configurations, disaster recovery testing during
ALLTEL Mortgage maintenance windows, troubleshooting
support, mainframe or custom VTAM/host programming,
and network design.
</TABLE>
*Client also reimburses ALLTEL Mortgage for reasonable travel, meals, and
lodging expenses, plus shipping & handling costs of materials shipped to the
Client's site (when applicable)
1
69
<PAGE>
ADDENDUM II
<TABLE>
<CAPTION>
Installation Monthly
Charge* Charge
<S> <C> <C>
c. Communication Equipment
1. Transmission Links X X
2. 9600 BPS Port Charge (per 9600 BPS) N/A $100
3. Dial-Up Lockbox Port/Line Charge (per remote) See 1.a.2 $250
d. Teleprocessing Support Charges
1. Point to Point T leased Line Support (per Line) N/A $200
2. Multi-drop Branch office Support (each branch) N/A $ 50
3. RJE/3270 On-line (per Controller or Emulator) N/A $ 50
4. CPU to CPU (Bisync NJE) $500 $250
5. NJE Cross Domain facility $500 $250
6. Cross Domain Facility $1,500 $500
7. Excess Terminal Charge (above 2.5 Sessions per 1,000 N/A $20/Session
total CPI MSP and RLIC Loans)
e. CPI Electronic Mail Communication System ("CIMON") + $500
1. 2-10 Boxes $20/Box
2. 11-50 Boxes $15/Box
3. Over 50 Boxes $10/Box
f. CPI On-Line Reporting Environment ("CORE"))++ N/A $0.025 per
page stored
1. Compressed Print Set-up (for Non-Supported Printers) $100/hour N/A
g. CPI On-Line Training System $1,000 $2,000
Unit Measure Rate Per Unit*
------------ --------------
2. PERSONNEL AND RELATED
a. Consulting Project Managers per hour $200.00 to $300.00
b. Senior Consultants per hour $175.00 to $250.00
c. Consultants per hour $100.00 to $175.00
d. Senior Systems Programmer per hour $175.00
e. Hardware h Software Installation per hour $140.00
f. Analysts, Programmers, Programmer/Analysts per hour $100.00
g. Client Support Representative per hour $75.00
h. On-Site Support (License Clients)(1 day minimum) per day $1,500.00
</TABLE>
* Client also reimburses ALLTEL Mortgage for reasonable travel, meals, and
lodging expenses, plus shipping & handling costs of materials shipped to the
Client's site (when applicable)
X At proposed rates for proposed configuration Subject to adjustment based ed
on configuration and/or rate changes
+ Each subscribing ALLTEL Mortgage Client will be supplied with one (I) CIMON
Communication Box at no charge
++ Available to Remote Clients only
2
70
<PAGE>
ADDENDUM II
<TABLE>
<CAPTION>
Unit Measure Rate Per Unit
------------ --------------
<S> <C> <C>
3. COMPUTER PROCESSING
a. Central processing unit:*
9021-972 System "A" per minute $372.00
9121-742 System "J" ** per minute $173.00
b. Formatted microfiche tape or disk output per 1000 lines $0.10
c. Easytrieve Class C ***
d. Excess CICS Transaction Fee: (Above the maximum allowable $0.022
transactions per principal balance loan)
Unit Measure Rate Per Unit
------------ --------------
4. MEDIA AND OTHER
a. Printing:
Laser printing (Non-Special Forms) per Page $0.03
Impact Printing per 1000 lines $0.75
b. Tape rental; per reel per month, in-house backup $2.00
c. Tape handling charge for tapes sent to clients or $32.00
third parties
d. Microfiche:
</TABLE>
<TABLE>
<CAPTION>
(i) ORIGINALS (ii) COPIES
From To Price From To Price
---------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
0 500 $2.25 0 1,000 $. 120
501 1,000 2.00 1,001 2,000 .110
1,001 1,500 1.50 2,001 3,000 .105
1,501 3,000 1.35 3,001 5,000 .100
3,001 5,000 1.25 5,001 10,000 .095
5,001 8,000 1.10 10,001 25,000 .090
8,001 PLUS 1.00 25,001 plus .080
</TABLE>
These scaled prices are based on the total fiche produced for a
billing month. For instance if two thousand (2,000) original fiche and three
thousand fifty (3,050) fiche copies are generated in a given month the cost for
each original fiche would be one dollar thirty five cents ($1.35) and the cost
for the fiche copies would be ten cents ($0.10) per copy
<TABLE>
<CAPTION>
5. SPECIAL PROCESSING & SERVICES Base Per Unit
---- --------
<S> <C> <C>
a. FHA (MIP/ANP) monthly processing via combined tape per item $25 minimum $0.03 per loan
b. CPI MSP Loan Master File Copy or Utility File Copy $60 plus: $0.0017 per loan
c. FNMA/FHLMC Laser Compare
0-19 999 loans: per S/S Number**** $150
20,000-30 000 loans: per S/S Number**** $250
Over 30 000: per S/S Number**** $350
d. Chemical Bank Transfer Subsystem per run $200
</TABLE>
* Due to periodic CPU upgrades ALLTEL Mortgage may adjust the "per minute
rate" throughout the year without advance notice provided such adjustments
do not materially affect the total charge to Client for such service Per
minute CPU rates are based on processor speed to ensure like charges for
like jobs regardless of the processor executing the job.
** system "J" shall be used at ALLTEL Mortgage's discretion for the purpose of
system "A" overflow workload Per minute CPU rates are based on processor
speed to ensure like charges for like jobs regardless of the processor
executing the job
*** The run time charge for Easytrieve is based on the rates in 3 a above A ten
percent (10%) discount is given when Easytrieve is executed in Class "C"
which will process a after all MSP batch processing is completed for that
cycle (excludes month end unless month end is a Friday)
**** Seller/Servicer Number
3
71
<PAGE>
ADDENDUM II
<TABLE>
<CAPTION>
Base Per Unit
---- --------
<S> <C> <C>
5. SPECIAL PROCESSING & SERVICES (Continued)
e. Interest Accrual Subsystem N/A N/A
The interest accrual subsystem including the trial and final
initialization of file, load and balance and coordination will be
provided to Client ALLTEL Mortgage will charge Client a fee
of two thousand dollars ($2,000) for the file installation; five
hundred dollars ($500) for initialization cycle; and five hundred
dollars ($500) for initialization run at trial
f. Mortgage Insurance Audit Tapes Subsystem per run $200
g. Tax Subsystem per run $200
h. Surcharge for Tax Subsystem Programming Change per incident $1,000
Requests requiring completion in 30 days or less
Processing Control Record (PCR) Scan per run $5,000
j. Reruns and Extra Cycles:*
TOTAL LOAN COUNT LEVEL
0 - 10,000 per run $400
10,001 - 20,000 per run $600
20,001 - 30,000 per run $900
30,001 - 50,000 per run $1,300
50,001 - 75,000 per run $1,900
75,001 - 100,000 per run $2,400
100,001 - 150,000 per run $3,100
150,001 - 250,000 per run $4,400
250,001 - 500,000 per run $7,200
500,001 - 1,000,000 per run $12,900
k. Re-ODDS per reodd $50
l. Jacksonville Airport Delivery per trip $20.00
m. Local Delivery per trip $10.00
n. Letterwriter:** (Standard) per letter $0.15
(ARMS) per letter $0.25
o. EDI Transmission via the CPI InterChange/TM/ TBD*** TBD***
p. FHA 2344 per tape $30
q. Master File Verification (full) each $1,000
Master File Verification (sample) each $500
r. Report Changes to Delivery Receipt Time & Material
s. Tape Copies per tape $50
t. Audit Confirmations per run $250
u. Run Standalone Edit Programs vs Test Files per run $150
v. Download Extract File $500 minimum $0.01 per
per month record/day
w. Subsystem Special Handling per job $500
x. System Modification (TSR) Special Handling per hour $135
</TABLE>
* Client shall be obligated to pay the applicable fee once the request for
rerun or extra cycle is made, even in the event such rerun or extra cycle is
canceled before actual commencement of processing (Minimum of $400)
** Client shall receive a monthly credit not to exceed the first 100 letters
(standard or ARMS) produced per each 1,000 principal balance loans (the
allowable amount) at $.15 each. All letters produced above the allowable
amount shall be billed at the above rates
*** To Be Determined - Charges for non-vendor paid transmissions are being
determined and will be preceded by a minimum thirty (30) day notice
4
72
<PAGE>
ADDENDUM II
<TABLE>
<CAPTION>
Initial Issue Additional
At No Charge Documentation
------------- --------------
<S> <C> <C>
6. DOCUMENTATION
a. CPI MORTGAGE SERVICING PACKAGE
CPI MSP Reference Library 3 sets $780/set
System Components Manual $65
System Control Manual $65
System Input Manual (3 volumes) $65/volume
System Output Manual (7 volumes) $65/volume
Systems Administrator's Guide 3 $175
CPI MSP On-Line LetterWriter Reference 3 $175
CPI MSP On-Line LetterWriter User's System Admin. Guide 3 $175
CPI MSP MODE Reference Guide 3 $175
CPI Transaction Layout Package 3 $175
CPI MSP On-Line Inquiry Screens 3 $125
CPI MSP Master File Fields 1 $200
ARM Workstation User's Guide 3 $175
ARM Workstation Admin. Guide 1 $175
ARM Workstation Conversion Guide 1 $100
Assumptions Workstation 2 $50
Cashiering Workstation 3 $175
Corporate Advance Workstation 3 $175
Bankruptcy Workstation 3 $175
Collection workstation Admin. Guide 1 $175
Collection Workstation User's Guide 3 $175
Customer Service Workstation 3 $175
Escrow Analysis Workstation 3 $175
Foreclosure Workstation Admin. Guide 1 $175
Foreclosure Workstation User's Guide 3 $175
Foreclosure Workstation Claim Screens 1 $175
Hazard Insurance Workstation 3 $175
CPI MSP Daily Balance and Control Form 1 $50
Interest on Escrow 1 $25
Investor Report Request Workstation 3 $175
Loan Maintenance Workstation 3 $175
MBS Pool Workstation 3 $175
Mortgage Insurance Workstation 3 $175
CPI MSP Info Tracking Workstation 3 $175
New Loan Workstation User's Guide 3 $175
New Loan Workstation Supervisor's Guide 1 $175
Paid-ln-Full Tracking Workstation 3 $175
Payoff Workstation 3 $175
Property Inspection Facility User's Guide 3 $125
Real Estate Tax Workstation 3 $175
REO Workstation 2 $175
Year-End Workstation User's Guide 2 $175
Year-End Coordinator Guide 1 $175
Year-End Guide l $175
Default Reporting Workstation User's Guide 2 $175
FNMA Laser Header Facility User's Guide 3 $175
FNMA Custodial Account Analysis User's Guide 3 $175
Freddie Mac Custodial Account Analysis User's Guide 3 $175
CPI Group Investor Reports User's Guide 3 $175
Drafting Workstation User's Guide 2 $175
Bank Account Reconciliation Workstation User's Guide 2 $175
</TABLE>
5
73
<PAGE>
ADDENDUM II
<TABLE>
<S> <C> <C>
6. DOCUMENTATION (Continued)
b. RESIDENTIAL LOAN INVENTORY CONTROL PACKAGE
(RLIC)
RLIC Reference Library
System Components Manual 3 $175
System Control Manual 3 $175
System Input Manual 3 $175
System Output Manual 3 $175
RLIC Transaction Layout Package 3 $175
RLIC Buy Price History Workstation 3 $125
RLIC Fallout Workstation 2 $175
RLIC Helpful Hints 3 $75
RLIC Applications through Closing User's Guide 3 $175
RLIC Headers User's Guide 3 $175
RLIC User Fields User's Guide 3 $175
Loan Delivery Workstation 2 $175
RLIC MODE Reference Guide 3 $175
c. RESIDENTIAL LOAN INVENTORY PRODUCTION CONTROL
(RLPC)
RLPC System Administrator's Guide 1 $175
RLPC Reference Guide 1 $175
RLPC Interface Guide 1 $100
RLPC IQ 1 $100
RLPC on InterChange User's Guide 1 $175
d. MICRO-COMPUTER BASED SYSTEMS
MIDSS User's Guide (DOS or O$12 version) 1 $175
MIDSS Communique/Support Reference Guide 1 $100
MIDSS Risk Management Analysis System User's Guide 1 $125
PCDOCS User's Guide 1 $175
PCDOCS Communique/Support Reference Guide 1 $100
e. CPI INTERCHANGE
CommManager Getting Started Guide 1 $175
Connections Getting Started Guide 1 $175
Mail Getting Started Guide 1 $175
ProComm Getting Started Guide 1 $175
File Room User's Guide 1 $175
f. CPI INTERACT
CPI Interact Processing Getting Started Guide 1 $175
g. CPI INTERVIEW
CPI InterView User's Guide 1 $175
CPI InterView Overview 1 $175
h. EASYTRIEVE
Computer Associates EASYTRIEVE PLUS Reference Manual 1 $90
</TABLE>
6
74
<PAGE>
<TABLE>
<S> <C> <C>
6. DOCUMENTATION (Continued)
i. TECHNICAL OR SYSTEMS MANUALS
(FOR LICENSE CLIENTS ONLY)
On-Line Systems Technical Reference Guide 1 $100
CPI MSP Manual 1 $75
RLIC S&P Manual 1 $75
CPI FM Manual 1 $30
OS ODDS User's Guide 1 $30
OS ODDS System Programmer's Guide 1 $30
ACS User's Guide 1 $175
ACS System Administration Guide 1 $175
j. SPECIAL INTEREST DOCUMENTATION
CIMON User's Guide 1 $100
CIMON Coordinator's Guide 1 $100
Construction Loan Workstation 1 $150
TeleVoice 1 $100
EDI License Client 1 $150
EDI Processing Client 1 $150
EDI Vendor 1 $150
LaserCheck System 1 $125
RFUF User's Guide 1 $125
CORE Self-Study Course 1 $395
CORE User's Guide 1 $25
RJE 1 $50
EVALUATOR PLUS Reference Guide 1 $95
EVALUATOR PLUS User's Guide 1 $95
STRATIFIER User's Guide 1 $95
TRANSLATOR User's Guide 1 $95
RMAS Implementation Guide 1 $175
RMAS Implementation (MIDSS'95) 1 $175
RMAS User's Guide 1 $175
Current Year Survey (for Non-Participants) 1 $2,500
</TABLE>
7
75
<PAGE>
Exhibit 11
Statement Re: Computation of Earnings Per Share
UNITED BANKSHARES, INC. AND SUBSIDIARIES
Earnings Per Share
<TABLE>
<CAPTION>
For the Year Ended December 31
1996 1995 1994
----------- ----------- -----------
PRIMARY:
- --------
<S> <C> <C> <C>
Average Number of Common Shares 15,140,630 14,983,154 15,046,503
