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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, 1999
Commission File Number: 0-13322
United Bankshares, Inc.
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(Exact name of registrant as specified in its charter)
West Virginia 55-0641179
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 United Center
500 Virginia Street, East
Charleston, West Virginia 25301
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (304) 424-8704
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to 12(g) of the Act:
Common Stock, $2.50 Par Value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of United Bankshares, Inc. common stock,
representing all of its voting stock, that was held by non-affiliates on
February 29, 2000 was approximately $640,839,290.
As of February 29, 2000, United Bankshares, Inc. had 42,175,041 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, 1999
portions of which are incorporated by reference in Parts I, II and IV of this
Form 10-K.
2. Definitive Proxy Statement dated April 3, 2000 for the 2000 Annual
Shareholders' Meeting to be held on May 15, 2000, portions of which are
incorporated by reference in Part III of this Form 10-K.
Page 1 of 82 pages. Index to Exhibits is on page 28 .
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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, 1999, nor the proxy statement for the
annual United shareholders' meeting had been mailed to shareholders.
CROSS-REFERENCE INDEX
Page
Part I ----
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Item 1. BUSINESS ............................................... 3
Item 2. PROPERTIES ............................................. 3
Item 3. LEGAL PROCEEDINGS ...................................... 10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 10
Part II
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS .................................... 11
Item 6. SELECTED FINANCIAL DATA................................. 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS .................... 13
Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT
MARKET RISK ............................................ 13
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ............ 23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES................. 23
Part III
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Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 24
Item 11. EXECUTIVE COMPENSATION ................................. 24
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.............................................. 24
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 24
Part VI
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Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K............................................. 25
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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.
DESCRIPTION OF UNITED BANKSHARES, INC.
Organizational History and Subsidiaries
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United Bankshares, Inc. ("United") is a West Virginia corporation
registered as a bank holding company pursuant to the Bank Holding Company Act of
1956, as amended. United was incorporated on March 26, 1982, organized on
September 9, 1982, and began conducting business on May 1, 1984 with the
acquisition of three wholly-owned subsidiaries. Since its formation in 1982,
United has acquired twenty-four banking institutions. United has two banking
subsidiaries, United National Bank ("UNB") and United Bank. United also owns
nonbank subsidiaries that engage in mortgage banking, asset management,
investment banking and financial planning.
Offices
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The headquarters of United are located in United Center at 500 Virginia
Street, East, Charleston, West Virginia. United's executive offices are located
in Parkersburg, West Virginia at Fifth and Avery Streets. United operates
seventy-eight offices--fifty-three offices located throughout West Virginia,
twenty-two offices throughout the Northern Virginia, Maryland and Washington,
D.C. areas and three in Ohio. United owns all its West Virginia facilities
except for two in the Parkersburg area, three in the Wheeling area, three in the
Charleston area, two in the Beckley area and one each in Summersville and
Clarksburg, all of which are leased under operating leases. United leases all
of its facilities under operating lease agreements in the Northern Virginia,
Maryland and Washington, D.C. areas except for two offices, one each in Fairfax
and Vienna, Virginia which are owned facilities.
Employees
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As of December 31, 1999 United and its subsidiaries had approximately 1,387
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,
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United's present business is community and mortgage banking. As of December 31,
1999, United's consolidated assets approximated $5.1 billion and total
shareholders' equity approximated $396 million.
United is permitted to acquire other banks and bank holding companies, as
well as thrift institutions. United is also permitted to engage in certain non-
banking activities which are closely related to banking under the provisions of
the Bank Holding Company Act and the Federal Reserve Board's Regulation Y.
Management continues to consider such opportunities as they arise, and in this
regard, management from time to time makes inquiries, proposals, offers or
expressions of interest as to potential opportunities; although no agreements or
understandings to acquire other banks or bank holding companies or nonbanking
subsidiaries or to engage in other nonbanking activities, other than those
identified herein, presently exist.
Business of Subsidiary Banks
- ----------------------------
United, through its subsidiaries, engages primarily in community banking
and mortgage banking and additionally offers most types of business permitted by
law and regulation. Included among the banking services offered are the
acceptance of deposits in checking, savings, time and money market accounts; the
making and servicing of personal, commercial, floor plan and student loans; and
the making of construction and real estate loans. Also offered are individual
retirement accounts, safe deposit boxes, wire transfers and other standard
banking products and services. As a part of their lending function, UNB and
United Bank offer credit card services including accounts issued under the name
of certain correspondent banks.
UNB and United Bank each maintains a trust department which acts as trustee
under wills, trust and pension and profit sharing plans, as executors and
administrators of estates, and as guardians for estates of minors and
incompetents, and in addition performs a variety of investment and security
services. Trust services are available to customers of affiliate banks. UNB
provides services to its correspondent banks such as check clearing, safekeeping
and the buying and selling of federal funds.
United Brokerage Services, Inc., a wholly-owned subsidiary of UNB, is a
fully-disclosed broker/dealer and a registered Investment Advisor with the
National Association of Securities Dealers, Inc. and the Securities and Exchange
Commission and a member of the Securities Investor Protection Corporation.
United Brokerage Services, Inc. offers a wide range of investment products as
well as comprehensive financial planning and asset management services to the
general public.
UNB is a member of a regional network of automated teller machines known as
the MAC ATM network while United Bank participates in the MOST network. Through
MAC and MOST, all of United's subsidiary banks are participants in a network
known as Cirrus, which provides banking on a nationwide basis.
Lending Activities
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United's loan portfolio, net of unearned income, increased $518 million, or
19.52%, to $3.17 billion in 1999 and is comprised of commercial, real estate and
consumer loans including credit card and home equity loans. Commercial and
commercial real estate loans increased $26.5 million or 5.21% and $126.8 million
or 22.1%, respectively, while consumer loans, net of unearned income, increased
$49.8 million or 15.9%. Residential real estate loans increased $312.3 million
or 29.02%.
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As of December 31, 1999, approximately $401 million or 13% of United's loan
portfolio were real estate loans that met the regulatory definition of a high
loan-to-value loan. A high loan-to-value real estate loan is defined as any
loan, line of credit, or combination of credits secured by liens on or interests
in real estate that equals or exceeds 90% of the real estate's appraised value,
unless the loan has other appropriate credit support. Appropriate credit
support may include mortgage insurance, readily marketable collateral, or other
acceptable collateral that reduces the loan-to-value ratio below 90%.
The December 31, 1999 position in high loan-to-value loans is significantly
less than the December 31, 1998 amounts of $617 million or 20% of total loans,
of which $456 million was held in the loans held for sale category on United's
balance sheet.
Commercial Loans
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The commercial loan portfolio consists of loans to corporate borrowers
primarily in small to mid-size industrial and commercial companies, as well as
automobile dealers, service, retail and wholesale merchants. Coal mining
companies make up an insignificant portion of loans in the portfolio. Collateral
securing these loans include equipment, machinery, inventory, receivables,
vehicles and commercial real estate. Commercial loans are considered to contain
a higher level of risk than other loan types although care is taken to minimize
these risks. Numerous risk factors impact this portfolio including industry
specific risks such as economy, new technology, labor rates and cyclicality, as
well as customer specific factors, such as cash flow, financial structure,
operating controls and asset quality. United diversifies risk within this
portfolio by closely monitoring industry concentrations and portfolios to ensure
that it does not exceed established lending guidelines. Diversification is
intended to limit the risk of loss from any single unexpected economic event or
trend. Underwriting standards require a comprehensive review and independent
evaluation of virtually all larger balance commercial loans by the loan
committee prior to approval.
Real Estate Loans
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Commercial real estate loans consist of commercial mortgages, which
generally are secured by nonresidential and multi-family residential properties.
Also included in this portfolio are loans that are secured by owner-occupied
real estate, but made for purposes other than the construction or purchase of
real estate. Commercial real estate loans carry many of the same customers and
industry risks as the commercial loan portfolio. Real estate mortgage loans to
consumers are secured primarily by a first lien deed of trust. These loans are
traditional one-to-four family residential mortgages. The loans generally do
not exceed an 80% loan to value ratio at the loan origination date and most are
at a variable rate of interest. These loans are considered to contain normal
risk.
Consumer Loans
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Consumer loans are secured by automobiles, boats, recreational vehicles,
and other personal property. Personal loans, home equity, student loans and
unsecured credit card receivables are also included as consumer loans. United
monitors the risk associated with these types of loans by monitoring such
factors as portfolio growth, lending policies and economic conditions.
Underwriting standards are continually evaluated and modified based upon these
factors.
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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, with justification,
a loan with variances from the underwriting guidelines and standards. However,
the loan officer may not exceed their respective lending authority without
obtaining the prior, proper approval from a superior, a regional supervisor, or
the Loan Committee, whichever is deemed appropriate for the nature of the
variance.
Loan Origination and Processing
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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. As of December 31, 1999, the balance of mortgage loans being
serviced by United for others was insignificant.
Secondary Markets
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United National Bank and George Mason Mortgage Company ("GMMC"), a wholly-
owned subsidiary of United Bank, are engaged in the operation of a general
mortgage and agency business, including the conducting of mortgage loan
servicing activities for certain loans, the origination and acquisition of
residential real estate loans for resale and generally the activities commonly
conducted by a mortgage banking company. These loans are for single, owner-
occupied residences with either adjustable or fixed rate terms, with a variety
of maturities tailored to effectively serve its markets.
GMMC primarily originates permanent residential mortgage loans in the
northern Virginia market while UNB's originations are predominately in its West
Virginia markets. Mortgage loan originations are generally intended to be sold
in the secondary market.
During 1999, United originated $1.3 billion of real estate loans for sale
in the secondary market and sold $1.4 billion of loans designated as held for
sale in the secondary market. Proceeds received from the sales of these loans
during 1999 was $1.4 billion.
The principal sources of revenue from United's mortgage banking business
are: (i) loan origination fees; (ii) gains or losses from the sale of loans, if
any; (iii) interest earned on mortgage loans during the period that they are
held by United pending sale; and (iv) loan servicing fees.
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Investment Activities
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United's investment policy stresses the management of the investment
securities portfolio, which includes both securities held to maturity and
securities available for sale, to maximize return over the long-term in a manner
that is consistent with good banking practices and relative safety of principal.
United currently does not engage in trading account activity. The
Asset/Liability Committee of United is responsible for the coordination and
evaluation of the investment portfolio.
Sources of funds for investment activities include "core deposits". Core
deposits include certain demand deposits, statement and special savings and NOW
accounts. These deposits are relatively stable and they are the lowest cost
source of funds available to United. Short-term borrowings have also been a
significant source of funds. These include federal funds purchased and
securities sold under agreements to repurchase and FHLB borrowings. Repurchase
agreements represent funds that are generally obtained as the result of a
competitive bidding process.
United's investment portfolio is comprised largely of mortgage-backed
securities. Additionally United has a substantial amount of U.S. Treasury
securities and obligations of U.S. Agencies and Corporations. Obligations of
States and Political Subdivisions are comprised of municipal securities with an
average quality of not less than an "A" rating.
During 1999, 1998 and 1997, United recognized net gains of $677 thousand,
$2.37 million, and $85 thousand, respectively, from the available for sale
portfolio. The net gain in 1998 included a $2.49 million gain recognized on an
available for sale equity security exchanged in an unaffiliated merger
transaction consummated at the end of the first quarter of 1998. Additionally,
the 1998 net gain included approximately $300 thousand of net losses from calls
of held to maturity securities.
At December 31, 1999, United had no open commitments to sell mortgage-
backed securities. As such, United is not exposed to significant risk nor will
it derive any significant benefit from changes in interest rates on the price of
the mortgage loan inventory.
Competition
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United faces a high degree of competition in all of the markets it serves.
These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson,
Cabell, Hancock, Ohio, Marshall, Gilmer, Lewis, Webster, Boone, Logan,
Nicholas, Fayette and Raleigh Counties in West Virginia; Lawrence, Belmont,
Jefferson and Washington Counties in Ohio; Montgomery County in Maryland and
Arlington, Loudoun, Prince William and Fairfax Counties in Virginia, located
adjacent to the Washington D.C. area, which is in close proximity to West
Virginia's eastern panhandle. United competes in Ohio markets because of the
close proximity to the Ohio border of certain subsidiary offices. Included in
United's West Virginia markets are the five largest West Virginia Metropolitan
Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington
MSA, the Wheeling MSA and the Weirton MSA. United's Virginia markets include
the Washington, D.C. Metropolitan area. United considers the above counties and
MSA's to be the primary market area for the business of its banking
subsidiaries.
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With prior regulatory approval, West Virginia and Virginia banks are
permitted unlimited branch banking throughout the state. In addition,
interstate acquisitions of and by West Virginia and Virginia banks and bank
holding companies are permissible on a reciprocal basis, as well as reciprocal
interstate acquisitions by thrift institutions. These conditions serve to
intensify competition within United's market.
As of December 31, 1999, there were 58 bank holding companies in the State
of West Virginia registered with the Federal Reserve System and the West
Virginia Board of Banking and Financial Institutions and 74 bank holding
companies in the Commonwealth of Virginia registered with the Federal Reserve
System and the Virginia Corporation Commission. These holding companies are
headquartered in various West Virginia and Virginia cities and control banks
throughout West Virginia and Virginia, which compete for business as well as for
the acquisition of additional banks.
Economic Characteristics of Primary Market Area
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Although the market area of the banking subsidiaries encompasses a portion
of the coal fields located in southern West Virginia, an area of the state which
has been economically depressed, the coal related loans in the loan portfolio of
the banking subsidiaries constitute less than 2% of United's total loans
outstanding. The state of West Virginia has a more diversified economy than it
had during the peak periods of coal production with the chemical manufacturing
industry accounting for 17% of the entire manufacturing workforce and 30% of the
manufacturing wages, according to West Virginia state records. This diversified
economy has contributed to the positive trends in the number of payroll jobs
created and unemployment rates in recent years as the number of payroll jobs
increased 6,400 during calendar year 1999 and the state's overall unemployment
rate has declined from 10.5% in 1991 to 6.0% in December 1999. West Virginia's
unemployment rate for all of 1999 averaged 6.6%, which ties 1998 for the lowest
average annual unemployment rate since 1978, according to available information
from the West Virginia Bureau of Employment Programs.
United's northern Virginia subsidiary banking offices are located in
markets that reflect very low unemployment rate levels and increased wage levels
over a year ago. According to information available from the Virginia
Employment Commission, Virginia's unemployment rate as of December 1999 was
2.6%. The 2.6% rate was the lowest rate reported for the month of December in 30
years. Additionally, the Virginia Employment Commission reported that record
levels were set with increased nonagricultural employment and increased
production workers' salaries in December 1999.
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
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shares of any company which is not a bank, and from engaging directly or
indirectly in business unrelated to the business of banking, or managing or
controlling banks.
The Board of Governors of the Federal Reserve System, in its Regulation Y,
permits bank holding companies to engage in non-banking activities closely
related to banking or managing or controlling banks. Approval of the Board of
Governors is necessary to engage in these activities or to make acquisitions of
corporations engaging in these activities. In addition, on a case by case
basis, the Board of Governors may approve other non-banking activities.
On November 12, 1999 the Gramm-Leach-Bliley Act was signed into law. The Act
modernizes the regulatory framework for financial services in the United States
and allows banks, securities firms, and insurance companies to affiliate more
directly than they have been permitted to do in the past. Under the Act, a bank
holding company may become a "financial holding company" to offer a much broader
range of financial products and services than had been previously possible under
the traditional banking structure, provided that the bank holding company meets
certain certification requirements of the Federal Reserve. United is presently
in the process of analyzing the opportunities, requirements, and pitfalls the
Act presents.
As a bank holding company doing business in West Virginia, United is also
subject to regulation and examination by the West Virginia Board of Banking and
Financial Institutions (the "West Virginia Banking Board") and must submit
annual reports to the department. Further, any acquisition application that
United must submit to the Board of Governors must also be submitted to the West
Virginia Banking Board for approval.
United is also registered under and is subject to the requirements of the
Securities Exchange Act of 1934, as amended.
UNB, as national banking associations, is subject to supervision,
examination and regulation by the Office of the Comptroller of the Currency.
UNB is also a member of the Federal Reserve System, and as such, is subject to
applicable provisions of the Federal Reserve Act and regulations issued
thereunder.
United Bank, as a Virginia state member bank, is subject to supervision,
examination and regulation by the Federal Reserve System, and as such, is
subject to applicable provisions of the Federal Reserve Act and regulations
issued thereunder. United Bank is subject to regulation by the Virginia
Corporation Commission's Bureau of Financial Institutions.
The deposits of United's wholly-owned banking subsidiaries are insured by
the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by
law. Accordingly, these banks are also subject to regulation by the FDIC.
