-----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, LwZJQn+DaewI+80zYpAYYkBZ1f3UAOEMP1zRbtqmHRwDP/eRyd4i23rsiWC/jO4Q T/H4vyyBQqHmDramgdSiuQ== 0000950168-99-000965.txt : 19990331 0000950168-99-000965.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950168-99-000965 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: SEC FILE NUMBER: 000-13322 FILM NUMBER: 99578360 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 UNITED BANKSHARES, INC. 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, 1998 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) 424-8704 Securities registered pursuant to section 12(b) of the Act: NONE Securities registered pursuant to 12(g) of the Act: COMMON STOCK, $2.50 PAR VALUE ----------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report(s), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of United Bankshares, Inc. common stock, representing all of its voting stock, that was held by non-affiliates on February 28, 1999 was approximately $930,578,305. As of February 28, 1999, United Bankshares, Inc. had 43,293,652 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, 1998, portions of which are incorporated by reference in Parts I, II and IV of this Form 10-K. 2. Definitive Proxy Statement dated April 7, 1999 for the 1999 Annual Shareholders' Meeting to be held on May 17, 1999, portions of which are incorporated by reference in Part III of this Form 10-K. Page 1 of 88 pages. Index to Exhibits is on page 31. 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, 1998, nor the proxy statement for the annual United shareholders' meeting had been mailed to shareholders. CROSS-REFERENCE INDEX PART I Page - ------ ---- Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 3 Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 12 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . 12 PART II - ------- Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . 13 Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 16 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . 16 Item 7a QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . . 16 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . 26 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . 26 PART III - -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . 27 Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 27 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 27 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . 27 PART VI - ------- Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 28 2 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. 3 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, organized on September 9, 1982, and began conducting business on May 1, 1984 with the acquisition of three wholly-owned subsidiaries. In 1985 the subsidiary banks were merged and 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.; First Empire Federal Savings & Loan Association, the sole subsidiary of Eagle Bancorp, Inc., a bank holding company; the Shepherdstown and Charles Town Branches of Community Trust Bank of West Virginia, N. A.; and Fed One Bank, the federally-chartered savings association of Fed One Bancorp, Inc., a thrift holding company. On June 30, 1996 United formed United Mortgage Company, Inc., a wholly-owned subsidiary of UNB. The business of United Mortgage Company, Inc. 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. 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. On August 9, 1990, United acquired BankFirst Corporation ("BankFirst"), a one bank holding company based in McLean, Virginia. On October 11, 1995, United acquired First Commercial Bank of Arlington, Virginia ("FCB"). On March 18, 1996 First Commercial Bank's name was changed to United Bank. On August 1, 1997, United acquired First Patriot Bankshares Corporation ("Patriot") of Reston, Virginia and its wholly-owned subsidiary, Patriot National Bank. Patriot National Bank was merged into United Bank. 4 On April 2, 1998, United acquired George Mason Bankshares, Inc. ("George Mason") of Fairfax, Virginia and its wholly-owned subsidiary, George Mason Bank. Effective with the merger, George Mason Bank was renamed United Bank. 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, UNB operates fifty-three offices located throughout West Virginia and three in Ohio. UNB owns all of these facilities except for two of the Ohio offices, two in the Parkersburg area, three in the Charleston area, two in the Beckley area and one in each Wheeling, Summersville and Clarksburg, all of which are leased under operating leases. The main facility of UNB's Wheeling office is leased from Ogden Newspapers, Inc. Additionally, UNB operates a loan production office located in Bridgeport, West Virginia. The main office of United Bank is located at 11185 Main Street, Fairfax, Virginia, with twenty-three offices throughout the Northern Virginia, Maryland and Washington, D.C. areas. United Bank leases all of these facilities under operating lease agreements except for the two offices in Arlington and Reston, which are owned facilities. Employees - --------- As of December 31, 1998 United and its subsidiaries had approximately 1,154 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 community banking. As of December 31, 1998, United's consolidated assets approximated $4.6 billion and total shareholders' equity approximated $422 million. United is permitted to acquire other banks and bank holding companies, as well as thrift institutions. United is also permitted to engage in certain non-banking activities which are closely related to banking under the provisions of the Bank Holding Company Act and the Federal Reserve Board's Regulation Y. Management continues to consider such opportunities as they arise, and in this regard, management from time to time makes inquiries, proposals, offers or expressions of interest as to potential opportunities; although no agreements or understandings to acquire other banks or bank holding companies or nonbanking subsidiaries or to engage in other nonbanking activities, other than those identified herein, presently exist. 5 Business of Subsidiary Banks - ---------------------------- United, through its subsidiaries, engages primarily in community banking and mortgage banking and additionally offers most types of business permitted by law and regulation. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As a part of their lending function, UNB and United Bank offer credit card services including accounts issued under the name of certain correspondent banks. UNB and United Bank each maintains a trust department which acts as trustee under wills, trust and pension and profit sharing plans, as executors and administrators of estates, and as guardians for estates of minors and incompetents, and in addition performs a variety of investment and security services. Trust services are available to customers of affiliate banks. UNB provides services to its correspondent banks such as check clearing, safekeeping and the buying and selling of federal funds. United Brokerage Services, Inc., a wholly-owned subsidiary of UNB, is a fully-disclosed broker/dealer and a registered Investment Advisor with the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public. UNB is a member of a regional network of automated teller machines known as the MAC ATM network while United Bank participates in the MOST network. Through MAC and MOST, all of United's subsidiary banks are participants in a network known as Cirrus which provides banking on a nationwide basis. Lending Activities - ------------------ United's total loan portfolio, net of unearned income, decreased $38 million, or 1.4%, to $2.65 billion in 1998 and is comprised of commercial, real estate and consumer loans including credit card and home equity loans. Commercial and commercial real estate loans increased $20.9 million or 4.3% and $82.4 million or 16.7%, respectively, while consumer loans, net of unearned income, declined $51 million or 14.4%. Residential real estate loans declined $87.9 million or 7.6%. 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. 6 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. Real Estate Loans - ----------------- Commercial real estate loans consist of commercial mortgages, which generally are secured by nonresidential and multi-family residential properties. Also included in this portfolio are loans that are secured by owner-occupied real estate, but made for purposes other than the construction or purchase of real estate. Commercial real estate loans carry many of the same customers and industry risks as the commercial loan portfolio. Real estate mortgage loans to consumers are secured primarily by a first lien deed of trust. These loans are traditional one-to-four family residential mortgages. The loans generally do not exceed an 80% loan to value ratio at the loan origination date and most are at a variable rate of interest. These loans are considered to contain normal risk. Consumer Loans - -------------- Consumer loans are secured by automobiles, boats, recreational vehicles, and other personal property. Personal loans, home equity, student loans and unsecured credit card receivables are also included as consumer loans. United monitors the risk associated with these types of loans by monitoring such factors as portfolio growth, lending policies and economic conditions. Underwriting standards are continually evaluated and modified based upon these factors. 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 7 guidelines and standards to: minimize loan losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, with justification, a loan with variances from the underwriting guidelines and standards. However, the loan officer may not exceed their respective lending authority without obtaining the prior, proper approval from a superior, a regional supervisor, or the Loan Committee, whichever is deemed appropriate for the nature of the variance. Loan Origination and Processing - ------------------------------- United generally originates loans within the primary market area of its banking subsidiaries. United may from time to time make loans to borrowers and/or on properties outside of its primary market area as an accommodation to its customers. Processing of all loans is centralized in the Charleston, West Virginia office. As of December 31, 1998, the balance of mortgage loans being serviced by United for others was insignificant. Secondary Markets - ----------------- United Mortgage Company, Inc. ("UMC"), a wholly-owned subsidiary of UNB, and George Mason Mortgage Company ("GMMC"), a wholly-owned subsidiary of United Bank, are engaged in the operation of a general mortgage and agency business, including the conducting of mortgage loan servicing activities for certain loans, the origination and acquisition of residential real estate loans for resale and generally the activities commonly conducted by a mortgage banking company. These loans are for single, owner-occupied residences with either adjustable or fixed rate terms, with a variety of maturities tailored to effectively serve its markets. GMMC primarily originates permanent residential mortgage loans in the northern Virginia market while UMC's originations are predominately in its West Virginia markets. Mortgage loan originations are generally intended to be sold in the secondary market. During 1998, United originated $1.5 billion and purchased $960 million of real estate loans for sale in the secondary market and sold $1.866 billion of loans designated as held for sale in the secondary market. Proceeds received from the sales of these loans during 1998 was $1.880 billion. The principal sources of revenue from United's mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans, if any; (iii) interest earned on mortgage loans during the period that they are held by United pending sale; and (iv) loan servicing fees. 8 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 is comprised largely of mortgage-backed securities. Additionally United has a substantial amount of U.S. Treasury securities and obligations of U.S. Agencies and Corporations. Obligations of States and Political Subdivisions are comprised of municipal securities with an average quality of not less than an "A" rating. During 1998, 1997 and 1996, United recognized net gains of $2.67 million, $85 thousand, and $465 thousand, respectively, from the available for sale portfolio. The net gain in 1998 included a $2.49 million gain recognized on an available for sale equity security exchanged in an unaffiliated merger transaction consummated at the end of the first quarter of 1998. Additionally, the 1998 net gain included approximately $300 thousand of net losses from calls of held to maturity securities. At December 31, 1998, United had no open commitments to sell mortgage-backed securities. As such, United is not exposed to significant risk nor will it derive any significant benefit from changes in interest rates on the price of the mortgage loan inventory. Competition - ----------- United faces a high degree of competition in all of the markets it serves. These markets may generally be defined as Wood, Kanawha, Monongalia, Jackson, Cabell, Hancock, Ohio, Marshall, Gilmer, Lewis, Webster, Boone, Logan, Nicholas, Fayette and Raleigh Counties in West Virginia; Lawrence, Belmont, Jefferson and Washington Counties in Ohio; Montgomery County in Maryland and Arlington, Loudoun, Prince William and Fairfax Counties in Virginia, located adjacent to the Washington D.C. area, which is in close proximity to West Virginia's eastern panhandle. United competes in Ohio markets because of the close proximity to the 9 Ohio border of certain subsidiary offices. Included in United's West Virginia markets are the five largest West Virginia Metropolitan Statistical Areas (MSA): the Parkersburg MSA, the Charleston MSA, the Huntington MSA, the Wheeling MSA and the Weirton MSA. United's Virginia markets include the Washington, D.C. Metropolitan area. United considers the above counties and MSA's to be the primary market area for the business of its banking subsidiaries. With prior regulatory approval, West Virginia and Virginia banks are permitted unlimited branch banking throughout the state. In addition, interstate acquisitions of and by West Virginia and Virginia banks and bank holding companies are permissible on a reciprocal basis, as well as reciprocal interstate acquisitions by thrift institutions. These conditions serve to intensify competition within United's market. As of December 31, 1998, there were 57 bank holding companies in the State of West Virginia registered with the Federal Reserve System and the West Virginia Board of Banking and Financial Institutions and 69 bank holding companies in the Commonwealth of Virginia registered with the Federal Reserve System and the Virginia Corporation Commission. These holding companies are headquartered in various West Virginia and Virginia cities and control banks throughout West Virginia and Virginia, which compete for business as well as for the acquisition of additional banks. Economic Characteristics of Primary Market Area - ----------------------------------------------- Although the market area of the banking subsidiaries encompasses a portion of the coal fields located in southern West Virginia, an area of the state which has been economically depressed, the coal related loans in the loan portfolio of the banking subsidiaries constitute less than 2% of United's total loans outstanding. The state of West Virginia has a more diversified economy than it had during the peak periods of coal production with the chemical manufacturing industry accounting for 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 number of payroll jobs created and unemployment rates in recent years as the number of payroll jobs increased 11,100 during calendar year 1998 and the state's overall unemployment rate has declined from 10.5% in 1991 to 6.6% in December 1998 - the lowest annual unemployment rate since 1978, according to available information from the West Virginia Bureau of Employment Programs. United's northern Virginia subsidiary banking offices are located in markets that reflect very low unemployment rate levels and increased wage levels over a year ago. According to information available from the Virginia Employment Commission, Virginia's unemployment rate as of December 1998 was 2.7%. The 2.7% rate was the lowest rate reported for the month of December in 29 years. Additionally, the Virginia Employment Commission reported that record levels were set with increased nonagricultural employment and increased manufacturing salaries in December 1998. 10 Regulation and Supervision - -------------------------- United, as a bank holding company, is subject to the restrictions of the Bank Holding Company Act of 1956, as amended, and is registered pursuant to its provisions. As such, United is subject to the reporting requirements of and examination by the Board of Governors of the Federal Reserve System ("Board of Governors"). The Bank Holding Company Act prohibits the acquisition by a bank holding company of direct or indirect ownership of more than five percent of the voting shares of any bank within the United States without prior approval of the Board of Governors. With certain exceptions, a bank holding company also is prohibited from acquiring direct or indirect ownership or control of more than five percent of the voting shares of any company which is not a bank, and from engaging directly or indirectly in business unrelated to the business of banking, or managing or controlling banks. The Board of Governors of the Federal Reserve System, in its Regulation Y, permits bank holding companies to engage in non-banking activities closely related to banking or managing or controlling banks. Approval of the Board of Governors is necessary to engage in these activities or to make acquisitions of corporations engaging in these activities. In addition, on a case by case basis, the Board of Governors may approve other non-banking activities. As a bank holding company doing business in West Virginia, United is also subject to regulation and examination by the West Virginia Board of Banking and Financial Institutions (the "West Virginia Banking Board") and must submit annual reports to the department. Further, any acquisition application which United must submit to the Board of Governors must also be submitted to the West Virginia Banking Board for approval. United is also registered under and is subject to the requirements of the Securities Exchange Act of 1934, as amended. UNB, 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 11 regulation by the FDIC. 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, 1998, 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. 12 UNITED BANKSHARES, INC. FORM 10-K, PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS 13 Stock - ----- As of December 31, 1998, 100,000,000 shares of common stock, par value $2.50 per share, were authorized for United, of which 43,256,833 were issued, including 356 shares held as treasury shares. The outstanding shares are held by approximately 13,182 shareholders of record as of December 31, 1998. The unissued portion of United's authorized common stock (subject to registration approval by the SEC) and the treasury shares are available for issuance as the Board of Directors determines advisable. United offers its shareholders the opportunity to invest dividends in shares of United stock through its dividend reinvestment plan. United has also established stock option plans and a stock bonus plan as incentive for certain eligible officers. In addition to the above incentive plans, United is occasionally involved in certain mergers in which additional shares could be issued and recognizes that additional shares could be issued for other appropriate purposes. The Board of Directors believes that the availability of authorized but unissued common stock of United is of considerable value if opportunities should arise for the acquisition of another business through the issuance of United's stock. Shareholders do not have preemptive rights, which allows United to issue additional authorized shares without first offering them to current shareholders. United has only one class of stock and all voting rights are vested in the holders of United's stock. On all matters subject to a vote of shareholders, the shareholders of United will be entitled to one vote for each share of common stock owned. Shareholders of United have cumulative voting rights with regard to election of directors. At the present time, no senior securities of United are outstanding, nor does the Board of Directors presently contemplate issuing senior securities. There are no preemptive or conversion rights or, redemption or sinking fund provisions with respect to United's Stock. All of the issued and outstanding shares of United's stock are fully paid and non-assessable. Dividends - --------- On November 24, 1997, the Board of Directors of United declared a two for one stock split in the form of a 100% stock dividend payable on March 27, 1998, to shareholders of record as of March 13, 1998. The change in capital structure due to the 100% stock dividend was given retroactive effect in the December 31, 1997 balance sheet and all references to shares and per share data reflect the effect of the 100% stock dividend. The shareholders of United are entitled to receive dividends when and as declared by its Board of Directors. Dividends are paid quarterly. Dividends were $0.75 per share in 1998, $0.68 per share in 1997 and $0.62 per share in 1996. 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. 14 Payment of Dividends by United is dependent upon payment of dividends to it by its subsidiary banks. The ability of national banks to pay dividends is subject to certain limitations imposed by the national banking laws. Generally, the most restrictive provision requires approval by the Office of the Comptroller of the Currency ("OCC") if dividends declared in any year exceed the current year's net income, as defined, plus the retained net profits of the two preceding years. Payment of dividends by United's state member bank is regulated by the Federal Reserve System and generally, the prior approval of the Federal Reserve Board ("FRB") is required if the total dividends declared by a state member bank in any calendar year exceeds its net profits, as defined, for that year combined with its retained net profits for the preceding two years. Additionally, prior approval of both the OCC and the FRB is required when a national bank or state member bank has deficit retained earnings but has sufficient current year's net income, as defined, plus the retained net profits of the two preceding years. The OCC and FRB may prohibit dividends if it deems the payment to be an unsafe or unsound banking practice. The OCC has issued guidelines for dividend payments by national banks, emphasizing that proper dividend size depends on the bank's earnings and capital while the FRB has issued similar guidelines pertaining to state member banks. See Note M - Notes to Consolidated Financial Statements, which is incorporated herein by reference. Market and Stock Prices of United - --------------------------------- United Bankshares, Inc. stock is traded over the counter on the National Association of Securities Dealers Automated Quotations System ("NASDAQ") under the trading symbol UBSI. The high and low prices listed below page are based upon information available to United's management from NASDAQ listings. No attempt has been made by United's management to ascertain the prices for every sale of its stock during the periods indicated. However, based on the information available, United's management believes that the prices fairly represent the amounts at which United's stock was traded during the periods indicated. The following table presents the dividends and high and low prices of United's common stock during the periods set forth below: 1999 Dividends High Low --------- ------ ------ First Quarter through February 28, 1999 (1) $27.19 $22.75 1998 Fourth Quarter $0.20 $29.88 $20.75 Third Quarter $0.19 $31.50 $24.00 Second Quarter $0.18 $34.19 $23.25 First Quarter $0.18 $26.19 $22.75 1997 Fourth Quarter $0.18 $24.38 $21.80 Third Quarter $0.17 $23.63 $19.13 Second Quarter $0.17 $21.25 $17.19 First Quarter $0.16 $17.44 $16.13 (1) On February 22, 1999, United declared a dividend of $0.20 per share, payable April 1, 1999, to shareholders of record as of March 12, 1999. 15 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, 1998, 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 41 through 55 inclusive, of the Annual Report to Shareholders for the year ended December 31, 1998, is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and Qualitative Disclosures About Market Risk on pages 47 through 49 inclusive, of the Annual Report to Shareholders for the year ended December 31, 1998, is incorporated herein by reference. 16 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, 1998, 1997 and 1996 with the interest and rate earned or paid on such amount.
