-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FxBui9DrYN74HIdMkKGwZO266Kj43yQ4zOAvKJ64k3tn/PWmZvsyGJVdcHoNLPX6 wP/kgJzbrlLWvK/y+IVcjQ== 0000950132-97-000259.txt : 19970401 0000950132-97-000259.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950132-97-000259 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANKSHARES INC/WV CENTRAL INDEX KEY: 0000729986 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 550641179 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13322 FILM NUMBER: 97570169 BUSINESS ADDRESS: STREET 1: 300 UNITED CTR STREET 2: 500 VIRGINIA ST E CITY: CHARLESTON STATE: WV ZIP: 25301 BUSINESS PHONE: 3044248761 MAIL ADDRESS: STREET 1: 300 UNITED CT STREET 2: 500 VIRGINIA SUITE CITY: CHARLESTON STATE: WV ZIP: 25301 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1996 Commission File Number: 0-13322 United Bankshares, Inc. ----------------------- (Exact name of registrant as specified in its charter) West Virginia 55-0641179 ------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 300 United Center 500 Virginia Street, East Charleston, West Virginia 25301 - ------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (304) 424-8761 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to 12(g) of the Act: Common Stock, $2.50 Par Value ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of United Bankshares, Inc. common stock, representing all of its voting stock, that was held by non-affiliates on February 28, 1997 was approximately $382,124,000. As of February 28, 1997, United Bankshares, Inc. had 15,016,035 shares of common stock outstanding with a par value of $2.50. Documents Incorporated By Reference 1. Annual Report to Shareholders for the fiscal year ended December 31, 1996, portions of which are incorporated by reference in Parts I, II and IV of this Form 10-K. 2. Definitive Proxy Statement dated April 11, 1997 for the 1997 Annual Shareholders' Meeting to be held on May 19, 1997, portions of which are incorporated by reference in in Part III of this Form 10-K. Page 1 of 109 pages. Index to Exhibits is on page 32 . ----- ------ UNITED BANKSHARES, INC. FORM 10-K (Continued) As of the date of filing this Annual Report, neither the annual shareholders' report for the year ended December 31, 1996, nor the proxy statement for the annual United shareholders' meeting had been mailed to shareholders. CROSS-REFERENCE INDEX Part I Page - --------- ----- Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 4 Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 4 Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 15 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 15 Part II - ------- Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . 16 Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 20 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 30 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . 30 2 UNITED BANKSHARES, INC. FORM 10-K (Continued) CROSS-REFERENCE INDEX - CONTINUED Part III Page - ---------- ---- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 31 Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 31 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 31 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 31 Part VI - ------- Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 32 3 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. 4 DESCRIPTION OF UNITED BANKSHARES, INC. Organizational History and Subsidiaries - --------------------------------------- United Bankshares, Inc. ("United") is a West Virginia corporation registered as a bank holding company pursuant to the Bank Holding Company Act of 1956, as amended. United was incorporated on March 26, 1982 and organized on September 9, 1982. United began conducting business on May 1, 1984 with the acquisition of three wholly-owned subsidiaries. On October 1, 1985, these three subsidiaries were merged and on November 1, 1985, were renamed United National Bank ("UNB"). Since that time UNB has acquired through merger or consolidation the following banks: Heritage Bancorp, Inc. (a holding company); First National Bank of Ripley; Kanawha Banking and Trust Company; Ohio Valley National Bank; Elk National Bank; Montgomery National Bank, the sole subsidiary of Liberty Bancshares Inc., a bank holding company; First Bank of Ceredo, the bank subsidiary of Financial Future Corporation, a bank holding company; CB&T Westover Bank; the Star City Branch of Community Bank & Trust, N. A.; and First Empire Federal Savings & Loan Association, the sole subsidiary of Eagle Bancorp, Inc., a bank holding company. On June 30, 1996 United formed United Mortgage Company, Inc., a wholly-owned subsidiary of UNB, with its wholly-owned subsidiaries United Mortgage Center, Inc. and United Home Lending Services, Inc. The business of United Mortgage Company, Inc. and its subsidiaries is the origination of residential real estate loans for resale, the conducting of mortgage loan servicing activities for certain loans, and generally the activities commonly conducted by a mortgage banking company. On September 1, 1993, UBC Holding Company, ("UBC"), a United subsidiary, was formed to effect the Financial Future Corporation transaction. UBC is a second tier holding company with UNB currently being its only subsidiary. On August 9, 1990, United acquired BankFirst Corporation ("BankFirst"), a one bank holding company based in McLean, Virginia. BankFirst was merged with UBF Holding Company, Inc. ("UBF"), a United subsidiary formed to effect this acquisition. UBF acquired Bank First, N.A. ("Bank First"), the subsidiary of BankFirst. On October 11, 1995, United formed Commercial Interim Bank, Inc. ("Interim Bank"), a state member bank located in Arlington, Virginia, to facilitate the acquisition of First Commercial Bank of Arlington, Virginia ("FCB"). United then merged Bank First into Interim Bank from its wholly owned subsidiary, UBF. Concurrent with the merger of Bank First into Interim Bank, UBF was merged into United. United acquired FCB on October 31, 1995 and merged it into Interim Bank. United then effected a name change of Interim Bank to First Commercial Bank. On March 18, 1996 First Commercial Bank's name was changed to United Bank. 5 United National Bank-South ("UNB-S"), was formed on November 1, 1992, as a part of United's acquisition of Summit Holding Corporation and its lead bank, Raleigh County National Bank. On January 27, 1996, UNB-S was merged into and became a part of UNB. Offices of UNB-S became branch offices of UNB. In December 1996, United Brokerage Services, Inc., a wholly-owned subsidiary of UNB began operations. United Brokerage Services, Inc. is a fully-disclosed broker/dealer and is a registered Investment Advisor with the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public. In late 1988, United chartered and capitalized United Venture Fund, Inc., a West Virginia corporation which has qualified as a Capital Company under the West Virginia Capital Company Act. This subsidiary makes loans and limited equity investments, consistent with the Bank Holding Company Act, that will result in or contribute to new jobs and/or industry in West Virginia. Offices - ------- The headquarters of United are located in United Center at 500 Virginia Street, East, Charleston, West Virginia. The main office of UNB is located at 514 Market Street, Parkersburg, West Virginia. United's corporate offices and UNB's executive offices are also located in Parkersburg at Fifth and Avery Streets. Currently, all of UNB's offices are located in West Virginia. UNB operates three branches in the Parkersburg area, seven branches in the Charleston area, three branches in the Morgantown area, two branches in Vienna, four branches in the Montgomery area, two branches in Ripley, four branches in the Huntington area, four branches in the Beckley area, five offices in the central region of West Virginia, one office in the Danville area, three offices in the Logan area. UNB owns all of these facilities except for two in the Parkersburg area, three in the Charleston area, two in the Beckley area and one in Summersville, all of which are leased under operating leases. UNB also owns and operates five branches throughout West Virginia's northern panhandle. The main facility of UNB's Wheeling office is leased from Ogden Newspapers, Inc. UNB also operates five branch facilities in central West Virginia. UNB owns all five of these offices. Additionally, UNB operates six loan production offices located in Beckley, Bridgeport, Charleston, Martinsburg, Parkersburg, and Teays Valley, West Virginia. United Bank conducts business from an office located at 3801 Wilson Boulevard, Arlington, Virginia with a branch office at 1301 Beverly Road, McLean, Virginia under a lease agreement. 6 Employees - --------- As of December 31, 1996 United and its subsidiaries had approximately 893 full-time equivalent employees and officers. None of these employees is represented by a collective bargaining unit, and management considers employee relations to be excellent. Business of United - ------------------ As a bank holding company registered under the Bank Holding Company Act of 1956, as amended, United's present business is the operation of its bank subsidiaries. As of December 31, 1996, United's consolidated assets approximated $2,326,877,000 and total shareholders' equity approximated $258,514,000. United is permitted to acquire other banks and bank holding companies, as well as thrift institutions. United is also permitted to engage in certain non- banking activities which are closely related to banking under the provisions of the Bank Holding Company Act and the Federal Reserve Board's Regulation Y. Management continues to consider such opportunities as they arise, and in this regard, management from time to time makes inquiries, proposals, offers or expressions of interest as to potential opportunities; although no agreements or understandings to acquire other banks or bank holding companies or nonbanking subsidiaries or to engage in other nonbanking activities, other than those identified herein, presently exist. Business of Subsidiary Banks - ---------------------------- All of United's subsidiary banks are full-service commercial banks and, as such, engage in most types of business permitted by law and regulation. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As a part of their lending function, UNB and United Bank offer credit card services including accounts issued under the name of certain correspondent banks. UNB also maintains a trust department which acts as trustee under wills, trust and pension and profit sharing plans, as executors and administrators of estates, and as guardians for estates of minors and incompetents, and in addition performs a variety of investment and security services. UNB trust services are available to customers of affiliate banks. UNB provides services to its correspondent banks such as check clearing, safekeeping and the buying and selling of federal funds. 7 UNB is member of a regional network of automated teller machines known as the MAC ATM network while United Bank participates in the MOST network. Through MAC and MOST, all of United's subsidiary banks are participants in a network known as Cirrus which provides banking on a nationwide basis. Lending Activities - ------------------ United's total loan portfolio, net of unearned income, increased $114,619,000, or 6.6%, to $1,847,605,000, in 1996 and is comprised of commercial, real estate and consumer loans including credit card and home equity loans. Commercial and real estate loans increased $29,962,000 or 13.7% and $92,307,000 or 7.2%, respectively, while consumer loans, net of unearned income, increased $2,350,000 or 1.1%. Commercial Loans - ---------------- The commercial loan portfolio consists of loans to corporate borrowers in small to mid-size industrial and commercial companies, as well as automobile dealers, service, retail and wholesale merchants. Coal mining companies make up an insignificant portion of loans in the portfolio. Collateral securing these loans includes equipment, machinery, inventory, receivables, vehicles and commercial real estate. Commercial loans are considered to contain a higher level of risk than other loan types although care is taken to minimize these risks. Numerous risk factors impact this portfolio including industry specific risks such as economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. United diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Diversification is intended to limit the risk of loss from any single unexpected economic event or trend. Underwriting standards require a comprehensive review and independent evaluation of virtually all larger balance commercial loans by the loan committee prior to approval with ongoing updates of the loan portfolio. Real Estate Loans - ----------------- 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. 8 Consumer Loans - -------------- Consumer loans are secured by automobiles, boats, recreational vehicles, and other personal property. Personal loans, home equity, student loans and unsecured credit card receivables are also included as consumer loans. United monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. Underwriting Standards - ---------------------- United's loan underwriting guidelines and standards are updated periodically and are presented for approval by each of the respective Boards of Directors of its subsidiary banks. The purpose of the standards and guidelines is to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the communities of United's primary market area; and ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize loan losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant and justify a loan with slight variances from the underwriting guidelines and standards. However, the loan officer may not exceed their respective lending authority without obtaining the prior, proper approval from a superior, a regional supervisor, or the Loan Committee, whichever is deemed appropriate for the nature of the variance. Loan Origination and Processing - ------------------------------- United generally originates loans within the primary market area of its banking subsidiaries. United may from time to time make loans to borrowers and/or on properties outside of its primary market area as an accommodation to its customers. Processing of all loans is centralized in the Charleston, West Virginia office. United with the formation of United Home Lending Service, Inc. has entered the mortgage banking business. As of December 31, 1996, the balance of mortgage loans being serviced by United for others was $137,057,000. Secondary Markets - ----------------- Historically, United had not been in the business of selling or purchasing loans and had not originated loans with the intent to sell them in the secondary market. During 1996, with the acquisition of 9 Eagle Bancorp, Inc. and the formation of United Mortgage Company, Inc., During 1996, United originated $26,157,000 of real estate loans for sale in the secondary market, designated $38,611,000 of existing real estate loans as held for sale, and sold $63,631,000 of loans designated as held for sale in the secondary market. The principal sources of revenue from United's mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans, if any; (iii) interest earned on mortgage loans during the period that they are held by United pending sale; (iv) loan servicing fees; and (v) gain or loss on the close out of the hedge instrument used to offset the risk that changes in interest rate may have on the value of United's mortgage loan inventory. Investment Activities - --------------------- United's investment policy stresses the management of the investment securities portfolio, which includes both securities held to maturity and securities available for sale, to maximize return over the long-term in a manner that is consistent with good banking practices and relative safety of principal. United currently does not engage in trading account activity. The Asset/Liability Committee of United is responsible for the coordination and evaluation of the investment portfolio. Sources of funds for investment activities include "core deposits". Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase and FHLB borrowings. Repurchase agreements represent funds which are generally obtained as the result of a competitive bidding process. United's investment portfolio remains comprised largely of U.S. Treasury securities and obligations of U.S. Agencies and Corporations. Obligations of States and Political Subdivisions are comprised of municipal securities with an average quality of not less than an "A" rating. During 1996, United realized net losses of $98,000 from sales in the securities available for sale portfolio. The sales of these securities occurred as United adjusted the securities available for sale portfolio, including those acquired in the Eagle Bancorp, Inc. merger, in order to increase interest income without extending the duration of the portfolio. The proceeds from these sales were reinvested in similar securities yielding a higher rate of return. There were no securities sales in 1995. Additionally, United has used an off-balance-sheet instrument known as an interest rate swap, to further aid in interest rate risk 10 management. The use of the interest rate swap is a cost effective means of synthetically altering the repricing structure of certain balance sheet items. The interest rate swap transaction involves the exchange of a floating interest rate payment based on the one month London inter-bank offered rate (LIBOR) for a fixed rate receipt based on the U. S. three year Treasury note. The net pay and receive amount is calculated on an underlying notional amount without the exchange of the underlying principal amount. The interest rate swap subjects United to market risk associated with changes in interest rates, as well as the risk that the counterparty will fail to perform. Performance risk is considered nominal by virtue of the caliber of the parties involved. Only the interest payments are exchanged, and therefor, cash requirements and exposure to credit risk are significantly less than the notional amount. The interest rate swap was entered into early in 1994 in response to tactical asset/liability management considerations; specifically, in response to declining market interest rates during 1993 and United's net interest margin being compressed due to the asset sensitivity position of the balance sheet. The interest rate swap was to adjust the asset sensitivity to within United's policy of +10% or -10% of earning assets. The interest rate swap was entered into specifically to hedge prime rate indexed loans and swap a variable rate for a fixed rate. At December 31, 1996, the total notional amount of the interest rate swap in effect was only $50 million. The swap matured in February 1997. During 1996, the interest rate swap reduced net interest income by $526,000. This impact was offset by higher net interest revenue generated by the on-balance sheet instruments hedged by the interest rate swap and produced a higher rate of return and net interest margin. United did not have interest rate swaps prior to 1994. For further details, see Interest Rate Sensitivity and the related Interest Rate Sensitivity Gap in Management's Discussion and Analysis of Financial Condition and Results of Operations and Note J to the Consolidated Financial Statements. Additionally, United enters into hedging transactions to offset the risk that a change in interest rates will result in a decrease in the value of United's current mortgage loan inventory or its commitments to originate mortgage loans (the "pipeline"). The pipeline is analyzed on a loan-by-loan basis to estimate the exposure to loss based on the market price, commitment price and time to expiration. The risk of loss is then matched with the appropriate hedge vehicle. United primarily utilizes forward contracts for the delivery of mortgage-backed securities as hedge vehicles. United's policies generally require that it hedge substantially all of its inventory of conforming and government loans and the maximum portion of its pipeline that may close. The mortgage-backed securities that are to be delivered under these contracts are fixed or adjustable-rate, corresponding with the composition of United's inventory and pipeline. The correlation between the price performance of the hedge vehicles and the inventory being hedged is very high due to the similarity of the asset and the related hedge vehicle. At December 31, 1996, United had open commitments 11 amounting to approximately $6,000,000 to sell mortgage-backed securities with varying settlement dates generally not extending beyond March 1997. As such, United is not exposed to significant risk nor will it derive any significant benefit from changes in interest rates on the price of the mortgage loan inventory, net of gains or losses of associated hedge positions. Operating Subsidiaries - ---------------------- During 1996, UNB chartered two operating subsidiaries, United Brokerage Services, Inc. and United Mortgage Company, Inc. United Brokerage Services, Inc. is a fully-disclosed broker/dealer and a registered Investment Advisor with the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public. United Mortgage Company, Inc. was formed in connection with the merger of Eagle Bancorp, Inc. ("Eagle") with and into United and the related merger of First Empire Federal Savings and Loan Association ("First Empire") with and into UNB. In accordance with the merger agreement, UNB requested and received regulatory approval to form and operate United Mortgage Company, Inc. The business of United Mortgage Company, Inc. will be the origination and acquisition of residential real estate loans for resale, the conducting of mortgage loan servicing activities for certain loans, and generally the activities commonly conducted by a mortgage banking company. Competition - ----------- United faces a high degree of competition in nearly all of the markets it serves. These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson, Cabell, Hancock, Ohio, Marshall, Gilmer, Lewis, Webster, Boone, Logan, Nicholas, Fayette and Raleigh Counties in West Virginia; Lawrence, Belmont, Jefferson and Washington Counties in Ohio; and Arlington and Fairfax Counties in Virginia, located adjacent to the Washington D.C. area, which is in close proximity to West Virginia's eastern panhandle. United competes in Ohio markets because of the close proximity to the Ohio border of certain subsidiary offices. Included in United's markets are the Parkersburg Metropolitan Statistical Area (MSA), the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton MSA. These represent the five largest West Virginia MSA's. United considers the above counties and MSA's to be the primary market area for the business of its banking subsidiaries. West Virginia banks are permitted unlimited branch banking throughout the state. In addition, interstate acquisitions of and by West Virginia banks and bank holding companies are permissible on a reciprocal basis. West Virginia also allows reciprocal interstate acquisitions by thrift institutions. These conditions serve to intensify competition within United's market. 12 As of December 31, 1996, there were 14 multi-bank holding companies and 37 one-bank holding companies in the State of West Virginia registered with the Federal Reserve System. United presently ranks fourth among these bank holding companies and second among holding companies headquartered in West Virginia based on both asset and deposit size. These holding companies are headquartered in various West Virginia cities and control banks throughout the state, which compete for business as well as for the acquisition of additional banks. Economic Characteristics of Primary Market Area - ----------------------------------------------- Although the market area of the banking subsidiaries encompass a portion of the coal fields located in southern West Virginia, an area of the state which has been economically depressed, the coal related loans in the loan portfolio of the banking subsidiaries constitute less than 2% of United's total loans outstanding. The state of West Virginia has a more diversified economy than it had during the peak periods of coal production with the chemical manufacturing industry accounting for 19% of the entire manufacturing workforce and 33% of the manufacturing wages, according to West Virginia state records. This diversified economy has contributed to the positive trends in the personal income and unemployment rates in recent years as personal income has increased from $14,315 in 1991 to $18,672 in mid-1996 and the state's overall unemployment rate has declined from 10.5% in 1991 to 6.5% in July 1996 -the lowest unemployment rate in nearly 20 years, according to available information from the West Virginia Bureau of Employment Programs. Eleven of the 16 counties within United's primary West Virginia market area rank among the state's top twenty counties in terms of personal income and low unemployment rates. United generally serves the stronger economic areas of the state while maintaining a satisfactory CRA rating. Regulation and Supervision - -------------------------- United, as a bank holding company, is subject to the restrictions of the Bank Holding Company Act of 1956, as amended, and is registered pursuant to its provisions. As such, United is subject to the reporting requirements of and examination by the Board of Governors of the Federal Reserve System ("Board of Governors"). The Bank Holding Company Act prohibits the acquisition by a bank holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the Board of Governors. With certain exceptions, a bank holding company also is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking, or managing or controlling banks. 13 The Board of Governors of the Federal Reserve System, in its Regulation Y, permits bank holding companies to engage in non-banking activities closely related to banking or managing or controlling banks. Approval of the Board of Governors is necessary to engage in these activities or to make acquisitions of corporations engaging in these activities. In addition, on a case by case basis, the Board of Governors may approve other non-banking activities. As a bank holding company doing business in West Virginia, United is also subject to regulation and examination by the West Virginia Board of Banking and Financial Institutions (the "West Virginia Banking Board") and must submit annual reports to the department. Further, any acquisition application which United must submit to the Board of Governors must also be submitted to the West Virginia Banking Board for approval. United is also registered under and is subject to the requirements of the Securities Exchange Act of 1934, as amended. UNB, as national banking associations, is subject to supervision, examination and regulation by the Office of the Comptroller of the Currency. UNB is also a member of the Federal Reserve System, and as such, is subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. United Bank, as a Virginia state member bank, is subject to supervision, examination and regulation by the Federal Reserve System, and as such, is subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. United Bank is subject to regulation by the Virginia Corporation Commission's Bureau of Financial Institutions. The deposits of United's wholly-owned banking subsidiaries are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. Accordingly, these banks are also subject to regulation by the FDIC. 14 UNITED BANKSHARES, INC. FORM 10-K, PART I Item 3. Legal Proceedings Litigation - ---------- Information relating to litigation on page 33 of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 15 UNITED BANKSHARES, INC. FORM 10-K, PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters 16 Stock - ----- As of December 31, 1996, 20,000,000 shares of common stock, par value $2.50 per share, were authorized for United, of which 15,295,130 were issued, including 205,495 shares held as treasury shares. The outstanding shares are held by approximately 5,217 shareholders of record as of December 31, 1996. The unissued portion of United's authorized common stock (subject to registration approval by the SEC) and the treasury shares are available for issuance as the Board of Directors determines advisable. United offers its shareholders the opportunity to invest dividends in shares of United stock through its dividend reinvestment plan. United has also established stock option plans and a stock bonus plan as incentive for certain eligible officers. While there are no present plans, understandings, arrangements or agreements, except for the above incentive plans, additional shares could be issued for the purpose of raising capital, in connection with acquisitions of other businesses, or for other appropriate purposes. The Board of Directors believes that the availability of authorized but unissued common stock of United is of considerable value if opportunities should arise for the acquisition of another business through the issuance of United's stock. Shareholders do not have preemptive rights, which allows United to issue additional authorized shares without first offering them to current shareholders. United has only one class of stock and all voting rights are vested in the holders of United's stock. On all matters subject to a vote of shareholders, the shareholders of United will be entitled to one vote for each share of common stock owned. Shareholders of United have cumulative voting rights with regard to election of directors. At the present time, no senior securities of United are outstanding, nor does the Board of Directors presently contemplate issuing senior securities. There are no preemptive or conversion rights or, redemption or sinking fund provisions with respect to United's Stock. All of the issued and outstanding shares of United's stock are fully paid and non-assessable. Dividends - --------- The shareholders of United are entitled to receive dividends when and as declared by its Board of Directors. Dividends are paid quarterly. Dividends were $1.24 per share in 1996, $1.17 per share in 1995 and $1.06 per share in 1994. Dividends are paid from funds legally available; therefore, the payment of dividends is subject to the restrictions set forth in the West Virginia Corporation Act. See "Market and Stock Prices of United" for quarterly dividend information. 17 Payment of Dividends by United is dependent upon payment of dividends to it by its subsidiary banks. The ability of national banks to pay dividends is subject to certain limitations imposed by the national banking laws. Generally, the most restrictive provision requires approval by the Office of the Comptroller of the Currency ("OCC") if dividends declared in any year exceed the year's net income, as defined, plus the retained net profits of the two preceding years. Payment of dividends by United's state member bank is regulated by the Federal Reserve System and generally, the prior approval of the Federal Reserve Board ("FRB") is required if the total dividends declared by a state member bank in any calendar year exceeds its net profits, as defined, for that year combined with its retained net profits for the preceding two years. Additionally, prior approval of both the OCC and the FRB is required when a national bank or state member bank has deficit retained earnings but has sufficient current year's net income, as defined, plus the retained net profits of the two preceding years. The OCC and FRB may prohibit dividends if it deems the payment to be an unsafe or unsound banking practice. The OCC has issued guidelines for dividend payments by national banks, emphasizing that proper dividend size depends on the bank's earnings and capital while the FRB has issued similar guidelines pertaining to state member banks. See Note M - Notes to Consolidated Financial Statements, which is incorporated herein by reference. Market and Stock Prices of United - --------------------------------- United Bankshares, Inc. stock is traded over the counter on the National Association of Securities Dealers Automated Quotations System ("NASDAQ") under the trading symbol UBSI. The following table presents the dividends and high and low prices of United's common stock during the periods set forth below:
United Historical Basis ------------------- 1997 Dividends High Low ---- --------- ------ ------ First Quarter through February 28, 1997 (1) $34.50 $32.25 1996 ---- Fourth Quarter $0.32 $33.00 $29.25 Third Quarter $0.31 $30.25 $26.25 Second Quarter $0.31 $29.75 $26.75 First Quarter $0.30 $30.00 $28.50 1995 ---- Fourth Quarter $0.30 $31.00 $29.00 Third Quarter $0.29 $30.50 $26.25 Second Quarter $0.29 $27.75 $25.25 First Quarter $0.29 $26.00 $23.25
(1) On February 27, 1997, United declared a dividend of $0.33 per share, payable April 1, 1997, to shareholders of record as of March 14, 1997. 18 The high and low prices listed above are based upon information available to United's management from NASDAQ listings. No attempt has been made by United's management to ascertain the prices for every sale of its stock during the periods indicated. However, based on the information available, United's management believes that the prices fairly represent the amounts at which United's stock was traded during the periods indicated. 19 UNITED BANKSHARES, INC. FORM 10-K, PART II Item 6. Selected Financial Data Information relating to selected financial data on page 41 of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis of Financial Condition and Results of Operations on pages 42 through 54 inclusive, of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. 20 UNITED BANKSHARES, INC. AND SUBSIDIARIES DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY INTEREST RATES AND INTEREST DIFFERENTIAL: The following table shows the daily average balance of major categories of assets and liabilities for each of the three years ended December 31, 1996, 1995 and 1994 with the interest and rate earned or paid on such amount.
