-----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, K/91HDN+h43XNX1VblhPPvgnTxPs7StIJf9OEQehacaGfmJdnusQeBaEl8kHNfO/ LBpDaV/4eRzAfDLmr2ARCg== 0001021408-01-001933.txt : 20010330 0001021408-01-001933.hdr.sgml : 20010330 ACCESSION NUMBER: 0001021408-01-001933 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 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: 1584192 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 0001.txt UNITED BANKSHARES, INC. 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, 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 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, 2001 was approximately $805,006,000. As of February 28, 2001, United Bankshares, Inc. had 41,690,387 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, 2000 portions of which are incorporated by reference in Parts I, II and IV of this Form 10-K. 2. Definitive Proxy Statement dated April 9, 2001 for the 2001 Annual Shareholders' Meeting to be held on May 21, 2001, portions of which are incorporated by reference in Part III of this Form 10-K. Page 1 of 131 pages. Index to Exhibits is on page 30 . --------- --------- 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, 2000, nor the proxy statement for the annual United shareholders' meeting had been mailed to shareholders. CROSS-REFERENCE INDEX
Page ---- Part I - ------ Item 1. BUSINESS................................................ 3 Item 2. PROPERTIES.............................................. 3 Item 3. LEGAL PROCEEDINGS....................................... 10 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..... 10 Part II - ------- Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS..................................... 11 Item 6. SELECTED FINANCIAL DATA................................. 13 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..................... 13 Item 7a. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK............................................. 13 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............. 23 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES................. 23 Part III - -------- Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...... 24 Item 11. EXECUTIVE COMPENSATION.................................. 25 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................................. 25 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 25 Part VI - ------- Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K............................................. 26
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. 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. Since its formation in 1982, United has acquired twenty-four banking institutions. United has two banking subsidiaries, United National Bank ("UNB") and United Bank. United also owns nonbank subsidiaries that engage in mortgage banking, asset management, investment banking and financial planning. Offices - ------- The headquarters of United are located in United Center at 500 Virginia Street, East, Charleston, West Virginia. United's executive offices are located in Parkersburg, West Virginia at Fifth and Avery Streets. United operates seventy-seven offices--fifty-two offices located throughout West Virginia, twenty-two offices throughout the Northern Virginia, Maryland and Washington, D.C. areas and three in Ohio. United owns all its West Virginia facilities except for two in the Parkersburg area, three in the Wheeling area, three in the Charleston area, two in the Beckley area and one each in Summersville and Clarksburg, all of which are leased under operating leases. United leases all of its facilities under operating lease agreements in the Northern Virginia, Maryland and Washington, D.C. areas except for two offices, one each in Fairfax and Vienna, Virginia which are owned facilities. Employees - --------- As of December 31, 2000 United and its subsidiaries had approximately 1,253 full-time equivalent employees and officers. A collective bargaining unit represents none of these employees, 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, 3 United's present business is community and mortgage banking. As of December 31, 2000, United's consolidated assets approximated $4.9 billion and total shareholders' equity approximated $431 million. United is permitted to acquire other banks and bank holding companies, as well as thrift institutions. United is also permitted to engage in certain non- banking activities which are closely related to banking under the provisions of the Bank Holding Company Act and the Federal Reserve Board's Regulation Y. Management continues to consider such opportunities as they arise, and in this regard, management from time to time makes inquiries, proposals, offers or expressions of interest as to potential opportunities; although no agreements or understandings to acquire other banks or bank holding companies or nonbanking subsidiaries or to engage in other nonbanking activities, other than those identified herein, presently exist. Business of Subsidiary Banks - ---------------------------- United, through its subsidiaries, engages primarily in community banking and mortgage banking and additionally offers most types of business permitted by law and regulation. Included among the banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, floor plan and student loans; and the making of construction and real estate loans. Also offered are individual retirement accounts, safe deposit boxes, wire transfers and other standard banking products and services. As a part of their lending function, UNB and United Bank offer credit card services including accounts issued under the name of certain correspondent banks. UNB and United Bank each maintains a trust department which acts as trustee under wills, trust and pension and profit sharing plans, as executors and administrators of estates, and as guardians for estates of minors and incompetents, and in addition performs a variety of investment and security services. Trust services are available to customers of affiliate banks. UNB provides services to its correspondent banks such as check clearing, safekeeping and the buying and selling of federal funds. United Brokerage Services, Inc., a wholly-owned subsidiary of UNB, is a fully-disclosed broker/dealer and a registered Investment Advisor with the National Association of Securities Dealers, Inc. and the Securities and Exchange Commission and a member of the Securities Investor Protection Corporation. United Brokerage Services, Inc. offers a wide range of investment products as well as comprehensive financial planning and asset management services to the general public. UNB is a member of a regional network of automated teller machines known as the MAC ATM network while United Bank participates in the MOST network. Through MAC and MOST, all of United's subsidiary banks are participants in a network known as Cirrus, which provides banking on a nationwide basis. Lending Activities - ------------------ United's loan portfolio, net of unearned income, increased $22.4 million to $3.19 billion in 2000 and is comprised of commercial, real estate and consumer loans including credit card and home equity loans. Commercial and commercial real estate loans increased $29.8 million or 5.6% and $69.8 million or 7.9%, respectively. Consumer loans, net of unearned income, decreased $41.6 million or 11.7% while residential real estate loans also decreased $35.6 million or 2.6%. 4 As of December 31, 2000, approximately $348 million or 11% of United's loan portfolio were real estate loans that met the regulatory definition of a high loan-to-value loan. A high loan-to-value real estate loan is defined as any loan, line of credit, or combination of credits secured by liens on or interests in real estate that equals or exceeds 90% of the real estate's appraised value, unless the loan has other appropriate credit support. Appropriate credit support may include mortgage insurance, readily marketable collateral, or other acceptable collateral that reduces the loan-to-value ratio below 90%. The December 31, 2000 position in high loan-to-value loans is significantly less than the December 31, 1999 and 1998 amounts of $401 million and $617 million, respectively, or 12% and 20% of total loans, respectively, of which $456 million was held in the loans held for sale category on United's balance sheet at December 31, 1998. Commercial Loans - ---------------- The commercial loan portfolio consists of loans to corporate borrowers primarily in small to mid-size industrial and commercial companies, as well as automobile dealers, service, retail and wholesale merchants. Coal mining companies make up an insignificant portion of loans in the portfolio. Collateral securing these loans include equipment, machinery, inventory, receivables, vehicles and commercial real estate. Commercial loans are considered to contain a higher level of risk than other loan types although care is taken to minimize these risks. Numerous risk factors impact this portfolio including industry specific risks such as economy, new technology, labor rates and cyclicality, as well as customer specific factors, such as cash flow, financial structure, operating controls and asset quality. United diversifies risk within this portfolio by closely monitoring industry concentrations and portfolios to ensure that it does not exceed established lending guidelines. Diversification is intended to limit the risk of loss from any single unexpected economic event or trend. Underwriting standards require a comprehensive review and independent evaluation of virtually all larger balance commercial loans by the loan committee prior to approval. Real Estate Loans - ----------------- 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. 5 Underwriting Standards - ---------------------- United's loan underwriting guidelines and standards are updated periodically and are presented for approval by each of the respective Boards of Directors of its subsidiary banks. The purpose of the standards and guidelines is to grant loans on a sound and collectible basis; to invest available funds in a safe, profitable manner; to serve the legitimate credit needs of the communities of United's primary market area; and ensure that all loan applicants receive fair and equal treatment in the lending process. It is the intent of the underwriting guidelines and standards to: minimize loan losses by carefully investigating the credit history of each applicant, verify the source of repayment and the ability of the applicant to repay, collateralize those loans in which collateral is deemed to be required, exercise care in the documentation of the application, review, approval, and origination process, and administer a comprehensive loan collection program. The above guidelines are adhered to and subject to the experience, background and personal judgment of the loan officer assigned to the loan application. A loan officer may grant, 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, 2000, the balance of mortgage loans being serviced by United for others was insignificant. Secondary Markets - ----------------- United National Bank and George Mason Mortgage, LLC ("GMMC"), a wholly- owned subsidiary of United Bank, are engaged in the operation of a general mortgage and agency business, including the conducting of mortgage loan servicing activities for certain loans, the origination and acquisition of residential real estate loans for resale and generally the activities commonly conducted by a mortgage banking company. These loans are for single, owner- occupied residences with either adjustable or fixed rate terms, with a variety of maturities tailored to effectively serve its markets. GMMC primarily originates permanent residential mortgage loans in the northern Virginia market while UNB's originations are predominately in its West Virginia markets. Mortgage loan originations are generally intended to be sold in the secondary market. During 2000, United originated $1.2 billion of real estate loans for sale in the secondary market and sold $1.1 billion of loans designated as held for sale in the secondary market. Proceeds received from the sales of these loans during 2000 were $1.1 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. 6 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 that are generally obtained as the result of a competitive bidding process. United's investment portfolio is comprised largely of mortgage-backed securities. Additionally United has a substantial amount of U.S. Treasury securities and obligations of U.S. Agencies and Corporations. Obligations of States and Political Subdivisions are comprised of municipal securities with an average quality of not less than an "A" rating. During 2000 United recognized net losses of $13.86 million from the available for sale portfolio. A significant portion of the losses was the result of United's restructuring of its available for sale investment portfolio late during the fourth quarter of 2000. United used the proceeds of approximately $542 million from the sales to acquire investment securities that will provide an increased yield above those sold. During 1999 and 1998, United recognized net gains of $677 thousand, $2.37 million, 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, 2000, 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, Brooke, Hancock, Ohio, Marshall, Gilmer, Harrison, 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 Jefferson and Berkeley Counties in West Virginia's eastern panhandle. United competes in Ohio markets because of the close proximity to the Ohio border of certain subsidiary offices. Included in United's West Virginia markets are the five largest West Virginia Metropolitan 7 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, 2000, there were 48 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 76 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 18% of the entire manufacturing workforce and 30% of the manufacturing wages, according to West Virginia state records. This diversified economy has contributed to the positive trends in the number of payroll jobs created and unemployment rates in recent years as the number of payroll jobs increased 4,000 during calendar year 2000 and the state's overall unemployment rate has declined from 10.5% in 1991 to 5.5% in December 2000. West Virginia's unemployment rate for all of 2000 averaged 5.5%, which was the lowest average annual unemployment rate since the current statistical system began in 1976, 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 2000 was 1.9%. The 1.9% unemployment rate was the first time the rate fell below 2.0% in 48 years. Additionally, the Virginia Employment Commission reported that record levels were set with increased nonagricultural employment and increased factory wages in December 2000. The Northern Virginia metropolitan area's unemployment rate was at 1.1%, lowest among Virginia's eight metropolitan areas, as of December 2000. 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 8 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. On November 12, 1999 the Gramm-Leach-Bliley Act was signed into law. The Act modernizes the regulatory framework for financial services in the United States and allows banks, securities firms, and insurance companies to affiliate more directly than they have been permitted to do in the past. Under the Act, a bank holding company may become a "financial holding company" to offer a much broader range of financial products and services than had been previously possible under the traditional banking structure, provided that the bank holding company meets certain certification requirements of the Federal Reserve. United is presently in the process of analyzing the opportunities, requirements, and pitfalls the Act presents. As a bank holding company doing business in West Virginia, United is also subject to regulation and examination by the West Virginia Board of Banking and Financial Institutions (the "West Virginia Banking Board") and must submit annual reports to the department. Further, any acquisition application that United must submit to the Board of Governors must also be submitted to the West Virginia Banking Board for approval. United is also registered under and is subject to the requirements of the Securities Exchange Act of 1934, as amended. UNB, as national banking associations, is subject to supervision, examination and regulation by the Office of the Comptroller of the Currency. UNB is also a member of the Federal Reserve System, and as such, is subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. United Bank, as a Virginia state member bank, is subject to supervision, examination and regulation by the Federal Reserve System, and as such, is subject to applicable provisions of the Federal Reserve Act and regulations issued thereunder. United Bank is subject to regulation by the Virginia Corporation Commission's Bureau of Financial Institutions. The deposits of United's wholly-owned banking subsidiaries are insured by the Federal Deposit Insurance Corporation ("FDIC") to the extent provided by law. Accordingly, these banks are also subject to regulation by the FDIC. 9 UNITED BANKSHARES, INC. FORM 10-K, PART I Item 3. Legal Proceedings Litigation - ---------- Information relating to litigation on page 30 of the Annual Report to Shareholders for the year ended December 31, 2000, 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. 10 UNITED BANKSHARES, INC. FORM 10-K, PART II Item 5. Market for Registrant's Common Stock and Related Shareholder Matters Stock - ----- As of December 31, 2000, 100,000,000 shares of common stock, par value $2.50 per share, were authorized for United, of which 43,381,769 were issued, including 1,616,498 shares held as treasury shares. The outstanding shares are held by approximately 12,006 shareholders of record as of December 31, 2000. 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 - --------- The shareholders of United are entitled to receive dividends when and as declared by its Board of Directors. Dividends are paid quarterly. Dividends were $0.84 per share in 2000, $0.82 per share in 1999 and $0.75 per share in 1998. Dividends are paid from funds legally available; therefore, the payment of dividends is subject to the restrictions set forth in the West Virginia Corporation Act. See "Market and Stock Prices of United" for quarterly dividend information. Payment of Dividends by United is dependent upon payment of dividends to it by its subsidiary banks. The ability of national banks to pay dividends is subject to certain limitations imposed by the national banking 11 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 N - 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 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:
2001 Dividends High Low ---- --------- ---- --- First Quarter through February 28, 2001 (1) $23.13 $20.19 2000 ---- Fourth Quarter $0.21 $22.13 $17.25 Third Quarter $0.21 $20.88 $18.38 Second Quarter $0.21 $22.38 $16.38 First Quarter $0.21 $24.44 $17.00 1999 ---- Fourth Quarter $0.21 $26.25 $22.63 Third Quarter $0.21 $27.25 $23.38 Second Quarter $0.20 $27.38 $22.88 First Quarter $0.20 $27.69 $22.75
(1) On February 26, 2001, United declared a dividend of $0.22 per share, payable April 2, 2001, to shareholders of record as of March 9, 2001. 12 UNITED BANKSHARES, INC. FORM 10-K, PART II Item 6. Selected Financial Data Information relating to selected financial data on page 38 of the Annual Report to Shareholders for the year ended December 31, 2000, 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 39 through 51 inclusive, of the Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosures About Market Risk Quantitative and Qualitative Disclosures About Market Risk on pages 44 through 46 inclusive, of the Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. 13 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, 2000, 1999 and 1998 with the interest and rate earned or paid on such amount.
Year Ended Year Ended Year Ended December 31, 2000 December 31, 1999 December 31, 1998 -------------------------- -------------------------- --------------------------- Average Avg. Average Avg. Average Avg. Balance Interest Rate Balance Interest Rate Balance Interest Rate -------------------------- -------------------------- --------------------------- ASSETS Earning Assets: Federal funds sold, securities repurchased under agreements to resell & other short-term investments $ 17,362 $ 1,171 6.74% $ 8,390 $ 522 6.22% $ 28,270 $ 1,472 5.21% Investment Securities: Taxable 1,163,824 79,190 6.80% 1,295,851 85,392 6.59% 876,167 55,550 6.34% Tax-exempt (1) (2) 198,943 14,282 7.18% 202,435 14,402 7.11% 66,019 5,262 7.97% -------------------------- -------------------------- --------------------------- Total Securities 1,362,767 93,472 6.86% 1,498,286 99,794 6.66% 942,186 60,812 6.45% Loans, net of unearned Income (1) (2) (3) 3,320,065 294,297 8.86% 3,110,785 262,622 8.44% 3,053,948 267,186 8.75% Allowance for loan losses (39,437) (39,615) (35,598) ---------- --------- --------- Net loans 3,280,628 8.98% 3,071,170 8.55% 3,018,350 8.85% -------------------------- -------------------------- --------------------------- Total earning assets 4,660,757 $388,940 8.34% 4,577,846 $362,938 7.93% 3,988,806 $329,470 8.26% -------- -------- -------- Other assets 275,848 289,675 250,002 ---------- ---------- ---------- TOTAL ASSETS $4,936,605 $4,867,521 $4,238,808 ========== ========== ========== LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $2,775,938 $125,847 4.53% $2,890,065 $122,651 4.24% $2,791,996 $128,976 4.62% Federal funds purchased, repurchase agreements & other short-term borrowings 370,679 19,898 5.37% 367,342 17,104 4.66% 228,923 10,732 4.69% FHLB advances 851,486 52,021 6.11% 653,579 34,647 5.30% 282,741 15,646 5.53% -------------------------- -------------------------- --------------------------- Total Interest-Bearing Funds 3,998,103 197,766 4.95% 3,910,986 174,402 4.46% 3,303,660 155,354 4.70% -------- -------- -------- Demand deposits 473,205 468,238 452,300 Accrued expenses and other liabilities 55,992 68,478 70,572 ---------- ---------- ---------- TOTAL LIABILITIES 4,527,300 4,447,702 3,826,532 SHAREHOLDERS' EQUITY 409,305 419,819 412,276 ---------- ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,936,605 $4,867,521 $4,238,808 ========== ========== ========== NET INTEREST INCOME $191,174 $188,536 $174,116 ======== ======== ======== INTEREST SPREAD 3.40% 3.47% 3.56% NET INTEREST MARGIN 4.11% 4.12% 4.37%
(1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%. (2) The interest income and the yields on state nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory state income tax rate of 9%. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. 14 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).
2000 Compared to 1999 1999 Compared to 1998 ------------------------------------------ ----------------------------------------- Increase (Decrease) Due to Increase (Decrease) Due to ------------------------------------------ ----------------------------------------- Rate/ Rate/ Volume Rate Volume Total Volume Rate Volume Total ---------- ------ -------- ------- --------- ------ ---------- --------- Interest income: Federal funds sold, securities purchased under agreements to resell and other short-term investments $ 558 $ 44 $ 47 $ 649 ($1,035) $ 287 ($202) ($950) Investment securities: Taxable (8,701) 2,782 (283) (6,202) 26,608 2,186 1,048 29,842 Tax exempt (1), (2) (249) 131 (2) (120) 10,873 (565) (1,168) 9,140 Loans (1),(2),(3) 17,911 12,885 879 31,675 4,676 (9,081) (159) (4,564) --------- ------- ------- -------- --------- --------- ------- -------- TOTAL INTEREST INCOME 9,519 15,842 641 26,002 41,122 (7,173) (481) 33,468 --------- ------- ------- -------- --------- --------- ------- -------- Interest expense: Interest-bearing deposits ($4,843) $ 8,370 ($331) $ 3,196 $ 4,530 ($10,487) ($368) ($6,325) Federal funds purchased, repurchase Agreements, and other short-term Borrowings 155 2,615 24 2,794 6,489 (73) (44) 6,372 FHLB advances 10,491 5,283 1,600 17,374 20,521 (658) (862) 19,001 --------- ------- ------- -------- --------- --------- ------- -------- TOTAL INTEREST EXPENSE 5,803 16,268 1,293 23,364 31,540 (11,218) (1,274) 19,048 --------- ------- ------- -------- --------- --------- ------- -------- NET INTEREST INCOME $ 3,716 ($426) ($652) $ 2,638 $ 9,582 $ 4,045 $ 793 $ 14,420 ========= ======= ======= ======== ========= ========= ======= ========
(1) Yields and interest income on federally tax exempt loans and investment securities are computed on a fully tax-equivalent basis using the statutory federal income tax rate of 35%. (2) Yields and interest income on state tax exempt loans and investment securities are computed on a fully tax-equivalent basis using the statutory state income tax rate of 9%. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. 15 UNITED BANKSHARES, INC. AND SUBSIDIARIES LOAN PORTFOLIO TYPES OF LOANS The following is a summary of loans outstanding at December 31:
2000 1999 1998 1997 1996 ----------- ------------ ------------ -------------- ------------ (In thousands) Commercial, financial and agricultural $ 564,887 $ 535,116 $ 508,601 $ 487,706 $ 328,248 Real estate mortgage 2,148,751 2,134,370 1,696,233 1,693,819 1,611,801 Real estate construction 164,505 144,634 141,026 150,429 90,817 Consumer 319,351 363,272 313,464 364,951 328,928 Less: Unearned interest (5,000) (7,296) (6,933) (7,066) (5,223) ------------ ------------ ------------ ------------ ------------ Total loans 3,192,494 3,170,096 2,652,391 2,689,839 2,354,571 Allowance for loan losses (40,532) (39,599) (39,189) (31,936) (29,376) ------------ ------------ ------------ ------------ ------------ TOTAL LOANS, NET $ 3,151,962 $ 3,130,497 $ 2,613,202 $ 2,657,903 $ 2,325,195 ============ ============ ============ ============ ============ Loans held for sale $ 203,831 $ 117,825 $ 720,607 $ 97,619 $ 74,465 ============ ============ ============ ============ ============
The following is a summary of loans outstanding as a percent of total loans at December 31:
2000 1999 1998 1997 1996 ------------ ------------ ------------ -------------- ------------ Commercial, financial and agricultural 17.69% 16.88% 19.18% 18.13% 13.94% Real estate mortgage 67.31% 67.33% 63.95% 62.97% 68.45% Real estate construction 5.15% 4.56% 5.32% 5.59% 3.86% Consumer 9.85% 11.23% 11.55% 13.31% 13.75% ------------ ------------ ------------ ------------ ------------ 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, 2000:
Less Than One To Greater Than One Year Five Years Five Years Total ------------------ ------------------ ------------------ ------------------ (In thousands) Commercial, financial and agricultural $329,920 $131,522 $103,445 $564,887 Real estate construction 164,505 164,505 ------------------ ------------------ ------------------ ------------------ Total $494,425 $131,522 $103,445 $729,392 ================== ================== ================== ==================
16 UNITED BANKSHARES, INC. AND SUBSIDIARIES At December 31, 2000, 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 $ 77,596 $ 63,429 Outstanding with adjustable rates 53,926 40,016 ------------------ ------------------ $131,522 $103,445
There were no real estate construction loans with maturities greater than one year. RISK ELEMENTS Nonperforming Loans Nonperforming loans include loans on which no interest is currently being accrued, loans which are past due 90 days or more as to principal or interest payments, and loans for which the terms have been modified due to a deterioration in the financial position of the borrower. Management is not aware of any other significant loans, groups of loans, or segments of the loan portfolio not included below or disclosed elsewhere herein where there are serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. The following table summarizes nonperforming loans for the indicated periods.
December ------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- -------------- ---------------- -------------- -------------- (In thousands) Nonaccrual loans $ 8,131 $12,327 $ 9,139 $ 5,815 $ 6,373 Troubled debt restructurings 95 Loans which are contractually past due 90 days or more as to interest or principal, and are still accruing interest 4,717 8,415 9,528 12,877 6,317 ----------- -------------- ---------------- -------------- -------------- TOTAL $12,848 $20,742 $18,667 $18,692 $12,785 =========== ============== ================ ============== ==============
Loans are designated as nonaccrual when, in the opinion of management, the collection of principal or interest is doubtful. This generally occurs when a loan becomes 90 days past due as to principal or interest unless the loan is both well secured and in the process of collection. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed, and unpaid interest accrued in prior years is charged to the allowance for loan losses. See Note D to the consolidated financial statements for additional information regarding nonperforming loans, impaired loans and credit risk concentration. Other real estate owned is not material. 17 UNITED BANKSHARES, INC. AND SUBSIDIARIES INVESTMENT PORTFOLIO The following is a summary of the amortized cost of held to maturity securities at December 31,:
2000 1999 1998 ---------- ---------- ---------- (In thousands) U.S. Treasury and other U.S. Government agencies and corporations $ 55,724 $ 56,734 $121,474 States and political subdivisions 93,006 97,824 82,011 Mortgage-backed securities 70,279 90,850 139,002 Other 161,059 19,782 19,664 ---------- ---------- ---------- TOTAL HELD TO MATURITY SECURITIES $380,068 $265,190 $362,151 ========== ========== ==========
The following is a summary of the amortized cost of available for sale securities at December 31,:
2000 1999 1998 ---------- ---------- ---------- (In thousands) U.S. Treasury securities and obligations of U.S. Government agencies and corporations $160,702 $ 276,558 $198,151 States and political subdivisions 52,095 48,914 27,474 Mortgage-backed securities 574,292 693,828 279,618 Marketable equity securities 8,551 8,369 9,211 Other 69,723 229,277 43,120 ---------- ---------- ---------- TOTAL AVAILABLE FOR SALE SECURITIES $865,363 $1,256,946 $557,574 ========== ========== ==========
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 gains of $2,318 on all mortgage-backed securities at December 31, 2000, as compared to a net unrealized loss of $23,932 at December 31, 1999. The following table sets forth the maturities of all securities at December 31, 2000, 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 ------- ------ ------ ----- ------ ----- ------ ----- (Dollars in thousands) U.S. Treasury and other U.S. Government agencies and corporations $24,876 6.18% $70,367 6.38% $85,129 7.07% $ 34,776 7.33% States and political subdivisions (1) 3,031 7.97% 11,743 8.26% 37,961 7.58% 92,098 7.51% Mortgage-backed securities 465 6.09% 22,653 6.70% 79,840 6.38% 543,931 6.78% Other 11,337 7.01% 34,681 6.62% 192,446 7.82%
(1) Tax-equivalent adjustments (using a 35% federal rate) have been made in calculating yields on obligations of states and political subdivisions. NOTE: There are no securities with a single issuer whose book value in the aggregate exceeds 10% of total shareholders' equity. 18 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 ------------ ------------------- (Dollars in thousands) At December 31: 2000 $15,720 $313,349 1999 44,120 349,129 1998 7,260 236,535 Weighted average interest rate at year end: 2000 6.6% 5.2% 1999 5.0% 5.0% 1998 5.6% 4.6% Maximum amount outstanding at any month's end: 2000 $45,515 $417,866 1999 64,921 440,281 1998 35,416 236,535 Average amount outstanding during the year: 2000 $15,332 $351,816 1999 27,774 335,908 1998 24,334 201,475 Weighted average interest rate During the year: 2000 6.3% 5.3% 1999 5.4% 4.6% 1998 5.6% 4.7%
At December 31, 2000, repurchase agreements include $235,096 in overnight accounts. The remaining balance principally consists of agreements having maturities ranging from 2-90 days. The rates offered on these funds vary according to movements in the federal funds and short-term investment market rates. 19 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: 2000 1999 1998 ----------------------------- ------------------------------ --------------------------- Amount Rate Amount Rate Amount Rate ------------ ------------ ------------ ----------- ------------- ---------- (Dollars in thousands) Noninterest bearing demand deposits $ 473,205 $ 468,238 $ 452,300 Interest bearing demand deposits 354,771 1.35% 335,231 1.60% 312,317 2.37% Savings deposits 784,005 3.65% 865,351 3.36% 817,852 3.49% Time deposits 1,637,162 5.65% 1,689,483 5.28% 1,661,827 5.60% ------------ ------------ ------------ ----------- ------------- ---------- TOTAL $3,249,143 4.53% $3,358,303 4.24% $3,244,296 4.62% ============ ============ =============
Maturities of time certificates of deposit of $100,000 or more outstanding at December 31, 2000 are summarized as follows: (In thousands) 3 months or less $ 76,246 Over 3 through 6 months 80,712 Over 6 through 12 months 115,530 Over 12 months 116,969 ------------ TOTAL $ 389,457 ============ 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: 2000 1999 1998 -------- -------- -------- Return on average assets 1.19% 1.44% 1.05% Return on average equity 14.41% 16.73% 10.77% Dividend payout ratio (1) 59.83% 50.35% 63.77% Average equity to average assets ratio 8.29% 8.63% 9.73% (1) Based on historical results of United before the effects of restatements for pooling of interests business combinations. 20 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:
2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- (Dollars in thousands) Balance of allowance for possible loan losses at beginning of year $ 39,599 $ 39,189 $ 31,936 $ 29,376 $ 29,531 Allowance of purchased company at date of acquisition 2,695 Loans charged off: Commercial, financial and agricultural 2,482 3,896 800 1,352 2,310 Real estate 10,570 3,290 3,070 447 406 Real estate construction Consumer and other 2,793 2,050 2,400 2,436 1,199 ---------- ---------- ---------- ---------- ---------- TOTAL CHARGE-OFFS 15,845 9,236 6,270 4,235 3,915 Recoveries: Commercial, financial and agricultural 374 341 729 292 283 Real estate 226 156 217 263 237 Real estate construction Consumer and other 433 349 421 265 359 ---------- ---------- ---------- ---------- ---------- TOTAL RECOVERIES 1,033 846 1,367 820 879 ---------- ---------- ---------- ---------- ---------- NET LOANS CHARGED OFF 14,812 8,390 4,903 3,415 3,036 Addition to allowance (1) 15,745 8,800 12,156 3,280 2,881 ---------- ---------- ---------- ---------- ---------- BALANCE OF ALLOWANCE FOR LOAN LOSSES AT END OF YEAR $ 40,532 $ 39,599 $ 39,189 $ 31,936 $ 29,376 ========== ========== ========== ========== ========== Loans outstanding at the end of period (gross) $3,197,494 $3,170,096 $2,652,391 $2,689,839 $2,354,571 Average loans outstanding during period (net of unearned income) $3,320,065 $2,975,116 $2,668,460 $2,472,293 $2,245,292 Net charge-offs as a percentage of average loans outstanding 0.45% 0.28% 0.18% 0.14% 0.14% Allowance for loan losses as a percentage of nonperforming loans 315.5% 190.9% 209.9% 170.9% 229.8%
(1) The amount charged to operations and the related balance in the allowance for loan losses is based upon periodic evaluations of the loan portfolio by management. These evaluations consider several factors including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss experience and management's estimation of probable losses. Quarterly reviews of individual loans as well as the loan portfolio as a whole are made by management and the credit department. Management performs extensive procedures in granting and monitoring loans on a continual basis. Further, management believes that the allowance for loan losses is adequate to absorb anticipated losses. 21 UNITED BANKSHARES, INC. AND SUBSIDIARIES SUMMARY OF LOAN LOSS EXPERIENCE--Continued
Allocation of allowance for loan losses December 31 ------------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 Commercial, financial and Agricultural $12,762 $14,432 $13,772 $10,115 $ 8,261 Real estate 12,713 9,861 3,587 3,452 4,239 Real estate construction 1,372 754 1,086 674 511 Consumer and other 3,533 2,735 3,747 3,221 1,688 Unallocated 10,152 11,817 16,997 14,474 14,677 ------- ------- ------- ------- ------- Total $40,532 $39,599 $39,189 $31,936 $29,376 ======= ======= ======= ======= =======
22 UNITED BANKSHARES, INC. FORM 10-K, PART II Item 8. Financial Statements and Supplementary Data (a) - FINANCIAL STATEMENTS REQUIRED BY REGULATION S-X Information relating to financial statements on pages 9 through 37 inclusive of the Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. (b) - SUPPLEMENTARY FINANCIAL INFORMATION (1) Selected Quarterly Financial Data Information relating to selected quarterly financial data on page 37 of the Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. (2) Information on the Effects of Changing Prices Information relating to effects of changing prices on page 44 of the Annual Report to Shareholders for the year ended December 31, 2000, is incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES This item is omitted since it is not applicable. 23 UNITED BANKSHARES, INC. FORM 10-K, PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding directors and executive officers of the registrant on pages 4 through 9 inclusive and page 24, of the Proxy Statement for the 2001 Annual Shareholders' Meeting is incorporated herein by reference. Change of Control Agreements - ---------------------------- In August of 2000, United entered into agreements with Richard M. Adams, Jr., Kendal E. Carson, James J. Consagra, Jr., and John Neuner, III to encourage those executive officers not to seek other employment because of the possibility that United might be acquired by another entity. The Board of Directors determined that such an arrangement was appropriate especially in view of recent and anticipated changes in the banking industry. The agreements were not undertaken in the belief that a change of control was imminent. Generally, the agreements provide severance compensation to those officers if their employment should end under certain specified conditions after a change of control of United. Compensation is paid upon any involuntary termination following a change of control unless the officer is terminated for cause. In addition, compensation will be paid after a change of control if the officer voluntarily terminates employment because of a decrease in the total amount of the officer's base salary below the level in effect on the date of consummation of the change of control, without the officer's consent; a material reduction in the importance of the officer's job responsibilities without the officer's consent; geographical relocation of the officer without consent to an office more than fifty (50) miles from the officer's location at the time of a change of control; failure by United to obtain assumption of the contract by its successor or any termination of employment within thirty-six (36) months after consummation of a change of control which is effected for any reason other than good cause. Under the agreements, a change of control is deemed to occur in the event of a change of ownership of United which must be reported to the Securities and Exchange Commission as a change of control, including but not limited to the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 (the "Exchange Act")) of direct or indirect "beneficial ownership" (as defined by Rule 13d-3 under the Exchange Act) of twenty-five percent (25%) or more of the combined voting power of United's then outstanding securities, or the failure during any period of two (2) consecutive years of individuals who at the beginning of such period constitute the Board for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two- thirds (2/3) of the directors at the beginning of the period. Under the agreements, severance benefits include: (a) cash payment equal to the officers monthly base salary in effect on either (i) the date of termination; (ii) the date immediately preceding the change of control, whichever is higher, multiplied by the number of full months between the date 24 of termination and the date that is thirty-six (36) months after the date of consummation of the change of control; (b) payment of cash incentive award, if any, under United's Incentive Plan; (c) continuing participation in employee benefit plans and programs such as retirement, disability and medical insurance for a period of thirty-six (36) months following the date of termination. (See Exhibit 10.2 beginning on page 124.) Item 11. EXECUTIVE COMPENSATION Information regarding executive compensation on pages 10 through 14 inclusive, of the Proxy Statement for the 2001 Annual Shareholders' Meeting is incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management on pages 7 through 9 inclusive and pages 19 and 24, of the Proxy Statement for the 2001 Annual Shareholders' Meeting is incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding certain relationships and related transactions on pages 5, 6, 7, 14 and 18 of the Proxy Statement for the 2001 Annual Shareholders' Meeting is incorporated herein by reference. 25 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, 2000 at Item 8a. Page references are to such Annual report.
