United Bankshares - 10-Q quarterly report FY

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

The June 30, 2002 and December 31, 2001, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, the related consolidated statements of income for the three and six months ended June 30, 2002 and 2001, the related consolidated statement of changes in shareholders’ equity for the six months ended June 30, 2002, the related condensed consolidated statements of cash flows for the six months ended June 30, 2002 and 2001, and the notes to consolidated financial statements appear on the following pages.

See notes to consolidated unaudited financial statements.

The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries (“United”) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by generally accepted accounting principles. The financial statements presented as of June 30, 2002 and 2001 and the three month periods then ended have not been audited. The consolidated balance sheet as of December 31, 2001 has been extracted from the audited financial statements included in United’s 2001 Annual Report to Shareholders. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2001 Annual Report of United Bankshares, Inc. on Form 10-K. In the opinion of management, adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature.

The accompanying consolidated interim financial statements include the accounts of United and its wholly-owned subsidiaries. United considers all of its principal business activities to be bank related. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars are in thousands, except per share and share data.

The amortized cost and estimated fair values of securities available for sale are summarized as follows:

The cumulative net unrealized gains on available for sale securities resulted in an increase of $11,624 and $4,351 in shareholders’ equity, net of deferred income taxes at June 30, 2002 and December 31, 2001, respectively.

The amortized cost and estimated fair value of securities available for sale at June 30, 2002 and December 31, 2001 by contractual maturity are shown on the next page. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Maturities of mortgage-backed securities with an estimated fair value of $879,396 and $877,467 at June 30, 2002 and December 31, 2001, respectively, and an amortized cost of $856,649 and $861,799 at June 30, 2002 and December 31, 2001, respectively are shown on the next page. Maturities of mortgage-backed securities are based upon an estimated average life.

As permitted, upon adopting SFAS No. 133 on January 1, 2001, debt securities with an amortized cost of $71,293 and an estimated fair value of $71,668 were transferred into the available for sale category from the held to maturity category.

The amortized cost and estimated fair values of securities held to maturity are summarized as follows:

The amortized cost and estimated fair value of debt securities held to maturity at June 30, 2002 and December 31, 2001 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. Maturities of mortgage-backed securities with an amortized cost of $2,761 and $4,278 at June 30, 2002 and December 31, 2001, respectively, and an estimated fair value of $2,928 and $4,410 at June 30, 2002 and December 31, 2001, respectively are included in the table below based upon an estimated average life. There were no sales of held to maturity securities.

The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $1,003,801 and $992,341 at June 30, 2002 and December 31, 2001, respectively.

Major classifications of loans are as follows:

The table above does not include loans held for sale of $284,230 and $368,625 at June 30, 2002 and December 31, 2001, respectively.

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 $160,293 and $107,305 at June 30, 2002 and December 31, 2001, respectively.

The allowance for loan losses is management’s estimate of the probable credit losses inherent in the loan portfolio. 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. This evaluation is inherently subjective and requires significant estimates, including the amounts and timing of estimated future cash flows, estimated losses on pools of loans based on historical loss experience, and consideration of current economic trends, all of which are susceptible to constant and significant change. The amounts allocated to specific credits and loan pools grouped by similar risk characteristics are reviewed on a quarterly basis and adjusted as necessary based upon subsequent changes in circumstances. In determining the components of the allowance for loan losses, management considers the risk arising in part from, but not limited to, charge-off and delinquency trends, current economic and business conditions, lending policies and procedures, the size and risk characteristics of the loan portfolio, concentrations of credit, and other various factors. Loans deemed to be uncollectible are charged against the allowance for loan losses, while recoveries of previously charged-off amounts are credited to the allowance for loan losses.

A progression of the allowance for loan losses for the periods presented is summarized as follows:

The average recorded investment in impaired loans during the quarter ended June 30, 2002 and for the year ended December 31, 2001 was approximately $11,767 and $12,654, respectively. For the quarters ended June 30, 2002 and 2001, United recognized interest income on the impaired loans of approximately $55 and $59, respectively, substantially all of which was recognized using the accrual method of income recognition.

At June 30, 2002, the recorded investment in loans that are considered to be impaired was $11,416 (of which $7,384 was on a nonaccrual basis). Included in this amount is $4,465 of impaired loans for which the related allowance for loan losses is $1,032 and $6,951 of impaired loans that do not have an allowance for credit losses due to management’s estimate that the fair value of the underlying collateral of these loans is sufficient for full repayment of the loan and interest.

The amount of interest income that would have been recorded under the original terms for the above loans was $121 and $31 for the quarters ended June 30, 2002 and 2001, respectively, and $242 and $349 for the six months ended June 30, 2002 and 2001, respectively.