Year Ended Year Ended Year Ended December 31 December 31 December 31 1996 1995 1994 ---------------------------------- ---------------------------------- ------------------------------ (Dollars in Average Avg. Average Avg. Average Avg. Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate ----------- ---------- --------- ----------- ----------- -------- ---------- --------- -------- ASSETS Earning assets: Federal funds sold and securities purchased under agreements to resell and other short- term investments $ 2,996 $ 157 5.24% $ 18,365 $ 1,107 6.03% $ 15,325 $ 703 4.59% Investment Securities: Taxable 292,339 18,455 6.31% 297,963 18,516 6.21% 354,930 19,397 5.47% Tax exempt (1) 38,282 3,603 9.41% 46,924 4,560 9.72% 52,709 5,429 10.30% ---------- ---------- -------- ---------- ---------- ------- ---------- --------- ------- Total Securities 330,621 22,058 6.67% 344,887 23,076 6.69% 407,639 24,826 6.09% Loans, net of unearned income (1) (2) 1,786,376 152,615 8.54% 1,673,568 144,594 8.64% 1,556,844 125,184 8.04% Allowance for possible loan losses (22,660) (22,685) (21,723) ---------- ---------- ---------- Net Loans 1,763,716 8.65% 1,650,883 8.76% 1,535,121 8.15% ---------- ---------- -------- ----------- ---------- ------- ---------- --------- ------- Total earning assets 2,097,333 174,830 8.34% 2,014,135 168,777 8.38% 1,958,085 150,713 7.70% ---------- ---------- --------- Other assets 166,095 148,625 149,391 -------- ---------- ---------- TOTAL ASSETS $2,263,428 $2,162,760 $2,107,476 ========== ========== ========== LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $1,536,641 $ 63,917 4.16% $1,510,880 $ 62,231 4.12% $1,465,203 $ 49,136 3.35% Federal funds purchased, repurchase agreements and other short-term borrowings 87,015 3,770 4.33% 83,016 3,809 4.59% 78,699 2,571 3.27% FHLB advances 99,184 5,498 5.54% 69,580 4,127 5.93% 78,701 3,965 5.04% ---------- ---------- -------- ---------- ---------- ------- ---------- --------- ------- Total Interest-Bearing Funds 1,722,840 73,185 4.25% 1,663,476 70,167 4.22% 1,622,603 55,672 3.43% ---------- ---------- --------- Demand deposits 251,641 234,455 240,062 Accrued expenses and other liabilities 34,292 28,115 22,524 ---------- ---------- ---------- TOTAL LIABILITIES 2,008,773 1,926,046 1,885,189 Shareholders' Equity 254,655 236,714 222,287 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,263,428 $2,162,760 $2,107,476 ========== ========== ========== NET INTEREST INCOME $ 101,645 $ 98,610 $ 95,041 ========== ========== ========= INTEREST SPREAD 4.09% 4.16% 4.27% NET INTEREST MARGIN 4.85% 4.90% 4.85%
(1) The interest income and the yields on nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. 21 UNITED BANKSHARES, INC. AND SUBSIDIARIES RATE/VOLUME ANALYSIS The following table sets forth a summary of the changes in interest earned and interest paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year's average rate), (ii) changes in rate (change in the average rate times the prior year's average volume), and (iii) changes in rate/volume (change in the average volume times the change in average rate).
1996 Compared to 1995 1995 Compared to 1994 ------------------------------------- -------------------------------------- Increase (Decrease) Due to Increase (Decrease) Due to ------------------------------------- -------------------------------------- Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total ------- -------- ------ ------- ------- -------- ----- ------- (In thousands) (In thousands) Interest income: Federal funds sold, securities purchased under agreements to resell and other short-term investments ($926) ($ 145) $ 121 ($ 950) $ 139 $ 221 $ 44 $ 404 Investment securities: Taxable (349) 294 (6) (61) (3,113) 2,659 (427) (861) Tax exempt (1) (840) (144) 27 (957) (596) (307) 34 (869) Loans (1),(2) 9,881 (1,741) (119) 8,021 9,440 9,271 699 19,410 ------- -------- ----- ------- ------- -------- ----- ------- TOTAL INTEREST INCOME 7,766 (1,736) 23 6,053 5,870 11,844 350 18,064 ------- -------- ----- ------- ------- -------- ----- ------- Interest expense: Interest-bearing deposits $ 1,061 $ 641 $ 11 $ 1,686 1,532 11,214 350 13,096 Federal funds purchased, repurchase agreements, and other short-term borrowings 183 (212) (10) (39) 141 1,040 56 1,237 FHLB advances 1,756 (270) (115) 1,371 (460) 703 (81) 162 ------- -------- ----- ------- ------- -------- ----- ------- TOTAL INTEREST EXPENSE 3,000 132 (114) 3,018 1,213 12,957 325 14,495 ------- -------- ----- ------- ------- -------- ----- ------- NET INTEREST INCOME $ 4,766 ($1,868) $ 137 $ 3,035 $ 4,657 ($1,113) $ 25 $ 3,569 ======= ======== ===== ======= ======= ======== ===== =======
(1) Yields and interest income on tax exempt loans and investment securities are computed on a fully tax-equivalent basis using the statutory federal income tax rate of 35%. (2) Nonaccruing loans are included in the daily average loan amounts outstanding. 22 UNITED BANKSHARES, INC. AND SUBSIDIARIES LOAN PORTFOLIO TYPES OF LOANS The following is a summary of loans outstanding at December 31:
1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- (In thousands) Commercial, financial and agricultural $ 248,762 $ 218,800 $ 208,491 $ 218,559 $ 218,370 Real estate mortgage 1,329,661 1,267,889 1,194,805 1,003,546 887,444 Real estate construction 42,343 21,808 17,523 14,651 16,632 Consumer 232,004 229,457 237,928 233,698 250,527 Less: Unearned interest (5,165) (4,968) (6,472) (7,880) (9,390) ---------- ---------- ---------- ---------- ---------- Total loans 1,847,605 1,732,986 1,652,275 1,462,574 1,363,583 Allowance for possible loan losses (22,283) (22,545) (22,304) (20,975) (17,485) ---------- ---------- ---------- ---------- ---------- TOTAL LOANS, NET $1,825,322 $1,710,441 $1,629,971 $1,441,599 $1,346,098 ========== ========== ========== ========== ==========
At December 31, 1996, real estate mortgage loans include $954,482,000 in single family residential real estate loans and $355,431,000 in commercial real estate loans. The following is a summary of loans outstanding as a percent of total loans at December 31:
1996 1995 1994 1993 1992 ------- ------- ------- ------- ------- Commercial, financial and agricultural 13.46% 12.59% 12.57% 14.86% 15.90% Real estate mortgage 71.97% 72.96% 72.03% 68.25% 64.64% Real estate construction 2.29% 1.25% 1.06% 1.00% 1.21% Consumer 12.28% 13.20% 14.34% 15.89% 18.25% ------ ------ ------ ------ ------ TOTAL 100.00% 100.00% 100.00% 100.00% 100.00% ====== ====== ====== ====== ======
REMAINING LOAN MATURITIES The following table shows the maturity of commercial, financial, and agricultural loans and real estate construction outstanding as of December 31, 1996:
Less Than One To Greater Than One Year Five Years Five Years Total --------- ---------- ------------ -------- Commercial, financial and agricultural $ 64,403 $92,050 $92,309 $248,762 Real estate construction 42,343 42,343 -------- ------- ------- -------- Total $106,746 $92,050 $92,309 $291,105 ======== ======= ======= ========
23 UNITED BANKSHARES, INC. AND SUBSIDIARIES At December 31, 1996, commercial, financial and agricultural loans maturing within one to five years and in more than five years are interest sensitive as follows:
One to Over Five Years Five Years ---------- ---------- (In thousands) Outstanding with fixed interest rates $53,066 $21,324 Outstanding with adjustable rates 38,984 70,985 ------- ------- $92,050 $92,309 ======= =======
There were no real estate construction loans with maturities greater than one year. RISK ELEMENTS Nonperforming Loans Nonperforming loans include loans on which no interest is currently being accrued, loans which are past due 90 days or more as to principal or interest payments, and loans for which the terms have been modified due to a deterioration in the financial position of the borrower. Management is not aware of any other significant loans, groups of loans, or segments of the loan portfolio not included below where there are serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. The following table summarizes nonperforming loans for the indicated periods.
December 31 ------------------------------------------- 1996 1995 1994 1993 1992 ------- ------- ------ ------- ------- (In thousands) Nonaccrual loans $ 4,361 $ 6,298 $4,719 $ 9,687 $13,382 Troubled debt restructurings 2,453 1,355 Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest 5,831 4,692 2,851 3,080 2,516 ------- ------- ------ ------- ------- TOTAL $10,192 $10,990 $7,570 $15,220 $17,253 ======= ======= ====== ======= =======
Loans are designated as nonaccrual when, in the opinion of management, the collection of principal or interest is doubtful. This generally occurs when a loan becomes 90 days past due as to principal or interest unless the loan is both well secured and in the process of collection. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. See Note D to the consolidated financial statements for additional information regarding nonperforming loans and credit risk concentration. 24 UNITED BANKSHARES, INC. AND SUBSIDIARIES INVESTMENT PORTFOLIO The following is a summary of the amortized cost of investment securities held to maturity at December 31,:
1996 1995 1994 -------- -------- -------- (In thousands) U.S. Treasury and other U.S. Government agencies and corporations $ 77,704 $ 15,897 $ 87,848 States and political subdivisions 36,136 43,324 53,297 Mortgage-backed securities 54,977 56,416 99,144 Other 1,885 6,252 11,112 -------- -------- -------- TOTAL INVESTMENT SECURITIES $170,702 $121,889 $251,401 ======== ======== ========
The following is a summary of the amortized cost of available for sale securities at December 31,:
1996 1995 1994 -------- -------- -------- (In thousands) U.S. Treasury securities and obligations of U.S. Government agencies and corporations $115,018 $150,460 $103,292 Mortgage-backed securities 24,982 30,036 2,663 Marketable equity securities 3,655 2,662 1,529 Other 16,506 13,808 13,898 -------- -------- -------- TOTAL AVAILABLE-FOR-SALE SECURITIES $160,161 $194,696 $121,382 ======== ======== ========
The fair value of mortgage-backed securities is affected by changes in interest rates and prepayment risk. When interest rates decline, prepayment speeds generally accelerate due to homeowners refinancing their mortgages at lower interest rates. This may result in the proceeds being reinvested at lower interest rates. Rising interest rates may decrease the assumed prepayment speed. Slower prepayment speeds may extend the maturity of the security beyond its assumed prepayment speed. Therefore, investors may not be able to invest at current higher market rates due to the extended expected maturity of the security. United had a net unrealized loss of $977,000 on all mortgage-backed securities at December 31, 1996, as compared to a net unrealized loss of $158,000 at December 31, 1995. This decrease in value from 1995 to 1996 is consistent with the increase in interest rates during 1996. The following table sets forth the maturities of all securities at December 31, 1996, and the weighted average yields of such securities (calculated on the basis of the cost and the effective yields weighted for the scheduled maturity of each security).
After 1 But After 5 But Within 1 Year Within 5 Years Within 10 Years After 10 Years --------------- ---------------- ---------------- --------------- Amount Yield Amount Yield Amount Yield Amount Yield ------- ------ -------- ------ -------- ------ ------- ------ (In thousands) U.S. Treasury and other U.S. Government agencies and corporations $29,006 5.64% $135,940 6.27% $68,670 7.53% $38,592 6.66% States and political subdivisions (1) 5,142 9.53% 12,277 9.10% 8,820 9.09% 9,897 9.13% Other 6,830 3.88% 2,726 7.74% 126 6.47% 14,305 6.27%
(1) Tax-equivalent adjustments (using a 35% federal rate) have been made in calculating yields on obligations of states and political subdivisions. NOTE: There are no securities with a single issuer whose book value in the aggregate exceeds 10% of total shareholders' equity. 25 UNITED BANKSHARES, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS The following table shows the distribution of United's short-term borrowings and the weighted average interest rates thereon at the end of each of the last three years. Also provided are the maximum amount of borrowings and the average amounts of borrowings as well as weighted average interest rates for the last three years.
Federal Securities Sold Funds Under Agreements Purchased to Repurchase ---------- ----------------- (In thousands) At December 31: 1996 $ 4,491 $ 71,091 1995 26,378 55,789 1994 4,582 67,227 Weighted average interest rate at year end: 1996 6.8% 4.2% 1995 5.9% 4.4% 1994 5.7% 4.1% Maximum amount outstanding at any month's end: 1996 $33,510 $ 79,664 1995 33,941 81,720 1994 25,089 103,486 Average amount outstanding during the year: 1996 $20,685 $ 66,463 1995 12,264 70,752 1994 10,178 68,521 Weighted average interest rate during the year: 1996 5.6% 4.0% 1995 6.0% 4.3% 1994 4.3% 3.1%
At December 31, 1996, repurchase agreements include $65,561,000 in overnight accounts. The remaining balance principally consists of agreements having maturities ranging from 2-90 days. The rates offered on these funds vary according to movements in the federal funds and short-term investment market rates. 26 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:
1996 1995 1994 ----------------- ---------------- -------------- Amount Rate Amount Rate Amount Rate --------- ---- -------- ---- --------- ---- (In thousands) Noninterest bearing demand deposits $ 251,641 $ 234,455 $ 240,062 Interest bearing demand deposits 127,867 2.50% 268,108 2.33% 285,354 2.43% Savings deposits 581,117 2.69% 464,107 3.16% 537,783 2.99% Time deposits 827,657 5.45% 778,665 5.31% 642,066 4.06% ---------- ---------- ---------- TOTAL $1,788,282 4.16% $1,745,335 4.12% $1,705,265 3.35% ========== ========== ==========
Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 1996 are summarized as follows:
(In thousands) 3 months or less $ 41,124 Over 3 through 6 months 30,412 Over 6 through 12 months 32,333 Over 12 months 34,567 -------- TOTAL $138,436 ========
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:
1996 1995 1994 ------ ------ ------ Return on average assets 1.35% 1.52% 1.44% Return on average equity 11.98% 13.86% 13.67% Dividend payout ratio (1) 58.49% 49.21% 50.61% Average equity to average assets ratio 11.25% 10.94% 10.55%
(1) Based on historical results of United before the effects of restatements for pooling of interests business combinations. 27 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:
1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- (In thousands) Balance of allowance for possible loan losses at beginning of year $ 22,545 $ 22,304 $ 20,975 $ 17,485 $ 15,114 Allowance of purchased company at date of acquisition 1,017 504 2,784 Loans charged off: Commercial, financial and agricultural 2,207 1,952 708 1,088 3,108 Real estate 230 722 82 711 1,537 Real estate construction Consumer and other 1,087 950 980 1,015 1,304 ---------- ---------- ---------- ---------- ---------- TOTAL CHARGE-OFFS 3,524 3,624 1,770 2,814 5,949 Recoveries: Commercial, financial and agricultural 219 189 577 438 168 Real estate 135 65 13 231 154 Real estate construction Consumer and other 298 274 307 301 406 ---------- ---------- ---------- ---------- ---------- TOTAL RECOVERIES 652 528 897 970 728 NET LOANS CHARGED OFF 2,872 3,096 873 1,844 5,221 Addition to allowance (1) 2,610 2,320 2,202 4,830 4,808 ---------- ---------- ---------- ---------- ---------- BALANCE OF ALLOWANCE FOR POSSIBLE LOAN LOSSES AT END OF YEAR $ 22,283 $ 22,545 $ 22,304 $ 20,975 $ 17,485 ========== ========== ========== ========== ========== Totals loans outstanding at the end of period $1,847,605 $1,732,986 $1,652,275 $1,462,574 $1,363,583 Average loans outstanding during period (net of unearned income) $1,786,376 $1,673,568 $1,556,844 $1,402,609 $1,219,039 Net charge-offs as a percentage of average loans outstanding 0.16% 0.18% 0.06% 0.13% 0.43% Allowance for possible loan losses as a percentage of nonperforming loans 218.6% 205.1% 294.6% 137.8% 101.3%
(1) The amount charged to operations and the related balance in the allowance for possible loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience and management's estimation of future potential losses. Quarterly reviews of individual loans as well as the loan portfolio as a whole are made by management and the credit department. Management performs extensive procedures in granting and monitoring loans on a continual basis. Further, management believes that the allowance for loan losses is adequate to absorb anticipated losses. 28 UNITED BANKSHARES, INC. AND SUBSIDIARIES SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for possible loan losses at December 31,: 1996 1995 1994 1993 1992 ------ ------ ------ ------- ------- Commercial, financial and agricultural $7,175 $6,891 $7,526 $ 8,109 $ 6,406 Real estate 667 771 613 476 1,375 Real estate construction Consumer and other 1,072 1,484 1,313 1,733 5,481 ------ ------ ------ ------- ------- Total $8,914 $9,146 $9,452 $10,318 $13,262 ====== ====== ====== ======= =======
The portion of the allowance for loan losses that is not specifically allocated to individual credits has been apportioned among the separate loan portfolios based on the relative risk of each portfolio.
% of Allowance per Category To Total Allocated Allowance - ------------------------------ 1996 1995 1994 1993 1992 ------ ------- ------- ------- ------- Commercial, financial and agricultural 80.49% 74.62% 79.62% 78.59% 48.30% Real estate 7.48% 8.66% 6.49% 4.61% 10.37% Real estate construction Consumer and other 12.03% 16.72% 13.89% 16.80% 41.33% ------ ------ ------ ------ ------ Total 100.00% 100.00% 100.00% 100.00% 100.00% ====== ====== ====== ====== ======
29 UNITED BANKSHARES, INC. FORM 10-K, PART II Item 8. Financial Statements and Supplementary Data (a) -- FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X Information relating to financial statements on pages 11 through 40 inclusive of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. (b) -- SUPPLEMENTARY FINANCIAL INFORMATION (1) Selected Quarterly Financial Data Information relating to selected quarterly financial data on page 40 of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. (2) Information on the Effects of Changing Prices Information relating to effects of changing prices on page 47 of the Annual Report to Shareholders for the year ended December 31, 1996, is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES This item is omitted since it is not applicable. 30 UNITED BANKSHARES, INC. FORM 10-K, PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and executive officers of the registrant on pges 2 through 7 inclusive, of the Proxy Statement for the 1997 Annual Shareholders' Meeting is incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION Information regarding executive compensation on pages 8 through 11 inclusive, of the Proxy Statement for the 1997 Annual Shareholders' Meeting is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management on pages 2 through 6 inclusive, of the Proxy Statement for the 1997 Annual Shareholders' Meeting is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions on pages 2, 3, 6 and 14 of the Proxy Statement for the 1997 Annual Shareholders' Meeting is incorporated herein by reference. The following discussion satisfies the reporting requirements of Items 10 through 13. 31 UNITED BANKSHARES, INC. FORM 10-K, PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of Documents Filed as Part of This Report: (1) Financial Statements The financial statements listed below are incorporated herein by reference from the Annual Report to Shareholders for the year ended December 31, 1996 at Item 8a. Page references are to such Annual report. Financial Statements: Page Reference - --------------------- -------------- Report of Independent Auditors ................................. 11 Consolidated Balance Sheets .................................... 12 Consolidated Statements of Income .............................. 13 Consolidated Statements of Changes in Shareholders' Equity...... 14 Consolidated Statements of Cash Flows........................... 15 Notes to Consolidated Financial Statements...................... 16 (2) Financial Statement Schedules United is not filing separate financial statement schedules because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or notes thereto. (3) Exhibits Required by item 601 Listing of Exhibits -- See the Exhibits' Index on page 34 of this Form 10-K. (b) Reports on Form 8-K There were no reports filed on Form 8-K for the quarter ended December 31, 1996. (c) Exhibits The exhibits to this Form 10-K begin on page 37. (d) Consolidated Financial Statement Schedules -- All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable or pertain to items as to which the required disclosures have been made elsewhere in the financial statements and notes thereto, and therefor have been omitted. 32 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED BANKSHARES, INC. (Registrant) By /s/ Richard M. Adams -------------------------------- Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date /s/ Richard M. Adams Chairman of the Board, March 27, 1997 - ----------------------------- Director, Chief Executive Officer /s/ I. N. Smith President and Director March 27, 1997 - ----------------------------- /s/ Steven E. Wilson March 27, 1997 - ----------------------------- Chief Financial Officer Chief Accounting Officer /s/ William C. Pitt, III Director March 27, 1997 - ----------------------------- /s/ H. Smoot Fahlgren Director March 27, 1997 - ----------------------------- /s/ Russell L. Isaacs Director March 27, 1997 - ----------------------------- /s/ F. T. Graff, Jr. Director March 27, 1997 - ----------------------------- /s/ Warren A. Thornhill, III Director March 27, 1997 - ----------------------------- /s/ H. L. Wilkes Director March 27, 1997 - ----------------------------- /s/ Robert P. McLean Director March 27, 1997 - ----------------------------- /s/ G. Ogden Nutting Director March 27, 1997 - ----------------------------- /s/ Harry L. Buch Director March 27, 1997 - ----------------------------- /s/ Robert G. Astorg Director March 27, 1997 - ----------------------------- /s/ C. E. Goodwin Director March 27, 1997 - -----------------------------
33 SIGNATURES (continued)
Signatures Title Date /s/ P. Clinton Winter, Jr. Director March 27, 1997 - ------------------------------- /s/ Douglass H. Adams Director March 27, 1997 - ------------------------------- /s/ R. Terry Butcher Director March 27, 1997 - ------------------------------- /s/ James W. Word, Jr. Director March 27, 1997 - -------------------------------