Financial Statements: Page References - -------------------- --------------- Report of Independent Auditors........................................................................ 9 Consolidated Balance Sheets........................................................................... 10 Consolidated Statements of Income..................................................................... 11 Consolidated Statements of Changes in Shareholders' Equity............................................ 12 Consolidated Statements of Cash Flows................................................................. 13 Notes to Consolidated Financial Statements............................................................ 14
(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 30 of this Form 10-K. (b) Reports on Form 8-K On December 27, 2000, United Bankshares, Inc. filed a Current Report under Items 5 and 7 to report a restructuring of its balance sheet. On January 22, 2001, United Bankshares, Inc. filed a Current Report under Items 5 and 7 to report the results of operations for the fourth quarter and year of 2000. (c) Exhibits -- The exhibits to this Form 10-K begin on page 79. 26 (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. 27 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, Director, March 27, 2001 - ------------------------------ and Chief Executive Officer /s/ Steven E. Wilson Chief Financial Officer March 27, 2001 - ------------------------------ Chief Accounting Officer /s/ John M. McMahon Director March 27, 2001 - ------------------------------ /s/ Warren A. Thornhill, III Director March 27, 2001 - ------------------------------ /s/ H. Smoot Fahlgren Director March 27, 2001 - ------------------------------ /s/ William C. Pitt, III Director March 27, 2001 - ------------------------------ /s/ Theodore J. Georgelas Director March 27, 2001 - ------------------------------ /s/ F.T. Graff, Jr. Director March 27, 2001 - ------------------------------ /s/ Russell L. Isaacs Director March 27, 2001 - ------------------------------ /s/ Harry L. Buch Director March 27, 2001 - ------------------------------ /s/ P. Clinton Winter, Jr. Director March 27, 2001 - ------------------------------ /s/ Robert G. Astorg Director March 27, 2001 - ------------------------------ 28 SIGNATURES (continued) Signatures Title Date /s/ Thomas J. Blair, III Director March 27, 2001 - -------------------------- /s/ James W. Word, Jr. Director March 27, 2001 - -------------------------- /s/ I.N. Smith, Jr. Director March 27, 2001 - -------------------------- /s/ G. Ogden Nutting Director March 27, 2001 - -------------------------- 29 UNITED BANKSHARES, INC. FORM 10-K INDEX TO EXHIBITS Item 14. Sequential S-K Item 601 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 and Agreement between Valley Savings and Loan Company (Lessor) and Dorothy Adams, Richard M. Adams and Douglass H. Adams (Lessees) (c) (f) Agreement between Dorothy D. Adams (Lessors) and Valley Savings and Loan Company (Lessees) (c) 30 Sequential S-K Item 601 Page Description Table Reference Number (a) - ----------- --------------- ---------- (g) Employment Contract with Douglass H. Adams (d) (h) Employment Contract with Thomas A. McPherson (d) (i) Data processing contract with FISERV (10.1) 79 (j) Supplemental Retirement Contract with Richard M. Adams (i) (k) Supplemental Retirement Contract with Douglass H. Adams (i) (l) Executive Officer Change (j) of Control Agreements (10.2) 124 (m) Employment Contract with Bernard H. Clineburg (k) Statement Re: Computation of Ratios (12) 129 Annual Report to Security Holders, et al. (13) 33 Letter Re: Change in accounting principles (18) N/A Previously Unfiled Documents (19) N/A Subsidiaries of the Registrant (21) 130 Published Report Regarding Matters Submitted to a Vote of Security Holders (22) N/A Consent of Ernst & Young LLP (23) 131 31 Sequential S-K Item 601 Page Description Table Reference Number (a) - ----------- --------------- ---------- Power of Attorney (24) N/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 Part II of Form S-4 Registration Statement of United Bankshares, Inc., Registration No. 333- 44993 filed January 27, 1998 32 UNITED BANKSHARES, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (Dollars in thousands, except per share data)
Five Year Summary ---------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ---------- ---------- ---------- Summary of Operations: Total interest income $ 377,847 $ 354,665 $ 325,647 $ 280,452 $ 250,641 Total interest expense 197,766 174,402 155,354 131,122 112,256 Net interest income 180,081 180,263 170,293 149,330 138,385 Provision for loan losses 15,745 8,800 12,156 3,280 2,881 Other income 33,786 51,078 41,752 37,068 29,654 Other expense 110,422 117,519 137,964 103,852 104,385 Income taxes 28,724 34,774 17,523 27,005 21,054 Net income 58,976 70,248 44,402 52,261 39,719 Cash dividends(1) 35,286 35,367 28,317 20,344 17,847 Per common share: Net income: Basic 1.41 1.63 1.04 1.24 0.94 Diluted 1.40 1.61 1.02 1.22 0.93 Cash dividends(1) 0.84 0.82 0.75 0.68 0.62 Book value per share 10.32 9.32 9.74 9.35 8.59 Selected Ratios: Return on average shareholders' equity 14.41% 16.73% 10.77% 13.92% 11.17% Return on average assets 1.19% 1.44% 1.05% 1.42% 1.18% Dividend payout ratio (1) 59.83% 50.35% 63.77% 49.69% 58.49% Selected Balance Sheet Data: Average assets $4,936,605 $4,867,521 $4,238,808 $3,682,302 $3,352,594 Investment securities 1,245,334 1,472,553 927,316 1,006,735 865,020 Loans held for sale 203,831 117,825 720,607 97,619 74,465 Total loans 3,192,494 3,170,096 2,652,391 2,689,839 2,354,571 Total assets 4,904,547 5,069,160 4,567,899 4,094,836 3,541,244 Total deposits 3,391,449 3,260,985 3,493,058 3,185,963 2,770,833 Long-term borrowings 698,204 343,847 240,867 46,674 44,877 Total borrowings and other liabilities 1,082,228 1,412,245 653,310 512,817 407,579 Shareholders' equity 430,870 395,930 421,531 396,056 362,832
(1) Cash dividends are the amounts declared by United and do not include cash dividends of acquired subsidiaries prior to the dates of consummation. 33 UNITED BANKSHARES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Congress passed the Private Securities Litigation Act of 1995 to encourage corporations to provide investors with information about the company's anticipated future financial performance, goals, and strategies. The act provides a safe harbor for such disclosure; in other words, protection from unwarranted litigation if actual results are not the same as management expectations. United desires to provide its shareholders with sound information about past performance and future trends. Consequently, any forward-looking statements contained in this report, in a report incorporated by reference to this report, or made by management of United in this report, in any other reports and filings, in press releases and in oral statements, involves numerous assumptions, risks and uncertainties. Actual results could differ materially from those contained in or implied by United's statements for a variety of factors including, but not limited to: changes in economic conditions; movements in interest rates; competitive pressures on product pricing and services; success and timing of business strategies; the nature and extent of governmental actions and reforms; and rapidly changing technology and evolving banking industry standards. INTRODUCTION The following discussion and analysis presents the significant changes in financial condition and the results of operations of United and its subsidiaries for the periods indicated below. This discussion and the consolidated financial statements and the notes to consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries, unless otherwise indicated. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes thereto, which are included elsewhere in this document. The following broad overview of the financial condition and results of operations is not intended to replace the more detailed discussion, which is presented under specific headings on the following pages. 2000 COMPARED TO 1999 EARNINGS SUMMARY For the year ended December 31, 2000, operating earnings were $72.5 million compared to $70.2 million for the year ended December 31, 1999. On a diluted per share basis, operating earnings were $1.72 in 2000 compared to $1.61 in 1999. Operating earnings represent earnings before balance sheet restructuring and other charges of approximately $20.09 million ($13.51 million after-tax) incurred during the fourth quarter of 2000. United restructured its 34 balance sheet by selling lower yielding, fixed-rate securities, which had been carried as available for sale. A majority of the proceeds of the sale was reinvested in higher yielding, fixed-rate securities with an average maturity comparable with those securities sold. A portion of the sale proceeds was also used to pay down short-term borrowings and to repurchase shares of United's common stock. Sales and write-downs of securities resulted in a loss of $15.01 million ($10.10 million after-tax) during the fourth quarter of 2000. In addition to the restructuring losses, United incurred other significant charges during the fourth quarter of 2000. United recorded an additional provision for loan losses of approximately $1.09 million ($734 thousand after- tax) due to the effects of a slowing economy on consumer and commercial loan customers. United also incurred litigation expense of $1.63 million ($1.09 million after-tax) as a result of a building operating lease settlement. Other charges, which related primarily to employee salary incentive and benefit plans, totaled approximately $2.36 million ($1.59 million after-tax). After these charges, diluted earnings per share were $1.40 for the year ended December 31, 2000, compared to $1.61 for the year ended December 31, 1999. Operating earnings represent a return on average shareholders' equity of 17.66% and a return on average assets of 1.47%, respectively, for the year ended December 31, 2000. These operating ratios compare favorably with national peer grouping information provided by Keefe, Bruyette, & Woods, of 14.82% and 1.16%, respectively. United, one of the nation's most profitable regional banking companies, has a strong capital position, and is well positioned to take advantage of future growth opportunities. Dividends per share increased from $0.82 in 1999 to a record level of $0.84 per share in 1999. United paid approximately $35.3 million in dividends to common shareholders in 2000 compared with $35.4 million in 1999. This was the twenty- seventh consecutive year of dividend increases to shareholders. The growth in operating earnings for the year of 2000 was a result of reducing noninterest expenses while maintaining a stable net interest margin in a challenging banking environment. Net interest income remained flat for the year of 2000 when compared to 1999 as increased deposit and funding costs resulting from six Federal Funds rate increases from mid 1999 through mid 2000 offset growth in interest income. Noninterest income, including income from mortgage banking operations, decreased $2.28 million or 4.47% for 2000 when compared to 1999 as the higher interest rates and a slowing economy caused a decline in mortgage banking results. Noninterest expenses decreased $11.09 million or 9.43% for 2000 compared to the same period in 1999. The effective tax rate for the year ended December 31, 2000 approximated 32.75% compared to 33.12% for 1999. FINANCIAL CONDITION SUMMARY Total assets were $4.90 billion at December 31, 2000, down $164.61 million or 3.25% compared with year end 1999. United's available for sale securities portfolio decreased $342.10 million while securities held to maturity increased $114.88 million as compared to year end 1999. Loans held for sale increased $86 million during 2000. Loans, net of unearned income, reflected a $22.40 million increase from 1999 to 2000 due mainly to a 6% growth rate in the commercial loan portfolio. Cash and cash equivalents decreased $15.00 million while nonearning assets increased $30.80 million in 2000 as compared with year end 1999. 35 Total deposits grew $130.46 million or 4% from year end 1999 as United realized increases of $71.82 million and $58.65 million in interest-bearing deposits and noninterest-bearing deposits, respectively. United's short-term borrowings decreased $64.53 million and its FHLB borrowings declined $246.84 million as United repaid these borrowings to restructure the balance sheet to better manage interest rate risk. Shareholders' equity increased $34.94 million or 8.82% from December 31, 1999 due to net retained earnings in excess of dividends for the year of $23.69 million and an increase in the fair value of United's securities available for sale portfolio of approximately $26.90 million, net of deferred income taxes. During 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 219,300 shares have been repurchased since its implementation. United continues to balance capital adequacy and the return to shareholders. At December 31, 2000, United's regulatory capital ratios, including those of its bank subsidiaries, exceeded the levels established for well-capitalized institutions. The following discussion explains in more detail the results of operations and changes in financial condition by major category. Net Interest Income Net interest income represents the primary component of United's earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. Such changes, and their impact on net interest income in 2000, are summarized below. Tax-equivalent interest income increased $26.0 million or 7.2% from $362.94 million for the year of 1999 to $388.94 million for the year of 2000. For the years ended December 31, 2000 and 1999, tax-equivalent net interest income was $191.17 million and $188.54 million, respectively. The main reason for only a slight increase in tax-equivalent net interest income from the previous year was increased deposit and funding costs resulting from six Federal Funds rate increases from mid 1999 through mid 2000, which predominantly offset the growth in interest income. United's tax-equivalent net interest margin was 4.11% for the year of 2000 and 4.12% for the same time period in 1999. Total interest income of $377.85 million increased 6.54% in 2000 over 1999 as a result of a higher yield on average interest-earning assets. Overall, the yield on average interest-earning assets increased 41 basis points from 7.93% in 1999 to 8.34% in 2000. The yield on average loans, net of unearned income, increased 43 basis points to 8.87% in the year 2000 from to 8.44% in 1999. The yield on average securities was 6.86% for the year 2000 as compared to 6.66% for 1999. The average volume of interest-earning assets remained relatively flat, increasing only $82.91 million in the year of 2000. Total interest expense increased $23.36 million or 13.40% in 2000 compared to 1999. This increase was attributed primarily to increased average wholesale funding balances at higher average interest rates than in 36 1999. The average cost of funds increased from 4.46% in 1999 to 4.95% in 2000 due to higher interest rates. United's average FHLB borrowings increased $197.91 million and average short-term borrowings increased $2.79 million as average interest-bearing deposits decreased $114.13 million. Provision for Loan Losses Asset quality improved significantly over the past year despite economic pressures affecting the banking industry and United's markets. Nonperforming loans were $12.85 million at December 31, 2000 as compared to $20.74 million at December 31, 1999. Nonperforming loans represented 0.26% of total assets at the end of the year 2000, as compared to 0.41% for United at the end of 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. Nonaccrual loans decreased $4.19 million or 34.04% while loans past due 90 days or more decreased $3.70 million or 43.95% since year end 1999. Total nonperforming assets of $14.96 million, including OREO of $2.11 million at December 31, 2000, represented 0.30% of total assets at the end of 2000. At December 31, 2000, impaired loans were $12.50 million, a decrease of $3.14 million or 20.07% from the $15.64 million of impaired loans at December 31, 1999. For further details, along with a discussion of concentrations of credit risk, see Note E to the 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, which are adjusted for current conditions and 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 December 31, 2000 produced increased allocations within three of four loan categories from December 31, 1999. The components of the allowance allocated to real estate increased $2.9 million, as a result of changes in historical loss experience factors. Also the consumer loan and real estate construction loan pools increased by $798 thousand and $618 thousand, respectively, as a result of changes in volume and historical loss experience. The components of the allowance allocated to commercial loans decreased $1.7 million as a result of a decrease in specific allocations on larger commercial loans. At year end 2000 and 1999, the allowance for loan losses was 1.27% and 1.25% of total loans, net of unearned income, respectively. At December 31, 2000 and 1999, the ratio of the allowance for loan losses to nonperforming loans was 315.5% and 190.9%, respectively, reflecting the impact of the significant decline in nonperforming loans. 37 Management believes that the allowance for loan losses of $40.53 million at December 31, 2000, is adequate to provide for probable losses on existing loans based on information currently available. For the years ended December 31, 2000 and 1999, the provision for loan losses was $15.75 million and $8.80 million, respectively. Net charge-offs were $14.81 million for the year of 2000 as compared to net charge-offs of $8.39 million for the year of 1999. The increases in provision and net charge-offs for the year were primarily attributed to the addition of junior-lien mortgage loans to the loan portfolio as of October 1, 1999. The increased provision and charge-offs were offset by increased interest income recognized on these high-interest rate loans. At December 31, 2000, the balance of these junior-lien mortgage loans approximated $173 million. Management is not aware of any potential problem loans, trends or uncertainties which it reasonably expects will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. Other Income Noninterest income has been and will continue to be an important factor for improving United's profitability. Accordingly, management continues to evaluate areas where noninterest income can be enhanced. Other income consists of all revenues that are not included in interest and fee income related to earning assets. Noninterest income, excluding securities gains and losses and mortgage banking results, increased 11.79% for the year of 2000 when compared to the year of 1999. These results were achieved primarily due to a combination of increased revenues from the deposit services area and the trust department. Service charges, commissions and fees from customer accounts increased $2.54 million or 12.78% from 1999 due mainly to a new checking account product introduced late in 1999. This income includes charges and fees related to various banking services provided by United. Trust income and brokerage commissions increased $812 thousand or 16.43% and $222 thousand or 20.50%, respectively, in 2000 due to an increased volume of trust and brokerage business. United significantly broadened the scope and activity of its trust and brokerage service areas, especially in the northern Virginia market, to provide additional sources of fee income that complement United's traditional banking products and services. Mortgage banking results declined from the previous year due to higher interest rates and a slowing economy, both of which adversely impacted the demand for mortgage loan originations and the fees received on the sale of those mortgage loans in the secondary market. Originations of mortgage loans fell 5% or $67.4 million for the year of 2000 as compared to the same period in 1999 while proceeds from sales of mortgage loans declined 21% or $302.4 million in the year of 2000 compared to last year. During 2000, United incurred a net loss on the sale of investment securities of $13.86 million as compared to a net gain of $677 thousand during 1999. As previously mentioned, United restructured its balance sheet in the fourth quarter of 2000 by selling lower yielding, fixed-rate securities which had been carried as 38 available for sale. Sales and write-downs of securities from this restructuring resulted in loss of approximately $15.01 million ($10.10 million after-tax) during the fourth quarter of 2000. Overall, noninterest income, including net gains and losses from the sale of securities and income from mortgage banking operations, decreased $2.28 million or 4.47% for 2000 when compared to 1999. 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 44.8%, which is well below the 57.6% 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. Noninterest expense, excluding one-time charges of $3.99 million recognized in the fourth quarter of 2000, decreased $11.09 million or 9.43% for the year ended December 31, 2000 as compared to the year ended 1999. Including these one-time charges, total noninterest expense declined $7.10 million or 6.04% from 1999. Total salaries and benefits, excluding one-time charges of $960 thousand, decreased by 13.14% or $7.90 million for the year of 2000 compared to year 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. Including the one-time expenses, total salaries and benefits declined $6.94 million or 11.54% from 1999. At December 31, 2000 and 1999, United employed 1,253 and 1,387 full-time equivalent employees, respectively. Net occupancy expense in 2000, excluding one-time charges of $108 thousand, decreased from 1999 levels by $527 thousand or 4.32%. The overall change in net occupancy expense for 2000 was mainly due to decreased building repair and maintenance expenses. Remaining other expense, excluding one-time charges of approximately $2.92 million, decreased $2.66 million or 5.89% in 2000 compared to 1999. Including the aforementioned one-time expenses, other expense remained relatively flat from 1999. Income Taxes For the years ended December 31, 2000 and 1999, United's effective tax rate approximated 33%. Quarterly Results The first, second and third quarters of 2000 showed increases in earnings in comparison to those same three quarters of 1999. On a per share basis, first quarter 2000 earnings were $0.42 per share compared to $0.39 in 1999, second quarter 2000 earnings were $0.43 per share compared to $0.40 in 1999 while third quarter 2000 earnings were $0.44 compared to $0.41 per share in 1999. 39 In the fourth quarter of 2000, United reported earnings per share of $0.11 as compared to $0.41 per share for the same period in 1999. Fourth quarter 2000 results included balance sheet restructuring and other one-time charges of approximately $20.09 million ($13.51 million after-tax). Additional quarterly financial data for 2000 and 1999 may be found in Note Q to the Consolidated Financial Statements. The Effect of Inflation United's income statements generally reflect the effects of inflation. Since interest rates, loan demand and deposit levels are impacted by inflation, the resulting changes in the interest sensitive assets and liabilities are included in net interest income. Similarly, operating expenses such as salaries, rents and maintenance include changing prices resulting from inflation. One item that would not reflect inflationary changes is depreciation expense. Subsequent to the acquisition of depreciable assets, inflation causes price levels to rise; therefore, historically presented dollar values do not reflect this inflationary condition. With inflation levels at relatively low levels and monetary and fiscal policies being implemented to keep the inflation rate increases within an acceptable range, management expects the impact of inflation would continue to be minimal in the near future. Market Risk The objective of United's Asset/Liability Management function is to maintain consistent growth in net interest income within United's policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic condition, interest rate levels and customer preferences. Management considers interest rate risk to be United's most significant market risk. Interest rate risk is the exposure to adverse changes in the net interest income of United as a result of changes in interest rates. Consistency in United's earnings is largely dependent on the effective management of interest rate risk. United employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. One such technique utilizes an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. The model is based on projected cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also includes executive management projections for activity levels in product lines offered by United. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time-frame. The principal function of interest rate risk management is to maintain an 40 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 ongoing 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 $117 million or 2.51% of the cumulative gap to related earning assets. During 1998, United purchased fixed-rate junior-lien mortgage loans from an unrelated third party financial institution with the intention that these loans would be securitized and resold back to the third party lender. However, the third party was unable to repurchase the loans and United inherited approximately $456 million of these mortgage loans which United held for sale on its balance sheet as of December 31, 1998. During 1999, to better manage risk, United securitized approximately $205 million of these loans and retained a portion of the resultant securities. At December 31, 2000, the retained resultant securities approximated $55 million and are carried in the available for sale investment portfolio. The remainder of these junior-lien mortgages are held in the loan portfolio and the balance at December 31, 2000, approximated $173 million. To aid in interest rate risk management, United's subsidiary banks are members of the Federal Home Loan Bank (FHLB). The use of FHLB borrowings provides United with a low risk means of matching maturities of earning assets and interest-bearing funds to achieve a desired interest rate spread over the life of the earning assets. Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. United's Asset/Liability Management Committee (ALCO), which includes senior management representatives, reports to the Board of Directors and 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. 41 The following table shows United's estimated earnings sensitivity profile after management's adjustments as of December 31, 2000 and 1999:
Change in Interest Rates Percentage Change in Net Interest Income ----------------------------------------------- (basis points) December 31, 2000 December 31, 1999 -------------- ----------------- ----------------- +200 -2.62% -8.06% -200 -3.57% 5.17%
Given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, it is estimated that net interest income for United would decrease by 2.62% over one year as of December 31, 2000, as compared to a decrease of 8.06% as of December 31, 1999. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 3.57% over one year as of December 31, 2000, as compared to an increase of 5.17% as of December 31, 1999. All of these estimated changes in net interest income are within the policy guidelines established by the Board of Directors. 42 The following table shows the interest rate sensitivity GAP as of December 31, 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 $ 2,009 $ 2,009 $ 2,009 Investment and marketable equity securities Taxable 119,649 $ 10,282 $ 29,523 159,454 $ 107,714 $ 832,843 1,100,011 Tax-exempt 3,024 3,024 11,743 130,556 145,323 Loans, net of unearned income 1,205,692 174,559 322,183 1,702,434 838,958 854,933 3,396,325 ------------------------------------------------------------------------------------------------ Total Interest-Earning Assets $1,327,350 $ 187,865 $ 351,706 $1,866,921 $ 958,415 $1,818,332 $4,643,668 ================================================================================================ LIABILITIES Interest-Bearing Funds: Savings and NOW accounts $1,145,921 $1,145,921 $1,145,921 Time deposits of $100,000 & over 76,065 $ 51,268 $ 143,597 270,930 $ 117,199 $ 1,328 389,457 Other time deposits 248,875 262,396 366,449 877,720 435,907 3,029 1,316,656 Federal funds purchased, repurchase agreements and other short-term borrowings 268,963 27,750 296,713 37,003 333,716 FHLB borrowings 25,000 20,311 45,311 97,500 563,701 706,512 ------------------------------------------------------------------------------------------------ Total Interest-Bearing Funds $1,764,824 $ 341,414 $ 530,357 $2,636,595 $ 687,609 $ 568,058 $3,892,262 ================================================================================================ Interest Sensitivity Gap ($437,474) ($153,549) ($178,651) ($769,674) $ 270,806 $1,250,274 $ 751,406 ================================================================================================ Cumulative Gap ($437,474) ($591,023) ($769,674) ($769,674) ($498,868) $ 751,406 $ 751,406 ================================================================================================ Cumulative Gap as a Percentage of Total Earning Assets (9.42%) (12.73%) (16.57%) (16.57%) (10.74%) 16.18% 16.18% Management Adjustments $1,107,813 ($73,891) ($ 147,671) $ 866,250 ($886,250) $ 0 Off-Balance Sheet Activities ------------------------------------------------------------------------------------------------ Cumulative Management Adjusted Gap and Off-Balance Sheet Activities $ 670,339 $ 442,899 $ 116,576 $ 116,576 ($498,868) $ 751,406 $ 751,406 ================================================================================================ Cumulative Management Adjusted Gap and Off-Balance Sheet Activities as a Percentage of Total Earning Assets 14.44% 9.54% 2.51% 2.51% (10.74%) 16.18% 16.18% =================================================================================================
43 Liquidity and Capital Resources In the opinion of management, United maintains liquidity that is sufficient to satisfy its depositors' requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is "core deposits". Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase as well as advances from the FHLB. Repurchase agreements represent funds that are generally obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day- to-day demands of customers. Other than cash and due from banks, the available for sale securities portfolio and maturing loans are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United's cash needs. Liquidity is managed by monitoring funds availability from a number of primary sources. Substantial funding is available from cash and cash equivalents, unused short-term borrowings and a geographically dispersed network of branches providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of FHLB advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, and borrowings secured by bank premises or stock of United's subsidiaries. United has no intention at this time of utilizing any long-term funding sources other than FHLB advances and long-term certificates of deposit. Cash flows from operations in 2000 provided United with $743 thousand of cash compared to cash flows provided from operations of $226.41 million in 1999 primarily as a result of approximately $79.05 million of excess originations of mortgage loans over sales proceeds. In 1999, proceeds from sales of mortgage loans exceeded originations by $155.95 million. In 2000, net cash of $216.64 million was provided by investing activities as compared to 1999 in which investing activities resulted in a use of cash of $674.16 million. Cash provided by investing activities in 2000 was primarily due to $256.10 million of excess net proceeds from calls and maturities of investment securities over purchases of investment securities. In 1999 cash was used in investing activities due mainly to excess purchases of investment securities over net proceeds from calls and maturities of securities by $383.76 million as well as to support loan portfolio growth of $290.82 million. For the year of 2000, net cash of $232.38 million was used in financing activities, primarily due to the net repayment of approximately $246.84 million of FHLB borrowings, payment of $35.47 million in cash dividends and $18.38 million for acquisitions of United shares under the stock repurchase programs. Financing activities resulted in a source of cash in 1999 of $466.27 million primarily due to an increase in net borrowings from the FHLB and other short-term borrowings of $607.48 million and $149.21 million, 44 respectively. The net effect of this activity was a decrease in cash and cash equivalents of $15.00 million for the year of 2000. 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 H, Notes to Consolidated Financial Statements. 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. United also seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United has historically generated attractive returns on shareholders' equity. United's average equity to average asset ratio was 8.29% in 2000 and 8.63% in 1999. United's risk-based capital ratio was 11.77% in 2000 and 11.75% in 1999 which are both significantly higher than the minimum regulatory requirements. United's Tier 1 capital and leverage ratios of 10.68% and 8.17%, respectively, at December 31, 2000, are also well above regulatory minimums to be classified as a "well capitalized" institution. See Note N, Notes to Consolidated Financial Statements. Commitments At December 31, 2000 United had outstanding loan commitments of $1,086,455,000 pertaining to lines of credit authorized, but unused and $89,013,000 of letters of credit to its various customers in the normal course of business. 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 K to the Consolidated Financial Statements. 1999 COMPARED TO 1998 EARNINGS SUMMARY For the year ended December 31, 1999, net income increased 58.21% to $70.2 million from $44.4 million for the year ended December 31, 1998. On a diluted per share basis, net income of $1.61 for the year increased 57.85% from $1.02 in 1998. Results for 1998 include the recognition of approximately $13.7 million ($8.2 million after tax) of merger-related and one-time charges associated with the pooling of interests acquisitions of George Mason Bankshares, Inc. and Fed One Bancorp, Inc. 45 For the year of 1999, United's return on average shareholders' equity of 16.73% and a return on average assets of 1.44% compared favorably with national peer grouping information provided by Keefe, Bruyette, & Woods, of 15.86% and 1.35%, respectively. Dividends per share increased 9.34% from $0.75 in 1998 to a record level of $0.82 per share in 1999. United paid approximately $35.0 million in dividends to common shareholders in 1999 compared with $24.65 million in 1998. Growth in earnings was a result of increases in net interest and noninterest income as well as a reduction of noninterest expenses. Net interest income increased by $9.97 million or 5.85% for the year ended December 31, 1999 as compared to the same period for 1998. Noninterest income, including income from mortgage banking operations, increased $9.33 million or 22.34% for 1999 when compared to 1998. Noninterest expenses decreased $20.45 million or 14.82% for 1999 compared to the same period in 1998. The effective tax rate for the year ended December 31, 1999 approximated 33.12% compared to 28.30% for 1998. FINANCIAL CONDITION SUMMARY Total assets were $5.07 billion at December 31, 1999, up $501.26 million or 10.97% compared with year end 1998. United's available for sale securities portfolio increased $642.20 million while securities held to maturity decreased $96.96 million as compared to year end 1998. Loans held for sale decreased $603 million during 1999 due mainly to a securitization in the amount of approximately $205 million, transfer of approximately $230 million to the loan portfolio and sales of mortgage loans in the secondary market. Loans, net of unearned income, reflected a $517.71 million increase from 1998 to 1999 due to 13% growth rates in both the commercial and consumer (non-mortgage) loan portfolios, as well as the previously mentioned reclassification. Cash and cash equivalents increased $18.51 million while nonearning assets increased $23 million in 1999 as compared with year end 1998. Total deposits declined $232.07 million or 6.64% from year end 1998 as United realized decreases of $169.85 million and $62.22 million in interest-bearing deposits and noninterest-bearing deposits, respectively. United's short-term borrowings increased $151.21 million and its FHLB borrowings increased $607.48 million as United utilized these sources of cash to fund investment and loan growth. Shareholders' equity decreased $25.60 million or 6.07% from December 31, 1998 due primarily to purchases of treasury stock of $26.19 million and a decline in the fair value of United's securities available for sale portfolio of approximately $37.16 million, net of deferred income taxes. In May of 1999, United announced a 1.75 million share repurchase program, and by year end 1999, United had purchased approximately 1.05 million shares. United continues to balance capital adequacy and the return to shareholders. At December 31, 1999, United's regulatory capital ratios, including those of its bank subsidiaries, exceeded the levels established for well-capitalized institutions. The following discussion explains in more detail the results of operations and changes in financial condition by major category. 