-----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, RICwx+WCbT9fLh6MrE6zuigCdtUKbYKHacRDA45Qu7W6EJk8p7seT0GqVy/Bxwh6 MgTYkHBdik5ksnvzqVvy3Q== /in/edgar/work/0000950169-00-001293/0000950169-00-001293.txt : 20001114 0000950169-00-001293.hdr.sgml : 20001114 ACCESSION NUMBER: 0000950169-00-001293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED BANKSHARES INC/WV CENTRAL INDEX KEY: 0000729986 STANDARD INDUSTRIAL CLASSIFICATION: [6021 ] IRS NUMBER: 550641179 STATE OF INCORPORATION: WV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-13322 FILM NUMBER: 758282 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-Q 1 0001.txt UNITED BANKSHARES, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 2000 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 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class -- Common Stock, $2.50 Par Value; 41,773,392 shares outstanding as of October 31, 2000. UNITED BANKSHARES, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- Consolidated Balance Sheets (Unaudited) September 30, 2000 and December 31, 1999....................................6 Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2000 and 1999.....................7 Consolidated Statement of Changes in Shareholders' Equity (Unaudited) for the Nine Months Ended September 30, 2000....................8 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2000 and 1999.......................9 Notes to Consolidated Financial Statements.................................10 Information required by Item 303 of Regulation S-K Item 2. Management's Discussion and Analysis of Financial - ---------------------------------------------------------- Condition and Results of Operations................................20 ----------------------------------- PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................Not Applicable - ------------------------- Item 2. Changes in Securities...................................Not Applicable - ----------------------------- Item 3. Defaults Upon Senior Securities.........................Not Applicable - --------------------------------------- 2 UNITED BANKSHARES, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS--Continued Page ---- Item 4. Submission of Matters to a Vote of Security Holders.....Not Applicable - ----------------------------------------------------------- Item 5. Other Information.......................................Not Applicable - ------------------------- Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits required by Item 601 of Regulation S-K Exhibit 27 - Financial Data Schedule............................29 (b) Reports on Form 8-K On October 19, 2000, United Bankshares, Inc. filed a Current Report under Items 5 and 7 to report the results of operations for the third quarter of 2000. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED BANKSHARES, INC. ----------------------- (Registrant) Date November 10, 2000 /s/ Richard M. Adams ----------------- ------------------------------------- Richard M. Adams, Chairman of the Board and Chief Executive Officer Date November 10, 2000 /s/ Steven E. Wilson ----------------- ------------------------------------- Steven E. Wilson, Executive Vice President, Treasurer, Secretary and Chief Financial Officer 4 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) The September 30, 2000 and December 31, 1999, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, and the related consolidated statements of income for the three and nine months ended September 30, 2000 and 1999, and the related consolidated statement of changes in shareholders' equity for the nine months ended September 30, 2000, and the related condensed consolidated statements of cash flows for the nine months ended September 30, 2000 and 1999, and the notes to consolidated financial statements appear on the following pages. 5 CONSOLIDATED BALANCE SHEETS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except par value) September 30 December 31 2000 1999 ----------------------------- Assets Cash and due from banks $ 104,197 $ 131,091 Interest-bearing deposits with other banks 2,690 8,317 Federal funds sold 20,400 ---------------------------- Total cash and cash equivalents 106,887 159,808 Securities available for sale at estimated fair value (amortized cost-$990,948 at September 30, 2000 and $1,256,946 at December 31, 1999) 967,554 1,207,363 Securities held to maturity (estimated fair value-$375,458 at September 30, 2000 and $258,183 at December 31, 1999) 385,076 265,190 Loans held for sale 158,468 117,825 Loans Commercial, financial, and agricultural 557,211 535,116 Real estate: Single family residential 1,367,371 1,388,568 Commercial 710,629 701,421 Construction 148,790 144,634 Other 82,368 44,381 Installment 342,822 363,272 ---------------------------- 3,209,191 3,177,392 Less: Unearned income (5,653) (7,296) ---------------------------- Loans net of unearned income 3,203,538 3,170,096 Less: Allowance for loan losses (39,432) (39,599) ---------------------------- Net loans 3,164,106 3,130,497 Bank premises and equipment 45,501 48,696 Accrued interest receivable 36,257 36,357 Other assets 86,593 103,424 ---------------------------- TOTAL ASSETS $4,950,442 $5,069,160 ============================ Liabilities Domestic deposits: Noninterest-bearing $ 514,080 $ 480,767 Interest-bearing 2,799,057 2,780,218 ---------------------------- Total deposits 3,313,137 3,260,985 Borrowings: Federal funds purchased 8,870 44,120 Securities sold under agreements to repurchase 408,447 349,129 Federal Home Loan Bank borrowings 748,310 953,347 Other borrowings 4,998 4,998 Accrued expenses and other liabilities 45,058 60,651 ---------------------------- TOTAL LIABILITIES 4,528,820 4,673,230 Shareholders' equity Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-43,381,769 at September 30, 2000 and December 31, 1999, including 1,556,377 and 894,661 shares in treasury at September 30, 2000 and December 31, 1999, respectively 108,454 108,454 Surplus 85,579 87,260 Retained earnings 283,161 254,992 Accumulated other comprehensive loss (20,230) (32,228) Treasury stock, at cost (35,342) (22,548) ---------------------------- TOTAL SHAREHOLDERS' EQUITY 421,622 395,930 ---------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,950,442 $5,069,160 ============================