34 UNITED BANKSHARES, INC. FORM 10-K INDEX TO EXHIBITS Item 14.
S-K Item 601 Sequential Page Description Table Reference Number (a) - ----------- --------------- --------------- Articles of Incorporation and Bylaws: (3) (a) Bylaws (g) (b) Articles of Incorporation (f) Investments (4) N/A Voting Trust Agreement (9) N/A Material Contracts (10) (a) Employment Agreement with I. N. Smith, Jr. (b) (b) Employment Agreement with Richard M. Adams (e) (c) Lease on Branch Office in Charleston Town Center, Charleston, West Virginia (b) (d) Lease on United Center, Charleston, West Virginia (h) (e) Lease with Polymerland, Inc. on UNB Square (h) (f) Lease and Agreement between Valley Savings and Loan Company (Lessor) and Dorothy Adams, Richard M. Adams and Douglass H. Adams (Lessees) (c) (g) Agreement between Dorothy D. Adams (Lessors) and Valley Savings and Loan Company (Lessees) (c)
S-K Item 601 Sequential Page Description Table Reference Number (a) - ----------- --------------- --------------- (h) Employment Contract with Douglass H. Adams (d) (I) Employment Contract with Thomas A. McPherson (d) (j) Data processing contract with FISERV (k) (k) Supplemental Retirement Contract with Richard M. Adams (i) (l) Supplemental Retirement Contract with Douglass H. Adams (i) (m) Executive Officer Change of Control Agreements (j) (n) Data processing contract with ALLTELL 54 Statement Re: Computation of Per Share Earnings (11) 105 Statement Re: Computation of Ratios (12) 106 Annual Report to Security Holders, et al. (13) 78 Letter Re: Change in accounting principles (18) N/A Previously Unfiled Documents (19) N/A Subsidiaries of the Registrant (22) 107 Published Report Regarding Matters Submitted to a Vote of Security Holders (23) N/A Consent of Ernst & Young LLP (23) 108 Power of Attorney (25) N/A Financial Data Schedule (27) 109 Additional Exhibits: (28) N/A
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
EX-10.(N) 2 DATA PROCESSING CONTRACT WITH ALLTEL Exhibit 10(n) ALLTEL MORTGAGE INFORMATION SERVICES, INC. ELECTRONIC DATA PROCESSING SERVICES AGREEMENT ALLTEL MORTGAGE ALLTEL Information Services, Inc. - Mortgage Division Post Office Box 2388 - Jacksonville, Florida 32231 (904) 359-5000 54 ALLTEL MORTGAGE INFORMATION SERVICES, INC. ELECTRONIC DATA PROCESSING SERVICES AGREEMENT Agreement No.: 183-96BP This ELECTRONIC DATA PROCESSING SERVICES AGREEMENT ("Agreement") is entered into as of this 9th day Of May 1996 ("Effective Date") by and between ALLTEL Mortgage Information Service Inc., ("ALLTEL Mortgage"), the address of which is 601 Riverside Avenue, Jacksonville, Florida 32204, and United Home Lending Services, Inc. ("Client"), the address of which is 227 Capital Street, Charleston, West Virginia 25321. ALLTEL Mortgage and Client hereby agree as follows: 1. DEFINITION OF PROCESSING SERVICES --------------------------------- 1.1 The Software Systems ("Software or System") referred to by this Agreement are a series of computer programs employed by ALLTEL Mortgage to perform electronic data processing ("EDP") services for its clients. ALLTEL Mortgage's Documentation User Manuals ("Documentation") for the Software are incorporated herein by reference as a definition of the functions of the Software. 1.2 ALLTEL Mortgage, using the Software, its EDP equipment and EDP skills, will perform EDP services for Client. This Agreement includes the Addenda and Schedules (specifically identified by an "X" below), which are attached hereto and incorporated herein by reference:
Pages x Addendum I - CPI Mortgage Servicing Package with On-line Services 1-2 x Addendum I - Schedule A - System Availability Times 1-1 x Addendum I - Schedule I - Estimated One Time Costs 1-1 x Addendum II - ALLTEL Mortgage Optional Processing and Support Services 1-6 Addendum III - CPI Residential Loan Inventory Control 1-2 Addendum III - Schedule I - Estimated One Time Costs 1-1 Addendum IV - Disaster Recovery Plan 1-6 Addendum V - CPI Passport 1-6 Addendum VI - CPI Navigator 1-3 Addendum VII - CPI Training Services 1-5
2. TERM ---- 2.1 Original Term. The original term of this Agreement shall be the period ------------- beginning with the Effective Date of this Agreement through July 31, 1999 (the "Original Term"). For Agreements where the Original Term commences on a date other than January 1, the first year of the Original Term shall be deemed to be the period from the cunni of the Original Term through and including the immediately succeeding December 31. 2.2 Extended Terms. Following the Original Term, the Agreement will --------------- automatically renew for successive one year periods, unless terminated in accordance with Paragraph 13 hereof, on the same terms and conditions (the "Extended Term"); provided however, the Basic Processing Charges for such Extended Term shall be at ALLTEL Mortgage's then published rates. 3. INPUT/OUTPUT SERVICES ---------------------- 3.1 Input. Client shall perform the data entry requirements from items of ------ original entry (which items remain in the possession of Client). Client shall create the input data and Client and/or Client's agent will transmit the input data required by each System, as defined in the Documentation, to ALLTEL Mortgage's computer facilities in Jacksonville via satellite or some other mutually agreed upon method of data transmission. Input data is to be received by ALLTEL Mortgage each business day, or other processing frequency as required, at a mutually agreed upon time. Client shall be responsible for verification of the data transmitted and for the release of the data to ALLTEL Mortgage for processing. 3.2 Output. ALLTEL Mortgage will process the data using the Software and will ------- have the output available to allow the Client to begin to print the output data at Client's location at a mutually agreed upon time. ALLTEL Mortgage will use its best efforts to complete the processing and transmission of Client's data on schedule provided Client has transmitted and released its input in accordance with Paragraph 3.1 of this Agreement. 1 55 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT --------------------------------------------- 3.3 Rejected Transactions and System Balancing. Client shall correct and ------------------------------------------- resubmit all transactions rejected by the Software and Client shall be responsible for reconciling and adjusting differences in batch control totals which result from rejected transactions and/or erroneous control totals. Client is responsible for the system balancing on a daily basis. 3.4 Reasonable Care. Client agrees to exercise reasonable care in the use of ---------------- each service. "Reasonable care" includes, but is not limited to scheduling certain reports and producing large volumes of output data only on selected days. Certain reports identified in the Documentation have been blocked in the Software System from being produced during peak cycles. 4. ON-LINE SERVICES ---------------- 4.1 Description and Availability of Services. ALLTEL Mortgage agrees to ----------------------------------------- provide to Client on-line access to information contained in Client's mortgage master, history, and certain utility files from terminals located in Client's office(s). The Documentation lists the inquiry displays and the primary data entry menus to be provided by ALLTEL Mortgage. The on-line systems access Client's files through the CICS tele-communication facility. The data entered by Client is verified using logic tests. Errors found in the data are immediately displayed to Client for correction. These on-line services shall be available at the times specified in Addendum I Schedule A attached to this Agreement. ALLTEL Mortgage shall put forth its best efforts to maximize the availability of the on-line systems during the times specified in Schedule A; provided, however, reasonable periods of system outages shall not be construed as a default of this Agreement. Data accepted by the on-line system generates transactions which are stored on ALLTEL Mortgage's host computer. This transaction file serves as an input file for the Client's update processing run. The on-line system includes on-line or printed documentation for every screen in the System. Instructions for operating the Software and for entering transactions are included therein. 4.2 Error Correction. ALLTEL Mortgage shall use its best efforts to minimize ----------------- rejects due to program logic errors. The on-line systems also contain an on- line interrogation feature. Client realizes that ALLTEL Mortgage will have w control over conflicts affecting the same loan number within the same processing cycle or correction and resubmission of all transactions originally entered through the on-line system and rejected by the system. Client shall be responsible for reconciling and adjusting any differences in control totals which result from rejected transactions and/or erroneous totals. 5. TRANSMISSION SERVICE & TERMINAL EQUIPMENT ----------------------------------------- 5.1 Transmission Service. Client will pay all costs for --------------------- installation/deinstallation and for the data transmission service between Client's office and ALLTEL Mortgage's site. ALLTEL Mortgage shall specify and order the type of transmission service required and will bill Client for those transmission services in accordance with the fees set forth on Addendum E to this Agreement. In the event Client relocates its service center, Client shall be responsible for the cost of deinstalling at Client's old site and for reinstallation of such transmission service at Client's new site. Should Client desire to terminate the data transmission service, Client shall give ALLTEL Mortgage not less than ninety (90) days written notice. Client shall be responsible for any deconversion costs of such transmission service at the time of termination of such service. 5.2 Communication Devices. The communication devices, satellite or ---------------------- terrestrial, shall be specified and ordered by ALLTEL Mortgage. Such devices will be leased in ALLTEL Mortgage's name or owned by ALLTEL Mortgage. ALLTEL Mortgage, in turn, will bill Client for such devices located in Client's office(s). Should Client desire to terminate the devices, Client shall give ALLTEL Mortgage not less than ninety (90) days notice. 5.3 Terminal and Printing Equipment. ALLTEL Mortgage will specify the type of -------------------------------- terminal equipment to be used by Client. Client may use its most cost effective or efficient method for acquiring the equipment specified by ALLTEL Mortgage. ALLTEL Mortgage, as an OEM dealer, may sell or lease the terminal equipment to Client. In such case, ALLTEL Mortgage and Client will execute ALLTEL Mortgage's "Master Agreement for Hardware Purchase" or ALLTEL Mortgage's "Equipment Lease Agreement", whichever applies. 5.4 Transmission Problems. ALLTEL Mortgage shall use its best efforts in ---------------------- isolating data transmission problems and obtaining service from the terminal hardware vendors and/or communication carriers. In situations where data transmission is rendered impossible by virtue of equipment failure at ALLTEL Mortgage's site, ALLTEL Mortgage agrees to print such data and ship to Client at the expense of ALLTEL Mortgage. In the event of inability to transmit because of the communication carrier, the cost to print and ship will be borne equally by ALLTEL Mortgage and Client. In the event of equipment failure at Client site, Client pays all printing and shipping costs. 5.5 Shipment of Output. Client may elect to have input/output functions ------------------ performed at ALLTEL Mortgage and to have the output shipped to Client by ALLTEL Mortgage. The cost of such functions including postage and/or freight incurred to ship output media to Client are billable to Client at ALLTEL Mortgage's standard rates for Optional Processing and Support Services as shown in Addendum II. 2 56 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT --------------------------------------------- 6. BASIC PROCESSING CHARGES ------------------------ 6.1 Basic Monthly Charges. In consideration for processing its data using the ---------------------- Software, Client agrees to pay a monthly charge and fee according to the schedules contained in each of the Addenda attached hereto, but in no case less than the minimum monthly charge set forth in the Schedules. 6.2 Software Modifications. The basic processing charges are for computer ----------------------- processing and for other services as described in Addendum I, Article 2. hereto. All reports described in the Documentation and processing provided by the standard Software System are available to Client as of the date of conversion. Custom or special modifications of the Software are available to Client upon specification of the nature of such modification and payment of fees to be negotiated between Client and ALLTEL Mortgage for each such modification as more specifically described in Paragraph 8 of this Agreement. 7. OPTIONAL PROCESSING AND SUPPORT SERVICES ---------------------------------------- 7.1 From time to time, Client may elect to use ALLTEL Mortgage's input/output functions, such as data entry, printing, microfiche, special computer usage for Easytrieve, consulting, etc. These services will be billed to Client in accordance with the Schedule of Optional Processing and Support Services as shown in Addendum II. Supplies, including rental charges for tapes and disks dedicated to the storage of Client's data, and Client's usage of ALLTEL Mortgage's electronic mail communication system known as "CIMON", will also be charged according to ALLTEL Mortgage's Optional Processing and Support Services as shown in Addendum II. ALLTEL Mortgage's Optional Processing and Support Services, as described in Addendum II, may be increased upon thirty (30) days written notice to Client. 8. PROGRAM MODIFICATIONS --------------------- 8.1 Customized Modifications. Report contents and processing logic in the ------------------------- Software may be modified from time to time. Client may initiate such modifications by defining the desired change on a System Service Request ("SSR") and submitting the SSR to ALLTEL Mortgage. ALLTEL Mortgage will review the SSR and return it to Client with a fixed price, which will include the cost of the programming definition, programming, testing, installation and documentation. If the Client wishes to proceed with the programming and installation of the modification, Client will execute the SSR, approving the fixed price indicated and return it to ALLTEL Mortgage for implementation. The CPI MSP 850 Report ("Mortgage Servicing Client Project Inventory") will identify all approved SSRs to be invoiced to Client. 8.2 Standard Enhancements. Based on changes to government regulations, tax ---------------------- laws, mortgage industry and mortgage agencies' needs, as well as to increase the efficiency of the System, ALLTEL Mortgage will issue, usually each month, standard enhancement changes which are included as part of the Basic Processing Charges described in Addendum 1, Article 2. 8.3 New System Offerings. In addition to any products made available to --------------------- Client under Paragraphs 8. l and 8.2 of this Agreement, installation and implementation of the new systems or subsystems comprising the "CPI Renaissance" Architecture (the "Architecture") may be provided for an additional fee or under a new pricing structure and subject to additional or different terms and conditions. Such systems or subsystems will be specifically identified as part of the Architecture. Implementation of any such additional fee or pricing structure for the Architecture shall not be restricted by the Consumer Price Index adjustment provision set forth in Addendum I, Article 2 of this Agreement. ALLTEL Mortgage will present the features of the Architecture to Client and will inform Client of any fees related to their installation and implementation. Client shall be responsible for any increase in charges (if any) associated with the Architecture. Any additional services requested by Client, not offered as part of the Architecture package, will be billable to Client at ALLTEL Mortgage's then current rates for such services. 9. TAXES ----- 9.1 All taxes, however designated, arising from or based upon this Agreement or the payments made to ALLTEL Mortgage by Client pursuant hereto, including, but not limited to, all applicable sales, use and excise taxes, shall be paid by Client as the same become due. Client shall, upon request by ALLTEL Mortgage, pay the same either to ALLTEL Mortgage or to the appropriate taxing authority at any time during or after the termination of this Agreement. Client shall not be responsible for the payment of any state, federal, or local franchise or income taxes based upon the net income of ALLTEL Mortgage. 3 57 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT --------------------------------------------- 10. AUTHORIZED EMPLOYEES -------------------- 10.1 Client shall designate in writing to ALLTEL Mortgage within thirty (30) days of the execution of this Agreement and when requested by ALLTEL Mortgage from time to time, employees who are authorized to contact ALLTEL Mortgage support personnel, to release input data or request reports, to approve System Service Requests (SSRs) and to authorize other requests for services under this Agreement. ALLTEL Mortgage may rely on the actions and representations of such authorized employees without performing any further investigation or confirmation. Client shall be bound by all agreements both written and verbal, entered into between ALLTEL Mortgage and such authorized employees. 11. OWNERSHIP AND CONFIDENTIALITY ----------------------------- 11.1 Client acknowledges that the Software and all information, programs, documentation and assistance concerning it are the sob property of ALLTEL Mortgage, and that they constitute the valuable proprietary products and trade secrets of ALLTEL Mortgage embodying substantial creative efforts, ideas and expressions. Client further agrees to observe complete confidentiality regarding all aspects of the Software including, without limitation, agreeing not to disclose or otherwise permit any other person or entity access to, in any manner, the Software or any part thereof, except that such disclosure or access shall be permitted to an employee of the Client requiring such access in the course of employment. Upon termination of this Agreement, Client agrees to return the Software and all parts thereof, to destroy any copies made by Client, and to certify to ALLTEL Mortgage in writing that it has returned or destroyed all parts of the Software information. Client acknowledges that the terms and conditions of this Agreement and the related negotiations between Client and ALLTEL Mortgage with respect to this Agreement shall be treated as confidential pursuant to this Paragraph. 11.2 ALLTEL Mortgage acknowledges that the data is the sole property of the Client, and agrees to take all such reasonable measures as may be necessary to protect the confidentiality of such. Client consents to the use by ALLTEL Mortgage of statistical data generated by the Software provided that such use shall not directly or indirectly identify Client or any specific individual. 11.3 All data stored by ALLTEL Mortgage's system remains the property of the Client. At the request of Client, and upon payment to ALLTEL Mortgage of all monies due under the terms of this Agreement, ALLTEL Mortgage shall transfer this data to Client. 12. LIMITATION OF LIABILITY ----------------------- 12.1 ALLTEL MORTGAGE'S OBLIGATION IN THE EVENT OF NEGLIGENCE OR ERROR BY ALLTEL MORTGAGE IN THE PERFORMANCE OR NON-PERFORMANCE OF ITS DUTIES HEREUNDER SHALL BE LIMITED TO REPROCESSING THE DATA FOR CLIENT. CLIENT AGREES TO NOTIFY ALLTEL MORTGAGE WITHIN TWO (2) BUSINESS DAYS OR TWO (2) PROCESSING CYCLES AFTER THE RECEIPT OF ERRONEOUS DATA. 12.2 IN NO EVENT WILL ALLTEL MORTGAGE BE LIABLE FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR THIRD PARTY DAMAGES OF ANY KIND INCLUDING, BUT NOT LIMITED TO LOST PROFITS, LOSS OF GOODWILL OR BUSINESS INTERRUPTION, ARISING OUT OF THIS AGREEMENT OR THE USE OF ANY EQUIPMENT, THE SOFTWARE, DOCUMENTATION OR SERVICE PROVIDED UNDER THIS AGREEMENT EVEN IF ALLTEL MORTGAGE HAS BEEN ADVISED IN ADVANCE THAT SUCH DAMAGES MAY BE INCURRED. 13. TERMINATION ----------- 13.1 Written Notice During Extended Term. Either party may terminate this ------------------------------------ Agreement at the end of the Original Term or at the end of any Extended Term by giving the other one hundred eighty (180) days advance written notice prior to the end of the Original Term or the then current Extended Term. 13.2 Monetary Default. In the event Client shall default in the payment of -------- any sums due by it hereunder, and such default is not cured within thirty (30) days after written notice from ALLTEL Mortgage, then ALLTEL Mortgage may terminate this Agreement. Either party may then invoke the provisions of Article 21, Conflict Resolution. Amounts remaining & outstanding after such -------- thirty (30) day period shall accrue interest at the highest rate allowed by law. 13.3 Non-Monetary Default In the event ALLTEL Mortgage or Client shall -------------------- materially default in the performance of any of their duties, and if such party does not remedy the default within thirty (30) days after the receipt of written notice from the other party, the non-defaulting party may terminate this Agreement. Either party may then invoke the provisions of Article 21, Conflict Resolution. ------------------- 4 58 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT --------------------------------------------- 13.4 Extended Force Majeure. In the event the ability of either party to ----------------------- perform its obligations under this Agreement is prevented by a Force Majeure event as described in Paragraph 22.1 hereof, passage of any law or any other similar force beyond the control of that party for a period of more than thirty (30) days, then either party may terminate this Agreement upon written notice to the other party. Ln the event the affected party elects not to terminate this Agreement, Client and ALLTEL Mortgage will negotiate a proration of monthly processing charges based on the period performance was prevented. 13.5 Bankruptcy. In the event that either party files any petition for ----------- protection under any Federal or state bankruptcy acts, or if an involuntary petition in bankruptcy is filed against either party and is not discharged in thirty (30) days, or if either party commits an act of bankruptcy, or if a receiver, trustee or Marshall of either party's assets is appointed, or if there is any material default under any bank credit agreement, the other party may immediate terminate this Agreement by giving written notice of termination to that party. The non-defaulting party shall be entitled to pursue any and all remedies available to it at law or in equity. 13.6 Breach of Confidentiality In the event of a breach of the provisions of ------------------------- Article 11 hereof, the non-defaulting party may immediately terminate this Agreement and invoke the provisions of Article 21, Conflict Resolution. -------------------- 13.7 Regulatory Notices. In the event Client is a Federally Insured Savings ------------------- and Loan Association and should the Agreement terminate or if there are any material changes in the services to be performed by ALLTEL Mortgage, ALLTEL Mortgage will provide notice to the RTC/OTS District Director or to the Department of Treasury agency having jurisdiction. 13.8 Effect of Termination. Upon termination of this Agreement, Client's ---------------------- right to use the processing services contemplated hereunder shall end immediately. Client and ALLTEL Mortgage agree that, notwithstanding any certification required by this Paragraph, obligations of confidentiality herein shall, upon termination of this Agreement, continue in full force and effect and shall be binding upon Client and ALLTEL Mortgage following such termination. 14. NON-SOLICITATION OF EMPLOYEES ----------------------------- 14.1 Client and ALLTEL Mortgage agree that neither party will solicit the services of any employee of the other party during the Original Term or any Extended Term of this Agreement, without first obtaining the written consent of the other party. notwithstanding the foregoing, Client and ALLTEL Mortgage understand and agree that the following shall not constitute solicitation under this Article 14: (i) employment solicitations directed to the general public at large, including without limitation newspaper, radio and television advertisements, and (ho an employment solicitation directed by a party to an employee of the other party, and any related communication, the occurs after a communication regarding employment that was initiated by the employee. 15. DOCUMENTATION AND REVIEW OF INTERNAL CONTROLS OF ALLTEL MORTGAGE ---------------------------------------------------------------- 15.1 ALLTEL Mortgage, annually, will provide Client (and to the District Director of the OTS if applicable) at no charge with one (1) copy of the Documentation and Review of Internal Controls ("Third Party Review") prepared by its Certified Public Accountants each year. The Third Party Review is a review of ALLTEL Mortgage's internal procedures, and is not intended in any way to replace or substitute Client's internal annual review. 16. FINANCIAL INSTITUTIONS ---------------------- 16.1 National Banks. If Client is a national bank, or is either directly or -------------- indirectly owned by a national bank or its parent holding company is a national bank, Client agrees to permit ALLTEL Mortgage to make available Client's records, data and procedures to the EDP Examiners of the Comptroller of the Currency, Administrator of National Banks, or to any supervising agency which has the authority to examine the records of Client, if so requested. 16.2 State Banks. If Client is a state chartered, non-member Federal Reserve ----------- bank, a federal member state bank or a state chartered bank, Client agrees to permit ALLTEL Mortgage to make available Client's records, data and other procedures to the Federal Deposit Insurance Corporation ("FDIC"), to the Federal Reserve System, or to the State Banking Department whichever is applicable, or to any bank supervising agency which has the authority to examine the records of Client, if so requested. 16.3 Savings Institutions. If Client is a state or Federally Insured Savings --------------------- and Loan Association, Client agrees to permit ALLTEL Mortgage to make available Client's records, data and other procedures to the OTS or RTC and/or its examiners or to any supervising agency which has the authority to examine the records of Client, if so requested. 5 59 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT --------------------------------------------- 16.4 Other Institutions. Client agrees to permit ALLTEL Mortgage to make ------------------- available Client's records, data and other procedures to the OTS or RTC and/or its examiners and to the Federal Deposit Insurance Corporation ("FDIC") and/or its examiners, or to any supervising agency which has the authority to examine the records of Client, if so requested by any of the foregoing agencies. Further, ALLTEL Mortgage and Client agree by entering into this Agreement, that the Office of Thrift Supervision will have the authority and responsibility provided to the other regulatory agencies pursuant to the Bank Service Corporation Act, 12 U.S.C. 1867 (C) relating to services performed by contract or otherwise. 17. STORAGE OF DATA FILES --------------------- 17.1 ALLTEL Mortgage will provide off-site storage for Client's data files so that they can be reconstructed in the event of loss or destruction of Client's processing files at ALLTEL Mortgage's data center. Such off-site storage will be in accordance with the guidelines set forth in ALLTEL Mortgage's Third Party Review. 18. ASSIGNMENT ---------- 18.1 Neither this AGREEMENT nor any rights or obligations hereunder may be assigned by either party hereto without the prior written consent of the other. Merger, consolidation or other business reorganization of either party shall not be doomed an assignment hereunder; provided that the Assignor is not an entity, or an affiliate or subsidiary of an entity, which engages or attempts to engage in the business of providing any software or services that compete with such software or services provided by the non- assigning party. The assigning party hereby agrees to provide reasonable advance notice to the other party of any assignment which does not require the consent of such other party. This Agreement shall insure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Neither the terms of this Agreement nor any performance hereunder shall be construed to create any rights in any person other than the parties to this Agreement. 19. FURTHER ASSURANCE ----------------- 19.1 ALLTEL Mortgage and Client agree to perform all acts and execute all supplementary instruments or documents which may be necessary to carry out the provisions of this Agreement. 20. INDEPENDENT CONTRACTOR ---------------------- 20.1 ALLTEL Mortgage is an independent contractor which has the solo right to supervise, manage, control and direct its performance of services. The performance of activities by either party under this Agreement shall not constitute either a joint venture or partnership of the parties. This Agreement shall not be construed to limit in any way the rights of the parties to pursue, independently and in accordance with their respective management policies, any aspects of their respective businesses and operations. 