46 Net Interest Income Net interest income represents the primary component of United's earnings. It is the difference between interest income from earning assets and interest expense incurred to fund these assets. Net interest income is impacted by changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as changes in market interest rates. For the years ended December 31, 1999 and 1998, tax-equivalent net interest income was $188.54 million and $174.12 million, respectively. On a tax- equivalent basis the net interest margin was 4.12% for 1999 and 4.37% for 1998. The decline in the margin percentage reflected a changing earning asset mix primarily related to the securitization of higher yielding high loan-to-value mortgage loans. As a result of the securitization, interest income on the securities was recognized at a projected loss-adjusted yield that was significantly less than the contractual yields of the underlying assets. Total interest income of $354.67 million increased 8.91% in 1999 over 1998 as a result of higher volumes of interest-earning assets. Overall, average interest- earning assets increased $589.04 million or 14.77% during 1999 from $3.99 billion in 1998 to $4.58 billion in 1999. In particular, the average volume of investment securities increased $556.10 million at a slightly higher yield since December 31, 1998. During 1999, United experienced growth in all three major loan portfolios--commercial loans increased 13.85%, consumer loans increased 13.33% and mortgage loans increased 6.42%. Commercial loan growth was due to the more active solicitation of commercial loan volume, while the increase in the consumer loan portfolio was mainly attributable to the introduction of certain loan products in United's northern Virginia market. Total interest expense increased $19.05 million or 12.26% in 1999 compared to 1998. This increase was attributed primarily to increased average wholesale funding balances at lower average interest rates than in 1998. The average cost of funds decreased from 4.70% in 1998 to 4.46% in 1999 in light of a rising interest rate environment. United's average FHLB borrowings increased $370.84 million and average short-term borrowings increased $138.42 million as United implemented a strategy during 1999 to leverage its balance sheet. Average interest-bearing deposits increased slightly by $98.07 million or 3.52% in 1999. Provision for Loan Losses Nonperforming loans were $20.74 million at December 31, 1999 and $18.67 million at December 31, 1998. Nonperforming loans as a percentage of total assets remained constant at 0.41% for United at the end of 1999 and 1998. The components of nonperforming loans include nonaccrual loans and loans which are contractually past due 90 days or more as to interest or principal, but have not been put on a nonaccrual basis. Nonaccrual loans increased $3.19 million or 34.89% while loans past due 90 days or more decreased $1.11 million or 11.69% since year end 1998. Total nonperforming assets of $24.51 million, including OREO of $3.76 million at December 31, 1999, represented 0.49% of total assets at the end of 1999. At December 31, 1999, impaired loans were $15.64 million, an increase of $4.72 million or 43.20% from the $10.92 million of impaired loans at December 31, 1998 due primarily to three collateralized commercial loans totaling $4.1 million being classified as nonaccrual. 47 This decline in credit quality from 1998 was indicative of the trend in the banking industry during 1999. The nonperforming assets to total assets ratio among the nation's top-30 regional banks increased to approximately 0.42% at the end of 1999 as compared to 0.35% at the end of 1998 according to information from Wheat First Union Securities. Much of the deterioration nationwide has occurred in the commercial lending area. However, credit quality remained strong by historical standards. Bank credit quality has improved significantly since the early 1990s in which the nonperforming assets to total assets ratio for the 30 largest regional banks reached a high of 1.67% in 1991. United's formal company- wide process at December 31, 1999 for loan losses evaluation process produced increased allocations within two of four loan categories. The components of the allowance allocated to real estate increased $6.3 million, as a result of the addition to the loan portfolio of a large block of junior-lien mortgage loans previously held for sale. The components of the allowance allocated to commercial loans increased $660 thousand as a result of the increased level of impaired assets and changes in historical loss experience factors. Pools for consumer and real estate construction loans decreased $1.0 million and $332 thousand, respectively, as a result of changes in historical loss experience and volume factors for these loan pools. At year end 1999 and 1998, the allowance for loan losses was 1.25% and 1.47% of total loans, net of unearned income, respectively. At December 31, 1999 and 1998, the ratio of the allowance for loan losses to nonperforming loans was 190.9% and 209.9%, respectively. For the years ended December 31, 1999 and 1998, the provision for loan losses was $8.80 million and $12.16 million, respectively. Total net charge-offs were $8.4 million in 1999 and $4.9 million in 1998, which represents 0.28% and 0.18% of average loans for the respective years. The increase was due to additional net charge-offs of approximately $3.6 million in commercial loans during 1999 as compared to 1998. Over half the increased charge-off in 1999 was due to the charge-off of approximately $2.6 million associated with a single borrower. Other Income Noninterest income increased $9.33 million or 22.34% for 1999 when compared to 1998. Other income consists of all revenues that are not included in interest and fee income related to earning assets. The increase in noninterest income for 1999 was primarily the result of an $8.18 million increase in the mortgage banking segment and a $1.44 million increase in trust department income. These increases in noninterest income were partially offset by a $1.69 million decline in net gains on securities due to a $2.49 million recognized gain on an available for sale equity security exchanged in an unaffiliated merger transaction consummated in 1998. Service charges, commissions and fees from customer accounts increased $839 thousand or 4.41% from 1998 due mainly to a new checking account product introduced during the third quarter of 1999. This income includes charges and fees related to various banking services provided by United. Trust income and brokerage commissions increased $820 thousand or 19.92% and $618 thousand or 133.82%, respectively, in 1999 due to an increased volume of trust and brokerage business. United significantly broadened the scope and activity of its trust and brokerage service areas, especially in the 48 northern Virginia market, to provide additional sources of fee income that complemented United's traditional banking products and services. Other Expense Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations and thus reduce operating costs. United's cost control efforts have been very successful resulting in an efficiency ratio of 50.8% for 1999, which is well below the 58.28% 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 decreased $20.45 million or 14.82%. This decrease was primarily due to the merger-related and one-time charges associated with the George Mason and Fed One acquisitions, as well as charges associated with the purchase acquisition of branches in the eastern panhandle of West Virginia during 1998. These charges, which totaled $13.7 million ($8.2 million after tax), consisted primarily of employee benefits, severance, facilities and conversion costs to effect the mergers. Excluding these charges, other expense still decreased $6.75 million or 5.44%. Salaries and employee benefits expense decreased $9.44 million or 13.57% in 1999 as compared to 1998. Much of this decrease was due to approximately $5.9 million of severance pay and related benefits of displaced employees in the George Mason and Fed One mergers in 1998. At December 31, 1999 and 1998, United employed 1,387 and 1,452 full-time equivalent employees, respectively. Net occupancy expense in 1999 decreased from 1998 levels by $527 thousand or 4.14%. The overall changes in net occupancy expense for 1999 were insignificant with no material increase or decrease in any one expense category. Remaining other expense decreased $10.48 million or 18.82% in 1999 compared to 1998. Excluding the aforementioned merger-related expenses associated with the George Mason and Fed One mergers and the costs associated with branch purchases in 1998, other expense actually increased approximately $3.22 million or 7.67%. Other expense categories that reflected increases over 1998 were collection expenses on loans, armored car and carrier fees, ATM processing costs and certain other general business taxes and licenses. Income Taxes For the year ended December 31, 1999, United's effective tax rate approximated 33% compared to 28% in 1998. The lower rate in 1998 was primarily the result of dividends from certain subsidiaries that were liquidated in restructuring and reorganizational initiatives. 49 REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS Board of Directors and Shareholders United Bankshares, Inc. We have audited the accompanying consolidated balance sheets of United Bankshares, Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Charleston, West Virginia February 16, 2001 50 CONSOLIDATED BALANCE SHEETS UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except par value) December 31 -------------------------------- 2000 1999 --------------------------------- Assets Cash and due from banks $ 142,801 $ 131,091 Interest-bearing deposits with other banks 884 8,317 Federal funds sold 1,125 20,400 --------------------------------- Total cash and cash equivalents 144,810 159,808 Securities available for sale at estimated fair value (amortized cost-$865,363 at December 31, 2000 and $1,256,946 at December 31, 1999) 865,266 1,207,363 Securities held to maturity (estimated fair value-$378,405 at December 31, 2000 and $258,183 at December 31, 1999) 380,068 265,190 Loans held for sale 203,831 117,825 Loans 3,197,494 3,177,392 Less: Unearned income (5,000) (7,296) --------------------------------- Loans net of unearned income 3,192,494 3,170,096 Less: Allowance for loan losses (40,532) (39,599) --------------------------------- Net loans 3,151,962 3,130,497 Bank premises and equipment 44,481 48,696 Accrued interest receivable 36,000 36,357 Other assets 78,129 103,424 --------------------------------- TOTAL ASSETS $4,904,547 $5,069,160 ================================= Liabilities Domestic deposits: Noninterest-bearing $ 539,415 $ 480,767 Interest-bearing 2,852,034 2,780,218 --------------------------------- Total deposits 3,391,449 3,260,985 Borrowings: Federal funds purchased 15,720 44,120 Securities sold under agreements to repurchase 313,349 349,129 Federal Home Loan Bank borrowings 706,512 953,347 Other borrowings 4,647 4,998 Accrued expenses and other liabilities 42,000 60,651 --------------------------------- TOTAL LIABILITIES 4,473,677 4,673,230 Shareholders' Equity Common stock, $2.50 par value; Authorized-100,000,000 shares; issued- 43,381,769 at December 31, 2000 and December 31, 1999, including 1,616,498 and 894,661 shares in treasury at December 31, 2000 and December 31, 1999, respectively 108,454 108,454 Surplus 85,032 87,260 Retained earnings 278,682 254,992 Accumulated other comprehensive loss (4,964) (32,228) Treasury stock, at cost (36,334) (22,548) --------------------------------- TOTAL SHAREHOLDERS' EQUITY 430,870 395,930 --------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,904,547 $5,069,160 =================================
See notes to consolidated financial statements 51 CONSOLIDATED STATEMENTS OF INCOME UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands, except per share data) Year Ended December 31 ------------------------------------------ 2000 1999 1998 ----------- ----------- ----------- Interest income Interest and fees on loans $ 287,277 $ 258,404 $ 265,205 Interest on federal funds sold and other short-term investments 1,171 522 1,472 Interest and dividends on securities: Taxable 79,190 85,392 55,550 Tax-exempt 10,209 10,347 3,420 ----------- ----------- ----------- Total interest income 377,847 354,665 325,647 Interest expense Interest on deposits 125,847 122,651 128,976 Interest on short-term borrowings 19,898 17,104 10,732 Interest on Federal Home Loan Bank borrowings 52,021 34,647 15,646 ----------- ----------- ----------- Total interest expense 197,766 174,402 155,354 ----------- ----------- ----------- Net interest income 180,081 180,263 170,293 Provision for loan losses 15,745 8,800 12,156 ----------- ----------- ----------- Net interest income after provision for loan losses 164,336 171,463 158,137 Other income Income from mortgage banking operations 16,340 22,392 14,211 Service charges, commissions, and fees 22,402 19,863 19,024 Trust department income 7,053 6,020 4,581 Security (losses)/gains (13,864) 677 2,370 Other income 1,855 2,126 1,566 ----------- ----------- ----------- Total other income 33,786 51,078 41,752 Other expense Salaries and employee benefits 53,174 60,111 69,550 Net occupancy expense 11,787 12,206 12,733 Other expense 45,461 45,202 55,681 ----------- ----------- ----------- Total other expense 110,422 117,519 137,964 ----------- ----------- ----------- Income before income taxes 87,700 105,022 61,925 Income taxes 28,724 34,774 17,523 ----------- ----------- ----------- Net income $ 58,976 $ 70,248 $ 44,402 =========== =========== =========== Earnings per common share: Basic $ 1.41 $ 1.63 $ 1.04 =========== =========== =========== Diluted $ 1.40 $ 1.61 $ 1.02 =========== =========== =========== Dividends per common share $ 0.84 $ 0.82 $ 0.75 =========== =========== =========== Average outstanding shares: Basic 41,958,956 43,100,977 42,757,638 Diluted 42,260,270 43,722,081 43,461,222
See notes to consolidated financial statements 52 CONSOLIDATED STATEMENT 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 (Loss) Stock Equity ------------------------------------------------------------------------------------ Balance at January 1, 1998 42,635,898 $106,590 $80,803 $204,849 $ 6,333 ($2,519) $396,056 Comprehensive income: Net income 44,402 44,402 Other comprehensive income, net of tax Unrealized gain on securities of $335 net of reclassification adjustment for gains included in net income of $1,734 (1,399) (1,399) -------- Total comprehensive income 43,003 Cash dividends ($0.75 per share) (28,317) (28,317) Fractional shares adjustment (213) (7) (7) Purchase of treasury stock (137,300 shares) (3,610) (3,610) Common stock options exercised (546,530 shares) 285,148 712 (1,174) (202) 5,466 4,802 Sale of treasury stock (37,376 shares) 654 654 Pre-merger transactions of pooled companies 336,000 840 8,731 (621) 8,950 ------------------------------------------------------------------------------------ Balance at December 31, 1998 43,256,833 108,142 88,353 220,111 4,934 (9) 421,531 Comprehensive income: Net income 70,248 70,248 Other comprehensive income, net of tax: Unrealized loss on securities of $36,722 net of reclassification adjustment for gains included in net income of $440 (37,162) (37,162) -------- Total comprehensive income 33,086 Purchase of treasury stock (1,049,800 shares) (26,196) (26,196) Cash dividends ($0.82 per share) (35,367) (35,367) Common stock options exercised (281,960 shares) 124,936 312 (1,093) 3,657 2,876 ------------------------------------------------------------------------------------ Balance at December 31, 1999 43,381,769 108,454 87,260 254,992 (32,228) (22,548) 395,930 Comprehensive income: Net income 58,976 58,976 Other comprehensive income, net of tax: Unrealized gain on securities of $17,884 net of reclassification adjustment for losses included in net income of $9,012 26,896 26,896 Amortization of the unrealized loss for securities transferred from the available-for-sale to the held-to-maturity investment portfolio 368 368 --------- Total comprehensive income 86,240 Purchase of treasury stock (919,500 shares) (18,384) (18,384) Cash dividends ($0.84 per share) (35,286) (35,286) Common stock options exercised (197,663 shares) (2,228) 4,598 2,370 ------------------------------------------------------------------------------------ Balance at December 31, 2000 43,381,769 $108,454 $85,032 $278,682 ($4,964) ($36,334) $430,870 ====================================================================================
See notes to consolidated financial statements 53 CONSOLIDATED STATEMENTS OF CASH FLOWS UNITED BANKSHARES, INC. AND SUBSIDIARIES
(Dollars in thousands) Year Ended December 31 2000 1999 1998 ----------- ----------- ----------- OPERATING ACTIVITIES Net income $ 58,976 $ 70,248 $ 44,402 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 15,745 8,800 12,156 Provision for depreciation 6,999 8,028 7,739 Amortization, net of accretion 2,517 3,370 5,913 Gain on sales of bank premises and equipment (376) (1,475) (116) Loss (Gain) on sales and calls of securities 13,864 (677) (2,370) Loans originated for sale (1,215,244) (1,282,629) (1,541,187) Proceeds from sales of loans 1,136,198 1,438,580 1,405,524 Gain on sales of loans (8,210) (13,576) (13,910) Deferred income tax benefit (6,445) (4,475) (2,788) Changes in: Loans held for sale 1,038 6,154 5,154 Interest receivable 357 (5,955) (6,415) Other assets 3,659 (891) (7,049) Accrued expenses and other liabilities (8,335) 903 (6,832) ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 743 226,405 (99,779) ----------- ----------- ----------- INVESTING ACTIVITIES Proceeds from maturities and calls of investment securities 26,435 152,045 142,854 Purchases of investment securities (2,630) (55,101) (110,002) Proceeds from sales of securities available for sale 541,672 336,558 Proceeds from maturities and calls of securities available for sale 126,897 146,794 340,318 Purchases of securities available for sale (436,277) (964,059) (294,657) Proceeds from sales of loans 471,978 Purchases of loans (943,680) Net purchases of bank premises and equipment (2,522) 423 (6,765) Net cash received from acquired subsidiary/branch 56,472 Net change in loans (36,932) (290,824) 38,249 ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 216,643 (674,164) (305,233) ----------- ----------- ----------- FINANCING ACTIVITIES Cash dividends paid (35,468) (34,999) (24,651) Acquisition of treasury stock (18,384) (26,196) (3,610) Proceeds from exercise of stock options 2,370 2,876 4,802 Proceeds from sales of treasury stock 654 Pre-merger transactions of pooled companies 8,237 Repayment of Federal Home Loan Bank borrowings (697,565) (141,618) (227,164) Proceeds from Federal Home Loan Bank borrowings 450,730 749,098 342,240 Purchase of fractional shares (7) Changes in: Time deposits 106,582 (128,286) 129,364 Other deposits 23,882 (103,814) 108,057 Federal funds purchased, securities sold under agreements to repurchase and other borrowings (64,531) 149,208 18,360 ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (232,384) 466,269 356,282 ----------- ----------- ----------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (14,998) 18,510 (48,730) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 159,808 141,298 190,028 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 144,810 $ 159,808 $ 141,298 =========== =========== ===========
See notes to consolidated financial statements 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNITED BANKSHARES, INC. AND SUBSIDIARIES December 31, 2000 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations: United Bankshares, Inc. is a multi-bank holding company - --------------------- headquartered in Charleston, West Virginia. The principal markets of United Bankshares, Inc. and subsidiaries (United) are located in Parkersburg, Charleston, Huntington, Morgantown and Wheeling, West Virginia and Arlington, Fairfax, Loudoun and Prince William counties, Virginia. United's principal business activities are community banking and mortgage banking. Basis of Presentation: The consolidated financial statements and the notes to - ---------------------- consolidated financial statements include the accounts of United Bankshares, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. The accounting and reporting policies of United conform with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. A description of the significant accounting policies is presented below. Certain prior period data has been reclassified to conform to the current period presentation. The reclassifications had no effect on net income or shareholders' equity. Cash Flow Information: United considers cash and due from banks, interest- - ---------------------- bearing deposits with other banks and federal funds sold as cash and cash equivalents. Securities: Management determines the appropriate classification of securities - ----------- at the time of purchase. Debt securities that United has the positive intent and the ability to hold to maturity are carried at amortized cost. Securities to be held for indefinite periods of time and all marketable equity securities are classified as available for sale and carried at fair value. Unrealized holding gains and losses on securities classified as available for sale are carried as a separate component of other comprehensive income, net of deferred income taxes. Gains or losses on sales of securities are recognized by the specific identification method and are reported separately in the statements of income. Loans: Interest on loans is accrued and credited to operations using methods - ------ that produce a level yield on individual principal amounts outstanding. Loan origination and commitment fees and related direct loan origination costs are deferred and amortized as an adjustment of loan yield over the estimated life of the related loan. The accrual of interest income on commercial and most consumer loans generally is discontinued when a loan becomes 90 to 120 days past due as to principal or interest. When interest accruals are 55 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued discontinued, unpaid interest recognized in income in the current year is reversed, and interest accrued in prior years is charged to the allowance for loan losses. Management may elect to continue the accrual of interest when the estimated net realizable value of collateral exceeds the principal balance and accrued interest, and the loan is in the process of collection. Consistent with United's existing method of income recognition for loans, interest on impaired loans, except those classified as nonaccrual, is recognized as income using the accrual method. United's method of income recognition for impaired loans that are classified as nonaccrual is to recognize interest income on the cash basis or apply the cash receipt to principal when the ultimate collectibility of principal is in doubt. The principal sources of revenue from United's mortgage banking business are: (i) loan origination fees; (ii) gains or losses from the sale of loans; and (iii) interest earned on mortgage loans during the period that they are held by United pending sale. Loans Held for Sale: Loans held for sale consist of one-to-four family - -------------------- residential loans originated for sale in the secondary market and are carried at the lower of cost or fair value determined on an aggregate basis. Gains and losses on sales of loans held for sale are included in mortgage banking income. Allowance for Loan Losses: Management's evaluation of the adequacy of the - -------------------------- allowance for loan losses and the appropriate provision for loan losses is based upon a quarterly evaluation of the portfolio. The allowance for loan losses related to loans that are identified as impaired is based on the present value of expected future cash flows using the loan's effective interest rate, or as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. In determining the adequacy of the allowance for loan losses, management makes allocations to specific commercial loans classified by management as to risk. The amount allocated to a specific loan is based upon management's estimate of the borrowers' ability to repay, the collateral securing the credit and other borrower specific factors that may impact collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on loan pools using management's internal risk ratings. Allocations for these commercial loan pools are determined based upon historical loss experience adjusted for current conditions. Allocations for loans, other than commercial loans, are developed on a total portfolio level based upon historical loss experience adjusted for current conditions. While allocations are made to specific loans and pools of loans, the allowance is available for all loan losses. The allowance also provides for risk arising in part from, but not limited to, potential for estimation or judgmental errors, charge-off volatility, declines in credit quality resulting from sudden economic or industry shifts and changing economic trends. The amounts allocated to specific credits and homogeneous loan pools are reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. This evaluation is inherently subjective and requires management to make estimates of the amounts and timing of future cash flows. Management believes that the allowance for loan losses is adequate to provide for probable losses on existing loans based on information currently available. 56 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Receivable Sales: When United sells receivables in securitizations of - ----------------- residential mortgage loans, it retains interest-only strips, and one or more subordinated tranches, all of which are retained interests in the securitized receivables. Gain or loss on sale of the receivables depends in part on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value at the date of transfer. To obtain fair values, quoted market prices are used if available. However, quotes are generally not available for retained interests, so United generally estimates fair value based on the present value of future expected cash flows estimated using management's best estimates of the key assumptions--credit losses, prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved. Bank Premises and Equipment: Bank premises and equipment are stated at cost, - ---------------------------- less allowances for depreciation and amortization. The provision for depreciation is computed principally by the straight-line method over the estimated useful lives of the respective assets. Income Taxes: Deferred income taxes are provided for temporary differences - ------------- between the tax basis of an asset or liability and its reported amount in the financial statements at the statutory tax rate. Intangible Assets: Intangible assets relating to the estimated value of the - ------------------ deposit base of the acquired institutions are being amortized on an accelerated basis over a 7 to 10 year period. The excess of the purchase price over the fair market value of the net assets of the banks acquired (goodwill) is being amortized on a straight-line basis over 15 to 20 years. Management reviews intangible assets on a periodic basis and evaluates changes in facts and circumstances that may indicate impairment in the carrying value. If this evaluation indicates that intangible assets will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of intangible assets will be reduced. At December 31, 2000 and 1999, deposit base intangibles and goodwill approximated $38,710,000 and $41,625,000, net of accumulated amortization of approximately $25,185,000 and $22,271,000. Treasury Stock: United records common stock purchased for treasury at cost. At - -------------- the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock using the weighted average cost method. Trust Assets and Income: Assets held in a fiduciary or agency capacity for - ------------------------ customers are not included in the balance sheets since such items are not assets of the company. Trust income is reported on a cash basis. Reporting such income on an accrual basis would not materially affect United's consolidated financial position or its results of operations as reported herein. Earnings Per Common Share: Basic earnings per common share is calculated by - -------------------------- dividing net income by the weighted average number of shares of common stock outstanding for the respective period. For diluted earnings per common share, the weighted average number of shares of common stock outstanding for the respective period is increased by the number of shares of common stock which would be issued assuming the exercise of common stock options. The dilutive effect of stock options approximated 301,314, 621,104 and 703,584 shares in 2000, 1999 and 1998, respectively. 57 NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Operating Segments - United operates in the community banking and mortgage - ------------------ banking businesses. Business results are based upon United's management accounting practices and as provided to the chief operating decision maker for determination of resource allocation and performance. New Accounting Standards: In June 1998, the Financial Accounting Standards Board - ------------------------- (FASB) issued Statement No. 133, (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities" as amended by FASB issued Statement No. 137, (SFAS No. 137). The provisions of this statement require that derivative instruments be carried at fair value on the balance sheet. The statement continues to allow derivative instruments to be used to hedge various risks and sets forth specific criteria to be used to determine when hedge accounting can be used. The statement also provides offsetting changes in fair value or cash flows of both the derivative and the hedged asset or liability to be recognized in earnings in the same period; however, any changes in fair value or cash flow that represent the ineffective portion of a hedge are required to be recognized in earnings and cannot be deferred. For derivative instruments not accounted for as hedges, changes in fair value are required to be recognized in earnings. The provisions of this statement become effective for United beginning January 1, 2001. The adoption of this standard is not expected to materially impact the reported financial position or results of operations of United based on the interpretive guidance issued by the FASB to date. The FASB continues to issue interpretive guidance which could require changes in United's application of this standard. In September of 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125" ("SFAS 140"). This statement replaces SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." It revises the standard for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, but it carries over most of SFAS's No. 125's provisions without reconsideration. United adopted the disclosure provisions related to the securitization of financial assets on December 31, 2000. All transactions entered into after March 31, 2001 will be accounted for in accordance with this standard. The adoption of this standard is not expected to have a material impact on the financial position or results of operations of United. During 2000, the Emerging Issues Task Force ("EITF") released EITF Issue No. 99- 20, ("EITF 99-20"), which provides accounting guidance for the recognition of interest income and impairment on purchased and retained interests in securitized financial assets. EITF 99-20 requires that the holder of such instruments recognize the excess of all cash flows attributable to the beneficial interest using the effective yield method. In addition, EITF 99-20 provides a change in the determination of impairment, whereby if the fair value of the beneficial interest has declined below its carrying value, then an impairment analysis should be performed. If there has been an adverse change in the estimated cash flows from the previous cash flows projected, then the condition for an other-than-temporary impairment has been met and the beneficial interest should be written down to the estimated fair value. EITF 99-20 is effective beginning the second quarter of 2001. On the date of adoption (i.e. April 1, 2001), beneficial interests determined to have an other-than-temporary impairment in accordance with EITF 99-20 would be written down to the estimated fair value, with the amount of the write-down reported as a cumulative effect of a change in accounting principle on the Statement of Income. Based on current information, the adoption of EITF 99-20 is not expected to have a material impact on the financial position or results of operations of United. 58 NOTE B--MERGERS AND ACQUISITIONS During 1998, United acquired Fed One Bancorp, Inc., Wheeling, West Virginia (Fed One) and George Mason Bankshares, Inc., Fairfax, Virginia (George Mason) in common stock exchanges accounted for under the pooling of interests method. United issued approximately 12.9 million shares in these two business combinations. In the second and fourth quarters of 1998, as a direct result of the George Mason and Fed One acquisitions, United recorded merger-related charges of $13.7 million ($8.2 million after tax). The charges to operating expenses consisted of employee benefit obligations, costs to eliminate duplicate facilities and equipment, contract terminations, conversion costs, and professional fees. All of the merger-related charges were paid in 1998. NOTE C--INVESTMENT SECURITIES The amortized cost and estimated fair values of securities available for sale are summarized as follows:
December 31, 2000 ------------------------------------------------------------------------- (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 $ 160,702 $ 519 $1,797 $ 159,424 State and political subdivisions 52,095 307 575 51,827 Mortgage-backed securities 574,292 4,984 2,666 576,610 Marketable equity securities 8,551 1,107 1,024 8,634 Other 69,723 952 68,771 ------------------------------------------------------------------------- Total $ 865,363 $6,917 $7,014 $ 865,266 ========================================================================= 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 =========================================================================