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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 28 of the Annual Report to
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Shareholders for the year ended December 31, 1999, 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
Stock
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As of December 31, 1999, 100,000,000 shares of common stock, par value
$2.50 per share, were authorized for United, of which 43,381,769 were issued,
including 894,661 shares held as treasury shares. The outstanding shares are
held by approximately 11,778 shareholders of record as of December 31, 1999. The
unissued portion of United's authorized common stock (subject to registration
approval by the SEC) and the treasury shares are available for issuance as the
Board of Directors determines advisable. United offers its shareholders the
opportunity to invest dividends in shares of United stock through its dividend
reinvestment plan. United has also established stock option plans and a stock
bonus plan as incentive for certain eligible officers. In addition to the above
incentive plans, United is occasionally involved in certain mergers in which
additional shares could be issued and recognizes that additional shares could be
issued for other appropriate purposes.
The Board of Directors believes that the availability of authorized but
unissued common stock of United is of considerable value if opportunities should
arise for the acquisition of another business through the issuance of United's
stock. Shareholders do not have preemptive rights, which allows United to issue
additional authorized shares without first offering them to current
shareholders.
United has only one class of stock and all voting rights are vested in the
holders of United's stock. On all matters subject to a vote of shareholders,
the shareholders of United will be entitled to one vote for each share of common
stock owned. Shareholders of United have cumulative voting rights with regard
to election of directors. At the present time, no senior securities of United
are outstanding, nor does the Board of Directors presently contemplate issuing
senior securities.
There are no preemptive or conversion rights or, redemption or sinking fund
provisions with respect to United's Stock. All of the issued and outstanding
shares of United's stock are fully paid and non- assessable.
Dividends
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On November 24, 1997, the Board of Directors of United declared a two for
one stock split in the form of a 100% stock dividend payable on March 27, 1998,
to shareholders of record as of March 13, 1998. The change in capital structure
due to the 100% stock dividend was given retroactive effect in the December 31,
1997 balance sheet and all references to shares and per share data reflect the
effect of the 100% stock dividend.
The shareholders of United are entitled to receive dividends when and as
declared by its Board of Directors. Dividends are paid quarterly. Dividends
were $0.82 per share in 1999, $0.75 per share in 1998
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and $0.68 per share in 1997. Dividends are paid from funds legally available;
therefore, the payment of dividends is subject to the restrictions set forth in
the West Virginia Corporation Act. See "Market and Stock Prices of United" for
quarterly dividend information.
Payment of Dividends by United is dependent upon payment of dividends to it by
its subsidiary banks. The ability of national banks to pay dividends is subject
to certain limitations imposed by the national banking laws. Generally, the
most restrictive provision requires approval by the Office of the Comptroller of
the Currency ("OCC") if dividends declared in any year exceed the current year's
net income, as defined, plus the retained net profits of the two preceding
years. Payment of dividends by United's state member bank is regulated by the
Federal Reserve System and generally, the prior approval of the Federal Reserve
Board ("FRB") is required if the total dividends declared by a state member bank
in any calendar year exceeds its net profits, as defined, for that year combined
with its retained net profits for the preceding two years. Additionally, prior
approval of both the OCC and the FRB is required when a national bank or state
member bank has deficit retained earnings but has sufficient current year's net
income, as defined, plus the retained net profits of the two preceding years.
The OCC and FRB may prohibit dividends if it deems the payment to be an unsafe
or unsound banking practice. The OCC has issued guidelines for dividend
payments by national banks, emphasizing that proper dividend size depends on the
bank's earnings and capital while the FRB has issued similar guidelines
pertaining to state member banks. See Note M - Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
Market and Stock Prices of United
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United Bankshares, Inc. stock is traded over the counter on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ") under
the trading symbol UBSI.
The high and low prices listed below page are based upon information
available to United's management from NASDAQ listings. No attempt has been made
by United's management to ascertain the prices for every sale of its stock
during the periods indicated. However, based on the information available,
United's management believes that the prices fairly represent the amounts at
which United's stock was traded during the periods indicated.
The following table presents the dividends and high and low prices of
United's common stock during the periods set forth below:
<TABLE>
<CAPTION>
2000 Dividends High Low
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<S> <C> <C> <C>
First Quarter through February 29, 2000 (1) $24.44 $17.25
1999
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Fourth Quarter $0.21 $26.25 $22.63
Third Quarter $0.21 $27.25 $23.38
Second Quarter $0.20 $27.38 $22.88
First Quarter $0.20 $27.69 $22.75
1998
----
Fourth Quarter $0.20 $29.88 $20.75
Third Quarter $0.19 $31.50 $24.00
Second Quarter $0.18 $34.19 $23.25
First Quarter $0.18 $26.19 $22.75
</TABLE>
(1) On February 28, 2000, United declared a dividend of $0.21 per share, payable
April 1, 2000, to shareholders of record as of March 10, 2000.
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UNITED BANKSHARES, INC.
FORM 10-K, PART II
Item 6. Selected Financial Data
Information relating to selected financial data on page 37 of the Annual
--
Report to Shareholders for the year ended December 31, 1999, 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 38 through 51 inclusive, of the Annual Report to
------ ----
Shareholders for the year ended December 31, 1999, is incorporated herein by
reference.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk on pages 43
-----
through 45 inclusive, of the Annual Report to Shareholders for the year
------
ended December 31, 1999, is incorporated herein by reference.
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DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL:
The following table shows the daily average balance of major categories of
assets and liabilities for each of the three years ended December 31, 1999,
1998 and 1997 with the interest and rate earned or paid on such amount.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
------------------------------- ---------------------------------
Average Avg. Average Avg.
Balance Interest Rate Balance Interest Rate
------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets:
Federal funds sold, securities
repurchased under agreements to
resell & other short-term investments $ 8,390 $ 522 6.22% $ 28,270 $ 1,472 5.21%
Investment Securities:
Taxable 1,295,851 85,392 6.59% 876,167 55,550 6.34%
Tax-exempt (1) (2) 202,435 14,402 7.11% 66,019 5,262 7.97%
------------------------------- ----------------------------
Total Securities 1,498,286 99,794 6.66% 942,186 60,812 6.45%
Loans, net of unearned
Income (1) (2) (3) 3,110,785 262,622 8.44% 3,053,948 267,186 8.75%
Allowance for loan losses (39,615) (35,598)
------------ ----------
Net loans 3,071,170 8.55% 3,018,350 8.85%
------------------------------- ----------------------------
Total earning assets 4,577,846 $362,938 7.93% 3,988,806 $329,470 8.26%
-------- --------
Other assets 289,675 250,002
------------ ----------
TOTAL ASSETS $4,867,521 $4,238,808
============ ==========
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,890,065 $122,651 4.24% $2,791,996 $128,976 4.62%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 367,342 17,104 4.66% 228,923 10,732 4.69%
FHLB advances 653,579 34,647 5.30% 282,741 15,646 5.53%
------------------------------- ----------------------------
Total Interest-Bearing Funds 3,910,986 174,402 4.46% 3,303,660 155,354 4.70%
-------- --------
Demand deposits 468,238 452,300
Accrued expenses and other liabilities 68,478 70,572
----------
------------
TOTAL LIABILITIES 4,447,702 3,826,532
SHAREHOLDERS' EQUITY 419,819 412,276
------------ ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $4,867,521 $4,238,808
============ ==========
NET INTEREST INCOME $188,536 $174,116
============ ============
INTEREST SPREAD 3.47% 3.56%
NET INTEREST MARGIN 4.12% 4.37%
<CAPTION>
Year Ended
December 31, 1997
--------------------------------
Average Avg.
Balance Interest Rate
--------------------------------
<S> <C> <C> <C>
ASSETS
Earning Assets:
Federal funds sold, securities
repurchased under agreements to
resell & other short-term investments $ 27,991 $ 1,456 5.20%
Investment Securities:
Taxable 884,541 57,868 6.54%
Tax-exempt (1) (2) 54,361 4,753 8.74%
--------------------------------
Total Securities 938,902 62,621 6.67%
Loans, net of unearned
Income (1) (2) (3) 2,526,849 219,588 8.69%
Allowance for loan losses (30,438)
--------------
Net loans 2,496,411 8.80%
--------------------------------
Total earning assets 3,463,304 $283,665 8.19%
--------
Other assets 218,998
--------------
TOTAL ASSETS $3,682,302
==============
LIABILITIES
Interest-Bearing Funds:
Interest-bearing deposits $2,528,103 $113,472 4.49%
Federal funds purchased, repurchase
agreements & other short-term
borrowings 195,390 8,911 4.56%
FHLB advances 149,899 8,739 5.83%
--------------------------------
Total Interest-Bearing Funds 2,873,392 131,122 4.56%
--------
Demand deposits 390,020
Accrued expenses and other liabilities 43,403
-------------
TOTAL LIABILITIES 3,306,815
SHAREHOLDERS' EQUITY 375,487
--------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $3,682,302
==============
NET INTEREST INCOME $152,543
============
INTEREST SPREAD 3.62%
NET INTEREST MARGIN 4.40%
</TABLE>
(1) The interest income and the yields on federally nontaxable loans and
investment securities are presented on a tax-equivalent basis using the
statutory federal income tax rate of 35%.
(2) The interest income and the yields on state nontaxable loans and investment
securities are presented on a tax-equivalent basis using the statutory
state income tax rate of 9%.
(3) Nonaccruing loans are included in the daily average loan amounts
outstanding
14
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
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>
1999 Compared to 1998 1998 Compared to 1997
--------------------------------------------- ------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
--------------------------------------------- ------------------------------------------
Rate/ Rate/
Volume Rate Volume Total Volume Rate Volume Total
--------------------------------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold, securities purchased
under agreements to resell and other
short-term investments ($1,035) $ 287 ($202) ($950) $ 15 $ 1 $ 0 $ 16
Investment securities:
Taxable 26,608 2,186 1,048 29,842 (548) (1,787) 17 (2,318)
Tax exempt (1), (2) 10,873 (565) (1,168) 9,140 1,019 (420) (90) 509
Loans (1),(2),(3) 4,676 (9,081) (159) (4,564) 45,908 1,398 292 47,598
--------------------------------------------- ------------------------------------------
TOTAL INTEREST INCOME 41,122 (7,173) (481) 33,468 46,394 (808) 219 45,805
--------------------------------------------- ------------------------------------------
Interest expense:
Interest-bearing deposits $ 4,530 ($10,487) ($368) ($6,325) $11,845 $ 3,313 $ 346 $15,504
Federal funds purchased, repurchase
Agreements, and other short-term
Borrowings 6,489 (73) (44) 6,372 1,529 251 43 1,823
FHLB advances 20,521 (658) (862) 19,001 7,746 (446) (395) 6,905
--------------------------------------------- ------------------------------------------
TOTAL INTEREST EXPENSE 31,540 (11,218) (1,274) 19,048 21,120 3,118 (6) 24,232
--------------------------------------------- ------------------------------------------
NET INTEREST INCOME $ 9,582 $ 4,045 $ 793 $ 14,420 $25,274 ($3,926) $ 225 $21,573
============================================= ==========================================
</TABLE>
(1) Yields and interest income on federally tax exempt loans and investment
securities are computed on a fully tax-equivalent basis using the statutory
federal income tax rate of 35%.
(2) Yields and interest income on state tax exempt loans and investment
securities are computed on a fully tax-equivalent basis using the statutory
state income tax rate of 9%.
(3) Nonaccruing loans are included in the daily average loan amounts
outstanding.
15
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
LOAN PORTFOLIO
TYPES OF LOANS
The following is a summary of loans outstanding at December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $ 535,116 $ 508,601 $ 487,706 $ 328,248 $ 295,929
Real estate mortgage 2,134,370 1,696,233 1,693,819 1,611,801 1,502,096
Real estate construction 144,634 141,026 150,429 90,817 66,810
Consumer 363,272 313,464 364,951 328,928 293,741
Less: Unearned interest (7,296) (6,933) (7,066) (5,223) (5,427)
-------------------------------------------------------------------------------
Total loans 3,170,096 2,652,391 2,689,839 2,354,571 2,153,149
Allowance for loan losses (39,599) (39,189) (31,936) (29,376) (29,531)
-------------------------------------------------------------------------------
TOTAL LOANS, NET $3,130,497 $2,613,202 $2,657,903 $2,325,195 $2,123,618
===============================================================================
Loans held for sale $ 117,825 $ 720,607 $ 97,619 $ 74,465 $ 55,827
===============================================================================
</TABLE>
The following is a summary of loans outstanding as a percent of total loans at
December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural 16.88% 19.18% 18.13% 13.94% 13.74%
Real estate mortgage 67.33% 63.95% 62.97% 68.45% 69.76%
Real estate construction 4.56% 5.32% 5.59% 3.86% 3.10%
Consumer 11.23% 11.55% 13.31% 13.75% 13.40%
----------------------------------------------------
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,
1999:
<TABLE>
<CAPTION>
Less Than One To Greater Than
One Year Five Years Five Years Total
------------------ ------------------ ------------------ ------------------
(In thousands)
<S> <C> <C> <C> <C>
Commercial, financial
and agricultural $186,571 $201,514 $147,031 $535,116
Real estate construction 144,634 144,634
------------------ ------------------ ------------------ ------------------
Total $331,205 $201,514 $147,031 $679,750
================== ================== ================== ==================
</TABLE>
16
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
At December 31, 1999, 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 $114,762 $ 93,051
Outstanding with adjustable rates 86,752 53,980
--------------- ---------------
$201,514 $147,031
</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 or disclosed elsewhere herein where there are
serious doubts as to the ability of the borrowers to comply with the present
loan repayment terms. The following table summarizes nonperforming loans for the
indicated periods.
<TABLE>
<CAPTION>
December
-------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $12,327 $ 9,139 $ 5,815 $ 6,373 $10,062
Troubled debt restructurings 95 744
Loans which are contractually past due 90
days or more as to interest or principal,
and are still accruing interest 8,415 9,528 12,877 6,317 5,070
-------------------------------------------------------
TOTAL $20,742 $18,667 $18,692 $12,785 $15,876
=======================================================
</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, impaired loans and credit
risk concentration. Other real estate owned is not material.
17
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
INVESTMENT PORTFOLIO
The following is a summary of the amortized cost of held to maturity securities
held to maturity at December 31,:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury and other U.S. Government
agencies and corporations $ 56,734 $121,474 $123,186
States and political subdivisions 97,824 82,011 51,560
Mortgage-backed securities 90,850 139,002 212,254
Other 19,782 19,664 7,816
--------------- --------------- ---------------
TOTAL HELD TO MATURITY SECURITIES $265,190 $362,151 $394,816
=============== =============== ===============
</TABLE>
The following is a summary of the amortized cost of available for sale
securities at December 31,:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government agencies and corporations $ 276,558 $198,151 $191,473
States and political subdivisions 48,914 27,474 4,093
Mortgage-backed securities 693,828 279,618 379,452
Marketable equity securities 8,369 9,211 4,730
Other 229,277 43,120 22,161
--------------- --------------- ---------------
TOTAL AVAILABLE FOR SALE SECURITIES $1,256,946 $557,574 $601,909
=============== =============== ===============
</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
estimated maturity. Therefore, investors may not be able to invest at current
higher market rates due to the extended expected maturity of the security.
United had a net unrealized loss of $24,438 on all mortgage-backed securities at
December 31, 1999, as compared to a net unrealized gain of $3,983 at December
31, 1998.
The following table sets forth the maturities of all securities at December 31,
1999, 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
------ ------ ------- ------ -------- ------ -------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government agencies and corporations $4,328 6.32% $99,811 6.08% $183,783 6.39% $ 31,568 6.40%
States and political subdivisions (1) 2,308 7.82% 11,998 8.23% 30,966 7.87% 97,406 7.47%
Mortgage-backed securities 3,555 5.99% 27,611 6.63% 134,602 6.32% 594,977 6.39%
Other 1,000 8.74% 9,784 6.69% 36,944 6.71% 201,911 6.55%
</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.
18
<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
--------------------- ---------------------
(Dollars in thousands)
<S> <C> <C>
At December 31:
1999 $44,120 $349,129
1998 7,260 236,535
1997 40,961 184,718
Weighted average interest rate
at year end:
1999 5.0% 5.0%
1998 5.6% 4.6%
1997 6.6% 4.5%
Maximum amount outstanding at
any month's end:
1999 $64,921 $440,281
1998 35,416 236,535
1997 47,900 215,205
Average amount outstanding during
the year:
1999 $27,774 $335,908
1998 24,334 201,475
1997 24,550 167,688
Weighted average interest rate
During the year:
1999 5.4% 4.6%
1998 5.6% 4.7%
1997 5.6% 4.4%
</TABLE>
At December 31, 1999, repurchase agreements include $199,741 in overnight
accounts. The remaining balance principally consists of agreements having
maturities ranging from 2-90 days. The rates offered on these funds vary
according to movements in the federal funds and short-term investment market
rates.