Year Ended Year Ended Year Ended December 31 December 31 December 31 1998 1997 1996 ------------------------ ------------------------ ------------------------- (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 $ 28,270 $ 1,472 5.21% $ 27,991 $ 1,456 5.20% $ 28,327 $ 1,489 5.26% Investment Securities: Taxable 876,167 55,550 6.34% 884,541 57,868 6.54% 772,026 48,963 6.34% Tax exempt (1) 66,019 5,262 7.97% 54,361 4,753 8.74% 60,195 5,398 8.97% ------ ----- ---- ------ ----- ---- ------ ----- ---- Total Securities 942,186 60,812 6.45% 938,902 62,621 6.67% 832,221 54,361 6.53% Loans, net of unearned income (1) (2) 3,053,948 267,186 8.75% 2,526,849 219,588 8.69% 2,299,556 198,018 8.61% Allowance for loan losses (35,598) (30,438) (29,768) ------- ------- ------- Net Loans 3,018,350 8.85% 2,496,411 8.80% 2,269,788 8.72% --------- ------- ---- --------- ------- ---- --------- ------- ---- Total earning assets 3,988,806 329,470 8.26% 3,463,304 283,665 8.19% 3,130,336 253,868 8.11% ------- ------- ------- Other assets 250,002 218,998 222,258 ------- ------- ------- TOTAL ASSETS $4,238,808 $3,682,302 $3,352,594 ========== ========== ========== LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $2,791,996 $128,976 4.62% $2,528,103 $113,472 4.49% $2,272,640 $ 96,475 4.25% Federal funds purchased, repurchase agreements and other short-term borrowings 228,923 10,732 4.69% 195,390 8,911 4.56% 152,254 6,661 4.37% FHLB advances 282,741 15,646 5.53% 149,899 8,739 5.83% 162,608 9,120 5.61% ------- ------ ---- ------- ----- ---- ------- ----- ---- Total Interest-Bearing Funds 3,303,660 155,354 4.70% 2,873,392 131,122 4.56% 2,587,502 112,256 4.34% ------- ------- ------- Demand deposits 452,300 390,020 364,646 Accrued expenses and other liabilities 70,572 43,403 44,990 ------ ------ ------ TOTAL LIABILITIES 3,826,532 3,306,815 2,997,138 Shareholders' Equity 412,276 375,487 355,456 ------- ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,238,808 $3,682,302 $3,352,594 ========== ========== ========== NET INTEREST INCOME $174,116 $152,543 $141,612 ======== ======== ======== INTEREST SPREAD 3.56% 3.62% 3.77% NET INTEREST MARGIN 4.37% 4.40% 4.52%
(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. 17 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). 1998 Compared to 1997 1997 Compared to 1996 -------------------------------- --------------------------------- 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 $ 15 $ 1 $ $ 16 $ (18) $ (14) $ (1) $ (33) Investment securities: Taxable (548) (1,787) 17 (2,318) 7,136 1,544 225 8,905 Tax exempt (1) 1,019 (420) (90) 509 (523) (135) 13 (645) Loans (1),(2) 45,908 1,398 292 47,598 19,771 1,636 163 21,570 -------- ------- -------- ------- ------- ------- ------- ------- TOTAL INTEREST INCOME 46,394 (808) 219 45,805 26,366 3,031 400 29,797 -------- ------- -------- ------- ------- ------- ------- ------- Interest expense: Interest-bearing deposits $ 11,845 $ 3,313 $ 346 $15,504 $10,845 $ 5,531 $ 621 $16,997 Federal funds purchased, repurchase agreements, and other short-term borrowings 1,529 251 43 1,823 1,885 287 82 2,254 FHLB advances 7,746 (446) (395) 6,905 (713) 356 (28) (385) -------- ------- -------- ------- ------- ------- ------- ------- TOTAL INTEREST EXPENSE 21,120 3,118 (6) 24,232 12,017 6,174 675 18,866 -------- ------- -------- ------- ------- ------- ------- ------- NET INTEREST INCOME $ 25,274 $ 3,926 $ 225 $21,573 $14,349 $(3,143) $ (275) $10,931 ======== ======= ======== ======= ======= ======= ======= =======
(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. 18 UNITED BANKSHARES, INC. AND SUBSIDIARIES LOAN PORTFOLIO TYPES OF LOANS The following is a summary of loans outstanding at December 31: 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (In thousands) Commercial, financial and agricultural $ 508,601 $ 487,706 $ 328,248 $ 295,929 $ 267,516 Real estate mortgage 1,696,233 1,693,819 1,611,801 1,502,096 1,402,246 Real estate construction 141,026 150,429 90,817 66,810 60,600 Consumer 313,464 364,951 328,928 293,741 289,101 Less: Unearned interest (6,933) (7,066) (5,223) (5,427) (7,660) ------ ------ ------ ------ ------ Total loans 2,652,391 2,689,839 2,354,571 2,153,149 2,011,803 Allowance for possible loan losses (39,189) (31,936) (29,376) (29,531) (29,521) ------- ------- ------- ------- ------- TOTAL LOANS, NET $2,613,202 $2,657,903 $2,325,195 $2,123,618 $1,982,282 ========== ========== ========== ========== ========== Loans held for sale $ 720,607 $ 97,619 $ 74,465 $ 55,827 $ 19,266 ========== ========== ========== ========== ========== The following is a summary of loans outstanding as a percent of total loans at December 31: 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Commercial, financial and agricultural 19.18% 18.13% 13.94% 13.74% 13.30% Real estate mortgage 63.95% 62.97% 68.45% 69.76% 69.70% Real estate construction 5.32% 5.59% 3.86% 3.10% 3.01% Consumer 11.55% 13.31% 13.75% 13.40% 13.99% ------ ------ ------ ------ ------ 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, 1998: Less Than One To Greater Than One Year Five Years Five Years Total --------- ---------- ------------- ----- (In thousands) Commercial, financial and agricultural $184,775 $173,230 $150,596 $508,601 Real estate construction 141,026 141,026 ------- -------- -------- ------- Total $325,801 $173,230 $150,596 $649,627 ======== ======== ======== ========
19 UNITED BANKSHARES, INC. AND SUBSIDIARIES At December 31, 1998, 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 $ 66,226 $ 72,978 Outstanding with adjustable rates 107,004 77,618 ------- ------ $173,230 $150,596 ======== ======== 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 -------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (In thousands) Nonaccrual loans $ 9,139 $ 5,815 $ 6,373 $10,062 $7,037 Troubled debt restructurings 95 744 1,595 Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest 9,528 12,877 6,317 5,070 3,268 ----- ------ ----- ----- ----- TOTAL $18,667 $18,692 $12,785 $15,876 $11,900 ======= ======= ======= ======= =======
Loans are designated as nonaccrual when, in the opinion of management, the collection of principal or interest is doubtful. This generally occurs when a loan becomes 90 days past due as to principal or interest unless the loan is both well secured and in the process of collection. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. See Note D to the consolidated financial statements for additional information regarding nonperforming loans, impaired loans and credit risk concentration. Other real estate owned is not material. 20 UNITED BANKSHARES, INC. AND SUBSIDIARIES INVESTMENT PORTFOLIO The following is a summary of the amortized cost of held to maturity securities held to maturity at December 31,: 1998 1997 1996 ---- ---- ---- (In thousands) U.S. Treasury and other U.S. Government agencies and corporations $121,474 $123,186 $121,192 States and political subdivisions 82,011 51,560 55,332 Mortgage-backed securities 139,002 212,254 226,235 Other 19,664 7,816 2,480 ------ ----- ----- TOTAL HELD TO MATURITY SECURITIES $362,151 $394,816 $405,239 ======== ======== ======== The following is a summary of the amortized cost of available for sale securities at December 31,: 1998 1997 1996 ---- ---- ---- (In thousands) U.S. Treasury securities and obligations of U.S. Government agencies and corporations $198,151 $191,473 $164,322 States and political subdivisions 27,474 4,093 1,316 Mortgage-backed securities 279,618 379,452 268,256 Marketable equity securities 9,211 4,730 3,918 Other 43,120 22,161 21,792 -------- -------- -------- TOTAL AVAILABLE FOR SALE SECURITIES $557,574 $601,909 $459,604 ======== ======== ========
The fair value of mortgage-backed securities is affected by changes in interest rates and prepayment risk. When interest rates decline, prepayment speeds generally accelerate due to homeowners refinancing their mortgages at lower interest rates. This may result in the proceeds being reinvested at lower interest rates. Rising interest rates may decrease the assumed prepayment speed. Slower prepayment speeds may extend the maturity of the security beyond its estimated maturity. Therefore, investors may not be able to invest at current higher market rates due to the extended expected maturity of the security. United had a net unrealized gain of $3,983 on all mortgage-backed securities at December 31, 1998, as compared to a net unrealized gain of $5,057 at December 31, 1997. The following table sets forth the maturities of all securities at December 31, 1998, 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 $42,256 6.24% $124,495 6.19% $145,508 6.79% $ 8,539 6.48% States and political subdivisions (1) 4,319 8.49% 10,769 8.27% 24,451 7.87% 69,952 7.34% Mortgage-backed securities 7,154 6.57% 44,067 6.62% 72,513 6.57% 297,484 6.78% Other 1,321 7.93% 4,178 4.04% 100 2.30% 70,211 6.18%
(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. 21 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: 1998 $ 7,260 $236,535 1997 40,961 184,718 1996 4,491 168,560 Weighted average interest rate at year end: 1998 5.4% 4.4% 1997 6.6% 4.6% 1996 6.8% 4.3% Maximum amount outstanding at any month's end: 1998 $35,416 $236,535 1997 47,900 215,205 1996 33,510 177,133 Average amount outstanding during the year: 1998 $24,334 $201,475 1997 24,550 167,688 1996 20,685 126,173 Weighted average interest rate during the year: 1998 5.6% 4.6% 1997 5.6% 4.4% 1996 5.6% 4.2% At December 31, 1998, repurchase agreements include $119,061 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. 22 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: 1998 1997 1996 ------------- ------------- --------------- Amount Rate Amount Rate Amount Rate ------ ---- ------ ---- ------ ---- (In thousands) Noninterest bearing demand deposits $ 452,300 $ 390,020 $ 364,646 Interest bearing demand deposits 312,317 2.37% 205,040 2.64% 306,854 2.63% Savings deposits 817,852 3.49% 858,980 3.07% 717,040 2.84% Time deposits 1,661,827 5.60% 1,464,083 5.53% 1,248,746 5.45% --------- --------- --------- TOTAL $3,244,296 4.62% $2,918,123 4.49% $2,637,286 4.25% ========== ========== =========
Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 1998 are summarized as follows: (In thousands) 3 months or less $ 57,730 Over 3 through 6 months 35,585 Over 6 through 12 months 98,410 Over 12 months 75,015 ------ TOTAL $266,740 ======== 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: 1998 1997 1996 Return on average assets 1.05% 1.42% 1.18% Return on average equity 10.77% 13.92% 11.17% Dividend payout ratio (1) 63.77% 49.69% 58.49% Average equity to average assets ratio 9.73% 10.20% 10.60% (1) Based on historical results of United before the effects of restatements for pooling of interests business combinations. 23 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: 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (In thousands) Balance of allowance for possible loan losses at beginning of year $31,936 $29,376 $29,531 $29,521 $28,048 Allowance of purchased company at date of acquisition 2,695 1,017 Loans charged off: Commercial, financial and agricultural 800 1,352 2,310 2,051 1,094 Real estate 3,070 447 406 1,049 322 Real estate construction 63 1 Consumer and other 2,400 2,436 1,199 1,075 1,090 ------- ------- ------- ------- ------- TOTAL CHARGE-OFFS 6,270 4,235 3,915 4,238 2,507 Recoveries: Commercial, financial and agricultural 729 292 283 245 798 Real estate 217 263 237 189 344 Real estate construction 20 26 Consumer and other 421 265 359 319 328 ------- ------- ------- ------- ------- TOTAL RECOVERIES 1,367 820 879 773 1,496 NET LOANS CHARGED OFF 4,903 3,415 3,036 3,465 1,011 Addition to allowance (1) 12,156 3,280 2,881 2,458 2,484 ------- ------- ------- ------- ------ BALANCE OF ALLOWANCE FOR POSSIBLE LOAN LOSSES AT END OF YEAR $39,189 $31,936 $29,376 $29,531 $29,521 ======= ======= ======= ======= ======= Totals loans outstanding at the end of period $2,652,391 $2,689,839 $2,354,571 $2,153,149 $2,011,803 Average loans outstanding during period (net of unearned income) $2,668,460 $2,472,293 $2,245,292 $2,052,268 $1,874,533 Net charge-offs as a percentage of average loans outstanding 0.18% 0.14% 0.14% 0.17% 0.05% Allowance for possible loan losses as a percentage of nonperforming loans 209.9% 170.9% 229.8% 186.0% 248.1%
(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. 24 UNITED BANKSHARES, INC. AND SUBSIDIARIES SUMMARY OF LOAN LOSS EXPERIENCE--Continued Allocation of allowance for possible loan losses December 31 --------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Commercial, financial and agricultural $13,772 $10,115 $ 8,261 $ 7,736 $ 8,618 Real estate 3,587 3,452 4,239 4,845 4,761 Real estate construction 1,086 674 511 729 685 Consumer and other 3,747 3,221 1,688 1,993 1,747 Unallocated 16,997 14,474 14,677 14,228 13,710 ------ ------ ------ ------ ------ Total $39,189 $31,936 $29,376 $29,531 $29,521 ======= ======= ======= ======= ======= 25 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 13 through 40 inclusive of the Annual Report to Shareholders for the year ended December 31, 1998, 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, 1998, 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, 1998, 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. 26 UNITED BANKSHARES, INC. FORM 10-K, PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and executive officers of the registrant on pages 2 through 7 inclusive, of the Proxy Statement for the 1999 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 1999 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 1999 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, 14 and 15 of the Proxy Statement for the 1999 Annual Shareholders' Meeting is incorporated herein by reference. 27 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, 1998 at Item 8a. Page references are to such Annual report. Financial Statements: Page References Report of Independent Auditors................................ 13 Consolidated Balance Sheets................................... 14 Consolidated Statements of Income............................ 15 Consolidated Statements of Changes in Shareholders' Equity.... 16 Consolidated Statements of Cash Flows......................... 17 Notes to Consolidated Financial Statements.................... 18 (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 31 of this Form 10-K. (b) Reports on Form 8-K On December 2, 1998, United Bankshares, Inc. filed thirty days post-merger combined results in connection with the merger of United Bankshares, Inc. and Fed One Bancorp, Inc. On December 30, 1998, United Bankshares, Inc. filed a revised earnings estimate for the fourth quarter and the year ending December 31, 1998. (c) Exhibits -- The exhibits to this Form 10-K begin on page 34. (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. 28 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 30, 1999 ----------------------------- Director, Chief and Executive Officer /s/ Steven E. Wilson Chief Financial Officer March 30, 1999 - ------------------------------ Chief Accounting Officer /s/ Bernard H. Clineburg Director March 30, 1999 - ------------------------------ /s/ I.N. Smith, Jr. Director March 30, 1999 - ------------------------------ /s/ James W. Word, Jr. Director March 30, 1999 - ------------------------------ /s/ G. Ogden Nutting Director March 30, 1999 - ------------------------------ /s/ Theodore J. Georgelas Director March 30, 1999 - ------------------------------ /s/ Warren A. Thornhill, III Director March 30, 1999 - ------------------------------ /s/ Alan E. Groover Director March 30, 1999 - ------------------------------ /s/ William W. Wagner Director March 30, 1999 - ------------------------------ /s/ Harry L. Buch Director March 30, 1999 - ------------------------------ /s/ H. Smoot Fahlgren Director March 30, 1999 - ------------------------------ /s/ Russell L. Isaacs Director March 30, 1999 - ------------------------------ /s/ F.T. Graff, Jr. Director March 30, 1999 - ------------------------------ 29 SIGNATURES (continued) /s/ John M. McMahon Director March 30, 1999 - ------------------------------ /s/ P. Clinton Winter, Jr. Director March 30, 1999 - ------------------------------ /s/ C. Barrie Cook Director March 30, 1999 - ------------------------------ /s/ Robert G. Astorg Director March 30, 1999 - ------------------------------ /s/ Thomas J. Blair, III Director March 30, 1999 - ------------------------------ /s/ Arthur Kellar Director March 30, 1999 - ------------------------------ /s/ William A. Hazel Director March 30, 1999 - ------------------------------ 30 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) 31 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 ALTELL (l) (o) Employment Contract with Bernard H. Clineburg (m) Statement Re: Computation of Ratios (12) 84 Annual Report to Security Holders, et al. (13) 34 Letter Re: Change in accounting principles (18) N/A Previously Unfiled Documents (19) N/A Subsidiaries of the Registrant (21) 84 Published Report Regarding Matters Submitted to a Vote of Security Holders (22) N/A Consent of Ernst & Young LLP (23.1) 86 Consent of KPMG LLP (23.2) 87 Power of Attorney (24) N/A Financial Data Schedule (27) 88 32 S-K Item 601 Sequential Page Description Table Reference Number (a) ----------- --------------- --------------- 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 (l) Incorporated into this filing by reference to Exhibits to the 1996 10-K for United Bankshares, Inc., File No. 0-13322 (m) Incorporated into this filing by reference to Part II of Form S-4 Registration Statement of United Bankshares, Inc., Registration No. 333-44993 filed January 27, 1998 33 UNITED BANKSHARES, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) FIVE YEAR SUMMARY --------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- SUMMARY OF OPERATIONS: TOTAL INTEREST INCOME $ 325,647 $ 280,452 $ 250,641 $ 232,956 $ 200,013 TOTAL INTEREST EXPENSE 155,354 131,122 112,256 101,441 75,884 NET INTEREST INCOME 170,293 149,330 138,385 131,515 124,129 PROVISION FOR LOAN LOSSES 12,156 3,280 2,881 2,458 2,484 OTHER INCOME 41,752 37,068 29,654 25,735 18,250 OTHER EXPENSE 137,964 103,852 104,385 90,732 82,487 INCOME TAXES 17,523 27,005 21,054 21,701 19,188 NET INCOME 44,402 52,261 39,719 42,359 38,220 CASH DIVIDENDS(1) 28,317 20,344 17,847 13,817 12,604 PER COMMON SHARE: NET INCOME: BASIC $1.04 $1.24 $0.94 $1.01 $0.85 DILUTED 1.02 1.22 0.93 1.00 0.84 CASH DIVIDENDS(1) 0.75 0.68 0.62 0.59 0.53 BOOK VALUE PER SHARE 9.74 9.35 8.59 8.27 7.99 SELECTED RATIOS: RETURN ON AVERAGE SHAREHOLDERS' EQUITY 10.77% 13.92% 11.17% 12.80% 12.79% RETURN ON AVERAGE ASSETS 1.05% 1.42% 1.18% 1.38% 1.33% DIVIDEND PAYOUT RATIO (1) 63.77% 49.69% 58.49% 49.21% 50.61% SELECTED BALANCE SHEET DATA: AVERAGE ASSETS $4,238,807 $3,682,302 $3,352,594 $3,077,631 $2,867,680 INVESTMENT SECURITIES 927,316 1,006,735 865,020 771,181 756,100 LOANS HELD FOR SALE 720,607 97,619 74,465 55,827 19,266 TOTAL LOANS 2,652,291 2,689,839 2,354,571 2,153,149 2,011,803 TOTAL ASSETS 4,567,899 4,094,836 3,541,244 3,224,123 3,024,604 TOTAL DEPOSITS 3,493,058 3,185,963 2,770,833 2,570,630 2,413,533 LONG-TERM BORROWINGS 240,867 46,674 44,877 44,445 91,374 TOTAL BORROWINGS AND OTHER LIABILITIES 653,310 512,817 407,579 304,232 309,942 SHAREHOLDERS' EQUITY 421,531 396,056 362,832 349,261 301,129