Average Number of Common Share Equivalents 77,207 84,132 85,263
----------- ----------- -----------
Average Shares and Share Equivalents Outstanding 15,217,837 15,067,286 15,131,766
=========== =========== ===========
Net Income $30,512,000 $32,817,000 $30,384,000
Preferred Dividends
----------- ----------- -----------
Available to Common Shares $30,512,000 $32,817,000 $30,384,000
=========== =========== ===========
Earnings Per Common Share: $2.00 $2.18 $2.01
=========== =========== ===========
FULLY DILUTED:
- --------------
Average Number of Common Shares 15,140,630 14,983,154 15,046,503
Average Number of Common Share Equivalents 112,726 97,916 85,263
----------- ----------- -----------
Average Shares and Share Equivalents Outstanding 15,253,356 15,081,070 15,131,766
=========== =========== ===========
Net Income $30,512,000 $32,817,000 $30,384,000
Preferred Dividends
----------- ----------- -----------
Available to Common Shares $30,512,000 $32,817,000 $30,384,000
=========== =========== ===========
Earnings Per Common Share: $2.00 $2.18 $2.01
=========== =========== ===========
</TABLE>
76
<PAGE>
Exhibit 12
Computation of Ratios
<TABLE>
<S> <C> <C>
Net Income Per Share = Net Income/Average Common Shares
Outstanding
Cash Dividends Per Share = Dividends Paid/Average Common Shares
Outstanding
Book Value Per Share = Total Shareholders' Equity/Average
Common Shares Outstanding
Return on Average Assets = Net Income/Average Assets
Return on Average Shareholders' = Net Income/Average Shareholders'
Equity Equity
Net Interest Margin = Net Interest Income/Average Earning
Assets
Noninterest Expense to Average = Noninterest Expense/Average Assets
Assets
Efficiency Ratio = Noninterest Expenses/(Net Interest Income
Plus Noninterest Income)
Average Loans to Deposits = Average Net Loans/Average Deposits
Outstanding
Dividend Payout = Dividends Declared/Net Income
Average Shareholders' Equity to = Average Shareholders' Equity/Average
Average Assets Assets
Tier I Capital Ratio = Shareholders' Equity--Intangible
Assets--Securities Mark-to-market
Capital Reserve (Tier I Capital)/
Risk Adjusted Assets
Total Capital Ratio = Tier I Capital Plus Allowance for
Loan Losses/Risk Adjusted Assets
Tier I Leverage Ratio = Tier I Capital/Average Assets
Net Charge-offs to = (Gross Charge-offs Less Recoveries)/
Average Loans Average Net Loans
Non-performing Loans to Period = (Nonaccrual Loans Plus Loans Past Due
End Loans 90 Days or Greater)/Gross Loans Net
of Unearned Interest)
Non-performing Assets to Period = (Nonaccrual Loans Plus Loans Past Due
End Assets 90 Days or Greater Plus Other Real
Estate)/Total Assets
Allowance for Loan Losses to = Loan Loss Reserve/(Gross Loans Net
Period End Loans of Unearned Interest
Allowance for Loan Losses to = Loan Loss Reserve/(Nonaccrual Loans
Non-Performing Loans Plus Loans Past Due 90 days or Greater)
</TABLE>
77
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
Five Year Summary
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest income $ 172,358 $ 165,815 $ 147,637 $ 140,624 $ 136,429
Total interest expense 73,185 70,167 55,672 55,037 60,819
Net interest income 99,173 95,648 91,965 85,587 75,610
Provision for loan losses 2,610 2,320 2,202 4,830 4,808
Other income 14,189 14,752 12,238 14,300 11,889
Other expense 63,549 57,481 55,908 56,107 52,626
Income taxes 16,691 17,782 15,709 12,482 9,280
Income before cumulative
effect of accounting change 30,512 32,817 30,384 26,468 20,785
Net income 30,512 32,817 30,384 27,797 20,785
Cash dividends(1) 17,847 13,817 12,604 10,918 7,914
Per common share:
Income before cumulative
effect of accounting change $ 2.00 $ 2.18 $ 2.01 $ 1.75 $ 1.51
Net income 2.00 2.18 2.01 1.84 1.51
Cash dividends(1) 1.24 1.17 1.06 0.95 0.85
Book value per share 17.13 16.45 15.09 14.21 13.22
Selected Ratios:
Return on average
shareholders' equity 11.98% 13.86% 13.67% 13.41% 11.80%
Return on average assets 1.35% 1.52% 1.44% 1.39% 1.18%
Dividend payout ratio (1) 58.49% 49.21% 50.61% 50.30% 49.80%
Selected Balance Sheet Data:
Average assets $2,263,428 $2,162,760 $2,107,476 $2,006,875 $1,762,981
Investment securities 332,331 321,019 372,069 439,699 402,652
Total loans 1,847,604 1,732,986 1,652,275 1,462,574 1,363,583
Total assets 2,326,877 2,210,230 2,170,340 2,035,452 1,968,276
Total deposits 1,827,554 1,774,599 1,714,190 1,699,131 1,649,713
Long-term borrowings 25,621 34,497 84,374 32,564 28,691
Total borrowings
and other liabilities 240,809 186,397 230,516 122,274 120,272
Shareholders' equity 258,514 249,234 225,634 214,047 198,291
</TABLE>
(1) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
78
<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 the consolidated financial
statements and the notes to consolidated financial statements include the
accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, and
reflect the merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the
pooling of interests method of accounting. Accordingly, all prior period
financial statements have been restated to include Eagle. United exchanged 1.15
shares of its common stock for each of the 2,729,377 common shares of Eagle or
3,138,704 shares. 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.
1996 COMPARED TO 1995
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 the specific headings below.
EARNINGS SUMMARY
For the year ended December 31, 1996, net income decreased 7.0% to $30,512,000.
Net income per share of $2.00 for the year decreased 8.3% from $2.18 in 1995.
Dividends per share increased 6.0% from $1.17 in 1995 to a record level of $1.24
per share in 1996. This was the twenty-third consecutive year of dividend
increases to shareholders.
During 1996, United recorded approximately $6,845,000 of merger-related one-time
special charges associated with the Eagle merger. The merger-related and one-
time charges that reduced United's 1996 earnings in the first, second and third
quarters, were planned forward-looking moves to give United a broader and
stronger foundation for the future. These charges included, among other items,
severance pay and benefits for displaced Eagle officers and employees, costs to
consolidate duplicate facilities, employee training, new product promotions,
computer conversions and additional deposit insurance as a result of the Savings
Association Insurance Fund ("SAIF") recapitalization legislation.
Despite these significant one-time expenses, United's return on average assets
of 1.35% compared very favorably with regional and national peer grouping
information provided by Wheat, First Securities, Inc. of 1.19% and 1.18%.
United's return on average shareholders' equity of 11.98%,
79
<PAGE>
as compared with regional and national peer group information of 15.56% and
15.14%, is indicative of United's very strong capital levels. United, one of the
nation's most profitable regional banking companies, has a strong capital
position, and is well positioned to take advantage of future growth
opportunities.
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 1996, are summarized below.
For the years ended December 31, 1996 and 1995, net interest income approximated
$99,173,000 and $95,648,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.85% in 1996 and 4.90% in 1995.
Total interest income of $172,358,000 increased 4.0% in 1996 over 1995 as a
result of higher volumes of interest-earning assets. Higher average loan
volumes of approximately $113 million, resulting primarily from an acquisition,
contributed to the increase. From December 31, 1995 to December 31, 1996,
United experienced a moderate increase in consumer loans of 1.1%, while
commercial loans and mortgage loans showed increases of 13.7% and 6.4%,
respectively.
Total interest expense increased $3,018,000 or 4.3% in 1996. This increase was
attributed primarily to United's competitive pricing of interest-bearing
deposits in its markets and continued change in the retail deposit mix as
customers shifted funds into products offering higher yields. United's average
interest-bearing deposits increased by $25,761,000 or 1.7% in 1996, while its
average FHLB advances increased $29,604,000 or 42.6% and average short-term
borrowings increased $3,999,000 or 4.8%. United made greater use of FHLB
advances as the cost of those advances declined from 5.93% in 1995 to 5.54% in
1996. United utilized FHLB advances during 1996 to fund the growth in the
mortgage loan portfolio. The average cost of funds, which increased from 4.22%
in 1995 to 4.25% in 1996, reflected the general upward trend in market interest
rates during 1996.
Provision for Loan Losses
United evaluates the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio. United's process of evaluating the
allowance is a formal company-wide process that focuses on early identification
of potential problem credits and procedural
80
<PAGE>
discipline in managing and accounting for those credits. See Note D to the
Consolidated Financial Statements for a discussion of concentrations of credit
risk.
Nonperforming loans were $10,192,000 at December 31, 1996 and $10,990,000 at
December 31, 1995, a decrease of 7.3%. The level of nonperforming assets
decreased as a result of the charge-off of certain large balance commercial
credits. The components of nonperforming loans include nonaccrual loans and
loans that are contractually past due 90 days or more as to interest or
principal, but have not been placed on nonaccrual. Loans past due 90 days or
more increased $1,139,000 or 24.3% during 1996; nonaccrual loans decreased
$1,937,000 or 30.8% since year-end 1995. Nonperforming loans represented 0.44%
of total assets at the end of 1996, as compared to 0.52% for United's national
peer group.
At year-end 1996 and 1995 the allowance for loan losses was 1.21% and 1.30% of
total loans, net of unearned income. At December 31, 1996 and 1995, the ratio
of the allowance for loan losses to nonperforming loans was 218.6% and 205.1%,
respectively.
Management believes that the allowance for loan losses of $22,283,000 at
December 31, 1996, is adequate to provide for potential losses on existing loans
based on information currently available.
For the years ended December 31, 1996 and 1995 the provision for loan losses was
$2,610,000 and $2,320,000, respectively. The increase in the provision for 1996
when compared to 1995 was to conform the allowance for loan losses on Eagle's
loan portfolio with United's loan valuation policies and in response to growth
in the portfolio. The provision for loan losses charged to operations is based
on management's evaluation of individual credits, 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 $2,872,000 in 1996 and $3,096,000 in 1995, which
represents 0.16% and 0.18% of average loans for the respective years. United's
ratio of net charge-offs to average loans was better than its peer group's ratio
of 0.23% in 1996 and was comparable to its peer group's ratio of 0.19% in 1995.
Management is not aware of any potential problem loans, trends or uncertainties
which it reasonably expects will materially impact future operating results,
liquidity, or capital resources which have not been disclosed. Additionally,
management has disclosed all known material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment schedules.
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At December 31, 1996, impaired loans were $10,317,000, an increase of $1,525,000
or 17.4% from the $8,792,000 in impaired loans at December 31, 1995. For
further details, see Note D to the Consolidated Financial Statements.
Other Income
Noninterest income has been and will continue to be an important factor for
improving United's profitability. Accordingly, management continues to evaluate
areas where noninterest income can be enhanced. Noninterest income decreased
$563,000 or 3.8% for 1996 when compared to 1995. Other income consists of all
revenues which are not included in interest and fee income related to earning
assets. The decrease in noninterest income for 1996 was primarily the result of
the approximate $2,000,000 loss on loans sold in United's newly formed mortgage
banking subsidiary. These sales were necessary to strategically align the
mortgage banking operations with United's interest rate risk position.
Excluding gains and losses on sales of securities and mortgage banking
activities, noninterest income increased $978,000 or 7.1% in 1996 primarily as a
result of increased service charges and fees from customer accounts.
Trust income increased $275,000 or 9.5% in 1996 due to repricing of services and
an increased volume of trust business.
Service charges, commissions and fees increased by $1,396,000 or 14.1% in 1996.