19
<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>
1999 1998 1997
--------------------------------- --------------------------------- ---------------------------------
Amount Rate Amount Rate Amount Rate
--------------- ------------- --------------- ------------- --------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 468,238 $ 452,300 $ 390,020
Interest bearing
demand deposits 335,231 1.60% 312,317 2.37% 205,040 2.64%
Savings deposits 865,351 3.36% 817,852 3.49% 858,980 3.07%
Time deposits 1,689,483 5.28% 1,661,827 5.60% 1,464,083 5.53%
--------------- --------------- ---------------
TOTAL $3,358,303 4.24% $3,244,296 4.62% $2,918,123 4.49%
=============== =============== ===============
</TABLE>
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31, 1999 are summarized as follows:
(In thousands)
3 months or less $ 44,864
Over 3 through 6 months 23,781
Over 6 through 12 months 65,306
Over 12 months 50,000
---------------
TOTAL $183,951
===============
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:
1999 1998 1997
----------- ---------- ----------
Return on average assets 1.44% 1.05% 1.42%
Return on average equity 16.73% 10.77% 13.92%
Dividend payout ratio (1) 50.35% 63.77% 49.69%
Average equity to average
assets ratio 8.63% 9.73% 10.20%
(1) Based on historical results of United before the effects of restatements for
pooling of interests business combinations.
20
<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>
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance of allowance for possible loan
losses at beginning of year $39,189 $31,936 $29,376 $29,531 $29,521
Allowance of purchased company at date
of acquisition 2,695 1,017
Loans charged off:
Commercial, financial and agricultural 3,896 800 1,352 2,310 2,051
Real estate 3,290 3,070 447 406 1,049
Real estate construction 63
Consumer and other 2,050 2,400 2,436 1,199 1,075
--------------------------------------------------------------------------
TOTAL CHARGE-OFFS 9,236 6,270 4,235 3,915 4,238
Recoveries:
Commercial, financial and agricultural 341 729 292 283 245
Real estate 156 217 263 237 189
Real estate construction 20
Consumer and other 349 421 265 359 319
--------------------------------------------------------------------------
TOTAL RECOVERIES 846 1,367 820 879 773
--------------------------------------------------------------------------
NET LOANS CHARGED OFF 8,390 4,903 3,415 3,036 3,465
Addition to allowance (1) 8,800 12,156 3,280 2,881 2,458
--------------------------------------------------------------------------
BALANCE OF ALLOWANCE FOR
LOAN LOSSES AT END OF YEAR $39,599 $39,189 $31,936 $29,376 $29,531
==========================================================================
Loans outstanding at the end of period (gross) $3,170,096 $2,652,391 $2,689,839 $2,354,571 $2,153,149
Average loans outstanding during
period (net of unearned income) $2,975,116 $2,668,460 $2,472,293 $2,245,292 $2,052,268
Net charge-offs as a percentage of
average loans outstanding 0.28% 0.18% 0.14% 0.14% 0.17%
Allowance for loan losses as
a percentage of nonperforming loans 190.9% 209.9% 170.9% 229.8% 186.0%
</TABLE>
(1) The amount charged to operations and the related balance in the allowance
for loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including, but not
limited to, general economic conditions, loan portfolio composition, prior
loan loss experience and management's estimation of probable losses.
Quarterly reviews of individual loans as well as the loan portfolio as a
whole are made by management and the credit department. Management performs
extensive procedures in granting and monitoring loans on a continual basis.
Further, management believes that the allowance for loan losses is adequate
to absorb anticipated losses.
21
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for loan losses
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial, financial and
Agricultural $14,432 $13,772 $10,115 $ 8,261 $ 7,736
Real estate 9,861 3,587 3,452 4,239 4,845
Real estate construction 754 1,086 674 511 729
Consumer and other 2,735 3,747 3,221 1,688 1,993
Unallocated 11,817 16,997 14,474 14,677 14,228
--------------- --------------- --------------- --------------- ---------------
Total $39,599 $39,189 $31,936 $29,376 $29,531
=============== =============== =============== =============== ===============
</TABLE>
22
<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 9 through 36
--- ----
inclusive of the Annual Report to Shareholders for the year ended December 31,
1999, is incorporated herein by reference.
(b) - SUPPLEMENTARY FINANCIAL INFORMATION
(1) Selected Quarterly Financial Data
Information relating to selected quarterly financial data on page 36 of the
-----
Annual Report to Shareholders for the year ended December 31, 1999, is
incorporated herein by reference.
(2) Information on the Effects of Changing Prices
Information relating to effects of changing prices on page 43 of the Annual
----
Report to Shareholders for the year ended December 31, 1999, is incorporated
herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
This item is omitted since it is not applicable.
23
<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
pages 4 through 9 inclusive and page 20 , of the Proxy Statement for the
--- --- ----
2000 Annual Shareholders' Meeting is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information regarding executive compensation on pages 10 through 14
---- ----
inclusive, of the Proxy Statement for the 2000 Annual Shareholders' Meeting is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management on pages 7 through 9 inclusive and pages 19 and 20, of the
---- --- ---- ----
Proxy Statement for the 2000 Annual Shareholders' Meeting is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions on pages
5 , 6 , 7 , 14 and 18 of the Proxy Statement for the 2000 Annual
- --- ---- ---- ---- ----
Shareholders' Meeting is incorporated herein by reference.
24
<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,
1999 at Item 8a. Page references are to such Annual report.
<TABLE>
<CAPTION>
Financial Statements: Page References
- -------------------- ----------------
<S> <C>
Report of Independent Auditors.................................................. 9
Consolidated Balance Sheets..................................................... 10
Consolidated Statements of Income.............................................. 11
Consolidated Statements of Changes in Shareholders'Equity....................... 12
Consolidated Statements of Cash Flows........................................... 13
Notes to Consolidated Financial Statements..................................... 14
</TABLE>
(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
28 of this Form 10-K.
---
(b) Reports on Form 8-K
None
(c) Exhibits -- The exhibits to this Form 10-K begin on page 31 .
-------
(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.
25
<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, Director, March 27, 2000
- ------------------------------ and Chief Executive Officer
/s/ Steven E. Wilson Chief Financial Officer March 27, 2000
- ------------------------------ Chief Accounting Officer
/s/ Robert G. Astorg Director March 27, 2000
- ------------------------------
/s/ William W. Wagner Director March 27, 2000
- ------------------------------
/s/ James W. Word, Jr. Director March 27, 2000
- ------------------------------
/s/ P. Clinton Winter, Jr. Director March 27, 2000
- ------------------------------
/s/ F.T. Graff, Jr. Director March 27, 2000
- ------------------------------
/s/ Russell L. Isaacs Director March 27, 2000
- ------------------------------
/s/ Warren A. Thornhill, III Director March 27, 2000
- ------------------------------
/s/ I.N. Smith, Jr. Director March 27, 2000
- ------------------------------
/s/ Alan E. Groover Director March 27, 2000
- ------------------------------
/s/ H. Smoot Fahlgren Director March 27, 2000
- ------------------------------
</TABLE>
26
<PAGE>
SIGNATURES
(continued)
/s/ John M. McMahon Director March 27, 2000
- ---------------------------
/s/ Thomas J. Blair, III Director March 27, 2000
- ---------------------------
/s/ G. Ogden Nutting Director March 27, 2000
- ---------------------------
/s/ Harry L. Buch Director March 27, 2000
- ---------------------------
/s/ William C. Pitt, III Director March 27, 2000
- ---------------------------
27
<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>
28
<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 ALTELL (l)
(o) Employment Contract with
Bernard H. Clineburg (m)
Statement Re: Computation of
Ratios (12) 78
Annual Report to Security Holders,
et al. (13) 31
Letter Re: Change in accounting
principles (18) N/A
Previously Unfiled Documents (19) N/A
Subsidiaries of the Registrant (21) 79
Published Report Regarding Matters
Submitted to a Vote of Security
Holders (22) N/A
Consent of Ernst & Young LLP (23.1) 80
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
S-K Item 601 Sequential Page
Description Table Reference Number (a)
----------- --------------- ----------
<S> <C> <C>
Consent of KPMG LLP (23.2) 81
Power of Attorney (24) N/A
Financial Data Schedule (27) 82
Additional Exhibits: (28) N/A
</TABLE>
Footnotes
- ---------
(a) N/A = Not Applicable
(b) Incorporated into this filing by reference to Exhibit 10 of the 1985 Form
10-K for Intermountain Bankshares, Inc., File No. 0-12356
(c) Incorporated into this filing by reference to Exhibit 10 of the 1986 Form
10-K for United Bankshares, Inc., File No. 0-13322
(d) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 33-19968
filed February 3, 1988
(e) Incorporated into this filing by reference to Exhibits to the 1988 10-K for
United Bankshares, Inc., File No. 0-13322
(f) Incorporated into this filing by reference to Exhibits to the 1989 10-K for
United Bankshares, Inc., File No. 0-13322
(g) Incorporated into this filing by reference to Exhibits to the 1990 10-K for
United Bankshares, Inc., File No. 0-13322
(h) Incorporated into this filing by reference to Exhibits to the 1991 10-K for
United Bankshares, Inc., File No. 0-13322
(i) Incorporated into this filing by reference to Exhibits to the 1992 10-K for
United Bankshares, Inc., File No. 0-13322
(j) Incorporated into this filing by reference to Exhibits to the 1993 10-K for
United Bankshares, Inc., File No. 0-13322
(k) Incorporated into this filing by reference to Exhibits to the 1994 10-K as
amended by Form 10K/A filed February 8, 1996, for United Bankshares, Inc.,
File No. 0-13322
(l) Incorporated into this filing by reference to Exhibits to the 1996 10-K for
United Bankshares, Inc., File No. 0-13322
(m) Incorporated into this filing by reference to Part II of Form S-4
Registration Statement of United Bankshares, Inc., Registration No. 333-
44993 filed January 27, 1998
30
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Five Year Summary
--------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Total interest income $ 354,665 $ 325,647 $ 280,452 $ 250,641 $ 232,956
Total interest expense 174,402 155,354 131,122 112,256 101,441
Net interest income 180,263 170,293 149,330 138,385 131,515
Provision for loan losses 8,800 12,156 3,280 2,881 2,458
Other income 51,078 41,752 37,068 29,654 25,735
Other expense 117,519 137,964 103,852 104,385 90,732
Income taxes 34,774 17,523 27,005 21,054 21,701
Net income 70,248 44,402 52,261 39,719 42,359
Cash dividends(1) 35,367 28,317 20,344 17,847 13,817
Per common share:
Net income:
Basic 1.63 1.04 1.24 0.94 1.01
Diluted 1.61 1.02 1.22 0.93 1.00
Cash dividends(1) 0.82 0.75 0.68 0.62 0.59
Book value per share 9.32 9.74 9.35 8.59 8.27
Selected Ratios:
Return on average
shareholders' equity 16.73% 10.77% 13.92% 11.17% 12.80%
Return on average assets 1.44% 1.05% 1.42% 1.18% 1.38%
Dividend payout ratio (1) 50.35% 63.77% 49.69% 58.49% 49.21%
Selected Balance Sheet Data:
Average assets $4,867,521 $4,238,808 $3,682,302 $3,352,594 $3,077,631
Investment securities 1,472,553 927,316 1,006,735 865,020 771,181
Loans held for sale 117,825 720,607 97,619 74,465 55,827
Total loans 3,170,096 2,652,391 2,689,839 2,354,571 2,153,149
Total assets 5,069,160 4,567,899 4,094,836 3,541,244 3,224,123
Total deposits 3,260,985 3,493,058 3,185,963 2,770,833 2,570,630
Long-term borrowings 343,847 240,867 46,674 44,877 44,445
Total borrowings
and other liabilities 1,412,245 653,310 512,817 407,579 304,232
Shareholders' equity 395,930 421,531 396,056 362,832 349,261
</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.
31
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
Congress passed the Private Securities Litigation Act of 1995 to encourage
corporations to provide investors with information about the company's
anticipated future financial performance, goals, and strategies. The act
provides a safe harbor for such disclosure; in other words, protection from
unwarranted litigation if actual results are not the same as management
expectations.
United desires to provide its shareholders with sound information about past
performance and future trends. Consequently, any forward-looking statements
contained in this report, in a report incorporated by reference to this report,
or made by management of United in this report, in any other reports and
filings, in press releases and in oral statements, involves numerous
assumptions, risks and uncertainties. Actual results could differ materially
from those contained in or implied by United's statements for a variety of
factors including, but not limited to: changes in economic conditions; movements
in interest rates; competitive pressures on product pricing and services;
success and timing of business strategies; the nature and extent of governmental
actions and reforms; and rapidly changing technology and evolving banking
industry standards.
INTRODUCTION
The following discussion and analysis presents the significant changes in
financial condition and the results of operations of United and its subsidiaries
for the periods indicated below. This discussion and the consolidated financial
statements and the notes to consolidated financial statements include the
accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless
otherwise indicated.
This discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes thereto, which are included
elsewhere in this document.
The following broad overview of the financial condition and results of
operations is not intended to replace the more detailed discussion which is
presented under specific headings on the following pages.
1999 COMPARED TO 1998
EARNINGS SUMMARY
For the year ended December 31, 1999, net income increased 58.21% to $70.2
million from $44.4 million for the year ended December 31, 1998. On a diluted
per share basis, net income of $1.61 for the year increased 57.85% from $1.02 in
1998.
32
<PAGE>
Results for 1998 include the recognition of approximately $13.7 million ($8.2
million after tax) of merger-related and one-time charges associated with the
pooling of interests acquisitions of George Mason Bankshares, Inc. and Fed One
Bancorp, Inc.
For the year of 1999, United's return on average shareholders' equity of 16.73%
and a return on average assets of 1.44% compare favorably with national peer
grouping information provided by Keefe, Bruyette, & Woods, of 15.86 % and 1.35%,
respectively. United, one of the nation's most profitable regional banking
companies, has a strong capital position, and is well positioned to take
advantage of future growth opportunities.
Dividends per share increased 9.34% from $0.75 in 1998 to a record level of
$0.82 per share in 1999. United paid approximately $35.0 million in dividends
to common shareholders in 1999 compared with $24.65 million in 1998. This was
the twenty-sixth consecutive year of dividend increases to shareholders.
Growth in earnings was a result of increases in net interest and noninterest
income as well as a reduction of noninterest expenses. Net interest income
increased by $9.97 million or 5.85% for the year ended December 31, 1999 as
compared to the same period for 1998. Noninterest income, including income from
mortgage banking operations, increased $9.33 million or 22.34% for 1999 when
compared to 1998. Noninterest expenses decreased $20.45 million or 14.82% for
1999 compared to the same period in 1998.
The effective tax rate for the year ended December 31, 1999 approximated 33.12%
compared to 28.30% for 1998.
FINANCIAL CONDITION SUMMARY
Total assets were $5.07 billion at December 31, 1999, up $501.26 million or
10.97% compared with year end 1998. United's available for sale securities
portfolio increased $642.20 million while securities held to maturity decreased
$96.96 million as compared to year end 1998. Loans held for sale decreased $603
million during 1999 due mainly to a securitization in the amount of
approximately $205 million, transfer of approximately $230 million to the loan
portfolio and sales of mortgage loans in the secondary market. Loans, net of
unearned income, reflected a $517.71 million increase from 1998 to 1999 due to
13% growth rates in both the commercial and consumer (non-mortgage) loan
portfolios, as well as the previously mentioned reclassification. Cash and cash
equivalents increased $18.51 million while nonearning assets increased $23
million in 1999 as compared with year end 1998.
Total deposits declined $232.07 million or 6.64% from year end 1998 as United
realized decreases of $169.85 million and $62.22 million in interest-bearing
deposits and noninterest-bearing deposits, respectively. United's short-term
borrowings increased $151.21 million and its FHLB borrowings increased $607.48
million as United utilized these sources of cash to fund investment and loan
growth.
Shareholders' equity decreased $25.60 million or 6.07% from December 31, 1998
due primarily to purchases of treasury stock of $26.19 million and a decline in
the fair value of United's securities available for sale portfolio of
approximately $37.16 million, net of deferred income taxes. In May of 1999,
United announced a 1.75 million share repurchase program, and by year end 1999,
United had purchased approximately 1.05
33
<PAGE>
million shares. United continues to balance capital adequacy and the return to
shareholders. At December 31, 1999, United's regulatory capital ratios,
including those of its bank subsidiaries, exceeded the levels established for
well-capitalized institutions.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
Net interest income represents the primary component of United's earnings. It
is the difference between interest income from earning assets and interest
expense incurred to fund these assets. Net interest income is impacted by
changes in the volume and mix of interest-earning assets and interest-bearing
liabilities, as well as changes in market interest rates. Such changes, and
their impact on net interest income in 1998, are summarized below.