21. CONFLICT RESOLUTION ------------------- 21.1 Informal Dispute Resolution. --------------------------- (a) ALLTEL Mortgage and Client agree to notify each other as promptly as possible of any conflicts arising out of this Agreement or in the interpretation of the provisions of this Agreement, or any dispute as to whether or not an event of default has occurred. ALLTEL Mortgage and Client further agree to attempt to resolve all such conflicts as promptly as possible and in good faith before initiating any causes of action arising out of this Agreement. (b) If any dispute remains unresolved for any reason after thirty (30) days following the initial request for informal dispute resolution, or such other period of time as mutually agreed to, then the parties may agree to continue informal efforts to resolve the dispute or either party may initiate a binding arbitration proceeding as contemplated by Paragraph 21.2 of this Agreement. 21.2 Binding Arbitration. ALLTEL Mortgage and Client stipulate and agree that -------------------- if they are unable to resolve any controversy arising under this Agreement as contemplated by Paragraph 21.1 and if such controversy is not subject to Paragraph 21.3 of this Agreement, then such controversy, and any ancillary claims not so resolved and not so subject, shall be submitted to binding arbitration at the election of either party (the "Disputing Party") pursuant to the following conditions: (a) Selection of Arbitrator. The Disputing Party shall notify the American ------------------------ Arbitration Association ("AAA") and the other party in writing describing in reasonable detail the nature of the dispute (the "Dispute Notice"), and shall request that AAA furnish to the parties a list of five (5) possible arbitrators who shall be licensed to practice law in the United States and shall have at least five (5) years of experience in data processing matters. Each party shall have fifteen (15) days to reject two (2) of the proposed arbitrators. If one (1) individual has not been so rejected, he or she shall serve as arbitrator; if two (2) or more individuals have not been so rejected, AAA shall select the arbitrator from those individuals. 6 60 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT --------------------------------------------- (b) Conduct of Arbitration. Arbitration will be conducted by the arbitrator ----------------------- selected pursuant to subparagraph 21.2(a) with respect to the dispute described in the Dispute Notice and any other disputes related to this Agreement between the parties to this Agreement (i) pending at the inception of such arbitration and not otherwise being arbitrated under this Paragraph 21.2; or (ii) arising during the pendency of such arbitration in accordance with the rules of AAA, except as specifically provided otherwise in this Paragraph 21.2. The arbitrator will allow reasonable discovery in the forms permitted by the Federal Rules of Civil Procedure, to the extent consistent with the purpose of the arbitration. The arbitrator will have no power or authority, under the rules of AAA or otherwise, to amend or disregard any provision of this Paragraph 21.2. The arbitration hearing shall be limited to not more than ten (10) days, with each of Client and ALLTEL Mortgage being allocated one-half of the time for the presentation of its case. Unless otherwise agreed to by the parties, an arbitration hearing shall be conducted on consecutive business days. (c) Replacement of Arbitrator. Should the arbitrator refuse or be unable to -------------------------- proceed with arbitration proceedings as called for by this Paragraph 21.2, such arbitrator shall be replaced by an arbitrator selected from the other four (4) arbitrators originally proposed by AAA and not rejected by the parties, if any, or if there are no remaining proposed arbitrators who have not been rejected, by repeating the process of selection described in subparagraph 21.2(a) above. If an arbitrator is replaced pursuant to this subparagraph 21.2(c), then a rehearing shall take place in accordance with the provisions of this Paragraph 21.2 and the rules of AAA. (d) Findings and Conclusions. The arbitrator rendering judgment upon ------------------------ disputes parties to this Agreement writing as provided in this Paragraph 21.2 shall, after reaching judgement and award, prepare and distribute to the parties a describing the findings of fact and conclusions of law relevant to such judgment and award and containing an opinion setting forth the reasons for the giving or denial of any award. (e) Place of Arbitration Hearings. Arbitration hearings contemplated by ------------------------------ subparagraph 21.2(b) shall be held in Jacksonville, Florida. If ALLTEL Mortgage and Client agree, arbitration hearings may be held in another location. (f) Time of the Essence. The arbitrator is instructed that time is of the -------------------- essence in the arbitration proceeding, and that the arbitrator shall have the right and authority to issue monetary sanctions against either of the parties if, upon a showing of good cause, the party is unreasonably delaying the proceeding. The arbitrator shall render his or her judgment or award within fifteen (15) days following the conclusion of the arbitration proceeding. Recognizing the express desire of the parties for an expeditious means of dispute resolution, the arbitrator shall limit or allow the parties to expand the scope of discovery as may be reasonable under the circumstances. (g) Limitation OD Authority of Arbitrator. If the arbitrator finds that a -------------------------------------- material breach of this Agreement has occurred, the arbitrator shall not have the authority to exclude the right of a party to terminate this Agreement by virtue of such material breach. The arbitrator will have no power or authority, under the rules of AAA or otherwise, to amend or disregard any provisions set forth in this Agreement and shall be limited to rendering judgement on the dispute being arbitrated pursuant to this Article 21. 21.3 Litigation (a) Immediate Injunctive Relief. The parties to this Agreement agree that the ---------------------------- only circumstance in which disputes between them will not be subject to the provisions of Paragraphs 21.1 and 21.2 is where ((i) a party defaults under the provisions of Paragraph 13.5 of this Agreement or ii) a party makes a good faith determination that a breach of the terms of this Agreement by the adhere party is such that the damages to such party resulting therefrom will be so immediate, so large or severe and 50 incapable of adequate redress after the fact that a temporary restraining order and/or other immediate injunctive relief is the only adequate remedy for such breach. If a party making such a determination files a pleading with a court seeking such immediate injunctive relief and this pleading is challenged by the other party to this Agreement and the challenging party succeeds in such challenge, the party filing such pleading seeking immediate injunctive relief shall pay all of the costs and attorneys' fees of the party successfully challenging such pleading. 21.4 Costs and Attorneys' Fees. Notwithstanding any rule of AAA to the -------------------------- contrary, the arbitrator rendering judgment upon disputes between the parties to this Agreement as provided in Paragraph 21.2 shall have the power to award all cost and attorneys' fees between the pa ties subject to such disputes. 21.5 Continued Performance. Except where prevented from doing so by the matter ---------------------- in dispute, both parties Agee to continue performing their respective obligations under this Agreement while the dispute is being resolved unless and until such obligations are terminated by the expiration or termination of this Agreement. 7 61 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT - --------------------------------------------- 22. FORCE MAJEURE ------------- 22.1 ALLTEL Mortgage or Client shall not be responsible for delays and failures in performance resulting from act beyond their control. Such act shall include but not be limited to act of God, strikes, lockout , riot, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, power failures, earthquakes, or other disasters. 23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ------------------------------------------ 23.1 The terms, provisions, representations, warranties and covenant contained in this Agreement shall survive the delivery and acceptance of those services to be delivered hereunder, the payment of any fees or other charges hereunder, and the termination of this Agreement for any reason. 24. WAIVER ------ 24.1 The waiver of a breach of, or a default under, any term or condition of this Agreement shall not be construed as a continuing waiver of any such term or condition, nor shall a waiver of a breach of, or a default under, any term or condition be construed as a waiver of any breach or default under any other term or condition, or in any manner affect any other term or condition hereof. 25. ARTICLE HEADINGS ---------------- 25.1 The article and other headings of this Agreement are inserted for convenience only and in no way define, limit, or describe the scope or intent of this Agreement, nor affect its terms or provisions. 26. SEVERABILITY OF PROVISIONS -------------------------- 26.1 The provisions of this Agreement are severable, and if any provision is hereafter declared invalid or unenforceable by any court of competent jurisdiction, such determination shall not affect the validity of any other provision hereof. 27. NOTICES ------- 27.1 Whenever the giving of a written notice by ALLTEL Mortgage or Client is required by this Agreement, such notice shall be given personally or sent by certified mail or overnight courier, postage prepaid, addressed to the other party in care of a designated officer and at the address listed in the preamble of this Agreement or at such other address as may be specified by ALLTEL Mortgage or Client in advance in writing to the other, and shall be deemed to have been given on the date of receipt by the other. 28. SECURITY -------- 28.1 The System provides Client with built-in security through initial access and through submenus. Client is responsible for the initial setup of security levels and security codes as well as for the ongoing maintenance of security codes and security levels within the System. Client agrees at the time this Agreement is executed to identify in writing to ALLTEL Mortgage the person who is responsible for the initiation and maintenance of the security controls within the System. 29. BILLINGS -------- 29.1 ALLTEL Mortgage shall render invoices for services monthly. Invoices for special charges incurred during the month will be rendered as of the last day of that month. Invoices are due and payable by Client upon receipt. 30. WARRANTIES ---------- 30.1 ALLTEL Mortgage represents and warrants that the mortgage loan processing performed by the System conforms to the specifications set forth in the Documentation. ALLTEL Mortgage further represents and warrants that the System was developed by ALLTEL Mortgage for its own use, and that ALLTEL Mortgage has all the necessary right to use such System to provide mortgage loan servicing for Client under the terms of this Agreement. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 8 62 ELECTRONIC DATA PROCESSING SERVICES AGREEMENT - --------------------------------------------- 31. ATTORNEYS' FEES --------------- 31.1 In the event of any litigation between the parties to enforce the provisions of this Agreement, the prevailing party shall be entitled to reimbursement of all costs of such action including but not limited to reasonable attorney's fees, whether incurred prior to or at trial or on appeal. 32. DISASTER RECOVERY ----------------- 32.1 ALLTEL Mortgage will provide disaster recovery services for its batch and on-line processing obligations to Client at a dedicated facility which is equipped to handle ALLTEL Mortgage's data center processing in the event disaster recovery is needed. Provided that Client is utilizing the ALLTEL Mortgage telecommunication network, ALLTEL Mortgage agrees to provide data communication access to the disaster recovery facility, including the necessary communication devices (multiplexors, moderns, channel extenders, dc.) to facilitate such communication; otherwise, Client shall be responsible for providing, and paying for, the necessary communication lines and devices. Throughout the term of this Agreement, ALLTEL Mortgage will maintain in effect contracts and/or arrangements for disaster recovery which are substantially equivalent to those which are currently in effect. 32.2 Client acknowledges that disaster recovery arrangements are designed to deal with circumstances which are expected to cause a substantial portion of the capabilities at the ALLTEL Mortgage Data Center to be unavailable for a period exceeding seventy-two (72) hours. Should such an event or situation occur, ALLTEL Mortgage shall execute the Disaster Recovery Plan in a time frame and manner necessary to ensure the restoration of batch and on-line processing service to Client within seventy-two (72) hours of service interruption. 32.3 ALLTEL Mortgage will test its disaster recovery capabilities at least once per calendar year. Client is allowed to participate in the disaster recovery test when deemed appropriate by ALLTEL Mortgage. 33. PERFORMANCE AUDITS ------------------ 33.1 ALLTEL Mortgage will cooperate fully with Client or its auditors, internal or external, upon reasonable prior notice, for the purpose of inspecting, examining, and auditing the performance of the services to be rendered by ALLTEL Mortgage to Client hereunder (with the exception of any records, information or procedures which are of a confidential nature with a third party), provided, however, that any such inspection, examination and/or audit shall take place only during normal business hours and in a manner that will not disturb the ordinary transaction of ALLTEL Mortgage's business. ALLTEL Mortgage reserves the right to charge Client on a time and materials basis for any services required to be performed by ALLTEL Mortgage in connection therewith. Client shall put forth best efforts to limit any performance audits to a reasonable duration and to one per calendar year. Client will provide, and instruct its auditors, internal and external, to provide ALLTEL Mortgage with a copy of that portion of each written report containing contents concerning ALLTEL Mortgage or the services performed by ALLTEL Mortgage pursuant to this Agreement. 34. COMPLETE AGREEMENT AND GOVERNING LAW ------------------------------------ 34.1 This agreement constitutes the constitutes understanding of ALLTEL Mortgage and Client, and no other than is contained herein or in any agreement referred to herein shall be binding on either patty. No alteration, modification, or waiver of any provision hereof shall be valid unless in writing and signed by the parties hereto. 34.2 This Agreement shall be considered s entered into in the State of Florida and shall be governed by and construed in accordance with the laws of the State of Florida Any action or proceeding in litigation based upon this Agreement or arising out of its performance shall be brought in a Federal or State court of competent Jurisdiction in Florida and no other jurisdiction. ALLTEL Mortgage and Client have executed this Agreement on the date set forth above. UNITED HOME LENDING ALLTEL MORTGAGE INFORMATION SERVICES, INC. SERVICES, INC. BY: BY: /s/ J. Christopher Thomas 05/09/96 /s/ D. Robert Davis 05/13/96 ---------------------------------- ------------------------------------- SIGNATURE DATE SIGNATURE DATE J. Christopher Thomas D. Robert Davis NAME NAME Chairman & CEO Senior Vice President TITLE TITLE "CLIENT" "ALLTEL Mortgage" 63 ADDENDUM I CPI MORTGAGE SERVICING PACKAGE WITH ON-LINE SERVICES To Agreement No.: 183-96BP Original Term: 5/9/96 - 7/31/99 1. DEFINITION OF CPI MORTGAGE SERVICING PACKAGE a. The CPI Mortgage Servicing Package ("CPI MSP") referred to by this Agreement is a series of computer programs developed by ALLTEL Mortgage and currently employed by ALLTEL Mortgage to perform EDP services for its clients. ALLTEL Mortgage's Documentation is incorporated herein by reference as a definition of the functions of CPI MSP. A list of the standard output reports produced by the CPI MSP is included in the Documentation. 2. BASIC PROCESSING CHARGES ------------------------ a. In consideration for processing data in accordance with the CPI MSP and for Client's use of the Systems, Client shall be charged and shall pay to ALLTEL Mortgage processing charges according to the following table: Minimum Monthly Number of Principal Balance Loans: 8,000 ----------------------------------------------------- -----
LOANS ----- 1996 Monthly Rate From To Per Loan 0 10,000 0.793 10,001 20,000 0.679 20,001 30,000 0.566 30,001 50,000 0.533 50,001 75,000 0.437 75,001 100,000 0.406 100,001 150,000 0.367 150,001 250,000 0.335
b. This charge is to cover regular monthly and normal year-end processing. }which have been p~paid-in-full, foreclosed, or transferred to a non-affiliated company, and are therefore inactive zero balance loans, will be billed to Client at the rate of twelve cents ($0.12) @ per loan per month until December 31st of that year (unless there is an open paid-in-full tracking record). c. The above fees cover total on-line transactions equal to a max mum of ten (10) transactions per principal balance loan per month. For example, if Client has a processing portfolio of 10,000 principal balance loans, the above fees cover up to 100,000 transactions per month. ALLTEL Mortgage shall have the right to bill Client and Client agrees to pay a fee as described in Addendum II, Section 3 for the number of transactions over and above the maximum number of transactions. d. For the fees described above, the processing service will also include the following: 1. All documentation updates, telephone support, and enhancement videos (if applicable). 2. All shared standard CPI MSP enhancements added to the CPI MSP Software System during the Original Term or any Extended Term of this Agreement. (Note: Custom changes requested by Client shall be paid for by Client as defined by Client's SSR (see Article 6) for such custom changes.) 3. Up to one hundred (100) standard LetterWriter letters per each one thousand (1,000) principal balance loans per month (the "Allowable Amount"). Additional standard letters produced above the Allowable Amount and all ARM letters will be billable as described in Addendum II. 4. The Interest Accrual Subsystem Base monthly rate. (Note: Client shall pay the installation charges for such system). e. The Basic Processing Charges shall remain in effect for the first year of the Original Term of this Agreement. 1 64 ADDENDUM I ---------- f. Per Agreements where the Original Term's multi-year (where the "first year" is as defined in Paragraph 2.1 and which may be less than one (1) year in length), during the second and subsequent years of the Original Term, ALLTEL Mortgage reserves the tight upon thirty (30) days written notice to Client, to adjust the Basic Processing Charges and the Minimum Monthly Number of Loans. Such adjustment to the Basic Processing Charges shall not exceed the percent increase in the U.S. Department of Labor, Bureau of Labor Statistics, Consumer Price Index, U.S. City Average, for all Urban Consumers, other goods and services ('82-'84 = 100 (the "CPI-U Index") between the annual averages of the most recently published twelve (12) month period and the immediately preceding twelve (12) month period. For purposes of forecasting, documentation preparation, and advance notification requirements, the "most recently published" period shall be deemed to be the latest available published period at the time ALLTEL Mortgage begins its price adjustment process for the upcoming year. 3. CONVERSION SERVICES ------------------- 3.1 General. Each party Agrees to use their best efforts to convert Client's mortgage servicing portfolio by August 31, 1996.. Client agrees at the time this Agreement is executed, to identify its Project Coordinator. The Client's Project Coordinator will be responsible for the overall conversion effort, for all communications with ALLTEL Mortgage and for identifying and authorizing conversion critical programming modifications to the CPI MSP. 3.2 Project Management and Technical Services. ALLTEL Mortgage will provide ------------------------------------------ Client with specific project management and technical services during the conversion process. ALLTEL Mortgage will charge Client for such services based on the attached Schedule I. Services beyond the scope of those shown in Schedule I, will be billed at the ALLTEL Mortgage Optional Processing and Support Service Rates described in ADDENDUM II. 3.3 Conversion Programming ALLTEL Mortgage will provide file conversion ---------------------- programming to convert Client's servicing portfolio from the present method of processing the data to the CPI MSP. Client will use its best efforts to see that ALLTEL Mortgage is provided with documentation and cooperation with respect to the preconverted data. ALLTEL Mortgage will be responsible for the initial loading and balancing of the files, for performing file validation tests on the converted files and for ensuring that all of the Client's mortgage servicing computer files have been correctly converted to the formats required by the CPI MSP. 3.4 Optional Conversion Services. ALLTEL Mortgage provides optional ----------------------------- conversion services which have been identified to Client by ALLTEL Mortgage in the ALLTEL Mortgage conducted planning session. Services rendered by ALLTEL Mortgage to Client will be identified and described in ALLTEL Mortgage's System Service Request ("SSR") which acts as a "Work Order". ALLTEL Mortgage shall render Client an invoice for these services within thirty (30) days from the date of completion. The CPI MSP "850 Report" ("Mortgage Servicing Client Project Inventory") will be provided periodically to Client's Project Coordinator to identify all approved SSRs to be billed to Client. Conversion critical software modifications requested by Client must be identified, defined and a price approved by Client prior to the final conversion critical SSR due date established by ALLTEL Mortgage and Client in the published conversion schedule. ALLTEL Mortgage will provide Client's Project Coordinator with a periodic report identifying all conversion critical SSRs known to ALLTEL Mortgage. ALLTEL Mortgage will not be obligated to complete software modifications requested by Client by final conversion which are not received by ALLTEL Mortgage and approved by Client prior to the critical SSR due date in the final conversions schedule. 4. SPECIAL PRICING CONSIDERATIONS ------------------------------ 4.1 Basic Processing Credits. ALLTEL Mortgage shall grant to Client a credit ----------------------------- equal to twenty five thousand three hundred and seventy six dollars ($25,376), such credits shall be applied against the Basic Processing Charges beginning the month immediately following conversion, as calculated against the rate table shown in Article 2, Paragraph a. of this Addendum I, until fully expended. In no event shall such credit exceed twenty five thousand three hundred and seventy six dollars ($25,376) The credit is given in exchange for a three (3) year Original Term Agreement period. In the event Client terminates the Agreement prior to the end of the Original Term for reasons other than default by ALLTEL Mortgage, Client shall reimburse the full amount of the credit to ALLTEL Mortgage. 2 65 ADDENDUM I SCHEDULE A SYSTEM AVAILABILITY TIMES To Agreement No.:183 96BP 1. ALLTEL MORTGAGE ON-LINE SYSTEMS SCHEDULED SYSTEM AVAILABILITY * (Note: All times are Local Client time)
Day of Week Start-Time Stop-Time Monday 0800 2000 Tuesday 0700 2000 Wednesday 0700 2000 Thursday 0700 2000 Friday 0700 2000 Saturday 0700 1500 Sunday not available
* Note: Alaska, Hawaii, or Puerto Rico Clients' hours may vary. 2. EXCEPTIONS TO NORMAL ON-LINE SYSTEMS USAGE AVAILABILITY a. Holiday Schedules: ALLTEL Mortgage annually publishes the dates on which ALLTEL Mortgage observes the following holidays via electronic mail (CIMON). 1. Memorial Day 2. Independence Day 3. Labor Day 4. Thanksgiving 5. Christmas 6. New Year's There will be no support or regular systems processing available from 0700 on the dates published until 0700 the following day. If Client observes additional processing holidays, Client should notify ALLTEL Mortgage Client Services in writing at least 15 days prior to the scheduled holiday. b. Preventative maintenance will normally be conducted on the ALLTEL Mortgage in-house equipment until 0800 each Monday morning. This schedule will automatically change to Tuesday morning when ALLTEL Mortgage is closed for a holiday on Monday. Occasionally, the systems may not be available on Saturdays when ALLTEL Mortgage is making hardware/software upgrades or change-overs. In such instances, ALLTEL Mortgage will provide notice via electronic mail (CIMON). c. Year-end Processing: ALLTEL Mortgage will publish a special year-end processing schedule at least 60 days prior to each year-end. Client agrees to cooperate in meeting the special year-end processing schedule. 66 ADDENDUM II ALLTEL MORTGAGE OPTIONAL PROCESSING AND SUPPORT SERVICES BILLING RATES (As of January 1, 1996) TABLE OF CONTENTS ----------------- 1. TECHNICAL SUPPORT 1 a. Project Management 1 b. Technical Installation/Integration/Support 1 c. Communication Equipment 2 d. Teleprocessing Support Charges 2 e. CPI Electronic Mail Communication System ("CIMON") 2 f. CPI On-Line Reporting Environment ("CORE") 2 g. CPI On-Line Training System 2 2. PERSONNEL AND RELATED 2 3. COMPUTER PROCESSING 3 4. MEDIA AND OTHER 3 5. SPECIAL PROCESSING & SERVICES 3 6. DOCUMENTATION 5
67 ALLTELL INFORMATION SERVICES Mortgage Division United Home Lending Service, Inc. ADDENDUM I SCHEDULE I Estimated One Time Cost -----------------------
8,000 Loan Portfolio Project Initiation Phase (Data Analysis) $ 2,800 Planning Phase Planning Session $ 1,680 Pre-definition & Data Mapping $ 8,400 Data Definition $ 8,400 Development Phase Programming (ARMS) $ 5,600 Programming(MCP/Trans) $ 8,400 Test review (Investor) $ 2,800 Test review (All other) $ 5,600 Interactive Testing $ 11,200 Investor/Remittance Header $ 2,800 Implementation Programming $ 5,600 Testing $ 2,800 Final Support $ 11,200 Project Management $ 5,600 Optional lP's $ 10,000 General Ledger Interface (existing format) ($5,000) CIF file (existing format) ($5,000) Hardware/Communications Installation $ 4,500 Training $ 11,400 -------- Total $108,780
Optional Services: On-site functional review and testing support is $150 per hour. Note: Out of pocket expenses for travel, lodging, meals, and any application sales tax are reimbursed based on actual expense. Freight, postage and shipping are reimbursed based on actual expenses. This proposal is proprietary information. It is valid for ninety days and will expire on June 18, 1996 68 ADDENDUM II ALLTEL MORTGAGE OPTIONAL PROCESSING AND SUPPORT SERVICES BILLING RATES Effective January 1, 1996 (These rates are subject to adjustment upon 30 days notice.)
Hourly Charge* -------------- 1. TECHNICAL SUPPORT a. Project Management $140 Project Management consists of: site surveys, configuration analysis, communications design, Client/ALLTEL Mortgage coordination, Client/ALLTEL Mortgage/Vendor coordination, quality assurance, disaster recovery planning, project plan development and distribution. Project Management effort is typically categorized by one of the three following levels: 1. Project Management-Small (5 person hours or less) ------------------------------------------------- (e.g.: New Product standard additions - Laser Check System, TeleVoice, RJE, 3270 gateway additions) 2. Project Management-Medium (6-10 person hours) --------------------------------------------- (e.g.: Third Party - lockbox (i.e., lockbox banks), client technical moves, mergers dc acquisitions - technical components, disaster recovery consulting) 3. Project Management-Large ((greater than)10 person hours) ------------------------------------------- (e.g.: New Client conversions, Non-standard technical implementation - Advantis. Frame Relay) b. Technical Installation/Integration/Support Technical Installation/Integration/Support consists of: hardware assembly, software loads or modifications, installation or integration, testing, technical training, Client/ALLTEL Mortgage/Vendor coordination, technical onsite or telephone installation assistance, quality assurance. 1. Technical Support-Level One No Charge --------------------------- Productivity Product support during normal business hours (M-F), (ALLTEL Mortgage induced issues) for adds or changes such as: signature cartridges, logo changes, disaster recovery testing. 2. Technical Support-Standard $140 -------------------------- Onsite or telephone assisted installation or configuration of ALLTEL Mortgage standard product offerings such as: TeleVoice, Passport, Laser Check, Post Payoff, RJE or 3270 workstations, Graphical Workplace Shell, Customer Service Desktop, Navigator, as well as: Late or out of cycle system modifications (SYSMODS), disaster recovery testing outside of business hours but not during maintenance windows, and printer configuration support. 3. Technical Support-Non Standard $175 ------------------------------ Support of non-standard, non-certified configurations of printers or non-ALLTEL Mortgage related problems, LAN operating systems, non-standard desktop configurations, disaster recovery testing during ALLTEL Mortgage maintenance windows, troubleshooting support, mainframe or custom VTAM/host programming, and network design.