The increase was primarily attributable to conforming the former Eagle offices'
service charge and fee structures to United's and increased return check charges
and bankcard fees. This income includes charges and fees related to various
banking services provided by United. The increase was primarily due to a
combination of increased fees in bankcard accounts and an increased fee
structure for sales of checking related products.
Securities transactions resulted in a net loss of $98,000 in 1996. The proceeds
from these sales of approximately $17 million were reinvested in similar
securities yielding a higher rate of return. There were no securities sales in
1995. The $872,000 of net securities losses realized in 1994 related primarily
to available for sale debt securities losses of approximately $1,024,000. For
further details, see Notes C and L to the Consolidated Financial Statements.
On November 15, 1995, the FASB staff issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." In accordance with the provision of that Special
Report, United chose to reclassify securities with an amortized cost of
$103,595,000 from held to maturity to available for sale. At the date of the
transfer, the $242,000 unrealized gain on those securities was included in
shareholders' equity, net of related income taxes. This enabled United to take
advantage of certain interest rate risk management strategies.
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Other Expense
Just as management continues to evaluate areas where noninterest income can be
enhanced, it strives to improve the efficiency of its operations and thus reduce
operating costs. United's cost control efforts have been very successful
resulting in an efficiency ratio of 52.6%, which is well below the 57.9%
reported by United's national peer group banks. United's ratio was higher in
1996 as a result of the merger and related expenses.
Other expense includes all items of expense other than interest expense, the
provision for loan losses and income tax expense. In total, other expense
increased $6,068,000 or 10.6%. The increase was primarily due to the one-time
and merger-related charges recorded in the first and second quarters and the
additional third quarter deposit insurance expense as a result of the SAIF
recapitalization legislation.
Salaries and employee benefits expense increased $2,887,000 or 11.2% in 1996.
Nearly all of the increase for 1996 was attributable to severance and benefit
pay of displaced Eagle executive officers, employment contracts and employees at
locations where United consolidated certain branches. As of December 31, 1996
and 1995, United employed 893 and 946 full-time equivalent employees,
respectively.
Net occupancy expense in 1996 exceeded 1995 levels by $319,000 or 5.5% primarily
due to decreased rental income and an increase in real property repairs and
utilities expense. The overall changes in net occupancy expense for 1996 were
insignificant with no material increase or decrease in any one expense category.
Remaining other expense increased $2,862,000 or 11.1% in 1996 compared to 1995.
The increase in other expense for 1996 related primarily to the additional
deposit insurance expense as a result of the SAIF recapitalization legislation,
higher insurance expense, advertising, consulting and legal expense, losses on
sales and write-downs of assets, EDP fees, office supplies, and goodwill
amortization. Included in these increased costs was $1,483,000 of one-time
charges which related to reengineering costs incurred to improve efficiency,
productivity and strengthen United's competitiveness. Additionally, the added
expenses of a purchase accounting acquisition included in 1996, but not in the
first ten months of 1995, have contributed to the overall increase in
noninterest expense.
Income Taxes
For the year ended December 31, 1996, income taxes approximated $16,691,000
compared to $17,782,000 for 1995. The decrease of $1,091,000 or 6.7% for 1996
when compared to 1995 was primarily the result of decreased pretax income.
United's effective tax rates were approximately 35% for 1996 and 1995.
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At December 31, 1996, gross deferred tax assets totaled approximately $13.6
million. The allowance for loan losses and various accrued liabilities
represent the most significant temporary differences.
Quarterly Results
The first, second, and third quarters of 1996 contained significant
reengineering and merger-related and one-time special charges associated with
the Eagle merger. These charges included, among other items, severance pay and
benefits for retiring and displaced Eagle officers and employees, investment
banker fees, costs to consolidate duplicate facilities, employee training, new
product promotions and computer conversions.
In the second quarter of 1996, United recorded additional income tax expense of
$3,086,000 due to the recapture of Eagle's bad debt expense into taxable income.
However, as a result of legislation enacted during the third quarter of 1996,
United was relieved of the $3,086,000 of additional income tax expense that was
recorded in the second quarter.
Net income for the fourth quarter of 1996 was $9,936,000, an increase of 32.4%
from the $7,503,000 earned in the fourth quarter of 1995. On a per share basis,
fourth quarter earnings were $0.65 per share in 1996 and $.50 per share in 1995.
Fourth quarter net income was higher in 1996 than in 1995 because of a return to
more normal levels of core income and expenses.
Additional quarterly financial data for 1996 and 1995 may be found in Note O to
the Consolidated Financial Statements.
The Effect of Inflation
United's income statements generally reflect the effects of inflation. Since
interest rates, loan demand and deposit levels are impacted by inflation, the
resulting changes in the interest sensitive assets and liabilities are included
in net interest income. Similarly, operating expenses such as salaries, rents
and maintenance include changing prices resulting from inflation. One item that
would not reflect inflationary changes is depreciation expense. Subsequent to
the acquisition of depreciable assets, inflation causes price levels to rise;
therefore, historically presented dollar values do not reflect this inflationary
condition. With inflation levels at relatively low levels and monetary and
fiscal policies being implemented to keep the inflation rate increases within an
acceptable range, management expects the impact of inflation would continue to
be minimal in the near future.
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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 interest rate risk management is to maintain an
appropriate relationship between those assets and liabilities that are sensitive
to changing market interest rates. United closely monitors the sensitivity of
its assets and liabilities on an 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."
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
in this section, United was liability sensitive (excess of liabilities over
assets) in the one year horizon. On the surface, this would indicate that
rising market interest rates would reduce United's earnings and declining market
interest rates would increase earnings. United, however, has not experienced
the kind of earnings volatility indicated from the cumulative gap. This is
because a significant portion of United's retail deposit base does not reprice
on a contractual basis. Management has estimated, based upon historical
analyses, that savings deposits are less sensitive to interest rate changes than
are other forms of deposits. The GAP table presented herein has been 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 $2,631,000 or 0.12% of the cumulative gap to related earning assets.
The primary method of measuring the sensitivity of earnings to changing market
interest rates is to simulate expected cash flows using varying assumed interest
rates while also adjusting the timing and magnitude of non-contractual deposit
repricing to more accurately reflect anticipated pricing behavior. These
simulations include adjustments for the lag in prime loan repricing and the
spread and volume elasticity of interest-bearing deposit accounts, regular
savings and money market deposit accounts. To aid in interest rate management,
United's lead bank, UNB, is a member of the Federal Home Loan Bank of Pittsburgh
(FHLB). The use of FHLB advances provides United with a low risk means of
matching maturities of earning assets and interest-bearing funds to achieve a
desired interest rate spread over the life of the earning assets.
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The following table shows the interest rate sensitivity GAP as of December
31, 1996:
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gap
Days
------------------------------------- Total 1 - 5 Over 5
0 - 90 91 - 180 181 - 365 One Year Years Years Total
---------- --------- ---------- ---------- --------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other short-
term investments $ 3,192 $ 3,192 $ 3,192
Investment and marketable
equity securities:
Taxable 24,534 $ 2,982 $ 5,538 33,054 $ 131,633 $131,507 296,194
Tax-exempt 1,125 1,806 2,205 5,136 15,601 15,400 36,137
Loans, net of unearned
income 547,797 146,635 259,278 953,710 508,750 385,145 1,847,605
---------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Earning
Assets $ 576,648 $ 151,423 $ 267,021 $ 995,092 $ 655,984 $532,052 $2,183,128
========== ========= ========== ========== ========= ======== ==========
LIABILITIES
Interest-Bearing Funds:
Savings and NOW
accounts $ 714,307 $ 714,307 $ 714,307
Time deposits of
$100,000 & over 41,124 $ 30,412 $ 32,333 103,869 $ 33,826 $ 741 138,436
Other time deposits 193,196 143,764 175,560 512,520 182,508 18,735 713,763
Federal funds purchased,
repurchase agreements
and other short-term
borrowing 75,582 75,582 75,582
FHLB advances 104,011 15 25,031 129,057 228 3,346 132,631
---------- --------- ---------- ---------- --------- -------- ----------
Total Interest-Bearing
Funds $1,128,220 $ 174,191 $ 232,924 $1,535,335 $ 216,562 $ 22,822 $1,774,719
========== ========= ========== ========== ========= ======== ==========
Interest Sensitivity Gap $ (551,572) $ (22,768) $ 34,097 $ (540,243) $ 439,422 $509,230 $ 408,409
========== ========= ========== ========== ========= ======== ==========
Cumulative Gap $ (551,572) $(574,340) $ (540,243) $ (540,243) $(100,821) $408,409 $ 408,409
========== ========= ========== ========== ========= ======== ==========
Cumulative Gap as
a Percentage of Total
Earning Assets (25.27%) (26.31%) (24.75%) (24.75%) (4.62%) 18.71% 18.71%
Management
Adjustments $ 678,592 $ (45,262) $ (90,456) $ 542,874 $(542,874) $ 0
Off-Balance
Sheet Activities (50,000) 50,000 0 0
---------- --------- ---------- ---------- --------- -------- ----------
Cumulative Management
Adjusted Gap and Off-
Balance Sheet Activities $ 77,020 $ 58,990 $ 2,631 $ 2,631 $(100,821) $408,409 $ 408,409
========== ========= ========== ========== ========= ======== ==========
Cumulative Management
Adjusted Gap and Off-
Balance Sheet Activities
as a Percentage of Total
Earning Assets 3.53% 2.70% 0.12% 0.12% (4.62%) 18.71% 18.71%
========== ========= ========== ========== ========= ======== ==========
</TABLE>
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Additionally, United is using certain off-balance-sheet instruments known as
interest rate swaps, to further aid in interest rate risk management.
For further details, see Note J 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 is "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 as well as advances from the
FHLB. Repurchase agreements represent funds that are generally obtained as the
result of a competitive bidding process.
Liquid assets are cash and those items readily convertible to cash. All banks
must maintain sufficient balances of cash and near-cash items to meet the day-
to-day demands of customers. Other than cash and due from banks, the available
for sale securities portfolio and maturing loans are the primary sources of
liquidity.
The goal of liquidity management is to ensure the ability to access funding
which enables United to efficiently satisfy the cash flow requirements of
depositors and borrowers and meet United's cash needs. Liquidity is managed by
monitoring funds availability from a number of primary sources. Substantial
funding is available from cash and cash equivalents, unused short-term
borrowings and a geographically dispersed network of subsidiary banks providing
access to a diversified and substantial retail deposit market.
Short-term needs can be met through a wide array of sources such as
correspondent and downstream correspondent federal funds and utilization of FHLB
advances.
Other sources of liquidity available to United to provide long-term as well as
short-term funding alternatives, in addition to FHLB advances, are long-term
certificates of deposit, lines of credit, and borrowings secured by bank
premises or stock of United's subsidiaries. United has no intention at this
time of utilizing any long-term funding sources other than FHLB advances and
long-term certificates of deposit.
Cash flows from operations in 1996 of $66,449,000 were 60.5% higher than the
$41,404,000 in 1995 as a result of an increase of approximately $23,067,000 of
excess proceeds from the sale of loans over loans
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originated for sale. In 1996, investing activities resulted in a use of cash of
$160,168,000 as compared to 1995 in which investing activities resulted in a
source of cash of $18,885,000. The primary reason for the increase in the use
of cash for investing activities is that the net difference of security
purchases over proceeds from sales, maturities and calls of securities increased
from a net source of $63,589,000 in 1995 to a net use of $11,702,000 in 1996 or
a decrease of $75,291,000. Additionally, net loan originations increased by
$56,345,000 in 1996 as compared to 1995. Financing activities resulted in a
source of cash in 1996 of $84,262,000 primarily due to a $57,134,000 increase in
net borrowings from the FHLB of Pittsburgh and a $53,184,000 increase in
deposits. These sources of cash for financing activities were partially offset
by payment of $16,541,000 of cash dividends to shareholders and a net decrease
of $6,585,000 in other short-term borrowings. See the Consolidated Statement of
Cash Flows in the Consolidated Financial Statements.
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. See Note B, Notes to Consolidated Financial Statements.
United anticipates no problems in its ability to service its obligations over
the next 12 months. 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 G, Notes to Consolidated
Financial Statements.
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 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 to support growth and sustain earnings. United's average equity to
average asset ratio was 11.25% in 1996 and 10.94% in 1995. United's risk-based
capital ratio was 16.54% in 1996 and 16.80% in 1995 which are both significantly
higher than the minimum regulatory requirements. United's Tier 1 capital and
leverage ratios of 15.29% and 10.84%, respectively, at December 31, 1996, are
also strong relative to its peers and are well above regulatory minimums. See
Note M, Notes to Consolidated Financial Statements.
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Commitments
The following table indicates the outstanding loan commitments of United
in the categories stated:
<TABLE>
<CAPTION>
December 31
1996
<S> <C>
------------
Lines of credit authorized, but unused $340,338,000
Letters of Credit 22,081,000
------------
$362,419,000
============
</TABLE>
Past experience has shown that, of the foregoing commitments, approximately 12-
15% can reasonably be expected to be funded within a one year period. For more
information, see Note J to the Consolidated Financial Statements.
1995 COMPARED TO 1994
The following Earnings Summary is a broad overview of the financial condition
and results of operations and is not intended to replace the more detailed
discussion that is presented under the specific headings below. This discussion
includes the accounts of United Bankshares, Inc. and its wholly-owned
subsidiaries, and reflects the merger of Eagle Bancorp, Inc. (Eagle) on April
12, 1996, under the pooling of interests method of accounting. Accordingly, all
information presented includes Eagle.