For the years ended December 31, 1999 and 1998, tax-equivalent net interest
income was $188.54 million and $174.12 million, respectively. On a tax-
equivalent basis the net interest margin was 4.12% for 1999 and 4.37% for 1998.
The decline in the margin percentage reflected a changing earning asset mix
primarily related to the securitization of higher yielding high loan-to-value
mortgage loans. As a result of the securitization, interest income on the
securities was recognized at a projected loss-adjusted yield that was
significantly less than the contractual yields of the underlying assets. Should
the actual performance of the underlying assets in future periods differ from
the current projections, interest income recognized on those assets may be
materially different.
Total interest income of $354.67 million increased 8.91% in 1999 over 1998 as a
result of higher volumes of interest-earning assets. Overall, average interest-
earning assets increased $589.04 million or 14.77% during 1999 from $3.99
billion in 1998 to $4.58 billion in 1999. In particular, the average volume of
investment securities increased $556.10 million at a slightly higher yield since
December 31, 1998. During 1999, United experienced growth in all three major
loan portfolios--commercial loans increased 13.85%, consumer loans increased
13.33% and mortgage loans increased 6.42%. Commercial loan growth was due to
the more active solicitation of commercial loan volume, while the increase in
the consumer loan portfolio was mainly attributable to the introduction of
certain loan products in United's northern Virginia market.
Total interest expense increased $19.05 million or 12.26% in 1999 compared to
1998. This increase was attributed primarily to increased average wholesale
funding balances at lower average interest rates than in 1998. The average cost
of funds decreased from 4.70% in 1998 to 4.46% in 1999 in light of a rising
interest rate environment. United's average FHLB borrowings increased $370.84
million and average short-term borrowings increased $138.42 million as United
implemented a strategy during 1999 to leverage its balance sheet. Average
interest-bearing deposits increased slightly by $98.07 million or 3.52% in 1999.
Provision for Loan Losses
Nonperforming loans were $20.74 million at December 31, 1999 and $18.67 million
at December 31, 1998. Nonperforming loans as a percentage of total assets
remained constant at 0.41% for United at the end of
34
<PAGE>
1999 and 1998. The components of nonperforming loans include nonaccrual loans
and loans which are contractually past due 90 days or more as to interest or
principal, but have not been put on a nonaccrual basis. Nonaccrual loans
increased $3.19 million or 34.89% while loans past due 90 days or more decreased
$1.11 million or 11.69% since year end 1998. Total nonperforming assets of
$24.51 million, including OREO of $3.76 million at December 31, 1999,
represented 0.49% of total assets at the end of 1999.
At December 31, 1999, impaired loans were $15.64 million, an increase of $4.72
million or 43.20% from the $10.92 million of impaired loans at December 31, 1998
due primarily to three collateralized commercial loans totaling $4.1 million
being classified as nonaccrual. For further details, see Note D to the
Consolidated Financial Statements.
This decline in credit quality from 1998 was indicative of the trend in the
banking industry during 1999. The nonperforming assets to total assets ratio
among the nation's top-30 regional banks increased to approximately 0.42% at the
end of 1999 as compared to 0.35% at the end of 1998 according to information
from Wheat First Union Securities. Much of the deterioration nationwide has
occurred in the commercial lending area. However, credit quality remains strong
by historical standards. Bank credit quality has improved significantly since
the early 1990s in which the nonperforming assets to total assets ratio for the
30 largest regional banks reached a high of 1.67% in 1991.
See Note D to the Consolidated Financial Statements for a discussion of
concentrations of credit risk.
United evaluates the adequacy of the allowance for loan losses on a quarterly
basis and its loan administration policies are focused upon the risk
characteristics of the loan portfolio. United's process for evaluating the
allowance is a formal company-wide process that focuses on early identification
of potential problem credits and procedural discipline in managing and
accounting for those credits.
Allocations are made for specific commercial loans based upon management's
estimate of the borrowers' ability to repay and other factors impacting
collectibility. Other commercial loans not specifically reviewed on an
individual basis are evaluated based on historical loan percentages applied to
loan pools that have been segregated by risk. Allocations for loans other than
commercial loans are made based upon historical loss experience adjusted for
current conditions. The unallocated portion of the allowance for loan losses
provides for risk arising in part from, but not limited to, declines in credit
quality resulting from sudden economic or industry shifts and changing economic
trends. Differences between actual loan loss experience and estimates are
reviewed on a quarterly basis and adjustments are made to those estimates.
United's formal company- wide process at December 31, 1999 produced increased
allocations within two of four loan categories. The components of the allowance
allocated to real estate increased $6.3 million, as a result of the addition to
the loan portfolio of a large block of junior-lien mortgage loans previously
held for sale. The components of the allowance allocated to commercial loans
increased $660 thousand as a result of the increased level of impaired assets
and changes in historical loss experience factors. Pools for consumer and real
estate construction loans decreased $1.0 million and $332 thousand,
respectively, as a result of changes in historical loss experience and volume
factors for these loan pools.
At year end 1999 and 1998, the allowance for loan losses was 1.25% and 1.47% of
total loans, net of unearned income, respectively. At December 31, 1999 and
1998, the ratio of the allowance for loan losses
35
<PAGE>
to nonperforming loans was 190.9% and 209.9%, respectively.
Management believes that the allowance for loan losses of $39.60 million at
December 31, 1999, is adequate to provide for probable losses on existing loans
based on information currently available.
For the years ended December 31, 1999 and 1998, the provision for loan losses
was $8.80 million and $12.16 million, respectively. Total net charge-offs were
$8.4 million in 1999 and $4.9 million in 1998, which represents 0.28% and 0.18%
of average loans for the respective years. The increase was due to additional
net charge-offs of approximately $3.6 million in commercial loans during 1999 as
compared to 1998. Over half the increased charge-off in 1999 was due to the
charge-off of approximately $2.6 million associated with a single borrower.
Management is not aware of any potential problem loans, trends or uncertainties
which it reasonably expects will materially impact future operating results,
liquidity, or capital resources which have not been disclosed. Additionally,
management has disclosed all known material credits which cause management to
have serious doubts as to the ability of such borrowers to comply with the loan
repayment schedules.
Other Income
Noninterest income has been and will continue to be an important factor for
improving United's profitability. Accordingly, management continues to evaluate
areas where noninterest income can be enhanced. Noninterest income increased
$9.33 million or 22.34% for 1999 when compared to 1998. Other income consists of
all revenues that are not included in interest and fee income related to earning
assets. The increase in noninterest income for 1999 was primarily the result of
an $8.18 million increase in the mortgage banking segment and a $1.44 million
increase in trust department income. These increases in noninterest income were
partially offset by a $1.69 million decline in net gains on securities due to a
$2.49 million recognized gain on an available for sale equity security exchanged
in an unaffiliated merger transaction consummated in 1998.
Service charges, commissions and fees from customer accounts increased $839
thousand or 4.41% from 1998 due mainly to a new checking account product
introduced during the third quarter of 1999. This income includes charges and
fees related to various banking services provided by United.
Trust income and brokerage commissions increased $820 thousand or 19.92% and
$618 thousand or 133.82%, respectively, in 1999 due to an increased volume of
trust and brokerage business. United significantly broadened the scope and
activity of its trust and brokerage service areas, especially in the northern
Virginia market, to provide additional sources of fee income that complement
United's traditional banking products and services.
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 50.8%, which is well below the 58.28%
reported by United's national peer group banks and its immediate in-market
competitors.
36
<PAGE>
Other expense includes all items of expense other than interest expense, the
provision for loan losses and income tax expense. In total, other expense
decreased $20.45 million or 14.82%. This decrease was primarily due to the
merger-related and one-time charges associated with the George Mason and Fed One
acquisitions, as well as charges associated with the purchase acquisition of
branches in the eastern panhandle of West Virginia during 1998. These charges,
which totaled $13.7 million ($8.2 million after tax), consisted primarily of
employee benefits, severance, facilities and conversion costs to effect the
mergers. Excluding these charges, other expense still decreased $6.75 million
or 5.44%.
Salaries and employee benefits expense decreased $9.44 million or 13.57% in 1999
as compared to 1998. Much of this decrease was due to approximately $5.9 million
of severance pay and related benefits of displaced employees in the George Mason
and Fed One mergers in 1998. At December 31, 1999 and 1998, United employed
1,387 and 1,452 full-time equivalent employees, respectively.
Net occupancy expense in 1999 decreased from 1998 levels by $527 thousand or
4.14%. The overall changes in net occupancy expense for 1999 were insignificant
with no material increase or decrease in any one expense category.
Remaining other expense decreased $10.48 million or 18.82% in 1999 compared to
1998. Excluding the aforementioned merger-related expenses associated with the
George Mason and Fed One mergers and the costs associated with branch purchases
in 1998, other expense actually increased approximately $3.22 million or 7.67%.
Other expense categories that reflected increases over 1998 were collection
expenses on loans, armored car and carrier fees, ATM processing costs and
certain other general business taxes and licenses.
Income Taxes
For the year ended December 31, 1999, United's effective tax rate approximated
33% compared to 28% in 1998. The lower rate in 1998 was primarily the result of
dividends from certain subsidiaries that were liquidated in restructuring and
reorganizational initiatives.
Quarterly Results
The first and third quarters of 1999 showed large increases in earnings in
comparison to those same two quarters of 1998 as United returned to more normal
levels of core income and expenses after the merger transactions. On a per
share basis, first quarter 1999 earnings were $0.39 per share compared to $0.33
in 1998 while third quarter 1999 earnings were $0.41 compared to $0.38 per share
in 1998. The annual 1998 results, specifically the second and fourth quarters
of 1998, contained significant merger-related and one-time charges associated
with the George Mason and Fed One mergers that distorted United's true financial
performance.
In the second quarter of 1999, United reported earnings per share of $0.40 as
compared to $0.17 per share for the same period in 1998. Second quarter 1998
results include the recognition of approximately $7.1 million of merger-related
and one-time charges associated with the George Mason merger.
37
<PAGE>
Net income for the fourth quarter of 1999 was $17.6 million or $0.41 per share
as compared to $6.1 million or $0.14 per share earned in the fourth quarter of
1998. Fourth quarter 1998 results include approximately $6.6 million of merger-
related charges associated with the Fed One merger and a lower of cost or market
accounting adjustment of $9.66 million for certain junior-lien mortgage loans
held for sale.
Additional quarterly financial data for 1999 and 1998 may be found in Note P to
the Consolidated Financial Statements.
The Effect of Inflation
United's income statements generally reflect the effects of inflation. Since
interest rates, loan demand and deposit levels are impacted by inflation, the
resulting changes in the interest sensitive assets and liabilities are included
in net interest income. Similarly, operating expenses such as salaries, rents
and maintenance include changing prices resulting from inflation. One item that
would not reflect inflationary changes is depreciation expense. Subsequent to
the acquisition of depreciable assets, inflation causes price levels to rise;
therefore, historically presented dollar values do not reflect this inflationary
condition. With inflation levels at relatively low levels and monetary and
fiscal policies being implemented to keep the inflation rate increases within an
acceptable range, management expects the impact of inflation would continue to
be minimal in the near future.
Market Risk
The objective of United's Asset/Liability Management function is to maintain
consistent growth in net interest income within United's policy guidelines.
This objective is accomplished through the management of balance sheet liquidity
and interest rate risk exposures due to changes in economic condition, interest
rate levels and customer preferences.
Management considers interest rate risk to be United's most significant market
risk. Interest rate risk is the exposure to adverse changes in the net interest
income of United as a result of changes in interest rates. Consistency in
United's earnings is largely dependent on the effective management of interest
rate risk.
United employs a variety of measurement techniques to identify and manage its
exposure to changing interest rates. One such technique utilizes an earnings
simulation model to analyze net interest income sensitivity to movements in
interest rates. The model is based on projected cash flows and repricing
characteristics for on and off-balance sheet instruments and incorporates
market-based assumptions regarding the impact of changing interest rates on the
prepayment rate of certain assets and liabilities. The model also includes
executive management projections for activity levels in product lines offered by
United. Assumptions based on the historical behavior of deposit rates and
balances in relation to changes in interest rates are also incorporated into the
model. These assumptions are inherently uncertain and, as a result, the model
cannot precisely measure net interest income or precisely predict the impact of
fluctuations in interest rates on net interest income. Actual results will
differ from simulated results due to timing, magnitude and frequency of interest
rate changes as well as changes in market conditions and management strategies.
Interest sensitive assets and liabilities are defined as those assets or
liabilities that mature or are repriced
38
<PAGE>
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."
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 adjusted 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
liability sensitive in the one year horizon in the amount of $637 million or
(13.31%) of the cumulative gap to related earning assets.
During 1998, United purchased fixed-rate junior-lien mortgage loans from an
unrelated third party financial institution with the intention that these loans
would be securitized and resold back to the third party lender. However, the
third party was unable to repurchase the loans and United inherited
approximately $456 million of these mortgage loans which United held for sale on
its balance sheet as of December 31, 1998. During 1999, to better manage risk,
United securitized approximately $205 million of these loans and retained a
portion of the resultant securities. At December 31, 1999, the retained
resultant securities approximate $61 million and are carried in the available
for sale investment portfolio. The remainder of these junior-lien mortgages
were moved to the loan portfolio and the balance at December 31, 1999,
approximated $216 million.
To aid in interest rate risk management, United's subsidiary banks are members
of the Federal Home Loan Bank (FHLB). The use of FHLB borrowings 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.
Interest rate risk management focuses on maintaining consistent growth in net
interest income within Board-approved policy limits. United's Asset/Liability
Management Committee (ALCO), which includes senior management representatives
and reports to the Board of Directors, monitors and manages interest rate risk
to maintain an acceptable level of change to net interest income as a result of
changes in interest rates. Policy established for interest rate risk is stated
in terms of the change in net interest income over a twelve month horizon given
an immediate and sustained increase or decrease in interest rates. The current
limits approved by the Board of Directors are plus or minus 10% for each 100
basis point increase or decrease in interest rates.
39
<PAGE>
The following table shows United's estimated earnings sensitivity profile after
management's adjustments as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Change in Percentage Change in Net Interest Income
Interest Rates ----------------------------------------------
(basis points) December 31,1999 December 31,1998
-------------- ---------------------- ----------------------
<S> <C> <C>
+200 -8.06% 0.32%
-200 5.17% -4.52%
</TABLE>
Given an immediate, sustained 200 basis point upward shock to the yield curve
used in the simulation model, it is estimated that net interest income for
United would decrease by 8.06% over one year as of December 31, 1999, as
compared to an increase of 0.32% as of December 31, 1998. A 200 basis point
immediate, sustained downward shock in the yield curve would increase net
interest income by an estimated 5.17% over one year as of December 31, 1999, as
compared to a decrease of 4.52% as of December 31, 1998. All of these estimated
changes in net interest income are within the policy guidelines established by
the Board of Directors.