(1) CASH DIVIDENDS ARE THE AMOUNTS DECLARED BY UNITED AND DO NOT INCLUDE CASH DIVIDENDS OF ACQUIRED SUBSIDIARIES PRIOR TO THE DATES OF CONSUMMATION. 34 UNITED BANKSHARES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company's anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure, in other words, protection from unwarranted litigation if actual results are not the same as management expectations. United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involves numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by United's statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards and the inability of United or others to remediate Year 2000 concerns in a timely fashion. INTRODUCTION The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, and reflect the mergers of Fed One Bancorp, Inc. (Fed One) on October 1, 1998, and George Mason Bankshares, Inc. (George Mason) on April 2, 1998, under the pooling of interests method of accounting. Accordingly, all prior period financial statements have been restated to include Fed One and George Mason. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document. The following broad overview of the financial condition and results of operations is not intended to replace the more detailed discussion which is presented under specific headings on the following pages. 35 1998 COMPARED TO 1997 EARNINGS SUMMARY For the year ended December 31, 1998, operating earnings were $52,596 compared to $52,261 for the year ended December 31, 1997. On a diluted per share basis, operating earnings were $1.21 in 1998 compared to $1.22 in 1997. Operating earnings represent earnings before merger-related charges, net of income taxes, of $8.2 million for the year ended December 31, 1998. These charges were primarily associated with the pooling of interests acquisitions of George Mason Bankshares, Inc. (headquartered in Fairfax, Virginia) and Fed One Bancorp, Inc. (headquartered in Wheeling, West Virginia). After these charges, diluted earnings were $1.02 for the year ended December 31, 1998, compared to $1.22 for the year ended December 31, 1997. These operating results represent a return on average shareholders' equity of 12.76% and a return on average assets of 1.24%, respectively, for the year ended December 31, 1998. These operating ratios compare favorably with national peer grouping information provided by Keefe, Bruyette, & Woods, of 13.33% and 1.14%, respectively. 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. Growth in operating earnings was led by a 14% increase in net interest income and a 26% increase in noninterest income, other than mortgage banking income. Mortgage banking income increased 67% as originations reached $1.5 billion in 1998. These increases were offset by a charge of $9.7 million to adjust for a decline in market value of certain junior lien mortgage loans when an unrelated financial institution was unable to fulfill a commitment to purchase the loans for securitization. Operating earnings were also reduced by a $9 million increase in the provision for loan losses due to increasing levels of nonperforming assets, a 16% increase in other expenses, after merger-related charges, due primarily to the timing of a purchase acquisition and increased incentive compensation payments. United has strong core earnings driven by a net interest margin of 4.37% for 1998. Net interest income increased by $20.96 million or 14.04% for the year ended December 31, 1998 as compared to the same period for 1997. The provision for loan losses of $12.16 million increased $8.88 million or 270.61% when compared to the year ended December 31, 1997. Noninterest income, including income from mortgage banking operations, increased $4.68 million or 12.64% for 1998 when compared to 1997. Noninterest expenses increased $34.11 million or 32.85% for 1998 compared to the same period in 1997. The effective tax rate for the year ended December 31, 1998 approximated 28.30% compared to 34.07% for 1997. 36 FINANCIAL CONDITION SUMMARY Total assets were $4.57 billion at December 31, 1998, up $473.06 million or 11.55% compared with year-end 1997. Loans, net of unearned income, reflected a $37.45 million decrease from 1997 to 1998 due to an increased emphasis being placed on secondary market lending activity. Loans held for sale increased $623 million. Cash and cash equivalents declined $48.73 million while investment securities reflected a $79.42 million decrease for 1998 as compared with year-end 1997, primarily as a result of United's use of these sources of funds to fund a portion of the growth in loans held for sale during the year. Total deposits grew $307.10 million or 9.64% from year-end 1997 due to United's offering of new deposit products introduced during 1998. Since December 31, 1997, United has realized an increase of $266.63 million in interest-bearing deposits and a $40.47 million increase in noninterest-bearing deposits. United's short-term borrowings increased $18.12 million and its FHLB borrowings increased $115.08 million as United utilized these sources of funds to fund the origination by its mortgage banking subsidiary of mortgage loans for sale in the secondary market and portfolio loans. Accrued expenses and other liabilities increased $7.06 million or 13.74% since year-end 1997. Shareholders' equity increased $25.48 million or 6.43% from December 31, 1997 to December 31, 1998. United continues to maintain an appropriate balance between capital adequacy and return to shareholders. At December 31, 1998, United's regulatory capital ratios, including those of its bank subsidiaries, exceeded the levels established for well-capitalized institutions. The following discussion explains in more detail the results of operations and changes in financial condition by major category. NET INTEREST INCOME Net interest income represents the primary component of United's earnings. It is the difference between interest and fee income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 1998, are summarized below. For the years ended December 31, 1998 and 1997, net interest income approximated $155.35 million and $131.12 million, respectively. On a tax-equivalent basis the net interest margin was strong at 4.37% in 1998 and 4.40% in 1997 which are above national peer group margins of 4.36% in 1998 and 4.06% in 1997. Total interest income of $325.65 million increased 16.12% in 1998 over 1997 as a result of higher volumes of interest-earning assets and slightly higher yields. Higher average volume of loans held for sale of 37 approximately $623 million, resulting primarily from the origination of mortgage loans for sale in the secondary market, contributed to the increase. From December 31, 1997 to December 31, 1998, United experienced an increase in commercial loans of 4.28%, while consumer loans showed a decrease of 14.35% and mortgage loans decreased 7.5%. Loans held for sale increased $623 million or 638% due mainly to significant growth of mortgage loans originated and purchased for sale in the secondary market. Total interest expense increased $24.23 million or 18.48% in 1998 compared to 1997. This increase was attributed primarily to competitive pricing of interest-bearing deposits in United's markets and continued change in the retail deposit mix as customers shifted funds into products offering higher yields. United's average interest-bearing deposits increased by $263.89 million or 10.44% in 1998, while its average FHLB advances increased $132.84 million or 88.62% and average short-term borrowings increased $33.53 million or 17.16%. The average cost of funds, which increased from 4.56% in 1997 to 4.70% in 1998, reflected the general upward trend in United's market interest rates during 1998 due to competitive pressures. PROVISION FOR LOAN LOSSES Nonperforming loans were $18.67 million at December 31, 1998 and $18.69 million at December 31, 1997. Although total nonperforming loans have remained relatively constant with the previous year, the components of this category reflected significant changes. While loans past due 90 days or more decreased $3.35 million or 26.01%, nonaccrual loans increased $3.32 million or 57.16% during the same period. This deterioration in credit quality within the nonperforming category along with other trends impacted qualitative changes to risk factors as more fully described below. Nonperforming loans represented 0.41% of total assets at the end of 1998, as compared to 0.39% for United's national peer group. At December 31, 1998, impaired loans were $10.92 million, a decrease of $3.34 million or 23.40% from the $14.26 million in impaired loans at December 31, 1997, due primarily to the acquisition of Patriot in 1997. For further details, see Note D to the Consolidated Financial Statements. See Note D to the Consolidated Financial Statements for a discussion of concentrations of credit risk. United evaluates the adequacy of the allowance for loan losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. United's process for evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural discipline in managing and accounting for those credits. 38 Allocations are made for specific commercial loans based upon management's estimate of the borrowers' ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loan percentages applied to loan pools that have been segregated by risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current conditions. The unallocated portion of the allowance for loan losses provides for risk arising in part from, but not limited to, declines in credit quality resulting from sudden economic or industry shifts and changing economic trends. Differences between actual loan loss experience and estimates are reviewed on a quarterly basis and adjustments are made to those estimates. United's formal company wide process at December 31, 1998, produced increased allocations within all loan categories. The components of the allowance allocated to commercial and real estate construction loans increased $3.7 million and $412 thousand, respectively, as a result of changes in historical loss experience factors for risk rated loan pools in response to changes in economic trends in United's market areas. Specific allocations for commercial loans, also increased as a result of individual credit reviews. The components of the allowance allocated to consumer and real estate loans increased $526 thousand and $135 thousand, respectively, as a result of changes in historical loss experience factors; particularly the impact on the loss trends due to increased charge-offs in these loan pools during 1998. At year-end 1998 and 1997, the allowance for loan losses was 1.47% and 1.18% of total loans, net of unearned income, respectively. At December 31, 1998 and 1997, the ratio of the allowance for loan losses to nonperforming loans was 209.9% and 170.9%, respectively. Management believes that the allowance for loan losses of $39.19 million at December 31, 1998, is adequate to provide for potential losses on existing loans based on information currently available. For the years ended December 31, 1998 and 1997, the provision for loan losses was $12.16 million and $3.28 million, respectively. Total net charge-offs were $4.9 million in 1998 and $3.4 million in 1997, which represents 0.18% and 0.14% of average loans for the respective years. United's ratio of net charge-offs to average loans was better than its peer group's ratio of 0.24% in 1998 and 0.49% in 1997. 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. 39 OTHER INCOME Noninterest income has been and will continue to be an important factor for improving United's profitability. Accordingly, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income increased $4.68 million or 12.64% for 1998 when compared to 1997. Other income consists of all revenues which are not included in interest and fee income related to earning assets. The increase in noninterest income for 1998 was primarily the result of a $1.01 million increase in trust department income, a $2.06 million increase in charges, commissions and fees on customer accounts and $2.37 million of net gains on securities, which included a $2.49 million recognized gain on an available for sale equity security exchanged in an unaffiliated merger transaction consummated at the end of the first quarter of 1998. These increases in noninterest income were partially offset by a $922 thousand decline in mortgage banking income as a result of a fourth quarter lower of cost or market accounting adjustment of $9.66 million for certain junior lien mortgage loans due to the unanticipated failure of an unrelated financial institution to purchase the loans for securitization. Income from mortgage banking operations was $23.87 million for 1998 as compared to $15.13 million for 1997, before the $9.66 million adjustment described above. An increase in loan originations of $633 million and from $886 million in 1997 to $1.5 billion in 1998 was the driving force behind the significant growth in mortgage banking income, before the $9.66 million adjustment. Service charges and fees from customer accounts increased $2,063,000 or 12.16% in 1998. This income includes charges and fees related to various banking services provided by United. The increase was primarily due to increased fees in bankcard accounts, ATM surcharges and overdraft fees and an increased fee structure for sales of checking related products. Trust income increased $1.01 million or 28.36% in 1998 due to an increased volume of trust business. 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 62.8% (55.8% before merger-related charges), which is well below the 60.1% reported by United's national peer group banks and its immediate in-market competitors. Other expense includes all items of expense other than interest expense, the provision for loan losses and income tax expense. In total, other expense increased $34.11 million or 32.85%. During 1998, United's true financial performance was distorted by merger-related and one-time charges associated with the George Mason and Fed One acquisitions as well as charges associated with the purchase acquisition of branches in the eastern panhandle of West Virginia. These charges, which totaled 40 $13.7 million ($8.2 million after tax), consisted primarily of employee benefits, severance, facilities and conversion costs to effect the merger. Salaries and employee benefits expense increased $17.28 million or 33.05% in 1998 as compared to 1997. The higher salaries and benefits costs for 1998 were attributable to an increase of $5.04 million in commissions and salaries expense at United's mortgage banking subsidiaries due to the increased volume of mortgage loans originated during the year for sale in the secondary market as well as approximately $5.9 million of severance pay and related benefits of displaced employees in the George Mason and Fed One mergers. At December 31, 1998 and 1997, United employed 1,154 and 1,294 full-time equivalent employees, respectively. Net occupancy expense in 1998 exceeded 1997 levels by $1.63 million or 14.72% primarily due to the third quarter 1997 purchase acquisition of Patriot, a $781 thousand increase in building rental expense and higher depreciation, maintenance and real property taxes of approximately $800 thousand for company-owned buildings. The overall changes in net occupancy expense for 1998 were insignificant with no material increase or decrease in any one expense category. Remaining other expense increased $15.2 million or 37.55% in 1998 compared to 1997. This overall increase was primarily due to the aforementioned merger-related expenses associated with the George Mason and Fed One mergers and the costs associated with branch purchases. These costs included data processing conversion and other operational costs. Other expense categories that reflected increases over 1997 were goodwill amortization, equipment and communication expense associated with office expansion and the Year 2000 readiness program, bankcard and ATM processing fees, and certain other general business taxes and licenses. INCOME TAXES For the year ended December 31, 1998, United's effective tax rate approximated 28% compared to 35% in 1997. The decrease was primarily the result of nontaxable distributions from restructuring and reorganizational initiatives. In future years (beyond 1998) the estimated effective tax rate is expected to return to approximately 35%. QUARTERLY RESULTS The first and third quarters of 1998 showed large increases in earnings in comparison to those same two quarters of 1997 as United returned to more normal levels of core income and expenses after merger transactions. On a per share basis, first quarter 1998 earnings were $0.33 per share compared to $0.30 in 1997 while third quarter 1998 earnings were $0.38 compared to $0.31 per share in 1997. The annual 1998 results, specifically the second and fourth quarters of 1998, contained significant merger-related and one-time charges associated with the George Mason and Fed One mergers which distorted United's true financial performance. 