59 NOTE C--INVESTMENT SECURITIES - continued The amortized cost and estimated fair value of securities available for sale at December 31, 2000 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 $ 20,690 $ 20,661 Due after one year through five years 68,436 68,238 Due after five years through ten years 146,984 147,021 Due after ten years 620,702 620,712 Marketable equity securities 8,551 8,634 ------------------- ------------------- Total $865,363 $865,266 =================== ===================
The table above includes $576,610,000 of mortgage-backed securities at estimated fair value with an amortized cost of $574,292,000. Maturities of mortgage- backed securities are based upon the estimated average life. Gross realized gains and losses from sales of securities available for sale were $2,316,000 and $15,676,000; $1,759,000 and $1,076,000; and $3,020,000 and $354,000, respectively, in 2000, 1999 and 1998. The amortized cost and estimated fair values of securities held to maturity are summarized as follows:
December 31, 2000 ------------------------------------------------------------------------- (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 $ 55,724 $ 225 $ 176 $ 55,773 State and political subdivisions 93,006 1,508 854 93,660 Mortgage-backed securities 70,279 654 285 70,648 Other 161,059 110 2,845 158,324 ------------------------------------------------------------------------- Total $380,068 $2,497 $4,160 $378,405 ========================================================================= 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 =========================================================================
60 NOTE C--INVESTMENT SECURITIES - continued At March 31, 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 is retained in the carrying value of the held to maturity securities. The cumulative unrealized loss, net of deferred taxes, of $5,270 at the date of transfer is retained as a separate component of shareholders' equity. Such amounts are being amortized over the estimated remaining life of the securities. At December 31, 2000, the cumulative unrealized loss balances, gross and net of deferred taxes, were $7,541 and $4,902, respectively. The amortized cost and estimated fair value of debt securities held to maturity at December 31, 2000 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 $ 7,711 $ 7,725 Due after one year through five years 47,862 48,563 Due after five years through ten years 90,590 90,365 Due after ten years 233,905 231,752 ------------ ---------- Total $380,068 $378,405 ============ ==========
The table above includes $70,279,000 of mortgage-backed securities at estimated fair value with an amortized cost of $70,648,000 at December 31, 2000. Maturities of the mortgage-backed securities are based upon the estimated average life. The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $788,899,000 and $962,068,000 at December 31, 2000 and 1999, respectively. NOTE D--SALES OF RECEIVABLES During 1999, United sold residential mortgage loans in a securitization transaction and recognized a pretax gain of $467,000. In that securitization, United retained subordinated interests which represent United's right to future cash flows arising after the investors in the securitization trust have received the return for which they contracted. United does not receive annual servicing fees from this securitization as these loans are serviced by an independent third-party. The investors and the securitization trust have no recourse to United's other assets for failure of debtors to pay when due; however, United's retained interests are subordinate to investor's interests. Their value is subject to credit, prepayment, and interest rate risks on the transferred financial assets. Key economic assumptions used in measuring the retained interests at the date of securitization were as follows: a weighted-average life of 5.3 years, expected annual credit losses of 15%, and discount rates of 8% to 18%. For the year ended December 31, 2000, United received cash flows of $13,325,000 on the retained interest in the securitization. 61 NOTE D--SALES OF RECEIVABLES - continued At December 31, 2000, key economic assumptions and the sensitivity of the current fair value of residual cash flows to immediate 10% and 20% adverse changes in those assumptions are as follows: Carrying amount/fair value of retained interests $ 52,419 Weighted-average life (in years) 3.8 Prepayment speed assumption (annual rate) 13.50% Decline in fair value of 10% adverse change $ 1,622 Decline in fair value of 20% adverse change $ 3,091 Expected credit losses (annual rate) 4.37% Decline in fair value of 10% adverse change $ 2,720 Decline in fair value of 20% adverse change $ 5,756 Residual cash flows discount rate (annual rate) 7.08% - 17.73% Decline in fair value of 10% adverse change $ 2,036 Decline in fair value of 20% adverse change $ 3,939
These sensitivities are hypothetical and should be used with caution. As the figures indicate, changes in fair value based on a 10% variation in assumptions generally cannot be extrapolated because the relationship of the change in the assumption to the change in the fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated without changing any other assumption; in reality, changes in one factor may result in changes in another factor (for example, increases in market interest rates may result in lower prepayments and increased credit losses) that might magnify or counteract the sensitivities. The following table presents quantitative information about delinquencies, net credit losses, and components of securitized financial assets:
Principal Amount of Loans (In thousands) Total Principal 60 Days Amount of Loans or More Past Due Average Balances Net Credit Losses --------------- -------------------------- ---------------- ----------------- Type of Loan At December 31, 2000 During 2000 - ------------------------- ------------------------------------------- ------------------------------------ Residential mortgage loans (fixed-rate) $152,797 $2,368 $169,958 $8,297
NOTE E--LOANS Major classifications of loans are as follows:
(In thousands) December 31 -------------------------------- 2000 1999 ----------- ------------ Commercial, financial and agricultural $ 564,887 $ 535,116 Real estate: Single family residential 1,352,955 1,388,568 Commercial 711,054 701,421 Construction 164,505 144,634 Other 84,742 44,381 Installment 319,351 363,272 ---------- ---------- Total gross loans $3,197,494 $3,177,392 ========== ==========
62 NOTE E--LOANS - continued The table above does not include loans held for sale of $203,831,000 and $117,825,000 at December 31, 2000 and 1999, respectively. An analysis of the allowance for loan losses follows:
Year Ended December 31 ---------------------------------------------------- (In thousands) 2000 1999 1998 -------- -------- ------- Balance at beginning of period $39,599 $39,189 $31,936 Provision charged to expense 15,745 8,800 12,156 -------- -------- ------- 55,344 47,989 44,092 -------- -------- ------- Loans charged-off 15,845 9,236 6,270 Less recoveries 1,033 846 1,367 -------- -------- ------- Net charge-offs 14,812 8,390 4,903 -------- -------- ------- Balance at end of period $40,532 $39,599 $39,189 ======== ======== =======
The higher provision and charge-offs in 2000 reflect the reclassification of certain junior-lien mortgages from available for sale securities to portfolio loans as of October 1999. The higher provision and charge-offs were mitigated by increased interest income on these high-interest rate loans. United has commercial loans, including real estate and owner occupied, income producing real estate and land development loans, of approximately $1,275,941,000 and $1,236,537,000 as of December 31, 2000 and 1999, 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, 2000, the recorded investment in loans that were considered to be impaired was $12,504,000 (of which $8,131,000 was on a nonaccrual basis). Included in this amount was $4,711,000 of impaired loans for which the related allowance for loan losses was $872,000 and $7,793,000 of impaired loans that did not have an allowance for credit losses. At December 31, 1999, the recorded investment in loans that were considered to be impaired was $15,643,000 (of which $12,327,000 was on a nonaccrual basis). Included in this amount was $3,247,000 of impaired loans for which the related allowance for credit losses was $603,000 and $12,396,000 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, 2000, 1999 and 1998 was approximately $15,557,000, $16,681,000 and $10,343,000, respectively. The amount of interest income that would have been recorded on impaired loans, which are on nonaccrual, under the original terms was $1,519,000, $2,237,000 and $1,809,000 for the years ended December 31, 2000, 1999 and 1998, respectively. For the years ended December 31, 2000, 1999 and 1998, United recognized interest income on 63 NOTE E--LOANS - continued those impaired loans of approximately $649,000, $560,000 and $461,000, 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 $124,512,000 and $86,892,000 at December 31, 2000 and 1999, respectively. During 2000, $63,659,000 of new loans were made, repayments totaled $51,887,000, and other changes due to the change in composition of United's board members and executive officers approximated $25,848,000. NOTE F--BANK PREMISES AND EQUIPMENT AND LEASES Bank premises and equipment are summarized as follows:
December 31 -------------------------------- (In thousands) 2000 1999 --------- --------- Land $ 10,248 $ 10,393 Buildings and improvements 44,440 44,825 Leasehold improvements 9,763 9,778 Furniture, fixtures and equipment 52,629 51,285 -------- -------- 117,080 116,281 Less allowance for depreciation and amortization 72,599 67,585 -------- -------- Net bank premises and equipment $ 44,481 $ 48,696 ======== ========
United and certain banking subsidiaries have entered into various noncancelable operating leases. These noncancelable operating leases are subject to renewal options under various terms and some leases provide for periodic rate adjustments based on cost-of-living index changes. Rent expense for noncancelable oper-ating leases approximated $4,858,000, $4,916,000 and $5,129,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Future minimum payments, by year and in the aggregate, under noncancelable operating leases with initial or remaining terms of one year or more, for years subsequent to December 31, 2000, consisted of the following: Year Amount ---- ------ (In thousands) 2001 $ 3,676 2002 2,453 2003 2,092 2004 1,494 2005 965 Thereafter 2,417 ------- Total minimum lease payments $13,097 ======= 64 NOTE G--DEPOSITS The book value of deposits consisted of the following:
(In thousands) December 31 ------------------------------- 2000 1999 ---------- ----------- Noninterest-bearing checking $ 539,415 $ 480,767 Interest-bearing checking 87,369 87,314 Regular savings 345,369 417,911 Money market accounts 713,184 675,463 Time deposits under $100,000 1,316,655 1,415,579 Time deposits over $100,000 389,457 183,951 ---------- ---------- Total deposits $3,391,449 $3,260,985 ========== ==========
Interest paid on deposits and borrowings approximated $192,543,000, $172,907,000 and $153,283,000 in 2000, 1999 and 1998, respectively. At December 31, 2000, the scheduled maturities of time deposits are as follows: Year Amount ---- ------------- (In thousands) 2001 $1,151,933 2002 449,135 2003 56,987 2004 20,046 2005 and thereafter 28,011 ---------- Total $1,706,112 ========== United's subsidiary banks have received deposits, in the normal course of business, from the directors and officers of United and its subsidiaries, and their associates. Such related party deposits were accepted on substantially the same terms, including interest rates and maturities, as those prevailing at the time for comparable transactions with unrelated persons. The aggregate dollar amount of these deposits was $19,493,000 and $19,800,000 at December 31, 2000 and 1999, respectively. NOTE H--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, 2000, United had approximately $393,161,000 of additional available borrowings in the form of collateralized advances from the FHLB at prevailing interest rates. At December 31, 2000, $25,000,000 of FHLB advances with an interest rate of 6.63% had an overnight maturity. Additionally, $681,512,000 of FHLB advances with a weighted average interest rate of 6.28% are scheduled to mature from one to twenty years. 65 NOTE H--BORROWINGS - continued United also has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $186,200,000. 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, 2000 and 1999, borrowings and the related weighted average interest rates were as follows:
2000 1999 --------------------------- ------------------------ Weighted Weighted (Dollars in thousands) Average Average Amount Rate Amount Rate ---------- ---------- ------------ -------- Federal funds purchased $ 15,720 6.55% $ 44,120 5.01% Securities sold under agreements to repurchase 313,349 5.16% 349,129 4.98% FHLB advances 706,512 6.30% 953,347 5.28% Other 4,647 5.72% 4,998 4.52% ---------- ---------- Total $1,040,228 $1,351,594 ========== ==========
Information concerning securities sold under agreements to repurchase (in thousands) is summarized as follows:
2000 1999 -------- --------- Average balance during the year $351,816 $335,908 Average interest rate during the year 5.32% 4.61% Maximum month-end balance during the year $417,866 $440,281
NOTE I--INCOME TAXES The income tax provisions included in the consolidated statements of income are summarized as follows:
(In thousands) Year Ended December 31 ---------------------------------------------- 2000 1999 1998 -------- ------- -------- Current expense: Federal $33,579 $36,424 $18,906 State 1,590 2,825 1,405 Deferred benefit: Federal and State (6,445) (4,475) (2,788) -------- -------- -------- Income taxes $28,724 $34,774 $17,523 ======== ======== ========
66 NOTE I--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 ----------------------------------------------------------------------- (Dollars in thousands) 2000 1999 1998 ----------------------------------------------------------------------- Amount % Amount % Amount % ---------- --------- ---------- --------- ---------- -------- Tax on income before taxes at statutory federal rate $30,695 35.0% $36,758 35.0% $21,674 35.0% Plus: State income taxes net of federal tax Benefits 1,034 1.2 1,836 1.7 913 1.5 ---------- --------- ---------- --------- ---------- -------- 31,729 36.2 38,594 36.7 22,587 36.5 Increase (decrease) resulting from: Tax-exempt interest income (3,380) (3.9) (3,087) (2.9) (2,201) (3.6) Nontaxable distributions from reorganizations (5,775) (9.3) Intangible amortization 768 0.9 778 0.7 1,152 1.9 Other items-net (393) (0.4) (1,511) (1.4) 1,760 2.8 ---------- --------- ---------- --------- ---------- -------- Income taxes $28,724 32.8% $34,774 33.1% $17,523 28.3% ========== ========= ========== ========= ========== ========
Federal income tax benefit applicable to securities transactions in 2000 approximated $4,852,000. Federal income tax expense applicable to securities transactions approximated $237,000 in 1999 and $830,000 in 1998. Income taxes paid approximated $36,065,000, $34,333,000 and $25,387,000 in 2000, 1999 and 1998, 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. 67 NOTE I--INCOME TAXES - continued Significant components of United's deferred tax assets and liabilities (included in other assets) at December 31, 2000 and 1999 are as follows:
(In thousands) 2000 1999 --------------- --------------- Deferred tax assets: Allowance for loan losses $14,060 $13,734 Securities available for sale 2,898 17,678 Accrued benefits payable 1,497 2,414 Other accrued liabilities 4,315 4,851 Other real estate owned 639 639 Interest in securitization trust 6,499 784 Other 1,696 620 --------------- --------------- Total deferred tax assets 31,604 40,720 --------------- --------------- Deferred tax liabilities: Premises and equipment 1,588 2,228 Core deposit intangibles 329 562 Income tax allowance for loan losses 717 962 Deferred mortgage points 2,177 1,909 Other 794 725 --------------- --------------- Total deferred tax liabilities 5,605 6,386 --------------- --------------- Net deferred tax assets $25,999 $34,334 =============== ===============
NOTE J--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, ------------------------------------------- 2000 1999 1998 ----------- ------------ ------------ Service cost $ 1,344 $ 1,448 $ 799 Interest cost 2,050 1,725 1,609 Expected return on plan assets (4,075) (2,749) (2,121) Amortization of transition asset (131) (131) (131) Recognized net actuarial gain (1,136) (222) Amortization of prior service cost 63 63 63 ----------- ------------ ------------ Net periodic pension (benefit) cost ($1,885) $ 134 $ 219 =========== ============ ============
68 NOTE J--EMPLOYEE BENEFIT PLANS - continued A reconciliation of the changes in benefit obligation and plan assets for the defined benefit retirement plan is as follows:
(In thousands) December 31 ------------------------------------------- 2000 1999 ------------- ------------- Benefit obligation at beginning of year $ 24,257 $ 25,653 Service cost 1,344 1,448 Interest cost 2,050 1,725 Actuarial loss (gain) 243 (3,634) Benefits paid (972) (935) ------------- ------------- Benefit obligation at end of year 26,922 24,257 ------------- ------------- Fair value of plan assets at beginning of year 41,060 31,009 Actual return on plan assets 4,020 9,534 Employer contribution 1,738 1,452 Benefits paid (972) (935) ------------- ------------- Fair value of plan assets at end of year 45,846 41,060 ------------- ------------- Funded status 18,924 16,803 Unrecognized net actuarial gain (13,991) (15,425) Unrecognized prior service cost 136 199 Unrecognized net transition asset (301) (432) ------------- ------------- Pension asset $ 4,768 $ 1,145 ============= =============
At December 31, 2000 and 1999, the weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation was 8.25% and 5.0%. The weighted average expected long-term rate of return on United's plan assets was 9.75% for the year ended December 31, 2000 and 9.0% for the years ended December 31, 1999 and 1998. The United Savings and Stock Investment Plan (the Plan) is a deferred compensation plan under Section 401(k) of the Internal Revenue Code. All employees who complete one year of service are eligible to participate in the Plan. Each participant may contribute from 1% to 15% of pre-tax earnings to his or her account, which may be invested in any of four investment options chosen by the employee. United matches 100% of the first 2% of salary deferred and 25% of the next 2% of salary deferred with United common stock. Vesting is 100% for employee deferrals and the United match at the time the employee makes his/her deferral. United's expense relating to the Plan approximated $906,000, $1,166,000 and $1,175,000 in 2000, 1999 and 1998, respectively. The assets of United's defined benefit plan and 401(k) Plan each include investments in United common stock. At December 31, 2000, the combined plan assets included 785,039 shares of United common stock with an approximate fair value of $16,682,000. Dividends paid on United common stock held by the plans approximated $563,000 for the year ended December 31, 2000. 69 NOTE J--EMPLOYEE BENEFIT PLANS - continued 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, 1991 and 1996 plans. 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, 2000:
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 1,513,691 6.5 years $18.13 1,086,291 $17.45
The following is a summary of activity of United's Incentive Stock Option Plans:
Stock Range of Options Exercise Prices --------------- ---------------------------- Outstanding at January 1, 1998 1,969,044 $22.00 $ 2.98 Granted 236,600 27.00 Exercised 546,530 22.00 2.98 Forfeited 26,823 22.00 14.88 --------------- Outstanding at December 31, 1998 1,632,291 27.00 2.98 Granted 227,800 25.63 Exercised 281,960 22.00 2.98 Forfeited 39,738 27.00 14.88 --------------- Outstanding at December 31, 1999 1,538,393 27.00 2.98 Granted 230,400 19.19 Exercised 197,663 15.00 6.88 Forfeited 57,439 27.00 22.00 --------------- Outstanding at December 31, 2000 1,513,691 $27.00 $ 2.98 =============== Exercisable at: December 31, 1998 1,275,776 $22.00 $ 2.98 December 31, 1999 1,156,568 $27.00 $ 2.98 December 31, 2000 1,086,291 $27.00 $ 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:
(Dollars in thousands, except per share) Year Ended December 31, -------------------------------------------------- 2000 1999 1998 ------------ ------------ ----------- Pro forma net income $58,379 $70,019 $44,187 Pro forma diluted earnings per share $ 1.38 $ 1.60 $ 1.02
70 NOTE J--EMPLOYEE BENEFIT PLANS - continued The estimated fair value of the options at the date of grant was $11.55, $5.64 and $5.73 for the options granted during 2000, 1999 and 1998, 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 2000, 1999 and 1998, respectively: risk-free interest rates of 6.20%, 5.79% and 4.76%; dividend yields of 4.38%, 3.43%, and 3.04%; volatility factors of the expected market price of United's common stock of 0.999, 0.211 and 0.210; and a weighted average expected option life of 7 years. United provides postemployment and postretirement benefits for certain employees at subsidiaries acquired in prior years. United accounts for such costs as expense when paid. Accounting for such costs when paid does not produce results materially different from those, which would result if such costs were accrued during the period of employee service. United does not anticipate providing postemployment or postretirement benefits to its currently active employees after employment or retirement except on a fully contributory basis. NOTE K--COMMITMENTS AND CONTINGENT LIABILITIES United is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers and to alter its own exposure to fluctuations in interest rates. These financial instruments include loan commitments, standby letters of credit, forward contracts for the delivery of mortgage-backed securities and interest rate swap agreements. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. United's maximum exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for the loan commitments and standby letters of credit is the contractual or notional amount of those instruments. United uses the same policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitment contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary upon the extension of credit, is based on management's credit evaluation of the counterparty. United had approximately $1,086,455,000 and $1,254,596,000 of loan commitments outstanding as of December 31, 2000 and 1999, 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 $89,013,000 and $74,110,000 as of December 31, 2000 and 1999, respectively. In the normal course of business, United and its subsidiaries are currently involved in various legal proceedings. Management is vigorously pursuing all its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved with no material effect on United's financial position or results of operations. 71 NOTE L - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Condensed Balance Sheets (In thousands) December 31 ----------------------------------------- 2000 1999 ------------------ ------------------ Assets Cash $ 3,719 $ 10,101 Securities available for sale 9,002 10,367 Securities held to maturity 6,859 6,643 Investment in subsidiaries: Bank subsidiaries 411,367 371,105 Non-bank subsidiaries 1,446 1,383 Loans 6,905 11,094 Other assets 1,435 1,634 ------------------ ------------------ Total Assets $440,733 $412,327 ================== ================== Liabilities and Shareholders' Equity Line of credit from banking subsidiary $ 5,000 $ 1,000 Accrued expenses and other liabilities 4,863 15,397 Shareholders' equity (including other accumulated comprehensive loss of $4,964 and $32,228 at December 31, 2000 and 1999, respectively) 430,870 395,930 ------------------ ------------------ Total Liabilities and Shareholders' Equity $440,733 $412,327 ================== ==================
Condensed Statements of Income (In thousands) Year Ended December 31 ---------------------------------------------------------------- 2000 1999 1998 ------------------ ------------------ ------------------ Income Dividends from banking subsidiaries $45,500 $40,352 $40,558 Net interest income 1,074 1,668 1,394 Management fees: Bank subsidiaries 4,130 4,146 3,928 Non-bank subsidiaries 12 12 12 Other income 2,188 1,489 2,937 ------------------ ------------------ ------------------ Total Income 52,904 47,667 48,829 ------------------ ------------------ ------------------ Expenses Interest paid to banking subsidiary 372 6 Operating expenses 4,615 4,698 7,337 ------------------ ------------------ ------------------ Income Before Income Taxes and Equity in Undistributed Net Income of Subsidiaries 47,917 42,963 41,492 Applicable income tax expense 798 853 105 ------------------ ------------------ ------------------ Income Before Equity in Undistributed Net Income of Subsidiaries 47,119 42,110 41,387 Equity in undistributed net income of subsidiaries: Bank subsidiaries 11,795 28,102 2,971 Non-bank subsidiaries 62 36 44 ------------------ ------------------ ------------------ Net Income $58,976 $70,248 $44,402 ================== ================== ==================
72 NOTE L - UNITED BANKSHARES, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION - continued
Condensed Statements of Cash Flows (In thousands) Year Ended December 31 --------------------------------------------------------------------- 2000 1999 1998 ------------------- ------------------- ------------------- Operating Activities Net income $ 58,976 $ 70,248 $ 44,402 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed net income of subsidiaries (11,857) (28,138) (3,015) Depreciation and net amortization 7 12 10 Net gain on sales of investment securities (2,168) (1,484) (2,912) Net change in other assets and liabilities (9,511) 786 (771) ------------------- ------------------- ------------------- Net Cash Provided by Operating Activities 35,447 41,424 37,714 ------------------- ------------------- ------------------- Investing Activities Net proceeds (purchases of) from securities 1,464 (2,205) 3,563 Repayment on loan balances by customers 4,189 1,742 1,464 Increase in investment in subsidiaries (8,541) ------------------- ------------------- ------------------- Net Cash Provided by (Used in) Investing Activities 5,653 (463) (3,514) ------------------- ------------------- ------------------- Financing Activities Net advances on line of credit from subsidiary 4,000 1,000 Cash dividends paid (35,468) (34,999) (24,651) Acquisition of treasury stock (17,724) (26,196) (3,610) Proceeds from exercise of stock options 1,710 2,876 4,802 Proceeds from sales of treasury stock 654 Pre-merger transactions of pooled companies 8,237 Purchase of fractional shares (7) ------------------- ------------------- ------------------- Net Cash Used in Financing Activities (47,482) (57,319) (14,575) ------------------- ------------------- ------------------- (Decrease) Increase in Cash and Cash Equivalents (6,382) (16,358) 19,625 Cash and Cash Equivalents at Beginning of Year 10,101 26,459 6,834 ------------------- ------------------- ------------------- Cash and Cash Equivalents at End of Year $ 3,719 $ 10,101 $ 26,459 =================== =================== ===================
73 NOTE M--OTHER EXPENSE The following details certain items of other expense for the periods indicated:
Year Ended December 31 ----------------------------------------------------- (In thousands) 2000 1999 1998 -------------- -------------- --------------- Other expense: Data processing $3,153 $3,175 $ 5,710 Legal and consulting 3,923 1,709 2,909 Advertising 2,803 2,702 3,011 Goodwill amortization 3,266 3,279 4,395 Equipment expense 7,589 8,896 10,188
NOTE N--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, 2000, was approximately $47,012,000. 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 2001, the retained net profits available for distribution to United Bankshares, Inc., as dividends without regulatory approval, are approximately $39,894,000, 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 $40,947,000 at December 31, 2000, and must be secured by qualifying collateral. United's subsidiary banks are subject to various regulatory capital requirements administered by federal banking agencies. Pursuant to capital adequacy guidelines, United's subsidiary banks must meet specific capital guidelines that involve various quantitative measures of the banks' assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. United's subsidiary banks' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require United to maintain minimum amounts and ratios of total and Tier I capital, as defined in the regulations, to risk-weighted assets, as defined, and of Tier I capital, as defined, to average assets, as defined. At of December 31, 2000, United exceeds all capital adequacy requirements to which it is subject. 74 NOTE N--REGULATORY MATTERS - continued At December 31, 2000, the most recent notification from its regulators, United and its subsidiary banks were categorized as well capitalized. To be categorized as well capitalized, United must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would impact United's well capitalized status. United's and its subsidiary banks', United National Bank and United Bank, capital amounts (in thousands of dollars) and ratios are presented in the following table.
For Capital To Be Well Actual Adequacy Purposes Capitalized --------------------------- --------------------------- --------------------------- Amount Ratio Amount Ratio Amount Ratio ------------ ------------ ------------ ------------ ------------ ------------ As of December 31, 2000: - ------------------------ Total Capital (to Risk- Weighted Assets): United Bankshares $437,180 11.8% $297,130 *8.0% $371,413 *10.0% United National Bank 290,524 11.1% 210,279 *8.0% 262,849 *10.0% United Bank 125,249 11.6% 86,122 *8.0% 107,652 *10.0% Tier I Capital (to Risk- Weighted Assets): United Bankshares 396,610 10.7% 148,565 *4.0% 222,848 *6.0% United National Bank 263,217 10.0% 105,139 *4.0% 157,709 *6.0% United Bank 112,024 10.4% 43,061 *4.0% 64,591 *6.0% Tier I Capital (to Average Assets): United Bankshares 396,610 8.2% 194,267 *4.0% 242,834 *5.0% United National Bank 263,217 7.9% 132,743 *4.0% 165,929 *5.0% United Bank 112,024 7.3% 61,716 *4.0% 77,146 *5.0% As of December 31, 1999: - ------------------------ Total Capital (to Risk- Weighted Assets): United Bankshares $426,310 11.8% $290,173 *8.0% $362,716 *10.0% United National Bank 279,554 11.1% 201,255 *8.0% 251,569 *10.0% United Bank 120,365 11.0% 87,332 *8.0% 109,165 *10.0% Tier I Capital (to Risk- Weighted Assets): United Bankshares 385,840 10.6% 145,086 *4.0% 217,630 *6.0% United National Bank 253,319 10.1% 100,627 *4.0% 150,941 *6.0% United Bank 107,001 9.8% 43,666 *4.0% 65,499 *6.0% Tier I Capital (to Average Assets): United Bankshares 385,840 7.7% 200,170 *4.0% 250,213 *5.0% United National Bank 253,319 7.4% 136,875 *4.0% 171,093 *5.0% United Bank 107,001 6.7% 63,903 *4.0% 79,879 *5.0%
* Greater than or equal to 75 NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by United in estimating its fair value disclosures for financial instruments: Cash and Cash Equivalents: The carrying amounts reported in the balance sheet - -------------------------- for cash and cash equivalents approximate those assets' fair values. Securities: The estimated fair values of securities are based on quoted market - ----------- prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans: The estimated fair values of variable-rate loans that reprice frequently - ------ with no significant change in credit risk are based on carrying values. The fair values of certain mortgage loans (e.g., one-to-four family residential), credit card loans, and other consumer loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The fair values of other loans (e.g., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit worthiness. Off-Balance Sheet Instruments: Fair values of United's loan commitments are - ------------------------------ based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. The estimated fair values of these commitments approximate their carrying values. Deposits: The fair values of demand deposits (e.g., interest and noninterest - --------- 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. 76 NOTE O--FAIR VALUES OF FINANCIAL INSTRUMENTS - continued The estimated fair values of United's financial instruments are summarized below:
December 31, 2000 December 31, 1999 ----------------------------------- ----------------------------------- (In thousands) Carrying Fair Carrying Fair Amount Value Amount Value ---------------- ---------------- ---------------- ---------------- Cash and cash equivalents $ 144,810 $ 144,810 $ 159,808 $ 159,808 Securities available for sale 865,266 865,266 1,207,363 1,207,363 Securities held to maturity 380,068 378,405 265,190 258,183 Loans 3,192,494 3,181,933 3,170,096 3,106,565 Deposits 3,391,449 3,315,058 3,260,985 3,215,379 Short-term borrowings 333,716 334,146 398,247 397,653 FHLB borrowings 706,512 717,590 953,347 941,926
NOTE P--SEGMENT INFORMATION The following information is based on United's current management structure and presents results of operations as if the community banking and mortgage banking segments were operated on a stand alone basis. The results are not necessarily comparable with similar information of other companies.
General Mortgage Community Corporate (In thousands) Banking Banking and Other Consolidated - --------------------------------------------------------------------------------------------------------------------------------- 2000 Net interest income $ 3,468 $ 175,808 $ 805 $ 180,081 Provision for loan losses 34 15,711 15,745 Net interest income after provision for loan losses 3,434 160,097 805 164,336 Noninterest income 16,152 15,446 2,188 33,786 Noninterest expense 14,101 95,836 485 110,422 Income before income taxes 5,485 79,707 2,508 87,700 Income tax expense 1,839 26,057 828 28,724 Net income 3,646 53,650 1,680 58,976 Average total assets 125,120 4,920,913 (109,429) 4,936,604 - --------------------------------------------------------------------------------------------------------------------------------- 1999 Net interest income $ 3,480 $ 174,240 $ 2,543 $ 180,263 Provision for loan losses 19 8,781 8,800 Net interest income after provision for loan losses 3,461 165,459 2,543 171,463 Noninterest income 24,507 25,025 1,546 51,078 Noninterest expense 20,210 96,743 566 117,519 Income before income taxes 7,758 93,741 3,523 105,022 Income tax expense 2,687 31,033 1,054 34,774 Net income 5,071 62,708 2,469 70,248 Average total assets 148,397 4,860,973 (141,849) 4,867,521 - --------------------------------------------------------------------------------------------------------------------------------- 1998 Net interest income $ 2,763 $ 165,813 $ 1,717 $ 170,293 Provision for loan losses 25 12,131 12,156 Net interest income after provision for loan losses 2,738 153,682 1,717 158,137 Noninterest income 24,052 14,727 2,973 41,752 Noninterest expense 19,872 112,959 5,133 137,964 Income (loss) before income taxes 6,918 55,450 (443) 61,925 Income tax expense 1,878 15,557 88 17,523 Net income (loss) 5,040 39,893 (531) 44,402 Average total assets 190,168 4,190,512 (141,872) 4,238,808 - --------------------------------------------------------------------------------------------------------------------------------- General corporate and other includes intercompany eliminations.