EARNINGS SUMMARY
For the year ended December 31, 1995, net income increased 8.0% to a record
$32,817,000. Net income per share of $2.18 for the year was up 8.5% from $2.01
in 1994. United's return on average assets was 1.52%. Dividends per share
increased 10.4% from $1.06 in 1994 to a record level of $1.17 per share in 1995.
Core earnings, or earnings before taxes, loan sales, security transactions, and
the provision for loan losses, were strong and increased 5.8% for 1995 compared
to 1994. These strong core earnings are indicative of the 4.0% increase in net
interest income driven by an increase in average net earning assets with
significant growth of 7.5% in average net loans.
Factors that contributed to the 1995 earnings increase included an improved net
interest margin, partially resulting from a $56,050,000 increase in average
earning assets from 1994 and an overall increase in noninterest income which
included fewer losses on the sale of securities and higher gains on the sales of
loans. The favorable impact of the above items was partly offset by increased
personnel and occupancy expenses and increased income taxes as a result of the
higher level of pre-tax earnings.
United's key performance measures, return on average assets and return on
average equity, improved from 1994 and remained very strong in comparison to
industry standards. United's return on average assets of 1.52% and return on
average shareholders' equity of 13.86% both compared
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very favorably with regional peer group ratios of 1.17% and 12.56% and national
peer group ratios of 1.21% and 13.47%, respectively, according to information
provided by Wheat, First Securities, Inc.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
For the years ended December 31, 1995 and 1994, net interest income approximated
$95,648,000 and $91,965,000, respectively. On a tax-equivalent basis the net
interest margin was strong at 4.90% in 1995 and 4.85% in 1994. Higher average
loan volumes of approximately $117 million resulting primarily from an
acquisition and higher consumer demand for mortgage loans contributed to the
increase in net interest income. At 4.90%, United's net interest margin was
well above peer group averages.
Total interest income of $165,815,000 increased 12.3% in 1995 over 1994 as a
result of higher volumes of interest-earning assets. Comparing year-end 1995 to
year-end 1994, a moderate decrease occurred in consumer loans of 3.0% while
commercial loans and mortgage loans showed increases of 3.1% and 6.7%,
respectively.
Total interest expense increased $14,495,000 or 26.0% in 1995. This increase
can be attributed primarily to United's competitive pricing of interest-bearing
deposits in its markets and continued change in the retail deposit mix as
customers shift funds into products offering higher yields. United's average
interest-bearing deposits increased by 3.1% in 1995, while its average long-term
borrowings decreased 11.6% and average short-term borrowings increased 5.5%.
United made greater use of short-term funds as the Federal Reserve held short-
term rates steady at approximately 6.0% for nearly half of 1995. The average
cost of funds, which increased from 3.43% in 1994 to 4.22% in 1995, reflected
the general upward trend in market interest rates during 1995.
Provision for 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 $10,990,000 at December 31, 1995 and $7,570,000 at
December 31, 1994, an increase of 45.2%. The level of nonperforming assets
increased as a result of delinquencies on certain large balance commercial
credits and nonperforming assets acquired in an acquisition. Loans past due 90
days or more increased $1,841,000 or 64.6% during 1995; nonaccrual loans
increased $1,579,000 or 33.5% since year-end 1994. Much of the increase in
nonaccrual loans was the result of the addition of a single large commercial
loan to nonaccrual status. United is currently negotiating workout terms with
the borrowers and will closely monitor the ongoing status. Nonperforming loans
represented
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0.50% of total assets at the end of 1995, which is approximately one-half of the
national peer group level.
At year-end 1995 and 1994 the allowance for loan losses was 1.30% and 1.35% of
total loans, net of unearned income, respectively. At December 31, 1995 and
1994, the ratio of the allowance for loan losses to nonperforming loans was
205.1% and 294.6%, respectively.
For the years ended December 31, 1995 and 1994 the provision for loan losses was
$2,320,000 and $2,202,000, respectively. The slight increase can be attributed
to the higher net charge-offs and the increase in nonperforming loans during
1995.
Total net charge-offs were $3,096,000 in 1995 and $873,000 in 1994, which
represents 0.18% and 0.06% of average loans, net of unearned income, for the
respective years. United's ratio of net charge-offs to average loans, net of
unearned income, is comparable to its peers' ratio of 0.19% in 1995 and compared
very favorably with its peers group's ratio of 0.22% in 1994.
Effective January 1, 1995, United adopted Financial Accounting Standards Board
Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"(SFAS No.
114), as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures," collectively SFAS No. 114. As a
result of applying the rules prescribed by SFAS No. 114, certain loans are being
reported at the present value of their expected future cash flows using the
loan's effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. At the time of adoption of SFAS No. 114, United had
approximately $8,000,000 of loans which were considered impaired in accordance
with the guidelines prescribed by SFAS No. 114. The adoption of SFAS No. 114 did
not have a material impact on the allowance for loan losses, the provision for
loan losses, the charge-off policy or the comparability of credit risk.
Consistent with United's existing method of income recognition for loans,
interest receipts on impaired loans, except those classified also as nonaccrual,
are recognized as interest income using the accrual method of income
recognition. United's method of income recognition for impaired loans that are
classified as nonaccrual is to recognize interest income on the cash method of
income recognition or apply the cash receipt to principal when the ultimate
collectibility of principal is in doubt. The average recorded investment in
impaired loans during the year ended December 31, 1995 was approximately
$9,545,000. For the year ended December 31, 1995, United recognized interest
income on those impaired loans of approximately $412,000, substantially all of
which was recognized using the accrual method of income recognition. The amount
of interest income which would have been recorded under the original terms for
the above loans was $633,000.
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At December 31, 1995, the recorded investment in loans that were considered to
be impaired was $8,792,000 (of which $4,934,000 were on a nonaccrual basis).
Included in this amount was $4,793,000 of impaired loans for which the related
allowance for credit losses was $1,918,000 and $3,999,000 of impaired loans that
did not have an allowance for credit losses. The impact of adopting SFAS No.
114 was immaterial to the financial condition and operations of United as of
and for the year ended December 31, 1995, and had no material impact on the
comparability of the credit risk as presented herein.
Other Income
In 1995, other income, excluding securities transactions, increased when
compared to 1994. The overall increase in noninterest income of $2,514,000 or
20.5% was primarily attributed to the absence of net losses on securities
transactions incurred in 1994, a $642,000 increase in service charges,
commissions and fees and an $891,000 increase in net gains from sales of loans.
Trust income increased $43,000 or 1.5% in 1995 due to repricing of services and
an increased volume of trust business.
Service charges, commissions and fees increased by $642,000 or 6.9% in 1995.
This income consisted of charges and fees related to various banking services
provided by United. The increase was primarily due to a combination of
increased fees in bankcard accounts and an increased fee structure for sales of
checking related products.
Securities transactions resulted in a net loss of $872,000 in 1994. The
proceeds from these sales were reinvested in similar securities yielding a
higher rate of return. The net losses from the sales of the securities were
fully recovered within the first eight months of 1995. There were no securities
sales in 1995.
During 1995, gains on sales of loans increased $891,000 over the amount of gains
reported in 1994 due to increased secondary market loan activity. Additionally,
the adoption of Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights," (SFAS No. 122) at June 30, 1995, resulted in an
increase in gains on the sales of loans sold of approximately $412,000, before
tax, due to the recognition of servicing rights related to such loan sales.
The $872,000 of net securities losses for 1994 related primarily to available
for sale debt securities losses.
Other Expense
Other expense includes all items of expense other than interest expense, the
provision for loan losses, and income taxes. In total, other expense increased
slightly in 1995, and management was successful in controlling costs. The
income statement reflects a 2.8% increase in 1995 as compared to 1994.
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Salaries and employee benefits expense increased $331,000 or 1.3% in 1995.
Net occupancy expense in 1995 exceeded 1994 levels by $263,000 or 4.8% primarily
due to decreased rental income from vacancies and an increase in real property
repairs and utilities expense.
Remaining other expense increased $979,000 or 3.9% in 1995 compared to 1994.
The increase in other expense for the year related primarily to higher
advertising, postage, bankcard and nonrecurring legal expenses which included
certain merger related expenses. The increase in other expense was partially
offset by lower data processing fees and FDIC insurance expense as a result of
the Federal Deposit Insurance Corporation's decision to lower deposit insurance
premiums from $0.23 to $0.04 per $100 in Bank Insurance Fund (BIF) deposits for
well capitalized and well managed banks. The premium change resulted in a refund
of approximately $910,000 which was received in September 1995. The overall
decrease in FDIC insurance premiums for 1995 when compared to 1994 was
$1,475,000. United's two banking subsidiaries are assessed at the lowest FDIC
insurance premium rate.
Income Taxes
For the year ended December 31, 1995, income taxes approximated $17,782,000
compared to $15,709,000 for 1994. This increase is principally the result of
lower levels of tax-exempt income and higher levels of pretax income. United's
effective tax rates for the years ended December 31, 1995 and 1994 were 35% and
34%, respectively.
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REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
Board of Directors and Shareholders
United Bankshares, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of United
Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of United
Bankshares, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Charleston, West Virginia
February 24, 1997
94
<PAGE>
CONSOLIDATED BALANCE SHEETS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
--------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 86,328,000 $ 85,864,000
Interest-bearing deposits with other banks 195,000 13,113,000
Federal funds sold 2,997,000
--------------- ---------------
Total cash and cash equivalents 89,520,000 98,977,000
Securities available for sale at estimated
fair value (amortized cost-$160,161,000
at December 31, 1996 and $196,966,000 at
December 31, 1995) 161,629,000 199,130,000
Securities held to maturity (estimated fair
value-$173,697,000 at December 31, 1996
and $123,579,000 at December 31, 1995) 170,702,000 121,889,000
Loans 1,852,770,000 1,737,954,000
Less: Unearned income (5,165,000) (4,968,000)
-------------- --------------
Loans net of unearned income 1,847,605,000 1,732,986,000
Less: Allowance for loan losses (22,283,000) (22,545,000)
-------------- --------------
Net loans 1,825,322,000 1,710,441,000
Bank premises and equipment 33,550,000 34,766,000
Accrued interest receivable 13,508,000 13,793,000
Other assets 32,646,000 31,234,000
-------------- --------------
TOTAL ASSETS $2,326,877,000 $2,210,230,000
============== ==============
LIABILITIES
Domestic deposits:
Noninterest-bearing $ 261,048,000 $ 252,627,000
Interest-bearing 1,566,506,000 1,521,972,000
-------------- --------------
TOTAL DEPOSITS 1,827,554,000 1,774,599,000
Borrowings:
Federal funds purchased 4,491,000 26,378,000
Securities sold under agreements
to repurchase 71,091,000 55,789,000
Federal Home Loan Bank borrowings 132,631,000 75,497,000
Accrued expenses and other liabilities 32,596,000 28,733,000
-------------- --------------
TOTAL LIABILITIES 2,068,363,000 1,960,996,000
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value;
Authorized-20,000,000 shares; issued-
15,295,130 at December 31, 1996 and
15,295,275 at December 31, 1995, including
205,495 and 140,520 shares in treasury at
December 31, 1996 and 1995, respectively 38,238,000 38,238,000
Surplus 41,438,000 41,861,000
Retained earnings 183,539,000 171,256,000
Net unrealized holding gain on securities available
for sale, net of deferred income taxes 954,000 1,409,000
Treasury stock, at cost (5,655,000) (3,530,000)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 258,514,000 249,234,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,326,877,000 $2,210,230,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
95
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $151,404,000 $143,228,000 $124,008,000
Interest on federal funds sold and other
short-term investments 157,000 1,107,000 703,000
Interest and dividends on securities:
Taxable 18,455,000 18,516,000 19,397,000
Exempt from federal taxes 2,342,000 2,964,000 3,529,000
------------ ------------ ------------
TOTAL INTEREST INCOME 172,358,000 165,815,000 147,637,000
------------ ------------ ------------
INTEREST EXPENSE
Interest on deposits 63,917,000 62,231,000 49,136,000
Interest on short-term borrowings 3,770,000 3,809,000 2,571,000
Interest on Federal Home Loan Bank advances 5,498,000 4,127,000 3,965,000
------------ ------------ ------------
TOTAL INTEREST EXPENSE 73,185,000 70,167,000 55,672,000
------------ ------------ ------------
NET INTEREST INCOME 99,173,000 95,648,000 91,965,000
PROVISION FOR LOAN LOSSES 2,610,000 2,320,000 2,202,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 96,563,000 93,328,000 89,763,000
------------ ------------ ------------
OTHER INCOME
Trust department income 3,186,000 2,911,000 2,868,000
Service charges, commissions, and fees 11,298,000 9,902,000 9,260,000
Other (loss) income (295,000) 1,939,000 110,000
------------ ------------ ------------
TOTAL OTHER INCOME 14,189,000 14,752,000 12,238,000
------------ ------------ ------------
OTHER EXPENSE
Salaries and employee benefits 28,743,000 25,856,000 25,525,000
Net occupancy expense 6,071,000 5,752,000 5,489,000
Other expense 28,735,000 25,873,000 24,894,000
------------ ------------ ------------
TOTAL OTHER EXPENSE 63,549,000 57,481,000 55,908,000
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 47,203,000 50,599,000 46,093,000
INCOME TAXES 16,691,000 17,782,000 15,709,000
------------ ------------ ------------
NET INCOME $ 30,512,000 $ 32,817,000 $ 30,384,000
============ ============ ============
Earnings per common share $2.00 $2.18 $2.01
============ ============ ============
Dividends per share $1.24 $1.17 $1.06
============ ============ ============
Average outstanding shares 15,253,356 15,067,286 15,131,766
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
96
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Net Unrealized
Holding
Common Stock (Loss) Gain
------------------------ on Securities Total
Par Retained Available Treasury Shareholders'
Shares Value Surplus Earnings for Sale Stock Equity
----------- ----------- ----------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,1994 15,093,202 $37,733,000 $37,011,000 $139,853,000 ($550,000) $214,047,000
Net income 30,384,000 30,384,000
Cash dividends ($1.06 per share) (12,604,000) (12,604,000)
Net change in unrealized holding
loss on securities available
for sale ($1,926,000) (1,926,000)
Fractional shares adjustment (45)
Change in method of accounting
for securities 1,462,000 1,462,000
Purchase of treasury stock (144,000 shares) (3,536,000) (3,536,000)
Common stock options
exercised (34,200 shares) (285,000) 740,000 455,000
Pre-merger dividends of
pooled company (2,648,000) (2,648,000)
---------- ---------- ----------- ------------ ------------ ----------- -------------
Balance at December 31, 1994 15,093,157 37,733,000 36,726,000 154,985,000 (464,000) (3,346,000) 225,634,000
Net income 32,817,000 32,817,000
Cash dividends ($1.17 per share) (13,817,000) (13,817,000)
Net change in unrealized holding
loss on securities available
for sale 1,873,000 1,873,000
Fractional shares adjustment (7)
Acquisition of First Commercial
Bank 202,125 505,000 5,558,000 6,063,000
Purchase of treasury stock
(47,500 shares) (1,273,000) (1,273,000)
Common stock options
exercised (44,500 shares) (423,000) 1,089,000 666,000
Pre-merger dividends of
pooled company (2,729,000) (2,729,000)
---------- ---------- ----------- ------------ ------------ ----------- -------------
Balance at December 31, 1995 15,295,275 38,238,000 41,861,000 171,256,000 1,409,000 (3,530,000) 249,234,000
Net income 30,512,000 30,512,000
Cash dividends ($1.24 per share) (17,847,000) (17,847,000)
Net change in unrealized holding
gain on securities available
for sale (455,000) (455,000)
Fractional shares adjustment (145) (4,000) (4,000)
Purchase of treasury stock
(113,000 shares) (3,395,000) (3,395,000)
Common stock options
exercised (48,025 shares) (419,000) 1,270,000 851,000
Pre-merger dividends of
pooled company (382,000) (382,000)
---------- ----------- ----------- ------------ ------------ ----------- -------------
Balance at December 31, 1996 15,295,130 $38,238,000 $41,438,000 $183,539,000 $ 954,000 ($5,655,000) $258,514,000
========== =========== =========== ============ ============ =========== =============
</TABLE>
See notes to consolidated financial statements.