41 In the second quarter of 1998, United reported a decrease in earnings from the same period in 1997. Second quarter 1998 earnings were lower as a result of the recognition of approximately $7.1 million of merger-related and one-time charges associated with the George Mason merger. Net income for the fourth quarter of 1998 was $6.1 million, a decrease of 54.43% from the $13.4 million earned in the fourth quarter of 1997. On a per share basis, fourth quarter earnings were $0.14 per share in 1998 and $0.31 per share in 1997. The decrease in earnings for the fourth quarter of 1998 was due primarily to approximately $6.6 million of merger-related charges associated with the Fed One merger and a mark-to-market accounting adjustment of $9.66 million for certain junior lien mortgage loans due to the unanticipated failure of an unrelated financial institution to purchase the loans for securitization. Additional quarterly financial data for 1998 and 1997 may be found in Note P to the Consolidated Financial Statements. THE EFFECT OF INFLATION United's income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. With inflation levels at relatively low levels and monetary and fiscal policies being implemented to keep the inflation rate increases within an acceptable range, management expects the impact of inflation would continue to be minimal in the near future. MARKET RISK The objective of United's Asset/Liability Management function is to maintain consistent growth in net interest income within United's policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic condition, interest rate levels and customer preferences. Management considers interest rate risk to be United's most significant market risk. Interest rate risk is the exposure to adverse changes in the net interest income of United as a result of changes in interest rates. Consistency in United's earnings is largely dependent on the effective management of interest rate risk. United employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. One such technique utilizes an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance 42 sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also includes executive management projections for activity levels in product lines offered by United. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time-frame. The principal function of interest rate risk management is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. United closely monitors the sensitivity of its assets and liabilities on an on-going basis and projects the effect of various interest rate changes on its net interest margin. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the "GAP." As shown in the interest rate sensitivity gap table in this section, United was liability sensitive (excess of liabilities over assets) in the one year horizon. On the surface, this would indicate that rising market interest rates would reduce United's earnings and declining market interest rates would increase earnings. United, however, has not experienced the kind of earnings volatility indicated from the cumulative gap. This is because a significant portion of United's retail deposit base does not reprice on a contractual basis. Management has estimated, based upon historical analyses, that savings deposits are less sensitive to interest rate changes than are other forms of deposits. The GAP table presented herein has been adjusted to show the estimated differences in interest rate sensitivity which result when the retail deposit base is assumed to reprice in a manner consistent with historical trends. (See "Management Adjustments" in the GAP table). Using these estimates, United was asset sensitive in the one year horizon in the amount of $395 million or 9.15% of the cumulative gap to related earning assets. To aid in interest rate risk management, United's subsidiary banks are members of the Federal Home Loan Bank (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. Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. United's Asset/Liability Management Committee (ALCO), which includes senior 43 management representatives and reports to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates. Policy established for interest rate risk is stated in terms of the change in net interest income over a twelve month horizon given an immediate and sustained increase or decrease in interest rates. The current limits approved by the Board of Directors are plus or minus 10% for each 100 basis point increase or decrease in interest rates. The following table shows United's estimated earnings sensitivity profile after management's adjustments as of December 31, 1998 and 1997: Change in Interest Rates Percentage Change in (basis points) Net Interest Income -------------- -------------------- 1998 1997 -------- -------- +200 0.32% 2.15% -200 -4.52% -2.68% Given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, it is estimated net interest income for United would increase by 0.32% over one year as of December 31, 1998, as compared to an increase of 2.15% as of December 31, 1997. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 4.52% over one year as of December 31, 1998, as compared to a decrease of 2.68% as of December 31, 1997. All of these estimated changes in net interest income are within the policy guidelines established by the Board of Directors. 44 The following table shows the interest rate sensitivity GAP as of December 31, 1998: 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 $ 16,707 $ 16,707 $ 16,707 Investment and marketable equity securities: Taxable 22,812 $ 10,586 $ 15,189 48,587 $ 140,869 $ 628,368 817,824 Tax-exempt 1,107 1,300 4,542 6,949 41,817 60,726 109,492 Loans, net of unearned income 1,633,075 179,108 329,062 2,141,245 818,073 413,680 3,372,998 --------- ------- ------- --------- ------- ------- --------- Total Interest-Earning Assets $1,673,701 $190,995 $348,793 $2,213,488 $1,000,759 $1,102,774 $4,317,021 ========== ======== ======== ========== ========== ========== ========== LIABILITIES Interest-Bearing Funds: Savings and NOW accounts $1,219,826 $1,219,826 $1,219,826 Time deposits of $100,000 & over 57,730 $ 35,585 $ 98,410 191,725 $ 74,175 $ 840 266,740 Other time deposits 264,067 305,580 418,354 988,001 472,223 3,281 1,463,505 Federal funds purchased, repurchase agreements and other short-term borrowing 249,039 249,039 249,039 FHLB advances 105,000 105,000 46,867 194,000 345,867 ------- ------- ------ ------- ------- Total Interest-Bearing Funds $1,895,662 $ 341,165 $ 516,764 $2,753,591 $ 593,265 $198,121 $3,544,977 ========== ========= ========= ========== ========= ======== ========== Interest Sensitivity Gap $ (221,961)$(150,171) $(167,971) (540,103) $ 407,494 $904,653 $ 772,044 ========== ========= ========= ======== ========= ======== ========== Cumulative Gap $ (221,961)$(372,132) $(540,103) $ (540,103) $(132,609) $772,044 $ 772,044 ========== ========= ========= ========== ========= ======== ========== Cumulative Gap as a Percentage of Total Earning Assets (5.14%) (8.62%) (12.51%) (12.51%) (3.07%) 17.88% 17.88% Management Adjustments $1,168,847 $ (77,962) $ (155,807) $ 935,078 $ (935,078) $ 0 Off-Balance Sheet Activities ---------- --------- ---------- ---------- ---------- -------- -------- Cumulative Management Adjusted Gap and Off- Balance Sheet Activities $ 946,886 $ 718,753 $ 394,975 $ 394,975 $ (132,609) $ 772,044 $ 772,044 ========= ========= ========= ========= ========== ========= ========== Cumulative Management Adjusted Gap and Off- Balance Sheet Activities as a Percentage of Total Earning Assets 21.93% 16.65% 9.15% 9.15% (3.07%) 17.88% 17.88% ===== ===== ==== ==== ===== ===== =====
45 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 branches providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of FHLB advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, and borrowings secured by bank premises or stock of United's subsidiaries. United has no intention at this time of utilizing any long-term funding sources other than FHLB advances and long-term certificates of deposit. Cash flows used for operations in 1998 was $99.78 million as compared to cash flows provided by operating of $31.01 million in 1997 primarily as a result of an increase of approximately $119.73 million of excess originations of loans for sale over proceeds from the sale of loans. In 1998, investing activities resulted in a use of cash of $305.23 million as compared to 1997 in which investing activities resulted in a use of cash of $318.03 million. The primary reason for the use of cash for investing activities during 1998 was $897.25 million increase in loans acquired for sale in the secondary market. Financing activities resulted in a source of cash in 1998 of $356.28 million primarily due to an 46 increase in deposits of $237.42 million and an increase in net borrowings from the FHLB of Pittsburgh and other short-term borrowings of $115.08 million and $18.36 million, respectively. These sources of cash for financing activities were partially offset by payment of $24.65 million of cash dividends to shareholders. See the Consolidated Statement of Cash Flows in the Consolidated Financial Statements. United anticipates no problems in its ability to service its obligations over the next 12 months. 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 9.73% in 1998 and 10.20% in 1997. United's risk-based capital ratio was 12.63% in 1998 and 14.06% in 1997 which are both significantly higher than the minimum regulatory requirements. United's Tier 1 capital and leverage ratios of 11.43% and 8.52%, respectively, at December 31, 1998, are also strong relative to its peers and are well above regulatory minimums to be classified as a "well capitalized" institution. See Note M, Notes to Consolidated Financial Statements. COMMITMENTS The following table indicates the outstanding loan commitments of United in the categories stated: December 31 1998 ----------- Lines of credit authorized, but unused $892,388,000 Letters of credit 54,408,000 ------------ $946,796,000 ============ 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. 47 YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of a company's hardware, date-driven automated equipment or computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This faulty recognition could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices or engage in similar normal business activities. United's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. To date United has fully completed the assessment of all information technology and non-information technology systems that could be significantly affected by the Year 2000 Issue and its internal remediation and testing phases were completed by December 31, 1998. Its external remediation and testing phases being performed by United's primary data processor are expected to be completed by June 30, 1999. The completed assessment indicated that most of United's significant information technology systems could be affected. That assessment also indicated that software and hardware used in the operating equipment also are at risk. Based on its assessments, United determined that it will be required to modify or replace approximately 40% of its hardware and certain software so that those systems will properly utilize dates beyond December 31, 1999. United presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 Issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 Issue could have a material impact on United's operations. United has initiated formal communications with all of its significant suppliers and customers to determine the extent to which United's interface systems are vulnerable to those third parties' failure to remediate their own Year 2000 Issues. United's total Year 2000 project costs and estimates to complete include the estimated costs and time associated with the impact of third party Year 2000 Issues based on presently available information. However, there can be no guarantee that the systems and applications of other companies on which United's systems rely will be timely converted or that a failure to convert by another company, or a conversion that is incompatible with United's systems and applications, would not have a material adverse effect on United. To date, United has obtained information about the Year 2000 compliance status of all of its significant suppliers and vendors. To date, United is not aware of any external agent with a Year 2000 Issue that would materially impact United's results of operations, liquidity or capital resources. 48 United is utilizing both internal and external resources to reprogram, or replace, and test the Year 2000 modifications. United anticipates completion of the remediation and testing phases of the Year 2000 project to be completed by June 30, 1999, which is prior to any anticipated impact on United's operating systems. United expects to complete its implementation phase by mid 1999 with all information technology and non-information technology systems expected to be compliant by June 30, 1999. The total cost of the Year 2000 project is estimated at $4 million and is being funded through cash flows. The Year 2000 costs are not expected to have a material adverse effect on United's results of operations or cash flows. To date, United has incurred approximately $2.4 million of expense and capitalizable costs related to the assessment of, and preliminary efforts in connection with, the Year 2000 project and the development of a Year 2000 plan of operation. The costs of the Year 2000 project and the date on which United believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third party vendor modification plans and other factors. There can be no guarantee, however, that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of trained programming personnel, the ability to locate and correct all relevant computer coding, and similar uncertainties. Until the Year 2000 event actually occurs and for a period of time thereafter, there can be no assurance that there will be no problem related to the Year 2000 Issue. The Year 2000 technology challenge is an unprecedented event. If Year 2000 issues are not adequately addressed by United and third parties, United could face, among other things, business disruptions, operational problems, financial losses, legal liability and similar risks, and United's business, operations, and financial position could be materially, adversely affected. United is developing contingency plans for implementation in the event that mission critical third party vendors or other third parties fail to adequately address Year 2000 issues. Such plans principally involve internal remediation or identifying alternate vendors. There can be no assurance that any such plans will fully mitigate any such failures or problems. The costs of the Year 2000 project and the schedule for achieving compliance are based on management's best estimates, which were derived using numerous assumptions of future events such as the availability of certain resources (including appropriately trained personnel and other internal and external resources), third party vendor plans and other factors. However, there can be no guarantee that these estimates will be achieved at the cost disclosed or within the timeframes indicated, and actual results could differ materially from those anticipated. 49 Factors that might cause such material differences include, but are not limited to: the availability and cost of personnel trained in this area; the ability to identify and convert all relevant systems; results of Year 2000 testing; adequate resolution of Year 2000 issues by governmental agencies, businesses or other third parties that are service providers, suppliers, borrowers or customers of United; unanticipated system costs; the need to replace hardware; the adequacy of and ability to implement contingency plans; and similar uncertainties. 