See notes to consolidated unaudited financial statements. 6 CONSOLIDATED STATEMENTS OF INCOME (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data) Three Months Ended Nine Months Ended September 30 September 30 ----------------------- ------------------------ 2000 1999 2000 1999 ----------------------- ------------------------ Interest income Interest and fees on loans $72,579 $62,076 $214,127 $189,506 Interest on federal funds sold and other short-term investments 562 150 764 359 Interest and dividends on securities: Taxable 19,569 22,247 60,037 63,909 Tax-exempt 2,588 6,338 7,701 9,563 ----------------------- ------------------------ Total interest income 95,298 90,811 282,629 263,337 Interest expense Interest on deposits 32,237 30,281 91,541 92,958 Interest on short-term borrowings 5,786 5,309 14,680 11,763 Interest on Federal Home Loan Bank advances 13,142 10,232 40,118 23,049 ----------------------- ------------------------ Total interest expense 51,165 45,822 146,339 127,770 ----------------------- ------------------------ Net interest income 44,133 44,989 136,290 135,567 Provision for loan losses 4,439 2,255 10,837 4,780 ----------------------- ------------------------ Net interest income after provision for loan losses 39,694 42,734 125,453 130,787 Other income Income from mortgage banking operations 5,014 5,706 12,556 16,219 Service charges, commissions, and fees 5,661 5,365 16,388 14,522 Trust department income 1,749 1,392 5,194 3,984 Security gains 324 (70) 1,147 1 Other income 576 450 1,304 1,209 ----------------------- ------------------------ Total other income 13,324 12,843 36,589 35,935 Other expense Salaries and employee benefits 12,127 14,878 39,476 44,932 Net occupancy expense 2,861 3,104 8,892 9,257 Other expense 10,475 11,395 32,344 33,079 ----------------------- ------------------------ Total other expense 25,463 29,377 80,712 87,268 ----------------------- ------------------------ Income before income taxes 27,555 26,200 81,330 79,454 Income taxes 8,994 8,500 26,658 26,797 ----------------------- ------------------------ Net income $18,561 $17,700 $ 54,672 $ 52,657 ======================= ======================== Earnings per common share: Basic $0.44 $0.41 $1.30 $1.22 ======================= ======================== Diluted $0.44 $0.41 $1.29 $1.20 ======================= ======================== Dividends per common share $0.21 $0.21 $0.63 $0.61 ======================= ======================== Average outstanding shares: Basic 41,842,460 43,124,385 42,020,696 43,239,869 Diluted 42,147,989 43,708,483 42,337,568 43,817,913
See notes to consolidated unaudited financial statements. 7 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data)
Nine Months Ended September 30, 2000 ---------------------------------------------------------------------------------------------- Common Stock Accumulated ---------------------- Other Total Par Retained Comprehensive Treasury Shareholders' Shares Value Surplus Earnings Loss Stock Equity ------------------------------------------------------------------------------------------- Balance at January 1, 2000 43,381,769 $108,454 $87,260 $254,992 ($32,228) ($22,548) $395,930 Comprehensive income (loss): Net income - - - 54,672 - - 54,672 Other comprehensive income (loss), net of tax: Unrealized gains on securities of $11,007 net of reclassification adjustment for gains included in net income of $746 - - - - 11,753 - 11,753 Amortization of $245 on the unrealized loss for securities transferred from the available-for-sale to the held-to-maturity investment portfolio - - - - 245 - 245 -------- Total comprehensive income 66,670 Purchase of treasury stock (811,500 shares) - - - - - (16,733) (16,733) Cash dividends ($0.63 per share) - - - (26,503) - - (26,503) Common stock options exercised (149,784 shares) - - (1,681) - - 3,939 2,258 ------------------------------------------------------------------------------------------- Balance at September 30, 2000 43,381,769 $108,454 $85,579 $283,161 $ (20,230) $ (35,342) $421,622 ===========================================================================================
See notes to consolidated unaudited financial statements. 8 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands)
Nine Months Ended September 30 ------------------------- 2000 1999 ------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES $ 22,915 $ 205,670 INVESTING ACTIVITIES Proceeds from maturities and calls of investment securities 19,238 144,558 Purchases of investment securities (624) (56,068) Proceeds from sales of securities available for sale 108,676 261,429 Proceeds from maturities and calls of securities available for sale 72,810 110,262 Purchases of securities available for sale (60,027) (923,516) Net purchases of bank premises and equipment (1,731) (5,155) Net change in loans (44,231) (235,638) ------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 94,111 (704,128) ------------------------- FINANCING ACTIVITIES Cash dividends paid (26,655) (25,971) Acquisition of treasury stock (16,733) (15,592) Proceeds from exercise of stock options 2,258 1,944 Repayment of Federal Home Loan Bank borrowings (770,427) (1,462) Proceeds from Federal Home Loan Bank borrowings 565,390 457,446 Changes in: Deposits 52,152 (116,158) Federal funds purchased, securities sold under agreements to repurchase and other borrowings 24,068 192,590 ------------------------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (169,947) 492,797 ------------------------- Decrease in cash and cash equivalents (52,921) (5,661) Cash and cash equivalents at beginning of year 159,808 141,298 ------------------------- Cash and cash equivalents at end of period $ 106,887 $ 135,637 =========================
See notes to consolidated unaudited financial statements. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES 1. GENERAL The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries ("United") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by generally accepted accounting principles. The financial statements presented in this report have not been audited. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 1999 annual report of United Bankshares, Inc. on Form 10-K. In the opinion of management, adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature. In June 1998, the FASB issued Statement No. 133, (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities" as amended by FASB Statement No. 137 and No. 138. The provisions of SFAS No. 133 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. SFAS No. 133 also provides offsetting changes in fair value or cash flows of both the derivative and the hedged asset or liability to be recognized in earnings in the same period; however, any changes in fair value or cash flow that represent the ineffective portion of a hedge are required to be recognized in earnings and cannot be deferred. For derivative instruments not accounted for as hedges, changes in fair value are required to recognized in earnings. The provisions of this statement become effective for United beginning January 1, 2001. SFAS No. 133, when implemented, is not expected to materially impact the reported financial position or results of operations of United. 2. BASIS OF PRESENTATION The accompanying consolidated interim financial statements include the accounts of United and its wholly-owned subsidiaries. United considers all of its principal business activities to be bank related. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars are in thousands, except per share and share data. 10 3. INVESTMENT SECURITIES The amortized cost and estimated fair values of securities available for sale are summarized as follows:
September 30, 2000 ----------------------------------------------------------------- Gross Gross Estimated (In thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $249,989 - $ 9,178 $240,811 State and political subdivisions 49,002 $ 80 2,602 46,480 Mortgage-backed securities 613,253 7,113 17,487 602,879 Marketable equity securities 7,551 708 1,368 6,891 Other 71,153 - 660 70,493 ----------------------------------------------------------------- Total $990,948 $7,901 $31,295 $967,554 ================================================================= December 31, 1999 ----------------------------------------------------------------- (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 $ 276,558 $ 15 $13,817 $ 262,756 State and political subdivisions 48,914 10 4,070 44,854 Mortgage-backed securities 693,828 324 24,256 669,896 Marketable equity securities 8,369 2,711 775 10,305 Other 229,277 - 9,725 219,552 ----------------------------------------------------------------- Total $1,256,946 $3,060 $52,643 $1,207,363 =================================================================
The cumulative net unrealized holding loss on available for sale securities resulted in a decrease to shareholders' equity of $15,206 and $32,228, net of deferred income taxes at September 30, 2000 and December 31, 1999, respectively. The amortized cost and estimated fair value of securities available for sale at September 30, 2000 and December 31, 1999, by contractual maturity are shown on the next page. 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. 11
September 30, 2000 December 31, 1999 ---------------------------------- ---------------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ---------------------------------- ---------------------------------- Due in one year or less $ 30,749 $ 30,717 $ 6,668 $ 6,663 Due after one year through five years 74,421 73,389 112,839 110,581 Due after five years through ten years 271,932 262,681 333,612 318,462 Due after ten years 606,295 593,876 795,458 761,352 Marketable equity securities 7,551 6,891 8,369 10,305 ---------------------------------- ---------------------------------- Total $990,948 $967,554 $1,256,946 $1,207,363 ================================== ==================================
The preceding table includes $602,879 and $669,896 of mortgage-backed securities at September 30, 2000 and December 31, 1999, respectively, with an amortized cost of $613,253 and $693,828 at September 30, 2000 and December 31, 1999, respectively. Maturities of mortgage-backed securities are based upon the estimated average life. The amortized cost and estimated fair values of securities held to maturity are summarized as follows:
September 30, 2000 ----------------------------------------------------------------- Gross Gross Estimated (In thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value ----------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 55,843 $ 40 $ 1,096 $ 54,787 State and political subdivisions 95,712 837 3,160 93,389 Mortgage-backed securities 74,648 346 695 74,299 Other 158,873 - 5,890 152,983 ----------------------------------------------------------------- Total $385,076 $1,223 $10,841 $375,458 =================================================================
December 31, 1999 ----------------------------------------------------------------- (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 $ 56,734 $ 36 $2,217 $ 54,553 State and political subdivisions 97,824 769 5,084 93,509 Mortgage-backed securities 90,850 380 886 90,344 Other 19,782 4 9 19,777 ----------------------------------------------------------------- Total $265,190 $1,189 $8,196 $258,183 =================================================================
12 The amortized cost and estimated fair value of securities held to maturity at September 30, 2000, and December 31, 1999, by contractual maturity follow. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
September 30, 2000 December 31, 1999 ---------------------------------- ---------------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ---------------------------------- ---------------------------------- Due in one year or less $ 7,931 $ 8,319 $ 4,528 $ 4,522 Due after one year through five years 48,540 48,238 38,623 38,391 Due after five years through ten years 90,955 89,030 67,833 66,997 Due after ten years 237,650 229,871 154,206 148,273 -------------------------------- ---------------------------------- Total $385,076 $375,458 $265,190 $258,183 ================================ ==================================
The preceding table includes $74,648 and $90,344 of mortgage-backed securities at estimated fair value at September 30, 2000 and December 31, 1999, respectively, with an amortized cost of $74,299 and $90,850 at September 30, 2000 and December 31, 1999, respectively. Maturities of the mortgage-backed securities are based upon the estimated average life. There were no sales of held to maturity securities. At the end of the first quarter of 2000, debt securities with an amortized cost of $146,229 and an estimated fair value of $138,122 were transferred into the held to maturity category from the available for sale category. The cumulative unrealized loss of $8,107 at the date of transfer will be retained in the carrying value of the held to maturity securities. The cumulative unrealized loss, net of deferred taxes, of $5,270 will be retained as a separate component of shareholders' equity. Such amounts will be amortized over the estimated remaining life of the securities. At September 30, 2000, the cumulative unrealized loss balances, gross and net of deferred taxes, were $7,729 and $5,024, respectively. 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 $1,074,832 and $962,068 at September 30, 2000 and December 31, 1999, respectively. 13 4. NONPERFORMING LOANS Nonperforming loans are summarized as follows: September 30, December 31, 2000 1999 ------------------ ----------------- Loans past due 90 days or more and still accruing interest $ 6,666 $ 8,415 Nonaccrual loans 10,062 12,327 ------------------ ----------------- Total nonperforming loans $16,728 $20,742 ================== =================
5. ALLOWANCE FOR LOAN LOSSES The adequacy of the allowance for loan losses is based on management's evaluation of the relative risks inherent in the loan portfolio. A progression of the allowance for loan losses for the periods presented is summarized as follows:
Three Months Ended Nine Months Ended September 30 September 30 --------------------------------------- ---------------------------------------- 2000 1999 2000 1999 ----------------- ----------------- ------------------ ----------------- Balance at beginning of period $39,324 $40,471 $ 39,599 $39,189 Provision charged to expense 4,439 2,255 10,837 4,780 ----------------- ----------------- ------------------ ----------------- 43,763 42,726 50,436 43,969 Loans charged-off (4,543) (3,032) (11,791) (4,943) Less recoveries 212 10 787 678 ----------------- ----------------- ------------------ ----------------- Net Charge-offs (4,331) (3,022) (11,004) (4,265) ----------------- ----------------- ------------------ ----------------- Balance at end of period $39,432 $39,704 $ 39,432 $39,704 ================= ================= ================== =================
The average recorded investment in impaired loans during the quarter ended September 30, 2000 and for the year ended December 31, 1999 was approximately $15,927 and $16,681, respectively. For the quarters ended September 30, 2000 and 1999, United recognized interest income on the impaired loans of approximately $167 and $33, respectively, substantially all of which was recognized using the accrual method of income recognition. At September 30, 2000, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $14,294 (of which $10,062 was on a nonaccrual basis). Included in this amount is $6,630 of impaired loans for which the related allowance for loan losses is $1,447 and $7,664 of impaired loans that do not have an allowance for credit losses due to management's estimate that the fair value of the underlying collateral of these loans is sufficient for full repayment of the loan and interest. The amount of interest income that would have been recorded under the original terms for the above loans was $671 and $395 for the quarters ended September 30, 2000 and 1999, respectively, and $1,755 and $1,193 for the nine months ended September 30, 2000 and 1999, respectively. 14 6. COMMITMENTS AND CONTINGENT LIABILITIES United and its subsidiaries are currently involved, in the normal course of business, in various legal proceedings. Management is vigorously pursuing all of its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved without material effect on financial position or results of operations. 7. LINE OF BUSINESS REPORTING United's principal business activities are community banking and mortgage banking. 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 Banking Banking and Other* Consolidated ------------------------------------------------------------------------ (In thousands) Three months ended September 30, 2000 - ------------------------------------- Net interest income $ 922 $ 43,062 $ 149 $ 44,133 Provision for loan losses 11 4,428 - 4,439 Net interest income after provision for loan losses 911 38,634 149 39,694 Noninterest income 5,014 7,986 324 13,324 Noninterest expense 3,950 21,778 (265) 25,463 Income (loss) before income taxes 1,975 24,842 738 27,555 Income tax expense 586 8,168 240 8,994 Net income (loss) 1,389 16,674 498 18,561 Average total assets 206,834 4,825,602 (99,444) 4,932,992 Three months ended September 30, 1999 - ------------------------------------- Net interest income $ 853 $ 43,791 $ 345 $ 44,989 Provision for loan losses 5 2,250 - 2,255 Net interest income after provision for loan losses 848 41,541 345 42,734 Noninterest income 5,706 8,443 (1,306) 12,843 Noninterest expense 4,702 24,522 153 29,377 Income (loss) before income taxes 1,852 25,462 (1,114) 26,200 Income tax expense 609 7,843 48 8,500 Net income (loss) 1,243 17,619 (1,162) 17,700 Average total assets 113,921 4,947,194 (51,021) 5,010,094
15
General Mortgage Community Corporate Banking Banking and Other* Consolidated ------------------------------------------------------------------------ (In thousands) Nine months ended September 30, 2000 - ------------------------------------ Net interest income $ 2,438 $ 133,104 $ 748 $ 136,290 Provision for loan losses 38 10,799 - 10,837 Net interest income after provision for loan losses 2,400 122,305 748 125,453 Noninterest income 12,556 21,861 2,172 36,589 Noninterest expense 10,618 70,095 (1) 80,712 Income (loss) before income taxes 4,338 74,071 2,921 81,330 Income tax expense 1,357 24,339 962 26,658 Net income (loss) 2,981 49,732 1,959 54,672 Average total assets 137,463 4,859,095 (46,293) 4,950,265 Nine months ended September 30, 1999 - ------------------------------------ Net interest income $ 2,648 $ 130,778 $ 2,141 $ 135,567 Provision for loan losses 30 4,750 - 4,780 Net interest income after provision for loan losses 2,618 126,028 2,141 130,787 Noninterest income 16,219 24,701 (4,985) 35,935 Noninterest expense 14,063 72,652 553 87,268 Income (loss) before income taxes 4,774 78,077 (3,397) 79,454 Income tax expense 2,206 24,141 450 26,797 Net income (loss) 2,568 53,936 (3,847) 52,657 Average total assets 156,711 4,802,105 (151,670) 4,807,146
* General corporate and other includes intercompany eliminations 8. COMPREHENSIVE INCOME In June 1997, the FASB issued Statement No. 130, (SFAS No. 130), "Reporting Comprehensive Income" effective for years beginning after December 15, 1997. This statement requires companies to report and display comprehensive income and its components in the financial statements. For United, comprehensive income consists of two components: (1) net income reported on the consolidated statements of income and changes in the fair value of available for sale securities reported as a component of shareholders' equity, net of any realized after-tax gain or loss on sales or calls of investment securities included in consolidated net income and (2) the after-tax amortization of the unrealized loss on debt securities transferred into the held to maturity category from the available for sale category. 16 The components of total comprehensive income for the three and nine months ended September 30, 2000 and 1999 are as follows:
Three Months Ended Nine Months Ended September 30 September 30 --------------------------------- -------------------------------------- 2000 1999 2000 1999 ----------------- ---------------- ---------------- -------------- Net Income $ 18,561 $ 17,700 $ 54,672 $ 52,657 Other Comprehensive Income (Loss), Net of Tax: Unrealized gain (loss) on available-for- sale securities arising during the period 11,091 9,385 11,007 (30,182) Less: Reclassification adjustment for gains (losses) included in net income 374 (46) 746 1 Amortization on the unrealized loss for securities transferred from the available-for-sale to the held to maturity investment portfolio 122 245 ----------------- ---------------- ---------------- ---------------- Total Comprehensive Income $ 30,148 $ 27,039 $ 66,670 $ 22,476 ================= ================ ================ ================
17 9. EARNING ASSETS AND INTEREST-BEARING LIABILITIES The following table shows the daily average balance of major categories of assets and liabilities for each of the three month periods ended September 30, 2000 and September 30, 1999 with the interest rate earned or paid on such amount.