*Client also reimburses ALLTEL Mortgage for reasonable travel, meals, and lodging expenses, plus shipping & handling costs of materials shipped to the Client's site (when applicable) 1 69 ADDENDUM II
Installation Monthly Charge* Charge c. Communication Equipment 1. Transmission Links X X 2. 9600 BPS Port Charge (per 9600 BPS) N/A $100 3. Dial-Up Lockbox Port/Line Charge (per remote) See 1.a.2 $250 d. Teleprocessing Support Charges 1. Point to Point T leased Line Support (per Line) N/A $200 2. Multi-drop Branch office Support (each branch) N/A $ 50 3. RJE/3270 On-line (per Controller or Emulator) N/A $ 50 4. CPU to CPU (Bisync NJE) $500 $250 5. NJE Cross Domain facility $500 $250 6. Cross Domain Facility $1,500 $500 7. Excess Terminal Charge (above 2.5 Sessions per 1,000 N/A $20/Session total CPI MSP and RLIC Loans) e. CPI Electronic Mail Communication System ("CIMON") + $500 1. 2-10 Boxes $20/Box 2. 11-50 Boxes $15/Box 3. Over 50 Boxes $10/Box f. CPI On-Line Reporting Environment ("CORE"))++ N/A $0.025 per page stored 1. Compressed Print Set-up (for Non-Supported Printers) $100/hour N/A g. CPI On-Line Training System $1,000 $2,000 Unit Measure Rate Per Unit* ------------ -------------- 2. PERSONNEL AND RELATED a. Consulting Project Managers per hour $200.00 to $300.00 b. Senior Consultants per hour $175.00 to $250.00 c. Consultants per hour $100.00 to $175.00 d. Senior Systems Programmer per hour $175.00 e. Hardware h Software Installation per hour $140.00 f. Analysts, Programmers, Programmer/Analysts per hour $100.00 g. Client Support Representative per hour $75.00 h. On-Site Support (License Clients)(1 day minimum) per day $1,500.00
* Client also reimburses ALLTEL Mortgage for reasonable travel, meals, and lodging expenses, plus shipping & handling costs of materials shipped to the Client's site (when applicable) X At proposed rates for proposed configuration Subject to adjustment based ed on configuration and/or rate changes + Each subscribing ALLTEL Mortgage Client will be supplied with one (I) CIMON Communication Box at no charge ++ Available to Remote Clients only 2 70 ADDENDUM II
Unit Measure Rate Per Unit ------------ -------------- 3. COMPUTER PROCESSING a. Central processing unit:* 9021-972 System "A" per minute $372.00 9121-742 System "J" ** per minute $173.00 b. Formatted microfiche tape or disk output per 1000 lines $0.10 c. Easytrieve Class C *** d. Excess CICS Transaction Fee: (Above the maximum allowable $0.022 transactions per principal balance loan) Unit Measure Rate Per Unit ------------ -------------- 4. MEDIA AND OTHER a. Printing: Laser printing (Non-Special Forms) per Page $0.03 Impact Printing per 1000 lines $0.75 b. Tape rental; per reel per month, in-house backup $2.00 c. Tape handling charge for tapes sent to clients or $32.00 third parties d. Microfiche:
(i) ORIGINALS (ii) COPIES From To Price From To Price ---------------------------------- --------------------------------- 0 500 $2.25 0 1,000 $. 120 501 1,000 2.00 1,001 2,000 .110 1,001 1,500 1.50 2,001 3,000 .105 1,501 3,000 1.35 3,001 5,000 .100 3,001 5,000 1.25 5,001 10,000 .095 5,001 8,000 1.10 10,001 25,000 .090 8,001 PLUS 1.00 25,001 plus .080
These scaled prices are based on the total fiche produced for a billing month. For instance if two thousand (2,000) original fiche and three thousand fifty (3,050) fiche copies are generated in a given month the cost for each original fiche would be one dollar thirty five cents ($1.35) and the cost for the fiche copies would be ten cents ($0.10) per copy
5. SPECIAL PROCESSING & SERVICES Base Per Unit ---- -------- a. FHA (MIP/ANP) monthly processing via combined tape per item $25 minimum $0.03 per loan b. CPI MSP Loan Master File Copy or Utility File Copy $60 plus: $0.0017 per loan c. FNMA/FHLMC Laser Compare 0-19 999 loans: per S/S Number**** $150 20,000-30 000 loans: per S/S Number**** $250 Over 30 000: per S/S Number**** $350 d. Chemical Bank Transfer Subsystem per run $200
* Due to periodic CPU upgrades ALLTEL Mortgage may adjust the "per minute rate" throughout the year without advance notice provided such adjustments do not materially affect the total charge to Client for such service Per minute CPU rates are based on processor speed to ensure like charges for like jobs regardless of the processor executing the job. ** system "J" shall be used at ALLTEL Mortgage's discretion for the purpose of system "A" overflow workload Per minute CPU rates are based on processor speed to ensure like charges for like jobs regardless of the processor executing the job *** The run time charge for Easytrieve is based on the rates in 3 a above A ten percent (10%) discount is given when Easytrieve is executed in Class "C" which will process a after all MSP batch processing is completed for that cycle (excludes month end unless month end is a Friday) **** Seller/Servicer Number 3 71 ADDENDUM II
Base Per Unit ---- -------- 5. SPECIAL PROCESSING & SERVICES (Continued) e. Interest Accrual Subsystem N/A N/A The interest accrual subsystem including the trial and final initialization of file, load and balance and coordination will be provided to Client ALLTEL Mortgage will charge Client a fee of two thousand dollars ($2,000) for the file installation; five hundred dollars ($500) for initialization cycle; and five hundred dollars ($500) for initialization run at trial f. Mortgage Insurance Audit Tapes Subsystem per run $200 g. Tax Subsystem per run $200 h. Surcharge for Tax Subsystem Programming Change per incident $1,000 Requests requiring completion in 30 days or less Processing Control Record (PCR) Scan per run $5,000 j. Reruns and Extra Cycles:* TOTAL LOAN COUNT LEVEL 0 - 10,000 per run $400 10,001 - 20,000 per run $600 20,001 - 30,000 per run $900 30,001 - 50,000 per run $1,300 50,001 - 75,000 per run $1,900 75,001 - 100,000 per run $2,400 100,001 - 150,000 per run $3,100 150,001 - 250,000 per run $4,400 250,001 - 500,000 per run $7,200 500,001 - 1,000,000 per run $12,900 k. Re-ODDS per reodd $50 l. Jacksonville Airport Delivery per trip $20.00 m. Local Delivery per trip $10.00 n. Letterwriter:** (Standard) per letter $0.15 (ARMS) per letter $0.25 o. EDI Transmission via the CPI InterChange/TM/ TBD*** TBD*** p. FHA 2344 per tape $30 q. Master File Verification (full) each $1,000 Master File Verification (sample) each $500 r. Report Changes to Delivery Receipt Time & Material s. Tape Copies per tape $50 t. Audit Confirmations per run $250 u. Run Standalone Edit Programs vs Test Files per run $150 v. Download Extract File $500 minimum $0.01 per per month record/day w. Subsystem Special Handling per job $500 x. System Modification (TSR) Special Handling per hour $135
* Client shall be obligated to pay the applicable fee once the request for rerun or extra cycle is made, even in the event such rerun or extra cycle is canceled before actual commencement of processing (Minimum of $400) ** Client shall receive a monthly credit not to exceed the first 100 letters (standard or ARMS) produced per each 1,000 principal balance loans (the allowable amount) at $.15 each. All letters produced above the allowable amount shall be billed at the above rates *** To Be Determined - Charges for non-vendor paid transmissions are being determined and will be preceded by a minimum thirty (30) day notice 4 72 ADDENDUM II
Initial Issue Additional At No Charge Documentation ------------- -------------- 6. DOCUMENTATION a. CPI MORTGAGE SERVICING PACKAGE CPI MSP Reference Library 3 sets $780/set System Components Manual $65 System Control Manual $65 System Input Manual (3 volumes) $65/volume System Output Manual (7 volumes) $65/volume Systems Administrator's Guide 3 $175 CPI MSP On-Line LetterWriter Reference 3 $175 CPI MSP On-Line LetterWriter User's System Admin. Guide 3 $175 CPI MSP MODE Reference Guide 3 $175 CPI Transaction Layout Package 3 $175 CPI MSP On-Line Inquiry Screens 3 $125 CPI MSP Master File Fields 1 $200 ARM Workstation User's Guide 3 $175 ARM Workstation Admin. Guide 1 $175 ARM Workstation Conversion Guide 1 $100 Assumptions Workstation 2 $50 Cashiering Workstation 3 $175 Corporate Advance Workstation 3 $175 Bankruptcy Workstation 3 $175 Collection workstation Admin. Guide 1 $175 Collection Workstation User's Guide 3 $175 Customer Service Workstation 3 $175 Escrow Analysis Workstation 3 $175 Foreclosure Workstation Admin. Guide 1 $175 Foreclosure Workstation User's Guide 3 $175 Foreclosure Workstation Claim Screens 1 $175 Hazard Insurance Workstation 3 $175 CPI MSP Daily Balance and Control Form 1 $50 Interest on Escrow 1 $25 Investor Report Request Workstation 3 $175 Loan Maintenance Workstation 3 $175 MBS Pool Workstation 3 $175 Mortgage Insurance Workstation 3 $175 CPI MSP Info Tracking Workstation 3 $175 New Loan Workstation User's Guide 3 $175 New Loan Workstation Supervisor's Guide 1 $175 Paid-ln-Full Tracking Workstation 3 $175 Payoff Workstation 3 $175 Property Inspection Facility User's Guide 3 $125 Real Estate Tax Workstation 3 $175 REO Workstation 2 $175 Year-End Workstation User's Guide 2 $175 Year-End Coordinator Guide 1 $175 Year-End Guide l $175 Default Reporting Workstation User's Guide 2 $175 FNMA Laser Header Facility User's Guide 3 $175 FNMA Custodial Account Analysis User's Guide 3 $175 Freddie Mac Custodial Account Analysis User's Guide 3 $175 CPI Group Investor Reports User's Guide 3 $175 Drafting Workstation User's Guide 2 $175 Bank Account Reconciliation Workstation User's Guide 2 $175
5 73 ADDENDUM II 6. DOCUMENTATION (Continued) b. RESIDENTIAL LOAN INVENTORY CONTROL PACKAGE (RLIC) RLIC Reference Library System Components Manual 3 $175 System Control Manual 3 $175 System Input Manual 3 $175 System Output Manual 3 $175 RLIC Transaction Layout Package 3 $175 RLIC Buy Price History Workstation 3 $125 RLIC Fallout Workstation 2 $175 RLIC Helpful Hints 3 $75 RLIC Applications through Closing User's Guide 3 $175 RLIC Headers User's Guide 3 $175 RLIC User Fields User's Guide 3 $175 Loan Delivery Workstation 2 $175 RLIC MODE Reference Guide 3 $175 c. RESIDENTIAL LOAN INVENTORY PRODUCTION CONTROL (RLPC) RLPC System Administrator's Guide 1 $175 RLPC Reference Guide 1 $175 RLPC Interface Guide 1 $100 RLPC IQ 1 $100 RLPC on InterChange User's Guide 1 $175 d. MICRO-COMPUTER BASED SYSTEMS MIDSS User's Guide (DOS or O$12 version) 1 $175 MIDSS Communique/Support Reference Guide 1 $100 MIDSS Risk Management Analysis System User's Guide 1 $125 PCDOCS User's Guide 1 $175 PCDOCS Communique/Support Reference Guide 1 $100 e. CPI INTERCHANGE CommManager Getting Started Guide 1 $175 Connections Getting Started Guide 1 $175 Mail Getting Started Guide 1 $175 ProComm Getting Started Guide 1 $175 File Room User's Guide 1 $175 f. CPI INTERACT CPI Interact Processing Getting Started Guide 1 $175 g. CPI INTERVIEW CPI InterView User's Guide 1 $175 CPI InterView Overview 1 $175 h. EASYTRIEVE Computer Associates EASYTRIEVE PLUS Reference Manual 1 $90
6 74 6. DOCUMENTATION (Continued) i. TECHNICAL OR SYSTEMS MANUALS (FOR LICENSE CLIENTS ONLY) On-Line Systems Technical Reference Guide 1 $100 CPI MSP Manual 1 $75 RLIC S&P Manual 1 $75 CPI FM Manual 1 $30 OS ODDS User's Guide 1 $30 OS ODDS System Programmer's Guide 1 $30 ACS User's Guide 1 $175 ACS System Administration Guide 1 $175 j. SPECIAL INTEREST DOCUMENTATION CIMON User's Guide 1 $100 CIMON Coordinator's Guide 1 $100 Construction Loan Workstation 1 $150 TeleVoice 1 $100 EDI License Client 1 $150 EDI Processing Client 1 $150 EDI Vendor 1 $150 LaserCheck System 1 $125 RFUF User's Guide 1 $125 CORE Self-Study Course 1 $395 CORE User's Guide 1 $25 RJE 1 $50 EVALUATOR PLUS Reference Guide 1 $95 EVALUATOR PLUS User's Guide 1 $95 STRATIFIER User's Guide 1 $95 TRANSLATOR User's Guide 1 $95 RMAS Implementation Guide 1 $175 RMAS Implementation (MIDSS'95) 1 $175 RMAS User's Guide 1 $175 Current Year Survey (for Non-Participants) 1 $2,500
7 75 EX-11 3 COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Statement Re: Computation of Earnings Per Share UNITED BANKSHARES, INC. AND SUBSIDIARIES Earnings Per Share
For the Year Ended December 31 1996 1995 1994 ----------- ----------- ----------- PRIMARY: - -------- Average Number of Common Shares 15,140,630 14,983,154 15,046,503 Average Number of Common Share Equivalents 77,207 84,132 85,263 ----------- ----------- ----------- Average Shares and Share Equivalents Outstanding 15,217,837 15,067,286 15,131,766 =========== =========== =========== Net Income $30,512,000 $32,817,000 $30,384,000 Preferred Dividends ----------- ----------- ----------- Available to Common Shares $30,512,000 $32,817,000 $30,384,000 =========== =========== =========== Earnings Per Common Share: $2.00 $2.18 $2.01 =========== =========== =========== FULLY DILUTED: - -------------- Average Number of Common Shares 15,140,630 14,983,154 15,046,503 Average Number of Common Share Equivalents 112,726 97,916 85,263 ----------- ----------- ----------- Average Shares and Share Equivalents Outstanding 15,253,356 15,081,070 15,131,766 =========== =========== =========== Net Income $30,512,000 $32,817,000 $30,384,000 Preferred Dividends ----------- ----------- ----------- Available to Common Shares $30,512,000 $32,817,000 $30,384,000 =========== =========== =========== Earnings Per Common Share: $2.00 $2.18 $2.01 =========== =========== ===========
76 EX-12 4 COMPUTATION OF RATIOS Exhibit 12 Computation of Ratios Net Income Per Share = Net Income/Average Common Shares Outstanding Cash Dividends Per Share = Dividends Paid/Average Common Shares Outstanding Book Value Per Share = Total Shareholders' Equity/Average Common Shares Outstanding Return on Average Assets = Net Income/Average Assets Return on Average Shareholders' = Net Income/Average Shareholders' Equity Equity Net Interest Margin = Net Interest Income/Average Earning Assets Noninterest Expense to Average = Noninterest Expense/Average Assets Assets Efficiency Ratio = Noninterest Expenses/(Net Interest Income Plus Noninterest Income) Average Loans to Deposits = Average Net Loans/Average Deposits Outstanding Dividend Payout = Dividends Declared/Net Income Average Shareholders' Equity to = Average Shareholders' Equity/Average Average Assets Assets Tier I Capital Ratio = Shareholders' Equity--Intangible Assets--Securities Mark-to-market Capital Reserve (Tier I Capital)/ Risk Adjusted Assets Total Capital Ratio = Tier I Capital Plus Allowance for Loan Losses/Risk Adjusted Assets Tier I Leverage Ratio = Tier I Capital/Average Assets Net Charge-offs to = (Gross Charge-offs Less Recoveries)/ Average Loans Average Net Loans Non-performing Loans to Period = (Nonaccrual Loans Plus Loans Past Due End Loans 90 Days or Greater)/Gross Loans Net of Unearned Interest) Non-performing Assets to Period = (Nonaccrual Loans Plus Loans Past Due End Assets 90 Days or Greater Plus Other Real Estate)/Total Assets Allowance for Loan Losses to = Loan Loss Reserve/(Gross Loans Net Period End Loans of Unearned Interest Allowance for Loan Losses to = Loan Loss Reserve/(Nonaccrual Loans Non-Performing Loans Plus Loans Past Due 90 days or Greater)
77 EX-13 5 ANNUAL REPORT UNITED BANKSHARES, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (Dollars in thousands except per share data)
Five Year Summary --------------------------------------------------------------- 1996 1995 1994 1993 1992 ----------- ----------- ----------- ----------- ----------- Summary of Operations: Total interest income $ 172,358 $ 165,815 $ 147,637 $ 140,624 $ 136,429 Total interest expense 73,185 70,167 55,672 55,037 60,819 Net interest income 99,173 95,648 91,965 85,587 75,610 Provision for loan losses 2,610 2,320 2,202 4,830 4,808 Other income 14,189 14,752 12,238 14,300 11,889 Other expense 63,549 57,481 55,908 56,107 52,626 Income taxes 16,691 17,782 15,709 12,482 9,280 Income before cumulative effect of accounting change 30,512 32,817 30,384 26,468 20,785 Net income 30,512 32,817 30,384 27,797 20,785 Cash dividends(1) 17,847 13,817 12,604 10,918 7,914 Per common share: Income before cumulative effect of accounting change $ 2.00 $ 2.18 $ 2.01 $ 1.75 $ 1.51 Net income 2.00 2.18 2.01 1.84 1.51 Cash dividends(1) 1.24 1.17 1.06 0.95 0.85 Book value per share 17.13 16.45 15.09 14.21 13.22 Selected Ratios: Return on average shareholders' equity 11.98% 13.86% 13.67% 13.41% 11.80% Return on average assets 1.35% 1.52% 1.44% 1.39% 1.18% Dividend payout ratio (1) 58.49% 49.21% 50.61% 50.30% 49.80% Selected Balance Sheet Data: Average assets $2,263,428 $2,162,760 $2,107,476 $2,006,875 $1,762,981 Investment securities 332,331 321,019 372,069 439,699 402,652 Total loans 1,847,604 1,732,986 1,652,275 1,462,574 1,363,583 Total assets 2,326,877 2,210,230 2,170,340 2,035,452 1,968,276 Total deposits 1,827,554 1,774,599 1,714,190 1,699,131 1,649,713 Long-term borrowings 25,621 34,497 84,374 32,564 28,691 Total borrowings and other liabilities 240,809 186,397 230,516 122,274 120,272 Shareholders' equity 258,514 249,234 225,634 214,047 198,291
(1) Cash dividends are the amounts declared by United and do not include cash dividends of acquired subsidiaries prior to the dates of consummation. 78 UNITED BANKSHARES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, and reflect the merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the pooling of interests method of accounting. Accordingly, all prior period financial statements have been restated to include Eagle. United exchanged 1.15 shares of its common stock for each of the 2,729,377 common shares of Eagle or 3,138,704 shares. This discussion and analysis should be read in conjunction with the audited financial statements and accompanying notes thereto, which are included elsewhere in this document. All references to United in this discussion and analysis are considered to refer to United and its wholly-owned subsidiaries, unless otherwise indicated. 1996 COMPARED TO 1995 The following Earnings Summary is a broad overview of the financial condition and results of operations and is not intended to replace the more detailed discussion which is presented under the specific headings below. EARNINGS SUMMARY For the year ended December 31, 1996, net income decreased 7.0% to $30,512,000. Net income per share of $2.00 for the year decreased 8.3% from $2.18 in 1995. Dividends per share increased 6.0% from $1.17 in 1995 to a record level of $1.24 per share in 1996. This was the twenty-third consecutive year of dividend increases to shareholders. During 1996, United recorded approximately $6,845,000 of merger-related one-time special charges associated with the Eagle merger. The merger-related and one- time charges that reduced United's 1996 earnings in the first, second and third quarters, were planned forward-looking moves to give United a broader and stronger foundation for the future. These charges included, among other items, severance pay and benefits for displaced Eagle officers and employees, costs to consolidate duplicate facilities, employee training, new product promotions, computer conversions and additional deposit insurance as a result of the Savings Association Insurance Fund ("SAIF") recapitalization legislation. Despite these significant one-time expenses, United's return on average assets of 1.35% compared very favorably with regional and national peer grouping information provided by Wheat, First Securities, Inc. of 1.19% and 1.18%. United's return on average shareholders' equity of 11.98%, 79 as compared with regional and national peer group information of 15.56% and 15.14%, is indicative of United's very strong capital levels. United, one of the nation's most profitable regional banking companies, has a strong capital position, and is well positioned to take advantage of future growth opportunities. The following discussion explains in more detail the results of operations and changes in financial condition by major category. Net Interest Income Net interest income represents the primary component of United's earnings. It is the difference between interest and fee income related to earning assets and interest expense incurred to fund these earning assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 1996, are summarized below. For the years ended December 31, 1996 and 1995, net interest income approximated $99,173,000 and $95,648,000, respectively. On a tax-equivalent basis the net interest margin was strong at 4.85% in 1996 and 4.90% in 1995. Total interest income of $172,358,000 increased 4.0% in 1996 over 1995 as a result of higher volumes of interest-earning assets. Higher average loan volumes of approximately $113 million, resulting primarily from an acquisition, contributed to the increase. From December 31, 1995 to December 31, 1996, United experienced a moderate increase in consumer loans of 1.1%, while commercial loans and mortgage loans showed increases of 13.7% and 6.4%, respectively. Total interest expense increased $3,018,000 or 4.3% in 1996. This increase was attributed primarily to United's competitive pricing of interest-bearing deposits in its markets and continued change in the retail deposit mix as customers shifted funds into products offering higher yields. United's average interest-bearing deposits increased by $25,761,000 or 1.7% in 1996, while its average FHLB advances increased $29,604,000 or 42.6% and average short-term borrowings increased $3,999,000 or 4.8%. United made greater use of FHLB advances as the cost of those advances declined from 5.93% in 1995 to 5.54% in 1996. United utilized FHLB advances during 1996 to fund the growth in the mortgage loan portfolio. The average cost of funds, which increased from 4.22% in 1995 to 4.25% in 1996, reflected the general upward trend in market interest rates during 1996. Provision for Loan Losses United evaluates the adequacy of the allowance for loan losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. United's process of evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural 80 discipline in managing and accounting for those credits. See Note D to the Consolidated Financial Statements for a discussion of concentrations of credit risk. Nonperforming loans were $10,192,000 at December 31, 1996 and $10,990,000 at December 31, 1995, a decrease of 7.3%. The level of nonperforming assets decreased as a result of the charge-off of certain large balance commercial credits. The components of nonperforming loans include nonaccrual loans and loans that are contractually past due 90 days or more as to interest or principal, but have not been placed on nonaccrual. Loans past due 90 days or more increased $1,139,000 or 24.3% during 1996; nonaccrual loans decreased $1,937,000 or 30.8% since year-end 1995. Nonperforming loans represented 0.44% of total assets at the end of 1996, as compared to 0.52% for United's national peer group. At year-end 1996 and 1995 the allowance for loan losses was 1.21% and 1.30% of total loans, net of unearned income. At December 31, 1996 and 1995, the ratio of the allowance for loan losses to nonperforming loans was 218.6% and 205.1%, respectively. Management believes that the allowance for loan losses of $22,283,000 at December 31, 1996, is adequate to provide for potential losses on existing loans based on information currently available. For the years ended December 31, 1996 and 1995 the provision for loan losses was $2,610,000 and $2,320,000, respectively. The increase in the provision for 1996 when compared to 1995 was to conform the allowance for loan losses on Eagle's loan portfolio with United's loan valuation policies and in response to growth in the portfolio. The provision for loan losses charged to operations is based on management's evaluation of individual credits, past loan loss experience, and other factors which, in management's judgment, deserve recognition in estimating possible loan losses. Such other factors considered by management include growth and composition of the loan portfolio, known deterioration in certain classes of loans or collateral, trends in delinquencies and current economic conditions. Total net charge-offs were $2,872,000 in 1996 and $3,096,000 in 1995, which represents 0.16% and 0.18% of average loans for the respective years. United's ratio of net charge-offs to average loans was better than its peer group's ratio of 0.23% in 1996 and was comparable to its peer group's ratio of 0.19% in 1995. Management is not aware of any potential problem loans, trends or uncertainties which it reasonably expects will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. 81 At December 31, 1996, impaired loans were $10,317,000, an increase of $1,525,000 or 17.4% from the $8,792,000 in impaired loans at December 31, 1995. For further details, see Note D to the Consolidated Financial Statements. Other Income Noninterest income has been and will continue to be an important factor for improving United's profitability. Accordingly, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income decreased $563,000 or 3.8% for 1996 when compared to 1995. Other income consists of all revenues which are not included in interest and fee income related to earning assets. The decrease in noninterest income for 1996 was primarily the result of the approximate $2,000,000 loss on loans sold in United's newly formed mortgage banking subsidiary. These sales were necessary to strategically align the mortgage banking operations with United's interest rate risk position. Excluding gains and losses on sales of securities and mortgage banking activities, noninterest income increased $978,000 or 7.1% in 1996 primarily as a result of increased service charges and fees from customer accounts. Trust income increased $275,000 or 9.5% in 1996 due to repricing of services and an increased volume of trust business. Service charges, commissions and fees increased by $1,396,000 or 14.1% in 1996. The increase was primarily attributable to conforming the former Eagle offices' service charge and fee structures to United's and increased return check charges and bankcard fees. This income includes charges and fees related to various banking services provided by United. The increase was primarily due to a combination of increased fees in bankcard accounts and an increased fee structure for sales of checking related products. Securities transactions resulted in a net loss of $98,000 in 1996. The proceeds from these sales of approximately $17 million were reinvested in similar securities yielding a higher rate of return. There were no securities sales in 1995. The $872,000 of net securities losses realized in 1994 related primarily to available for sale debt securities losses of approximately $1,024,000. For further details, see Notes C and L to the Consolidated Financial Statements. On November 15, 1995, the FASB staff issued a Special Report, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities." In accordance with the provision of that Special Report, United chose to reclassify securities with an amortized cost of $103,595,000 from held to maturity to available for sale. At the date of the transfer, the $242,000 unrealized gain on those securities was included in shareholders' equity, net of related income taxes. This enabled United to take advantage of certain interest rate risk management strategies. 82 Other Expense Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations and thus reduce operating costs. United's cost control efforts have been very successful resulting in an efficiency ratio of 52.6%, which is well below the 57.9% reported by United's national peer group banks. United's ratio was higher in 1996 as a result of the merger and related expenses. Other expense includes all items of expense other than interest expense, the provision for loan losses and income tax expense. In total, other expense increased $6,068,000 or 10.6%. The increase was primarily due to the one-time and merger-related charges recorded in the first and second quarters and the additional third quarter deposit insurance expense as a result of the SAIF recapitalization legislation. Salaries and employee benefits expense increased $2,887,000 or 11.2% in 1996. Nearly all of the increase for 1996 was attributable to severance and benefit pay of displaced Eagle executive officers, employment contracts and employees at locations where United consolidated certain branches. As of December 31, 1996 and 1995, United employed 893 and 946 full-time equivalent employees, respectively. Net occupancy expense in 1996 exceeded 1995 levels by $319,000 or 5.5% primarily due to decreased rental income and an increase in real property repairs and utilities expense. The overall changes in net occupancy expense for 1996 were insignificant with no material increase or decrease in any one expense category. Remaining other expense increased $2,862,000 or 11.1% in 1996 compared to 1995. The increase in other expense for 1996 related primarily to the additional deposit insurance expense as a result of the SAIF recapitalization legislation, higher insurance expense, advertising, consulting and legal expense, losses on sales and write-downs of assets, EDP fees, office supplies, and goodwill amortization. Included in these increased costs was $1,483,000 of one-time charges which related to reengineering costs incurred to improve efficiency, productivity and strengthen United's competitiveness. Additionally, the added expenses of a purchase accounting acquisition included in 1996, but not in the first ten months of 1995, have contributed to the overall increase in noninterest expense. Income Taxes For the year ended December 31, 1996, income taxes approximated $16,691,000 compared to $17,782,000 for 1995. The decrease of $1,091,000 or 6.7% for 1996 when compared to 1995 was primarily the result of decreased pretax income. United's effective tax rates were approximately 35% for 1996 and 1995. 