1997 COMPARED TO 1996 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. On August 1, 1997, United acquired 100% of the outstanding common stock of First Patriot Bankshares Corporation, Reston, Virginia ("Patriot") for cash consideration of approximately $39.22 million. The transaction was accounted for using the purchase method of accounting and, accordingly, the following discussion includes the financial position and results of operations of Patriot from the effective merger date forward. EARNINGS SUMMARY For the year ended December 31, 1997, net income increased 31.6% from $39.72 million in 1996 to $52.26 million. Net income per diluted share of $1.22 for the year increased 31.7% from $0.93 in 1996. Dividends per share increased 9.7% from $0.62 in 1996 to $0.68 per share in 1997. This was the twenty-fourth consecutive year of dividend increases to shareholders. During 1996, United recorded approximately $6.85 million of merger-related and one-time special charges associated with the Eagle merger. 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. United's return on average assets of 1.42% for 1997 compared very favorably with regional and national peer grouping information provided by Wheat, First Securities, Inc. of 1.32% and 1.18%. United's return on average shareholders' equity for 1997 of 13.92%, as compared with regional and national peer group information of 16.20% and 15.58%, is indicative of United's very strong capital levels. 50 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, 1997 and 1996, net interest income approximated $149.33 million and $138.39 million, respectively. On a tax-equivalent basis the net interest margin declined to 4.40% in 1997 from 4.52% in 1996. Total interest income of $280.45 million increased 11.9% in 1997 over 1996 as a result of higher volumes of interest-earning assets. Higher average loan volumes of approximately $227 million, resulting primarily from an acquisition, contributed to the increase. From December 31, 1996 to December 31, 1997, United experienced a double-digit increase in consumer and commercial loans of 11.0% and 48.6%, respectively, while mortgage loans showed increases of 9.1%. Total interest expense increased $18.87 million or 16.8% in 1997. 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 $255.46 million or 11.2% in 1997, the average short-term borrowings increased $43.14 million or 28.3%, while its average FHLB advances decreased $12.71 million or 7.8%. United utilized the increased retail deposit base and short-term borrowings during 1997 to fund the growth in the mortgage loan portfolio. The average cost of funds, which increased from 4.34% in 1996 to 4.56% in 1997, reflected the general upward trend in market interest rates during 1997. 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. Nonperforming loans were $18.69 million at December 31, 1997 and $12.79 million at December 31, 1996, an increase of 46.2%. This increase can be attributed to United's acquisition of approximately $2.5 million of nonperforming loans from the Patriot transaction in the third quarter of 1997 and decreasing consumer credit quality trends. Loans past due 90 days or more increased $6.56 million or 103.9% during 1997 and nonaccrual loans decreased $558 thousand or 8.8% since year-end 1996. At year-end 1997 and 1996, the allowance for loan losses was 1.18% and 1.21% of total loans, net of unearned income. At December 31, 1997 and 1996, the ratio of the allowance for loan losses to nonperforming loans was 170.9% and 229.8%, respectively. For the years ended December 31, 1997 and 1996, the provision for loan losses was $3.28 million and $2.88 million, respectively. The increase in the provision for 1997 when compared to 1996 was due to the 51 acquisition of nonperforming credits in Patriot's loan portfolio and in response to growth in the portfolio. Total net charge-offs were $3.42 million in 1997 and $3.04 million in 1996, which represents 0.14% of average loans for each respective year. United's ratio of net charge-offs to average loans was better than its peer group's ratio of 0.49% in 1997 and 0.23% in 1996. At December 31, 1997, impaired loans were $14.26 million, an increase of $1.84 million or 14.8% from the $12.42 million in impaired loans at December 31, 1996. OTHER INCOME Noninterest income increased $7.41 million or 25.0% for 1997 when compared to 1996. Other income consists of all revenues which are not included in interest and fee income related to earning assets. The increase in noninterest income for 1997 was primarily the result of $15.13 million of income generated from the sale and servicing of loans by United's mortgage banking subsidiaries as compared to income of $9.81 million during 1996. Contributing to this increase in income from the mortgage banking operations have been fees generated from the $87 million loan securitization in 1997. Trust income increased $383 thousand or 12.0% in 1997 due to repricing of services and an increased volume of trust business. Service charges, commissions and fees increased by $2.16 million or 14.6% in 1997. This income includes charges and fees related to various banking services provided by United. The increase was primarily due to increased fees in bankcard accounts, ATM surcharges and overdraft fees and an increased fee structure for sales of checking related products. Income from mortgage banking operations increased $5.32 million or 54.3% from $9.81 million in 1996 to $15.13 million in 1997 due to increased originations and sales during 1997. 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; and (iii) interest earned on mortgage loans during the period that they are held by United pending sale. Securities transactions resulted in a net gain of $85 thousand in 1997 compared to a net gain of $465 thousand in 1996. The securities sold were the result of liquidity needs, changes in market interest rates, changes in prepayment and term extension risk and other general asset/liability management considerations. OTHER EXPENSE Other expense includes all items of expense other than interest expense, the provision for loan losses and income tax expense. In total, other expense decreased $533 thousand or 0.5%. The 1997 decrease was 52 primarily due to the one-time and merger-related charges recorded in the first and second quarters of 1996 and the additional third quarter 1996 deposit insurance expense as a result of the SAIF recapitalization legislation. Salaries and employee benefits expense increased $1.35 million or 2.7% in 1997. The increase for 1997 was attributable to an increase in salaries and benefits related to the expansion of United's mortgage banking subsidiaries due to higher commissions on the increased volume of mortgage loans originated during the year for sale in the secondary market. Net occupancy expense in 1997 exceeded 1996 levels by $633 thousand or 6.1% primarily due to the acquisition of Patriot and decreased rental income and an increase in real property repairs and utilities expense. The overall changes in net occupancy expense for 1997 were insignificant with no material increase or decrease in any one expense category. Remaining other expense decreased $2.52 million or 5.9% in 1997 compared to 1996. The decrease in other expense for 1997 related primarily to the decreases in deposit insurance expense as a result of the SAIF recapitalization legislation and lower legal and accounting costs associated with merger and acquisition transactions. INCOME TAXES For the year ended December 31, 1997, income taxes approximated $27 million compared to $21.1 million for 1996. The increase of $5.9 million or 28.3% for 1997 when compared to 1996 was primarily the result of increased pretax income. United's effective tax rates were 34.1% for 1997 and 34.6% for 1996. 53 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, 1998 and 1997, 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, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Fed One Bancorp, Inc., a wholly-owned subsidiary, which statements reflect total assets constituting 9% in 1997 and net interest income constituting 8% in 1997 and 1996 of the related consolidated totals. These statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for Fed One Bancorp, Inc., is based solely on the report of the other auditors. We conducted our audits in accordance with 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 and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Bankshares, Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Charleston, West Virginia February 26, 1999 54 REPORT OF KPMG LLP INDEPENDENT AUDITORS Board of Directors and Shareholders Fed One Bancorp, Inc. And Subsidiary We have audited the accompanying consolidated statement of financial condition of Fed One Bancorp, Inc. And subsidiary of December 31, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fed One Bancorp, Inc. And subsidiary as of December 31, 1997, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG LLP Pittsburgh, Pennsylvania January 29, 1998, except as to Note 20, which is as Of February 18, 1998 55 CONSOLIDATED BALANCE SHEETS UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except par value) December 31 ---------------- 1998 1997 ----- ------ ASSETS Cash and due from banks $ 124,591 $ 118,396 Interest-bearing deposits with other banks 6,807 15,580 Federal funds sold 9,900 56,052 ----- ------ Total cash and cash equivalents 141,298 190,028 Securities available for sale at estimated fair value (amortized cost-$557,574 at December 31, 1998 and $601,909 at December 31, 1997) 565,165 611,919 Securities held to maturity (estimated fair value-$367,353 at December 31, 1998 and $399,995 at December 31, 1997) 362,151 394,816 Loans held for sale 720,607 97,619 Loans 2,659,324 2,696,905 Less: Unearned income (6,933) (7,066) ------ ------ Loans net of unearned income 2,652,391 2,689,839 Less: Allowance for loan losses (39,189) (31,936) ------- ------- Net loans 2,613,202 2,657,903 Bank premises and equipment 54,946 55,374 Accrued interest receivable 30,402 23,922 Other assets 80,128 63,255 ------ ------ TOTAL ASSETS $4,567,899 $4,094,836 ========== ========== LIABILITIES Domestic deposits: Noninterest-bearing $ 542,987 $ 502,517 Interest-bearing 2,950,071 2,683,446 --------- --------- TOTAL DEPOSITS 3,493,058 3,185,963 Borrowings: Federal funds purchased 7,260 40,961 Securities sold under agreements to repurchase 236,535 184,718 Federal Home Loan Bank borrowings 345,867 230,791 Other borrowings 5,244 5,000 Accrued expenses and other liabilities 58,404 51,347 ------ ------ TOTAL LIABILITIES 4,146,368 3,698,780 SHAREHOLDERS' EQUITY Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-43,256,833 at December 31, 1998 and 42,635,898 at December 31, 1997, including 356 and 161,814 shares in treasury at December 31, 1998 and 1997, respectively 108,142 106,590 Surplus 88,353 80,803 Retained earnings 220,111 204,849 Accumulated other comprehensive income 4,934 6,333 Treasury stock, at cost (9) (2,519) -- ------ TOTAL SHAREHOLDERS' EQUITY 421,531 396,056 ------- ------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,567,899 $4,094,836 ========== ========== See notes to consolidated financial statements. 56 CONSOLIDATED STATEMENTS OF INCOME UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data) Year Ended December 31 ------------------------------------- 1998 1997 1996 ---- ---- ---- INTEREST INCOME Interest and fees on loans $ 265,205 $ 218,039 $ 196,680 Interest on federal funds sold and other short-term investments 1,472 1,456 1,489 Interest and dividends on securities: Taxable 55,550 57,868 48,963 Exempt from federal taxes 3,420 3,089 3,509 ----- ----- ----- TOTAL INTEREST INCOME 325,647 280,452 250,641 ------- ------- ------- INTEREST EXPENSE Interest on deposits 128,976 113,472 96,475 Interest on short-term borrowings 10,732 8,911 6,661 Interest on Federal Home Loan Bank advances 15,646 8,739 9,120 ------ ----- ------ TOTAL INTEREST EXPENSE 155,354 131,122 112,256 ------- ------- ------- NET INTEREST INCOME 170,293 149,330 138,385 PROVISION FOR LOAN LOSSES 12,156 3,280 2,881 ------ ----- ----- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 158,137 146,050 135,504 ------- ------- ------- OTHER INCOME Income from mortgage banking operations 14,211 15,133 9,809 Service charges, commissions, and fees 19,024 16,961 14,804 Trust department income 4,581 3,569 3,186 Security gains 2,370 85 465 Other income 1,566 1,320 1,390 ----- ----- ----- TOTAL OTHER INCOME 41,752 37,068 29,654 ------ ------ ------ OTHER EXPENSE Salaries and employee benefits 69,550 52,272 50,920 Net occupancy expense 12,733 11,099 10,466 Other expense 55,681 40,481 42,999 ------ ------ ------ TOTAL OTHER EXPENSE 137,964 103,852 104,385 ------- ------- ------- INCOME BEFORE INCOME TAXES 61,925 79,266 60,773 INCOME TAXES 17,523 27,005 21,054 ------ ------ ------ NET INCOME $ 44,402 $ 52,261 $ 39,719 =========== =========== =========== Earnings per common share: Basic $ 1.04 $ 1.24 $ 0.94 =========== =========== =========== Diluted $ 1.02 $ 1.22 $ 0.93 =========== =========== =========== Dividends per common share $ 0.75 $ 0.68 $ 0.62 =========== =========== =========== Average outstanding shares: Basic 42,757,638 42,032,566 42,351,562 Diluted 43,461,222 42,768,461 42,813,415
See notes to consolidated financial statements. 57 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data)
Common Stock Accumulated ------------------- Other Total Par Retained Comprehensive Treasury Shareholders' Shares Value Surplus Earnings Income Stock Equity ----- ------ -------- -------- -------------- -------- -------------- Balance at January 1, 1996 21,251,010 $ 53,128 $ 82,979 $ 212,218 $2,192 ($1,256) $349,261 Comprehensive Income: Net income 39,719 39,719 Other comprehensive income, net of tax Unrealized loss on securities of $2,305 net of reclassification adjustment for gains included in net income of $302 (2,003) (2,003) ------- Total comprehensive income 37,716 Cash dividends ($0.62 per share) (17,847) (17,847) Fractional shares adjustment (145) (4) (4) Retirement of treasury stock (2,550) (7) (35) 42 Purchase of treasury stock (113,000 shares) (3,395) (3,395) Common stock options exercised (540,473 shares) 156,079 390 1,225 (100) 2,688 4,203 Pre-merger transactions of pooled companies (165,094) (413) (3,043) (3,646) (7,102) -------- ---- ------ ------ --- ------- ------ Balance at December 31, 1996 21,239,300 53,098 81,122 230,344 189 (1,921) 362,832 Comprehensive Income: Net income 52,261 52,261 Other comprehensive income, net of tax Unrealized gain on securities of $6,199 net of reclassification adjustment for gains included in net income of $55 6,144 6,144 ------- Total comprehensive income 58,405 Cash dividends ($0.68 per share) (20,344) (20,344) Purchase of treasury stock (167,100 shares) (5,754) (5,754) Common stock options exercised (484,672 shares) 141,306 353 1,007 (167) 4,550 5,743 Sale of treasury stock (15,991 shares) 606 606 Pre-merger transactions of pooled companies (62,658) (156) (1,326) (3,950) (5,432) Two-for-one stock split effected in the form of a 100% stock dividend 21,317,950 53,295 (53,295) ---------- ------ ------ ------- ------ ------ ------- Balance at December 31, 1997 42,635,898 106,590 80,803 204,849 6,333 (2,519) 396,056 Comprehensive Income: Net income 44,402 44,402 Other comprehensive income, net of tax Unrealized gain on securities of $335 net of reclassification adjustment for gains included in net income of $1,734 (1,399) (1,399) ------- Total comprehensive income 43,003 Cash dividends ($0.75 per share) (28,317) (28,317) Fractional shares adjustment (213) (7) (7) Purchase of treasury stock (137,300 shares) (3,610) (3,610) Common stock options exercised (546,530 shares) 285,148 712 (1,174) (202) 5,466 4,802 Sale of treasury stock (37,376 shares) 654 654 Pre-merger transactions of pooled companies 336,000 840 8,731 (621) 8,950 ------- --- ----- ---- ------ ----- ----- Balance at December 31, 1998 43,256,833 $108,142 $ 88,353 $ 220,111 $4,934 ($ 9) $421,531 ========== ======== ========= ========= ====== ===== ========