97
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 30,512,000 $ 32,817,000 $ 30,384,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses 2,610,000 2,320,000 2,202,000
Provision for depreciation 3,080,000 2,926,000 3,071,000
Amortization, net of accretion 1,091,000 35,000 2,485,000
Loss (gain)on sales of bank premises and equipment 140,000 (35,000) (291,000)
Net losses on sales of securities available for sale 98,000 872,000
Loans originated for sale (26,157,000) (9,438,000) (5,360,000)
Proceeds from loans sold 49,839,000 10,053,000 4,713,000
Loss (gain) on sales of loans 728,000 (1,012,000) (121,000)
Deferred income tax (benefit) expense (9,000) 141,000 (501,000)
Originations of student loans (465,000) (292,000)
Proceeds from sales of student loans 4,580,000
Changes in:
Interest receivable 285,000 (766,000) (757,000)
Other assets 3,461,000 2,601,000 1,072,000
Accrued expenses and other liabilities 3,113,000 2,227,000 2,136,000
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 66,449,000 41,404,000 39,613,000
------------- ------------- -------------
INVESTING ACTIVITIES
Proceeds from maturities and calls of
investment securities 23,053,000 32,624,000 56,170,000
Purchases of investment securities (78,177,000) (6,995,000) (28,990,000)
Proceeds from sales of securities available for sale 16,518,000 66,351,000
Proceeds from maturities and calls of
securities available for sale 203,395,000 108,706,000 70,526,000
Purchases of securities available for sale (176,491,000) (70,746,000) (98,871,000)
Proceeds from sales of loans 49,127,000
Net purchases of bank premises and equipment (2,004,000) (1,972,000) (2,487,000)
Net cash paid for acquired subsidiary (1,742,000)
Net change in loans (146,462,000) (90,117,000) (189,268,000)
------------- ------------- -------------
NET CASH (USED IN)PROVIDED BY
INVESTING ACTIVITIES (160,168,000) 18,885,000 (126,569,000)
------------- ------------- -------------
FINANCING ACTIVITIES
Cash dividends paid (16,541,000) (10,273,000) (12,604,000)
Acquisition of treasury stock (3,395,000) (1,273,000) (3,536,000)
Proceeds from exercise of stock options 851,000 666,000 455,000
Pre-merger dividends of pooled company (382,000) (2,729,000) (2,757,000)
Repayment of Federal Home Loan Bank borrowings (414,007,000) (379,134,000) (89,682,000)
Proceeds from Federal Home Loan Bank borrowings 471,141,000 316,257,000 195,601,000
Purchase of fractional shares (4,000)
Changes in:
Time deposits 25,161,000 127,570,000 10,246,000
Other deposits 28,023,000 (117,776,000) 4,871,000
Federal funds purchased and securities sold
under agreements to repurchase (6,585,000) 10,358,000 (801,000)
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 84,262,000 (56,334,000) 101,793,000
------------- ------------- -------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,457,000) 3,955,000 14,837,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 98,977,000 95,022,000 80,185,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 89,520,000 $ 98,977,000 $ 95,022,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
98
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31, 1996
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
United Bankshares, Inc. is a multi-bank holding company headquartered in
Charleston, West Virginia. The principal West Virginia markets of United
Bankshares, Inc. and subsidiaries (United) are located in Parkersburg,
Charleston, Huntington, Morgantown and Wheeling, West Virginia. United also
operates a banking subsidiary in Arlington, Virginia. United considers all of
its principal business activities to be bank related.
The accounting and reporting policies of United conform with generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. A description of the significant accounting policies is presented
below.
Basis of Presentation: The consolidated financial statements and the notes to
- ----------------------
consolidated financial statements include the accounts of United Bankshares,
Inc. and its wholly-owned subsidiaries, which have been restated to reflect the
merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the pooling of
interests method of accounting. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform with the 1996 presentation. The reclassifications had no effect on
net income or shareholders' equity.
Securities: Management determines the appropriate classification of securities
- -----------
at the time of purchase. Debt securities that United has the intent and the
ability to hold to maturity are carried at amortized cost. Securities to be
held for indefinite periods of time and all marketable equity securities are
classified as available for sale and carried at fair value. Unrealized holding
gains and losses on securities classified as available for sale are carried as a
separate component of shareholders' equity net of deferred income taxes.
Gains or losses on sales of securities are recognized by the specific
identification method and are reported separately in the statements of income.
Loans: Interest on loans is accrued and credited to operations using methods
- ------
that produce a level yield on principal amounts outstanding. Loan origination
and commitment fees and related direct loan origination costs are deferred and
amortized as an adjustment of loan yield over the estimated life of the related
loan.
99
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The accrual of interest income on commercial and most consumer loans generally
is discontinued when a loan becomes 90 days past due as to principal or
interest. When interest accruals are discontinued, unpaid interest recognized
in income in the current year is reversed, and interest accrued in prior years
is charged to the allowance for loan losses. Management may elect to continue
the accrual of interest when the estimated net realizable value of collateral
exceeds the principal balance and accrued interest, and the loan is in the
process of collection.
Consistent with United's existing method of income recognition for loans,
interest on impaired loans, except those classified as nonaccrual, is recognized
as income using the accrual method. United's method of income recognition for
impaired loans that are classified as nonaccrual is to recognize interest income
on the cash basis of income recognition or apply the cash receipt to principal
when the ultimate collectibility of principal is in doubt.
The principal sources of revenue from United's mortgage banking business are:
(i) loan origination fees; (ii) gains or losses from the sale of loans, if any;
(iii) interest earned on mortgage loans during the period that they are held by
United pending sale; (iv) loan servicing fees; and (v) gain or loss on the
close-out of the hedge instrument used to offset the risk that changes in
interest rate may have on the value of United's mortgage loan inventory.
Loans held for Sale: Loans held for sale consist of one-to-four family
- --------------------
residential loans originated for sale in the secondary market and are carried at
the lower of cost or fair value determined on an aggregate basis.
Allowance for Loan Losses: The allowance for loan losses related to loans that
- --------------------------
are identified as impaired is based on the present value of expected future cash
flows using the loan's effective interest rate, or as a practical expedient, at
the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. In providing for loan losses, United considers all
significant factors that affect the collectibility of loans including the
evaluation of impaired loans. 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.
Management believes that the allowance for loan losses is adequate to provide
for potential losses on existing loans based on information currently available.
Bank Premises and Equipment: Bank premises and equipment are stated at cost,
- ----------------------------
less allowances for depreciation and amortization. The provision for
depreciation is computed principally by the straight-line method over the
estimated useful lives of the respective assets.
100
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Income Taxes: Deferred income taxes are provided for temporary differences
- -------------
between the tax basis of an asset or liability and its reported amount in the
financial statements at the statutory tax rate.
Stock-Based Compensation: In October 1995, the Financial Accounting Standards
- -------------------------
Board ("FASB"), issued Statement No. 123, (SFAS No. 123), "Accounting for Stock-
Based Compensation," which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 defines a fair value based method of
accounting for stock-based compensation plans, with the option of continuing to
account for such plans under the intrinsic value method. United has elected to
continue to account for its plans under the intrinsic value method.
Trust Assets and Income: Assets held in a fiduciary or agency capacity for
- ------------------------
subsidiary bank customers are not included in the balance sheets since such
items are not assets of the subsidiary banks. Trust department income is
reported on a cash basis. Reporting such income on an accrual basis would not
materially affect United's consolidated financial position or its results of
operations as reported herein.
Cash Flow Information: For purposes of the statement of cash flows, United
- ----------------------
considers cash and due from banks and federal funds sold as cash and cash
equivalents.
Earnings Per Common Share: Earnings per common share is computed based on the
- --------------------------
weighted average number of common and common equivalent shares outstanding
during the applicable period. Options granted under United's stock option plans
are considered common stock equivalents for the purpose of computing earnings
per share.
Intangible Assets: Intangible assets relating to the estimated value of the
- ------------------
deposit base of the acquired institutions are being amortized on an accelerated
basis over a 7 to 10 year period. The excess of the purchase price over the
fair market value of the net assets of the banks acquired (goodwill) is being
amortized on a straight-line basis over 15 years. The carrying amount of
goodwill is evaluated if facts and circumstances suggest that it may be
impaired. If this evaluation indicates that goodwill will not be recoverable,
as determined based on the estimated undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying amount of goodwill
will be reduced.
The purchase prices of acquisitions have been allocated to the identifiable
tangible and intangible assets acquired based upon their fair values at the
acquisition dates. At December 31, 1996 and 1995, deposit base intangibles and
goodwill approximated $11,959,000 and $14,377,000 net of accumulated
amortization of approximately $9,888,000 and $7,470,000.
101
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
New Accounting Standards: In June 1996, the FASB issued Statement No. 125,
- -------------------------
(SFAS No. 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." 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. SFAS No. 125 applies to repurchase agreements,
securities lending, loan participations, and other financial component transfers
and exchanges.
The new rules will 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.
NOTE B--ACQUISITIONS
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 have been restated to include Eagle. United
exchanged 1.15 shares of its 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 for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
United Eagle Combined
------------ ------------ ------------
<S> <C> <C> <C>
For the Three Months
Ended March 31, 1996
(Unaudited):
Net interest income $20,886,000 $ 3,605,000 $24,491,000
Net income 7,504,000 585,000 8,089,000
Earnings per share $ 0.62 $ 0.21 $ 0.53
For the Year Ended
December 31, 1995:
Net interest income $81,690,000 $13,958,000 $95,648,000
Net income 28,079,000 4,738,000 32,817,000
Earnings per share $ 2.35 $ 1.74 $ 2.18
For the Year Ended
December 31, 1994:
Net interest income $77,270,000 $14,695,000 $91,965,000
Net income 24,902,000 5,482,000 30,384,000
Earnings per share $ 2.08 $ 2.01 $ 2.01
</TABLE>
102
<PAGE>
NOTE B--ACQUISITIONS - continued
On October 31, 1995, United acquired 100% of the common stock of First
Commercial Bank("FCB") of Arlington, Virginia, in a combination cash and common
stock exchange accounted for using the purchase method of accounting. United
exchanged 202,125 shares of its common stock with an approximate fair value of
$6,063,000 plus cash of approximately $5,280,000 for all 201,100 of FCB's common
stock. As of the date of acquisition, FCB reported total assets of $76,964,000,
total net loans of $41,386,000 and deposits of $50,200,000. The results of
operations of FCB, which are not significant, have been included in the
consolidated results of operations from the date of acquisition.