83 At December 31, 1996, gross deferred tax assets totaled approximately $13.6 million. The allowance for loan losses and various accrued liabilities represent the most significant temporary differences. Quarterly Results The first, second, and third quarters of 1996 contained significant reengineering and merger-related and one-time special charges associated with the Eagle merger. These charges included, among other items, severance pay and benefits for retiring and displaced Eagle officers and employees, investment banker fees, costs to consolidate duplicate facilities, employee training, new product promotions and computer conversions. In the second quarter of 1996, United recorded additional income tax expense of $3,086,000 due to the recapture of Eagle's bad debt expense into taxable income. However, as a result of legislation enacted during the third quarter of 1996, United was relieved of the $3,086,000 of additional income tax expense that was recorded in the second quarter. Net income for the fourth quarter of 1996 was $9,936,000, an increase of 32.4% from the $7,503,000 earned in the fourth quarter of 1995. On a per share basis, fourth quarter earnings were $0.65 per share in 1996 and $.50 per share in 1995. Fourth quarter net income was higher in 1996 than in 1995 because of a return to more normal levels of core income and expenses. Additional quarterly financial data for 1996 and 1995 may be found in Note O to the Consolidated Financial Statements. The Effect of Inflation United's income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. With inflation levels at relatively low levels and monetary and fiscal policies being implemented to keep the inflation rate increases within an acceptable range, management expects the impact of inflation would continue to be minimal in the near future. 84 Interest Rate Sensitivity Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time-frame. The principal function of interest rate risk management is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. United closely monitors the sensitivity of its assets and liabilities on an on-going basis and projects the effect of various interest rate changes on its net interest margin. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the "GAP." At United, interest rate risk is managed to minimize the impact of fluctuating interest rates on earnings. As shown in the interest rate sensitivity gap table in this section, United was liability sensitive (excess of liabilities over assets) in the one year horizon. On the surface, this would indicate that rising market interest rates would reduce United's earnings and declining market interest rates would increase earnings. United, however, has not experienced the kind of earnings volatility indicated from the cumulative gap. This is because a significant portion of United's retail deposit base does not reprice on a contractual basis. Management has estimated, based upon historical analyses, that savings deposits are less sensitive to interest rate changes than are other forms of deposits. The GAP table presented herein has been adapted to show the estimated differences in interest rate sensitivity which result when the retail deposit base is assumed to reprice in a manner consistent with historical trends. (See "Management Adjustments" in the GAP table). Using these estimates, United was asset sensitive in the one year horizon in the amount of $2,631,000 or 0.12% of the cumulative gap to related earning assets. The primary method of measuring the sensitivity of earnings to changing market interest rates is to simulate expected cash flows using varying assumed interest rates while also adjusting the timing and magnitude of non-contractual deposit repricing to more accurately reflect anticipated pricing behavior. These simulations include adjustments for the lag in prime loan repricing and the spread and volume elasticity of interest-bearing deposit accounts, regular savings and money market deposit accounts. To aid in interest rate management, United's lead bank, UNB, is a member of the Federal Home Loan Bank of Pittsburgh (FHLB). The use of FHLB advances provides United with a low risk means of matching maturities of earning assets and interest-bearing funds to achieve a desired interest rate spread over the life of the earning assets. 85 The following table shows the interest rate sensitivity GAP as of December 31, 1996:
Interest Rate Sensitivity Gap Days ------------------------------------- Total 1 - 5 Over 5 0 - 90 91 - 180 181 - 365 One Year Years Years Total ---------- --------- ---------- ---------- --------- --------- ---------- (Dollars in Thousands) ASSETS Interest-Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short- term investments $ 3,192 $ 3,192 $ 3,192 Investment and marketable equity securities: Taxable 24,534 $ 2,982 $ 5,538 33,054 $ 131,633 $131,507 296,194 Tax-exempt 1,125 1,806 2,205 5,136 15,601 15,400 36,137 Loans, net of unearned income 547,797 146,635 259,278 953,710 508,750 385,145 1,847,605 ---------- --------- ---------- ---------- --------- -------- ---------- Total Interest-Earning Assets $ 576,648 $ 151,423 $ 267,021 $ 995,092 $ 655,984 $532,052 $2,183,128 ========== ========= ========== ========== ========= ======== ========== LIABILITIES Interest-Bearing Funds: Savings and NOW accounts $ 714,307 $ 714,307 $ 714,307 Time deposits of $100,000 & over 41,124 $ 30,412 $ 32,333 103,869 $ 33,826 $ 741 138,436 Other time deposits 193,196 143,764 175,560 512,520 182,508 18,735 713,763 Federal funds purchased, repurchase agreements and other short-term borrowing 75,582 75,582 75,582 FHLB advances 104,011 15 25,031 129,057 228 3,346 132,631 ---------- --------- ---------- ---------- --------- -------- ---------- Total Interest-Bearing Funds $1,128,220 $ 174,191 $ 232,924 $1,535,335 $ 216,562 $ 22,822 $1,774,719 ========== ========= ========== ========== ========= ======== ========== Interest Sensitivity Gap $ (551,572) $ (22,768) $ 34,097 $ (540,243) $ 439,422 $509,230 $ 408,409 ========== ========= ========== ========== ========= ======== ========== Cumulative Gap $ (551,572) $(574,340) $ (540,243) $ (540,243) $(100,821) $408,409 $ 408,409 ========== ========= ========== ========== ========= ======== ========== Cumulative Gap as a Percentage of Total Earning Assets (25.27%) (26.31%) (24.75%) (24.75%) (4.62%) 18.71% 18.71% Management Adjustments $ 678,592 $ (45,262) $ (90,456) $ 542,874 $(542,874) $ 0 Off-Balance Sheet Activities (50,000) 50,000 0 0 ---------- --------- ---------- ---------- --------- -------- ---------- Cumulative Management Adjusted Gap and Off- Balance Sheet Activities $ 77,020 $ 58,990 $ 2,631 $ 2,631 $(100,821) $408,409 $ 408,409 ========== ========= ========== ========== ========= ======== ========== Cumulative Management Adjusted Gap and Off- Balance Sheet Activities as a Percentage of Total Earning Assets 3.53% 2.70% 0.12% 0.12% (4.62%) 18.71% 18.71% ========== ========= ========== ========== ========= ======== ==========
86 Additionally, United is using certain off-balance-sheet instruments known as interest rate swaps, to further aid in interest rate risk management. For further details, see Note J to the Consolidated Financial Statements. Liquidity and Capital Resources In the opinion of management, United maintains liquidity which is sufficient to satisfy its depositors' requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is "core deposits". Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds that are generally obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day- to-day demands of customers. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United's cash needs. Liquidity is managed by monitoring funds availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowings and a geographically dispersed network of subsidiary banks providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of FHLB advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, and borrowings secured by bank premises or stock of United's subsidiaries. United has no intention at this time of utilizing any long-term funding sources other than FHLB advances and long-term certificates of deposit. Cash flows from operations in 1996 of $66,449,000 were 60.5% higher than the $41,404,000 in 1995 as a result of an increase of approximately $23,067,000 of excess proceeds from the sale of loans over loans 87 originated for sale. In 1996, investing activities resulted in a use of cash of $160,168,000 as compared to 1995 in which investing activities resulted in a source of cash of $18,885,000. The primary reason for the increase in the use of cash for investing activities is that the net difference of security purchases over proceeds from sales, maturities and calls of securities increased from a net source of $63,589,000 in 1995 to a net use of $11,702,000 in 1996 or a decrease of $75,291,000. Additionally, net loan originations increased by $56,345,000 in 1996 as compared to 1995. Financing activities resulted in a source of cash in 1996 of $84,262,000 primarily due to a $57,134,000 increase in net borrowings from the FHLB of Pittsburgh and a $53,184,000 increase in deposits. These sources of cash for financing activities were partially offset by payment of $16,541,000 of cash dividends to shareholders and a net decrease of $6,585,000 in other short-term borrowings. See the Consolidated Statement of Cash Flows in the Consolidated Financial Statements. United has signed a definitive agreement to acquire all of the outstanding common stock of First Patriot Bankshares Corporation for $17.00 per share or approximately $39 million in cash. United has not yet finalized the sources of funding for this acquisition; however, it could involve a combination of funds currently available, short-term borrowings, and long-term borrowings. United believes it has adequate sources of funding available to complete this acquisition. See Note B, Notes to Consolidated Financial Statements. United anticipates no problems in its ability to service its obligations over the next 12 months. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United's liquidity increasing or decreasing in any material way. United also has significant lines of credit available to it. See Note G, Notes to Consolidated Financial Statements. Management is not aware of any current recommendations by regulatory authorities which, if implemented, would have a material effect on liquidity, capital resources or operations. The asset and liability committee monitors liquidity to ascertain that a strong liquidity position is maintained. In addition, variable rate loans are a priority. These policies should help to protect net interest income against fluctuations in interest rates. United also seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United's average equity to average asset ratio was 11.25% in 1996 and 10.94% in 1995. United's risk-based capital ratio was 16.54% in 1996 and 16.80% in 1995 which are both significantly higher than the minimum regulatory requirements. United's Tier 1 capital and leverage ratios of 15.29% and 10.84%, respectively, at December 31, 1996, are also strong relative to its peers and are well above regulatory minimums. See Note M, Notes to Consolidated Financial Statements. 88 Commitments The following table indicates the outstanding loan commitments of United in the categories stated:
December 31 1996 ------------ Lines of credit authorized, but unused $340,338,000 Letters of Credit 22,081,000 ------------ $362,419,000 ============
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. 1995 COMPARED TO 1994 The following Earnings Summary is a broad overview of the financial condition and results of operations and is not intended to replace the more detailed discussion that is presented under the specific headings below. This discussion includes the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, and reflects the merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the pooling of interests method of accounting. Accordingly, all information presented includes Eagle. EARNINGS SUMMARY For the year ended December 31, 1995, net income increased 8.0% to a record $32,817,000. Net income per share of $2.18 for the year was up 8.5% from $2.01 in 1994. United's return on average assets was 1.52%. Dividends per share increased 10.4% from $1.06 in 1994 to a record level of $1.17 per share in 1995. Core earnings, or earnings before taxes, loan sales, security transactions, and the provision for loan losses, were strong and increased 5.8% for 1995 compared to 1994. These strong core earnings are indicative of the 4.0% increase in net interest income driven by an increase in average net earning assets with significant growth of 7.5% in average net loans. Factors that contributed to the 1995 earnings increase included an improved net interest margin, partially resulting from a $56,050,000 increase in average earning assets from 1994 and an overall increase in noninterest income which included fewer losses on the sale of securities and higher gains on the sales of loans. The favorable impact of the above items was partly offset by increased personnel and occupancy expenses and increased income taxes as a result of the higher level of pre-tax earnings. United's key performance measures, return on average assets and return on average equity, improved from 1994 and remained very strong in comparison to industry standards. United's return on average assets of 1.52% and return on average shareholders' equity of 13.86% both compared 89 very favorably with regional peer group ratios of 1.17% and 12.56% and national peer group ratios of 1.21% and 13.47%, respectively, according to information provided by Wheat, First Securities, Inc. The following discussion explains in more detail the results of operations and changes in financial condition by major category. Net Interest Income For the years ended December 31, 1995 and 1994, net interest income approximated $95,648,000 and $91,965,000, respectively. On a tax-equivalent basis the net interest margin was strong at 4.90% in 1995 and 4.85% in 1994. Higher average loan volumes of approximately $117 million resulting primarily from an acquisition and higher consumer demand for mortgage loans contributed to the increase in net interest income. At 4.90%, United's net interest margin was well above peer group averages. Total interest income of $165,815,000 increased 12.3% in 1995 over 1994 as a result of higher volumes of interest-earning assets. Comparing year-end 1995 to year-end 1994, a moderate decrease occurred in consumer loans of 3.0% while commercial loans and mortgage loans showed increases of 3.1% and 6.7%, respectively. Total interest expense increased $14,495,000 or 26.0% in 1995. This increase can be attributed primarily to United's competitive pricing of interest-bearing deposits in its markets and continued change in the retail deposit mix as customers shift funds into products offering higher yields. United's average interest-bearing deposits increased by 3.1% in 1995, while its average long-term borrowings decreased 11.6% and average short-term borrowings increased 5.5%. United made greater use of short-term funds as the Federal Reserve held short- term rates steady at approximately 6.0% for nearly half of 1995. The average cost of funds, which increased from 3.43% in 1994 to 4.22% in 1995, reflected the general upward trend in market interest rates during 1995. Provision for Loan Losses United evaluated the adequacy of the allowance for loan losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. Nonperforming loans were $10,990,000 at December 31, 1995 and $7,570,000 at December 31, 1994, an increase of 45.2%. The level of nonperforming assets increased as a result of delinquencies on certain large balance commercial credits and nonperforming assets acquired in an acquisition. Loans past due 90 days or more increased $1,841,000 or 64.6% during 1995; nonaccrual loans increased $1,579,000 or 33.5% since year-end 1994. Much of the increase in nonaccrual loans was the result of the addition of a single large commercial loan to nonaccrual status. United is currently negotiating workout terms with the borrowers and will closely monitor the ongoing status. Nonperforming loans represented 90 0.50% of total assets at the end of 1995, which is approximately one-half of the national peer group level. At year-end 1995 and 1994 the allowance for loan losses was 1.30% and 1.35% of total loans, net of unearned income, respectively. At December 31, 1995 and 1994, the ratio of the allowance for loan losses to nonperforming loans was 205.1% and 294.6%, respectively. For the years ended December 31, 1995 and 1994 the provision for loan losses was $2,320,000 and $2,202,000, respectively. The slight increase can be attributed to the higher net charge-offs and the increase in nonperforming loans during 1995. Total net charge-offs were $3,096,000 in 1995 and $873,000 in 1994, which represents 0.18% and 0.06% of average loans, net of unearned income, for the respective years. United's ratio of net charge-offs to average loans, net of unearned income, is comparable to its peers' ratio of 0.19% in 1995 and compared very favorably with its peers group's ratio of 0.22% in 1994. Effective January 1, 1995, United adopted Financial Accounting Standards Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"(SFAS No. 114), as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures," collectively SFAS No. 114. As a result of applying the rules prescribed by SFAS No. 114, certain loans are being reported at the present value of their expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. At the time of adoption of SFAS No. 114, United had approximately $8,000,000 of loans which were considered impaired in accordance with the guidelines prescribed by SFAS No. 114. The adoption of SFAS No. 114 did not have a material impact on the allowance for loan losses, the provision for loan losses, the charge-off policy or the comparability of credit risk. Consistent with United's existing method of income recognition for loans, interest receipts on impaired loans, except those classified also as nonaccrual, are recognized as interest income using the accrual method of income recognition. United's method of income recognition for impaired loans that are classified as nonaccrual is to recognize interest income on the cash method of income recognition or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. The average recorded investment in impaired loans during the year ended December 31, 1995 was approximately $9,545,000. For the year ended December 31, 1995, United recognized interest income on those impaired loans of approximately $412,000, substantially all of which was recognized using the accrual method of income recognition. The amount of interest income which would have been recorded under the original terms for the above loans was $633,000. 91 At December 31, 1995, the recorded investment in loans that were considered to be impaired was $8,792,000 (of which $4,934,000 were on a nonaccrual basis). Included in this amount was $4,793,000 of impaired loans for which the related allowance for credit losses was $1,918,000 and $3,999,000 of impaired loans that did not have an allowance for credit losses. The impact of adopting SFAS No. 114 was immaterial to the financial condition and operations of United as of and for the year ended December 31, 1995, and had no material impact on the comparability of the credit risk as presented herein. Other Income In 1995, other income, excluding securities transactions, increased when compared to 1994. The overall increase in noninterest income of $2,514,000 or 20.5% was primarily attributed to the absence of net losses on securities transactions incurred in 1994, a $642,000 increase in service charges, commissions and fees and an $891,000 increase in net gains from sales of loans. Trust income increased $43,000 or 1.5% in 1995 due to repricing of services and an increased volume of trust business. Service charges, commissions and fees increased by $642,000 or 6.9% in 1995. This income consisted of charges and fees related to various banking services provided by United. The increase was primarily due to a combination of increased fees in bankcard accounts and an increased fee structure for sales of checking related products. Securities transactions resulted in a net loss of $872,000 in 1994. The proceeds from these sales were reinvested in similar securities yielding a higher rate of return. The net losses from the sales of the securities were fully recovered within the first eight months of 1995. There were no securities sales in 1995. During 1995, gains on sales of loans increased $891,000 over the amount of gains reported in 1994 due to increased secondary market loan activity. Additionally, the adoption of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," (SFAS No. 122) at June 30, 1995, resulted in an increase in gains on the sales of loans sold of approximately $412,000, before tax, due to the recognition of servicing rights related to such loan sales. The $872,000 of net securities losses for 1994 related primarily to available for sale debt securities losses. Other Expense Other expense includes all items of expense other than interest expense, the provision for loan losses, and income taxes. In total, other expense increased slightly in 1995, and management was successful in controlling costs. The income statement reflects a 2.8% increase in 1995 as compared to 1994. 92 Salaries and employee benefits expense increased $331,000 or 1.3% in 1995. Net occupancy expense in 1995 exceeded 1994 levels by $263,000 or 4.8% primarily due to decreased rental income from vacancies and an increase in real property repairs and utilities expense. Remaining other expense increased $979,000 or 3.9% in 1995 compared to 1994. The increase in other expense for the year related primarily to higher advertising, postage, bankcard and nonrecurring legal expenses which included certain merger related expenses. The increase in other expense was partially offset by lower data processing fees and FDIC insurance expense as a result of the Federal Deposit Insurance Corporation's decision to lower deposit insurance premiums from $0.23 to $0.04 per $100 in Bank Insurance Fund (BIF) deposits for well capitalized and well managed banks. The premium change resulted in a refund of approximately $910,000 which was received in September 1995. The overall decrease in FDIC insurance premiums for 1995 when compared to 1994 was $1,475,000. United's two banking subsidiaries are assessed at the lowest FDIC insurance premium rate. Income Taxes For the year ended December 31, 1995, income taxes approximated $17,782,000 compared to $15,709,000 for 1994. This increase is principally the result of lower levels of tax-exempt income and higher levels of pretax income. United's effective tax rates for the years ended December 31, 1995 and 1994 were 35% and 34%, respectively. 93 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders United Bankshares, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of United Bankshares, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Bankshares, Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Charleston, West Virginia February 24, 1997 94 CONSOLIDATED BALANCE SHEETS UNITED BANKSHARES, INC. AND SUBSIDIARIES
December 31 -------------------------------- 1996 1995 --------------- --------------- ASSETS Cash and due from banks $ 86,328,000 $ 85,864,000 Interest-bearing deposits with other banks 195,000 13,113,000 Federal funds sold 2,997,000 --------------- --------------- Total cash and cash equivalents 89,520,000 98,977,000 Securities available for sale at estimated fair value (amortized cost-$160,161,000 at December 31, 1996 and $196,966,000 at December 31, 1995) 161,629,000 199,130,000 Securities held to maturity (estimated fair value-$173,697,000 at December 31, 1996 and $123,579,000 at December 31, 1995) 170,702,000 121,889,000 Loans 1,852,770,000 1,737,954,000 Less: Unearned income (5,165,000) (4,968,000) -------------- -------------- Loans net of unearned income 1,847,605,000 1,732,986,000 Less: Allowance for loan losses (22,283,000) (22,545,000) -------------- -------------- Net loans 1,825,322,000 1,710,441,000 Bank premises and equipment 33,550,000 34,766,000 Accrued interest receivable 13,508,000 13,793,000 Other assets 32,646,000 31,234,000 -------------- -------------- TOTAL ASSETS $2,326,877,000 $2,210,230,000 ============== ============== LIABILITIES Domestic deposits: Noninterest-bearing $ 261,048,000 $ 252,627,000 Interest-bearing 1,566,506,000 1,521,972,000 -------------- -------------- TOTAL DEPOSITS 1,827,554,000 1,774,599,000 Borrowings: Federal funds purchased 4,491,000 26,378,000 Securities sold under agreements to repurchase 71,091,000 55,789,000 Federal Home Loan Bank borrowings 132,631,000 75,497,000 Accrued expenses and other liabilities 32,596,000 28,733,000 -------------- -------------- TOTAL LIABILITIES 2,068,363,000 1,960,996,000 SHAREHOLDERS' EQUITY Common stock, $2.50 par value; Authorized-20,000,000 shares; issued- 15,295,130 at December 31, 1996 and 15,295,275 at December 31, 1995, including 205,495 and 140,520 shares in treasury at December 31, 1996 and 1995, respectively 38,238,000 38,238,000 Surplus 41,438,000 41,861,000 Retained earnings 183,539,000 171,256,000 Net unrealized holding gain on securities available for sale, net of deferred income taxes 954,000 1,409,000 Treasury stock, at cost (5,655,000) (3,530,000) -------------- -------------- TOTAL SHAREHOLDERS' EQUITY 258,514,000 249,234,000 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,326,877,000 $2,210,230,000 ============== ==============
See notes to consolidated financial statements. 95 CONSOLIDATED STATEMENTS OF INCOME UNITED BANKSHARES, INC. AND SUBSIDIARIES
Year Ended December 31 ----------------------------------------- 1996 1995 1994 ------------- ------------ ------------ INTEREST INCOME Interest and fees on loans $151,404,000 $143,228,000 $124,008,000 Interest on federal funds sold and other short-term investments 157,000 1,107,000 703,000 Interest and dividends on securities: Taxable 18,455,000 18,516,000 19,397,000 Exempt from federal taxes 2,342,000 2,964,000 3,529,000 ------------ ------------ ------------ TOTAL INTEREST INCOME 172,358,000 165,815,000 147,637,000 ------------ ------------ ------------ INTEREST EXPENSE Interest on deposits 63,917,000 62,231,000 49,136,000 Interest on short-term borrowings 3,770,000 3,809,000 2,571,000 Interest on Federal Home Loan Bank advances 5,498,000 4,127,000 3,965,000 ------------ ------------ ------------ TOTAL INTEREST EXPENSE 73,185,000 70,167,000 55,672,000 ------------ ------------ ------------ NET INTEREST INCOME 99,173,000 95,648,000 91,965,000 PROVISION FOR LOAN LOSSES 2,610,000 2,320,000 2,202,000 ------------ ------------ ------------ NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 96,563,000 93,328,000 89,763,000 ------------ ------------ ------------ OTHER INCOME Trust department income 3,186,000 2,911,000 2,868,000 Service charges, commissions, and fees 11,298,000 9,902,000 9,260,000 Other (loss) income (295,000) 1,939,000 110,000 ------------ ------------ ------------ TOTAL OTHER INCOME 14,189,000 14,752,000 12,238,000 ------------ ------------ ------------ OTHER EXPENSE Salaries and employee benefits 28,743,000 25,856,000 25,525,000 Net occupancy expense 6,071,000 5,752,000 5,489,000 Other expense 28,735,000 25,873,000 24,894,000 ------------ ------------ ------------ TOTAL OTHER EXPENSE 63,549,000 57,481,000 55,908,000 ------------ ------------ ------------ INCOME BEFORE INCOME TAXES 47,203,000 50,599,000 46,093,000 INCOME TAXES 16,691,000 17,782,000 15,709,000 ------------ ------------ ------------ NET INCOME $ 30,512,000 $ 32,817,000 $ 30,384,000 ============ ============ ============ Earnings per common share $2.00 $2.18 $2.01 ============ ============ ============ Dividends per share $1.24 $1.17 $1.06 ============ ============ ============ Average outstanding shares 15,253,356 15,067,286 15,131,766 ============ ============ ============
See notes to consolidated financial statements. 96 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY UNITED BANKSHARES, INC. AND SUBSIDIARIES