77 NOTE Q - QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for 2000 and 1999 is summarized below (dollars in thousands except for per share data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- 2000 - ---- Interest income $ 93,268 $ 94,063 $ 95,298 $ 95,218 Interest expense 46,542 48,632 51,165 51,427 Net interest income 46,726 45,431 44,133 43,791 Provision for loan losses 2,547 3,851 4,439 4,908 Income from mortgage Banking operations 3,383 4,159 5,014 3,784 Other noninterest income 7,418 8,305 8,310 (6,587) Noninterest expense 28,143 27,106 25,463 29,710 Income taxes 8,849 8,815 8,994 2,066 Net income (1) 17,988 18,123 18,561 4,304 Per share data: - --------------- Average shares outstanding (000s): Basic 42,273 41,931 41,842 41,776 Diluted 42,657 42,264 42,148 42,072 Net income per share: Basic $ 0.43 $ 0.43 $ 0.44 $ 0.11 Diluted $ 0.42 $ 0.43 $ 0.44 $ 0.11 Dividends per share $ 0.21 $ 0.21 $ 0.21 $ 0.21 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter ----------- ----------- ----------- ----------- 1999 - ---- Interest income $ 85,504 $ 87,022 $ 90,811 $ 91,328 Interest expense 39,533 42,415 45,822 46,632 Net interest income 45,971 44,607 44,989 44,696 Provision for loan losses 764 1,761 2,255 4,020 Income from mortgage Banking operations 4,418 6,095 5,706 6,173 Other noninterest income 6,221 6,358 7,137 8,970 Noninterest expense 28,821 29,070 29,377 30,251 Income taxes 9,864 8,433 8,500 7,977 Net income (1) 17,161 17,796 17,700 17,591 Per share data: - --------------- Average shares outstanding (000s): Basic 43,278 43,322 43,124 42,674 Diluted 43,961 44,013 43,708 43,282 Net income per share: Basic $ 0.40 $ 0.41 $ 0.41 $ 0.41 Diluted $ 0.39 $ 0.40 $ 0.41 $ 0.41 Dividends per share $ 0.20 $ 0.20 $ 0.21 $ 0.21
(1) For further information see the related discussion "Quarterly Results" included in Management's Discussion and Analysis. 78 EX-10.1 2 0002.txt AGREEMENT BETWEEN FISERV AND UNITED BS EXHIBIT 10.1 AGREEMENT between FISERV SOLUTIONS, INC. Pittsburgh Center 912 Fort Duquesne Boulevard Pittsburgh, PA 15222 and United Bankshares, Inc. 500 Virginia Street Charleston, WV 25392 Date: October 1, 2000 FISERV 79 AGREEMENT dated as of October 1, 2000 ("Agreement") between Fiserv Solutions, Inc., a Wisconsin corporation d/b/a Fiserv, at its Pittsburgh Center with an address of 912 Fort Duquesne Boulevard, Pittsburgh, PA 15222 ("Fiserv"), and United Bankshares, Inc. its principal address of 500 Virginia Street, Charleston, WV 25392 ("Client"). ================================================================================ Fiserv and Client hereby agree as follows: 1. Term. The term of this Agreement shall be 5 years and, unless written notice ---- of non-renewal is provided by either party at least 365 days prior to expiration of the term or any renewal term, this Agreement shall automatically renew for a term of one year. This Agreement shall commence on the date first written above. 2. Services. -------- (a) Services Generally. Fiserv, itself and through its affiliates, agrees to ------------------ provide Client, and Client agrees to obtain from Fiserv the services ("Services") and products ("Products") (collectively "Fiserv Services") described in the attached Exhibits and that are marked with an "X" below: X Exhibit A - Account Processing Services --------- --------- Exhibit B - Item Processing Services --------- Exhibit C - EFT Services --------- Exhibit D - Mortgage Processing Services X Exhibit E - Equipment --------- X Exhibit F - Software Products --------- --------- Exhibit G - Custom Development Project Estimates X Exhibit H - Remote Banking Services --------- X Exhibit I - Additional Services --------- The Exhibits set forth specific terms and conditions applicable to the Services and/or Products, and where applicable, the Fiserv affiliate performing the Services and/or Products. Only Exhibits marked with an "X" shall be provided with this Agreement. Client may select additional listed Fiserv Services not marked with an "X" above by executing with Fiserv an additional appropriate Exhibit. Client may also select additional services ("Additional Services") and products ("Additional Products") (collectively "Additional Fiserv Services") not listed above from time to time by completing with Fiserv an Exhibit I-n to this Agreement. (b) Training Services. Fiserv shall provide training, training aids, user ----------------- manuals, and other documentation for Client's use as Fiserv finds necessary to enable Client personnel to become familiar with the Fiserv Services. If requested by Client, classroom training in the use and operation of the Fiserv Services will be provided at a training facility designated by Fiserv. Fees for training shall be quoted by Fiserv. All such training aids and manuals remain the property of Fiserv. Fiserv will waive the training registration fee for the first three (3) individuals attending regularly scheduled application training classes held at Fiserv Pittsburgh Center. (c) Network Support Services. At Client's request, Fiserv shall provide ------------------------ Network Support Services ("Network Support Services") consisting of design, installation coordination, continuous proactive communication line monitoring and diagnostic systems, and support personnel to discover, diagnose, repair, or report line problems to the appropriate telephone company. 3. Communication Lines, Computer Terminals, and Related Equipment. -------------------------------------------------------------- (a) Communications Lines and Related Equipment. Fiserv shall order, on ------------------------------------------ Client's behalf, the installation of appropriate data communication lines and communications equipment at Fiserv's data center to facilitate Client's access to the Fiserv Services. Client understands and agrees to pay such charges relating to the installation and use of data communications lines and communications equipment. Except to the extent Fiserv shall provide Network Support 80 Services to Client, Fiserv shall not be responsible for the reliability or continued availability of the telephone lines and/or communications equipment used to access the Fiserv Services. (b) Computer Terminals and Related Equipment. Client shall obtain for its ---------------------------------------- locations sufficient computer terminals and other equipment, approved by Fiserv and compatible with the Fiserv Services, to transmit and receive data between Client's locations and Fiserv's data center. Fiserv and Client may mutually agree to change the type of computer terminal and equipment used by Client. Fiserv agrees to support Client's current Unisys A Series equipment through the initial tem of the Agreement. 4. Fees for Fiserv Services. ------------------------ (a) General. Client agrees to pay Fiserv the fees for the Fiserv Services ------- specified in the Exhibits. Except if limited in the Exhibits, such fees may be increased from time to time. Upon prior notification to Client, Fiserv may increase its fixed fees in excess of amounts listed in the Exhibits in the event that Fiserv implements major system enhancements to comply with changes in law, or government regulation. A Major system enhancement is defined as any required change that would increase the Fixed Monthly Fee for all Custom Outsourcing Clients by twenty (20) percent. Processing fees shall be those host processing based fees for Services specifically excluding, but not limited to, out-of-pocket, pass-through, software licensing and equipment sale fees. Unless expressly provided to the contrary in this Agreement, any fees herein do not include out-of-pocket expenses for any service or product requested by and provided to the Client. (b) Additional Charges. Fees for pass-through expenses, such as telephone, ------------------ microfiche, courier, and other similar charges incurred by Fiserv on Client's behalf shall be billed to Client at cost plus the applicable Fiserv service fee. Such pass-through expenses may be changed from time to time upon notification of a fee change from a vendor/provider. (c) Taxes. Fiserv shall add to each invoice, and Client shall pay, any ----- sales, use, excise, value added, and other taxes and duties however designated that are levied by any taxing authority relating to the Fiserv Services. In no event shall Client be responsible for taxes based upon the net income of Fiserv. (d) Exclusions. The charges and fees set forth in the Exhibits do not ---------- include, and Client shall be responsible for, furnishing transportation or transmission of information between the Fiserv data center, Client's site or sites, and any applicable clearing house, regulatory agency, or Federal Reserve Bank. (e) Network Support Services. Network Support Services shall be rendered ------------------------ from Fiserv premises. Off-premise support will be provided upon Client's request on an as available basis at the then-current Fiserv time and materials rates, plus reasonable travel and living expenses. (f) Payment Terms. Fees for Fiserv Services are due and payable via ACH ------------- draft. The invoice shall be mailed by the 10/th/ day of each month to be received by Client no later than the 15/th/ day of each month and will contain: (i) all fixed fees for the current month applicable to each Service and/or Product; (ii) all other fees calculable up to the date of invoice; and (iii) sales or other taxes thereon. On the last business day prior to the end of each month, Fiserv shall initiate a draft from a demand deposit account designated by Client in the total amount due on all Fiserv invoices to Client produced that month. Client shall have 60 days from the date of invoice to notify Fiserv of a disputed amount, and Fiserv shall have 30 days from receipt of such notification to provide a response. However, Client shall have one year from the date of invoice to notify Fiserv of disputed amounts that exceed $5,000 and Fiserv shall have 30 days from receipt of such notice to provide a response. Additionally, Client shall have 7 days from the date of invoice to notify Fiserv of disputed amounts exceeding $25,000 and Fiserv shall have 7 days from receipt of such notification to provide a response. In the event that the parties ultimately agree that a credit is due to Client, such credit shall also include payment of interest to Client, at the then current prime interest rate, for the period between the date of the credit and the date the amount was originally debited. 5. Procedures for Use of Services. ------------------------------ (a) Procedures. Client agrees to comply with any regulatory requirements ---------- applicable to Client and with reasonable operating and access procedures for use of the Services established by Fiserv and furnished from time to time to Client. (b) Changes. Fiserv continually reviews and modifies the Fiserv systems used ------- in the delivery of the Services ("Fiserv System") to improve service and to assist the Client with its compliance with government regulations, if any, applicable to 81 the data and information utilized in providing Services. Fiserv reserves the right to make changes in the Services, including but not limited to operating procedures, type of equipment or software resident at, and the location of Fiserv's service center(s). Fiserv will notify Client of any material change that affects Client's normal operating procedures, reporting, or service costs prior to implementation of such change. In the event Fiserv offers a replacement for the Custom Outsourcing Solution core services during the term of this Agreement, Fiserv agrees that it will not force Client to convert to such replacement service. 6. Client Obligations. ------------------ (a) Input. Client shall be solely responsible for the input, transmission, ----- or delivery to and from Fiserv of all information and data required by Fiserv to perform the Services unless Client has retained Fiserv to handle such responsibilities. The data shall be provided in a format and manner approved by Fiserv. Client will provide at its own expense or procure from Fiserv all equipment, computer software, communication lines, and interface devices required to access the Fiserv System. If Client has elected to provide such items itself, Fiserv reserves the right to charge Client its standard fee for certification of such items resulting from such election if they are not already certified as compatible with the Fiserv System. (b) Client Personnel. Client shall designate appropriate Client personnel ---------------- for training in the use of the Fiserv System, shall supply Fiserv with reasonable access to Client's site during normal business hours for Conversion Services and shall cooperate with Fiserv personnel in their performance of Services, including Conversion Services. (c) Use of Fiserv System. Client shall (i) comply with any operating -------------------- instructions on the use of the Fiserv System provided by Fiserv, (ii) review all reports furnished by Fiserv for accuracy, and (iii) work with Fiserv to reconcile any out of balance conditions. Client shall determine and be responsible for the authenticity and accuracy of all information and data submitted to Fiserv. (d) Forms, Supplies, Etc. Client shall furnish, or, if Fiserv agrees to so --------------------- furnish, reimburse Fiserv for, any special forms or supplies applicable to the provision of Services. (e) Upon Termination or Expiration of Agreement. In the event that Client -------------------------------------------- requests Fiserv to retain Client files upon expiration or termination of this Agreement, Client shall be responsible to pay 50% of the Fixed Monthly Fee due under this Agreement for a minimum of two months from the expiration date. This provision shall survive the termination or expiration of this Agreement for any reason. 7. Ownership and Confidentiality. ----------------------------- (a) Definition. ---------- (i) Client Information. "Client Information" means: (A) confidential ------------------ plans, customer lists, information, and other proprietary material of Client that is marked with a restrictive legend, or if not so marked with such legend or is disclosed orally, is identified as confidential at the time of disclosure (and written confirmation thereof is promptly provided to Fiserv); and (B) any information and data concerning the business and financial records of Client's customers prepared by or for Fiserv, or used in any way by Fiserv in connection with the provision of Fiserv Services (whether or not any such information is marked with a restrictive legend). (ii) Fiserv Information. "Fiserv Information" means: (A) confidential ------------------ plans, information, research, development, trade secrets, business affairs (including that of any Fiserv client, supplier, or affiliate), and other proprietary material of Fiserv that is marked with a restrictive legend, or if not so marked with such legend or is disclosed orally, is identified as confidential at the time of disclosure (and written confirmation thereof is promptly provided to Client); and (B) Fiserv's proprietary computer programs, including custom software modifications, software documentation and training aids, and all data, code, techniques, algorithms, methods, logic, architecture, and designs embodied or incorporated therein (whether or not any such information is marked with a restrictive legend). (iii) Information. "Information" means Client Information and Fiserv ----------- Information. No obligation of confidentiality applies to any Information that the receiving party ("Recipient") (A) already possesses without obligation of confidentiality; (B) develops independently; or (C) rightfully receives without obligation of confidentiality from a third party. No obligation of confidentiality applies to any Information that is, or becomes, publicly available without breach of this Agreement. 82 (b) Obligations. Recipient agrees to hold as confidential all Information it ----------- receives from the disclosing party ("Discloser"). All Information shall remain the property of Discloser or its suppliers and licensors. Information will be returned to Discloser at the termination or expiration of this Agreement. Recipient will use the same care and discretion to avoid disclosure of Information as it uses with its own similar information that it does not wish disclosed, but in no event less than a reasonable standard of care. Recipient may use Information for any purpose that does not violate such obligation of confidentiality. Recipient may disclose Information to (i) employees and employees of affiliates who have a need to know; and (ii) any other party with Discloser's written consent. Before disclosure to any of the above parties, Recipient will have a written agreement with such party sufficient to require that party to treat Information in accordance with this Agreement. Recipient may disclose Information to the extent required by law. However, Recipient agrees to give Discloser prompt notice so that it may seek a protective order. Not withstanding anything to the contrary in this Section 7 (b), Client may share output files, formats, and layouts for which it paid Fiserv to develop through the Custom Development Process with other Third Parties without the prior written consent of Fiserv. The provisions of this sub-section survive any termination or expiration of this Agreement. (c) Residuals. Nothing contained in this Agreement shall restrict Recipient --------- from the use of any ideas, concepts, know-how, or techniques contained in Information that are related to Recipient's business activities ("Residuals"), provided that in so doing, Recipient does not breach its obligations under this Section. However, this does not give Recipient the right to disclose the Residuals except as set forth elsewhere in this Agreement. (d) Fiserv System. The Fiserv System contains information and computer ------------- software that is proprietary and confidential information of Fiserv, its suppliers, and licensors. Client agrees not to attempt to circumvent the devices employed by Fiserv to prevent unauthorized access to the Fiserv System, including, but not limited to, alterations, decompiling, disassembling, modifications, and reverse engineering thereof. (e) Confidentiality of this Agreement. Fiserv and Client agree to keep --------------------------------- confidential the prices, terms and conditions of this Agreement, without disclosure to third parties. 8. Regulatory Agencies, Regulations and Legal Requirements. ------------------------------------------------------- (a) Client Files. The records maintained and produced for Client in the ------------ performance of this Agreement ("Client Files") may be subject to examination by such Federal, State, or other governmental regulatory agencies as may have jurisdiction over the Client's business to the same extent as such records would be subject if they were maintained by Client on its own premises. Client agrees that Fiserv is authorized to give all reports, summaries, or information contained in or derived from the data in the possession of Fiserv relating to Client when formally requested to do so by an authorized regulatory or government agency. Fiserv will notify Client in such an instance unless prohibited by court order or other governing body. (b) Fiserv Compliance with Regulatory Requirements. Fiserv shall maintain ---------------------------------------------- the Fiserv Services and make all necessary changes to the Fiserv System and Fiserv Services to comply with all applicable federal, state, and local regulations that relate to the Fiserv Services (the "Applicable Laws"). Client agrees to notify Fiserv of changes in the Applicable Laws of which Client is aware. Fiserv shall not charge Client for any work necessary to comply with any federal Applicable Law, but may charge Client the pro rata portion of any costs to comply with state or local Applicable Laws divided among any other Fiserv clients requesting such work. Fiserv may request Client assistance regarding state and local Applicable Law interpretation and associated Fiserv Systems and Services change design and/or testing from time to time. Such assistance shall be provided by Client without charge to Fiserv. (c) Client Compliance with Regulatory Requirements. Client agrees to comply ---------------------------------------------- with applicable regulatory and legal requirements including without limitation: (i) submitting a copy of this Agreement to the appropriate regulatory agencies prior to the date Services commence; (ii) providing adequate notice to the appropriate regulatory agencies of the termination of this Agreement or any material changes in Services; (iii) retaining records of its accounts as required by regulatory authorities; (iv) obtaining and maintaining, at its own expense, any Fidelity Bond required by any regulatory or governmental agency; and 83 (v) maintaining, at its own expense, such casualty and business interruption insurance coverage for loss of records from fire, disaster, or other causes, and taking such precautions regarding the same, as may be required by regulatory authorities. 9. Warranties. ---------- (a) Fiserv Warranties. Fiserv represents and warrants that: ----------------- (i) (A) Fiserv will perform Client's work accurately provided that Client supplies accurate data and follows the procedures described in all Fiserv documentation, notices, and advices; and (B) Fiserv personnel will exercise due care in the provision of Services. In the event of a processing or computational error caused by any Fiserv personnel, systems, or equipment, Fiserv shall correct the error and/or reprocess the affected report at no additional cost to Client and Client's exclusive remedy for such error shall be recomputation of affected accounts or items. Client agrees to supply Fiserv with a written request for correction of the error within 7 days after Client's receipt of the work containing the error. Work reprocessed due to errors in data supplied by Client, on Client's behalf by a third party, or by Client's failure to follow procedures set forth by Fiserv shall be billed to Client at the then current Fiserv time and material rates. (ii) It owns or has a license to furnish all equipment or software comprising the Fiserv System. Fiserv shall indemnify Client and hold it harmless against any claim or action that alleges that the use of the Fiserv System infringes a United States patent, copyright, or other proprietary right of a third party. Client agrees to notify Fiserv promptly of any such claim and grants to Fiserv the sole right to control the defense and disposition of all such claims. Client shall provide Fiserv with reasonable cooperation and assistance in the defense of any such claim. THE WARRANTIES STATED ABOVE ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES MADE BY FISERV. FISERV DOES NOT MAKE, AND CLIENT HEREBY EXPRESSLY WAIVES, ALL OTHER WARRANTIES, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTIES ARE IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF FISERV FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE, OR PERFORMANCE OF FISERV SERVICES. (b) Client Warranties. Client represents and warrants that: (A) no ----------------- contractual obligations exist that would prevent Client from entering into this Agreement; (B) it has compiled with all applicable regulatory requirements; and (C) it has requisite authority to execute, deliver, and perform this Agreement. Client shall indemnify and hold harmless Fiserv, its officers, directors, employees, and affiliates against any claims or actions arising out of (1) the use by Client of the Fiserv System in a manner other than that provided in this Agreement or in the operating instructions supplied by Fiserv to Client and (2) any and all claims by third parties through Client arising out of the performance and non-performance of services by Fiserv, provided that the indemnity -------- listed in clause (2) hereof shall not preclude Client's recovery of direct damages pursuant to the terms and subject to the limitations of this Agreement. 10. Limitation of Liability. ----------------------- (a) General. IN NO EVENT SHALL FISERV BE LIABLE FOR LOSS OF GOODWILL, OR ------- FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES ARISING FROM CLIENT'S USE OF FISERV'S SERVICES, OR FISERV'S SUPPLY OF EQUIPMENT OR SOFTWARE, REGARDLESS OF WHETHER SUCH CLAIM ARISES IN TORT OR IN CONTRACT. CLIENT MAY NOT ASSERT ANY CLAIM AGAINST FISERV MORE THAN 2 YEARS AFTER SUCH CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY FOR ANY AND ALL CAUSES OF ACTION RELATING TO SERVICES SHALL BE LIMITED TO THE PROCESSING FEES PAID BY CLIENT TO FISERV FOR THE SERVICES RESULTING IN SUCH LIABILITY IN THE 2 MONTH PERIOD PRECEDING THE DATE THE CLAIM ACCRUED. FISERV'S AGGREGATE LIABILITY FOR A DEFAULT RELATING TO EQUIPMENT OR SOFTWARE SHALL BE LIMITED TO THE AMOUNT PAID FOR THE EQUIPMENT OR SOFTWARE. (b) Lost Records. If Client's records or other data submitted for ------------ processing are lost or damaged as a result of any failure by Fiserv, its employees, or agents to exercise reasonable care to prevent such loss or damage, Fiserv's liability on account of such loss or damages shall not exceed the reasonable cost of reproducing such records or data from exact duplicates thereof in Client's possession or available to Client. 11. Disaster Recovery. ----------------- 84 (a) General. Fiserv maintains a disaster recovery service plan ("Disaster ------- Recovery Plan") for each Service provided by Fiserv as outlined in the Disaster Recovery Plan approved through the Client Advisory Board. A "Disaster" shall mean any unplanned interruption of the operations of or inaccessibility to the Fiserv data center in which Fiserv, using reasonable judgment, requires relocation of processing to a primary recovery location. Fiserv shall notify Client as soon as possible after it deems a service outage to be a Disaster. Fiserv shall move the processing of Client's standard on-line services to a primary recovery location as expeditiously as possible and shall coordinate the cut-over to back-up telecommunication facilities with the appropriate carriers. Client shall maintain adequate records of all transactions during the period of service interruption and shall have personnel available to assist Fiserv in implementing the switchover to the primary recovery location. During a Disaster, optional or on-request services shall be provided by Fiserv only to the extent adequate capacity exists at the primary recovery location and only after stabilizing the provision of base on-line services. In the event of a disaster, Fiserv shall not increase its charges under this Agreement or charge Client any additional fees. (b) Data Communications. Fiserv shall work with Client to establish a plan ------------------- for alternative data communications in the event of a Disaster. Client shall be responsible for the costs of these communications. (c) Disaster Recovery Test. Fiserv shall test its Disaster Recovery Plan ---------------------- annually. Client agrees to participate in and assist Fiserv with such test, if requested by Fiserv. Test results will be made available to Client's management, regulators, internal and external auditors, and Client's insurance underwriters, upon request. (d) Client Plans. Fiserv agrees to release the information necessary to ------------ allow Client to develop a disaster contingency plan that operates in concert with the Disaster Recovery Plan. (e) No Warranty. Client understands and agrees that the Disaster Recovery ----------- Plan is designed to minimize, but not eliminate, risks associated with a Disaster affecting the Fiserv data center supplying the Services. Fiserv does not warrant that service will be uninterrupted or error free in the event of a Disaster; no performance standards shall be applicable for the duration of a Disaster. Client maintains responsibility for adopting a disaster recovery plan relating to disasters affecting Client's facilities and for securing business interruption insurance or other insurance as necessary for Client's protection. 12. Termination. ----------- (a) Material Breach. Except as provided elsewhere in this Section 12, --------------- either party may terminate this Agreement in the event of a material breach by the other party not cured within 90 days following written notice stating, with particularity and in reasonable detail, the nature of the claimed breach. Remedies contained in this Section 12 (a) are cumulative and are in addition to the other rights and remedies available under this Agreement or otherwise. (b) Bankruptcy or Insolvency. Either party may terminate this Agreement in ------------------------ the event the other party becomes the subject of any proceeding under the Bankruptcy Act or becomes insolvent or if any substantial part of a party's property becomes subject to any levy, seizure, assignment, application, or sale for or by any creditor or governmental agency. Remedies contained in this Section 12 (b) are cumulative and are in addition to the other rights and remedies available under this Agreement or otherwise. (c) Failure to Pay. In the event any invoice remains unpaid by Client 15 -------------- days after its due date, or Client has deconverted any of its Core data from the Fiserv System without prior written consent from Fiserv, Fiserv, at its sole option, may terminate this Agreement and/or Client's access to and use of the Fiserv Services. However, Fiserv may not exercise its right to terminate the Agreement and/or Client's access to and use of the Fiserv Services unless and until Fiserv has sent written notice to the President of Client that the invoice remains unpaid and the invoice is not paid in full within ten (10) days of receipt of such notice. In such an event, Fiserv shall be entitled to recover from Client as liquidated damages an amount equal to all fixed monthly fee and Fiserv maintenance agreement payments remaining to be made hereunder for the remaining term of the Initial Term or any renewal term of this Agreement. Client agrees to reimburse Fiserv for any expenses Fiserv may incur, including reasonable attorneys' fees, in taking any of the foregoing actions. Any invoice submitted by Fiserv shall be deemed correct unless Client provides written notice to Fiserv within 60 days of the invoice date specifying the nature of the disagreement. (d) Merger. In the event of a merger between Client and another ------ organization in which (A) Client is not the surviving organization, (B) where the other organization is not currently a user of Fiserv services similar to the Services being provided hereunder, and (C) Client shall convert from Fiserv's Services directly to the surviving organization, Fiserv will allow an early termination of this Agreement upon the following terms and conditions: 85 (i) Written notice must be given 6 months in advance, specifying the deconversion date; (ii) Fiserv may specify a deconversion date (not more than 30 days after the requested deconversion date), based on its previous commitments and work loads; and (iii) Fiserv may charge a termination fee based on the remaining unused term of this Agreement, the amount to be determined by multiplying the Client's average monthly invoice (using the three months immediately preceding Fiserv's receipt of written notice) by 75% times the remaining months of the term, plus any unamortized conversion fees or third party costs existing on Fiserv's books on the date of deconversion. (iv) In the event Client is acquired by a Fiserv, Inc. client and desires to terminate this Agreement and convert from the Custom Outsourcing Solution to such other Fiserv, Inc. processing alternative, then the termination fee will be limited to six months of the Fixed Monthly processing fee. This fee will be calculated from the date of termination by multiplying 100% of the Client's Fixed Monthly Fee times six (6). (v) In the event that Fiserv, Inc. sells the Custom Outsourcing Solution to a third party, the Client may terminate this agreement, without payment of a termination fee, by notifying Fiserv of its intent to do so within 90 days following such sale. Fiserv agrees that Client may elect to be processed on the Fiserv platform for up to one (1) year from such sell. (e) Termination Fee not a Penalty. Client understands and agrees that ----------------------------- Fiserv losses incurred as a result of early termination of the Agreement would be difficult or impossible to calculate as of the effective date of termination since they will vary based on, among other things, the number of clients using the Fiserv System on the date the Agreement terminates. Accordingly, the termination fee amount represents Client's agreement to pay and Fiserv's agreement to accept as liquidated damages (and not as a penalty) such amount for any such Client termination for merger. (f) Return of Data Files. Upon expiration or termination of this Agreement, -------------------- Fiserv shall furnish to Client such copies of Client's data files ("Client Files") as Client may request in Fiserv's standard machine readable format form along with such information and assistance as is reasonable and customary to enable Client to deconvert from the Fiserv System, provided, however, that Client consents and agrees and -------- ------- authorizes Fiserv to retain Client Files until (i) Fiserv has been paid in full for all Services provided hereunder through the date such Client Files are returned to Client, and has been paid any and all other amounts that are due or will become due under this Agreement, including, but not limited to, data communication lease obligations, if any; (ii) Fiserv has been paid its then standard rates for providing the services necessary to return such Client Files; (iii) if this Agreement is being terminated, Fiserv has been paid any applicable termination fee pursuant to subsection (c), or (d) above; and (iv) Client has returned to Fiserv all Fiserv Confidential Information if requested by Fiserv. After notification by the Client in writing, Fiserv shall be permitted to destroy Client Files. Notification by the Client must be received within thirty (30) days from the final use of Client Files for processing. (g) Miscellaneous. Client understands and agrees that Client is responsible ------------- for the deinstallation and return shipping of any Fiserv-owned equipment located on Client's premises. Prior to termination of this Agreement, Client shall promptly reimburse Fiserv for the cost of any preprinted statements, checks, or any other forms that Fiserv has prepared specifically for the Client and has on hand at the termination of this Agreement. 13. Arbitration. ----------- (a) General. Except with respect to disputes arising from a ------- misappropriation or misuse of either party's proprietary rights, any dispute or controversy arising out of this Agreement, or its interpretation, shall be submitted to and resolved exclusively by arbitration under the rules then prevailing of the American Arbitration Association, upon written notice of demand for arbitration by the party seeking arbitration, setting forth the specifics of the matter in controversy or the claim being made. The arbitration shall be heard before an arbitrator mutually agreeable to the parties; provided, that if the parties cannot agree on the choice of an arbitrator within 10 days after the first party seeking arbitration has given written notice, then the arbitration shall be heard by 3 arbitrators, 1 chosen by each party and the third chosen by those 2 arbitrators. The arbitrators will be selected from a panel of persons having experience with and knowledge of information technology and at least 1 of the arbitrators selected will be an attorney. A hearing on the merits of all claims for which arbitration is sought by either party shall be commenced not later than 60 days from the date demand for arbitration is made by the first party seeking arbitration. The arbitrator(s) must render a decision within 10 days after the conclusion of such hearing. Any award in such arbitration shall be final and binding upon the parties and the judgment thereon may be entered in any court of competent jurisdiction. 86 (b) Applicable Law. The arbitration shall be governed by the United States -------------- Arbitration Act, 9 U.S.C. 1-16. The arbitrators shall apply the substantive law of the State of Wisconsin, without reference to provisions relating to conflict of laws. The arbitrators shall not have the power to alter, modify, amend, add to, or subtract from any term or provision of this Agreement, nor to rule upon or grant any extension, renewal, or continuance of this Agreement. The arbitrators shall have the authority to grant any legal remedy available had the parties submitted the dispute to a judicial proceeding. (c) Situs. If arbitration is required to resolve any disputes between the ----- parties, the proceedings to resolve the dispute shall be held in Milwaukee, Wisconsin, or, in the alternative, Fiserv's primary business location. 14. Insurance. Fiserv carries the following types of insurance policies: --------- (i) Comprehensive General Liability in an amount not less than $1 million per occurrence for claims arising out of bodily injury and property damage; (ii) Commercial Crime covering employee dishonesty in an amount not less than $5 million; (iii) All-risk property coverage including Extra Expense and Business Income coverage; and (iv) Workers Compensation as mandated or allowed by the laws of the state in which the services are being performed, including $500,000 coverage for Employer's Liability. 15. Audit. Fiserv employs an internal auditor responsible for ensuring the ----- integrity of its data processing environments and internal controls. In addition, Fiserv provides for periodic independent audits of its operations. Fiserv shall provide Client with a copy of the audit of the Fiserv data center serving Client within a reasonable time after its completion. Upon written request, Fiserv shall also provide a copy of such audit to the appropriate regulatory agencies, if any, having jurisdiction over Fiserv's provision of Services hereunder. 16. General. ------- (a) Binding Agreement. This Agreement is binding upon the parties and their ----------------- respective successors and permitted assigns. Neither this Agreement nor any interest may be sold, assigned, transferred, pledged or otherwise disposed of by Client, whether pursuant to change of control or otherwise, without the prior written consent of Fiserv. Client agrees that Fiserv may subcontract any of the Services to be performed under this Agreement. However, Fiserv agrees not to subcontract its Core Application Processing without prior written consent of the Client and such consent will not be unreasonably withheld. Any such subcontractors shall be required to comply with all of the applicable terms and conditions of this Agreement. (b) Entire Agreement. This Agreement, including its Exhibits, which are ---------------- expressly incorporated herein by reference, constitutes the complete and exclusive statement of the agreement between the parties as to the subject matter hereof and supersedes all previous agreements with respect thereto. Modifications of this Agreement must be in writing and signed by duly authorized representatives of the parties. Each party hereby acknowledges that it has not entered into this Agreement in reliance upon any representation made by the other party not embodied herein. In the event any of the provisions of any Addendum or Exhibit hereto are in conflict with any of the provisions of this Agreement, the terms and provisions of this Agreement shall control unless the Addendum or Exhibit in question expressly provides that its terms and provisions shall control. (c) Severability. If any provision of this Agreement is held to be ------------ unenforceable or invalid, the other provisions shall continue in full force and effect. (d) Governing Law. This Agreement will be governed by the substantive laws ------------- of the State of Wisconsin, without reference to provisions relating to conflict of laws. By entering into this Agreement, Fiserv agrees that the Office of Thrift Supervision, FDIC, or other regulatory agencies having authority over Client's operations shall have the authority and responsibility provided to the regulatory agencies pursuant to the Bank Service Corporation Act, 12 U.S.C. 1867(C) relating to services performed by contract or otherwise. The United Nations Convention of Contracts for the International Sale of Goods shall not apply to this Agreement. (e) Force Majeure. Neither party shall be responsible for delays or ------------- failures in performance resulting from acts reasonably beyond the control of that party. (f) Notices. Any written notice required or permitted to be given hereunder ------- shall be given by: (i) Registered or Certified Mail, Return Receipt Requested, postage prepaid; (ii) by confirmed facsimile; or (iii) by nationally recognized courier service to 87 the other party at the addresses listed on the cover page or to such other address or person as a party may designate in writing. All such notices shall be effective upon receipt. (g) No Waiver. The failure of either party to insist on strict performance --------- of any of the provisions hereunder shall not be construed as the waiver of any subsequent default of a similar nature. (h) Financial Statements. Fiserv shall provide Client and the appropriate -------------------- regulatory agencies who so require a copy of Fiserv, Inc.'s audited consolidated financial statements. (i) Prevailing Party. The prevailing party in any arbitration, suit, or ---------------- action brought against the other party to enforce the terms of this Agreement or any rights or obligations hereunder, shall be entitled to receive its reasonable costs, expenses, and attorneys' fees of bringing such arbitration, suit, or action. (j) Survival. All rights and obligations of the parties under this -------- Agreement that, by their nature, do not terminate with the expiration or termination of this Agreement shall survive the expiration or termination of this Agreement. (k) Exclusivity. Client agrees that Fiserv shall be the sole and exclusive ----------- provider of the Core services that are the subject matter of this Agreement. For purposes of the foregoing, the term "Client" shall include Client affiliates. During the term of this Agreement, Client agrees not to enter into an agreement with any other entity to provide these services (or similar services) without Fiserv's prior written consent. If Client is acquired by another entity, the exclusivity provided to Fiserv hereunder shall apply with respect to the level or volume of these services provided immediately prior to the signing of the definitive acquisition agreement relating to such acquisition and shall continue with respect to the level or volume of these services until any termination or expiration of this Agreement. Not withstanding anything to the contrary in this Section 16 (K), Client may permit an affiliate acquired after the date of this Agreement to maintain or renew and agreement in effect at the time of such acquisition with any other entity which is providing the services that are subject matter of this Agreement. However, Client may not move existing accounts or services covered under the scope of this Agreement from any existing affiliate to the data processing provider of the newly acquired affiliate during the initial term of this Agreement. (l) Recruitment of Employees. Each party agrees not to hire the other ------------------------ party's employees during the term of this Agreement and for a period of 6 months after expiration or termination except with prior written consent of the other party. ================================================================================ IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date indicated below. United Bankshares, Inc. Fiserv Solutions, Inc. By: /s/ Kenneth L. Greear By: /s/ James C. Puzniak -------------------------- -------------------------------- Name: Kenneth L. Greear Name: James C. Puzniak -------------------------- ------------------------------- Title: Senior Vice President Title: President - Fiserv Pittsburgh Center -------------------------- ------------------------------- Date: 10/1/2000 Date: 10/1/2000 -------------------------- ------------------------------- 88 Exhibit A - Account Processing Services --------------------------------------- Client agrees with Fiserv as follows: 1. Services. Fiserv will provide Client and Client accepts the Account -------- Processing Services (the "Account Processing Services") specified in the Account Processing Services Fee Schedule attached as Exhibit A - 1 hereto marked with a "F" in the left margin, which represents that the Service is included in the Account Processing Services Fixed Monthly Fee. Other Services therein shall be provided when requested by Client and accepted by Fiserv. 