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
$39,247,000 will be accounted for using the purchase method of accounting. It
is anticipated that the proposed acquisition will be consummated during the
third 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 December 31, 1996, Patriot had consolidated assets of approximately
$191,440,000 and shareholders' equity of approximately $14,335,000.
NOTE C--INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $115,018,000 $ 443,000 $ 444,000 $115,017,000
Mortgage-backed
securities 24,982,000 92,000 565,000 24,509,000
Marketable equity
securities 3,655,000 2,158,000 5,813,000
Other 16,506,000 7,000 223,000 16,290,000
------------ ---------- ---------- ------------
Total $160,161,000 $2,700,000 $1,232,000 $161,629,000
============ ========== ========== ============
</TABLE>
103
<PAGE>
NOTE C--INVESTMENT SECURITIES - continued
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $150,460,000 $1,438,000 $341,000 $151,557,000
Mortgage-backed
securities 30,036,000 165,000 54,000 30,147,000
Marketable equity
securities 2,662,000 1,159,000 3,821,000
Other 13,808,000 21,000 224,000 13,605,000
------------ ---------- -------- ------------
Total $196,966,000 $2,783,000 $619,000 $199,130,000
============ ========== ======== ============
</TABLE>
The amortized cost and estimated fair value of securities available for sale at
December 31, 1996, by contractual maturity are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 23,847,000 $ 23,868,000
Due after one year through five years 93,788,000 93,776,000
Due after five years through ten years 603,000 616,000
Due after ten years 38,268,000 37,556,000
Marketable equity securities 3,655,000 5,813,000
------------ ------------
Total $160,161,000 $161,629,000
============ ============
</TABLE>
The table above includes $24,982,000 of mortgage-backed securities at estimated
fair value with an amortized cost of $24,509,000. Maturities of mortgage-backed
securities are based upon the estimated average life.
Gross realized gains and losses from sales of securities available for sale were
$96,000 and $194,000 in 1996, and $152,000 and $1,024,000 in 1994, respectively.
There were no sales in 1995.
In accordance with a special report issued by the FASB, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities," United chose to reclassify securities from held to
maturity to available for sale. At the date of the transfer, the amortized cost
of those securities was $103,595,000, and the unrealized gain on those
securities was $242,000, net of deferred income taxes, which is included in
shareholders' equity.
104
<PAGE>
NOTE C--INVESTMENT SECURITIES - continued
The amortized cost and estimated fair values of securities held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 77,704,000 $2,131,000 $ 87,000 $ 79,748,000
State and political
subdivisions 36,136,000 1,487,000 32,000 37,591,000
Mortgage-backed
securities 54,977,000 250,000 754,000 54,473,000
Other 1,885,000 1,885,000
------------ ---------- -------- ------------
Total $170,702,000 $3,868,000 $873,000 $173,697,000
============ ========== ======== ============
<CAPTION>
December 31, 1995
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
Government corporations
and agencies $ 15,897,000 $ 22,000 $169,000 $ 15,750,000
State and political
subdivisions 43,324,000 2,124,000 33,000 45,415,000
Mortgage-backed
securities 56,416,000 348,000 617,000 56,147,000
Other 6,252,000 15,000 6,267,000
------------ ---------- -------- ------------
Total $121,889,000 $2,509,000 $819,000 $123,579,000
============ ========== ======== ============
</TABLE>
The amortized cost and estimated fair value of debt securities held to maturity
at December 31, 1996 by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the issuers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
------------ ------------
<S> <C> <C>
Due in one year or less $ 11,296,000 $ 11,338,000
Due after one year through five years 57,167,000 57,590,000
Due after five years through ten years 77,000,000 79,236,000
Due after ten years 25,239,000 25,533,000
------------ ------------
Total $170,702,000 $173,697,000
============ ============
</TABLE>
The table above includes $54,977,000 of mortgage-backed securities with an
estimated fair value of $54,473,000 at December 31, 1996. Maturities of the
mortgage-backed securities are based upon the estimated average life.
105
<PAGE>
NOTE C--INVESTMENT SECURITIES - continued
There were no sales of held to maturity securities during 1996, 1995 and 1994.
The carrying value of securities pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes as required or
permitted by law, approximated $204,254,000 and $176,855,000 at December 31,
1996 and 1995, respectively.
NOTE D--LOANS
Major classifications of loans as of December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Commercial, financial, and
agricultural $ 248,762,000 $ 218,800,000
Real estate:
Single family residential 953,000,000 908,862,000
Commercial 355,431,000 344,626,000
Construction 42,343,000 21,808,000
Other 19,748,000 14,056,000
Installment 232,004,000 229,457,000
-------------- --------------
1,851,288,000 1,737,609,000
Loans held for sale 1,482,000 345,000
-------------- --------------
Total gross loans $1,852,770,000 $1,737,954,000
============== ==============
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
Balance at beginning of year $ 22,545,000 $ 22,304,000 $ 20,975,000
Allowance of purchased subsidiaries 1,017,000
Provision for loan losses 2,610,000 2,320,000 2,202,000
-------------- -------------- --------------
25,155,000 25,641,000 23,177,000
Loans charged off 3,524,000 3,624,000 1,770,000
Less recoveries 652,000 528,000 897,000
-------------- -------------- --------------
Net charge offs 2,872,000 3,096,000 873,000
-------------- -------------- --------------
Balance at end of year $ 22,283,000 $ 22,545,000 $ 22,304,000
============== ============== ==============
</TABLE>
The average recorded investment in impaired loans during the year ended December
31, 1996 and 1995 was approximately $9,442,000 and $9,545,000, respectively.
At December 31, 1996, the recorded investment in loans that were considered to
be impaired was $10,317,000 (of which $5,461,000 was on a nonaccrual basis).
Included in this amount was $5,631,000 of impaired loans for which the related
allowance for credit losses was $1,451,000 and $4,686,000 of impaired loans that
did not have an allowance for credit losses. At December 31, 1995, the recorded
investment in loans that were considered to be impaired was $8,792,000 (of which
$4,934,000 was on a nonaccrual basis). Included in this amount was $4,793,000
of impaired loans for which the related allowance for credit losses was
$1,918,000 and $3,999,000 of impaired loans that did not have an allowance for
credit losses.
106
<PAGE>
NOTE D--LOANS - continued
The amount of interest income that would have been recorded on impaired loans
under the original terms was $1,464,000, $1,045,000 and $346,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. For the years ended
December 31, 1996, 1995 and 1994, United recognized interest income on those
impaired loans of approximately $638,000, $412,000 and $1,000, respectively,
substantially all of which was recognized using the accrual method of income
recognition.
United has commercial real estate loans, including owner occupied, income
producing real estate and land development loans, of approximately $355,431,000
and $334,626,000 as of December 31, 1996 and 1995, respectively. The loans are
primarily secured by real estate located in West Virginia, Southeastern Ohio,
and Virginia. The loans were originated by United's subsidiary banks using
underwriting standards as set forth by management. United's loan administration
policies are focused on the risk characteristics of the loan portfolio,
including commercial real estate loans, in terms of loan approval and credit
quality. It is the opinion of management that these loans do not pose any
unusual risks and that adequate consideration has been given to the above loans
in establishing the allowance for loan losses.
United's subsidiary banks have made loans, in the normal course of business, to
the directors and officers of United and its subsidiaries, and to their
associates. Such related party loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and did not involve more than
normal risk of collectibility. The aggregate dollar amount of these loans was
$72,367,000 and $55,919,000 at December 31, 1996 and 1995, respectively. During
1996, $53,585,000 of new loans were made, repayments totaled $44,839,000, and
other changes due to the change in composition of United's board members and
executive officers approximated $7,702,000.
NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Land $ 7,892,000 $ 7,924,000
Building and improvements 34,414,000 35,025,000
Leasehold improvements 5,784,000 5,345,000
Furniture, fixtures, and equipment 30,093,000 28,988,000
----------- -----------
78,183,000 77,282,000
Less allowance for depreciation
and amortization 44,633,000 42,516,000
----------- -----------
Net bank premises and equipment $33,550,000 $34,766,000
=========== ===========
</TABLE>
107
<PAGE>
NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES - continued
United and certain banking subsidiaries have entered into various noncancelable
operating leases. These noncancelable operating leases are subject to renewal
options under various terms and some leases provide for periodic rate
adjustments based on cost-of-living index changes. Rent expense for
noncancelable operating leases approximated $1,908,000, $1,822,000 and
$1,848,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Future minimum payments, by year and in the aggregate, under non-cancelable
operating leases with initial or remaining terms of one year or more, for years
subsequent to December 31, 1996, consisted of the following:
<TABLE>
<S> <C>
1997 $ 1,752,000
1998 1,636,000
1999 1,543,000
2000 1,426,000
2001 1,381,000
Thereafter 1,393,000
----------
Total minimum lease payments $ 9,131,000
===========
</TABLE>
NOTE F--DEPOSITS
The book value of deposits consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Noninterest bearing checking $ 261,048,000 $ 252,627,000
Interest bearing checking 62,783,000 239,100,000
Regular savings 293,755,000 328,509,000
Money market accounts 362,223,000 131,550,000
Time deposits under $100,000 709,309,000 672,667,000
Time deposits over $100,000 138,436,000 150,146,000
-------------- --------------
Total deposits $1,827,554,000 $1,774,599,000
============== ==============
</TABLE>
Interest paid on deposits and borrowings approximated $72,568,000, $63,167,000
and $52,397,000 in 1996, 1995 and 1994, respectively.
At December 31, 1996, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $599,255,000
1998 199,907,000
1999 16,950,000
2000 7,289,000
2001 and thereafter 24,344,000
------------
Total $847,745,000
============
</TABLE>
United's subsidiary banks have received deposits, in the normal course of
business, from the directors and officers of United and its subsidiaries, and
their associates. Such related party deposits were accepted on substantially
the same terms, including interest rates and maturities, as those prevailing at
the time for comparable transactions with unrelated persons. The aggregate
dollar amount of these deposits was $18,335,000 and $16,655,000 at December 31,
1996 and 1995, respectively.
108
<PAGE>
NOTE G--BORROWINGS
United's lead subsidiary, United National Bank (UNB), is a member of the Federal
Home Loan Bank of Pittsburgh (FHLB). Membership in the FHLB makes available
short-term and long-term borrowings from collateralized advances. At December
31, 1996, United had approximately $627,169,000 of available borrowings in the
form of collateralized advances from the FHLB at prevailing interest rates.
Approximately $104,000,000 of FHLB advances with an interest rate of 6.75% and
$25,000,000 of FHLB advances with an interest rate of 6.20% are scheduled to
mature in 1997. Additionally, $3,631,000 of FHLB advances with a weighted
average interest rate of 6.16% are scheduled to mature after one year.
UNB also has various unused lines of credit available from certain of its
correspondent banks in the aggregate amount of $79,500,000. These lines of
credit, which bear interest at prevailing market rates, permit UNB to borrow
funds in the overnight market, and are renewable annually provided that UNB does
not experience a material adverse change in its financial position or results of
operations.
Information concerning securities sold under agreements to repurchase is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Average balance during the year $66,463,000 $ 70,752,000
Average interest rate during the year 4.04% 4.30%
Maximum month-end balance during the year $79,664,000 $81,720,000
</TABLE>
At December 31, 1996 and 1995, borrowings and the related weighted
average interest rate were as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- -------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Federal funds purchased $ 4,491,000 6.81% $ 26,378,000 5.86%
Securities sold under
agreements to repurchase 71,091,000 4.16% 55,789,000 4.35%
FHLB advances 132,631,000 6.63% 75,497,000 5.74%
------------ ------------
Total $208,213,000 $157,664,000
============ ============
</TABLE>
NOTE H--INCOME TAXES
The income tax provisions included in the consolidated statements of
income are summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1996 1995 1994
------------ ----------- ------------
<S> <C> <C> <C>
Current expense:
Federal $15,271,000 $15,313,000 $13,998,000
State 1,429,000 2,328,000 2,212,000
Deferred (benefit) expense:
Federal and State (9,000) 141,000 (501,000)
------------ ----------- -----------
Income taxes $16,691,000 $17,782,000 $15,709,000
=========== ============ ===========
</TABLE>
109
<PAGE>
NOTE H--INCOME TAXES - continued
The following is a reconciliation of income tax expense to the amount computed
by applying the statutory federal income tax rate to income before income taxes:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------
1996 1995 1994
-------------------- -------------------- --------------------
Amount % Amount % Amount %
----------- ----- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Tax on income before taxes
at statutory federal rate $16,521,000 35.0% $17,710,000 35.0% $16,133,000 35.0%
Plus: State income taxes
net of federal tax
benefits 929,000 2.0 1,619,000 3.2 1,026,000 2.2
----------- ----- ----------- ----- ----------- -----
17,450,000 37.0 19,329,000 38.2 17,159,000 37.2
Increase (decrease)
resulting from:
Tax-exempt interest
income (1,464,000) (3.1) (1,683,000) (3.3) (1,830,000) (3.9)
Other items-net 705,000 1.5 136,000 0.2 380,000 0.8
----------- ----- ----------- ----- ----------- -----
Income taxes $16,691,000 35.4% $17,782,000 35.1% $15,709,000 34.1%
=========== ===== =========== ===== =========== =====
</TABLE>
Federal income tax benefit applicable to securities transactions approximated
$34,000 and $305,000 in 1996 and 1994, respectively. There were no securities
transactions in 1995.