Three Months Ended Three Months Ended September 30, 2000 September 30, 1999 -------------------------------------------------------------------- Average Avg. Average Avg. (Dollars in thousands) Balance Interest Rate Balance Interest Rate -------------------------------------------------------------------- ASSETS Earning Assets: Federal funds sold and securities repurchased under agreements to resell and other short-term investments $ 30,354 $ 562 7.37% $ 9,362 $ 150 6.37% Investment Securities: Taxable 1,151,658 19,569 6.76% 1,371,410 22,247 6.49% Tax-exempt (1) 195,268 3,611 7.36% 345,317 7,812 9.05% ----------------------------------- --------------------------------- Total Securities 1,346,926 23,180 6.85% 1,716,727 30,059 7.00% Loans, net of unearned income (1) (2) 3,318,295 74,417 8.94% 3,025,441 63,542 8.36% Allowance for loan losses (39,358) (40,433) --------------- ------------- Net loans 3,278,937 9.05% 2,985,008 8.47% ----------------------------------- --------------------------------- Total earning assets 4,656,217 $98,159 8.41% 4,711,097 $93,751 7.93% ------------------- ------------------ Other assets 276,775 298,997 --------------- ------------- TOTAL ASSETS $4,932,992 $5,010,094 =============== ============= LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $2,755,411 $32,237 4.65% $2,878,331 $30,281 4.17% Federal funds purchased, repurchase agreements and other short-term borrowings 408,705 5,786 5.63% 438,637 5,309 4.80% FHLB advances 828,107 13,142 6.31% 759,047 10,232 5.35% ----------------------------------- --------------------------------- Total Interest-Bearing Funds 3,992,223 51,165 5.10% 4,076,015 45,822 4.46% ------------------- ------------------ Demand deposits 472,398 465,750 Accrued expenses and other liabilities 58,295 66,791 --------------- ------------- TOTAL LIABILITIES 4,522,916 4,608,556 SHAREHOLDERS' EQUITY 410,076 401,538 --------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,932,992 $5,010,094 =============== ============= NET INTEREST INCOME $46,994 $47,929 ============ ============ INTEREST SPREAD 3.31% 3.47% NET INTEREST MARGIN 4.04% 3.99%
(1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%. (2) The interest income and the yields on state nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory state income tax rate of 9%. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. 18 The following table shows the daily average balance of major categories of assets and liabilities for each of the nine month periods ended September 30, 2000 and September 30, 1999 with the interest rate earned or paid on such amount.
Nine Months Ended Nine Months Ended September 30, 2000 September 30, 1999 ---------------------------------------------------------------------- Average Avg. Average Avg. (Dollars in thousands) Balance Interest Rate Balance Interest Rate ---------------------------------------------------------------------- ASSETS Earning Assets: Federal funds sold and securities repurchased under agreements to resell and other short-term investments $ 15,178 $ 764 6.73% $ 7,784 $ 359 6.16% Investment Securities: Taxable 1,183,222 60,037 6.78% 1,294,742 63,909 6.58% Tax-exempt (1) 198,458 10,726 7.22% 201,908 12,774 8.44% ------------------------------------ ---------------------------------- Total Securities 1,381,680 70,763 6.84% 1,496,650 76,683 6.83% Loans, net of unearned income (1) (2) 3,313,335 219,352 8.85% 3,061,948 191,869 8.35% Allowance for loan losses (39,431) (39,567) ------------- ------------ Net loans 3,273,904 8.95% 3,022,381 8.46% ------------------------------------ ---------------------------------- Total earning assets 4,670,762 $290,879 8.32% 4,526,815 $268,911 7.92% ------------------- ------------------- Other assets 279,503 280,331 -------------- ------------ TOTAL ASSETS $4,950,265 $4,807,146 ============= ============ LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $2,760,854 $ 91,541 4.43% $2,911,417 $ 92,958 4.27% Federal funds purchased, repurchase agreements and other short-term borrowings 369,604 14,680 5.31% 346,738 11,763 4.54% FHLB advances 889,139 40,118 6.03% 589,270 23,049 5.23% ------------------------------------ ---------------------------------- Total Interest-Bearing Funds 4,019,597 146,339 4.86% 3,847,425 127,770 4.44% ------------------- ------------------- Demand deposits 470,882 466,915 Accrued expenses and other liabilities 55,838 70,799 -------------- ------------ TOTAL LIABILITIES 4,546,317 4,385,139 SHAREHOLDERS' EQUITY 403,948 422,007 -------------- ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,950,265 $4,807,146 ============= ============ NET INTEREST INCOME $144,540 $141,141 ============= ============= INTEREST SPREAD 3.46% 3.48% NET INTEREST MARGIN 4.13% 4.16%
(1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%. (2) The interest income and the yields on state nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory state income tax rate of 9%. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. 19 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company's anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure, in other words, protection from unwarranted litigation if actual results are not the same as management expectations. United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involves numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by United's statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards. INTRODUCTION The following is a broad overview of the financial condition and results of operations and is not intended to replace the more detailed discussion, which is presented under specific headings on the following pages. OVERVIEW Net income for the first nine months of 2000 was $54.67 million or $1.29 per share compared to $52.66 million or $1.20 per share for the first nine months of 1999. This represents a 3.83% increase in net income and a 7.50% increase in earnings per share. Net income for the third quarter of 2000 was $18.56 million or $0.44 per share compared to $17.70 million or $0.41 per share for the third quarter of 1999. United's annualized return on average assets for the first nine months of 2000 was 1.48% and return on average shareholders' equity was 18.08% as compared to 1.46% and 16.68% for the first nine months of 1999. The net interest margin was 4.13% for the first nine months of 2000 compared to 4.16% for the first nine months of 1999. Tax-equivalent net interest income modestly increased $3.40 million or 2.41% for the first nine months of 2000 as compared to the same period for 1999. The provision for loan losses increased $6.06 million over the previous year-to-date due to the addition to the loan portfolio of a large block of junior-lien mortgage loans previously classified as securities held for sale. Noninterest income remained stable for the first nine months of 2000 when compared to the first nine months of 1999. Noninterest expenses decreased $6.56 million