40
<PAGE>
The following table shows the interest rate sensitivity GAP as of December
31, 1999:
<TABLE>
<CAPTION>
Interest Rate Sensitivity Gap
Days
---------------------------------------------- Total 1-5 Over 5
0-90 91-180 181-365 One Year Years Years Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets:
Federal funds sold and
securities purchased
under agreements to
resell and other short-
term investments $ 28,717 $ 28,717 $ 28,717
Investment and Marketable
Equity Securities
Taxable 101,439 $ 12,965 $ 33,437 147,841 $ 403,354 $ 778,680 1,329,875
Tax-exempt 2,308 2,308 11,998 128,372 142,678
Loans, net of unearned
income 1,294,260 171,983 323,397 1,789,640 795,917 702,364 3,287,921
-----------------------------------------------------------------------------------------------------
Total Interest-Earning Assets $ 1,424,416 $ 184,948 $ 359,142 $ 1,968,506 $1,211,269 $1,609,416 $4,789,191
=====================================================================================================
LIABILITIES
Interest-Bearing Funds:
Savings and NOW accounts $ 1,182,976 $ 1,182,976 $1,182,976
Time deposits of
$100,000 & over 44,864 $ 23,781 $ 65,306 133,951 $ 49,440 $ 560 183,951
Other time deposits 540,647 272,491 383,410 1,196,548 214,014 2,729 1,413,291
Federal funds purchased,
repurchase agreements
and other short-term
borrowings 354,747 20,000 374,747 23,500 398,247
FHLB borrowings 528,000 50,000 55,000 633,000 27,156 293,191 953,347
-----------------------------------------------------------------------------------------------------
Total Interest-Bearing Funds $ 2,651,234 $ 366,272 $ 503,716 $ 3,521,222 $ 314,110 $ 296,480 $4,131,812
=====================================================================================================
Interest Sensitivity Gap ($1,226,818) ($181,324) ($144,574) ($1,552,716) $ 897,159 $1,312,936 $ 657,379
=====================================================================================================
Cumulative Gap ($1,226,818) ($1,408,142) ($1,552,716) ($1,552,716) ($655,557) $ 657,379 $ 657,379
=====================================================================================================
Cumulative Gap as a Percentage
of
Total Earning Assets (25.62%) (29.40%) (32.42%) (32.42%) (13.69%) 13.73% 13.73%
Management Adjustments $ 1,144,342 ($ 76,328) ($ 152,541) $ 915,473 ($915,473) $ 0
Off-Balance Sheet Activities
-----------------------------------------------------------------------------------------------------
Cumulative Management Adjusted
Gap and Off-Balance Sheet
Activities ($82,476) ($340,128) ($ 637,243) ($637,243) ($655,557) $ 657,379 $ 657,379
=====================================================================================================
Cumulative Management Adjusted
Gap and Off-Balance Sheet
Activities as a Percentage of
Total Earning Assets
(1.72%) (7.10%) (13.31%) (13.31%) (13.69%) 13.73% 13.73%
=====================================================================================================
</TABLE>
41
<PAGE>
Liquidity and Capital Resources
In the opinion of management, United maintains liquidity that 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 branches 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 1999 provided United with $226.41 million of cash
compared to cash flows used for operations of $99.78 million in 1998 primarily
as a result of an increase of approximately $291.61 million of excess proceeds
from sales of mortgage loans over originations. In 1999, investing activities
resulted in a use of cash of $674.16 million as compared to 1998 in which
investing activities resulted in a use of cash of $305.23 million. The primary
reason for the increase in the use of cash for investing activities from 1998 to
1999 was primarily due to an increase of $462.28 million of excess purchases of
investment securities over net proceeds from sales, calls and maturities of
investment securities. Financing activities resulted in a source of cash in
1999 of $466.27 million primarily due to an increase in net borrowings from the
FHLB and other short-term borrowings of $607.48 million and $149.21 million,
respectively. These sources of funds were partially offset by payment of $35.0
million in cash dividends, $26.20 million for acquisitions of United shares
under the stock repurchase program and a $232.10 million decrease in deposits.
The net effect of this activity was an increase in cash and cash equivalents of
$18.51 million for the year of 1999. See the Consolidated Statement of Cash
Flows in the Consolidated Financial Statements.
42
<PAGE>
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/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 has historically
generated attractive returns on shareholders' equity. United's average equity
to average asset ratio was 8.63% in 1999 and 9.73% in 1998. United's risk-based
capital ratio was 11.75% in 1999 and 12.63% in 1998 which are both significantly
higher than the minimum regulatory requirements. United's Tier 1 capital and
leverage ratios of 10.64% and 7.71%, respectively, at December 31, 1999, are
also well above regulatory minimums to be classified as a "well capitalized"
institution. See Note M, Notes to Consolidated Financial Statements.
Commitments
The following table indicates the outstanding loan commitments of United in the
categories stated:
December 31
1999
----------------------
Lines of credit authorized, but unused $1,254,596,000
Letters of credit 74,110,000
----------------------
$1,328,706,000
======================
Past experience has shown that, of the foregoing commitments, approximately 12-
15% can reasonably be expected to be funded within a one year period. For more
information, see Note J to the Consolidated Financial Statements.
YEAR 2000 ISSUE
In prior years, United discussed the nature and progress of its plans to become
Year 2000 ready. In late 1999, United completed its remediation and testing of
the Year 2000 project. As a result of those planning and implementation
efforts, United experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. United expensed
approximately $2,041,000 during 1999 in connection with its Year 2000 efforts.
United is not aware of any material problems resulting from Year 2000 issues and
does not anticipate any continued business impact related to this issue. United
will continue to monitor its mission critical computer applications and those of
its vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
43
<PAGE>
1998 COMPARED TO 1997
EARNINGS SUMMARY
For the year ended December 31, 1998, operating earnings increased 1.96% to
$53.29 million from $52.26 million for the year ended December 31, 1997. On a
diluted per share basis, operating earnings increased 0.82% to $1.23 in 1998
from $1.22 in 1997.
Operating earnings represent earnings before merger-related charges, net of
income taxes, of $8.2 million for the year ended December 31, 1998. These
charges were primarily associated with the pooling of interests acquisitions of
George Mason Bankshares, Inc. (headquartered in Fairfax, Virginia) and Fed One
Bancorp, Inc. (headquartered in Wheeling, West Virginia). After these charges,
diluted earnings were $1.02 for the year ended December 31, 1998, compared to
$1.22 for the year ended December 31, 1997.
These operating results represent a return on average shareholders' equity of
12.92% and a return on average assets of 1.26%, respectively, for the year ended
December 31, 1998. These operating ratios compare favorably with national peer
grouping information provided by Keefe, Bruyette, & Woods, of 13.33% and 1.14%,
respectively.
Growth in operating earnings was led by a 14% increase in net interest income
and a 26% increase in noninterest income, other than mortgage banking income.
Mortgage banking income increased 67% as originations reached $1.5 billion in
1998. These increases were offset by a charge of $9.66 million to adjust for a
decline in market value of certain junior-lien mortgage loans when an unrelated
financial institution was unable to fulfill a commitment to purchase the loans
for securitization.
Operating earnings were also reduced by a $9 million increase in the provision
for loan losses due to increasing levels of nonperforming assets, a 16% increase
in other expenses, after merger-related charges, due primarily to the timing of
a purchase acquisition and increased incentive compensation payments.
United's strong core earnings were driven by a net interest margin of 4.37% for
1998. Net interest income increased by $20.96 million or 14.04% for the year
ended December 31, 1998 as compared to the same period for 1997. The provision
for loan losses of $12.16 million increased $8.88 million or 270.61% when
compared to the year ended December 31, 1997. Noninterest income, including
income from mortgage banking operations, increased $4.68 million or 12.64% for
1998 when compared to 1997. Noninterest expenses increased $34.11 million or
32.85% for 1998 compared to the same period in 1997. The effective tax rate for
the year ended December 31, 1998 approximated 28.30% compared to 34.07% for
1997.
FINANCIAL CONDITION SUMMARY
Total assets were $4.57 billion at December 31, 1998, up $473.06 million or
11.55% compared with year end 1997. Loans, net of unearned income, reflected a
$37.45 million decrease from 1997 to 1998 due to an increased emphasis being
placed on secondary market lending activity. Loans held for sale increased $623
million. Cash and cash equivalents declined $48.73 million while investment
securities reflected a $79.42 million decrease for 1998 as compared with year
end 1997, primarily as a result of United's use of these
44
<PAGE>
sources of funds to fund a portion of the growth in loans held for sale during
the year.
Total deposits grew $307.10 million or 9.64% from year end 1997 due to United's
offering of new deposit products introduced during 1998. During 1998 United
realized an increase of $266.63 million in interest-bearing deposits and a
$40.47 million increase in noninterest-bearing deposits. United's short-term
borrowings increased $18.12 million and its FHLB borrowings increased $115.08
million as United utilized these sources of funds to fund the origination by its
mortgage banking subsidiary of mortgage loans for sale in the secondary market
and portfolio loans. Accrued expenses and other liabilities increased $7.06
million or 13.74% since year end 1997.
Shareholders' equity increased $25.48 million or 6.43% from December 31, 1997 to
December 31, 1998. At December 31, 1998, United's regulatory capital ratios,
including those of its bank subsidiaries, exceeded the levels established for
well-capitalized institutions.
The following discussion explains in more detail the results of operations and
changes in financial condition by major category.
Net Interest Income
Net interest income represents the primary component of United's earnings. It
is the difference between interest and fee income from earning assets and
interest expense incurred to fund these assets. Net interest income is impacted
by changes in the volume and mix of interest-earning assets and interest-bearing
liabilities, as well as changes in market interest rates. Such changes, and
their impact on net interest income in 1998, are summarized below.
For the years ended December 31, 1998 and 1997, net interest income approximated
$155.35 million and $131.12 million, respectively. On a tax-equivalent basis
the net interest margin was 4.37% in 1998 and 4.40% in 1997 which were above
national peer group margins of 4.36% in 1998 and 4.06% in 1997.
Total interest income of $325.65 million increased 16.12% in 1998 over 1997 as a
result of higher volumes of interest-earning assets and slightly higher yields.
Higher average volume of loans held for sale of approximately $623 million,
resulting primarily from the origination of mortgage loans for sale in the
secondary market, contributed to the increase. From December 31, 1997 to
December 31, 1998, United experienced an increase in commercial loans of 4.28%,
while consumer loans showed a decrease of 14.35% and mortgage loans decreased
7.5%. Loans held for sale increased $623 million or 638% due mainly to
significant growth of mortgage loans originated and purchased for sale in the
secondary market.
Total interest expense increased $24.23 million or 18.48% in 1998 compared to
1997. This increase was attributed primarily to competitive pricing of
interest-bearing deposits in United's 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 $263.89 million or
10.44% in 1998, while its average FHLB borrowings increased $132.84 million or
88.62% and average short-term borrowings increased $33.53 million or 17.16%. The
average cost of funds, which increased from 4.56% in 1997 to 4.70% in 1998,
reflected the general upward trend in United's market interest rates during 1998
due to competitive pressures.
45
<PAGE>
Provision for Loan Losses
Nonperforming loans were $18.67 million at December 31, 1998 and $18.69 million
at December 31, 1997. Although total nonperforming loans remained relatively
constant with the previous year, the components of this category reflected
significant changes. While loans past due 90 days or more decreased $3.35
million or 26.01%, nonaccrual loans increased $3.32 million or 57.16% during the
same period. This deterioration in credit quality within the nonperforming
category along with other trends impacted qualitative changes to risk factors as
more fully described below. Nonperforming loans represented 0.41% of total
assets at the end of 1998, as compared to 0.39% for United's national peer
group.
At December 31, 1998, impaired loans were $10.92 million, a decrease of $3.34
million or 23.40% from the $14.26 million in impaired loans at December 31,
1997, due primarily to the acquisition of First Patriot Bankshares Corporation,
("Patriot") in 1997.
United's formal company wide allowance for loan losses evaluation process at
December 31, 1998 produced increased allocations within all loan categories.
The components of the allowance allocated to commercial and real estate
construction loans increased $3.7 million and $412 thousand, respectively, as a
result of changes in historical loss experience factors for risk rated loan
pools in response to changes in economic trends in United's market areas.
Specific allocations for commercial loans also increased as a result of
individual credit reviews. The components of the allowance allocated to
consumer and real estate loans increased $526 thousand and $135 thousand,
respectively, as a result of changes in historical loss experience factors;
particularly the impact on the loss trends due to increased charge-offs in these
loan pools during 1998.
At year end 1998 and 1997, the allowance for loan losses was 1.47% and 1.18% of
total loans, net of unearned income, respectively. At December 31, 1998 and
1997, the ratio of the allowance for loan losses to nonperforming loans was
209.9% and 170.9%, respectively.
For the years ended December 31, 1998 and 1997, the provision for loan losses
was $12.16 million and $3.28 million, respectively.
Total net charge-offs were $4.9 million in 1998 and $3.4 million in 1997, which
represents 0.18% and 0.14% 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 0.24% in 1998 and 0.49% in 1997.
Other Income
Noninterest income increased $4.68 million or 12.64% for 1998 when compared to
1997. Other income consists of all revenues which are not included in interest
and fee income related to earning assets. The increase in noninterest income
for 1998 was primarily the result of a $1.01 million increase in trust
department income, a $2.06 million increase in charges, commissions and fees on
customer accounts and $2.37 million of net gains on securities, which included a
$2.49 million recognized gain on an available for sale equity security exchanged
in an unaffiliated merger transaction consummated at the end of the first
46
<PAGE>
quarter of 1998. These increases in noninterest income were partially offset by
a $922 thousand decline in mortgage banking income as a result of a fourth
quarter lower of cost or market accounting adjustment of $9.66 million for
certain junior-lien mortgage loans due to the unanticipated failure of an
unrelated financial institution to purchase the loans for securitization.
Income from mortgage banking operations was $23.87 million for 1998 as compared
to $15.13 million for 1997, before the $9.66 million adjustment described above.
An increase in loan originations of $633 million from $886 million in 1997 to
$1.5 billion in 1998 was the driving force behind the significant growth in
mortgage banking income, before the $9.66 million adjustment.
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. During 1998 United's cost control efforts were very successful
and resulted in an efficiency ratio of 62.8% (55.8% before merger-related
charges), which was well below the 60.1% reported by United's national peer
group banks and its immediate in-market competitors.
Other expense includes all items of expense other than interest expense, the
provision for loan losses and income tax expense. In total, other expense
increased $34.11 million or 32.85%. During 1998, United's true financial
performance was distorted by merger-related and one-time charges associated with
the George Mason and Fed One acquisitions as well as charges associated with the
purchase acquisition of branches in the eastern panhandle of West Virginia.
These charges, which totaled $13.7 million ($8.2 million after tax), consisted
primarily of employee benefits, severance, facilities and conversion costs to
effect the merger.
Salaries and employee benefits expense increased $17.28 million or 33.05% in
1998 as compared to 1997. The higher salaries and benefits costs for 1998 were
attributable to an increase of $5.04 million in commissions and salaries expense
at United's mortgage banking subsidiaries due to the increased volume of
mortgage loans originated during the year for sale in the secondary market as
well as approximately $5.9 million of severance pay and related benefits of
displaced employees in the George Mason and Fed One mergers. At December 31,
1998 and 1997, United employed 1,452 and 1,294 full-time equivalent employees,
respectively.
Net occupancy expense in 1998 exceeded 1997 levels by $1.63 million or 14.72%
primarily due to the third quarter 1997 purchase acquisition of Patriot, a $781
thousand increase in building rental expense and higher depreciation,
maintenance and real property taxes of approximately $800 thousand for company-
owned buildings. The overall changes in net occupancy expense for 1998 were
insignificant with no material increase or decrease in any one expense category.
Remaining other expense increased $15.2 million or 37.55% in 1998 compared to
1997. This overall increase was primarily due to the aforementioned merger-
related expenses of approximately $13.7 million associated with the George Mason
and Fed One mergers and the costs associated with branch purchases. These costs
included data processing conversion and other operational costs. Other expense
categories that reflected increases over 1997 were goodwill amortization
associated with the third quarter of 1997 purchase of Patriot, equipment and
communication expense associated with office expansion and the Year 2000
readiness
47
<PAGE>
program, bankcard and ATM processing fees and certain other general business
taxes and licenses.
Income Taxes
For the year ended December 31, 1998, United's effective tax rate approximated
28% compared to 35% in 1997. The decrease was primarily the result of dividends
from certain subsidiaries that were liquidated in restructuring and
reorganizational initiatives. In future years (beyond 1998) the estimated
effective tax rate is expected to return to more normal levels for United.
48
<PAGE>
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
Board of Directors and Shareholders
United Bankshares, Inc.
We have audited the accompanying consolidated balance sheets of United
Bankshares, Inc. and subsidiaries as of December 31, 1999 and 1998, 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, 1999.