Income taxes paid approximated $14,035,000, $19,052,000 and $15,143,000 in 1996,
1995 and 1994, respectively.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of United's deferred tax assets and liabilities (included in other assets) at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 8,889,000 $ 8,815,000
Accrued benefits payable 1,600,000 876,000
Other accrued liabilities 2,213,000 2,378,000
Net deferred loan fees 488,000 392,000
Other real estate owned 69,000 122,000
Other 363,000 232,000
----------- -----------
Total deferred tax assets 13,622,000 12,815,000
----------- -----------
Deferred tax liabilities:
Premises and equipment 1,784,000 1,676,000
Core deposit intangibles 417,000 816,000
Income tax allowance for
loan losses 1,462,000 1,678,000
Prepaid assets 149,000 117,000
Deferred mortgage points 1,582,000 675,000
Securities available for sale 514,000 708,000
Other 441,000 75,000
----------- -----------
Total deferred tax
liabilities 6,349,000 5,745,000
----------- -----------
Net deferred tax assets $ 7,273,000 $ 7,070,000
=========== ===========
</TABLE>
110
<PAGE>
NOTE I--EMPLOYEE BENEFIT PLANS
United has a defined benefit retirement plan covering substantially all
employees. The benefits are based on years of service and the average of the
employee's highest five consecutive plan years of basic compensation paid during
the ten plan years preceding the date of determination. United's funding policy
is to contribute annually the maximum amount that can be deducted for federal
income tax purposes. Contributions are intended to provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future.
The following table sets forth the funded status of United's defined benefit
plan and amounts recognized in the respective consolidated balance sheets:
<TABLE>
<CAPTION>
December 31
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Vested benefit obligation $(15,715,000) $(14,551,000)
Nonvested benefit obligation (408,000) (384,000)
------------ ------------
Accumulated benefit obligation (16,123,000) (14,935,000)
Effect of future pay increases (5,046,000) (5,007,000)
------------ ------------
Projected benefit obligation for
services rendered to date (21,169,000) (19,942,000)
Plan assets at fair value, primarily
marketable securities 23,109,000 20,526,000
------------ ------------
Excess of plan assets over projected
benefit obligation 1,940,000 584,000
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions (1,877,000) (476,000)
Unrecognized prior service cost 388,000 452,000
Unrecognized transition asset (826,000) (961,000)
------------ ------------
Accrued pension liability included
in other liabilities $ (375,000) $ (401,000)
============ ============
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C>
Service cost $ 861,000 $ 718,000 $ 840,000
Interest cost on projected
benefit obligation 1,439,000 1,263,000 1,158,000
Actual (return) loss on plan assets (2,849,000) (3,499,000) 192,000
Net amortization and deferral 1,014,000 1,852,000 (1,582,000)
------------ ------------ -----------
Net periodic pension cost $ 465,000 $ 334,000 $ 608,000
============ ============ ===========
</TABLE>
111
<PAGE>
NOTE I--EMPLOYEE BENEFIT PLANS - continued
At December 31, 1996, the weighted average discount rate and rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 7.5% and 4.5%. At December 31, 1995, the
weighted average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation ranged from 6.25% to 7.5% and 4.5% to 5.25%. The weighted average
expected long-term rate of return on United's plan assets ranged from 7.75% to
9.00% for the years ended December 31, 1996, 1995 and 1994.
The United Savings and Stock Investment Plan (the Plan) is a deferred
compensation plan under Section 401(k) of the Internal Revenue Code. All
employees who complete one year of service are eligible to participate in the
Plan. Each participant may contribute from 1% to 10% of pre-tax earnings to his
or her account which may be invested in any of four investment options chosen by
the employee. United matches 100% of the first 2% of salary deferred and 25% of
the next 2% of salary deferred with United common stock. Vesting is 100% for
employee deferrals and the United match at the time the employee makes his/her
deferral. United's expense relating to the Plan approximated $330,000, $297,000
and $336,000 in 1996, 1995 and 1994, respectively.
The assets of United's defined benefit plan and 401(k) Plan each include
investments in United common stock. At December 31, 1996, the combined plan
assets included 385,960 shares of United common stock with an approximate fair
value of $12,737,000.
United has certain other deferred compensation plans covering various key
employees. Periodic charges are made to operations so that the present value of
the liability due each employee is fully recorded as of the date of their
retirement. Amounts charged to expense have not been significant in any year.
United has three incentive stock option plans for key employees, the 1988, 1991
and 1996 plans. The plans provide for the granting of stock options of up to
100,000, 500,000 and 600,000 shares of common stock, respectively. No further
grants will be made under the 1988 and 1991 plans. At December 31, 1996,
490,514 options were available for future grant under the 1996 plan. Under the
provisions of the plans, the option price per share shall not be less than the
fair market value of United's common stock on the date of grant. Accordingly,
no compensation expense is recognized for these options.
112
<PAGE>
NOTE I--EMPLOYEE BENEFIT PLANS - continued
The following table summarizes information about stock options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------
$11.00 to $14.00 33,050 3 years $ 13.47 33,050 $13.47
13.75 to 19.75 90,350 6 years 17.21 90,350 17.21
23.00 to 30.00 257,235 7 years 26.83 186,599 26.42
29.75 109,486 10 years 29.75 - -
</TABLE>
The following is a summary of activity of United's Incentive Stock
Option Plans:
<TABLE>
<CAPTION>
Stock Range of
Options Exercise Prices
---------- -----------------
<S> <C> <C> <C>
Outstanding at January 1, 1994 328,250 $27.00 $11.00
Granted 100,000 23.00
Exercised 34,200 19.75 11.00
Forfeited 9,375 27.00 13.75
-------
Outstanding at December 31, 1994 384,675 27.00 11.00
Granted 100,000 30.00
Exercised 44,500 27.00 11.00
Forfeited 9,450 27.00 19.75
-------
Outstanding at December 31, 1995 430,725 30.00 11.00
Granted 109,486 29.75
Exercised 48,025 27.00 11.00
Forfeited 2,065 30.00 23.00
-------
Outstanding at December 31, 1996 490,121 30.00 11.00
=======
Exercisable at:
December 31, 1994 226,113 $27.00 $11.00
December 31, 1995 263,637 $27.00 $11.00
December 31, 1996 309,999 $30.00 $11.00
</TABLE>
As permitted, United has adopted the disclosure only provision of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Pro forma net income and earnings per share have not been
presented because the effect of applying the fair value method prescribed by
SFAS 123 to the 1996 and 1995 options awarded produces amounts that are not
materially different from amounts reported herein.
United provides postemployment and postretirement benefits for certain employees
at subsidiaries acquired in prior years. United accounts for such costs as
expense when paid. Accounting for such costs when paid does not produce results
materially different from those which would result if such costs were accrued
during the period of employee service. United does not anticipate providing
postemployment or postretirement benefits to its currently active employees
after employment or retirement except on a fully contributory basis.
113
<PAGE>
NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES
United is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers and to
alter its own exposure to fluctuations in interest rates. These financial
instruments include loan commitments, standby letters of credit, forward
contracts for the delivery of mortgage-backed securities and interest rate swap
agreements. The instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the financial
statements.
United's maximum exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for the loan commitments and standby
letters of credit is the contractual or notional amount of those instruments.
United uses the same policies in making commitments and conditional obligations
as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The amount of collateral obtained, if deemed
necessary upon the extension of credit, is based on management's credit
evaluation of the counterparty. United had approximately $340,338,000 and
$271,738,000 of loan commitments outstanding as of December 31, 1996 and 1995,
respectively, substantially all of which expire within one year.
Standby letters of credit are agreements used by United's customers as a means
of improving their credit standing in their dealings with others. Under these
agreements, United guarantees certain financial commitments of its customers.
United has issued standby letters of credit of $22,081,000 and $17,047,000 as of
December 31, 1996 and 1995, respectively.
United enters into hedging transactions to offset the risk that a change in
interest rates will result in a decrease in the value of United's current
mortgage loan inventory or its commitments to originate mortgage loans (the
"pipeline"). The pipeline is analyzed on a loan-by-loan basis to estimate the
exposure to loss based on the market price, commitment price and time to
expiration. The risk of loss is then matched with the appropriate hedge
vehicle. United primarily utilizes forward contracts for the delivery of
mortgage-backed securities as hedge vehicles. United's policies generally
require that it hedge substantially all of its inventory of conforming and
government loans and the maximum portion of its pipeline that may close. The
mortgage-backed securities that are to be delivered under these contracts are
fixed or adjustable-rate, corresponding with the composition of United's
inventory and pipeline. The correlation between the price performance of the
hedge vehicles and the inventory being hedged is very high due to the similarity
of the asset and the related hedge vehicle. At December 31, 1996, United had
open commitments amounting to approximately $6,000,000 to sell mortgage-
114
<PAGE>
NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES - continued
backed securities with varying settlement dates generally not extending beyond
March 1997. As such, United is not exposed to significant risk nor will it
derive any significant benefit from changes in interest rates on the price of
the mortgage loan inventory, net of gains or losses of associated hedge
positions.
In 1994 United entered into an interest rate swap agreement to manage its
interest rate exposure. The interest rate swap transaction involves the
exchange of a floating rate payment based on the one month London inter-bank
offered rate (LIBOR) for a fixed rate receipt based on the U. S. three year
treasury note. The net pay and receive amount is calculated on an underlying
notional amount without the exchange of the underlying principal amount. The
interest rate swap subjects United to market risk associated with changes in
interest rates, as well as the risk that the counterparty will fail to perform.
Only the interest payments are exchanged, and therefore, cash requirements and
exposure to credit risk are significantly less than the notional amount.
The notional amount shown below represents an agreed-upon amount on which
calculations of amounts to be exchanged are based. It does not represent direct
credit exposure. United's credit exposure is limited to the net difference
between the calculated pay and receive amounts on the transaction which is
netted monthly.
The swap, which closes in February 1997, is summarized as follows:
<TABLE>
<S> <C>
Notional value $50,000,000
Average receive rate during 1996 4.50%
Average pay rate during 1996 5.46%
</TABLE>
During 1996, 1995 and 1994 the interest rate swap reduced interest income by
$526,000, $787,000 and $1,000,respectively. At December 31, 1996, the estimated
unrealized loss on the swap, which may reduce interest income in future periods,
approximated $51,000.
Management does not anticipate any material losses as a result of these loan
commitments, standby letters of credit, forward contracts for the delivery of
mortgage-backed securities and interest rate swap agreements.
In the normal course of business, United and its subsidiaries are currently
involved in various legal proceedings. Management is vigorously pursuing all
its legal and factual defenses and, after consultation with legal counsel,
believes that all such litigation will be resolved with no material effect on
United's financial position or results of operations.