2. Fees. Fiserv will provide Client with the following Account Processing ---- Services at the fees and prices indicated: (a) Fixed Monthly Fee. For an Account Processing Services Fixed Monthly Fee ----------------- of $133,795, Fiserv agrees to provide and Client agrees to pay for the Services marked with a "F" in the left margin on Exhibit A - 1 of this Agreement. All other Services provided hereunder shall be provided to the Client upon reasonable request at then current pricing and in accordance with this Agreement. Fiserv will provide its variable services, as defined in Exhibit A-1, at prices that Fiserv charges generally to its client base. The Client understands that the mix of services, volumes and other factors affect the price that Fiserv charges for its Variable Services. (b) Fee Adjustment Factors. The delivery of the Services involves factors ---------------------- and risks that may increase Fiserv's cost of providing such Services. Notwithstanding the foregoing, Fiserv agrees to limit increases in its fees for those Services included in the Account Processing Services Fixed Monthly Fee as follows: (i) DAS Allowance: Fiserv agrees to increase the monthly Data Access ------------- Service (DAS) allowance to $6,000.00 per month from the effective date of this agreement through December 31, 2000. Beginning January 1, 2001, the monthly DAS allowance will be reduced to $4,000.00 per month. (ii) Inflation: Fiserv agrees not to increase the Account Processing --------- Services Fixed Monthly Fee for inflation until December 31, 2001. Beginning January 1, 2002 and annually thereafter, Fiserv reserves the right to increase such fee by the annual change in the U.S. Department of Labor Consumer Price Index (Consumer Price Index for All Urban Consumers (CPI-U): U. S. City Average). Fiserv shall use the change in the published index for the previous twelve months to compute the percentage increase in computing the fee for the next twelve months. (iii) Volume Adjustment. For volume related Account Processing Services ----------------- Fixed Monthly Fee adjustments, Fiserv shall reprice the Account Processing Services Fixed Monthly Fee in accordance with the following: A. "Client Account Volumes" shall be defined as total open Deposit Accounts (Demand, Savings, and Time), and total open Loan volumes (Retail Accounts and Commercial Loan Notes). B. In the event that the Client acquires other financial institutions or branches or portfolios of accounts for which Fiserv will provide Account Processing Services, or elects to have Fiserv provide Account Processing Services to existing affiliates other than those contemplated by this Agreement, upon each such conversion Fiserv shall recalculate the Account Processing Services Fixed Monthly Fee by applying the per account charge presented below to Post Conversion Volumes. Proposed volumes ("Proposed Volumes") are those Client Account Volumes that were used to compute the Account Processing Services Fixed Monthly Fee above. In the event that Client sells other financial institutions or branches or portfolios of accounts for which Fiserv is providing Account Processing Services, upon each such deconversion Fiserv shall recalculate the Account Processing Services Fixed Monthly Fee by applying the per account charge presented on the next page to the Post Deconversion volumes. However, in no instance will the Fixed Monthly Fee be reduced below $120,000 during the initial term of this Agreement. C. Beginning December 31, 2001 and upon completion of each calendar year thereafter throughout the term of this Agreement, Fiserv shall recalculate the Account Processing Services Fixed Monthly Fee by applying the per account charge presented on the next page to the then current year end Client Account Volumes, adjusted for any inflationary increases applied as described above. 89
--------------------------------------------------------- Client Account Volumes Per Account Charge --------------------------------------------------------- First 75,000 $0.40 75,001 - 275,000 $0.35 275,001 - 475,000 $0.30 475,001 -1,000,000 $0.28 All above 1,000,000 $0.26 ---------------------------------------------------------
(c) Conversion Fees --------------- (i) In the event that the Client acquires other financial institutions or branches or portfolios of accounts for which Fiserv will provide Account Processing Services, or elects to have Fiserv provide Account Processing Services to existing affiliates other than the aforementioned, or elects to implement additional Account Processing Services under the terms and conditions of this Agreement, Fiserv agrees to provide "Minimum Support" Conversion Services for a fee of $40,000 or $0.50 per account, whichever is greater. Reasonable out-of- pocket, pass-through or other third party expenses will be billed as incurred. Minimum Support shall include the following services: A. Comprehensive Project Plan for overall project B. Participate in regularly scheduled conversion meetings C. Balance vendor input to Fiserv output D. Application Conversion Task Plans for each converting application E. Automatic check for duplicate accounts against converting bank file F. Telephone first calls for all applications, including Technical Call G. Product Mapping H. Program Specifications for all applications where volume exceeds 300 accounts I. Conversion Programming for all applications where volume exceeds 300 accounts. J. Validation for all applications where volume exceeds 300 accounts K. 1 - 2 sets of edits per application. Additional edits will be provided at no cost in the event of a Fiserv related error. L. 1 CIF conversion to be completed in conjunction with the applications conversion M. Manual conversions for all applications where volume is less than 300 accounts N. 2 weeks of telephone support for all applications where volume exceeds 300 accounts O. 2 Automatic Merge to be scheduled at client request Additional support above the "Minimum Support" level will be quoted on a time and material basis. (ii) In the event that Client elects to merge existing Affiliates into a consolidated bank during the term of this Agreement, Fiserv shall provide "Minimum Support" for each Affiliate merger for a fee of $35,000. Such Minimum Support shall include the following: A. Comprehensive Project Plan for overall project B. Programming for account re-coding on the non-surviving entity. C. Conversion planning conference calls D. Automatic check for duplicate accounts E. Telephone first calls for all applications F. Consolidation of Bank and Branch Numbers into a single entity 90 G. Two set of output reports per application for Client verification. Additional reports will be provided at no cost in the event of a Fiserv related error. H. 2 Automatic Merges to be scheduled at client request Additional support requests outside of those mentioned above that may be requested by the Client will be quoted on a time and material basis. (iii) Should Client acquire an entity currently processing on the Fiserv Pittsburgh Center software platform, Fiserv shall incorporate such entity into Client's processing environment without the payment of termination fees. Fiserv Pittsburgh Center shall use good faith efforts to minimize the costs associated with the acquisition of an entity using another Fiserv solution for its core processing platform. If such an acquisition occurs within the last three (3) years of this agreement, this Agreement shall automatically be extended from the date of such acquisition for the longer of 1) length of the contract of the acquired entity or 2) three (3) years. 3. Responsibility for Accounts. Client shall be responsible for balancing its --------------------------- accounts each business day and notifying Fiserv immediately of any errors or discrepancies. Provided that Client immediately notifies Fiserv of any discrepancy in Client's accounts, Fiserv shall, at its expense, promptly recompute accounts affected by discrepancies solely caused by Fiserv computer or software systems or provide for another mutually agreeable resolution. Fiserv will use its commercially reasonable efforts to correct errors attributable to Client or other third party servicers of Client. 4. Reconstruction of Error Conditions. Reconstruction of error conditions ---------------------------------- attributable to Client or to third parties acting on Client's behalf will be done at prevailing rates as set forth in Exhibit A - 1. 5. Major Software Enhancements and Custom Programming. All major software -------------------------------------------------- enhancements and custom programming will be subject to additional charges for processing and development in accordance with Exhibit A - 1. Fiserv is obligated to keep its software market competitive and in federal regulatory compliance during the term of this Agreement. 6. Protection of Data. For the purpose of compliance with applicable government ------------------ regulations, Fiserv has developed an operations backup center. Fiserv tests the procedure periodically to ensure the data center's compliance. Copies of transaction files are maintained by Fiserv off premises in secured vaults. 7. Processing Priority. Fiserv does not subscribe to any Client processing ------------------- priority; all users received equal processing consideration. 8. Client Advisory Board. Fiserv will support Client's continued membership on --------------------- the Client Advisory Board throughout the term of this Agreement. Fiserv and Client recognize that the Client Advisory Board is an independent organization with its own set of by laws and is not under the control of Fiserv. 9. FAST Software License Fee. In the event that Client executes a license ------------------------- agreement with Fiserv for its FAST software product prior to December 31, 2000, the software license fee shall be $950 per workstation. In the event Client executes a license agreement for the FAST software product after December 31, 2000, the software license fee shall be $1,089 per workstation. 10. Customer Service and Call Center Solution (CSCS). In the event that Client ------------------------------------------------ executes a license agreement with Fiserv for its CSCS software product prior to March 31,2001, the software license fee shall be $55,200 for the first 20 workstations representing a 20% discount. In the event that Client executes a license agreement for CSCS after March 31, 2001, Fiserv will agree to a 10% discount from the then current market price for the first 20 workstations. Maintenance fees shall be billable at Fiserv's then current rates. 11. InformEnt Data Warehouse: In the event that Client executes a license ------------------------ agreement with Fiserv for its InformEnt software product prior to March 31, 2001, the software license fee for the InformEnt Server Module shall be $322,050. Additionally, all Hardware and Third Party software costs outlined in this Agreement shall be adjusted to reflect any increase or decrease as of the date of license agreement signing. In the event Client desires to evaluate the InformEnt Data Warehouse product after March 31, 2001, a new product proposal will be prepared based on Fiserv's then current market price for the InformEnt Data Warehouse. 12. Automated Proof Correction System (APCS), Return Items Control System --------------------------------------------------------------------- (RICS). Fiserv agrees to support these products through the initial term of the agreement. 91 13. Posting Exception Transaction System (PETS). Fiserv agrees to pro rate the -------------------------------------------- annual maintenance fee for PETS when Client elects to implement the Exception Item Processing product (EIP). The maintenance fee will be pro rated from the beginning of the year to the implementation date for EIP. 14. Intervoice. Fiserv agrees to support the Intervoice VRU software and ---------- hardware platform during the term of this agreement as long as Intervoice remains independent, financially solvent, and keeps its product offering market competitive. 15. Atchley Comply/Wire. Fiserv and Atchley Systems have developed an automated ------------------- file interface between FEDLINE and other Third Party vendors for the transfer of wire data to the Atchley Comply/Wire product. Fiserv agrees to work with Client's wire vendor (FundTech) to ensure that the transmission file is in the proper format required by Fiserv and Atchley Systems. 16. Network Services. Fiserv will continue to provide ongoing telecommunication ---------------- network monitoring and support during the initial term of this agreement. 92 Exhibit A - 1 Account Processing Services Fee Schedule The following schedule identifies systems and services described within the scope of the Agreement to be included in the Fixed Monthly Fee.
- ------------------------------------------------------------------------- Fixed Monthly Fee System or Service - ------------------------------------------------------------------------- Account Analysis F Per Account F History Retention - ------------------------------------------------------------------------- Automated Clearinghouse F Receiving Transactions F RJE Origination F PDMs (Company Processing) F Daily Transmissions (From ATM switches and/or Clearing Houses) F Automated Returns F Notification of Change F Payroll Processing F Stop Payments/DNE F Risk Processing F FEDI Receiving F EDI Fax File to X-pedite F EPA (Electronic Payment Authorization) - ------------------------------------------------------------------------- F ATM Special Services - ------------------------------------------------------------------------- ATM Statement Print Services - ------------------------------------------------------------------------- Balance File Transmissions - ------------------------------------------------------------------------- F Audit Confirmation Reports - ------------------------------------------------------------------------- F Automated Returns - ------------------------------------------------------------------------- F Bulk Filing - ------------------------------------------------------------------------- F Browser Based Host Access (Merlin) - ------------------------------------------------------------------------- Central Marketing File F Standard Build - ------------------------------------------------------------------------- F Special Options Build - ------------------------------------------------------------------------- Central Reference File F Alpha Key Merge F CRF Accounts (Alpha-Keys) - -------------------------------------------------------------------------
93
- ------------------------------------------------------------------------- Fixed Monthly Fee System or Service - ------------------------------------------------------------------------- F 9 Digit Zip Code (Zip + 4) - ------------------------------------------------------------------------- F CRF Miscellaneous Accounts (Non-Fiserv Applications) - ------------------------------------------------------------------------- Combined Interest - ------------------------------------------------------------------------- F Per Account (1099s and 1098s) F W-8/W-9 F On-line Corrections F B-Notices - ------------------------------------------------------------------------- F Commercial Loans - ------------------------------------------------------------------------- F Credit Bureau Reporting - ------------------------------------------------------------------------- F Deluxe One Network - ------------------------------------------------------------------------- Demand Deposits F Transactions Processed F Account Maintenance F Combined Balance Service Charge F NOW Sweep Processing F Interest Bearing Accounts F History Retention: - Seven Day - Extended F Kiting Suspect Report F Mutual Funds Sweep F Statement Zip Code Sort F Overnight Investments - ------------------------------------------------------------------------- Electronic Banking F Auto-Open Feature - ------------------------------------------------------------------------- Escrow Management F Rent Security F Set-up Fee F Principal / Escrow - ------------------------------------------------------------------------- F IOLA Reporting - ------------------------------------------------------------------------- General Ledger F Base F Account Centers - -------------------------------------------------------------------------
94
- ------------------------------------------------------------------------- Fixed Monthly Fee System or Service - ------------------------------------------------------------------------ F Transactions - ------------------------------------------------------------------------ F Budget: - Current and Next Year Module - Working Year Optional Selection - Prior Year Optional Selection - ------------------------------------------------------------------------ F Application Interface F Recurring Entries - ------------------------------------------------------------------------ General Ledger (Continued) F Daily Custom Reports F On-Line System -setup -monthly budget F Transaction Journal F - Transaction History (14, 45,65,90 days) - ------------------------------------------------------------------------ F Host Disaster Contingency Planning - ------------------------------------------------------------------------ F Host/RJE Site Support - ------------------------------------------------------------------------ F Maturity Analysis Reporting - ------------------------------------------------------------------------ F On-line Collections - ------------------------------------------------------------------------ F Presentment Items - ------------------------------------------------------------------------ Retail Loans F Open Accounts F Closed Accounts F Dealer Reserve Reporting F Loan Interest Statements: - Payoff statements - Annual statements - ------------------------------------------------------------------------ Retirement Planning F Accounts - ------------------------------------------------------------------------ F Statements F W-2P, 1099R and 5498 - ------------------------------------------------------------------------ F Safe Deposit Box Savings Accounts ------------------------------------------------------------------------ F Open Accounts ------------------------------------------------------------------------
95
- ------------------------------------------------------------------------- Fixed Monthly Fee System or Service - ------------------------------------------------------------------------ F Closed Accounts F Draft Items F History Retention F Statement Zip Code Sort - ------------------------------------------------------------------------ F Third Party Review ------------------------------------------------------------------------ Time Deposits F Open Accounts F Closed Accounts F History Retention F Statement Zip Code Sort - ------------------------------------------------------------------------ F View Direct - -------------------------------------------------------------------------
96 The following fee schedule identifies variably priced systems and services. Client shall not be billed for any variable fee unless it has been mutually agreed that Client shall use such system or service.
- ---------------------------------------------------------------------------------------------------------------------------------- Monthly Fee System or Service Unit Price Description - ---------------------------------------------------------------------------------------------------------------------------------- Account Reconcilement V Per Item $ 0.0250 Per item/month for first 100,000 items $ 0.0225 Per item/month for the next 100,000 items $ 0.0200 Per item/month for the next 100,000 items $ 0.0175 Per item/month for all items over 300,000 $ 100.00 Minimum per month V History Retention $ 100.00 Per Month Atchley Systems V Set Up Fee for Single Institutions: Comply/Wire Only $ 2,000 One time per institution Large Currency Only $ 3,000 One time per institution Comply/Wire & Large Currency $ 4,000 One time per institution V Comply/Wire Only - (based on asset size) Under $500MM $ 200.00 Per month/institution $500MM to *$750MM $ 225.00 Per month/institution $750MM to $1B $ 275.00 Per month/institution Over $1B $ 350.00 Per month/institution V Large Currency Only - (based on asset size) Under $500MM $ 350.00 Per month/institution $500MM to *$750MM $ 350.00 Per month/institution $750MM to $1B $ 400.00 Per month/institution Over $1B $ 450.00 Per month/institution V Comply/Wire & Large Currency - (based on asset size) Under $500MM $500MM to *$750MM $ 500.00 Per month/institution $750MM to $1B $ 525.00 Per month/institution Over $1B $ 625.00 Per month/institution $ 675.00 Per month/institution - ---------------------------------------------------------------------------------------------------------------------------------- Automated Clearinghouse - ---------------------------------------------------------------------------------------------------------------------------------- V Direct Line Receiving from Fed $ 5.00 Per file/day $ 400.00 Maximum/month V Direct Line Origination to Fed $ 7.50 Per file/month V Origination Transactions $ 0.07 Per item/month V Tape Conversion $ 750.00 Per conversion V ATM/POS File Processing $ 100.00 Per set-up - ------------------------------------------------------------------------------------------------------------------------------------
____________ * less than sign 97
- ---------------------------------------------------------------------------------------------------------------------------------- Monthly Fee System or Service Unit Price Description - ---------------------------------------------------------------------------------------------------------------------------------- V FEDI Origination: - Customer Set-up $ 200.00 Per customer of institution - Customer Statement Set-up $ 100.00 Per customer of institution - Per Record $ 0.25 Per NACHA 7 record $ 50.00 Minimum NACHA record charge per month - ---------------------------------------------------------------------------------------------------------------------------------- ACH (Continued) - ---------------------------------------------------------------------------------------------------------------------------------- V Backroom Systems Software Quote Contact Relationship Manager - ---------------------------------------------------------------------------------------------------------------------------------- Central Marketing File (All CMF pricing excludes tape charges) V Set-up Fee $ 3000.00 One time per institution V Off-Cycle Build $ 500.00 Per run (other than scheduled cycle) - ---------------------------------------------------------------------------------------------------------------------------------- Central Reference File V Address Labels $ 10.00 Per 1,000 accounts per request V Customer to Customer $ 3,000.00 Set-up fee for first institution $ 1,000.00 Set-up fee each additional institution Quote Additional service at current Consulting rates V GEO Code $ 500.00 Per request/institution $ 5.50 Per 1,000 records processed V SQN Interface $ 5,000.00 One-time setup per institution; standard format Professional services fees apply to customization $ 150.00 Per month per institution for monthly interface $ 300.00 Per month per institution for weekly interface $ 350.00 Per month per institution for daily interface V Householding $ 1,500.00 One-time setup for first user institution $ 500.00 One-time setup for each additional user institution V - Monthly Processing $ 0.0060 Per record/institution if volume 0 - 49,999 $ 0.0055 Per record/institution if volume 50,000 - 99,999 $ 0.0050 Per record/institution if volume 100,000 - 499,999 $ 0.0045 Per record/institution if volume 500,000 - 999,999 $ 0.0040 Per record/institution if volume 1,000,000 or more $ 300.00 Minimum per institution per month V - Quarterly Processing $ 0.0085 Per record/institution if volume 0 - 49,999 $ 0.0080 Per record/institution if volume 50,000 - 99,999 $ 0.0075 Per record/institution if volume 100,000 - 499,999 $ 0.0070 Per record/institution if volume 500,000 - 999,999 $ 0.0060 Per record/institution if volume 1,000,000 or more $ 425.00 Minimum per institution per quarter - ---------------------------------------------------------------------------------------------------------------------------------- V - Composition Report $ 50.00 1 to 49,999 records / institution / request $ 75.00 50,000 to 99,999 records/ institution / request $ 100.00 100,000 to 499,999 records/ institution / request $ 125.00 Over 500,000 records/ institution / request - ----------------------------------------------------------------------------------------------------------------------------------
98
- ---------------------------------------------------------------------------------------------------------------------------------- Monthly Fee System or Service Unit Price Description - ---------------------------------------------------------------------------------------------------------------------------------- V - Simulated Run Setup, Quarterly Processing and Composition Report Fees would apply per institution request - ---------------------------------------------------------------------------------------------------------------------------------- V Consulting Services Quote Contact Relationship Manager - ---------------------------------------------------------------------------------------------------------------------------------- V Coupon Books Quote Quoted by vendor - ---------------------------------------------------------------------------------------------------------------------------------- V CRISP Interface $ 400.00 Per month for first user institution $ 300.00 Per month for each additional user institution - ---------------------------------------------------------------------------------------------------------------------------------- V Custom Interfaces Set-Up $ 100.00 Per recurring transmission site established Professional Services fees additional Incoming Transmissions $ 50.00 Per transmission if reformat required $ 250.00 Maximum per month per custom interface Outgoing Transmissions $ 50.00 Per transmission $ 250.00 Maximum per month per custom interface - ---------------------------------------------------------------------------------------------------------------------------------- V Customer Reporting System Deliver Point Bar Coding (DPBC) $ 2,000.00 One-time Professional Services Fee $ .01 Per month per document for which DPBC is printed $ 100.00 Minimum/month - ---------------------------------------------------------------------------------------------------------------------------------- V Data Access Services (DAS) Per Record/Report $ 2.00 Per 1,000 records on reports not requiring CRF $ 2.50 Per 1,000 records on reports requiring CRF (CRF available only on weekends) $ 2.50 Label production rate per 1,000 records $ 1.20 Factor applied to download requests (Records equal sum of read plus written/printed) $ 40.00 Minimum/report $ 250.00 Maximum/report Storage $ 1.00 Per month for each request stored for re-execution Weekend Discount 30% Discount applied to first $200 in weekend reports 40% Discount applied to next $300 50% Discount applied to next $500 60% Discount applied to all over $1,000 Fixed monthly fee includes DAS usage up to $4,000.00 per month - -------------------------------------------------------------------------------------------------------------------------------- V Data Communications Quote Circuits, equipment and network support - as quoted by / through vendors - -------------------------------------------------------------------------------------------------------------------------------- V Deconversion $ 5,000.00 Base per bank or branch being deconverted $ 200.00 Per tape produced $ 250.00 For production of wipe-off DD statements Above rates exclude requested Fiserv professional services and out-of-pocket expenses - -------------------------------------------------------------------------------------------------------------------------------- Demand Deposits
99
- -------------------------------------------------------------------------------------------------------------------------------- Monthly Fee System or Service Unit Price Description - -------------------------------------------------------------------------------------------------------------------------------- V Service Charge Routine Setup Quote Professional services fees apply V Service Charge Routine Change Quote Professional services fees apply V Accrual Adjustment Program $ 200.00 Per request first day plus $50 each additional day after first day V Account Number Production $ 25.00 Set-up per request $ 5.00 Per 1,000 account numbers produced V Check Processing Descending Order $ 2,000.00 Set-up per institution $ 4,000.00 Maximum per relationship - -------------------------------------------------------------------------------------------------------------------------------- Electronic Banking V Flex-Phone VRU Quote Contact Relationship Manager for System quotes V Bill Payment Accounts $ 1.00 Per account/month V Non-Bill Payment Accounts $ 0.05 Per account/month $ 250.00 Minimum Account Processing/Month - -------------------------------------------------------------------------------------------------------------------------------- V By-Line Telephone Banking $ 400.00 Per month - 0 - 750 calls answered $ 700.00 Per month - 751 - 10,000 calls answered $ 900.00 Per month - 10,001 - 15,000 calls answered $ 1,100.00 Per month - 15,001 - 20,000 calls answered Quote Call volumes over 20,000 Above pricing excludes costs of 800 number access Business Account Manager $ 750.00 One-time Setup Includes access to Fiserv's Bill Payment service -By-Line Users $ 12.00 Per BAM account/month (excludes costs of 800 number access) -Flex-Phone Users $ 150.00 Minimum/month - -------------------------------------------------------------------------------------------------------------------------------- Escrow Management $ 2.00 Per BAM account/month - -------------------------------------------------------------------------------------------------------------------------------- V Set-up $ 5,000.00 Per institution (included in fixed monthly fee) $10,000.00 Per relationship maximum - -------------------------------------------------------------------------------------------------------------------------------- V FAST Branch Automation $ 1,089 Workstation License Fee - -------------------------------------------------------------------------------------------------------------------------------- V Exception Processing - -------------------------------------------------------------------------------------------------------------------------------- Set-up $ 15,000 Per Holding Company - -------------------------------------------------------------------------------------------------------------------------------- General Ledger Interface Custom Reports: - -------------------------------------------------------------------------------------------------------------------------------- -Report Set-Up $ 25.00 Per Report Set-Up requested - Report Generation $ 100.00 Per Report Generated/Month (First Report Free) - -------------------------------------------------------------------------------------------------------------------------------- Interface Extract $ 100.00 Per Application/Month - -------------------------------------------------------------------------------------------------------------------------------- V - Transaction History $ 215.00 Per institution/month for 65 day history $ 300.00 Per institution/month for 90 day history - --------------------------------------------------------------------------------------------------------------------------------
100
- ------------------------------------------------------------------------------------------------------------------------------------ Monthly Fee System or Service Unit Price Description - ------------------------------------------------------------------------------------------------------------------------------------ V Microfiche $ 0.95 Per original produced $ 0.17 Per copy produced $ 1.00 Hardcopy per frame requested - ------------------------------------------------------------------------------------------------------------------------------------ On-line Collections V Time Zone Indicator $ 1,500.00 Per year per institution, annual bill January of each year, first year prorated to December - ------------------------------------------------------------------------------------------------------------------------------------ V Print/Rendering Services Quote Contact Relationship Manager - ------------------------------------------------------------------------------------------------------------------------------------ V PC Interface Support $ 100.00 Per month, includes support for PC Services Package, SimWare and/or XCOM, excludes third party software, maintenance and CompuServe access time. - ------------------------------------------------------------------------------------------------------------------------------------ V Professional Services - ------------------------------------------------------------------------------------------------------------------------------------ Includes (but not limited to) custom programming (report $ 85.00 Per hour / Customer Service or Conversion Analyst and file creation, maintenance and fixes), and other $ 100.00 Per hour / Project Manager or Custom Training Fiserv personnel assistance not covered by contract $ 125.00 Per hour for Systems Analyst/Programmer, Operational Consulting, Telecommunications Design $ 150.00 Base per mass maintenance request $ 50.00 Per report generated from request $ 100.00 Incremental for CRF access on report Out-of-pocket expenses as incurred - ------------------------------------------------------------------------------------------------------------------------------------ V Report Regeneration $ 25.00 Per request/month (first two requests free) - ------------------------------------------------------------------------------------------------------------------------------------ Reference Materials V CD-ROM: - First Two No Charge Per institution per release - Additional Copies $ 25.00 Per copy if preordered via annual subscription $ 100.00 Per copy for ad hoc requests V Paper Manuals (products not on CD): $ 75.00 Per manual per application - ------------------------------------------------------------------------------------------------------------------------------------ V Repost Due to Client Error Quote Professional Services rates apply $2,000 minimum per incident - ------------------------------------------------------------------------------------------------------------------------------------ V Report Regeneration $ 25.00 Per request/month (first 2 requests free) - ------------------------------------------------------------------------------------------------------------------------------------ Retail Loans V Insurance Tape Creation $ 200.00 Per tape/vendor/application V Promotional Extensions $ 150.00 Base per execution $ 0.05 Per account - ------------------------------------------------------------------------------------------------------------------------------------ Savings Accounts V Service Charge Routine Setup $ 100.00 Per routine - ------------------------------------------------------------------------------------------------------------------------------------ V Service Charge Routine Change $ 25.00 Per field changed $ 100.00 Maximum per routine changed V Accrual Adjustment Program $ 200.00 Per request first day plus $50 each additional day after first day - ------------------------------------------------------------------------------------------------------------------------------------ V Tape for Coupon Book Production $ 300.00 Per request ($200 for tape, $50 for special report, $50 for processing) - ------------------------------------------------------------------------------------------------------------------------------------
101
- ------------------------------------------------------------------------------------------------------------------------------------ Monthly Fee System or Service Unit Price Description - ------------------------------------------------------------------------------------------------------------------------------------ V Special Reports $ 50.00 Applies to any report not produced in the normal processing flow but which Fiserv has previously programmed. Additional fees associated with the creation and generation of new special reports are described under Professional Services. $ 100.00 Incremental for CRF access on special report - ------------------------------------------------------------------------------------------------------------------------------------ V Tape Creation $ 200.00 Per physical tape produced (or equivalent on alternative media) - ------------------------------------------------------------------------------------------------------------------------------------ V Teleprocessing Professional Services - ------------------------------------------------------------------------------------------------------------------------------------ Router Monitoring $ 125.00 Per Router Per Month - ------------------------------------------------------------------------------------------------------------------------------------ Circuit Monitoring $ 60.00 Per Circuit Per Month - ------------------------------------------------------------------------------------------------------------------------------------ Logical Unit Fee (LU) $ 2.00 Per Logical Unit (LU) Per Month - ------------------------------------------------------------------------------------------------------------------------------------ V Teller Support Inquiry $ 225.00 Per Month ----------------------------------------------------------------------------------------------------------------------------------- Data Capture/Truncation $ 125.00 Per Month (additional to inquiry support) - ------------------------------------------------------------------------------------------------------------------------------------ Time Deposits V Remaining Term Penalty Calculation $ 1,000.00 One-time for set-up - ------------------------------------------------------------------------------------------------------------------------------------ V Training Services Quote Contact Relationship Manager - ------------------------------------------------------------------------------------------------------------------------------------