or 7.51% for the first nine months of 2000 compared to the same period in 1999. United's effective tax rate was 32.8% and 33.7% in 2000 and 1999, respectively. Total assets were $4.95 billion at September 30, 2000, a $118.72 million or 2.34% decrease from year end due to the continued restructuring of the balance sheet. In terms of asset composition since year end 1999, 20 the September 30, 2000 balance sheet reflects a $52.92 million decrease in cash and cash equivalents and a $119.92 million decrease in investment securities. Overall, loans held for sale increased $40.64 million as loan originations exceeded sales in the secondary market. Portfolio loans, net of unearned income grew $33.44 million. Other assets declined $16.83 million due mainly to the amortization of goodwill, other intangibles and prepaid expenses, a decline in deferred taxes associated with an increase in value of investment securities held for sale as well as sales of real estate acquired in satisfaction of debts previously contracted. All other categories of assets were moderately flat compared to year end 1999. Total deposits have grown $52.15 million since year end. In terms of composition, noninterest-bearing deposits increased $33.31 million while interest-bearing deposits increased $18.84 million compared to year end 1999. Overall, United's total borrowed funds decreased $180.97 million or 13.39% as short-term borrowings increased $24.07 million while FHLB borrowings decreased $205.04 million. United repaid the higher costing FHLB borrowings to restructure the balance sheet to better manage interest rate risk. Accrued expenses and other liabilities decreased $15.59 million or 25.71% since year end 1999 primarily as a result of a timing difference in the payment of income taxes. Shareholders' equity increased $25.69 million or 6.49% as compared to December 31, 1999 as United continued to balance capital adequacy and returns to shareholders. At September 30, 2000, United's regulatory capital ratios, including those of its bank subsidiaries, continued to exceed the levels established for well-capitalized institutions. RESULTS OF OPERATIONS NET INTEREST INCOME Tax-equivalent interest income increased $4.41 million or 4.71% in the third quarter of 2000 and $21.97 million or 8.17% for the first nine months of 2000 when compared to the same periods of 1999. Tax-equivalent net interest income remained relatively flat for the third quarter of 2000 and first nine months of 2000 when compared to the same periods of 1999 as increased deposit and funding costs resulting from six Federal Funds rate increases since mid 1999 have offset the growth in interest income. United's tax-equivalent net interest margin was 4.04% and 4.13% for the third quarter and first nine months of 2000, respectively, compared to 3.99% and 4.16% for the same time periods in 1999, respectively. The increase in the margin percentage from the 1999 results reflected a changing earning asset mix from investment securities to higher yielding loans. PROVISION FOR LOAN LOSSES Credit quality improved for the first nine months of 2000 and remains sound. Nonperforming loans were $16.73 million at September 30, 2000 and $20.74 million at December 31, 1999. Nonperforming loans represented 0.34% of total assets at the end of the first nine months of 2000, as compared to 0.41% for United at year end 1999. The components of nonperforming loans include nonaccrual loans and loans which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis. Loans past due 90 days or more and nonaccrual loans decreased $1.75 million and $2.27 million, respectively during the first nine months of 2000. Total nonperforming assets of $18.24 million, including OREO of $1.52 million, represented 0.37% of total assets at September 30, 2000. 21 At September 30, 2000, impaired loans were $14.29 million, a decrease of $1.35 million or 9.45% from the $15.64 million in impaired loans at December 31, 1999. For further details, see Note 5 to the unaudited consolidated financial statements. United evaluates the adequacy of the allowance for loan losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. United's process for evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural discipline in managing and accounting for those credits. Allocations are made for specific commercial loans based upon management's estimate of the borrowers' ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loss 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. 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 September 30, 2000 produced increased allocations within three of four loan categories from December 31, 1999. The components of the allowance allocated to real estate increased $2.4 million, as a result of the addition to the loan portfolio of a large block of junior-lien mortgage loans previously held for sale and corresponding changes in historical loss factors. The consumer loan pool allocation increased by $1.1 million as a result of changes in volume and historical loss experience. The real estate construction pool allocation increased $191 thousand as a result of changes in volume factors for this pool. The components of the allowance allocated to commercial loans decreased $488 thousand as a result of a decrease in specific allocations on larger commercial loans. At September 30, 2000 and December 31, 1999, the allowance for loan losses was 1.23% and 1.25% of period-end loans, net of unearned income, respectively. At September 30, 2000 and December 31, 1999, the ratio of the allowance for loan losses to nonperforming loans was 235.7% and 190.9%, respectively. Management believes that the allowance for loan losses of $39.43 million at September 30, 2000, is adequate to provide for losses on existing loans based on information currently available. For the quarters ended September 30, 2000 and 1999, the provision for loan losses was $4.44 million and $2.26 million, respectively, while the provision for the first nine months was $10.84 million for 2000 as compared to $4.78 million for 1999. Total net charge-offs were $4.33 million in the third quarter of 2000 and $3.02 million during the same time period in 1999, which represents 0.13% and 0.10% of average loans for the respective quarters. Net charge-offs were $11.00 million for the first nine months of 2000 as compared to net charge- offs of $4.27 million for the first nine months of 1999. The increases in provision and net charge-offs were primarily attributed to the addition to the loan portfolio, as of October 1, 1999, of approximately $230 million of junior- lien mortgage loans previously classified as securities held for sale. Such increased provision and charge-offs were offset by increased interest income recognized on the reclassed loans. Note 5 to the accompanying unaudited consolidated financial statements provide a progression of the allowance for loan losses. 