115
<PAGE>
NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Assets
Cash $ 12,958,000 $ 13,778,000
Securities available for sale 10,813,000 12,216,000
Securities held to maturity 1,520,000 677,000
Investment in subsidiaries:
Bank subsidiaries 238,902,000 226,705,000
Non-bank subsidiaries 1,264,000 1,223,000
Other assets 272,000 189,000
------------ ------------
Total Assets $265,729,000 $254,788,000
============ ============
Liabilities and Shareholders' Equity
Accrued expenses and other liabilities $ 7,215,000 $ 5,554,000
Shareholders' equity (including a net unrealized holding gain
of $954,000 and $1,409,000 on securities available for sale at
December 31, 1996 and 1995, respectively) 258,514,000 249,234,000
------------ ------------
Total Liabilities and Shareholders' Equity $265,729,000 $254,788,000
============ ============
</TABLE>
Condensed Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Income
Dividends from bank subsidiaries $17,847,000 $ 26,496,000 $ 17,525,000
Management fees:
Bank subsidiaries 3,467,000 3,018,000 2,226,000
Non-bank subsidiaries 12,000 12,000 12,000
Other Income 557,000 268,000 238,000
----------- ------------ ------------
Total Income 21,883,000 29,794,000 20,001,000
Expenses
Operating expenses 4,725,000 4,606,000 3,072,000
----------- ------------ ------------
Income Before Income Taxes and Equity in
Undistributed Net Income of Subsidiaries 17,158,000 25,188,000 16,929,000
Applicable income tax benefit (12,000) (269,000) (113,000)
----------- ------------ ------------
Income Before Equity in Undistributed Net
Income of Subsidiaries 17,170,000 25,457,000 17,042,000
Equity in undistributed net income of subsidiaries
Bank subsidiaries 13,302,000 7,349,000 13,316,000
Non-bank subsidiaries 40,000 11,000 26,000
----------- ------------ ------------
Net Income $30,512,000 $ 32,817,000 $ 30,384,000
=========== ============ ============
</TABLE>
116
<PAGE>
NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION - continued
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Operating Activities
Net income $ 30,512,000 $ 32,817,000 $ 30,384,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of subsidiaries (13,342,000) (7,360,000) (13,342,000)
Depreciation and net amortization 26,000 33,000 59,000
Net gain on sales of investment securities (24,000) (107,000)
Gain on sale of bank premises and equipment (49,000)
Net change in other assets and liabilities (106,000) 790,000 97,000
------------ ------------ ------------
Net Cash Provided By Operating Activities 17,066,000 26,280,000 17,042,000
------------ ------------ ------------
Investing Activities
Net sales of investment securities 123,000
Net purchases of securities available for sale 1,585,000 (8,439,000) (1,171,000)
Increase in investment in subsidiaries (2,400,000)
Cash paid in acquisition of subsidiary (5,280,000)
Proceeds from sale of bank premises and equipment 125,000
------------ ------------ ------------
Net Cash Provided By (Used In) Investing Activities 1,585,000 (16,119,000) (923,000)
------------ ------------ ------------
Financing Activities
Cash dividends paid (16,541,000) (10,273,000) (12,604,000)
Pre-merger dividends of pooled company (382,000) (2,729,000) (2,757,000)
Acquisition of treasury stock (3,395,000) (1,273,000) (3,536,000)
Purchase of fractional shares (4,000)
Proceeds from exercise of stock options 851,000 666,000 455,000
------------ ------------ ------------
Net Cash Used In Financing Activities (19,471,000) (13,609,000) (18,442,000)
------------ ------------ ------------
Decrease in Cash (820,000) (3,448,000) (2,323,000)
Cash and Cash Equivalents at Beginning of Year 13,778,000 17,226,000 19,549,000
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $12,958,000 $13,778,000 $17,226,000
============= ============= ============
</TABLE>
117
<PAGE>
NOTE L--OTHER INCOME AND EXPENSE
The following details certain items of other income and expense for the periods
indicated:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1996 1995 1994
----------- ---------- -----------
<S> <C> <C> <C>
Other income:
- -------------
Service charges and
fees on deposits $8,014,000 $7,063,000 $6,991,000
Bankcard 2,048,000 1,739,000 1,011,000
Net (loss) income from mortgage
banking operations (431,000) 1,012,000 121,000
Loss on sales of investment securities (98,000) (872,000)
Other income 234,000 927,000 861,000
Other expense:
- --------------
Data processing $2,974,000 $2,548,000 $2,740,000
FDIC insurance expense 2,986,000 2,364,000 3,839,000
Legal and consulting 2,138,000 2,595,000 1,142,000
Advertising 2,173,000 1,747,000 1,545,000
Goodwill amortization 1,915,000 1,551,000 1,488,000
Equipment expense 3,191,000 3,021,000 3,121,000
</TABLE>
NOTE M--REGULATORY MATTERS
The subsidiary banks are required to maintain average reserve balances with
their respective Federal Reserve Bank. The average amount of those reserve
balances for the year ended December 31, 1996 was approximately $24,414,000.
The primary source of funds for the dividends paid by United Bankshares, Inc. is
dividends received from its subsidiary banks. Dividends paid by United's
subsidiary banks are subject to regulatory limitations. Generally, the most
restrictive provision requires regulatory approval if dividends declared in any
year exceed the year's net income, as defined, plus the retained net profits of
the two preceding years.
During 1997, the retained net profits available for distribution to United
Bankshares, Inc., as dividends without regulatory approval, are approximately
$20,700,000, plus net income for the interim period through the date of
declaration.
Under Federal Reserve regulation, the banking subsidiaries are also limited as
to the amount they may loan to affiliates, including the parent company. Loans
from the banking subsidiaries to the parent company are limited to 10% of the
banking subsidiaries' capital, and surplus, as defined, or $10,000,000 at
December 31, 1996, and must be secured by qualifying collateral.
United's subsidiary banks are subject to various regulatory capital requirements
administered by federal banking agencies. Pursuant to capital adequacy
guidelines, United's subsidiary banks must meet specific capital guidelines that
involve quantitative measures of the banks' assets, liabilities, and certain
off-balance-sheet items as cal-
118
<PAGE>
NOTE M--REGULATORY MATTERS - continued
culated under regulatory accounting practices. United's subsidiary banks'
capital amounts and classifications are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require United to maintain minimum amounts and ratios of total and Tier I
capital, as defined in the regulations, to risk-weighted assets, as defined, and
of Tier I capital, as defined, to average assets, as defined. Management
believes, as of December 31, 1996, that United exceeds all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from its regulators,
United and its subsidiary banks were categorized as well capitalized. To be
categorized as well capitalized, United must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed United's category.
United's and United's lead bank's, United National Bank, capital amounts (in
thousands of dollars) and ratios are presented in the following table.
<TABLE>
<CAPTION>
For Capital To Be Well
Actual Adequacy Purposes Capitalized
----------------- ----------------- --------------
Minimum Minimum
----------------- --------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
- ---------------------------
Total Capital (to Risk-
Weighted Assets):
United Bankshares $263,759 16.5% $127,564 8.0% $159,455 10.0%
United National Bank 231,697 15.2% 122,000 8.0% 152,500 10.0%
Weighted Assets):
United Bankshares 243,827 15.3% 63,782 4.0% 95,673 6.0%
United National Bank 212,635 13.9% 61,000 4.0% 91,500 6.0%
Tier I Capital
(to Average Assets):
United Bankshares 243,827 10.8% 90,537 4.0% 113,171 5.0%
United National Bank 212,635 9.8% 86,902 4.0% 108,627 5.0%
As of December 31, 1995:
- ---------------------------
Total Capital ( to Risk-
Weighted Assets):
United Bankshares $247,125 16.8% $117,659 8.0% $147,074 10.0%
United National Bank 216,543 15.3% 113,397 8.0% 141,746 10.0%
Tier I Capital (to Risk-
Weighted Assets):
United Bankshares 228,741 15.6% 58,830 4.0% 88,244 6.0%
United National Bank 199,024 14.0% 56,698 4.0% 85,048 6.0%
Tier I Capital
(to Average Assets):
United Bankshares 228,741 10.6% 86,510 4.0% 108,138 5.0%
United National Bank 199,024 10.2% 77,700 4.0% 97,125 5.0%
</TABLE>
119
<PAGE>
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by United in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts reported in the balance sheet
- --------------------------
for cash and cash equivalents approximate those assets' fair values.
Securities: The estimated fair values of securities are based on quoted market
- -----------
prices, where available. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
Loans: The estimated fair values of variable-rate loans that reprice
- ------
frequently with no significant change in credit risk are based on carrying
values. The fair values of certain mortgage loans (e.g., one-to-four family
residential), credit card loans, and other consumer loans are based on quoted
market prices of similar loans sold in conjunction with securitization
transactions, adjusted for differences in loan characteristics. The fair values
of other loans (e.g., commercial real estate and rental property mortgage loans,
commercial and industrial loans, financial institution loans, and agricultural
loans) are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit worthiness.
Off-Balance-Sheet Instruments: Fair values of United's loan commitments are
- ------------------------------
based on fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the counterparties' credit
standing. The estimated fair values of these commitments approximate their
carrying values. The fair value of the interest rate swap agreement is
calculated with pricing models using current rate assumptions. The fair value
of forward contracts for the delivery of mortgage-backed securities in
connection with its mortgage banking activities is based upon quoted market
prices or prices of similar instruments when available.
Deposits: The fair values of demand deposits (e.g., interest and non-interest
- ---------
checking, regular savings and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate their fair values
at the reporting date. Fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term Borrowings: The carrying amounts of federal funds purchased,
- ----------------------
borrowings under repurchase agreements, and other short-term borrowings
approximate their fair values.
120
<PAGE>
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued
Federal Home Loan Bank Borrowings: The fair values of United's Federal Home
- ----------------------------------
Loan Bank borrowings are estimated using discounted cash flow analyses, based on
United's current incremental borrowing rates for similar types of borrowing
arrangements
The estimated fair values of United's financial instruments are summarized
below:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------------ ---------------- --------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 89,520,000 $ 89,520,000 $ 98,977,000 $ 98,977,000
Securities available for sale 161,629,000 161,629,000 199,130,000 199,130,000
Securities held to maturity 170,702,000 173,505,000 121,889,000 123,579,000
Loans 1,825,322,000 1,835,619,000 1,710,441,000 1,733,332,000
Deposits 1,827,554,000 1,827,609,000 1,774,599,000 1,779,824,000
Short-term borrowings 75,582,000 75,582,000 82,167,000 82,167,000
FHLB borrowings 132,631,000 132,553,000 75,497,000 75,447,000
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
----------------------------- --------------------------------
Notional Fair Notional Fair
Amount Value Amount Value
------------------------------ ---------------- --------------
<S> <C> <C> <C> <C>
Off-Balance-Sheet:
- ---------------------------------------------------------
Interest rate swap agreement $ 50,000,000 $ 50,051,000 $ 50,000,000 $ 50,738,000
Forward contracts related to
mortgage banking operations 6,000,000 6,022,000
</TABLE>
121
<PAGE>
NOTE O - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1996 and 1995 is summarized below (dollars in
thousands except for per share data):
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1996
- ----
Interest income $42,188 $41,527 $44,609 $44,034
Interest expense 17,697 17,436 18,865 19,187
Net interest income 24,491 24,091 25,744 24,847
Provision for possible loan losses 611 949 600 450
Gain (loss) on sales of loans, net 58 (1,963) 802 672
Other noninterest income 3,523 3,691 3,753 3,653
Noninterest expense 14,812 18,192 16,540 14,005
Income taxes (1) 4,560 5,414 1,936 4,781
Net income 8,089 1,264 11,223 9,936
Per share data:
- ---------------
Average shares outstanding (000s) 15,218 15,223 15,229 15,240
Net income per share $ 0.53 $ 0.08 $ 0.74 $ 0.65
Dividends per share $ 0.30 $ 0.31 $ 0.31 $ 0.32
1995
- ----
Interest income $40,732 $41,361 $41,354 $42,368
Interest expense 16,684 17,717 17,604 18,162
Net interest income 24,048 23,644 23,750 24,206
Provision for possible loan losses 520 535 680 585
Gain on sales of loans, net 34 288 638 52
Other noninterest income 3,401 3,495 3,441 3,403
Noninterest expense 14,600 14,072 13,582 15,227
Income taxes 4,198 4,372 4,866 4,346
Net income 8,165 8,448 8,701 7,503
Per share data:
- ---------------
Average shares outstanding (000s) 14,948 14,945 15,069 15,082
Net income per share $ 0.55 $ 0.56 $ 0.58 $ 0.50
Dividends per share $ 0.29 $ 0.29 $ 0.29 $ 0.30
</TABLE>
(1) In the second quarter of 1996, United recorded additional income tax expense
of $3,086 due to the recapture of Eagle's bad debt reserve into taxable
income. However, as a result of legislation enacted during the third quarter
of 1996, United was relieved of the liability.
122
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
TITLE STATE OF INCORPORATION
- ----- ----------------------
<S> <C>
UBC Holding Company, Inc. West Virginia
United National Bank West Virginia
United Bank Virginia
United Venture Fund, Inc. West Virginia
</TABLE>
123
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of United Bankshares, Inc. and Subsidiaries of our report dated February
24, 1997, included in the 1996 Annual Report to Shareholders of United
Bankshares, Inc. and Subsidiaries.
We also consent to the incorporation by reference in the Registration
Statements pertaining to the Incentive Stock Option Plan (Form S-8, No.
33-22941) and the Savings and Stock Investment Plan (Form S-8, No.
33-32522) of United Bankshares, Inc. of our report dated February 24, 1997, with
respect to the consolidated financial statements of United Bankshares, Inc. and
Subsidiaries incorporated by reference in the Annual Report on Form 10-K for the
year ended December 31, 1996.
/s/ ERNST & YOUNG LLP
Charleston, West Virginia
March 27, 1997
124
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 86,328,000
<INT-BEARING-DEPOSITS> 195,000
<FED-FUNDS-SOLD> 2,997,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 170,702,000
<INVESTMENTS-CARRYING> 170,706,000
<INVESTMENTS-MARKET> 173,697,000
<LOANS> 1,847,605,000
<ALLOWANCE> 22,283,000
<TOTAL-ASSETS> 2,326,877,000
<DEPOSITS> 1,827,554,000
<SHORT-TERM> 208,213,000
<LIABILITIES-OTHER> 32,596,000
<LONG-TERM> 0
0
0
<COMMON> 38,238,000
<OTHER-SE> 220,276,000
<TOTAL-LIABILITIES-AND-EQUITY> 2,326,877,000
<INTEREST-LOAN> 151,404,000
<INTEREST-INVEST> 20,797,000
<INTEREST-OTHER> 157,000
<INTEREST-TOTAL> 172,358,000
<INTEREST-DEPOSIT> 63,917,000
<INTEREST-EXPENSE> 73,185,000
<INTEREST-INCOME-NET> 99,173,000
<LOAN-LOSSES> 2,610,000
<SECURITIES-GAINS> (98,000)
<EXPENSE-OTHER> 63,549,000
<INCOME-PRETAX> 47,203,000
<INCOME-PRE-EXTRAORDINARY> 47,203,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,512,000
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 4.85
<LOANS-NON> 4,361,000
<LOANS-PAST> 5,831,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 22,545,000
<CHARGE-OFFS> 3,524,000
<RECOVERIES> 652,000
<ALLOWANCE-CLOSE> 22,283,000
<ALLOWANCE-DOMESTIC> 8,914,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 13,369,000
</TABLE>