See notes to consolidated financial statements. 58 CONSOLIDATED STATEMENTS OF CASH FLOWS UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands) Year Ended December 31 ---------------------------------- 1998 1997 1996 ---- ---- ---- OPERATING ACTIVITIES Net income $ 44,402 $ 52,261 $ 39,719 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 12,156 3,280 2,881 Provision for depreciation 7,739 6,590 5,601 Amortization, net of accretion 5,913 2,770 1,029 (Gain) loss on sales of bank premises and equipment (116) (534) 140 Gain on sales and calls of securities (2,370) (85) (465) Loans originated for sale (1,541,187) (885,615) (641,764) Proceeds from loans sold 1,405,524 869,678 652,123 Gain on sales of loans (13,910) (13,925) (9,108) Deferred income tax benefit (2,788) (555) (117) Changes in: Trading securities 5,693 Loans held for sale 5,154 (7,211) (24,417) Interest receivable (6,415) (563) 441 Other assets (7,049) 1,376 (5,539) Accrued expenses and other liabilities (6,832) 3,545 5,089 ------ ----- ----- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (99,779) 31,012 31,306 ------- ------- ----- INVESTING ACTIVITIES Proceeds from maturities and calls of investment securities 142,854 77,365 63,049 Purchases of investment securities (110,002) (67,886) (132,629) Proceeds from sales of securities available for sale 106,132 174,579 Proceeds from maturities and calls of securities available for sale 340,318 155,689 228,551 Purchases of securities available for sale (294,657) (366,344) (431,406) Proceeds from sales of loans 471,978 287 294 Purchases of loans (943,680) (46,429) (16,886) Net purchases of bank premises and equipment (6,765) (4,894) (4,445) Net cash received from (paid for) acquired subsidiary/branch 56,472 (28,929) Net change in loans 38,249 (143,024) (183,553) ------ -------- -------- NET CASH USED IN INVESTING ACTIVITIES (305,233) (318,033) (302,446) -------- -------- -------- FINANCING ACTIVITIES Cash dividends paid (24,651) (19,831) (16,541) Acquisition of treasury stock (3,610) (5,754) (3,395) Proceeds from exercise of stock options 4,802 5,743 4,203 Proceeds from sales of treasury stock 654 606 Pre-merger transactions of pooled companies 8,237 (7,368) (7,230) Repayment of Federal Home Loan Bank borrowings (227,164) (281,359) (415,007) Proceeds from Federal Home Loan Bank borrowings 342,240 324,940 473,416 Purchase of fractional shares (7) (4) Changes in: Time deposits 129,364 170,481 153,249 Other deposits 108,057 87,192 46,986 Federal funds purchased, securities sold under agreements to repurchase and other borrowings 18,360 37,982 39,566 ------ ------ ------ NET CASH PROVIDED BY FINANCING ACTIVITIES 356,282 312,632 275,243 ------- ------- ------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (48,730) 25,611 4,103 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 190,028 164,417 160,314 ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR $141,298 $ 190,028 $ 164,417 ======== =========== ===========
See notes to consolidated financial statements. 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNITED BANKSHARES, INC. AND SUBSIDIARIES December 31, 1998 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: United Bankshares, Inc. is a multi-bank holding company headquartered in Charleston, West Virginia. The principal markets of United Bankshares, Inc. and subsidiaries (United) are located in Parkersburg, Charleston, Huntington, Morgantown and Wheeling, West Virginia and Arlington, Fairfax, Loudoun and Prince William counties, Virginia. United's principal business activities are community banking and mortgage banking. Basis of Presentation: The consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. The accounting and reporting policies of United conform with 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. Certain prior period data has been reclassified to conform with the current period presentation. The reclassifications had no effect on net income or shareholders' equity. Cash Flow Information: United considers cash and due from banks, interest-bearing deposits with other banks and federal funds sold as cash and cash equivalents. Securities: Management determines the appropriate classification of securities at the time of purchase. Debt securities that United has the positive intent and the ability to hold to maturity are carried at amortized cost. Securities to be held for indefinite periods of time and all marketable equity securities are classified as available for sale and carried at fair value. Unrealized holding gains and losses on securities classified as available for sale are carried as a separate component of other comprehensive income, net of deferred income taxes. Gains or losses on sales of securities are recognized by the specific identification method and are reported separately in the statements of income. 60 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued 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. 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 or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. The principal source 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. Gains and losses on sales of loans held for sale are included in mortgage banking income. Allowance for Loan Losses: Management's evaluation of the adequacy of the allowance for loan losses and the appropriate provision for loan losses is based upon a quarterly evaluation of the portfolio. The allowance for loan losses related to loans that are identified as impaired is based on the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. In determining the adequacy of the allowance for loan losses, management makes allocations to specific commercial loans classified by management as to risk. The amount allocated to a specific loan is based upon management's estimate of the borrowers' ability to repay, the collateral securing the credit and other borrower specific factors that may impact collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on loan pools using management's 61 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -continued internal risk ratings. Allocations for these commercial pools are determined based upon historical loss experience adjusted for current conditions. Allocations for loans, other than commercial loans, are developed on a total portfolio level based upon historical loss experience adjusted for current conditions. While allocations are made to specific loans and pools of loans, the allowance is available for all loan losses. The unallocated component of the allowance provides for risk arising in part from, but not limited to, declines in credit quality resulting from sudden economic or industry shifts and changing economic trends. The amounts allocated to specific credits, and the unallocated component of the allowance are reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. This evaluation is inherently subjective and requires management to make estimates of the amounts and timing of future cash flows. Bank Premises and Equipment: Bank premises and equipment are stated at cost, less allowances for depreciation and amortization. The provision for depreciation is computed principally by the straight-line method over the estimated useful lives of the respective assets. Income Taxes: Deferred income taxes are provided for temporary differences between the tax basis of an asset or liability and its reported amount in the financial statements at the statutory tax rate. Intangible Assets: Intangible assets relating to the estimated value of the deposit base of the acquired institutions are being amortized on an accelerated basis over a 7 to 10 year period. The excess of the purchase price over the fair market value of the net assets of the banks acquired (goodwill) is being amortized on a straight-line basis over 15 to 20 years. The carrying amount of intangible assets is evaluated if facts and circumstances suggest that they may be impaired. If this evaluation indicates that intangible assets will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of intangible assets will be reduced. At December 31, 1998 and 1997, deposit base intangibles and goodwill approximated $45,197,000 and $39,175,000 net of accumulated amortization of approximately $18,698,000 and $14,368,000. Trust Assets and Income: Assets held in a fiduciary or agency capacity for customers are not included in the balance sheets since such items are not assets of the company. Trust income is reported on a cash basis. Reporting such income on an accrual basis would not materially affect United's consolidated financial position or its results of operations as reported herein. Earnings Per Common Share: Basic earnings per common share is calculated by dividing net income by the weighted average number of shares of common stock outstanding for the respective period. For diluted earnings 62 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued per common share, the weighted average number of shares of common stock outstanding for the respective period is increased by the number of shares of common stock which would be issued assuming the exercise of common stock options. The dilutive effect of stock options approximated 703,584, 735,895 and 461,853 shares in 1998, 1997 and 1996, respectively. Operating Segments - United operates in the community banking and mortgage banking businesses. Business results are based upon United's management accounting practices and as provided to the chief operating decision maker for determination of resource allocation and performance. New Accounting Standards: In June 1997, the Financial Accounting Standards Board (FASB) issued Statement No. 130, (SFAS No. 130), "Reporting Comprehensive Income" which requires companies to report and display comprehensive income and its components. United adopted the provisions of this statement in 1998. These disclosure requirements had no impact on financial position or results of operations. In June 1997, the FASB issued Statement No. 131, (SFAS No. 131), "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 provides guidance for the way public enterprises report information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports. It also requires certain related disclosures about products and services, geographic areas and major customers. United adopted the provisions of this statement for 1998 annual reporting. These disclosure requirements had no impact on financial position or results of operations. In June 1998, the FASB issued Statement No. 133, (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities." The provisions of this statement require that derivative instruments be carried at fair value on the balance sheet. The statement continues to allow derivative instruments to be used to hedge various risks and sets forth specific criteria to be used to determine when hedge accounting can be used. The statement also provides offsetting changes in fair value or cash flows of both the derivative and the hedged asset or liability to be recognized in earnings in the same period; however, any changes in fair value or cash flow that represent the ineffective portion of a hedge are required to be recognized in earnings and cannot be deferred. For derivative instruments not accounted for as hedges, changes in fair value are required to be recognized in earnings. The provisions of this statement become effective for United beginning on January 1, 2000. This standard, when implemented, is not expected to materially impact the reported financial position or results of operations of United. During 1998, the FASB issued Statement No. 134, (SFAS No. 134), "Accounting for Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking 63 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Enterprise" (an amendment of Statement No. 65). SFAS No. 134 requires companies to classify all mortgage-backed securities or other interests in the form of a security retained after a securitization of mortgage loans held for sale based on its ability and intent to sell or hold those investments. Any retained mortgage-backed securities that a company commits to sell before or during the securitization process must be classified as trading securities. Management does not believe that this statement will have a material impact on results of operations or the financial position of United. NOTE B--MERGERS AND ACQUISITIONS On October 1, 1998, United consummated its merger with Fed One Bancorp, Inc., Wheeling, West Virginia ("Fed One") in a common stock exchange accounted for under the pooling of interests method of accounting. United exchanged 1.50 shares of United common stock for each of the 2.6 million common shares of Fed One or approximately 3.9 million shares. As of the date of merger, Fed One reported total assets of $373 million, total net loans of $163 million, deposits of $261 million and shareholders' equity of $50 million. All statements and notes thereto have been restated to give effect to the merger of United and Fed One as though they had always been combined. The following represents unaudited selected pro forma financial information regarding the effects of the transactions as though United, and Fed One had been combined for all periods presented: United (In thousands, except per share data) and Fed Fed One United One Combined ------- ------ ---------- Nine Months Ended September 30, 1998 Net interest income $117,582 $8,277 $ 125,859 Net income 36,222 2,087 38,309 Earnings per common share: Basic $ 0.93 $ 0.91 $ 0.90 Diluted $ 0.91 $ 0.86 $ 0.88 1997 Net interest income $137,698 $11,632 $ 149,330 Net income 49,019 3,242 52,261 Earnings per common share: Basic $ 1.27 $ 1.43 $ 1.24 Diluted $ 1.25 $ 1.36 $ 1.22 1996 Net interest income $126,636 $11,749 $ 138,385 Net income 37,395 2,324 39,719 Earnings per common share: Basic $ 0.97 $ 0.97 $ 0.94 Diluted $ 0.96 $ 0.94 $ 0.93 64 NOTE B--MERGERS AND ACQUISITIONS - continued The data set forth above is not necessarily indicative of the results of operations or the combined financial position of United that would have resulted had the merger been consummated at the beginning of the applicable periods indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined entities. On April 2, 1998, United consummated its merger with George Mason Bankshares, Inc., Fairfax, Virginia ("George Mason") in a common stock exchange accounted for under the pooling of interests method of accounting. United exchanged 1.70 shares of United common stock for each of the 5.3 million common shares of George Mason or approximately 9.0 million shares, adjusted for cash paid in lieu of fractional shares. As of the date of merger, George Mason reported total assets of $1.02 billion, total net loans of $600 million, deposits of $840 million and shareholders' equity of $79 million. United's historical financial information has been restated for the George Mason merger and this is reflected in the "United" information presented herein. In the second and fourth quarters of 1998, as a direct result of the George Mason and Fed One acquisitions, United recorded merger-related costs of $13.7 million ($8.2 million after tax). The charges to operating expenses consisted of employee benefit obligations, costs to eliminate duplicate facilities and equipment, contract terminations, conversion costs and professional fees. The merger-related charges consisted of: (In thousands) 1998 ---- Contract termination costs $ 3,747 Conversion expenses 3,333 Duplicate facilities and equipment 2,488 Employee benefit obligations 2,182 Professional fees 1,411 Other expenses 496 --- Total merger-related charges $ 13,657 -------- During 1998, $13.7 million of merger-related costs were incurred and charged against the accrual. On August 1, 1997, United acquired 100% of the outstanding common stock of First Patriot Bankshares Corporation, Reston, Virginia ("Patriot") for cash consideration of approximately $39.2 million. The transaction has been accounted for using the purchase method of accounting. At consummation, Patriot had assets of approximately $211 million, loans of $135 million, deposits of $154 million and shareholders' equity of $11 million, all of which reflected purchase accounting adjustments. The results of operations of Patriot, which are not significant, have been included in the consolidated results of operations from the date of acquisition. 65 NOTE C--INVESTMENT SECURITIES The amortized cost and estimated fair values of securities available for sale are summarized as follows: December 31, 1998 ------------------------------------------------ (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ----------- -------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $198,151 $ 1,335 $ 162 $199,324 State and political subdivisions 27,474 194 188 27,480 Mortgage-backed securities 279,618 2,860 262 282,216 Marketable equity securities 9,211 4,104 239 13,076 Other 43,120 51 43,069 ------ ------ -- ------ Total $557,574 $ 8,493 $ 902 $565,165 ======== ======== ======== ======== December 31, 1997 ----------------------------------------- (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- ---------- --------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $191,473 $ 595 $ 293 $191,775 State and political subdivisions 4,093 106 4,199 Mortgage-backed securities 379,452 3,099 393 382,158 Marketable equity securities 4,730 6,977 11,706 Other 22,161 80 22,081 ------ ----- -- ------ Total $601,909 $ 10,777 $ 767 $611,919 ======== ======== ======== ========