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. 22 Additionally, management has disclosed all known material credits which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. OTHER INCOME Other income consists of all revenues that are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United's profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income increased 3.75% for the third quarter of 2000 while remaining relatively flat for the first nine months of 2000 when compared to the third quarter and first nine months of 1999. Mortgage loan origination activity fell 19% or approximately $187 million for the first nine months of 2000 as compared to the same period in 1999 due to rising interest rates and a slowing economy. Fewer originations resulted in a decline of loan sales in the secondary market of 32% or approximately $371 million during the first nine months of 2000 in comparison to the same time period in 1999. Excluding income from mortgage banking operations and gains on the sale of investment securities, noninterest income increased $3.17 million or 16.09% for the first nine months of 2000 primarily due to a combination of increased revenues from the trust department and the deposit services area. Trust fees increased $1.21 million or 30.37% while deposit charges increased $1.87 million or 12.85% compared to the first nine months of 1999. OTHER EXPENSES Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for loan losses, and income taxes. Other expenses decreased $3.91 million or 13.32% and $6.56 million or 7.51% for the quarter and nine months ended September 30, 2000, as compared to the same periods in 1999. The efficiency ratio was a low 41.37% and 43.41% for the third quarter and first nine months of 2000, respectively. This ratio compares very favorably to regional and national peer group banking companies. Total salaries and benefits decreased by 18.49% or $2.75 million and 12.14% or $5.46 million for the third quarter and first nine months of 2000 when compared to the same periods of 1999. The decline was due to lower sales activity in the mortgage banking segment as compensation and incentives for its personnel are significantly tied to activity levels and a SFAS No. 87 pension benefit as a result of excess earnings within United's plan. Net occupancy expense for the of 2000 decreased by $243 thousand or 7.83% and $365 thousand or 3.94% for the third quarter and first nine months of 2000 when compared to the third quarter and first nine months of 1999, respectively. Items within the net occupancy category that declined significantly from last year included building maintenance costs and utilities expense. Other expenses decreased $920 thousand or 8.07% and $735 thousand or 2.22% for the third quarter and first nine months of 2000, respectively, as compared to the same periods of 1999. 23 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 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. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the "GAP." 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. As shown in the interest rate sensitivity gap table in this section, United was liability sensitive (more liabilities repricing than 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 United's savings deposits are less sensitive to interest rate changes than are other forms of deposits. The GAP table presented herein has been adapted to show the estimated differences in interest rate sensitivity which result when the retail deposit base is assumed to reprice in a manner consistent with historical trends. (See "Management Adjustments" in the GAP table). Using these estimates, United was liability sensitive in the one year horizon in the amount of $94 million or (1.99%) of the cumulative gap to related earning assets. During 1998, United purchased fixed-rate junior-lien mortgage loans from an unrelated third party financial institution with the intention that these loans would be securitized and resold back to the third party lender. However, the third party was unable to repurchase the loans and United inherited approximately $456 million of these mortgage loans which United held for sale on its balance sheet as of December 31, 1998. During 1999, to better manage risk, United securitized approximately $205 million of these loans and 24 retained a portion of the resultant securities. At September 30, 2000, the retained resultant securities approximated $61 million and are carried in the available for sale investment portfolio. The remainder of these junior-lien mortgages were moved to the loan portfolio and the balance at September 30, 2000, approximated $185 million. To further aid in interest rate 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 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 one-year and two-year horizon given an immediate and sustained increase or decrease in interest rates. The current limits approved by the Board of Directors are structured on a staged basis with each stage requiring specific actions. The following table shows United's estimated earnings sensitivity profile after management's adjustments as of September 30, 2000 and September 30, 1999:
Change in Interest Rates Percentage Change in Net Interest Income (basis points) ------------------------------------------------------ ----------------- September 30, 2000 September 30, 1999 ------------------------- -------------------------- +200 -2.23% -3.31% -200 1.17% 5.60%
For September 30, 2000, 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 decrease by 2.23% over one year as compared to an decrease of 3.31% for September 30, 1999. A 200 basis point immediate, sustained downward shock in the yield curve would increase net interest income by an estimated 1.17% over one year for September 30, 2000 as compared to a increase of 5.60% for September 30, 1999. All of these estimated changes in net interest income are and were within the policy guidelines established by the Board of Directors. 25 The following table shows the interest rate sensitivity GAP as of September 30, 2000:
Interest Rate Sensitivity Gap Days ---------------------------------------------- Total 1-5 Over 5 0-90 91-180 181-365 One Year Years Years Total ----------------------------------------------------------------------------------------------------- ASSETS Interest-Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 2,690 $ 2,690 $ 2,690 Investment and Marketable Equity Securities Taxable 75,871 $ 14,957 $ 38,007 128,835 $ 421,092 $ 660,512 1,210,439 Tax-exempt 3,385 3,385 11,055 127,751 142,191 Loans, net of unearned income 1,165,097 169,711 313,944 1,648,752 909,299 803,955 3,362,006 ---------------------------------------------------------------------------------------------------- Total Interest-Earning Assets $1,243,658 $ 188,053 $ 351,951 $ 1,783,662 $1,341,446 $1,592,218 $4,717,326 ==================================================================================================== LIABILITIES Interest-Bearing Funds: Savings and NOW accounts $1,106,084 $ 1,106,084 $1,106,084 Time deposits of $100,000 & over 59,942 $ 46,525 $ 131,238 237,705 $ 123,461 $ 1,398 362,564 Other time deposits 233,440 236,356 343,979 813,775 513,069 3,565 1,330,409 Federal funds purchased, repurchase agreements and other short-term borrowings 369,465 13,994 28,856 412,315 10,000 422,315 FHLB advances 97,046 65,000 162,046 107,892 478,372 748,310 ---------------------------------------------------------------------------------------------------- Total Interest-Bearing Funds $1,865,977 $ 296,875 $ 569,073 $ 2,731,925 $ 754,422 $ 483,335 $3,969,682 ==================================================================================================== Interest Sensitivity Gap $(622,319) $(108,822) $ (217,122) $ (948,263) $ 587,024 $1,108,883 $ 747,644 ==================================================================================================== Cumulative Gap $(622,319) $(731,141) $ (948,263) $ (948,263) $ (361,239) $ 747,644 $ 747,644 ==================================================================================================== Cumulative Gap as a Percentage of Total Earning Assets (13.19)% (15.50)% (20.10)% (20.10)% (7.66)% 15.85% 15.85% Management Adjustments $1,068,101 $ (71,242) $ (142,378) $ 854,481 $ (854,481) $ 0 Off-Balance Sheet Activities Cumulative Management Adjusted Gap and Off-Balance Sheet Activities $ 445,782 $ 265,717 $ (93,782) $ (93,782) $ (361,239) $ 747,644 $ 747,644 ==================================================================================================== Cumulative Management Adjusted Gap and Off-Balance Sheet Activities as a Percentage of Total Earning Assets 9.45% 5.63% (1.99)% (1.99)% (7.66)% 15.85% 15.85% ====================================================================================================
26 LIQUIDITY AND CAPITAL RESOURCES United maintains, in the opinion of management, liquidity which is sufficient to satisfy its depositors' requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United 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. Repurchase agreements represent funds, which are obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day- to-day demands of customers. Other than cash and due from banks, the available for sale securities portfolio, loans held for sale and maturing loans and investments are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United's cash needs. Liquidity is managed by monitoring funds availability from a number of primary sources. Funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of subsidiary banks providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, and borrowings that are secured by bank premises or stock of United's subsidiaries. In the normal course of business, United through ALCO evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs. For the nine months ended September 30, 2000, cash flows from operations provided cash of $22.92 million to United. During the same period, net cash of $94.11 million was provided by investing activities which was primarily due to $140.07 million of excess net proceeds from calls and maturities of investment securities over purchases of investment securities, which offset net growth in portfolio loans of $44.23 million. During the first nine months of 2000, net cash of $169.95 million was used in financing activities, primarily due to the net repayment of approximately $205.04 million of FHLB borrowings, payment of $26.66 million in cash dividends and $16.73 million for acquisitions of United shares under the stock repurchase programs. The net effect of this activity was a decrease in cash and cash equivalents of $52.92 million for the first nine months of 2000. United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United's liquidity increasing or decreasing in any material way. United also has lines of credit available. 27 The Asset and Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. In addition, variable rate loans are a priority. These policies help to protect net interest income against fluctuations in interest rates. No changes are anticipated in the policies of United's Asset and Liability Committee. CAPITAL Total shareholders' equity increased $25.69 million to $421.62 million from $395.93 million at December 31, 1999. Included in the shareholders' equity balance at September 30, 2000 is the previously mentioned cumulative unrealized loss, net of deferred taxes, of $5.02 million associated with debt securities transferred from the available for sale portfolio into the held to maturity portfolio. This amount will be amortized over the estimated remaining life of the securities. Since year end, United has experienced an $11.75 million increase, net of deferred income taxes, in the fair value of its available for sale investment portfolio. During the first nine months of 2000, United completed a plan announced in 1999 to repurchase up to 1.75 million shares of its common stock on the open market. In May of 2000, United announced a new plan to repurchase up to an additional 1.675 million shares of its common stock on the open market, of which 111,300 shares have been repurchased since its implementation. United's equity to assets ratio was 8.52% at September 30, 2000, as compared to 7.81% at December 31, 1999. Capital and reserves to total assets was 9.24% at September 30, 2000, as compared to 8.53% at December 31, 1999. Cash dividends were $0.21 and $0.63 per common share for the third quarter of 2000 and nine month period ended September 30, 2000, respectively. Total cash dividends paid were approximately $8.81 million for the third quarter of 2000 and $26.50 million for the first nine months of 2000. United 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 8.16% at September 30, 2000 and 8.78% at September 30, 1999. Based on regulatory requirements, United and its banking subsidiaries are categorized as "well capitalized" institutions. United's risk-based capital ratios of 11.85% at September 30, 2000 and 11.41% at December 31, 1999, are both significantly higher than the minimum regulatory requirements. United's Tier I capital and leverage ratios of 10.79% and 8.20%, respectively, at September 30, 2000, are also well above regulatory minimum requirements. 28 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
9 9-MOS DEC-31-2000 SEP-30-2000 104,197,000 2,690,000 0 0 967,554,000 385,076,000 375,458,000 3,362,006,000 39,432,000 4,950,442,000 3,313,137,000 574,361,000 45,058,000 596,264,000 0 0 108,454,000 313,168,000 4,950,442,000 214,127,000 67,738,000 764,000 282,629,000 91,541,000 146,339,000 136,290,000 10,837,000 1,147,000 32,344,000 81,330,000 81,330,000 0 0 54,672,000 1.30 1.29 4.13 10,062,000 6,666,000 0 0 39,599,000 11,791,000 787,000 39,432,000 30,903,000 0 8,529,000
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