102 Exhibit A - 2 Service Level Commitments ---------------------------------------- 1. Service Level Commitments. For purposes of the service level commitment ------------------------- categories set forth below, the described services shall be deemed to be "available" to Client if Fiserv's computer system, including all hardware and software necessary to provide the Client with the Services contemplated by this Agreement, is available to accept and process all input contemplated by this Agreement from Client and necessary to provide the Services in question. All service levels commitments shall be averaged over a calendar month and national holidays are excluded. (a) Response Time. Fiserv shall provide response time for the central ------------- processor to receive an Inquiry transaction from the communications controller at Fiserv's data center, process that transaction and return the answer to the controller of less than three (3) seconds, ninety-five (95%) percent of the time from 8:00AM to 8:00PM Client Local Time ("CLT"), Monday through Saturday. (b) Report Availability. Fiserv shall make available to the Client at the ------------------- Fiserv Output Print System or other output distribution medium or product, critical reports for the Basic Services, no later than 7:00AM CLT each business day or 10:00AM CLT if such business day falls on the first calendar day of the month (General Ledger an additional 2 hours in each case), provided the Client has completed transmission of the data to be used in generating such reports to Fiserv no later than 1:01AM CLT, Monday through Thursday, and 2:01 AM on Friday. Fiserv shall provide such reports to the Client for each Basic Service in accordance with the above schedule at least ninety-five percent (95%) of the time. The "Basic Services" are Demand Deposits, Savings, Time Deposits, Account Reconcilement, Retail Loans, Commercial Loans and General Ledger. (c) Teleprocessing Availability. Fiserv shall make its teleprocessing --------------------------- services available to the Client at least ninety-five percent (95%) of the time from 8:00AM to Midnight CLT, Monday through Saturday, excluding overnight batch processing. (d) Network Professional Services. The Philadelphia Computer Center will ----------------------------- provide 7 day/24 hour network support. All telecommunication lines supported by the Philadelphia Computer Center will be available 7 X 24 except Sunday from 03:00 to 05:30 EST. The Philadelphia Help Desk will act as the focal point for Client's telecommunication issues. The Help Desk will provide Client with a status of an open issue every two hours from 08:00 to 20:00 EST until the issue is resolved. If the Help Desk is unable to resolve an issue during the initial call with Client, the issue will be elevated to the Philadelphia Network Control Center. The Network Control Center will begin problem determination within one hour of issue escalation. The Network Control Center will assure that the appropriate carrier is notified of all circuit problems. Carrier escalation procedures include the following: (i) After 2 hours, problem will be escalated to the carrier Local Service Manager (ii) After 4 hours, problem will be escalated to the carrier District Manager (iii) After 6 hours, problem will be escalated to the carrier Regional Service Manager (iv) After 8 hours, problem will be escalated to the carrier National Service Manager and National Account Manager (e) Cure. In the event that Fiserv's performance fails to meet the service ---- level commitments set forth in this Section, the Client shall notify Fiserv in writing of such failure and shall work with Fiserv to specifically identify the problem. If a deficiency is determined by the parties, Fiserv shall institute cure procedures. If the deficiency is not cured within ninety (90) days, Fiserv shall institute a credit of two percent (2%) of the Fixed Monthly Fee each month for each deficient service level commitment category until it is cured. If any deficiency persists for an additional three (3) consecutive months at a level below ninety percent (90%) and upon receipt by Fiserv of prior written notice, the Client may elect to terminate this Agreement, without the payment of liquidated damages, upon payment of any fees or sums due pursuant to this Agreement and such termination shall be the Client's sole and exclusive remedy. Fiserv agrees to cooperate with the Client to achieve it's deconversion schedule. 103 Exhibit E - Purchase of Equipment Through Fiserv ------------------------------------------------ Client agrees to purchase, and Fiserv agrees to sell, Equipment (as hereinafter defined) on the terms and subject to the conditions hereinafter set forth: 1. Equipment and Fiserv Obligations. Equipment, if any, being purchased through -------------------------------- Fiserv shall be described in Exhibit E - 1 hereto, or in a signed order letter from Client to Fiserv specifying the quantity, type and price for the equipment desired, (the "Equipment"). Client understands that Fiserv is acting as an independent sales organization representing each manufacturer or supplier (each, a "Manufacturer") identified in Exhibit E - 1. Client also understands and agrees that the ability of Fiserv to obtain the Equipment may be subject to availability and delays due to causes beyond the control of Fiserv. Fiserv shall promptly place any orders submitted under this Agreement with each Manufacturer and shall, at Client's direction, request expedited delivery whenever available. 2. Delivery and Installation. ------------------------- (a) Delivery. On Client's behalf, Fiserv shall arrange for delivery of the -------- Equipment to the site or sites ("Installation Site(s)") designated by Client on or about the date (the "Delivery Date") requested. In the absence of shipping instructions, Fiserv shall select a common carrier on behalf of Client. Client shall be responsible for appropriate property insurance for all equipment, whether Client-owned or Fiserv- owned, within Client's premises. (b) Installation and Acceptance. Fiserv shall arrange for the installation --------------------------- of the items of Equipment in consideration of the Installation Fees listed on Exhibit E - 1. Client shall not perform any installation activities without the written consent of Fiserv. Fiserv or its designee shall have full and free access to the Equipment and the Installation Site until installation is completed. If a suitable installation environment is not provided by Client, then Fiserv shall be required to perform only as many normal installation procedures as it deems to be practicable within the available facilities. Installation of Equipment will take place during normal Fiserv business hours, Monday through Friday, exclusive of Fiserv holidays, unless otherwise agreed by Fiserv. The Equipment shall be deemed to have been accepted when it has passed either the Fiserv or the Manufacturer's standard post-installation test procedures at the Installation Site. (c) Installation Environment. Client shall provide a suitable installation ------------------------ environment for the Equipment as specified by Fiserv or its agents and any and all other specifications provided to Client by the Manufacturer or Fiserv. Client shall also be responsible for furnishing all labor required for unpacking and placing each item of Equipment in the desired location for installation. Client shall be responsible for physical planning including, but not limited to, floor planning, cable requirements, and safety requirements in accordance with the installation manual and any and all applicable building, electrical, or other codes, regulations, and requirements. All such physical planning shall be completed on or before the delivery date for the Equipment. (d) Ongoing Maintenance. Unless the parties agree otherwise, Fiserv shall ------------------- not be responsible for the provision of any maintenance or repairs to the Equipment or of any parts or replacements for the Equipment. 3. Shipment, Risk of Loss and Title to Equipment. All prices shown on Exhibit E --------------------------------------------- - 1 are F.O.B. at the Manufacturer's plant. All transportation, rigging, drayage, insurance, and other costs of delivery of the Equipment to the Installation Site shall be itemized on an invoice submitted to Client and shall be paid by Client. Risk of loss shall pass to Client upon shipment. Title to the Equipment shall remain with the Manufacturer until all payments for the Equipment have been made by Client and, until such time, Client agrees that it shall not sell, transfer, pledge, or otherwise dispose of the Equipment without the prior written consent of Fiserv. 4. Security Interest. Client grants Fiserv a security interest in all the ----------------- Equipment and the proceeds thereof until the purchase price due Fiserv shall have been paid in full. Client shall execute any instruments or documents Fiserv deems appropriate to protect the security interest and, in any event, this Agreement shall constitute a financing agreement within the meaning of Article 9 of the Uniform Commercial Code and a copy of this Agreement may be filed at any time after signature by Fiserv as a financing statement for that purpose. In the event of default in payment or other breach by Client, Fiserv shall have all rights and remedies of a secured creditor upon default as provided by applicable law. Fiserv shall, at its sole expense, file releases for any financing statements recorded pursuant to this Agreement promptly upon receipt of final payment. 5. Warranties. Fiserv warrants that Client will acquire good and clear title to ---------- the Equipment free and clear of all liens and encumbrances. Fiserv hereby assigns to Client all warranties the Manufacturer has granted to Fiserv with respect to the Equipment as set forth on Exhibit E - 1. Client hereby agrees to all of the terms and conditions applicable to those warranties 104 and acknowledges that: (i) neither the Manufacturer nor Fiserv warrants that the use of the Equipment will be uninterrupted or error free; and (ii) Manufacturer's warranties, and the assignment of such warranties by Fiserv to Client, shall not impose any liability on Fiserv due to the services or assistance provided to Client by Fiserv with respect thereto. 105 Exhibit E - 1 Equipment and Prices ---------------------------------- 6. InformEnt Data Warehouse. The following hardware is included in the ------------------------ InformEnt Data Warehouse Solution as of the Effective Date of the Agreement. (a) Production Server: Sun Enterprise 450 -----------------
- --------------------------------------------------------------------------------------------------------------------- Annual Maintenance (3 Years Description Quantity Purchase Required) - --------------------------------------------------------------------------------------------------------------------- Sun E450 Base, four CPU slots, 16 memory slots, 10 PCI I/O 1 $10,437 $3,936 slots, 4 hot swap USCSI disk bays, 32x CD-ROM, 1.44 MB floppy, removable media bay, 10/100 Ethernet, two power supplies, Solaris server license, no CPU, memory, or disk included. 400-MHz UltraSPARC Module with 4-Mbyte 2 $ 9,191 $ 0 512-Gbyte Memory Expansion (2x256) 4 $ 9,568 $ 0 8 bay internal expansion kit 2 $ 2,088 $ 0 18.2 Gbyte 10K RPM 14 $19,320 $ 0 DLT7000-Based 280GB Autoloader 1 $10,028 $2,172 DLT Compact IV Tapes - 10 pack 4 $ 2,944 $ 0 DLT Cleaning Tapes-Package of 10 1 $ 437 $ 0 Host Bus Adapter 1 $ 1,210 $ 0 Fast Ethernet, 100BaseT 1 $ 584 $ 0 560W Power Supply 1 $ 1,044 $ 0 PGX32 Graphics Option 1 $ 271 $ 0 17-inch Entry Color Monitor 1 $ 359 $ 0 Type-6 Country Kit 1 $ 0 $ 0 Solstice Backup Media Kit 1 $ 100 $ 0 Solstice Backup Network Edition 1 $ 6,336 $1,872 Autochanger Software Module 1-8 slots 1 $ 1,584 $ 480 Client Pak for Windows NT 1 $ 1,584 $ 636 Solaris 2.6 Standard English Server Media Kit 1 $ 84 $ 0 Veritas Volume Manager license for Solaris SPARC; license for 1 $ 2,636 $ 0 workgroup servers; RTU only. Veritas Volume Manager 3.0.3 Base Package CD-ROM (Media & Docs) 1 $ 150 $ 0 - --------------------------------------------------------------------------------------------------------------------- $79,955 $9,096 - ---------------------------------------------------------------------------------------------------------------------
106 (b) Delivery Server (2)- Dell PowerEdge 2400 - WEB-based dissemination of data and automated scheduling.
- --------------------------------------------------------------------------------------------------------------------- Description Quantity Purchase - --------------------------------------------------------------------------------------------------------------------- PowerEdge 2400, Pentium II, 400 MHz (Single Processor), 512K Cache, Tower 1 $ 8,635 Syle 192MB RAM, 2 DIMMS 1 $ 0 1x6 Hot Pluggable BackPlane 1 $ 0 PERC 32K RAID 5 Hard Drive Configuration 1 $ 0 9GB Ultra-2 LVD SCSI 10,000 RPM Hard Drive 3 $ 0 3COM 3C905 10/100 Ethernet, PCI Adapter, TP 1 $ 0 Microsoft Windows NT Server 4.0 1 $ 0 Windows SpaceSaver Keyboard 1 $ 0 Phillips Magnavox 800F, (15.0" / 13.9" Viewable Monitor) 1 $ 0 Logitech Mouse 1 $ 0 14/32X SCSI CD-ROM 1 $ 0 1.44MB Diskette Drive 1 $ 0 3 Year Next Business Day On-Site Service 1 $ 0 SMART-UPS 700VA Net Bundle 1 $ 0 Oracle Net8 Client 8.0.4 1 $ 0 Norton pcANYWHERE 32 v 8.0 for Windows NT 1 $ 111 - --------------------------------------------------------------------------------------------------------------------- Subtotal $ 8,746 - --------------------------------------------------------------------------------------------------------------------- Quantity 2 - --------------------------------------------------------------------------------------------------------------------- Total $17,492 - ---------------------------------------------------------------------------------------------------------------------
(c) Analysis Server - Dell PowerEdge 2400 - provides the automation of financial reporting and what-if financial analysis daily at the transaction level on line.
- --------------------------------------------------------------------------------------------------------------------- Description Quantity Purchase - --------------------------------------------------------------------------------------------------------------------- PowerEdge 2400, Pentium II, 400 MHz (Single Processor), 512K Cache, Tower 1 $8,635 Syle 192MB RAM, 2 DIMMS 1 $ 0 1x6 Hot Pluggable BackPlane 1 $ 0 PERC 32K RAID 5 Hard Drive Configuration 1 $ 0 9GB Ultra-2 LVD SCSI 10,000 RPM Hard Drive 3 $ 0 3COM 3C905 10/100 Ethernet, PCI Adapter, TP 1 $ 0 Microsoft Windows NT Server 4.0 1 $ 0 Windows SpaceSaver Keyboard 1 $ 0 Phillips Magnavox 800F, (15.0" / 13.9" Viewable Monitor) 1 $ 0 Logitech Mouse 1 $ 0 14/32X SCSI CD-ROM 1 $ 0 1.44MB Diskette Drive 1 $ 0 3 Year Next Business Day On-Site Service 1 $ 0 SMART-UPS 700VA Net Bundle 1 $ 0 Oracle Net8 Client 8.0.4 1 $ 0 Norton pcANYWHERE 32 v 8.0 for Windows NT 1 $ 111 Hunmmingbird/Maestro V6.01 (Connect NFS) Server 1 $ 441 MKS Toolkit For WIN-32, NT. 1 $ 306 - --------------------------------------------------------------------------------------------------------------------- Total $9,493 - ---------------------------------------------------------------------------------------------------------------------
107 Exhibit F Software License and Service Agreement ------------------------------------------------ This is a License Agreement between Fiserv and Client. Fiserv and Client agree that the terms and conditions set out in this License Agreement will apply to any Fiserv Licensed Program(s) materials offered hereunder. Each license agreement subject to the terms of this Agreement shall be separately labeled as Exhibit F-n attached hereto. By using the software described on each such Exhibit F-n, Client agrees to the terms and conditions contained in the license agreement. 1. Definition of Terms. (a) `Computer System' means the Hardware and manufacturer-supplied software identified in the Attachments hereto. (b) `Delivery Date' means the date the software is first installed and configured properly, per the technical user documentation, in a designated location by either a Fiserv or Client representative. (c) Documentation' means the documentation related to the Software specified on the Attachments hereto. (d) `Effective Date' means the date this License and Service Agreement commences. (e) `Enhancements' means modifications made to the Software that add program features or functions not originally within the Software as of the date of installation and that are provided upon payment of additional License Fees. Fiserv reserves the right, in its reasonable discretion, to determine which changes are upgrades or separately priced enhancements. (f) `Hardware' means the computer equipment identified on the Attachments hereto or in Exhibit E. (g) `Licensed Program(s)' means licensed data processing program(s) consisting of a series of instructions or statements in machine- readable form, and any related licensed materials such as, but not limited to, system documentation, flow charts, logic diagrams, listings and operating instructions provided for use in connection with the Licensed Program(s). (h) `Location' means any single location defined by United National Bank. (i) `Maintenance Fee' means the annual fee specified in the Attachments hereto. (j) `Main tenance Services' means maintenance services described in the Attachments hereto. Maintenance Services are available only with respect to the current release of the Software. (k) `Non-conformity' means a failure of the Software to perform in substantial accordance functions described in Fiserv's documentation. (l) `Operational Support' means optional Fiserv services available, at Client request, to support Client's operation of the Software System. Operational Support shall only be available to Clients receiving Maintenance Services. (m) `Professional Service Fees' means fees specified in the Attachments hereto or Exhibit A for professional services provided by Fiserv. (n) `Software' means the standard, unmodified computer programs in object code, unless otherwise specified on the Attachments hereto, together with one set of Fiserv standard documentation. Software does not include separate, independent, and stand-alone modules or subsystems that Client has developed and maintained without Fiserv's assistance. (o) `Software System' means the Software and Third Party Software. (p) `Third Party' means any party other than Fiserv, Client, and their respective employees, agents, and subcontractors. (q) `Third Party Software' means software provided by Fiserv that is owned or licensed by Third Parties as identified on the Attachments hereto. (r) `Total License Fee' means the total sum specified in the Attachments hereto for the Software System. Any fees for modifications, enhancements, upgrades, or additions to the Software are excluded from this License and Service Agreement unless otherwise specified. (s) `Upgrades' means changes made to maintain compatibility with new system software releases or to improve previously existing features and operations within the Software. This primarily includes program fixes to the Software. 108 (t) `Use' means copying or loading any portion of the Software System from storage units or media into any equipment for the processing of data by the Software System, or the operation of any procedure or machine instruction utilizing any portion of either the computer program or instructional material supplied with the Software System at the Location. Use is limited to type of operations described in Fiserv documentation solely to process Client's own work. Use specifically excludes any service bureau or time-share services to Third Parties without prior written consent by Fiserv and payment by Client of additional fees in accordance with mutually agreed terms. 2. License. ------- (a) Fiserv agrees to furnish the Software System to Client and does hereby grant to Client a personal, non-exclusive, nontransferable License to Use the Software System at the Location on the designated Computer System for the Initial Term and any extended terms of this Agreement. (b) Client may change the Location in the event Client transfers its data processing department to a new location within the same country. Client will provide Fiserv with sixty (60) days advance notice of any proposed transfer of operations. Assistance by Fiserv related to the transfer shall be chargeable at Fiserv's then current professional service rates. Client shall reimburse Fiserv for any travel and living expenses associated with such assistance by Fiserv related to such transfer. (c) Fiserv prohibits the copying of any portions of the Software System except that Client may copy reasonable quantities of any standard end user documentation; and may copy machine language code, in whole or in part, in reasonable quantities, in printed or electronic form, for use by Client at the Location for archive, back-up, or emergency restart purposes, or to replace copy made on defective media. The original, and any copies of the Software, or any part thereof, shall be the property of Fiserv. (d) Client shall maintain any such copies and the original at the Location and one Client archive site in the same country and one disaster recovery site, if applicable. Client may transport or transmit a copy of the Software System from the Location or the Archive Site to another location in the same country as the Location for back-up use when required by Computer System malfunction, provided that the copy or original is destroyed or returned to the Location or Archive Site when the malfunction is corrected. Client shall reproduce and include Fiserv's copyright and other proprietary notices on all copies, in whole or in part, in any form, of the Software System made as specified herein. (e) Client shall not decompile, disassemble, or otherwise reverse engineer the Software System. (f) Third Party Software is provided to Client under the following supplemental terms: (i) Use of Third Party Software shall be restricted to use as part of the Software System. (ii) Fiserv and Third Party Software owners shall not be liable for any damages, whether direct, indirect, incidental, or consequential arising from the use of the Third Party Software. (iii) Publication of benchmark tests of Third Party Software is permitted only in a writing signed by an authorized officer of Fiserv and the Third Party Software owner. (iv) Third Party Software owners are hereby designated as third party beneficiaries of this License and Service Agreement as it relates to their software. (v) Third Party Software is not specifically developed, or licensed for use in any nuclear, aviation, mass transit, or medical application or in any inherently dangerous applications. Third Party Software owners and Fiserv shall not be liable for any claims or damages arising from such use if Client uses the Software System for such applications. (g) Client shall obtain and maintain at its own expense such data processing and communications equipment and supplies as may be necessary or appropriate to facilitate the proper use of the Software System. Any equipment obtained through Fiserv under this Agreement shall be obtained in accordance with Exhibit E. 3. Support. Fiserv agrees it is obligated to maintain support. ------- 4. Use of and Rights to Fiserv's Work Product. All information, reports, ------------------------------------------ studies, object or source code, flow charts, diagrams, and other tangible or intangible material of any nature whatsoever produced by or as a result of any of the services performed hereunder by Fiserv or jointly with Client, shall be the sole and exclusive property of Fiserv or its corporate parent. Client shall be entitled to Use all such work product produced by Fiserv in accordance with the terms and conditions of this License and 109 Service Agreement. Notwithstanding the foregoing, in no event shall Fiserv be deemed to own any Client Confidential Information or other data relating to Client or its customers. 5. Delivery and Acceptance. Fiserv agrees to deliver the Software System and ----------------------- Hardware to the Location indicated by Client. The Software System and Hardware shall be deemed accepted by Client once Fiserv has provided certification by the manufacturer or Fiserv of the Computer System's operability and Client has agreed to such acceptance, which will not be unreasonably withheld. 6. Payment. ------- (a) The license and support services charges applicable to each Licensed Program are specified in the Attachments. (b) Client is licensed to operate the Licensed Program(s) for the number of workstations shown on the Attachments. If Client adds workstations, the parties will complete an additional Attachment to reflect the upgraded license and support services charges. (c) Client agrees to pay the reasonable travel and living expenses of any employees of Fiserv and its contractors who render services at either the Location or any other Client site in connection with the activities described in this Exhibit. All expenses shall be itemized on invoices submitted by Fiserv. 7. Rescheduling. If Client is unable to provide access to required facilities ------------ or personnel or is unable to meet its tasks assigned to it in a timely manner, Fiserv will try to reschedule tasks to minimize the non-productive time arising. All such non-productive time is chargeable to Client. If such non-productive time is expected to be significant, Fiserv will try to reassign its personnel to other suitable work. In such event, Client will not be charged for the time personnel were reassigned. If Client provides thirty (30) days written notice of its intent to reschedule tasks, Client shall not be billed a fee for non-productive time. 8. Warranties. Fiserv warrants that the Software will perform in accordance ---------- with its functional specifications when operated in the specified operating environment as described in the Documentation. Fiserv will provide replacements or corrections to the Software that does not so perform where such failure is material, provided Fiserv is notified in writing. This warranty shall not apply if the problem is caused by unauthorized modification to the Software System, use of the Software System in combination with non-Fiserv provided software, or by incorrect Use. Client acknowledges that the Software System is designed to operate on the Computer System and that the warranties given by Fiserv are conditional upon the procurement and maintenance by Client of the Computer System in accordance with the then current specified configuration. Fiserv agrees to pass through any warranties to Third Party Software and/or hardware to Client. THE WARRANTIES STATED ABOVE ARE LIMITED WARRANTIES AND ARE THE ONLY WARRANTIES MADE BY FISERV. FISERV DOES NOT MAKE, AND CLIENT HEREBY EXPRESSLY WAIVES, ALL OTHER WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. THE STATED EXPRESS WARRANTIES ARE IN LIEU OF ALL LIABILITIES OR OBLIGATIONS OF FISERV FOR DAMAGES ARISING OUT OF OR IN CONNECTION WITH THE DELIVERY, USE, OR PERFORMANCE OF THE SOFTWARE SYSTEM. 9. Indemnity. --------- (a) If, as a result of any claim or action alleging Use of the Software infringes a patent, copyright, or other proprietary right of a third party enforceable in the Location, Fiserv or Client is permanently enjoined from using the Software by a final, non-appealable decree, Fiserv, at its sole option and expense, may (i) procure for Client the right to continue to use the Software or (ii) provide a replacement or modification for the Software so as to settle such claim. If modification of the Software is not reasonably practical in Fiserv's sole opinion, Fiserv shall discontinue and terminate this License upon written notice to Client and shall refund to Client all license fees paid to Fiserv under this Agreement. In making this determination, Fiserv will give due consideration to all factors, including financial expense and will use its best efforts to procure for the Client the right to continue to use the software. (b) Fiserv shall have no liability for any claim based upon (i) use of any part of the Software System in combination with materials or software not provided by Fiserv; or (ii) modifications made by Client or any Third Party. 10. Title. ------ (a) Nothing in this License and Service Agreement shall convey to Client any title to or any rights in the Software System, including but not limited to all proprietary rights or ownership of any modifications. Client's sole right in relation to the 110 Software System or any modification is Use of the same in accordance with the terms and conditions of this License and Service Agreement. (b) The Software System and all modifications, enhancements, or upgrades made thereto, and all patents, copyrights, or other proprietary rights related to each of the above are the sole and exclusive property of Fiserv or its suppliers, whether made by Fiserv, Client, or any of their employees or agents. Client shall execute documents reasonably required by Fiserv to perfect such rights. 11. Non-Disclosure. -------------- (a) Client shall permit Fiserv's authorized representatives at all reasonable times during Client's normal hours of operation to audit Client's Use at the Location to determine that the provisions of this Exhibit are being faithfully performed. For that purpose, Fiserv shall be entitled to enter into any of Client's premises and Client hereby irrevocably grants authority to Fiserv and authorized representative to enter such premises for such purpose. Any such audit shall be conducted in such a manner as to minimize the disruption to Client's business and/or the Use of the Software System. (b) Client shall promptly notify Fiserv if it becomes aware of any breach of confidence relating to the Software System or other Fiserv proprietary information and give Fiserv all reasonable assistance in connection with Fiserv's investigation of same. 12. Termination. Upon an event of default as defined in Section 13 below, the ----------- non-defaulting party may terminate this Licensing Agreement. Upon termination, Client shall deliver the Licensed Program(s) and all related materials at Client's expense, to a location designated by Fiserv. Client shall certify to Fiserv in writing that the Licensed Program(s) is not in use and after termination, Fiserv shall have no further obligation to the Client. 13. Default. Client agrees that, upon the occurrence of any actual or ------- threatened breach by Client of the restrictions upon the use, sale, transfer, or disclosure of the Licensed Program(s), Fiserv will suffer irreparable harm, that monetary damages alone shall not be a sufficient remedy, and that Fiserv shall be entitled to injunctive or other equitable relief as may be deemed proper or necessary by a court of competent jurisdiction, in addition to Fiserv's other rights herein. 111 Exhibit F-1 InformEnt(R) Data Warehouse --------------------------------------- The terms and conditions contained hereunder in Exhibit F-1 apply specifically to the InformEnt Data Warehouse. 1. Term. (a) License Term. The term of the License grant shall begin on the ------------ Effective Date and shall continue co-terminous with the Agreement. (b) Maintenance Term. The term for Maintenance Services shall begin upon ---------------- the Effective Date and shall continue co-terminous with the Agreement. Maintenance Services shall be automatically renewed at Fiserv's then current rates unless Client provides ninety (90) days prior written notice. 2. Payment. ------- (a) Payment Terms. The Total License Fee shall be invoiced upon ------------- execution of this Agreement in accordance with the terms and conditions specified in Schedule 2. The Maintenance Fee shall be invoiced thirty (30) days in advance of each Maintenance Fee period. Professional Service Fees shall be invoiced upon execution of this License and Service Agreement in accordance with the terms and conditions specified in Schedule 2. Operational Support fees shall be invoiced on a monthly basis when such support begins. (b) Fee Adjustments. Except as specifically provided in this Agreement, --------------- Fiserv may adjust any rates or fees herein no more frequently than once each calendar year. 3. Performance. ----------- (a) Access. Client shall give Fiserv full access to the Location, the ------ Software System, and the Computer System to enable Fiserv to provide Services and shall make available information, facilities, and services reasonably required by Fiserv for the performance of its obligations under this Exhibit. (b) Problem Identification. Work in determining the nature of any ---------------------- problem or in making corrections, amendments, or additions to the Software System may be carried out at Fiserv's site or at the Client Location at the discretion of Fiserv. (c) Maintenance. Client agrees to maintain the Computer System, Software ----------- System, and Third Party Software in accordance with Fiserv's then current specified minimum configuration during the term of this Agreement, or contract with Fiserv to so provide. 4. Professional Services Terms. --------------------------- (a) Professional Services Rates. Fiserv agrees to provide Client with --------------------------- access to Fiserv's professional personnel at the rates identified in the Professional Services Fee table in Schedule 2 and in accordance with the terms and conditions set forth herein. (b) Business Requirements List. Client shall provide Fiserv with all -------------------------- necessary information concerning Client's requirements. Fiserv shall review and suggest revisions to such Business Requirements List on a timely basis. The parties shall mutually agree in writing the final Business Requirements List for any such project. (c) Functional Specifications. Any modifications to the Software or other ------------------------- professional service deliverables shall be based on specifications created by Fiserv and approved by Client as provided below: (i) Fiserv shall develop Functional Specifications based on the Business Requirements List for Client's written approval. Fiserv shall not be obligated to perform any further development work until the Functional Specifications are approved in writing by Client, which approval shall not be unreasonably withheld or unduly delayed. (ii) Modifications, changes, enhancements, conversions, upgrades, or additions to the agreed upon work shall be added only upon mutual written agreement. In the event the parties agree to add any such items, the Functional Specifications and applicable Project Plan shall automatically be modified to the extent necessary to allow for the implementation or provision of the items. (d) Project Plan. Fiserv shall develop a Project Plan for each ------------ modification to the Software or other professional service deliverables based on the Functional Specifications. Each such Project Plan shall contain a listing of the nature and 112 timing of tasks for the project, some of which are to be performed by Fiserv and some by Client. Modifications and changes to the Project Plan shall be only by mutual written agreement of the parties. (e) Acceptance. The Software modifications shall be deemed accepted by ---------- Client by the live operation and use of the modified Software in Client's business for a period of thirty (30) days. Client agrees promptly to notify Fiserv in writing (and with reasonable particularity) upon conclusion of the acceptance test or earlier upon discovery of any specification Non-conformities disclosed by such testing or use. Fiserv shall correct any specification Non- conformities disclosed by such testing without further charge to Client. (f) Operational Support. Fiserv will provide Operational Support at the ------------------- rates specified in Schedule 2. Operational Support may include the following services: (i) Server System Administration (ii) Database Administration (iii) InformEnt Administration Client may discontinue Operational Support after six (6) months of services upon ninety (90) days prior written notice. 5. Maintenance Services Terms. -------------------------- (a) Maintenance Services. Fiserv will provide the following maintenance -------------------- services to Client: (i) Up to 20 hours per month for telephone support during normal business hours for reasonable operator support. For telephone support over 20 hours per month or not during normal business hours, Client will be charged Fiserv's then standard Professional Service Fees. (ii) On-site support, when requested by Client, will be provided at Fiserv's then standard Professional Service Fees. (iii) Software program fixes to correct Software Non-conformities for the current release will be provided within a reasonable period of time upon notice by Client. Client agrees to provide Fiserv with reasonable assistance and information in connection therewith. (iv) Software updates will be provided to Client. Upon Client request, Fiserv will install such updates at Fiserv's then standard Professional Service Fees. (v) Training for updates may be offered to Client at Fiserv's standard Professional Service Fees. If such training is conducted at the Location or other Client site, Client agrees to reimburse Fiserv for its reasonable travel and out-of-pocket expenses. (b) Diagnostic Software. Fiserv may utilize remote diagnostic software ------------------- and dial-up telephone lines in providing these services. Client shall cooperate and assist Fiserv to expedite resolution of all Non- conformities. (c) Non-conformities. Should Fiserv's review of the Non-conformity ---------------- indicate, in Fiserv's reasonable opinion, that the reported problem is not a defect in the Software but is due to other problems including, but not limited to, input not in accordance with specifications, Client's abuse or misuse of the Software System, by a modification or addition to the Software System not performed by Fiserv, or by Client's failure to properly maintain the Computer System or to install the required system software release as instructed by Fiserv, then: (i) Client agrees to reimburse Fiserv for the related costs of work performed by Fiserv in investigating the problem at Fiserv's then standard Professional Service Fees, and (ii) Fiserv, at Client's request, shall advise Client whether Fiserv can correct or assist in resolving such problem, and the terms under which Fiserv shall undertake the same. Upon written acceptance by Client, Fiserv shall correct or assist in resolving the problem in accordance with such terms. (d) Maintenance Fees. Maintenance Fees shall be subject to annual ---------------- increases no greater than 10% and shall also be subject to increase following delivery of Enhancements, new versions of, or modifications or additions to the Software System, and changes in the Computer System. (e) Network-related Problems. Network-related problems are not covered ------------------------ under Fiserv's Maintenance Service. In the event Fiserv does provide such service, Client agrees to pay Fiserv's then standard Professional Service Fees. 113 (f) Other Maintenance Services. Maintenance services in addition to those -------------------------- specified in this Section may be made available at Fiserv's then standard Professional Service Fees on a mutually agreed schedule. 114 Schedule 1: Software System and Documentation ---------------------------------------------- 1. Software. Financial Services Model KnowledgeShare PowerShare Process Manager Scheduler Bundle - includes: Process Manager Output Scheduler Process Manager Web Scheduler Business Applications: Financial Management Product Management Market Management 2. Documentation. ------------- InformEnt User Manuals and Windows Help files. 3. Location. -------- Any single location defined by United National Bank 4. Third Party Software. -------------------- Hyperion - Essbase Multidimensional Run-time Package/1/ - includes: 1 Essbase Server - per server 1 Essbase Ports - per Concurrent Port 1 SQL Interface - per server 1 Essbase Spreadsheet Toolkit - per server Oracle - Standard Edition, Per Named User Single Server ____________________ /1/ 'Run-time" means Use of applicable products is strictly limited to InformEnt related usage. Additionally, Client's right to Use the Application Manager tool within the Essbase Server software is limited to building and executing report scripts and modifying and/or maintaining InformEnt- developed application outlines; Client may not build any Essbase --- applications or databases themselves and must contract Fiserv to do so for them. 115 Schedule 2: Fees and Charges ----------------------------- 1. InformEnt Standard Offering Fee Summary --------------------------------------- Client Software:
- ------------------------------------------------------------------------------------------------------------------------ InformEnt Client Module User Type License Type Quantity One-Time Fee Annual Fee - ------------------------------------------------------------------------------------------------------------------------ PowerShare Admin Per Client Seat 2 $ 5,550 $1,000 PowerShare Steward Per Client Seat 3 $ 2,085 $ 375 KnowledgeShare Author Per Client Seat 5 $ 3,475 $ 625 KnowledgeShare Analyzer Per Client Seat 10 $ 3,500 $ 630 KnowledgeShare Viewer Per Client Seat 20 $ 700 $ 120 - ------------------------------------------------------------------------------------------------------------------------ Total 40 $15,310 $2,750 - ------------------------------------------------------------------------------------------------------------------------
Server Software:
- ------------------------------------------------------------------------------------------------------------------------ InformEnt Server Module User Type License Type Quantity One-Time Fee Annual Fee - ------------------------------------------------------------------------------------------------------------------------ Financial Services Model Base Per WP Server 1 $300,000 $54,000 Process Manager Base & Browser Per Server 1 $ 22,050 $ 3,969 Scheduler Bundle Scheduler - -------------------------------------------------------------------------------------------------------------------------- Total 2 $322,050 $57,969 - --------------------------------------------------------------------------------------------------------------------------
Business Applications:
- -------------------------------------------------------------------------------------------------------------------------- InformEnt Business Prerequisite License Type Quantity Extended Extended Application License Annual Maint. - -------------------------------------------------------------------------------------------------------------------------- Financial Management KnowledgeShare, Per InformEnt Site 1 $ 30,000 $ 5,400 Essbase - -------------------------------------------------------------------------------------------------------------------------- Total 1 $ 30,000 $ 5,400 - --------------------------------------------------------------------------------------------------------------------------
2. Third Party Software Fees. Payment terms for the Third Party Software ------------------------- license and first year maintenance fees are 100% on Effective Date. Any increase in license and/or maintenance fees for any third party software may result in an increase to the Client as they are incurred by Fiserv.