The amortized cost and estimated fair value of securities available for sale at December 31, 1998 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 (In thousands) Amortized Fair Cost Value -------- -------- Due in one year or less $ 38,072 $ 38,321 Due after one year through five years 113,410 114,343 Due after five years through ten years 123,793 124,204 Due after ten years 273,088 275,221 Marketable equity securities 9,211 13,076 ----- ------ Total $557,574 $565,165 ======== ======== The table above includes $282,216,000 of mortgage-backed securities at estimated fair value with an amortized cost of $279,618,000. Maturities of mortgage-backed securities are based upon the estimated average life. 66 NOTE C--INVESTMENT SECURITIES - continued Gross realized gains and losses from sales of securities available for sale were $3,020,000 and $354,000; $115,000 and $30,000; and $829,000 and $364,000, respectively, in 1998, 1997 and 1996. The amortized cost and estimated fair values of securities held to maturity are summarized as follows: December 31, 1998 ------------------------------------------- (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ----------- --------- --------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $121,474 $1,225 $ 99 $122,600 State and political subdivisions 82,011 2,929 241 84,699 Mortgage-backed securities 139,002 1,506 121 140,387 Other 19,664 8 5 19,667 -------- ------ ------- -------- Total $362,151 $5,668 $ 466 $367,353 ======== ====== ======= ======== December 31, 1997 ------------------------------------------- (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- ---------- --------- ----------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $123,186 $ 784 $ 78 $123,892 State and political subdivisions 51,560 2,143 21 53,682 Mortgage-backed securities 212,254 2,807 456 214,605 Other 7,816 7,816 -------- ------ ------- -------- Total $394,816 $5,734 $ 555 $399,995 ======== ====== ======= ======== The amortized cost and estimated fair value of debt securities held to maturity at December 31, 1998 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 (In thousands) Amortized Fair Cost Value ---------- ----------- Due in one year or less $ 17,218 $ 17,349 Due after one year through five years 68,758 69,661 Due after five years through ten years 117,860 120,026 Due after ten years 158,315 160,317 ------- ------- Total $362,151 $367,353 ======== ======== The table above includes $140,387,000 of mortgage-backed securities at estimated fair value with an amortized cost of $139,002,000 at December 31, 1998. Maturities of the mortgage-backed securities are based upon the estimated average life. 67 NOTE C--INVESTMENT SECURITIES - continued 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 $414,275,000 and $428,806,000 at December 31, 1998 and 1997, respectively. NOTE D--LOANS Major classifications of loans are as follows: (In thousands) December 31 ------------------- 1998 1997 ---- ---- Commercial, financial, and agricultural $ 508,601 $ 487,706 Real estate: Single family residential 1,076,277 1,164,170 Commercial 574,666 492,265 Construction 141,026 140,665 Other 45,290 47,148 Installment 313,464 364,951 ------- ------- Total gross loans $2,659,324 $2,696,905 ========== ========== The table above does not include loans held for sale of $720,607,000 and $97,619,000 at December 31, 1998 and 1997, respectively. At December 31, 1998, United recorded a charge of $9,664,000 to reduce the carrying value of those loans to the lower of cost or market. An analysis of the allowance for loan losses follows: (In thousands) Year Ended December 31 --------------------------- 1998 1997 1996 ------- -------- ------ Balance at beginning of year $31,936 $29,376 $29,531 Allowance of purchased subsidiaries 2,695 Provision for loan losses 12,156 3,280 2,881 ------ ----- ----- 44,092 35,351 32,412 ------ ------ ------ Loans charged off 6,270 4,235 3,915 Recoveries 1,367 820 879 ----- --- --- Net charge offs 4,903 3,415 3,036 ----- ----- ----- Balance at end of year $39,189 $31,936 $29,376 ======= ======= ======= United has commercial loans, including real estate and owner occupied, income producing real estate and land development loans, of approximately $1,083,267,000 and $979,971,000 as of December 31, 1998 and 1997, respectively. The loans are primarily secured by real estate located in West Virginia, Southeastern Ohio, and Virginia. The loans were originated by United's subsidiary banks using underwriting standards as set forth by management. United's loan administration policies are focused on the risk characteristics of the loan portfolio, including commercial real estate loans, in terms of loan approval and credit quality. It is the opinion of management that these loans do not pose any unusual risks and that adequate consideration has been given to the above loans in establishing the allowance for loan losses. At December 31, 1998, the recorded investment in loans that were considered to be impaired was $10,924,000 (of which $9,139,000 was on a nonaccrual basis). Included in this amount was $4,966,000 of impaired 68 NOTE D--LOANS - continued loans for which the related allowance for credit losses was $774,000 and $5,958,000 of impaired loans that did not have an allowance for credit losses. At December 31, 1997, the recorded investment in loans that were considered to be impaired was $14,261,000 (of which $5,815,000 was on a nonaccrual basis). Included in this amount was $6,365,000 of impaired loans for which the related allowance for credit losses was $1,596,000 and $7,896,000 of impaired loans that did not have an allowance for credit losses. The average recorded investment in impaired loans during the years ended December 31, 1998, 1997 and 1996 was approximately $10,343,000, $13,264,000 and $12,005,000, respectively. The amount of interest income that would have been recorded on impaired loans under the original terms was $1,809,000, $1,710,000 and $1,708,000 for the years ended December 31, 1998, 1997 and 1996, respectively. For the years ended December 31, 1998, 1997 and 1996, United recognized interest income on those impaired loans of approximately $461,000, $1,008,000 and $816,000, respectively, substantially all of which was recognized using the accrual method of income recognition. United's subsidiary banks have made loans, in the normal course of business, to the directors and officers of United and its subsidiaries, and to their associates. Such related party loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and did not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $123,262,000 and $106,019,000 at December 31, 1998 and 1997, respectively. During 1998, $65,970,000 of new loans were made, repayments totaled $41,022,000, and other changes due to the change in composition of United's board members and executive officers approximated $7,705,000. NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES Bank premises and equipment are summarized as follows: December 31 ------------------ (In thousands) 1998 1997 ---- ---- Land $ 11,537 $ 11,144 Buildings and improvements 47,546 49,643 Leasehold improvements 10,587 5,798 Furniture, fixtures, and equipment 46,987 44,661 ------- ------- 116,657 111,246 Less allowance for depreciation and amortization 61,711 55,872 ------- ------- Net bank premises and equipment $ 54,946 $ 55,374 ======== ======== United and certain banking subsidiaries have entered into various noncancelable operating leases. These noncancelable operating leases are subject to renewal options under various terms and some leases pro- 69 NOTE E--BANK PREMISES AND EQUIPMENT AND LEASES vide for periodic rate adjustments based on cost-of-living index changes. Rent expense for noncancelable operating leases approximated $5,129,000, $4,417,000 and $4,010,000 for the years ended December 31, 1998, 1997, and 1996, 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, 1998, consisted of the following: Year Amount ---- ------- (In thousands) 1999 $ 3,821 2000 3,347 2001 3,146 2002 2,505 2003 1,301 Thereafter 2,451 ----- Total minimum lease payments $16,571 ======= NOTE F--DEPOSITS The book value of deposits consisted of the following: (In thousands) December 31 --------------------- 1998 1997 --------- --------- Noninterest-bearing checking $ 542,987 $ 502,517 Interest-bearing checking 119,146 128,636 Regular savings 435,767 457,336 Money market accounts 664,913 519,088 Time deposits under $100,000 1,463,505 1,271,732 Time deposits over $100,000 266,740 306,654 ------- ------- Total deposits $3,493,058 $3,185,963 ========== ========== Interest paid on deposits and borrowings approximated $153,283,000, $129,219,000 and $111,139,000 in 1998, 1997 and 1996, respectively. At December 31, 1998, the scheduled maturities of time deposits are as follows: Year Amount ---- ---------- (In thousands) 1999 $1,179,726 2000 462,847 2001 43,978 2002 23,015 2003 and thereafter 20,679 ------ Total $1,730,245 ========== 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 $20,066,000 and $25,878,000 at December 31, 1998 and 1997, respectively. 70 NOTE G--BORROWINGS United's subsidiary banks are members of the Federal Home Loan Bank (FHLB). Membership in the FHLB makes available short-term and long-term borrowings from collateralized advances. All FHLB borrowings are collateralized by a similar amount of single family residential mortgage loans. At December 31, 1998, United had approximately $461,205,000 of additional available borrowings in the form of collateralized advances from the FHLB at prevailing interest rates. At December 31, 1998, $105,000,000 of FHLB advances with an interest rate of 5.00% had an overnight maturity. Additionally, $240,867,000 of FHLB advances with a weighted average interest rate of 5.18% are scheduled to mature from one to twenty years. United also has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $261,500,000. These lines of credit, which bear interest at prevailing market rates, permit United to borrow funds in the overnight market, and are renewable annually subject to certain conditions. At December 31, 1998 and 1997, borrowings and the related weighted average interest rate were as follows: 1998 1997 ---------------------- --------------------- Weighted Weighted (In thousands) Average Average Amount Rate Amount Rate ------ -------- ------ -------- Federal funds purchased $ 7,260 5.56% $ 40,961 6.58% Securities sold under agreements to repurchase 236,535 4.59% 184,718 4.53% FHLB advances 345,867 5.12% 230,791 6.27% Other 5,244 3.60% 5,000 5.22% ----- ----- Total $594,906 $ 461,470 ======== ========= Information concerning securities sold under agreements to repurchase (in thousands)is summarized as follows: 1998 1997 ---- ---- Average balance during the year $201,475 $167,688 Average interest rate during the year 4.66% 4.04% Maximum month-end balance during the year $236,535 $215,205 NOTE H--INCOME TAXES The income tax provisions included in the consolidated statements of income are summarized as follows: (In thousands) Year Ended December 31 ---------------------------- 1998 1997 1996 ---- ---- ---- Current expense: Federal $ 18,906 $ 26,324 $ 19,639 State 1,405 1,236 1,532 Deferred benefit: Federal and State (2,788) (555) (117) ------ ---- ---- Income taxes $ 17,523 $ 27,005 $ 21,054 ======== ======== ======== 71 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 ------------------------------------------------------- (In thousands) 1998 1997 1996 ------------------ -------------- ---------------- Amount % Amount % Amount % ------- ----- ------ ----- ------- ----- Tax on income before taxes at statutory federal rate $ 21,674 35.0% $ 27,743 35.0% $21,270 35.0% Plus: State income taxes net of federal tax benefits 913 1.5 820 1.0 996 1.6 --- --- --- --- --- --- 22,587 36.5 28,563 36.0 22,266 36.6 Increase (decrease) resulting from: Tax-exempt interest income (2,201) (3.6) (1,898) (2.4) (1,855) (3.1) Nontaxable distributions from reorganizations (5,775) (9.3) Intangible amortization 1,152 1.9 668 0.8 643 1.1 Other items-net 1,760 2.8 (328) (0.4) ----- --- ---- ---- ------- ---- Income taxes $17,523 28.3% $27,005 34.1% $21,054 34.6% ======= ==== ======= ==== ======= ====
Federal income tax expense applicable to securities transactions approximated $830,000 in 1998, $29,000 in 1997 and $180,000 in 1996. Income taxes paid approximated $25,387,000, $27,315,000 and $18,772,000 in 1998, 1997 and 1996, 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, 1998 and 1997 are as follows: (In thousands) 1998 1997 ---- ---- Deferred tax assets: Allowance for loan losses $14,266 $11,299 Accrued benefits payable 1,539 1,725 Other accrued liabilities 4,449 3,850 Other real estate owned 639 117 Other 103 118 --- --- Total deferred tax assets 20,996 17,109 ------ ------ Deferred tax liabilities: Premises and equipment 2,660 2,965 Core deposit intangibles 574 832 Income tax allowance for loan losses 1,305 1,462 Deferred mortgage points 1,920 1,663 Securities available for sale 2,657 3,409 Other 2,356 794 ----- --- Total deferred tax liabilities 11,472 11,125 ------ ------ Net deferred tax assets $ 9,524 $ 5,984 ======= ======= 72 NOTE I--EMPLOYEE BENEFIT PLANS United has a defined benefit retirement plan covering substantially all employees. The benefits are based on years of service and the average of the employee's highest five consecutive plan years of basic compensation paid during the ten plan years preceding the date of determination. United's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. Net periodic pension cost included the following components: (In thousands) Year Ended December 31, ---------------------------- 1998 1997 1996 ------ ------ ------- Service cost $ 799 $ 739 $ 861 Interest cost 1,609 1,451 1,439 Expected return on plan assets (2,121) (1,939) (1,767) Amortization of transition asset (131) (131) (131) Amortization of prior service cost 63 63 63 -- -- -- Net periodic pension cost $ 219 $ 183 $ 465 ======= ======= ======= A reconciliation of the changes in benefit obligation and plan assets for the defined benefit retirement plan is as follows: (In thousands) December 31 ---------------- 1998 1997 ---- ---- Benefit obligation at beginning of year $ 21,910 $ 21,169 Service cost 799 739 Interest cost 1,609 1,452 Actuarial(gain)loss 2,183 (706) Benefits paid (848) (744) ---- ---- Benefit obligation at end of year 25,653 21,910 Fair Value of plan assets at beginning of year 27,040 23,109 Actual return on plan assets 4,817 4,402 Employer contribution 273 Benefits paid (848) (744) ---- ---- Fair Value of plan assets at end of year 31,009 27,040 Funded status 5,356 5,130 Unrecognized net actuarial gain (5,785) (5,318) Unrecognized prior service cost 262 325 Unrecognized net transition asset (564) (695) ---- ---- Accrued pension liability included in other liabilities $ (731) $ (558) ======== ======== 73 NOTE I--EMPLOYEE BENEFIT PLANS - continued At December 31, 1998, the weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 7.0% and 4.5%. At December 31, 1997, 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 7.25% and 4.5%. The weighted average expected long-term rate of return on United's plan assets was 9.00% for the years ended December 31, 1998, 1997 and 1996. 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 $1,175,000, $1,285,000 and $925,000 in 1998, 1997 and 1996, respectively. The assets of United's defined benefit plan and 401(k) Plan each include investments in United common stock. At December 31, 1998, the combined plan assets included 790,643 shares of United common stock with an approximate fair value of $20,952,000. Dividends paid on United common stock held by the plans approximated $562,000 for the year ended December 31, 1998. United has certain other deferred compensation plans covering various key employees. Periodic charges are made to operations so that the present value of the liability due each employee is fully recorded as of the date of their retirement. Amounts charged to expense have not been significant in any year. United has various incentive stock option plans for key employees, the 1988, 1991 and 1996 plans. The plans provide for the granting of stock options of up to 200,000, 1,000,000 and 1,200,000 shares of common stock, respectively. No further grants will be made under the 1988 and 1991 plans. At December 31, 1998, 527,100 options were available for future grant under the 1996 plan. Under the provisions of the plans, the option price per share shall not be less than the fair market value of United's common stock on the date of grant. Accordingly, no compensation expense is recognized for these options. The following table summarizes information about stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable - --------------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Remaining Average Average Range of Number Contractual Exercise Number Exercise Exercise Prices Outstanding Life Price Exercisable Price - ---------------------------------------------------------------------------------------- $ 2.98 to $ 27.00 1,632,291 6 years $14.88 1,275,776 $12.04