Net Unrealized Holding Common Stock (Loss) Gain ------------------------ on Securities Total Par Retained Available Treasury Shareholders' Shares Value Surplus Earnings for Sale Stock Equity ----------- ----------- ----------- ------------ ------------- ------------ -------------- Balance at January 1,1994 15,093,202 $37,733,000 $37,011,000 $139,853,000 ($550,000) $214,047,000 Net income 30,384,000 30,384,000 Cash dividends ($1.06 per share) (12,604,000) (12,604,000) Net change in unrealized holding loss on securities available for sale ($1,926,000) (1,926,000) Fractional shares adjustment (45) Change in method of accounting for securities 1,462,000 1,462,000 Purchase of treasury stock (144,000 shares) (3,536,000) (3,536,000) Common stock options exercised (34,200 shares) (285,000) 740,000 455,000 Pre-merger dividends of pooled company (2,648,000) (2,648,000) ---------- ---------- ----------- ------------ ------------ ----------- ------------- Balance at December 31, 1994 15,093,157 37,733,000 36,726,000 154,985,000 (464,000) (3,346,000) 225,634,000 Net income 32,817,000 32,817,000 Cash dividends ($1.17 per share) (13,817,000) (13,817,000) Net change in unrealized holding loss on securities available for sale 1,873,000 1,873,000 Fractional shares adjustment (7) Acquisition of First Commercial Bank 202,125 505,000 5,558,000 6,063,000 Purchase of treasury stock (47,500 shares) (1,273,000) (1,273,000) Common stock options exercised (44,500 shares) (423,000) 1,089,000 666,000 Pre-merger dividends of pooled company (2,729,000) (2,729,000) ---------- ---------- ----------- ------------ ------------ ----------- ------------- Balance at December 31, 1995 15,295,275 38,238,000 41,861,000 171,256,000 1,409,000 (3,530,000) 249,234,000 Net income 30,512,000 30,512,000 Cash dividends ($1.24 per share) (17,847,000) (17,847,000) Net change in unrealized holding gain on securities available for sale (455,000) (455,000) Fractional shares adjustment (145) (4,000) (4,000) Purchase of treasury stock (113,000 shares) (3,395,000) (3,395,000) Common stock options exercised (48,025 shares) (419,000) 1,270,000 851,000 Pre-merger dividends of pooled company (382,000) (382,000) ---------- ----------- ----------- ------------ ------------ ----------- ------------- Balance at December 31, 1996 15,295,130 $38,238,000 $41,438,000 $183,539,000 $ 954,000 ($5,655,000) $258,514,000 ========== =========== =========== ============ ============ =========== =============
See notes to consolidated financial statements. 97 CONSOLIDATED STATEMENTS OF CASH FLOWS UNITED BANKSHARES, INC. AND SUBSIDIARIES
Year Ended December 31 --------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- OPERATING ACTIVITIES Net income $ 30,512,000 $ 32,817,000 $ 30,384,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 2,610,000 2,320,000 2,202,000 Provision for depreciation 3,080,000 2,926,000 3,071,000 Amortization, net of accretion 1,091,000 35,000 2,485,000 Loss (gain)on sales of bank premises and equipment 140,000 (35,000) (291,000) Net losses on sales of securities available for sale 98,000 872,000 Loans originated for sale (26,157,000) (9,438,000) (5,360,000) Proceeds from loans sold 49,839,000 10,053,000 4,713,000 Loss (gain) on sales of loans 728,000 (1,012,000) (121,000) Deferred income tax (benefit) expense (9,000) 141,000 (501,000) Originations of student loans (465,000) (292,000) Proceeds from sales of student loans 4,580,000 Changes in: Interest receivable 285,000 (766,000) (757,000) Other assets 3,461,000 2,601,000 1,072,000 Accrued expenses and other liabilities 3,113,000 2,227,000 2,136,000 ------------- ------------- ------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 66,449,000 41,404,000 39,613,000 ------------- ------------- ------------- INVESTING ACTIVITIES Proceeds from maturities and calls of investment securities 23,053,000 32,624,000 56,170,000 Purchases of investment securities (78,177,000) (6,995,000) (28,990,000) Proceeds from sales of securities available for sale 16,518,000 66,351,000 Proceeds from maturities and calls of securities available for sale 203,395,000 108,706,000 70,526,000 Purchases of securities available for sale (176,491,000) (70,746,000) (98,871,000) Proceeds from sales of loans 49,127,000 Net purchases of bank premises and equipment (2,004,000) (1,972,000) (2,487,000) Net cash paid for acquired subsidiary (1,742,000) Net change in loans (146,462,000) (90,117,000) (189,268,000) ------------- ------------- ------------- NET CASH (USED IN)PROVIDED BY INVESTING ACTIVITIES (160,168,000) 18,885,000 (126,569,000) ------------- ------------- ------------- FINANCING ACTIVITIES Cash dividends paid (16,541,000) (10,273,000) (12,604,000) Acquisition of treasury stock (3,395,000) (1,273,000) (3,536,000) Proceeds from exercise of stock options 851,000 666,000 455,000 Pre-merger dividends of pooled company (382,000) (2,729,000) (2,757,000) Repayment of Federal Home Loan Bank borrowings (414,007,000) (379,134,000) (89,682,000) Proceeds from Federal Home Loan Bank borrowings 471,141,000 316,257,000 195,601,000 Purchase of fractional shares (4,000) Changes in: Time deposits 25,161,000 127,570,000 10,246,000 Other deposits 28,023,000 (117,776,000) 4,871,000 Federal funds purchased and securities sold under agreements to repurchase (6,585,000) 10,358,000 (801,000) ------------- ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 84,262,000 (56,334,000) 101,793,000 ------------- ------------- ------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,457,000) 3,955,000 14,837,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 98,977,000 95,022,000 80,185,000 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 89,520,000 $ 98,977,000 $ 95,022,000 ============= ============= =============
See notes to consolidated financial statements. 98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNITED BANKSHARES, INC. AND SUBSIDIARIES December 31, 1996 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES United Bankshares, Inc. is a multi-bank holding company headquartered in Charleston, West Virginia. The principal West Virginia markets of United Bankshares, Inc. and subsidiaries (United) are located in Parkersburg, Charleston, Huntington, Morgantown and Wheeling, West Virginia. United also operates a banking subsidiary in Arlington, Virginia. United considers all of its principal business activities to be bank related. The accounting and reporting policies of United conform with generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. A description of the significant accounting policies is presented below. Basis of Presentation: The consolidated financial statements and the notes to - ---------------------- consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, which have been restated to reflect the merger of Eagle Bancorp, Inc. (Eagle) on April 12, 1996, under the pooling of interests method of accounting. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Certain amounts in the 1995 and 1994 financial statements have been reclassified to conform with the 1996 presentation. The reclassifications had no effect on net income or shareholders' equity. Securities: Management determines the appropriate classification of securities - ----------- at the time of purchase. Debt securities that United has the intent and the ability to hold to maturity are carried at amortized cost. Securities to be held for indefinite periods of time and all marketable equity securities are classified as available for sale and carried at fair value. Unrealized holding gains and losses on securities classified as available for sale are carried as a separate component of shareholders' equity net of deferred income taxes. Gains or losses on sales of securities are recognized by the specific identification method and are reported separately in the statements of income. Loans: Interest on loans is accrued and credited to operations using methods - ------ that produce a level yield on principal amounts outstanding. Loan origination and commitment fees and related direct loan origination costs are deferred and amortized as an adjustment of loan yield over the estimated life of the related loan. 99 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 days past due as to principal or interest. When interest accruals are discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral exceeds the principal balance and accrued interest, and the loan is in the process of collection. Consistent with United's existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. United's method of income recognition for impaired loans that are classified as nonaccrual is to recognize interest income on the cash basis of income recognition or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. The principal sources of revenue from United's mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans, if any; (iii) interest earned on mortgage loans during the period that they are held by United pending sale; (iv) loan servicing fees; and (v) gain or loss on the close-out of the hedge instrument used to offset the risk that changes in interest rate may have on the value of United's mortgage loan inventory. Loans held for Sale: Loans held for sale consist of one-to-four family - -------------------- residential loans originated for sale in the secondary market and are carried at the lower of cost or fair value determined on an aggregate basis. Allowance for Loan Losses: The allowance for loan losses related to loans that - -------------------------- are identified as impaired is based on the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. In providing for loan losses, United considers all significant factors that affect the collectibility of loans including the evaluation of impaired loans. Such other factors considered by management include growth and composition of the loan portfolio, known deterioration in certain classes of loans or collateral, trends in delinquencies, and current economic conditions. Management believes that the allowance for loan losses is adequate to provide for potential losses on existing loans based on information currently available. Bank Premises and Equipment: Bank premises and equipment are stated at cost, - ---------------------------- less allowances for depreciation and amortization. The provision for depreciation is computed principally by the straight-line method over the estimated useful lives of the respective assets. 100 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Income Taxes: Deferred income taxes are provided for temporary differences - ------------- between the tax basis of an asset or liability and its reported amount in the financial statements at the statutory tax rate. Stock-Based Compensation: In October 1995, the Financial Accounting Standards - ------------------------- Board ("FASB"), issued Statement No. 123, (SFAS No. 123), "Accounting for Stock- Based Compensation," which is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 defines a fair value based method of accounting for stock-based compensation plans, with the option of continuing to account for such plans under the intrinsic value method. United has elected to continue to account for its plans under the intrinsic value method. Trust Assets and Income: Assets held in a fiduciary or agency capacity for - ------------------------ subsidiary bank customers are not included in the balance sheets since such items are not assets of the subsidiary banks. Trust department income is reported on a cash basis. Reporting such income on an accrual basis would not materially affect United's consolidated financial position or its results of operations as reported herein. Cash Flow Information: For purposes of the statement of cash flows, United - ---------------------- considers cash and due from banks and federal funds sold as cash and cash equivalents. Earnings Per Common Share: Earnings per common share is computed based on the - -------------------------- weighted average number of common and common equivalent shares outstanding during the applicable period. Options granted under United's stock option plans are considered common stock equivalents for the purpose of computing earnings per share. Intangible Assets: Intangible assets relating to the estimated value of the - ------------------ deposit base of the acquired institutions are being amortized on an accelerated basis over a 7 to 10 year period. The excess of the purchase price over the fair market value of the net assets of the banks acquired (goodwill) is being amortized on a straight-line basis over 15 years. The carrying amount of goodwill is evaluated if facts and circumstances suggest that it may be impaired. If this evaluation indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of goodwill will be reduced. The purchase prices of acquisitions have been allocated to the identifiable tangible and intangible assets acquired based upon their fair values at the acquisition dates. At December 31, 1996 and 1995, deposit base intangibles and goodwill approximated $11,959,000 and $14,377,000 net of accumulated amortization of approximately $9,888,000 and $7,470,000. 101 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued New Accounting Standards: In June 1996, the FASB issued Statement No. 125, - ------------------------- (SFAS No. 125), "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 prescribes the accounting treatment for securitization transactions based on a financial components approach with an emphasis on physical control, such as the ability to pledge or exchange the securitized assets. SFAS No. 125 applies to repurchase agreements, securities lending, loan participations, and other financial component transfers and exchanges. The new rules will not have a material effect on United's financial position and results of operations. SFAS No. 125 is effective for transactions occurring after December 31, 1996. NOTE B--ACQUISITIONS On April 12, 1996, United consummated the merger with Eagle Bancorp, Inc., Charleston, West Virginia ("Eagle"), in a common stock exchange accounted for under the pooling of interests method of accounting and, accordingly, all prior period financial statements have been restated to include Eagle. United exchanged 1.15 shares of its common stock for each of the 2,729,377 common shares of Eagle or 3,138,704 shares. The following presents the separate results of United and Eagle for the three months ended March 31, 1996 and for the years ended December 31, 1995 and 1994.
United Eagle Combined ------------ ------------ ------------ For the Three Months Ended March 31, 1996 (Unaudited): Net interest income $20,886,000 $ 3,605,000 $24,491,000 Net income 7,504,000 585,000 8,089,000 Earnings per share $ 0.62 $ 0.21 $ 0.53 For the Year Ended December 31, 1995: Net interest income $81,690,000 $13,958,000 $95,648,000 Net income 28,079,000 4,738,000 32,817,000 Earnings per share $ 2.35 $ 1.74 $ 2.18 For the Year Ended December 31, 1994: Net interest income $77,270,000 $14,695,000 $91,965,000 Net income 24,902,000 5,482,000 30,384,000 Earnings per share $ 2.08 $ 2.01 $ 2.01
102 NOTE B--ACQUISITIONS - continued On October 31, 1995, United acquired 100% of the common stock of First Commercial Bank("FCB") of Arlington, Virginia, in a combination cash and common stock exchange accounted for using the purchase method of accounting. United exchanged 202,125 shares of its common stock with an approximate fair value of $6,063,000 plus cash of approximately $5,280,000 for all 201,100 of FCB's common stock. As of the date of acquisition, FCB reported total assets of $76,964,000, total net loans of $41,386,000 and deposits of $50,200,000. The results of operations of FCB, which are not significant, have been included in the consolidated results of operations from the date of acquisition. United has entered into an agreement with First Patriot Bankshares Corporation, Reston, Virginia ("Patriot") to acquire 100% of the outstanding common stock of Patriot for $17.00 per share. The transaction valued at approximately $39,247,000 will be accounted for using the purchase method of accounting. It is anticipated that the proposed acquisition will be consummated during the third quarter of 1997. Consummation of the transaction is subject to approval of the shareholders of Patriot and the receipt of all required regulatory approvals, as well as other customary conditions. At December 31, 1996, Patriot had consolidated assets of approximately $191,440,000 and shareholders' equity of approximately $14,335,000. NOTE C--INVESTMENT SECURITIES The amortized cost and estimated fair values of securities available for sale are summarized as follows:
December 31, 1996 ----------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ---------- ----------- ------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $115,018,000 $ 443,000 $ 444,000 $115,017,000 Mortgage-backed securities 24,982,000 92,000 565,000 24,509,000 Marketable equity securities 3,655,000 2,158,000 5,813,000 Other 16,506,000 7,000 223,000 16,290,000 ------------ ---------- ---------- ------------ Total $160,161,000 $2,700,000 $1,232,000 $161,629,000 ============ ========== ========== ============
103 NOTE C--INVESTMENT SECURITIES - continued
December 31, 1995 ---------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ---------- ---------- ------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $150,460,000 $1,438,000 $341,000 $151,557,000 Mortgage-backed securities 30,036,000 165,000 54,000 30,147,000 Marketable equity securities 2,662,000 1,159,000 3,821,000 Other 13,808,000 21,000 224,000 13,605,000 ------------ ---------- -------- ------------ Total $196,966,000 $2,783,000 $619,000 $199,130,000 ============ ========== ======== ============
The amortized cost and estimated fair value of securities available for sale at December 31, 1996, by contractual maturity are as follows:
Estimated Amortized Fair Cost Value ------------ ------------ Due in one year or less $ 23,847,000 $ 23,868,000 Due after one year through five years 93,788,000 93,776,000 Due after five years through ten years 603,000 616,000 Due after ten years 38,268,000 37,556,000 Marketable equity securities 3,655,000 5,813,000 ------------ ------------ Total $160,161,000 $161,629,000 ============ ============
The table above includes $24,982,000 of mortgage-backed securities at estimated fair value with an amortized cost of $24,509,000. Maturities of mortgage-backed securities are based upon the estimated average life. Gross realized gains and losses from sales of securities available for sale were $96,000 and $194,000 in 1996, and $152,000 and $1,024,000 in 1994, respectively. There were no sales in 1995. In accordance with a special report issued by the FASB, "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities," United chose to reclassify securities from held to maturity to available for sale. At the date of the transfer, the amortized cost of those securities was $103,595,000, and the unrealized gain on those securities was $242,000, net of deferred income taxes, which is included in shareholders' equity. 104 NOTE C--INVESTMENT SECURITIES - continued The amortized cost and estimated fair values of securities held to maturity are summarized as follows:
December 31, 1996 ---------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ---------- ---------- ------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 77,704,000 $2,131,000 $ 87,000 $ 79,748,000 State and political subdivisions 36,136,000 1,487,000 32,000 37,591,000 Mortgage-backed securities 54,977,000 250,000 754,000 54,473,000 Other 1,885,000 1,885,000 ------------ ---------- -------- ------------ Total $170,702,000 $3,868,000 $873,000 $173,697,000 ============ ========== ======== ============ December 31, 1995 ---------------------------------------------------- Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------- ---------- ---------- ------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 15,897,000 $ 22,000 $169,000 $ 15,750,000 State and political subdivisions 43,324,000 2,124,000 33,000 45,415,000 Mortgage-backed securities 56,416,000 348,000 617,000 56,147,000 Other 6,252,000 15,000 6,267,000 ------------ ---------- -------- ------------ Total $121,889,000 $2,509,000 $819,000 $123,579,000 ============ ========== ======== ============
The amortized cost and estimated fair value of debt securities held to maturity at December 31, 1996 by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Estimated Amortized Fair Cost Value ------------ ------------ Due in one year or less $ 11,296,000 $ 11,338,000 Due after one year through five years 57,167,000 57,590,000 Due after five years through ten years 77,000,000 79,236,000 Due after ten years 25,239,000 25,533,000 ------------ ------------ Total $170,702,000 $173,697,000 ============ ============
The table above includes $54,977,000 of mortgage-backed securities with an estimated fair value of $54,473,000 at December 31, 1996. Maturities of the mortgage-backed securities are based upon the estimated average life. 105 NOTE C--INVESTMENT SECURITIES - continued There were no sales of held to maturity securities during 1996, 1995 and 1994. The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $204,254,000 and $176,855,000 at December 31, 1996 and 1995, respectively. NOTE D--LOANS Major classifications of loans as of December 31 are as follows:
1996 1995 -------------- -------------- Commercial, financial, and agricultural $ 248,762,000 $ 218,800,000 Real estate: Single family residential 953,000,000 908,862,000 Commercial 355,431,000 344,626,000 Construction 42,343,000 21,808,000 Other 19,748,000 14,056,000 Installment 232,004,000 229,457,000 -------------- -------------- 1,851,288,000 1,737,609,000 Loans held for sale 1,482,000 345,000 -------------- -------------- Total gross loans $1,852,770,000 $1,737,954,000 ============== ==============
An analysis of the allowance for loan losses follows:
Year Ended December 31 --------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- Balance at beginning of year $ 22,545,000 $ 22,304,000 $ 20,975,000 Allowance of purchased subsidiaries 1,017,000 Provision for loan losses 2,610,000 2,320,000 2,202,000 -------------- -------------- -------------- 25,155,000 25,641,000 23,177,000 Loans charged off 3,524,000 3,624,000 1,770,000 Less recoveries 652,000 528,000 897,000 -------------- -------------- -------------- Net charge offs 2,872,000 3,096,000 873,000 -------------- -------------- -------------- Balance at end of year $ 22,283,000 $ 22,545,000 $ 22,304,000 ============== ============== ==============
The average recorded investment in impaired loans during the year ended December 31, 1996 and 1995 was approximately $9,442,000 and $9,545,000, respectively. At December 31, 1996, the recorded investment in loans that were considered to be impaired was $10,317,000 (of which $5,461,000 was on a nonaccrual basis). Included in this amount was $5,631,000 of impaired loans for which the related allowance for credit losses was $1,451,000 and $4,686,000 of impaired loans that did not have an allowance for credit losses. At December 31, 1995, the recorded investment in loans that were considered to be impaired was $8,792,000 (of which $4,934,000 was on a nonaccrual basis). Included in this amount was $4,793,000 of impaired loans for which the related allowance for credit losses was $1,918,000 and $3,999,000 of impaired loans that did not have an allowance for credit losses. 106 NOTE D--LOANS - continued The amount of interest income that would have been recorded on impaired loans under the original terms was $1,464,000, $1,045,000 and $346,000 for the years ended December 31, 1996, 1995 and 1994, respectively. For the years ended December 31, 1996, 1995 and 1994, United recognized interest income on those impaired loans of approximately $638,000, $412,000 and $1,000, respectively, substantially all of which was recognized using the accrual method of income recognition. United has commercial real estate loans, including owner occupied, income producing real estate and land development loans, of approximately $355,431,000 and $334,626,000 as of December 31, 1996 and 1995, respectively. The loans are primarily secured by real estate located in West Virginia, Southeastern Ohio, and Virginia. The loans were originated by United's subsidiary banks using underwriting standards as set forth by management. United's loan administration policies are focused on the risk characteristics of the loan portfolio, including commercial real estate loans, in terms of loan approval and credit quality. It is the opinion of management that these loans do not pose any unusual risks and that adequate consideration has been given to the above loans in establishing the allowance for loan losses. United's subsidiary banks have made loans, in the normal course of business, to the directors and officers of United and its subsidiaries, and to their associates. Such related party loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $72,367,000 and $55,919,000 at December 31, 1996 and 1995, respectively. During 1996, $53,585,000 of new loans were made, repayments totaled $44,839,000, and other changes due to the change in composition of United's board members and executive officers approximated $7,702,000. NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES Bank premises and equipment are summarized as follows:
December 31 -------------------------- 1996 1995 ------------ ------------ Land $ 7,892,000 $ 7,924,000 Building and improvements 34,414,000 35,025,000 Leasehold improvements 5,784,000 5,345,000 Furniture, fixtures, and equipment 30,093,000 28,988,000 ----------- ----------- 78,183,000 77,282,000 Less allowance for depreciation and amortization 44,633,000 42,516,000 ----------- ----------- Net bank premises and equipment $33,550,000 $34,766,000 =========== ===========
107 NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES - continued United and certain banking subsidiaries have entered into various noncancelable operating leases. These noncancelable operating leases are subject to renewal options under various terms and some leases provide for periodic rate adjustments based on cost-of-living index changes. Rent expense for noncancelable operating leases approximated $1,908,000, $1,822,000 and $1,848,000 for the years ended December 31, 1996, 1995, and 1994, respectively. Future minimum payments, by year and in the aggregate, under non-cancelable operating leases with initial or remaining terms of one year or more, for years subsequent to December 31, 1996, consisted of the following: 1997 $ 1,752,000 1998 1,636,000 1999 1,543,000 2000 1,426,000 2001 1,381,000 Thereafter 1,393,000 ---------- Total minimum lease payments $ 9,131,000 ===========
NOTE F--DEPOSITS The book value of deposits consisted of the following:
December 31 ------------------------------ 1996 1995 -------------- -------------- Noninterest bearing checking $ 261,048,000 $ 252,627,000 Interest bearing checking 62,783,000 239,100,000 Regular savings 293,755,000 328,509,000 Money market accounts 362,223,000 131,550,000 Time deposits under $100,000 709,309,000 672,667,000 Time deposits over $100,000 138,436,000 150,146,000 -------------- -------------- Total deposits $1,827,554,000 $1,774,599,000 ============== ==============
Interest paid on deposits and borrowings approximated $72,568,000, $63,167,000 and $52,397,000 in 1996, 1995 and 1994, respectively. At December 31, 1996, the scheduled maturities of time deposits are as follows:
1997 $599,255,000 1998 199,907,000 1999 16,950,000 2000 7,289,000 2001 and thereafter 24,344,000 ------------ Total $847,745,000 ============
United's subsidiary banks have received deposits, in the normal course of business, from the directors and officers of United and its subsidiaries, and their associates. Such related party deposits were accepted on substantially the same terms, including interest rates and maturities, as those prevailing at the time for comparable transactions with unrelated persons. The aggregate dollar amount of these deposits was $18,335,000 and $16,655,000 at December 31, 1996 and 1995, respectively. 108 NOTE G--BORROWINGS United's lead subsidiary, United National Bank (UNB), is a member of the Federal Home Loan Bank of Pittsburgh (FHLB). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. At December 31, 1996, United had approximately $627,169,000 of available borrowings in the form of collateralized advances from the FHLB at prevailing interest rates. Approximately $104,000,000 of FHLB advances with an interest rate of 6.75% and $25,000,000 of FHLB advances with an interest rate of 6.20% are scheduled to mature in 1997. Additionally, $3,631,000 of FHLB advances with a weighted average interest rate of 6.16% are scheduled to mature after one year. UNB also has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $79,500,000. These lines of credit, which bear interest at prevailing market rates, permit UNB to borrow funds in the overnight market, and are renewable annually provided that UNB does not experience a material adverse change in its financial position or results of operations. Information concerning securities sold under agreements to repurchase is summarized as follows:
1996 1995 ------------ ------------- Average balance during the year $66,463,000 $ 70,752,000 Average interest rate during the year 4.04% 4.30% Maximum month-end balance during the year $79,664,000 $81,720,000
At December 31, 1996 and 1995, borrowings and the related weighted average interest rate were as follows:
1996 1995 -------------------------- ------------------------- Weighted Weighted Average Average Amount Rate Amount Rate ------------ ----------- ------------ ----------- Federal funds purchased $ 4,491,000 6.81% $ 26,378,000 5.86% Securities sold under agreements to repurchase 71,091,000 4.16% 55,789,000 4.35% FHLB advances 132,631,000 6.63% 75,497,000 5.74% ------------ ------------ Total $208,213,000 $157,664,000 ============ ============
NOTE H--INCOME TAXES The income tax provisions included in the consolidated statements of income are summarized as follows:
Year Ended December 31 ---------------------------------------- 1996 1995 1994 ------------ ----------- ------------ Current expense: Federal $15,271,000 $15,313,000 $13,998,000 State 1,429,000 2,328,000 2,212,000 Deferred (benefit) expense: Federal and State (9,000) 141,000 (501,000) ------------ ----------- ----------- Income taxes $16,691,000 $17,782,000 $15,709,000 =========== ============ ===========
109 NOTE H--INCOME TAXES - continued The following is a reconciliation of income tax expense to the amount computed by applying the statutory federal income tax rate to income before income taxes:
Year Ended December 31 -------------------------------------------------------------------- 1996 1995 1994 -------------------- -------------------- -------------------- Amount % Amount % Amount % ----------- ----- ----------- ----- ----------- ----- Tax on income before taxes at statutory federal rate $16,521,000 35.0% $17,710,000 35.0% $16,133,000 35.0% Plus: State income taxes net of federal tax benefits 929,000 2.0 1,619,000 3.2 1,026,000 2.2 ----------- ----- ----------- ----- ----------- ----- 17,450,000 37.0 19,329,000 38.2 17,159,000 37.2 Increase (decrease) resulting from: Tax-exempt interest income (1,464,000) (3.1) (1,683,000) (3.3) (1,830,000) (3.9) Other items-net 705,000 1.5 136,000 0.2 380,000 0.8 ----------- ----- ----------- ----- ----------- ----- Income taxes $16,691,000 35.4% $17,782,000 35.1% $15,709,000 34.1% =========== ===== =========== ===== =========== =====
Federal income tax benefit applicable to securities transactions approximated $34,000 and $305,000 in 1996 and 1994, respectively. There were no securities transactions in 1995. Income taxes paid approximated $14,035,000, $19,052,000 and $15,143,000 in 1996, 1995 and 1994, respectively. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of United's deferred tax assets and liabilities (included in other assets) at December 31, 1996 and 1995 are as follows:
1996 1995 ----------- ----------- Deferred tax assets: Allowance for loan losses $ 8,889,000 $ 8,815,000 Accrued benefits payable 1,600,000 876,000 Other accrued liabilities 2,213,000 2,378,000 Net deferred loan fees 488,000 392,000 Other real estate owned 69,000 122,000 Other 363,000 232,000 ----------- ----------- Total deferred tax assets 13,622,000 12,815,000 ----------- ----------- Deferred tax liabilities: Premises and equipment 1,784,000 1,676,000 Core deposit intangibles 417,000 816,000 Income tax allowance for loan losses 1,462,000 1,678,000 Prepaid assets 149,000 117,000 Deferred mortgage points 1,582,000 675,000 Securities available for sale 514,000 708,000 Other 441,000 75,000 ----------- ----------- Total deferred tax liabilities 6,349,000 5,745,000 ----------- ----------- Net deferred tax assets $ 7,273,000 $ 7,070,000 =========== ===========
110 NOTE I--EMPLOYEE BENEFIT PLANS United has a defined benefit retirement plan covering substantially all employees. The benefits are based on years of service and the average of the employee's highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. United's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The following table sets forth the funded status of United's defined benefit plan and amounts recognized in the respective consolidated balance sheets:
December 31 ---------------------------- 1996 1995 ------------- ------------- Vested benefit obligation $(15,715,000) $(14,551,000) Nonvested benefit obligation (408,000) (384,000) ------------ ------------ Accumulated benefit obligation (16,123,000) (14,935,000) Effect of future pay increases (5,046,000) (5,007,000) ------------ ------------ Projected benefit obligation for services rendered to date (21,169,000) (19,942,000) Plan assets at fair value, primarily marketable securities 23,109,000 20,526,000 ------------ ------------ Excess of plan assets over projected benefit obligation 1,940,000 584,000 Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions (1,877,000) (476,000) Unrecognized prior service cost 388,000 452,000 Unrecognized transition asset (826,000) (961,000) ------------ ------------ Accrued pension liability included in other liabilities $ (375,000) $ (401,000) ============ ============
Net periodic pension cost included the following components:
Year Ended December 31, ------------------------------------------ 1996 1995 1994 ------------ ------------ ----------- Service cost $ 861,000 $ 718,000 $ 840,000 Interest cost on projected benefit obligation 1,439,000 1,263,000 1,158,000 Actual (return) loss on plan assets (2,849,000) (3,499,000) 192,000 Net amortization and deferral 1,014,000 1,852,000 (1,582,000) ------------ ------------ ----------- Net periodic pension cost $ 465,000 $ 334,000 $ 608,000 ============ ============ ===========
111 NOTE I--EMPLOYEE BENEFIT PLANS - continued At December 31, 1996, the weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.5% and 4.5%. At December 31, 1995, the weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation ranged from 6.25% to 7.5% and 4.5% to 5.25%. The weighted average expected long-term rate of return on United's plan assets ranged from 7.75% to 9.00% for the years ended December 31, 1996, 1995 and 1994. The United Savings and Stock Investment Plan (the Plan) is a deferred compensation plan under Section 401(k) of the Internal Revenue Code. All employees who complete one year of service are eligible to participate in the Plan. Each participant may contribute from 1% to 10% of pre-tax earnings to his or her account which may be invested in any of four investment options chosen by the employee. United matches 100% of the first 2% of salary deferred and 25% of the next 2% of salary deferred with United common stock. Vesting is 100% for employee deferrals and the United match at the time the employee makes his/her deferral. United's expense relating to the Plan approximated $330,000, $297,000 and $336,000 in 1996, 1995 and 1994, respectively. The assets of United's defined benefit plan and 401(k) Plan each include investments in United common stock. At December 31, 1996, the combined plan assets included 385,960 shares of United common stock with an approximate fair value of $12,737,000. United has certain other deferred compensation plans covering various key employees. Periodic charges are made to operations so that the present value of the liability due each employee is fully recorded as of the date of their retirement. Amounts charged to expense have not been significant in any year. United has three incentive stock option plans for key employees, the 1988, 1991 and 1996 plans. The plans provide for the granting of stock options of up to 100,000, 500,000 and 600,000 shares of common stock, respectively. No further grants will be made under the 1988 and 1991 plans. At December 31, 1996, 490,514 options were available for future grant under the 1996 plan. Under the provisions of the plans, the option price per share shall not be less than the fair market value of United's common stock on the date of grant. Accordingly, no compensation expense is recognized for these options. 112 NOTE I--EMPLOYEE BENEFIT PLANS - continued The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable - ----------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life Price Exercisable Price - ----------------------------------------------------------------------------- $11.00 to $14.00 33,050 3 years $ 13.47 33,050 $13.47 13.75 to 19.75 90,350 6 years 17.21 90,350 17.21 23.00 to 30.00 257,235 7 years 26.83 186,599 26.42 29.75 109,486 10 years 29.75 - -
The following is a summary of activity of United's Incentive Stock Option Plans:
Stock Range of Options Exercise Prices ---------- ----------------- Outstanding at January 1, 1994 328,250 $27.00 $11.00 Granted 100,000 23.00 Exercised 34,200 19.75 11.00 Forfeited 9,375 27.00 13.75 ------- Outstanding at December 31, 1994 384,675 27.00 11.00 Granted 100,000 30.00 Exercised 44,500 27.00 11.00 Forfeited 9,450 27.00 19.75 ------- Outstanding at December 31, 1995 430,725 30.00 11.00 Granted 109,486 29.75 Exercised 48,025 27.00 11.00 Forfeited 2,065 30.00 23.00 ------- Outstanding at December 31, 1996 490,121 30.00 11.00 ======= Exercisable at: December 31, 1994 226,113 $27.00 $11.00 December 31, 1995 263,637 $27.00 $11.00 December 31, 1996 309,999 $30.00 $11.00
As permitted, United has adopted the disclosure only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." Pro forma net income and earnings per share have not been presented because the effect of applying the fair value method prescribed by SFAS 123 to the 1996 and 1995 options awarded produces amounts that are not materially different from amounts reported herein. United provides postemployment and postretirement benefits for certain employees at subsidiaries acquired in prior years. United accounts for such costs as expense when paid. Accounting for such costs when paid does not produce results materially different from those which would result if such costs were accrued during the period of employee service. United does not anticipate providing postemployment or postretirement benefits to its currently active employees after employment or retirement except on a fully contributory basis. 113 NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, forward contracts for the delivery of mortgage-backed securities and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. United's maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management's credit evaluation of the counterparty. United had approximately $340,338,000 and $271,738,000 of loan commitments outstanding as of December 31, 1996 and 1995, respectively, substantially all of which expire within one year. Standby letters of credit are agreements used by United's customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. United has issued standby letters of credit of $22,081,000 and $17,047,000 as of December 31, 1996 and 1995, respectively. United enters into hedging transactions to offset the risk that a change in interest rates will result in a decrease in the value of United's current mortgage loan inventory or its commitments to originate mortgage loans (the "pipeline"). The pipeline is analyzed on a loan-by-loan basis to estimate the exposure to loss based on the market price, commitment price and time to expiration. The risk of loss is then matched with the appropriate hedge vehicle. United primarily utilizes forward contracts for the delivery of mortgage-backed securities as hedge vehicles. United's policies generally require that it hedge substantially all of its inventory of conforming and government loans and the maximum portion of its pipeline that may close. The mortgage-backed securities that are to be delivered under these contracts are fixed or adjustable-rate, corresponding with the composition of United's inventory and pipeline. The correlation between the price performance of the hedge vehicles and the inventory being hedged is very high due to the similarity of the asset and the related hedge vehicle. At December 31, 1996, United had open commitments amounting to approximately $6,000,000 to sell mortgage- 114 NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES - continued backed securities with varying settlement dates generally not extending beyond March 1997. As such, United is not exposed to significant risk nor will it derive any significant benefit from changes in interest rates on the price of the mortgage loan inventory, net of gains or losses of associated hedge positions. In 1994 United entered into an interest rate swap agreement to manage its interest rate exposure. The interest rate swap transaction involves the exchange of a floating rate payment based on the one month London inter-bank offered rate (LIBOR) for a fixed rate receipt based on the U. S. three year treasury note. The net pay and receive amount is calculated on an underlying notional amount without the exchange of the underlying principal amount. The interest rate swap subjects United to market risk associated with changes in interest rates, as well as the risk that the counterparty will fail to perform. Only the interest payments are exchanged, and therefore, cash requirements and exposure to credit risk are significantly less than the notional amount. The notional amount shown below represents an agreed-upon amount on which calculations of amounts to be exchanged are based. It does not represent direct credit exposure. United's credit exposure is limited to the net difference between the calculated pay and receive amounts on the transaction which is netted monthly. The swap, which closes in February 1997, is summarized as follows: Notional value $50,000,000 Average receive rate during 1996 4.50% Average pay rate during 1996 5.46%
During 1996, 1995 and 1994 the interest rate swap reduced interest income by $526,000, $787,000 and $1,000,respectively. At December 31, 1996, the estimated unrealized loss on the swap, which may reduce interest income in future periods, approximated $51,000. Management does not anticipate any material losses as a result of these loan commitments, standby letters of credit, forward contracts for the delivery of mortgage-backed securities and interest rate swap agreements. In the normal course of business, United and its subsidiaries are currently involved in various legal proceedings. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United's financial position or results of operations. 115 NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION Condensed Balance Sheets
December 31 ---------------------------- 1996 1995 ------------- ------------- Assets Cash $ 12,958,000 $ 13,778,000 Securities available for sale 10,813,000 12,216,000 Securities held to maturity 1,520,000 677,000 Investment in subsidiaries: Bank subsidiaries 238,902,000 226,705,000 Non-bank subsidiaries 1,264,000 1,223,000 Other assets 272,000 189,000 ------------ ------------ Total Assets $265,729,000 $254,788,000 ============ ============ Liabilities and Shareholders' Equity Accrued expenses and other liabilities $ 7,215,000 $ 5,554,000 Shareholders' equity (including a net unrealized holding gain of $954,000 and $1,409,000 on securities available for sale at December 31, 1996 and 1995, respectively) 258,514,000 249,234,000 ------------ ------------ Total Liabilities and Shareholders' Equity $265,729,000 $254,788,000 ============ ============
Condensed Statements of Income
Year Ended December 31 ----------------------------------------- 1996 1995 1994 ----------- ------------ ------------ Income Dividends from bank subsidiaries $17,847,000 $ 26,496,000 $ 17,525,000 Management fees: Bank subsidiaries 3,467,000 3,018,000 2,226,000 Non-bank subsidiaries 12,000 12,000 12,000 Other Income 557,000 268,000 238,000 ----------- ------------ ------------ Total Income 21,883,000 29,794,000 20,001,000 Expenses Operating expenses 4,725,000 4,606,000 3,072,000 ----------- ------------ ------------ Income Before Income Taxes and Equity in Undistributed Net Income of Subsidiaries 17,158,000 25,188,000 16,929,000 Applicable income tax benefit (12,000) (269,000) (113,000) ----------- ------------ ------------ Income Before Equity in Undistributed Net Income of Subsidiaries 17,170,000 25,457,000 17,042,000 Equity in undistributed net income of subsidiaries Bank subsidiaries 13,302,000 7,349,000 13,316,000 Non-bank subsidiaries 40,000 11,000 26,000 ----------- ------------ ------------ Net Income $30,512,000 $ 32,817,000 $ 30,384,000 =========== ============ ============
116 NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION - continued Condensed Statements of Cash Flows
Year Ended December 31 ------------------------------------------- 1996 1995 1994 ------------- ------------- ------------- Operating Activities Net income $ 30,512,000 $ 32,817,000 $ 30,384,000 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (13,342,000) (7,360,000) (13,342,000) Depreciation and net amortization 26,000 33,000 59,000 Net gain on sales of investment securities (24,000) (107,000) Gain on sale of bank premises and equipment (49,000) Net change in other assets and liabilities (106,000) 790,000 97,000 ------------ ------------ ------------ Net Cash Provided By Operating Activities 17,066,000 26,280,000 17,042,000 ------------ ------------ ------------ Investing Activities Net sales of investment securities 123,000 Net purchases of securities available for sale 1,585,000 (8,439,000) (1,171,000) Increase in investment in subsidiaries (2,400,000) Cash paid in acquisition of subsidiary (5,280,000) Proceeds from sale of bank premises and equipment 125,000 ------------ ------------ ------------ Net Cash Provided By (Used In) Investing Activities 1,585,000 (16,119,000) (923,000) ------------ ------------ ------------ Financing Activities Cash dividends paid (16,541,000) (10,273,000) (12,604,000) Pre-merger dividends of pooled company (382,000) (2,729,000) (2,757,000) Acquisition of treasury stock (3,395,000) (1,273,000) (3,536,000) Purchase of fractional shares (4,000) Proceeds from exercise of stock options 851,000 666,000 455,000 ------------ ------------ ------------ Net Cash Used In Financing Activities (19,471,000) (13,609,000) (18,442,000) ------------ ------------ ------------ Decrease in Cash (820,000) (3,448,000) (2,323,000) Cash and Cash Equivalents at Beginning of Year 13,778,000 17,226,000 19,549,000 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $12,958,000 $13,778,000 $17,226,000 ============= ============= ============
117 NOTE L--OTHER INCOME AND EXPENSE The following details certain items of other income and expense for the periods indicated:
Year Ended December 31 ------------------------------------ 1996 1995 1994 ----------- ---------- ----------- Other income: - ------------- Service charges and fees on deposits $8,014,000 $7,063,000 $6,991,000 Bankcard 2,048,000 1,739,000 1,011,000 Net (loss) income from mortgage banking operations (431,000) 1,012,000 121,000 Loss on sales of investment securities (98,000) (872,000) Other income 234,000 927,000 861,000 Other expense: - -------------- Data processing $2,974,000 $2,548,000 $2,740,000 FDIC insurance expense 2,986,000 2,364,000 3,839,000 Legal and consulting 2,138,000 2,595,000 1,142,000 Advertising 2,173,000 1,747,000 1,545,000 Goodwill amortization 1,915,000 1,551,000 1,488,000 Equipment expense 3,191,000 3,021,000 3,121,000
NOTE M--REGULATORY MATTERS The subsidiary banks are required to maintain average reserve balances with their respective Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1996 was approximately $24,414,000. The primary source of funds for the dividends paid by United Bankshares, Inc. is dividends received from its subsidiary banks. Dividends paid by United's subsidiary banks are subject to regulatory limitations. Generally, the most restrictive provision requires regulatory approval if dividends declared in any year exceed the year's net income, as defined, plus the retained net profits of the two preceding years. During 1997, the retained net profits available for distribution to United Bankshares, Inc., as dividends without regulatory approval, are approximately $20,700,000, plus net income for the interim period through the date of declaration. Under Federal Reserve regulation, the banking subsidiaries are also limited as to the amount they may loan to affiliates, including the parent company. Loans from the banking subsidiaries to the parent company are limited to 10% of the banking subsidiaries' capital, and surplus, as defined, or $10,000,000 at December 31, 1996, and must be secured by qualifying collateral. United's subsidiary banks are subject to various regulatory capital requirements administered by federal banking agencies. Pursuant to capital adequacy guidelines, United's subsidiary banks must meet specific capital guidelines that involve quantitative measures of the banks' assets, liabilities, and certain off-balance-sheet items as cal- 118 NOTE M--REGULATORY MATTERS - continued culated under regulatory accounting practices. United's subsidiary banks' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require United to maintain minimum amounts and ratios of total and Tier I capital, as defined in the regulations, to risk-weighted assets, as defined, and of Tier I capital, as defined, to average assets, as defined. Management believes, as of December 31, 1996, that United exceeds all capital adequacy requirements to which it is subject. As of December 31, 1996, the most recent notification from its regulators, United and its subsidiary banks were categorized as well capitalized. To be categorized as well capitalized, United must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed United's category. United's and United's lead bank's, United National Bank, capital amounts (in thousands of dollars) and ratios are presented in the following table.
For Capital To Be Well Actual Adequacy Purposes Capitalized ----------------- ----------------- -------------- Minimum Minimum ----------------- -------------- Amount Ratio Amount Ratio Amount Ratio -------- ------- ------ ----- ------ ----- As of December 31, 1996: - --------------------------- Total Capital (to Risk- Weighted Assets): United Bankshares $263,759 16.5% $127,564 8.0% $159,455 10.0% United National Bank 231,697 15.2% 122,000 8.0% 152,500 10.0% Weighted Assets): United Bankshares 243,827 15.3% 63,782 4.0% 95,673 6.0% United National Bank 212,635 13.9% 61,000 4.0% 91,500 6.0% Tier I Capital (to Average Assets): United Bankshares 243,827 10.8% 90,537 4.0% 113,171 5.0% United National Bank 212,635 9.8% 86,902 4.0% 108,627 5.0% As of December 31, 1995: - --------------------------- Total Capital ( to Risk- Weighted Assets): United Bankshares $247,125 16.8% $117,659 8.0% $147,074 10.0% United National Bank 216,543 15.3% 113,397 8.0% 141,746 10.0% Tier I Capital (to Risk- Weighted Assets): United Bankshares 228,741 15.6% 58,830 4.0% 88,244 6.0% United National Bank 199,024 14.0% 56,698 4.0% 85,048 6.0% Tier I Capital (to Average Assets): United Bankshares 228,741 10.6% 86,510 4.0% 108,138 5.0% United National Bank 199,024 10.2% 77,700 4.0% 97,125 5.0%
119 NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by United in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents: The carrying amounts reported in the balance sheet - -------------------------- for cash and cash equivalents approximate those assets' fair values. Securities: The estimated fair values of securities are based on quoted market - ----------- prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans: The estimated fair values of variable-rate loans that reprice - ------ frequently with no significant change in credit risk are based on carrying values. The fair values of certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans, and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit worthiness. Off-Balance-Sheet Instruments: Fair values of United's loan commitments are - ------------------------------ based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The estimated fair values of these commitments approximate their carrying values. The fair value of the interest rate swap agreement is calculated with pricing models using current rate assumptions. The fair value of forward contracts for the delivery of mortgage-backed securities in connection with its mortgage banking activities is based upon quoted market prices or prices of similar instruments when available. Deposits: The fair values of demand deposits (e.g., interest and non-interest - --------- checking, regular savings and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts of variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values of fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. Short-term Borrowings: The carrying amounts of federal funds purchased, - ---------------------- borrowings under repurchase agreements, and other short-term borrowings approximate their fair values. 120 NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued Federal Home Loan Bank Borrowings: The fair values of United's Federal Home - ---------------------------------- Loan Bank borrowings are estimated using discounted cash flow analyses, based on United's current incremental borrowing rates for similar types of borrowing arrangements The estimated fair values of United's financial instruments are summarized below:
December 31, 1996 December 31, 1995 ----------------------------- -------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------ ---------------- -------------- Cash and cash equivalents $ 89,520,000 $ 89,520,000 $ 98,977,000 $ 98,977,000 Securities available for sale 161,629,000 161,629,000 199,130,000 199,130,000 Securities held to maturity 170,702,000 173,505,000 121,889,000 123,579,000 Loans 1,825,322,000 1,835,619,000 1,710,441,000 1,733,332,000 Deposits 1,827,554,000 1,827,609,000 1,774,599,000 1,779,824,000 Short-term borrowings 75,582,000 75,582,000 82,167,000 82,167,000 FHLB borrowings 132,631,000 132,553,000 75,497,000 75,447,000
December 31, 1996 December 31, 1995 ----------------------------- -------------------------------- Notional Fair Notional Fair Amount Value Amount Value ------------------------------ ---------------- -------------- Off-Balance-Sheet: - --------------------------------------------------------- Interest rate swap agreement $ 50,000,000 $ 50,051,000 $ 50,000,000 $ 50,738,000 Forward contracts related to mortgage banking operations 6,000,000 6,022,000
121 NOTE O - QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for 1996 and 1995 is summarized below (dollars in thousands except for per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ------------ ----------- ----------- 1996 - ---- Interest income $42,188 $41,527 $44,609 $44,034 Interest expense 17,697 17,436 18,865 19,187 Net interest income 24,491 24,091 25,744 24,847 Provision for possible loan losses 611 949 600 450 Gain (loss) on sales of loans, net 58 (1,963) 802 672 Other noninterest income 3,523 3,691 3,753 3,653 Noninterest expense 14,812 18,192 16,540 14,005 Income taxes (1) 4,560 5,414 1,936 4,781 Net income 8,089 1,264 11,223 9,936 Per share data: - --------------- Average shares outstanding (000s) 15,218 15,223 15,229 15,240 Net income per share $ 0.53 $ 0.08 $ 0.74 $ 0.65 Dividends per share $ 0.30 $ 0.31 $ 0.31 $ 0.32 1995 - ---- Interest income $40,732 $41,361 $41,354 $42,368 Interest expense 16,684 17,717 17,604 18,162 Net interest income 24,048 23,644 23,750 24,206 Provision for possible loan losses 520 535 680 585 Gain on sales of loans, net 34 288 638 52 Other noninterest income 3,401 3,495 3,441 3,403 Noninterest expense 14,600 14,072 13,582 15,227 Income taxes 4,198 4,372 4,866 4,346 Net income 8,165 8,448 8,701 7,503 Per share data: - --------------- Average shares outstanding (000s) 14,948 14,945 15,069 15,082 Net income per share $ 0.55 $ 0.56 $ 0.58 $ 0.50 Dividends per share $ 0.29 $ 0.29 $ 0.29 $ 0.30
(1) In the second quarter of 1996, United recorded additional income tax expense of $3,086 due to the recapture of Eagle's bad debt reserve into taxable income. However, as a result of legislation enacted during the third quarter of 1996, United was relieved of the liability. 122 EX-21 6 SUBSIDIARIES Exhibit 21 SUBSIDIARIES OF THE REGISTRANT
TITLE STATE OF INCORPORATION - ----- ---------------------- UBC Holding Company, Inc. West Virginia United National Bank West Virginia United Bank Virginia United Venture Fund, Inc. West Virginia
123 EX-23 7 CONSENT OF ERNST & YOUNG LLP Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of United Bankshares, Inc. and Subsidiaries of our report dated February 24, 1997, included in the 1996 Annual Report to Shareholders of United Bankshares, Inc. and Subsidiaries. We also consent to the incorporation by reference in the Registration Statements pertaining to the Incentive Stock Option Plan (Form S-8, No. 33-22941) and the Savings and Stock Investment Plan (Form S-8, No. 33-32522) of United Bankshares, Inc. of our report dated February 24, 1997, with respect to the consolidated financial statements of United Bankshares, Inc. and Subsidiaries incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1996. /s/ ERNST & YOUNG LLP Charleston, West Virginia March 27, 1997 124 EX-27 8 FINANCIAL DATA SCHEDULE
9 12-MOS DEC-31-1996 DEC-31-1996 86,328,000 195,000 2,997,000 0 170,702,000 170,706,000 173,697,000 1,847,605,000 22,283,000 2,326,877,000 1,827,554,000 208,213,000 32,596,000 0 0 0 38,238,000 220,276,000 2,326,877,000 151,404,000 20,797,000 157,000 172,358,000 63,917,000 73,185,000 99,173,000 2,610,000 (98,000) 63,549,000 47,203,000 47,203,000 0 0 30,512,000 2.00 2.00 4.85 4,361,000 5,831,000 0 0 22,545,000 3,524,000 652,000 22,283,000 8,914,000 0 13,369,000
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