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 did not audit the 1997 financial statements of Fed One
Bancorp, Inc., a wholly-owned subsidiary, which statements reflect net interest
income constituting 8% of the related consolidated totals. These statements
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to data included for Fed One Bancorp, Inc., is
based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, 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, 1999 and 1998, and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
/s/ Ernst & Young LLP
Charleston, West Virginia
February 25, 2000
49
<PAGE>
REPORT OF KPMG LLP
INDEPENDENT AUDITORS
Board of Directors and Shareholders
Fed One Bancorp, Inc. and Subsidiary:
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Fed One Bancorp, Inc. and subsidiary for
the year ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows for
Fed One Bancorp, Inc. and subsidiary for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
January 29, 1998, except as to note 20
which is as of February 18, 1998
50
<PAGE>
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
---------------------------------
(Dollars in thousands, except par value) 1999 1998
---------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 131,091 $ 124,591
Interest-bearing deposits with other banks 8,317 6,807
Federal funds sold 20,400 9,900
---------------------------------
Total cash and cash equivalents 159,808 141,298
Securities available for sale at estimated fair value (amortized
cost-$1,256,946 at December 31, 1999 and $557,574 at December 31, 1998) 1,207,363 565,165
Securities held to maturity (estimated fair value-$258,183 at
December 31, 1999 and $367,353 at December 31, 1998) 265,190 362,151
Loans held for sale 117,825 720,607
Loans 3,177,392 2,659,324
Less: Unearned income (7,296) (6,933)
---------------------------------
Loans net of unearned income 3,170,096 2,652,391
Less: Allowance for loan losses (39,599) (39,189)
---------------------------------
Net loans 3,130,497 2,613,202
Bank premises and equipment 48,696 54,946
Accrued interest receivable 36,357 30,402
Other assets 103,424 80,128
---------------------------------
TOTAL ASSETS $5,069,160 $4,567,899
=================================
Liabilities
Domestic deposits:
Noninterest-bearing $ 480,767 $ 542,987
Interest-bearing 2,780,218 2,950,071
---------------------------------
Total deposits 3,260,985 3,493,058
Borrowings:
Federal funds purchased 44,120 7,260
Securities sold under agreements to repurchase 349,129 236,535
Federal Home Loan Bank borrowings 953,347 345,867
Other borrowings 4,998 5,244
Accrued expenses and other liabilities 60,651 58,404
---------------------------------
TOTAL LIABILITIES 4,673,230 4,146,368
Shareholders' Equity
Common stock, $2.50 par value; Authorized-100,000,000 shares;
issued-43,381,769 at December 31, 1999 and 43,256,833 at December 31,
1998, including 894,661 and 356 shares in treasury at December 31, 1999
and December 31, 1998, respectively 108,454 108,142
Surplus 87,260 88,353
Retained earnings 254,992 220,111
Accumulated other comprehensive (loss) income (32,228) 4,934
Treasury stock, at cost (22,548) (9)
---------------------------------
TOTAL SHAREHOLDERS' EQUITY 395,930 421,531
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,069,160 $4,567,899
=================================
</TABLE>
See notes to consolidated financial statements
51
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 258,404 $ 265,205 $ 218,039
Interest on federal funds sold and other short-term
investments 522 1,472 1,456
Interest and dividends on securities:
Taxable 85,392 55,550 57,868
Tax-exempt 10,347 3,420 3,089
---------------- ---------------- ----------------
Total interest income 354,665 325,647 280,452
Interest expense
Interest on deposits 122,651 128,976 113,472
Interest on short-term borrowings 17,104 10,732 8,911
Interest on Federal Home Loan Bank borrowings 34,647 15,646 8,739
---------------- ---------------- ----------------
Total interest expense 174,402 155,354 131,122
---------------- ---------------- ----------------
Net interest income 180,263 170,293 149,330
Provision for loan losses 8,800 12,156 3,280
---------------- ---------------- ----------------
Net interest income after provision for loan losses 171,463 158,137 146,050
Other income
Income from mortgage banking operations 22,392 14,211 15,133
Service charges, commissions, and fees 19,863 19,024 16,961
Trust department income 6,020 4,581 3,569
Security gains 677 2,370 85
Other income 2,126 1,566 1,320
---------------- ---------------- ----------------
Total other income 51,078 41,752 37,068
Other expense
Salaries and employee benefits 60,111 69,550 52,272
Net occupancy expense 12,206 12,733 11,099
Other expense 45,202 55,681 40,481
---------------- ---------------- ----------------
Total other expense 117,519 137,964 103,852
---------------- ---------------- ----------------
Income before income taxes 105,022 61,925 79,266
Income taxes 34,774 17,523 27,005
---------------- ---------------- ----------------
Net income $ 70,248 $ 44,402 $ 52,261
================ ================ ================
Earnings per common share:
Basic $1.63 $1.04 $1.24
================ ================ ================
Diluted $1.61 $1.02 $1.22
================ ================ ================
Dividends per common share $0.82 $0.75 $0.68
================ ================ ================
Average outstanding shares:
Basic 43,100,977 42,757,638 42,032,566
Diluted 43,722,081 43,461,222 42,768,461
</TABLE>
See notes to consolidated financial statements
52
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Common Stock Accumulated
----------------------- Other Total
Par Retained Comprehensive Treasury Sareholders'
Shares Value Surplus Earnings Income (Loss) Stock Equity
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 21,239,300 $ 53,098 $81,122 $230,344 $189 ($1,921) $362,832
Comprehensive income:
Net income 52,261 52,261
Other comprehensive income, net of tax
Unrealized gain on securities of $6,199
net of reclassification adjustment for
gains included in net income of $55 6,144 6,144
--------------
Total comprehensive income 58,405
Cash dividends ($0.68 per share) (20,344) (20,344)
Purchase of treasury stock (167,100 shares) (5,754) (5,754)
Common stock options
exercised (484,672 shares) 141,306 353 1,007 (167) 4,550 5,743
Sale of treasury stock (15,991 shares) 606 606
Pre-merger transactions of pooled companies (62,658) (156) (1,326) (3,950) (5,432)
Two-for-one stock split effected in the form
of a 100% stock dividend 21,317,950 53,295 (53,295)
-------------------------------------------------------------------------------------
Balance at December 31, 1997 42,635,898 106,590 80,803 204,849 6,333 (2,519) 396,056
Comprehensive income:
Net income 44,402 44,402
Other comprehensive income, net of tax
Unrealized gain on securities of $335
net of reclassification adjustment for
gains included in net income of $1,734 (1,399) (1,399)
--------------
Total comprehensive income 43,003
Cash dividends ($0.75 per share) (28,317) (28,317)
Fractional shares adjustment (213) (7) (7)
Purchase of treasury stock (137,300 shares) (3,610) (3,610)
Common stock options
exercised (546,530 shares) 285,148 712 (1,174) (202) 5,466 4,802
Sale of treasury stock (37,376 shares) 654 654
Pre-merger transactions of pooled companies 336,000 840 8,731 (621) 8,950
-------------------------------------------------------------------------------------
Balance at December 31, 1998 43,256,833 108,142 88,353 220,111 4,934 (9) 421,531
Comprehensive income (loss):
Net income 70,248 70,248
Other comprehensive income (loss), net of tax:
Unrealized loss on securities of $37,602
net of reclassification adjustment for
gains included in net income of $440 (37,162) (37,162)
--------------
Total comprehensive income 33,086
Purchase of treasury stock (1,049,800 shares) (26,196) (26,196)
Cash dividends ($0.82 per share) (35,367) (35,367)
Common stock options
exercised (281,960 shares) 124,936 312 (1,093) 3,657 2,876
-------------------------------------------------------------------------------------
Balance at December 31, 1999 43,381,769 $108,454 $87,260 $254,992 ($32,228) ($22,548) $395,930
=====================================================================================
</TABLE>
See notes to consolidated financial statements
53
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(Dollars in thousands) Year Ended December 31
-------------------------------------------------------
1999 1998 1997
---------------- ----------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 70,248 $ 44,402 $ 52,261
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 8,800 12,156 3,280
Provision for depreciation 8,028 7,739 6,590
Amortization, net of accretion 3,370 5,913 2,770
Gain on sales of bank premises and equipment (1,475) (116) (534)
Gain on sales and calls of securities (677) (2,370) (85)
Loans originated for sale (1,282,629) (1,541,187) (885,615)
Proceeds from sales of loans 1,438,580 1,405,524 869,678
Gain on sales of loans (13,576) (13,910) (13,925)
Deferred income tax benefit (4,475) (2,788) (555)
Changes in:
Loans held for sale 6,154 5,154 (7,211)
Interest receivable (5,955) (6,415) (563)
Other assets (891) (7,049) 1,376
Accrued expenses and other liabilities 903 (6,832) 3,545
---------------- ----------------- ----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 226,405 (99,779) 31,012
---------------- ----------------- ----------------
INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities 152,045 142,854 77,365
Purchases of investment securities (55,101) (110,002) (67,886)
Proceeds from sales of securities available for sale 336,558 106,132
Proceeds from maturities and calls of securities available for sale 146,794 340,318 155,689
Purchases of securities available for sale (964,059) (294,657) (366,344)
Proceeds from sales of loans 471,978 287
Purchases of loans (943,680) (46,429)
Net purchases of bank premises and equipment 423 (6,765) (4,894)
Net cash received from (paid for) acquired subsidiary/branch 56,472 (28,929)
Net change in loans (290,824) 38,249 (143,024)
---------------- ----------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (674,164) (305,233) (318,033)
---------------- ----------------- ----------------
FINANCING ACTIVITIES
Cash dividends paid (34,999) (24,651) (19,831)
Acquisition of treasury stock (26,196) (3,610) (5,754)
Proceeds from exercise of stock options 2,876 4,802 5,743
Proceeds from sales of treasury stock 654 606
Pre-merger transactions of pooled companies 8,237 (7,368)
Repayment of Federal Home Loan Bank borrowings (141,618) (227,164) (281,359)
Proceeds from Federal Home Loan Bank borrowings 749,098 342,240 324,940
Purchase of fractional shares (7)
Changes in:
Time deposits (128,286) 129,364 170,481
Other deposits (103,814) 108,057 87,192
Federal funds purchased, securities sold under agreements to repurchase
and other borrowings 149,208 18,360 37,982
---------------- ----------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 466,269 356,282 312,632
---------------- ----------------- ----------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,510 (48,730) 25,611
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 141,298 190,028 164,417
---------------- ----------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 159,808 $ 141,298 $ 190,028
================ ================= ================
</TABLE>
See notes to consolidated financial statements
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31, 1999
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations: United Bankshares, Inc. is a multi-bank holding company
- ---------------------
headquartered in Charleston, West Virginia. The principal markets of United
Bankshares, Inc. and subsidiaries (United) are located in Parkersburg,
Charleston, Huntington, Morgantown and Wheeling, West Virginia and Arlington,
Fairfax, Loudoun and Prince William counties, Virginia. United's principal
business activities are community banking and mortgage banking.
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. All significant intercompany accounts
and transactions have been eliminated in the consolidated financial statements.
The accounting and reporting policies of United conform with accounting
principles generally accepted in the United States. In preparing the
consolidated financial statements, management is required 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.
Certain prior period data has been reclassified to conform with the current
period presentation. The reclassifications had no effect on net income or
shareholders' equity.
Cash Flow Information: United considers cash and due from banks, interest-
- ----------------------
bearing deposits with other banks and federal funds sold as cash and cash
equivalents.
Securities: Management determines the appropriate classification of securities
- -----------
at the time of purchase. Debt securities that United has the positive 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 other comprehensive income, 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 individual 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.
55
<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 to 120 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 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; and
(iii) interest earned on mortgage loans during the period that they are held by
United pending sale.
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. Gains and
losses on sales of loans held for sale are included in mortgage banking income.
Allowance for Loan Losses: Management's evaluation of the adequacy of the
- --------------------------
allowance for loan losses and the appropriate provision for loan losses is based
upon a quarterly evaluation of the portfolio. 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 determining the adequacy of the allowance for loan losses, management makes
allocations to specific commercial loans classified by management as to risk.
The amount allocated to a specific loan is based upon management's estimate of
the borrowers' ability to repay, the collateral securing the credit and other
borrower specific factors that may impact collectibility. Other commercial loans
not specifically reviewed on an individual basis are evaluated based on loan
pools using management's internal risk ratings. Allocations for these commercial
loan pools are determined based upon historical loss experience adjusted for
current conditions. Allocations for loans, other than commercial loans, are
developed on a total portfolio level based upon historical loss experience
adjusted for current conditions. While allocations are made to specific loans
and pools of loans, the allowance is available for all loan losses.
The allowance also provides for risk arising in part from, but not limited to,
potential for estimation or judgmental errors, charge-off volatility, declines
in credit quality resulting from sudden economic or industry shifts and changing
economic trends. The amounts allocated to specific credits and homogeneous loan
pools are reviewed on a quarterly basis and adjusted as necessary based upon
subsequent changes in circumstances. This evaluation is inherently subjective
and requires management to make estimates of the amounts and timing of future
cash flows.
56
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Management believes that the allowance for loan losses is adequate to provide
for probable 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.
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.
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 to 20 years. Management reviews
intangible assets on a periodic basis and evaluates changes in facts and
circumstances that may indicate impairment in the carrying value. If this
evaluation indicates that intangible assets 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 intangible assets
will be reduced.
At December 31, 1999 and 1998, deposit base intangibles and goodwill
approximated $41,625,000 and $45,197,000, net of accumulated amortization of
approximately $22,271,000 and $18,698,000.
Treasury Stock: United records common stock purchased for treasury at cost. At
- --------------
the date of subsequent reissue, the treasury stock account is reduced by the
cost of such stock using the weighted average cost method.
Trust Assets and Income: Assets held in a fiduciary or agency capacity for
- ------------------------
customers are not included in the balance sheets since such items are not assets
of the company. Trust 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.
Earnings Per Common Share: Basic earnings per common share is calculated by
- --------------------------
dividing net income by the weighted average number of shares of common stock
outstanding for the respective period. For diluted earnings per common share,
the weighted average number of shares of common stock outstanding for the
respective period is increased by the number of shares of common stock which
would be issued assuming the exercise of common stock options. The dilutive
effect of stock options approximated 621,104, 703,584 and 735,895 shares in
1999, 1998 and 1997, respectively.
Operating Segments - United operates in the community banking and mortgage
- ------------------
banking businesses. Business results are based upon United's management
accounting practices and as provided to the chief operating decision maker for
determination of resource allocation and performance.
New Accounting Standards: In June 1998, the Financial Accounting Standards Board
- -------------------------
(FASB) issued Statement No. 133, (SFAS No. 133), "Accounting for Derivative
Instruments and Hedging Activities" as
57
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
amended by FASB issued Statement No. 137, (SFAS No. 137). The provisions of
this statement require that derivative instruments be carried at fair value on
the balance sheet. The statement continues to allow derivative instruments to
be used to hedge various risks and sets forth specific criteria to be used to
determine when hedge accounting can be used. The statement also provides
offsetting changes in fair value or cash flows of both the derivative and the
hedged asset or liability to be recognized in earnings in the same period;
however, any changes in fair value or cash flow that represent the ineffective
portion of a hedge are required to be recognized in earnings and cannot be
deferred. For derivative instruments not accounted for as hedges, changes in
fair value are required to recognized in earnings. The provisions of this
statement become effective for United beginning January 1, 2001. This standard,
when implemented, is not expected to materially impact the reported financial
position or results of operations of United.
During 1998, the FASB issued Statement No. 134, (SFAS No. 134), "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise" (an amendment of Statement No.
65). SFAS No. 134 requires companies to classify all mortgage-backed securities
or other interests in the form of a security retained after a securitization of
mortgage loans held for sale based on its ability and intent to sell or hold
those investments. Any retained mortgage-backed securities that a company
commits to sell before or during the securitization process must be classified
as trading securities. Management adopted this statement in 1999 and it did not
have a material impact on results of operations or the financial position of
United.
NOTE B--MERGERS AND ACQUISITIONS
During 1998, United acquired Fed One Bancorp, Inc., Wheeling, West Virginia (Fed
One) and George Mason Bankshares, Inc., Fairfax, Virginia (George Mason) in
common stock exchanges accounted for under the pooling of interests method.
United issued approximately 12.9 million shares in these two business
combinations. In the second and fourth quarters of 1998, as a direct result of
the George Mason and Fed One acquisitions, United recorded merger-related
charges of $13.7 million ($8.2 million after tax). The charges to operating
expenses consisted of employee benefit obligations, costs to eliminate duplicate
facilities and equipment, contract terminations, conversion costs, and
professional fees. All of the merger-related charges were paid in 1998.
58
<PAGE>
NOTE C--INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale
are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------------------------------------------------
(In thousands) 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 $ 276,558 $ 15 $13,817 $ 262,756
State and political subdivisions 48,914 10 4,070 44,854
Mortgage-backed securities 693,828 324 24,256 669,896
Marketable equity securities 8,369 2,711 775 10,305
Other 229,277 9,725 219,552
-------------------------------------------------------------------------
Total $1,256,946 $3,060 $52,643 $1,207,363
=========================================================================
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
(In thousands) 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 $198,151 $1,335 $162 $199,324
State and political subdivisions 27,474 194 188 27,480
Mortgage-backed securities 279,618 2,860 262 282,216
Marketable equity securities 9,211 4,104 239 13,076
Other 43,120 51 43,069
-------------------------------------------------------------------------
Total $557,574 $8,493 $902 $565,165
=========================================================================
</TABLE>
The amortized cost and estimated fair value of securities available for sale at
December 31, 1999 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>
Estimated
(In thousands) Amortized Fair
Cost Value
--------------------------------------
<S> <C> <C>
Due in one year or less $ 6,668 $ 6,663
Due after one year through five years 112,839 110,581
Due after five years through ten years 333,612 318,462
Due after ten years 795,458 761,352
Marketable equity securities 8,369 10,305
--------------------------------------
Total $1,256,946 $1,207,363
======================================
</TABLE>
The table above includes $669,896,000 of mortgage-backed securities at estimated
fair value with an amortized cost of $693,828,000. 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
$1,759,000 and $1,076,000; $3,020,000 and $354,000; and $115,000 and $30,000,
respectively, in 1999, 1998 and 1997.