74 NOTE I--EMPLOYEE BENEFIT PLANS - continued The following is a summary of activity of United's Incentive Stock Option Plans: Stock Range of Options Exercise Prices -------- ----------------- Outstanding at January 1, 1996 2,171,821 $ 15.00 $ 2.98 Granted 441,910 14.88 9.79 Exercised 540,473 13.50 2.98 Forfeited 18,430 15.00 2.98 --------- Outstanding at December 31, 1996 2,054,828 15.00 2.98 Granted 445,488 22.00 12.58 Exercised 484,672 15.00 2.98 Forfeited 46,600 15.00 6.96 --------- Outstanding at December 31, 1997 1,969,044 22.00 2.98 Granted 236,600 27.00 Exercised 546,530 22.00 2.98 Forfeited 26,823 22.00 14.88 --------- Outstanding at December 31, 1998 1,632,291 $ 27.00 $ 2.98 ========= Exercisable at: December 31, 1996 1,538,784 $15.00 $ 2.98 December 31, 1997 1,504,863 $15.00 $ 2.98 December 31, 1998 1,275,776 $22.00 $ 2.98 Because the exercise price of the option granted is equal to the market price of the underlying stock on the date of grant, no compensation expense is recognized. The following pro forma disclosures present United's net income and diluted earnings per share, determined as if United had recognized compensation expense for its employee stock options under the fair value method Year Ended December 31, -------------------------- 1998 1997 1996 ---- ---- ---- Pro forma net income $44,187 $52,039 $39,485 Pro forma diluted earnings per share $1.02 $1.22 $0.92 The estimated fair value of the options at the date of grant was $5.73, $3.96, and $2.53 for the options granted during 1998, 1997, and 1996, respectively. The fair value of the options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1998, 1997, and 1996, respectively: risk-free interest rates of 4.76%, 6.44%, and 6.78%; dividend yields of 3.04%, 3.08%, and 4.10%; volatility factors of the expected market price of United's common stock of 0.210, 0.185, and 0.185; and a weighted average expected option life of 7 years. United provides postemployment and postretirement benefits for certain employees at subsidiaries acquired in prior years. United accounts for such costs as expense when paid. Accounting for such costs when paid does not produce results materially different from those which would result if such costs were accrued during the period of employee service. United does not anticipate providing postemployment or postretirement benefits to its currently active employees after employment or retirement except on a fully contributory basis. 75 NOTE J--COMMITMENTS AND CONTINGENT LIABILITIES United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, forward contracts for the delivery of mortgage-backed securities and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. United's maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management's credit evaluation of the counterparty. United had approximately $892,388,000 and $670,369,000 of loan commitments outstanding as of December 31, 1998 and 1997, respectively, substantially all of which expire within one year. Commercial and standby letters of credit are agreements used by United's customers as a means of improving their credit standing in their dealings with others. Under these agreements, United guarantees certain financial commitments of its customers. United has issued commercial and standby letters of credit of $54,408,000 and $50,769,000 as of December 31, 1998 and 1997, respectively. At December 31, 1997, United had open commitments amounting to approximately $2,000,000 to sell mortgage-backed securities with varying settlement dates that did not extend beyond March 1998. 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. Management does not anticipate any material losses as a result of these loan commitments, standby letters of credit and forward contracts for the delivery of mortgage-backed securities. 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. 76 NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION CONDENSED BALANCE SHEETS (In thousands) December 31 ---------------- 1998 1997 ---- ---- Assets Cash $ 26,459 $ 6,834 Securities available for sale 13,076 16,742 Securities held to maturity 2,178 1,521 Investment in subsidiaries: Bank subsidiaries 378,912 366,705 Non-bank subsidiaries 1,347 1,303 Loans 12,836 14,300 Other assets 1,897 1,297 ----- ----- Total Assets $436,705 $408,702 -------- -------- Liabilities and Shareholders' Equity Accrued expenses and other liabilities $ 15,174 $ 12,646 Shareholders' equity (including a net unrealized holding gain of $4,934 and $6,333 on securities available for sale at December 31, 1998 and 1997, respectively) 421,531 396,056 ------- ------- Total Liabilities and Shareholders' Equity $436,705 $408,702 ======== ======== CONDENSED STATEMENTS OF INCOME (In thousands) Year Ended December 31 --------------------------- 1998 1997 1996 ---- ---- ---- Income Dividends from bank subsidiaries $ 40,558 $ 69,637 $ 17,847 Interest and fees on loans 1,394 85 Management fees: Bank subsidiaries 3,928 3,476 3,467 Non-bank subsidiaries 12 12 12 Other income 2,937 707 557 ----- --- --- Total Income 48,829 73,917 21,883 Expenses Operating expenses 7,337 5,516 4,725 ----- ----- ----- Income Before Income Taxes and Equity In Undistributed Net Income (Excess Dividends) of Subsidiaries 41,492 68,401 17,158 Applicable income tax expense (benefit) 105 (424) (12) --- ---- --- Income Before Equity in Undistributed Net Income (Excess Dividends) of Subsidiaries 41,387 68,825 17,170 Equity in undistributed net income (excess dividends) of subsidiaries: Bank subsidiaries 2,971 (16,603) 22,509 Non-bank subsidiaries 44 39 40 -- -- -- Net Income $ 44,402 $ 52,261 $ 39,719 ======== ======== ======== 77 NOTE K - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION - continued
CONDENSED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31 ------------------------------ 1998 1997 1996 ---- ---- ---- Operating Activities Net income $ 44,402 $ 52,261 $ 39,719 Adjustments to reconcile net income to net cash provided by operating activities: Equity in (undistributed net income) excess dividends of subsidiaries (3,015) 16,564 (22,549) Depreciation and net amortization 10 11 26 Net gain on sales of investment securities (2,912) (24) Net change in other assets and liabilities (771) 2,276 (106) ---- ----- ---- Net Cash Provided by Operating Activities 37,714 71,112 17,066 ------ ------ ------ Investing Activities Net proceeds from maturities (purchases) of securities 3,563 (1,346) 1,585 Purchase of loans (14,300) Principal repayments on loans 1,464 (Increase) decrease in investment in subsidiaries (8,541) 2,576 3,496 Cash paid in acquisition of subsidiary (37,562) ------- ------- ------ Net Cash (Used in) Provided by Investing Activities (3,514) (50,632) 5,081 ------ ------- ----- Financing Activities Cash dividends paid (24,651) (19,831) (16,541) Acquisition of treasury stock (3,610) (5,754) (3,395) Proceeds from the sale of treasury stock 654 606 Proceeds from exercise of stock options 4,802 5,743 4,203 Pre-merger transactions of pooled companies 8,237 (7,368) (7,230) Purchase of fractional shares (7) (4) ------- ------ ------- Net Cash Used in Financing Activities (14,575) (26,604) (22,967) ------- ------- ------- Increase (decrease) in Cash and Cash Equivalents 19,625 (6,124) (820) Cash and Cash Equivalents at Beginning of Year 6,834 12,958 13,778 ----- ------ ------ Cash and Cash Equivalents at End of Year $ 26,459 $ 6,834 $ 12,958 ======== ======== ========
78 NOTE L--OTHER EXPENSE The following details certain items of other expense for the periods indicated: Year Ended December 31 ------------------------------- (In thousands) 1998 1997 1996 ---- ---- ---- Other expense: Data processing $ 5,710 $ 3,659 $ 4,021 FDIC insurance expense 576 366 3,080 Legal and consulting 2,909 1,931 2,954 Advertising 3,011 2,856 3,100 Goodwill amortization 4,395 3,063 2,247 Equipment expense 10,188 6,622 5,973 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, 1998, was approximately $38,987,000. The primary source of funds for the dividends paid by United Bankshares, Inc. to its shareholders is dividends received from its subsidiary banks. Dividends paid by United's subsidiary banks are subject to certain regulatory limitations. Generally, the most restrictive provision requires regulatory approval if dividends declared in any year exceed that year's net income, as defined, plus the retained net profits of the two preceding years. During 1999, the retained net profits available for distribution to United Bankshares, Inc., as dividends without regulatory approval, are approximately $13,195,000, 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 $37,702,000 at December 31, 1998, and must be secured by qualifying collateral. United's subsidiary banks are subject to various regulatory capital requirements administered by federal banking agencies. Pursuant to capital adequacy guidelines, United's subsidiary banks must meet specific capital guidelines that involve various quantitative measures of the banks' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. United's subsidiary banks' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require United to maintain minimum amounts and ratios of total and Tier I capital, as defined in the regulations, to risk-weighted 79 NOTE M--REGULATORY MATTERS - continued assets, as defined, and of Tier I capital, as defined, to average assets, as defined. At of December 31, 1998, United exceeds all capital adequacy requirements to which it is subject. At December 31, 1998, the most recent notification from its regulators, United and its subsidiary banks were categorized as well capitalized. To be categorized as well capitalized, United must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would impact United's well capitalized status. United's and its subsidiary bank's, United National Bank and United Bank, capital amounts (in thousands of dollars) and ratios are presented in the following table.
For Capital To Be Well Actual Adequacy Purposes Capitalized ---------------- ------------------ ------------------ Amount Ratio Amount Ratio Amount Ratio ------ ------- ------ ------ ------ ----- C> AS OF DECEMBER 31, 1998: Total Capital (to Risk- Weighted Assets): United Bankshares $411,096 12.6% $260,382 >=8.0% $325,478 >=10.0% United National Bank 255,053 11.0% 184,828 >=8.0% 231,035 >=10.0% United Bank 112,556 12.2% 73,855 >=8.0% 92,318 >=10.0% Tier I Capital (to Risk- Weighted Assets): United Bankshares 371,907 11.4% 130,191 >=4.0% 195,287 >=6.0% United National Bank 228,927 9.9% 92,414 >=4.0% 138,621 >=6.0% United Bank 101,016 10.9% 36,927 >=4.0% 55,391 >=6.0% Tier I Capital (to Average Assets): United Bankshares 371,907 8.5% 176,362 >=4.0% 220,453 >=5.0% United National Bank 228,927 7.4% 123,510 >=4.0% 154,388 >=5.0% United Bank 101,016 7.3% 55,334 >=4.0% 69,167 >=5.0% AS OF DECEMBER 31, 1997: Total Capital (to Risk- Weighted Assets): United Bankshares $383,320 14.1% $217,765 >=8.0% $272,206 >=10.0% United National Bank 241,783 13.5% 142,930 >=8.0% 178,662 >=10.0% United Bank 106,770 11.7% 72,845 >=8.0% 91,056 >=10.0% Tier I Capital (to Risk- Weighted Assets): United Bankshares 351,384 12.9% 108,882 >=4.0% 163,323 >=6.0% United National Bank 219,846 12.3% 71,465 >=4.0% 107,197 >=6.0% United Bank 97,004 10.7% 36,423 >=4.0% 54,634 >=6.0% Tier I Capital (to Average Assets): United Bankshares 351,384 9.0% 155,512 >=4.0% 194,390 >=5.0% United National Bank 219,846 8.3% 106,007 >=4.0% 132,509 >=5.0% United Bank 97,004 7.6% 51,082 >=4.0% 63,852 >=5.0%
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. 80 NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued 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 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. 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 81 NOTE N--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued The estimated fair values of United's financial instruments are summarized below:
December 31,1998 December 31,1997 ------------------------- ------------------------- (In thousands) Carrying Fair Carrying Fair Amount Value Amount Value ------------------------- ------------------------- Cash and cash equivalents $ 141,298 $ 141,298 $ 190,028 $ 190,028 Securities available for sale 565,165 565,165 611,919 611,919 Securities held to maturity 362,151 367,353 394,816 399,995 Loans 2,652,391 2,736,168 2,689,839 2,777,932 Deposits 3,493,058 3,505,547 3,185,963 3,184,790 Short-term borrowings 249,039 249,039 230,679 230,679 FHLB borrowings 345,867 346,134 230,791 230,789
NOTE O--LINE OF BUSINESS REPORTING The following information is based on United's current management structure and presents results of operations as if the community banking and mortgage banking segments were operated on a stand alone basis. The results are not necessarily comparable with similar information of other companies.
General Mortgage Community Corporate (In thousands) Banking Banking and Other Consolidated - ---------------------------------------------------------------------------------- 1998 Net Interest Income $ 2,763 $ 165,813 $ 1,717 $ 170,293 Provision for Loan Losses 25 12,131 12,156 Net Interest Income after Provision for Loan Losses 2,738 153,682 1,717 158,137 Noninterest Income 24,052 14,727 2,973 41,752 Noninterest Expense 19,872 112,959 5,133 137,964 Income (Loss) Before Income Taxes 6,918 55,450 (443) 61,925 Income Tax Expense 1,878 15,557 88 17,523 Net Income (Loss) 5,040 39,893 (531) 44,402 Average Total Assets 190,168 4,190,512 (141,872) 4,238,808 - ---------------------------------------------------------------------------------- 1997 Net Interest Income $ 1,979 $ 146,045 $ 1,306 $ 149,330 Provision for Loan Losses 19 3,261 3,280 Net Interest Income after Provision for Loan Losses 1,960 142,784 1,306 146,050 Noninterest Income 14,403 22,658 7 37,068 Noninterest Expense 14,591 86,123 3,138 103,852 Income (Loss) Before Income Taxes 1,772 79,319 (1,825) 79,266 Income Tax Expense (Benefit) 691 26,957 (643) 27,005 Net Income (Loss) 1,081 52,362 (1,182) 52,261 Average Total Assets 138,363 3,656,891 (112,952) 3,682,302 - ---------------------------------------------------------------------------------- 1996 Net Interest Income $ 2,679 $ 134,226 $ 1,480 $ 138,385 Provision for Loan Losses (14) 2,895 2,881 Net Interest Income after Provision for Loan Losses 2,693 131,331 1,480 135,504 Noninterest Income 9,750 19,871 33 29,654 Noninterest Expense 12,154 90,229 2,002 104,385 Income (Loss) Before Income Taxes 289 60,973 (489) 60,773 Income Tax Expense (Benefit) 149 20,985 (80) 21,054 Net Income (Loss) 140 39,988 (409) 39,719 Average Total Assets 100,858 3,373,117 (121,381) 3,352,594 - ----------------------------------------------------------------------------------
General corporate and other includes intercompany eliminations. 82 NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for 1998 and 1997 is summarized below (dollars in thousands except for per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- 1998 - ---- Interest income $76,259 $80,594 $83,920 $84,874 Interest expense 36,235 38,331 40,348 40,440 Net interest income 40,024 42,263 43,572 44,434 Provision for loan losses 2,080 5,257 3,316 1,503 Income (loss) from mortgage banking operations 5,196 6,392 6,645 (4,022) Other noninterest income 8,816 5,523 6,825 6,377 Noninterest expense 29,695 40,439 30,988 36,842 Income taxes 7,840 935 6,397 2,351 Net income (2) 14,421 7,547 16,341 6,093 Per share data: - --------------- Average shares outstanding (000s): Basic 42,397 42,517 42,590 43,061 Diluted 43,271 43,462 43,508 43,771 Net income per share: Basic $0.34 $0.18 $0.38 $0.14 Diluted $0.33 $0.17 $0.38 $0.14 Dividends per share (1) $0.18 $0.18 $0.19 $0.20 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- 1997 - ---- Interest income $65,220 $67,604 $72,000 $75,628 Interest expense 29,770 31,405 34,145 35,802 Net interest income 35,450 36,199 37,855 39,826 Provision for loan losses 634 608 1,051 987 Income from mortgage banking operations 2,973 2,896 5,533 3,693 Other noninterest income 4,896 5,130 5,878 6,069 Noninterest expense 23,714 23,894 28,073 28,171 Income taxes 6,286 6,779 6,882 7,058 Net income 12,685 12,944 13,260 13,372 Per share data: - --------------- Average shares outstanding (000s): Basic 42,067 41,925 41,941 42,123 Diluted 42,792 42,583 42,922 42,974 Net income per share: Basic $0.30 $0.31 $0.32 $0.32 Diluted $0.30 $0.30 $0.31 $0.31 Dividends per share (1) $0.16 $0.17 $0.17 $0.18
(1) Cash dividends are the amounts declared by United and do not include cash dividends of acquired subsidiaries prior to the dates of consummation. (2) For further information see the related discussion "Quarterly Results" included in Management's Discussion and Analysis. 83 EX-12 2 EXHIBIT 12 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 Expense/(Net Interest Income Plus Noninterest Income) Average Loans to Deposits = Average Net Loans/Average Deposits Outstanding Dividend Payout = Dividends Declared/Net Income Average Shareholders' Equity to = Average 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 Average Loans = (Gross Charge-offs Less Recoveries)/ 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 Non- = Loan Loss Reserve/(Nonaccrual Loans Loans Performing Plus Loans Past Due 90 days or Greater) 84 EX-21 3 EXHIBIT 21 Exhibit 21 SUBSIDIARIES OF THE REGISTRANT TITLE STATE OF INCORPORATION UBC Holding Company, Inc. West Virginia United National Bank West Virginia United Brokerage Services, Inc. West Virginia United Mortgage Company West Virginia George Mason Bankshares, Inc. Virginia United Bank Virginia George Mason Mortgage Company Virginia United Venture Fund, Inc. West Virginia UB Holding Company, Inc. West Virginia 85 EX-23 4 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of United Bankshares, Inc. and Subsidiaries of our report dated February 26, 1999, included in the 1998 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 26, 1999, 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, 1998. /s/ ERNST & YOUNG LLP Charleston, West Virginia March 29, 1999 86 EX-23 5 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to incorporation by reference in registration statements (Form S-8 Nos. 33-22941 and 33-32522) of United Bankshares, Inc. of our report dated January 29, 1998, except as to Note 20, which is as of February 18, 1998, relating to the consolidated statement of financial condition of Fed One Bancorp, Inc. And subsidiary as of December 31, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the two-year period ended December 31, 1997, which report is included in the December 31, 1998, annual report on Form 10-K of United Bankshares, Inc. /s/ KPMG LLP Pittsburgh, Pennsylvania March 26, 1999 87 EX-27 6 FDS
9 0000729986 UNITED BANKSHARES, INC. YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 124,591,000 6,807,000 9,900,000 0 565,165,000 362,151,000 367,220,000 3,372,998,000 39,189,000 4,567,899,000 3,493,058,000 354,039,000 58,404,000 240,867,000 0 0 108,142,000 313,389,000 4,567,899,000 265,205,000 58,970,000 1,472,000 325,647,000 128,976,000 155,354,000 170,293,000 12,156,000 2,370,000 137,964,000 61,925,000 44,402,000 0 0 44,402,000 1.04 1.02 4.37 9,139,000 9,528,000 0 0 31,936,000 6,270,000 1,367,000 39,189,000 22,192,000 0 16,997,000
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