- ----------------------------------------------------------------------------------------------------------------------------------- Third Party Software Module License Type Quantity Unit License Extended Unit Annual Extended License Maint. Annual Maint. - ----------------------------------------------------------------------------------------------------------------------------------- Hyperion Software Essbase Run-time Package 5 Run-Time Concurrent 1 $9,000 $ 9,000 $1,620 $1,620 Ports Oracle Software Oracle Standard Edition App. Specific, Per 11 $ 120 $ 1,320 $ 23 $ 253 Named User Single Server - ----------------------------------------------------------------------------------------------------------------------------------- Total Third-Party Software $10,320 $1,873 - -----------------------------------------------------------------------------------------------------------------------------------
116 3. Professional Services Fees. -------------------------- (a) Implementation. Approximately 797 hours are estimated for the initial -------------- implementation of InformEnt. Based on the resource hourly rates listed below, the estimated Implementation fee is $137,820. Actual implementation hours, plus travel and living expenses, will be invoiced to Client on a monthly basis as incurred.
- --------------------------------------------------------------------------------------------------------------------------------- Phase Project Information Database Server Consultant/ Database/ Total Fiserv Manager Analyst Admin. Admin/ Model Mgr Extract Integrator Programmer - --------------------------------------------------------------------------------------------------------------------------------- Project Administration 80 0 20 40 20 10 170 Project Initiation 10 0 0 0 12 0 22 Planning 30 0 5 0 12 7 54 Platform 30 0 5 50 0 0 85 Data Integration 10 40 56 0 16 0 122 EnterMart Value 24 0 0 0 40 0 64 Education 5 0 0 0 72 0 77 System Validation 8 40 30 15 0 35 128 Production Turnover 20 0 20 20 0 15 75 - --------------------------------------------------------------------------------------------------------------------------------- Total 217 80 136 125 172 67 797 Resource Hourly Rate $ 170 $ 150 $ 180 $ 160 $ 200 $ 150 - --------------------------------------------------------------------------------------------------------------------------------- Total Fiserv Fee $36,890 $12,000 $24,480 $20,000 $34,400 $10,050 $137,820 - ---------------------------------------------------------------------------------------------------------------------------------
(b) Other Professional Services. The following tables represent Fiserv's --------------------------- Professional Services Fees in hourly increments for professional services available to Client.
- ---------------------------------------------------------------------------------------------------------------- Resource Responsibility Hourly Fee - ---------------------------------------------------------------------------------------------------------------- Consultant/Model Manager Information analysis, database development, Knowledge Object $200 creation, solution and application implementation and training. Database Administrator/ Table creation and loading, metadata maintenance, installation of $180 Systems Programmer new releases, database tuning and support, testing and training. Project Manager Management of professional services projects and training. $170 Server Administrator/ InformEnt server administration including disk and memory $160 Integrator management, performance monitoring, security, operating system parameters, network and hardware design/integration, system certification and training. Database/Extract Information/data design and analysis, creation of mapping rules, $150 Programmer writing and execution of scripts, testing and training. Data Analyst Data discovery, analysis and modeling, database development, data $150 mapping, defining and documenting database and usage requirements, validation, testing and training. System Administration Hardware and System Software Analysis $125 Operational Support Dedicated daily support of InformEnt $ 65 Help Desk Telephone support over 20 hours per month $ 65 - ----------------------------------------------------------------------------------------------------------------
Client may request professional services for short term projects or for long term monthly and annual commitments based on sixty (60) days advance notice. A minimum of 2 hours per occurrence will apply. 117 The rates quoted in the table will be valid for three months from the Effective Date. Thereafter, the rates will be subject to change by Fiserv on one-month's notice. 4. Operational Support. ------------------- (a) Operational Support. The following routine Operational Support services ------------------- are included as part of Client's Fixed Monthly Fee. Fees for additional services shall be invoiced on a monthly basis at the Hourly Rates listed in Section 3b.
- -------------------------------------------------------------------------------------------------------------------- Description Fiserv Monthly Hrs. - -------------------------------------------------------------------------------------------------------------------- Job Flow Management & Monitoring (Load Production Support) 25.0 Perform: Daily Process Manager schedule maintenance File collection management from collection source(s) Emergency/unscheduled change management Daily performance analysis and reporting Issue, action, and escalation management Financial Services model release management for production level changes and additions to the model Schedule modifications during model release implementation Evaluation, implementation, and tuning of multi-loader processing Analysis and trouble shooting of excessive load times that affect general availability of the solution Change Control 0.5 Management & documentation of production schedule changes Monitor Space Allocation 6.0 Monitor: Month end processing disk demands Trend processing disk demands Process Manager schedule item failures, which indicate a need for Oracle file system modifications Review Database Audit Trail 0.7 Review table data integrity Monitor fluctuation in table sizes during daily, weekly, and monthly loads System Backup 1.3 Manage changes in backup schedules on demand Hardware Maintenance Coordination Dispatch 0.7 Leverage third party support & maintenance agreements for operating systems, tape drives, & software on the server. Coordinate service dispatch as needed Security Administration 1.3 Administer user ids & passwords for server operating systems, when necessary. Server Operating System Support 3.7 Perform de-fragmentation maintenance on disk drives Diagnose performance issues for CPU & memory utilization System Reboot 0.8 Perform weekly warehouse server reboots & periodic reboots for other servers as needed - -------------------------------------------------------------------------------------------------------------------- Total Hours 40.0 Resource Hourly Rate $ 65 - -------------------------------------------------------------------------------------------------------------------- Fiserv Monthly Fee $ 2,600 - -------------------------------------------------------------------------------------------------------------------- Total Fiserv Annual Fee $31,200 - --------------------------------------------------------------------------------------------------------------------
118 (b) Data Collection: The daily data download fee is estimated at $4,961 per month at the rate of $0.80 per megabyte of host data, utilizing total account volumes as illustrated below.
- ------------------------------------------------------------------------------------------------------------------------------------ Application Account Volume Daily Collect. Daily File (MB) Month-End File (MB) Total Mos. Data Frequency (MB) - ------------------------------------------------------------------------------------------------------------------------------------ Central Reference File (CIF) 430,142 1 220.4219665 690.0165907 910.4385572 Commercial Loans 8546 21 0.73119576 2.28896064 17.6440716 Demand Deposits 239,149 21 166.4979253 521.2108966 4017.667328 General Ledger 16990 21 6.6509054 20.8202256 160.489239 Retail Loans 66,897 21 29.26476162 91.61142768 706.1714217 Time Deposits 85781 21 16.13883734 50.52157776 389.4371619 - ------------------------------------------------------------------------------------------------------------------------------------ Total Host Data 439.7055919 1376.469679 6,201.85 Rate Per MB Downloaded $ 0.80 - ------------------------------------------------------------------------------------------------------------------------------------ Monthly Data Collection Fee $ 4,961 - ------------------------------------------------------------------------------------------------------------------------------------
119 Exhibit H - Remote Banking Services ----------------------------------- The Remote Banking Services Agreement executed May 5, 2000, (Addendum #5) is incorporated into this Agreement with the intention that it shall form part of the Agreement dated September 1, 2000, as amended through the date hereof (collectively, the "Agreement"). 1. Terms and Conditions. All terms and conditions included in the above stated -------------------- Addendum #5 shall remain in effect. 2. Fee Schedule. Schedule H-1 shall provide the fee structure as of the ------------ Effective Date of this Agreement. 3. Internet and E-mail Combined Access Per Seat Fee: --------------------------------------------------- (a) 0 - 350 seats = $15.00; 351 - 500 seats = $10.00; 500 - 1,000 seats = $5.00; over 1,000 seats will require a new negotiated fee. 120 Exhibit H-1 Remote Banking Services Fee Schedule -------------------------------------------------- Internet Banking / Bill Payment Pricing:
- ------------------------------------------------------------------------------------------------------------------ Initial to Item One Time Fees Monthly Recurring Fees Minimum Authorize - ------------------------------------------------------------------------------------------------------------------ Internet Banking Transactions - ------------------------------------------------------------------------------------------------------------------ Account Processing Fee Setup $27,500 $1,000 for 1 IBS Bank $ .50 per IB customer *Retail accounts $8.00 per IB customer *Commercial DDA - ------------------------------------------------------------------------------------------------------------------ Additional IBS Banks Setup Fees $5,000/Bank - ------------------------------------------------------------------------------------------------------------------ Quicken Transaction Access $5,000 setup Included in account processing fee Money Transaction Access .QIF format - ------------------------------------------------------------------------------------------------------------------ Internet Banking Transactions with Bill Payment Capabilities *Requires one time fees for Internet Banking Transaction *Internet Banking and Bill Pay will be linked to client's existing Web site. If none exists, Fiserv shall develop a Web site for Client upon reasonable request and quote associated fees. *Internet access with or without e-mail is also available for Client use. - ------------------------------------------------------------------------------------------------------------------ Bill Payment - Client handles $ 7,500 $1.00 per IB or TB customer $1,500 backoffice $1.50 per IB and TB customer - ------------------------------------------------------------------------------------------------------------------ Bill Payment - Fiserv handles backoffice $ 7,500 $3.75 per customer includes 10 Set-up Internal / TB bill payments, plus $.20 for $2,500 *ACH (Automated) Payments or each bill pay transaction direct debit/credit to account after 10. *Check (Manual) Payments $400 per image Digitized check signature/image required - ------------------------------------------------------------------------------------------------------------------ Additional IBS Banks Bill $5,000/Bank Payment Setup Fees - ------------------------------------------------------------------------------------------------------------------ Out Of Pocket Expenses Billed directly to Client (e.g., postage, envelopes, checks) - ------------------------------------------------------------------------------------------------------------------ On-line Merchant Database Included in Bill $0.02 per merchant record $ 100 Payment Setup - ------------------------------------------------------------------------------------------------------------------ Pre-populating Merchant Database $ 500 Per 50 merchant records (Customer (Customer Supplied) - ------------------------------------------------------------------------------------------------------------------ Bill Payment Application Telephone $ 2,500 - ------------------------------------------------------------------------------------------------------------------ Demo Test Bank $1,000 per bank $100 - ------------------------------------------------------------------------------------------------------------------ AutoOpen / AutoEnable $ 3,000 $0.50 per new customer activation - ------------------------------------------------------------------------------------------------------------------ 24 X 7 Processing-Creation of $5,000 per bank $0.01 per account stand-in files during host nightly process cycles - ------------------------------------------------------------------------------------------------------------------ Web Site Statistics $ 1,000 $225 - ------------------------------------------------------------------------------------------------------------------ Professional Services (e.g., $1,000 per person per day plus out of pocket expenses Conversion, Training, Consulting) - ------------------------------------------------------------------------------------------------------------------
Web statistics are not billable if Fiserv hosts client's web site. "IB" indicates Internet Banking Access; "TB" indicates Telephone Banking Access. 121 The Bill Payment monthly minimum shall commence upon the effective date of Addendum #5. Addendum #5 - 3 - Remote Banking System Reports -----------------------------------------------
---------------------------------------------------------------------------------------------- Report No. Report Name ---------------------------------------------------------------------------------------------- Telephone Banking (Host-Based) Reports ---------------------------------------------------------------------------------------------- TB320-01 Merchant Payment History Report ---------------------------------------------------------------------------------------------- TB320-01 Valid Transfer Report ---------------------------------------------------------------------------------------------- TB335-02 Settlement Totals Report ---------------------------------------------------------------------------------------------- TB500-05 Customer Transaction History Report ---------------------------------------------------------------------------------------------- TB700-06 Merchant Directory Report ---------------------------------------------------------------------------------------------- TB720-08 Merchant Profile Report ---------------------------------------------------------------------------------------------- TB310-13 Transfer/Bill Payment Directory ---------------------------------------------------------------------------------------------- TB320-14 Merchant Payment Checks ---------------------------------------------------------------------------------------------- TB320-15 Check Register Report/Add'l Check Pages ---------------------------------------------------------------------------------------------- TB320-16 Merchant Notice of Deposit/Notice of Transit to ACH ---------------------------------------------------------------------------------------------- TB320-17 Payment/Transfer Exception Report ---------------------------------------------------------------------------------------------- TB350-20 Merchant Verification Form Report ---------------------------------------------------------------------------------------------- TB410-21 Customer Usage Report ---------------------------------------------------------------------------------------------- TB600-26 Annual Payment Summary Report ---------------------------------------------------------------------------------------------- TB600-27 Annual Summary Exception Report ---------------------------------------------------------------------------------------------- TB310-30 NSF Notices Report ---------------------------------------------------------------------------------------------- TB310-31 Merchant Verification Exception Report ---------------------------------------------------------------------------------------------- TB750-36 Active/Inactive Report ---------------------------------------------------------------------------------------------- TB250-39 Customer Batch Update Report ---------------------------------------------------------------------------------------------- TB250-40 Customer Batch Update Exception Report ---------------------------------------------------------------------------------------------- TB255-41 Merchant Batch Update Report ---------------------------------------------------------------------------------------------- TB255-42 Merchant Batch Update Exception Report ---------------------------------------------------------------------------------------------- TB265-43 Return Item Report ---------------------------------------------------------------------------------------------- TB400-09 Purged Accounts Report ---------------------------------------------------------------------------------------------- TB430-19 Branch Customer Report ---------------------------------------------------------------------------------------------- TB720-48 Purged Merchant Report ---------------------------------------------------------------------------------------------- TB725-46 Purged Merchant History Report ---------------------------------------------------------------------------------------------- TB565-49 Electronic Banking Statistics ---------------------------------------------------------------------------------------------- Internet Banking (Browser-Based) Reports ---------------------------------------------------------------------------------------------- n/a Webtrend Reports ----------------------------------------------------------------------------------------------
122 Exhibit I - Additional Services ------------------------------- The BankLink Addendum executed July 27,2000 (Addendum #4), is incorporated into this agreement with the intention that it shall form part of the Agreement dated September 1, 2000, as amended through the date hereof (collectively, the "Agreement"). 1. Terms and Conditions: All terms and conditions included in the above -------------------- stated Addendum #4 shall remain in effect. 123 EX-10.2 3 0003.txt CHANGE OF CONTROL AGREEMENT EXHIBIT 10.2 CHANGE OF CONTROL AGREEMENT --------------------------- THIS AGREEMENT made as of August 15, 2000, by and between UNITED BANKSHARES, INC., a West Virginia corporation and registered bank holding company (the "Company"), and ____________________, an executive officer of the Company (the "Executive"). WHEREAS, the Executive is currently employed by the Company or one of its banking subsidiaries; and WHEREAS, recent and anticipated changes in the banking industry have caused uncertainty relative to future ownership and management of the Company and other banking organizations; and WHEREAS, the Board of Directors of the Company (the "Board") recognizes that the Executive's contribution to the growth and success of the Company has been substantial; and WHEREAS, the Company believes it is in the best interest of the Company to grant the Executive and certain other key management personnel a level of security to preserve a nucleus of key management. NOW THEREFORE, in consideration of the promises and the respective covenants and agreements of the parties herein contained, the Company and Executive contract and agree as follows: 1. Definitions. The following definitions shall apply to designated phrases used in this Agreement. a. "Change of Control" means (i) a change of ownership of the Company which must be reported to the Securities and Exchange Commission as a change of control, including but not limited to the acquisition by any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities and Exchange Act of 1934 (the "Exchange Act")), of direct or indirect "beneficial ownership" (as defined by Rule 13d-3 under the Exchange Act) of twenty-five percent (25%) or more of the combined voting power of the Company's then outstanding securities; or (ii) the failure during any period of two (2) consecutive years of individuals who at the beginning of such period constitute the Board for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period has been approved in advance by directors representing at least two- thirds (2/3) of the directors at the beginning of the period. b. "Good Cause" includes (i) termination for continued poor work performance after reasonable opportunity to correct deficiencies; (ii) termination for behavior outside or on the job which affects the ability of management of the Company or co-workers to perform their jobs and which is not corrected after reasonable warning; (iii) termination for failure to devote reasonable time to the job which is not corrected after reasonable warning; and 124 (iv) any other reasonable deficiency in performance by the Executive which is not corrected after reasonable warning. c. "Disability" means total and permanent disability as defined by Company's (or its successor's) Long-Term Disability Plan. d. "Retirement" means termination of employment by an Executive in accordance with Company's (or its successor's) retirement plan, including early retirement, generally applicable to its salaried employees. e. "Good Reason" means (i) a Change of Control in the Company (as defined above), as well as and as a direct result thereof, (a) a decrease in the total amount of the Executive's base salary below its level in effect on the date of consummation of the Change of Control, without the Executive's consent; or (b) a material reduction in the importance of the Executive's job responsibilities without the Executive's consent; or (c) a geographical relocation of the Executive to an office more than fifty (50) miles from the Executive's location at the time of the Change of Control without the Executive's consent; (ii) failure of Company to obtain assumption of this Agreement by its successor, or (iii) any purported termination of the Executive's employment which is not effected pursuant to a Notice of Termination required in paragraph 2. f. "Wrongful Termination" means termination of the Executive's employment by the Company or its affiliates for any reason other than Good Cause or the death, Disability or Retirement of Executive prior to the expiration of thirty-six (36) months after consummation of the Change of Control. 2. Termination for Good Reason or for Cause; Notice of Termination. --------------------------------------------------------------- The Executive may terminate his employment with the Company or its affiliates for Good Reason. In the event of a Change of Control, the Company may terminate Executive's employment only for Good Cause within thirty-six months after consummation of Change in Control. Any termination of the Executive's employment by the Company or by the Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and which shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination of the Executive's employment under the provision so indicated. 3. Date of Termination. Date of Termination shall mean the date on ------------------- which Notice of Termination is given. 4. Compensation of Executives Upon Termination for Good Reason or -------------------------------------------------------------- Wrongful Termination. - -------------------- a. Except as hereinafter provided, if the Executive terminates his employment with the Company for Good Reason or the Company terminates the Executive's employment in a manner constituting Wrongful Termination, the Company hereby agrees to pay the Executive a cash payment equal to the Executive's monthly base salary in effect on either (i) 125 the Date of Termination; or (ii) the date immediately preceding the Change of Control, whichever is higher, multiplied by the number of full months between the Date of Termination and the date that is thirty-six (36) months after the date of consummation of the Change of Control. b. For the year in which termination occurs, the Executive will be entitled to receive his reasonable share of the Company's cash incentive award allocated in accordance with existing principles and authorized by the Board of Directors. The amount of the Executive's cash incentive award shall not be reduced due to the Executive not being actively employed for the full year. c. The Executive will continue to participate, without discrimination, for thirty-six (36) months following the Date of Termination in benefit plans (such as retirement, disability and medical insurance) maintained after any Change of Control for employees, in general, of the Company, or any successor organization, provided the Executive's continued participation is possible under the general terms and conditions of such plans. In the event the Executive's participation in any such plan is barred, the Company shall arrange to provide the Executive with benefits substantially similar to those which the Executive would have been entitled had his participation not been barred. However, in no event will the Executive receive from the Company the employee benefits contemplated by this section if the Executive receives comparable benefits from any other source. 5. Other Employment. The Executive shall not be required to mitigate ---------------- the amount of any payment provided for in this Agreement by seeking other employment, nor shall the amount of any payment provided for in this Agreement be reduced by any compensation earned or benefits provided as the result of employment by another employer after the Date of Termination. 6. Rights of Company Prior to the Change of Control. This Agreement ------------------------------------------------ shall not effect the right of the Company to terminate the Executive, or change the salary or benefits of the Executive, with or without Good Cause, prior to any Change of Control; provided, however, any termination or change which takes place after discussions have commenced which result in a Change of Control shall be presumed to be a violation of this Agreement which entitled the Executive to the benefits hereof, absent clear and convincing evidence to the contrary. 7. Successors; Binding Agreement. ----------------------------- a. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, by agreement in form and substance satisfactory to the Executive, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation from the Company in the same amount and on the same terms as he would be entitled to hereunder if he terminated his employment for Good Reason. As used in this 126 Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this paragraph or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law. b. This Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Executive should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 8. Notice. For the purposes of this Agreement, notices, demands and ------ other communication provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or (unless otherwise specified) mailed by United States registered mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: _______________________________________ Name _______________________________________ Street Address _______________________________________ City, State, Zip If to the Company: Chief Executive Officer United Bankshares, Inc. 514 Market Street Parkersburg, West Virginia 26101 or such other address as any party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 9. Miscellaneous. No provisions of this Agreement may be modified, ------------- waived or discharged unless such waiver, modification or discharge is agreed to in writing signed by the Executive and the Company's Chief Executive Officer or such other officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. The validity, interpretation 127 construction and performance of this Agreement shall be governed by the laws of the State West Virginia. 10. Validity. The invalidity or unenforceability of any provision or -------- provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 11. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 12. Legal Fees. Company shall pay all reasonable legal fees and expense incurred by Executive in enforcing any right or benefit provided by this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written. UNITED BANKSHARES, INC. By ___________________________________ Its _______________________________ Attest: _______________________________ ______________________________________ Executive 128 EX-12 4 0004.txt COMPUTATION OF RATIOS Exhibit 12 Computation of Ratios Net Income Per Share = Net Income/Average Common Shares Outstanding Cash Dividends Per Share = Dividends Paid/Average Common Shares Outstanding Book Value Per Share = Total Shareholders' Equity/Average Common Shares Outstanding Return on Average Assets = Net Income/Average Assets Return on Average Shareholders' Equity = Net Income/Average Shareholders' Equity Net Interest Margin = Net Interest Income/Average Earning Assets Noninterest Expense to Average Assets = Noninterest Expense/Average Assets Efficiency Ratio = Noninterest Expense/(Net Interest Income Plus Noninterest Income) Average Loans to Deposits = Average Net Loans/Average Deposits Outstanding Dividend Payout = Dividends Declared/Net Income Average Shareholders' Equity to Average Assets = Average Shareholders' Equity/Average Assets Tier I Capital Ratio = Shareholders' Equity- Intangible Assets- Securities Mark-to-market Capital Reserve (Tier I Capital)/ Risk Adjusted Assets Total Capital Ratio = Tier I Capital Plus Allowance for Loan Losses/Risk Adjusted Assets Tier I Leverage Ratio = Tier I Capital/Average Assets Net Charge-offs to Average Loans = (Gross Charge-offs Less Recoveries)/ Average Net Loans Non-performing Loans to Period End Loans = (Nonaccrual Loans Plus Loans Past Due 90 Days or Greater)/Gross Loans Net of Unearned Interest) Non-performing Assets to Period End Assets = (Nonaccrual Loans Plus Loans Past Due 90 Days or Greater Plus Other Real Estate)/Total Assets Allowance for Loan Losses to Period = Loan Loss Reserve/(Gross End Loans Loans Net of Unearned Interest Allowance for Loan Losses to Non- = Loan Loss Loans Reserve/(Nonaccrual Loans Performing Loans Plus Past Due 90 days or Greater) 129 EX-21 5 0005.txt SUBSIDIARIES OF THE REGISTRANT 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, LLC Virginia Excel Title Corporation Virginia United Venture Fund, Inc. West Virginia UB Holding Company, Inc. West Virginia 130 EX-23 6 0006.txt CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of United Bankshares, Inc. and Subsidiaries of our report dated February 16, 2001, included in the 2000 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 16, 2001, 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, 2000. /s/ ERNST & YOUNG LLP Charleston, West Virginia March 28, 2001 131 -----END PRIVACY-ENHANCED MESSAGE-----