59
<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, 1999
-------------------------------------------------------------------------
(In thousands) 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 $ 56,734 $ 36 $2,217 $ 54,553
State and political subdivisions 97,824 769 5,084 93,509
Mortgage-backed securities 90,850 380 886 90,344
Other 19,782 4 9 19,777
-------------------------------------------------------------------------
Total $265,190 $1,189 $8,196 $258,183
=========================================================================
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------
(In thousands) 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 $121,474 $1,225 $ 99 $122,600
State and political subdivisions 82,011 2,929 241 84,699
Mortgage-backed securities 139,002 1,506 121 140,387
Other 19,664 8 5 19,667
-------------------------------------------------------------------------
Total $362,151 $5,668 $466 $367,353
=========================================================================
</TABLE>
The amortized cost and estimated fair value of debt securities held to maturity
at December 31, 1999 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
(In thousands) Amortized Fair
Cost Value
--------------------------------------
<S> <C> <C>
Due in one year or less $ 4,528 $ 4,522
Due after one year through five years 38,623 38,391
Due after five years through ten years 67,833 66,997
Due after ten years 154,206 148,273
--------------------------------------
Total $265,190 $258,183
======================================
</TABLE>
The table above includes $90,344,000 of mortgage-backed securities at estimated
fair value with an amortized cost of $90,850,000 at December 31, 1999.
Maturities of the mortgage-backed securities are based upon the estimated
average life.
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 $962,068,000 and $414,275,000 at December 31,
1999 and 1998, respectively.
60
<PAGE>
NOTE D--LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
(In thousands) December 31
-------------------------------------------------
1999 1998
------------------- -------------------
<S> <C> <C>
Commercial, financial and agricultural $ 535,116 $ 508,601
Real estate:
Single family residential 1,388,568 1,076,277
Commercial 701,421 574,666
Construction 144,634 141,026
Other 44,381 45,290
Installment 363,272 313,464
------------------- -------------------
Total gross loans $3,177,392 $2,659,324
=================== ===================
</TABLE>
The table above does not include loans held for sale of $117,825,000 and
$720,607,000 at December 31, 1999 and 1998, respectively. At December 31, 1998,
United recorded a charge of $9,664,000 to reduce the carrying value of the loans
held for sale to the lower of cost or market.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------
(In thousands) 1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Balance at beginning of period $39,189 $31,936 $29,376
Allowance of purchased subsidiaries 2,695
Provision charged to expense 8,800 12,156 3,280
------------------- ------------------- -------------------
47,989 44,092 35,351
------------------- ------------------- -------------------
Loans charged-off 9,236 6,270 4,235
Less recoveries 846 1,367 820
------------------- ------------------- -------------------
Net charge-offs 8,390 4,903 3,415
------------------- ------------------- -------------------
Balance at end of period $39,599 $39,189 $31,936
=================== =================== ===================
</TABLE>
United has commercial loans, including real estate and owner occupied, income
producing real estate and land development loans, of approximately
$1,236,537,000 and $1,083,267,000 as of December 31, 1999 and 1998,
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.
At December 31, 1999, the recorded investment in loans that were considered to
be impaired was $15,643,000 (of which $12,327,000 was on a nonaccrual basis).
Included in this amount was $3,247,000 of impaired loans for which the related
allowance for loan losses was $603,000 and $12,396,000 of impaired loans that
did not have an allowance for credit losses. At December 31, 1998, the recorded
investment in loans that were considered to be impaired was $10,924,000 (of
which $9,139,000 was on a nonaccrual basis). Included in this amount was
$4,966,000 of impaired loans for which the related allowance for credit losses
was $774,000 and $5,958,000 of impaired loans that did not have an allowance for
credit losses.
61
<PAGE>
NOTE D--LOANS - continued
The average recorded investment in impaired loans during the years ended
December 31, 1999, 1998 and 1997 was approximately $16,681,000, $10,343,000 and
$13,264,000, respectively.
The amount of interest income that would have been recorded on impaired loans
under the original terms was $2,237,000, $1,809,000 and $1,710,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. For the years ended
December 31, 1999, 1998 and 1997, United recognized interest income on those
impaired loans of approximately $560,000, $461,000 and $1,008,000, respectively,
substantially all of which was recognized using the accrual method of income
recognition.
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
$86,892,000 and $123,262,000 at December 31, 1999 and 1998, respectively. During
1999, $40,384,000 of new loans were made, repayments totaled $49,892,000, and
other changes due to the change in composition of United's board members and
executive officers approximated $26,862,000.
NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
--------------------------------------
(In thousands) 1999 1998
--------------- ---------------
<S> <C> <C>
Land $ 10,393 $ 11,537
Buildings and improvements 44,825 47,546
Leasehold improvements 9,778 10,587
Furniture, fixtures and equipment 51,285 46,987
--------------- ---------------
116,281 116,657
Less allowance for depreciation and amortization 67,585 61,711
--------------- ---------------
Net bank premises and equipment $ 48,696 $ 54,946
=============== ===============
</TABLE>
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 pro-vide for periodic rate
adjustments based on cost-of-living index changes. Rent expense for
noncancelable operating leases approximated $4,916,000, $5,129,000 and
$4,417,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
62
<PAGE>
NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES
Future minimum payments, by year and in the aggregate, under noncancelable
operating leases with initial or remaining terms of one year or more, for years
subsequent to December 31, 1999, consisted of the following:
Year Amount
---- --------------
(In thousands)
2000 $ 4,102
2001 3,789
2002 3,171
2003 1,910
2004 1,253
Thereafter 3,068
--------------
Total minimum lease payments $17,293
==============
NOTE F--DEPOSITS
The book value of deposits consisted of the following:
<TABLE>
<CAPTION>
(In thousands) December 31
--------------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Noninterest-bearing checking $ 480,767 $ 542,987
Interest-bearing checking 87,314 119,146
Regular savings 417,911 435,767
Money market accounts 675,463 664,913
Time deposits under $100,000 1,415,579 1,463,505
Time deposits over $100,000 183,951 266,740
----------------- -----------------
Total deposits $3,260,985 $3,493,058
================= =================
</TABLE>
Interest paid on deposits and borrowings approximated $172,907,000, $153,283,000
and $129,219,000 in 1999, 1998 and 1997, respectively.
At December 31, 1999, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Amount
--- -------------
(In thousands)
<S> <C>
2000 $1,125,909
2001 417,449
2002 34,373
2003 12,623
2004 and thereafter 9,176
-----------------
Total $1,599,530
=================
</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 $19,800,000 and $20,066,000 at December 31,
1999 and 1998, respectively.
63
<PAGE>
NOTE G--BORROWINGS
United's subsidiary banks are members of the Federal Home Loan Bank (FHLB).
Membership in the FHLB makes available short-term and long-term borrowings from
collateralized advances. All FHLB borrowings are collateralized by a similar
amount of single family residential mortgage loans. At December 31, 1999, United
had approximately $92,971,000 of additional available borrowings in the form of
collateralized advances from the FHLB at prevailing interest rates.
At December 31, 1999, $480,000,000 of FHLB advances with an interest rate of
5.18% had an overnight maturity. Additionally, $473,347,000 of FHLB advances
with a weighted average interest rate of 5.38% are scheduled to mature from one
to twenty years.
United also has various unused lines of credit available from certain of its
correspondent banks in the aggregate amount of $125,880,000. These lines of
credit, which bear interest at prevailing market rates, permit United to borrow
funds in the overnight market, and are renewable annually subject to certain
conditions.
At December 31, 1999 and 1998, borrowings and the related weighted average
interest rate were as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------- -----------------------------------
Weighted Weighted
(Dollars in thousands) Average Average
Amount Rate Amount Rate
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Federal funds purchased $44,120 5.01% $7,260 5.56%
Securities sold under
agreements to repurchase 349,129 4.98% 236,535 4.59%
FHLB advances 953,347 5.28% 345,867 5.12%
Other 4,998 4.52% 5,244 3.60%
-------------- --------------
Total $1,351,594 $594,906
============== ==============
</TABLE>
Information concerning securities sold under agreements to repurchase (in
thousands) is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Average balance during the year $335,908 $201,475
Average interest rate during the year 4.61% 4.66%
Maximum month-end balance during the year $440,281 $236,535
</TABLE>
64
<PAGE>
NOTE H--INCOME TAXES
The income tax provisions included in the consolidated statements of income are
summarized as follows:
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31
-----------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Current expense:
Federal $36,424 $18,906 $26,324
State 2,825 1,405 1,236
Deferred benefit:
Federal and State (4,475) (2,788) (555)
--------------- --------------- ---------------
Income taxes $34,774 $17,523 $27,005
=============== =============== ===============
</TABLE>
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
----------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997
------------------------------ ------------------------------ ----------------------------
Amount % Amount % Amount %
--------------- ----------- --------------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax on income before taxes
at statutory federal rate $36,758 35.0% $21,674 35.0% $27,743 35.0%
Plus: State income taxes
net of federal tax
benefits 1,836 1.7 913 1.5 820 1.0
--------------- ----------- --------------- ----------- --------------- -----------
38,594 36.7 22,587 36.5 28,563 36.0
Increase (decrease)
resulting from:
Tax-exempt interest
Income (3,087) (2.9) (2,201) (3.6) (1,898) (2.4)
Nontaxable distributions
from reorganizations (5,775) (9.3)
Intangible amortization 778 0.7 1,152 1.9 668 0.8
Other items-net (1,511) (1.4) 1,760 2.8 (328) (0.3)
--------------- ----------- --------------- ----------- --------------- -----------
Income taxes $34,774 33.1% $17,523 28.3% $27,005 34.1%
=============== =========== =============== =========== =============== ===========
</TABLE>
Federal income tax expense applicable to securities transactions approximated
$237,000 in 1999, $830,000 in 1998 and $29,000 in 1997.
Income taxes paid approximated $34,333,000, $25,387,000 and $27,315,000 in 1999,
1998 and 1997, respectively.
65
<PAGE>
NOTE H--INCOME TAXES - continued
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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1999 1998
--------------- ---------------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses $13,734 $14,266
Securities available for sale 17,678
Accrued benefits payable 2,414 1,539
Other accrued liabilities 4,851 4,449
Other real estate owned 639 639
Other 1,404 103
--------------- ---------------
Total deferred tax assets 40,720 20,996
--------------- ---------------
Deferred tax liabilities:
Premises and equipment 2,228 2,660
Core deposit intangibles 562 574
Income tax allowance for
loan losses 962 1,305
Deferred mortgage points 1,909 1,920
Securities available for sale 2,657
Other 725 2,356
--------------- ---------------
Total deferred tax
liabilities 6,386 11,472
--------------- ---------------
Net deferred tax assets $34,334 $ 9,524
=============== ===============
</TABLE>
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.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31,
---------------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Service cost $ 1,448 $ 799 $ 739
Interest cost 1,725 1,609 1,451
Expected return on plan assets (2,749) (2,121) (1,939)
Amortization of transition asset (131) (131) (131)
Recognized net actuarial gain (222)
Amortization of prior service cost 63 63 63
--------------- --------------- ---------------
Net periodic pension cost $ 134 $ 219 $ 183
=============== =============== ===============
</TABLE>
66
<PAGE>
NOTE I--EMPLOYEE BENEFIT PLANS - continued
A reconciliation of the changes in benefit obligation and plan assets for the
defined benefit retirement plan is as follows:
<TABLE>
<CAPTION>
(In thousands) December 31
--------------------------------------------
1999 1998
--------------- --------------
Benefit obligation at beginning
<S> <C> <C>
of year $ 25,653 $21,910
Service cost 1,448 799
Interest cost 1,725 1,609
Actuarial (gain) loss (3,634) 2,183
Benefits paid (935) (848)
--------------- --------------
Benefit obligation at end of year 24,257 25,653
--------------- --------------
Fair Value of plan assets at
beginning of year 31,009 27,040
Actual return on plan assets 9,534 4,817
Employer contribution 1,452
Benefits paid (935) (848)
--------------- --------------
Fair Value of plan assets at
end of year 41,060 31,009
--------------- --------------
Funded status $ 16,803 $ 5,356
Unrecognized net actuarial gain (15,425) (5,227)
Unrecognized prior service cost 199 262
Unrecognized net transition asset (432) (564)
--------------- --------------
Pension asset (liability) $ 1,145 ($173)
=============== ==============
</TABLE>
At December 31, 1999, 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 8.25% and 5.0%. At December 31, 1998, 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 7.0% and 4.5%. The weighted average expected long-term rate of
return on United's plan assets was 9.0% for the years ended December 31, 1999,
1998 and 1997.
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 15% 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 $1,166,000,
$1,175,000 and $1,285,000 in 1999, 1998 and 1997, respectively.
67
<PAGE>
NOTE I--EMPLOYEE BENEFIT PLANS - continued
The assets of United's defined benefit plan and 401(k) Plan each include
investments in United common stock. At December 31, 1999, the combined plan
assets included 795,599 shares of United common stock with an approximate fair
value of $18,995,000. Dividends paid on United common stock held by the plans
approximated $452,000 for the year ended December 31, 1999.
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 various 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 200,000, 1,000,000 and 1,200,000 shares of common stock, respectively. No
further grants will be made under the 1988 and 1991 plans. At December 31,
1999, 360,838 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.
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.98 to $ 27.00 1,538,393 6.8 years $17.37 1,156,568 $14.67
</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, 1997 2,054,828 $15.00 $ 2.98
Granted 445,488 22.00 12.58
Exercised 484,672 15.00 2.98
Forfeited 46,600 15.00 6.96
---------------
Outstanding at December 31, 1997 1,969,044 22.00 2.98
Granted 236,600 27.00
Exercised 546,530 22.00 2.98
Forfeited 26,823 22.00 14.88
---------------
Outstanding at December 31, 1998 1,632,291 27.00 2.98
Granted 227,800 25.63
Exercised 281,960 22.00 2.98
Forfeited 39,738 27.00 14.88
---------------
Outstanding at December 31, 1999 1,538,393 $27.00 $ 2.98
===============
Exercisable at:
December 31, 1997 1,504,863 $15.00 $ 2.98
December 31, 1998 1,275,776 $22.00 $ 2.98
December 31, 1999 1,156,568 $27.00 $ 2.98
</TABLE>
68
<PAGE>
NOTE I--EMPLOYEE BENEFIT PLANS - continued
Because the exercise price of the option granted is equal to the market price of
the underlying stock on the date of grant, no compensation expense is
recognized. The following pro forma disclosures present United's net income and
diluted earnings per share, determined as if United had recognized compensation
expense for its employee stock options under the fair value method:
<TABLE>
<CAPTION>
(Dollars in thousands, except per share) Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Pro forma net income $70,019 $44,187 $52,039
Pro forma diluted earnings per share $ 1.60 $ 1.02 $ 1.22
</TABLE>
The estimated fair value of the options at the date of grant was $5.64, $5.73
and $3.96 for the options granted during 1999, 1998 and 1997, respectively. The
fair value of the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions for
1999, 1998 and 1997, respectively: risk-free interest rates of 5.79%, 4.76% and
6.44%; dividend yields of 3.43%, 3.04%, and 3.08%; volatility factors of the
expected market price of United's common stock of 0.211, 0.210 and 0.185; and a
weighted average expected option life of 7 years.
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.
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 commitment 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
$1,254,596,000 and $892,388,000 of loan
69
<PAGE>
NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES - continued
commitments outstanding as of December 31, 1999 and 1998, respectively,
substantially all of which expire within one year.
Commercial and 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 commercial and standby letters of credit of
$74,110,000 and $54,408,000 as of December 31, 1999 and 1998, respectively.
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.
70
<PAGE>
NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
Condensed Balance Sheets
(In thousands) December 31
-----------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Assets
Cash $ 10,101 $ 26,459
Securities available for sale 10,367 13,076
Securities held to maturity 6,643 2,178
Investment in subsidiaries:
Bank subsidiaries 371,105 378,912
Non-bank subsidiaries 1,383 1,347
Loans 11,094 12,836
Other assets 1,634 1,897
------------------ ------------------
Total Assets $412,327 $436,705
================== ==================
Liabilities and Shareholders' Equity
Line of credit from banking subsidiary $ 1,000
Accrued expenses and other liabilities 15,397 $ 15,174
Shareholders' equity (including other accumulated
comprehensive (loss) income of ($32,228) and
$4,934 at December 31, 1999 and 1998,
respectively) 395,930 421,531
------------------ ------------------
Total Liabilities and Shareholders' Equity $412,327 $436,705
================== ==================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
(In thousands) Year Ended December 31
-----------------------------------------------------------------
1999 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Income
Dividends from banking subsidiaries $40,352 $40,558 $ 69,637
Net interest income 1,668 1,394 85
Management fees:
Bank subsidiaries 4,146 3,928 3,476
Non-bank subsidiaries 12 12 12
Other income 1,489 2,937 707
------------------ ------------------ -------------------
Total Income 47,667 48,829 73,917
------------------ ------------------ -------------------
Expenses
Interest paid to banking subsidiary 6
Operating expenses 4,698 7,337 5,516
------------------ ------------------ -------------------
Income Before Income Taxes and Equity
in Undistributed Net Income (Excess
Dividends) of Subsidiaries 42,963 41,492 68,401
Applicable income tax expense (benefit) 853 105 (424)
------------------ ------------------ -------------------
Income Before Equity in Undistributed Net
Income (Excess Dividends) of Subsidiaries 42,110 41,387 68,825
Equity in undistributed net income (excess
dividends) of subsidiaries:
Bank subsidiaries 28,102 2,971 (16,603)
Non-bank subsidiaries 36 44 39
------------------ ------------------ -------------------
Net Income $70,248 $44,402 $ 52,261
================== ================== ===================
</TABLE>
71
<PAGE>
NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL
INFORMATION - continued
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
(In thousands) Year Ended December 31
---------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 70,248 $ 44,402 $ 52,261
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in (undistributed net income)
excess dividends of subsidiaries (28,138) (3,015) 16,564
Depreciation and net amortization 12 10 11
Net gain on sales of investment securities (1,484) (2,912)
Net change in other assets and liabilities 786 (771) 2,276
------------------- ------------------- -------------------
Net Cash Provided by Operating Activities 41,424 37,714 71,112
------------------- ------------------- -------------------
Investing Activities
Net (purchases of) proceeds from securities (2,205) 3,563 (1,346)
Purchase of loans (14,300)
Repayment on loan balances by customers 1,742 1,464
(Increase) decrease in investment in subsidiaries (8,541) 2,576
Cash paid in acquisition of subsidiary (37,562)
------------------- ------------------- -------------------
Net Cash Used in Investing Activities (463) (3,514) (50,632)
------------------- ------------------- -------------------
Financing Activities
Net advances on line of credit from subsidiary 1,000
Cash dividends paid (34,999) (24,651) (19,831)
Acquisition of treasury stock (26,196) (3,610) (5,754)
Proceeds from exercise of stock options 2,876 4,802 5,743
Proceeds from sales of treasury stock 654 606
Pre-merger transactions of pooled companies 8,237 (7,368)
Purchase of fractional shares (7)
------------------- ------------------- -------------------
Net Cash Used in Financing Activities (57,319) (14,575) (26,604)
------------------- ------------------- -------------------
(Decrease) Increase in Cash and Cash Equivalents (16,358) 19,625 (6,124)
Cash and Cash Equivalents at Beginning of Year 26,459 6,834 12,958
------------------- ------------------- -------------------
Cash and Cash Equivalents at End of Year $ 10,101 $ 26,459 $ 6,834
=================== =================== ===================
</TABLE>
72
<PAGE>
NOTE L--OTHER EXPENSE
The following details certain items of other expense for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------------------
(In thousands) 1999 1998 1997
-------------- --------------- --------------
<S> <C> <C> <C>
Other expense:
Data processing $3,175 $ 5,710 $3,659
Legal and consulting 1,709 2,909 1,931
Advertising 2,702 3,011 2,856
Goodwill amortization 3,279 4,395 3,063
Equipment expense 8,896 10,188 6,622
</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, 1999, was approximately $44,725,000.
The primary source of funds for the dividends paid by United Bankshares, Inc. to
its shareholders is dividends received from its subsidiary banks. Dividends
paid by United's subsidiary banks are subject to certain regulatory limitations.
Generally, the most restrictive provision requires regulatory approval if
dividends declared in any year exceed that year's net income, as defined, plus
the retained net profits of the two preceding years.
During 2000, the retained net profits available for distribution to United
Bankshares, Inc., as dividends without regulatory approval, are approximately
$25,822,000, 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 $36,921,000 at
December 31, 1999, 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 various quantitative measures of the banks' assets, liabilities, and
certain off-balance sheet items as calculated 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. At of December
31, 1999, United exceeds all capital adequacy requirements to which it is
subject.
73
<PAGE>
NOTE M--REGULATORY MATTERS - continued
At December 31, 1999, 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 would impact United's well capitalized status.
United's and its subsidiary banks', United National Bank and United Bank,
capital amounts (in thousands of dollars) and ratios are presented in the
following table.
<TABLE>
<CAPTION> For Capital
Actual Adequacy Purposes
------------------------------ --------------------------
Amount Ratio Amount Ratio
-------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
As of December 31, 1999:
- -----------------------
Total Capital (to Risk-
Weighted Assets):
United Bankshares $426,310 11.8% $290,173 > = 8.0%
United National Bank 279,554 11.1% 201,255 > = 8.0%
United Bank 120,365 11.0% 87,332 > = 8.0%
Tier I Capital (to Risk-
Weighted Assets):
United Bankshares 385,840 10.6% 145,086 > = 4.0%
United National Bank 253,319 10.1% 100,627 > = 4.0%
United Bank 107,001 9.8% 43,666 > = 4.0%
Tier I Capital
(to Average Assets):
United Bankshares 385,840 7.7% 200,170 > = 4.0%
United National Bank 253,319 7.4% 136,875 > = 4.0%
United Bank 107,001 6.7% 63,903 > = 4.0%
As of December 31, 1998:
- -----------------------
Total Capital (to Risk-
Weighted Assets):
United Bankshares $411,096 12.6% $260,382 > = 8.0%
United National Bank 255,053 11.0% 184,828 > = 8.0%
United Bank 112,556 12.2% 73,733 > = 8.0%
Tier I Capital (to Risk-
Weighted Assets):
United Bankshares 371,907 11.4% 130,191 > = 4.0%
United National Bank 228,927 9.9% 92,414 > = 4.0%
United Bank 101,016 11.0% 36,866 > = 4.0%
Tier I Capital
(to Average Assets):
United Bankshares 371,907 8.4% 176,362 > = 4.0%
United National Bank 228,927 7.4% 123,510 > = 4.0%
United Bank 101,016 7.3% 55,334 > = 4.0%
<CAPTION>
To Be Well
Capitalized
-----------------------------
Amount Ratio
---------- ------------
<S> <C> <C>
As of December 31, 1999:
- -----------------------
Total Capital (to Risk-
Weighted Assets):
United Bankshares $362,716 > = 10.0%
United National Bank 251,569 > = 10.0%
United Bank 109,165 > = 10.0%
Tier I Capital (to Risk-
Weighted Assets):
United Bankshares 217,630 > = 6.0%
United National Bank 150,941 > = 6.0%
United Bank 65,499 > = 6.0%
Tier I Capital
(to Average Assets):
United Bankshares 250,213 > = 5.0%
United National Bank 171,093 > = 5.0%
United Bank 79,879 > = 5.0%
As of December 31, 1998:
- -----------------------
Total Capital (to Risk-
Weighted Assets):
United Bankshares $325,478 > = 10.0%
United National Bank 231,035 > = 10.0%
United Bank 92,166 > = 10.0%
Tier I Capital (to Risk-
Weighted Assets):
United Bankshares 195,287 > = 6.0%
United National Bank 138,621 > = 6.0%
United Bank 55,300 > = 6.0%
Tier I Capital
(to Average Assets):
United Bankshares 220,453 > = 5.0%
United National Bank 154,388 > = 5.0%
United Bank 69,167 > = 5.0%
</TABLE>
74
<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.
Deposits: The fair values of demand deposits (e.g., interest and non-interest
- ---------
checking, regular savings and certain types of money market accounts) are, by
definition, equal to the amount payable on demand at the reporting date (i.e.,
their carrying amounts). The carrying amounts of variable-rate, fixed-term
money market accounts and certificates of deposit approximate their fair values
at the reporting date. Fair values of fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on time deposits.
Short-term Borrowings: The carrying amounts of federal funds purchased,
- ----------------------
borrowings under repurchase agreements and other short-term borrowings
approximate their fair values.
Federal Home Loan Bank Borrowings: The fair values of United's Federal Home
- ----------------------------------
Loan Bank borrowings are estimated using discounted cash flow analyses, based on
United's current incremental borrowing rates for similar types of borrowing
arrangements
75
<PAGE>
NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued
The estimated fair values of United's financial instruments are summarized
below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------------------- -------------------------------------------
(In thousands) Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 159,808 $ 159,808 $ 141,298 $ 141,298
Securities available for sale 1,207,363 1,207,363 565,165 565,165
Securities held to maturity 265,190 258,183 362,151 367,353
Loans 3,170,096 3,106,565 2,652,391 2,736,168
Deposits 3,260,985 3,215,379 3,493,058 3,505,547
Short-term borrowings 398,247 397,653 249,039 249,039
FHLB borrowings 953,347 941,926 345,867 346,134
</TABLE>
NOTE O--SEGMENT INFORMATION
The following information is based on United's current management structure and
presents results of operations as if the community banking and mortgage banking
segments were operated on a stand alone basis. The results are not necessarily
comparable with similar information of other companies.
<TABLE>
<CAPTION>
General
Mortgage Community Corporate
(In thousands) Banking Banking and Other Consolidated
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
Net interest income $ 3,480 $ 174,240 $ 2,543 $ 180,263
Provision for loan losses 19 8,781 8,800
Net interest income after provision for loan losses 3,461 165,459 2,543 171,463
Noninterest income 24,507 25,025 1,546 51,078
Noninterest expense 20,210 96,743 566 117,519
Income before income taxes 7,758 93,741 3,523 105,022
Income tax expense 2,687 31,033 1,054 34,774
Net income 5,071 62,708 2,469 70,248
Average total assets 148,397 4,860,973 (141,849) 4,867,521
- -----------------------------------------------------------------------------------------------------------
1998
Net interest income $ 2,763 $ 165,813 $ 1,717 $ 170,293
Provision for loan losses 25 12,131 12,156
Net interest income after provision for loan losses 2,738 153,682 1,717 158,137
Noninterest income 24,052 14,727 2,973 41,752
Noninterest expense 19,872 112,959 5,133 137,964
Income (loss) before income taxes 6,918 55,450 (443) 61,925
Income tax expense 1,878 15,557 88 17,523
Net income (loss) 5,040 39,893 (531) 44,402
Average total assets 190,168 4,190,512 (141,872) 4,238,808
- -----------------------------------------------------------------------------------------------------------
1997
Net interest income $ 1,979 $ 146,045 $ 1,306 $ 149,330
Provision for loan losses 19 3,261 3,280
Net interest income after provision for loan losses 1,960 142,784 1,306 146,050
Noninterest income 14,403 22,658 7 37,068
Noninterest expense 14,591 86,123 3,138 103,852
Income (loss) before income taxes 1,772 79,319 (1,825) 79,266
Income tax expense (benefit) 691 26,957 (643) 27,005
Net income (loss) 1,081 52,362 (1,182) 52,261
Average total assets 138,363 3,656,891 (112,952) 3,682,302
- -----------------------------------------------------------------------------------------------------------
General corporate and other includes intercompany eliminations.
</TABLE>
76
<PAGE>
NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1999 and 1998 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>
1999
Interest income $85,504 $87,022 $90,811 $91,328
Interest expense 39,533 42,415 45,822 46,632
Net interest income 45,971 44,607 44,989 44,696
Provision for loan losses 764 1,761 2,255 4,020
Income from mortgage
banking operations 4,418 6,095 5,706 6,173
Other noninterest income 6,221 6,358 7,137 8,970
Noninterest expense 28,821 29,070 29,377 30,251
Income taxes 9,864 8,433 8,500 7,977
Net income (1) 17,161 17,796 17,700 17,591
Per share data:
- --------------
Average shares outstanding (000s):
Basic 43,278 43,322 43,124 42,674
Diluted 43,961 44,013 43,708 43,282
Net income per share:
Basic $ 0.40 $ 0.41 $ 0.41 $ 0.41
Diluted $ 0.39 $ 0.40 $ 0.41 $ 0.41
Dividends per share $ 0.20 $ 0.20 $ 0.21 $ 0.21
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
1998
- ----
Interest income $76,259 $80,594 $83,920 $84,874
Interest expense 36,235 38,331 40,348 40,440
Net interest income 40,024 42,263 43,572 44,434
Provision for loan losses 2,080 5,257 3,316 1,503
Income (loss) from mortgage
banking operations 5,196 6,392 6,645 (4,022)
Other noninterest income 8,816 5,523 6,825 6,377
Noninterest expense 29,695 40,439 30,988 36,842
Income taxes 7,840 935 6,397 2,351
Net income (1) 14,421 7,547 16,341 6,093
Per share data:
- --------------
Average shares outstanding (000s):
Basic 42,397 42,517 42,590 43,061
Diluted 43,271 43,462 43,508 43,771
Net income per share:
Basic $ 0.34 $ 0.18 $ 0.38 $ 0.14
Diluted $ 0.33 $ 0.17 $ 0.38 $ 0.14
Dividends per share (2) $ 0.18 $ 0.18 $ 0.19 $ 0.20
</TABLE>
(1) For further information see the related discussion "Quarterly Results"
included in Management's Discussion and Analysis.
(2) Cash dividends are the amounts declared by United and do not include cash
dividends of acquired subsidiaries prior to the dates of consummation.
77
<PAGE>
Exhibit 12
Computation of Ratios
<TABLE>
<CAPTION>
<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' Equity = Net Income/Average Shareholders' Equity
Net Interest Margin = Net Interest Income/Average Earning Assets
Noninterest Expense to Average Assets = Noninterest Expense/Average Assets
Efficiency Ratio = Noninterest Expense/(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 Assets = Average Shareholders' Equity/Average 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 Average Loans = (Gross Charge-offs Less Recoveries)/ Average Net Loans
Non-performing Loans to Period End Loans = (Nonaccrual Loans Plus Loans Past Due 90 Days or
Greater)/Gross Loans Net of Unearned Interest)
Non-performing Assets to Period End Assets = (Nonaccrual Loans Plus Loans Past Due 90 Days or
Greater Plus Other Real Estate)/Total Assets
Allowance for Loan Losses to Period = Loan Loss Reserve/(Gross Loans Net of
End Loans Unearned Interest
Allowance for Loan Losses to Non- = Loan Loss Reserve/(Nonaccrual Loans Performing
Loans Plus Loans Past Due 90 days or Greater)
</TABLE>
78
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
TITLE STATE OF INCORPORATION
- ----- ----------------------
UBC Holding Company, Inc. West Virginia
United National Bank West Virginia
United Brokerage Services, Inc. West Virginia
United Mortgage Company West Virginia
George Mason Bankshares, Inc. Virginia
United Bank Virginia
George Mason Mortgage Company Virginia
Excel Title Corporation Virginia
United Venture Fund, Inc. West Virginia
UB Holding Company, Inc. West Virginia
79
<PAGE>
Exhibit 23.1
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 25,
2000, included in the 1999 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 25, 2000, 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, 1999.
/s/ ERNST & YOUNG LLP
Charleston, West Virginia
March 27, 2000
80
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to incorporation by reference in registration statements (Form
S-8 Nos. 33-22941 and 33-32522) of United Bankshares, Inc. of our report dated
primarily January 29, 1998, relating to the consolidated statements of income,
shareholders' equity and cash flows of Fed One Bancorp, Inc. and subsidiary for
the year ended December 31, 1997, which report is included in the December 31,
1999, annual report on Form 10-K of United Bankshares, Inc.
/s/ KPMG LLP
Pittsburgh, Pennsylvania
March 27, 2000
81
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 131,091,000
<INT-BEARING-DEPOSITS> 8,317,000
<FED-FUNDS-SOLD> 20,400,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,207,363,000
<INVESTMENTS-CARRYING> 265,190,000
<INVESTMENTS-MARKET> 258,183,000
<LOANS> 3,287,921,000
<ALLOWANCE> 39,599,000
<TOTAL-ASSETS> 5,069,160,000
<DEPOSITS> 3,260,985,000
<SHORT-TERM> 1,007,747,000
<LIABILITIES-OTHER> 60,651,000
<LONG-TERM> 343,847,000
0
0
<COMMON> 108,454,000
<OTHER-SE> 287,476,000
<TOTAL-LIABILITIES-AND-EQUITY> 5,069,160,000
<INTEREST-LOAN> 258,404,000
<INTEREST-INVEST> 95,739,000
<INTEREST-OTHER> 522,000
<INTEREST-TOTAL> 354,665,000
<INTEREST-DEPOSIT> 122,651,000
<INTEREST-EXPENSE> 174,402,000
<INTEREST-INCOME-NET> 180,263,000
<LOAN-LOSSES> 8,800,000
<SECURITIES-GAINS> 677,000
<EXPENSE-OTHER> 117,519,000
<INCOME-PRETAX> 105,022,000
<INCOME-PRE-EXTRAORDINARY> 105,022,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,248,000
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.61
<YIELD-ACTUAL> 4.12
<LOANS-NON> 12,327,000
<LOANS-PAST> 8,415,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39,189,000
<CHARGE-OFFS> 9,236,000
<RECOVERIES> 846,000
<ALLOWANCE-CLOSE> 39,599,000
<ALLOWANCE-DOMESTIC> 27,782,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,817,000
</TABLE>