Nonperforming assets are summarized as follows:

In July of 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141 (SFAS No. 141), “Business Combinations,” and Statement No. 142 (SFAS No. 142), “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 141 also establishes specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions of SFAS No.142. However, SFAS No. 142 did not supercede FASB Statement No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions,” and therefore, any goodwill accounted for in accordance with this Statement will continue to be amortized until further guidance is issued from the FASB. SFAS No. 142 also requires that intangible assets with definite useful lives (such as core deposit intangibles) be amortized over their respective estimated useful lives to their estimated residual values, and be reviewed for impairment at least annually. SFAS No. 142 requires that a transitional impairment test of goodwill and indefinite-lived intangible assets be performed within six months of adoption and any resulting impairment loss be reported as a change in accounting principle. Effective January 1, 2002, United adopted SFAS No. 142, and discontinued the amortization of certain intangibles. No transitional impairment loss was recorded. Total goodwill of $80,848 as of December 31, 2001 is comprised of goodwill recorded in the community banking segment. During the second quarter of 2002, United continued to evaluate the purchase price allocation for the Century acquisition. As a result of this evaluation, non-amortizable goodwill and shareholders’ equity increased by approximately $10.28 million. There was no impact on net income, earnings per share or common shares outstanding. In accordance with the new disclosure requirements of SFAS No. 142, the following information is presented regarding intangible assets subject to amortization and those not subject to amortization.

The following table conforms prior period amounts, adjusted to exclude amortization expense recognized in those periods related to certain intangible assets that are no longer amortized, to the current year presentation:

United incurred amortization expense of $249 and $834 for the quarter and six months ended June 30, 2002, respectively, related to intangible assets. The following table sets forth the anticipated amortization expense for intangible assets for each of the next five years:

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 June 30, 2002, United had approximately $554,257 of additional available borrowings in the form of collateralized advances from the FHLB at prevailing interest rates.

At June 30, 2002, $680,646 of FHLB advances with a weighted average interest rate of 6.08% are scheduled to mature from one to twenty years. At June 30, 2002, the scheduled maturities of FHLB advances are as follows:

United, through its parent company, has available funds of $50,000 to provide for general liquidity needs under a one year renewable collateralized line of credit with SunTrust Bank. The line of credit carries a LIBOR-based indexed floating rate of interest. At June 30, 2002, United had an outstanding balance under the line of credit of $4,000 at an interest rate of 2.54%.

United also has various unused lines of credit available from certain of its correspondent banks in the aggregate amount of $207,800. 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.

As part of the acquisition of Century, United assumed all the obligations of Century and its subsidiaries. One such subsidiary, Century Capital Trust I (the Trust) is a statutory business trust formed during the first quarter of 2000. The Trust issued $8.8 million of capital securities (the Capital Securities) to a third party and received net cash proceeds of $8.536 million after considering the underwriter’s discount. The Trust invested the proceeds in an equivalent amount of junior subordinated debt securities of Century, now United, bearing an interest rate equal to the rate on the Capital Securities. These debt securities, which are the only assets of the Trust, are subordinate and junior in right of payment to all present and future senior indebtedness (as defined in the indenture) and certain other financial obligations of Century, now United. United fully and unconditionally guarantees the Trust’s obligations under the Capital Securities.

For financial reporting purposes, the Trust is treated as a subsidiary of United and consolidated in the corporate financial statements. The Capital Securities are presented as a separate category of long-term debt on the Consolidated Balance Sheets entitled “Mandatorily redeemable capital securities of subsidiary trust.” The Capital Securities are not included as a component of stockholders’ equity in the Consolidated Balance Sheets. For regulatory purposes, the $8.8 million of Capital Securities are included in Tier 2 capital in accordance with regulatory reporting requirements.

The Capital Securities pay cash dividends semiannually at an annual rate of 10.875% of the liquidation preference. Dividends to the holders of the Capital Securities are included in the Consolidated Statements of Income as interest expense. Under the provisions of the subordinated debt, United has the right to defer payment of interest on the subordinated debt at any time, or from time to time, for periods not exceeding five

Subject to the prior approval of the Federal Reserve Board, the Capital Securities, the assets of the Trust, and the common securities issued by the Trust are redeemable at the option of United in whole or in part on or after March 8, 2010, or at any time, in whole but not in part, from the date of issuance, upon the occurrence of certain events.

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 $1,291,422 and $937,455 of loan commitments outstanding as of June 30, 2002 and December 31, 2001, 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 $101,382 and $103,446 as of June 30, 2002 and December 31, 2001, respectively.

In accordance with current interpretations of FASB Statement No. 133 “Accounting for Derivative Instruments and Hedging Activities”, United is required to recognize its commitments with borrowers (interest rate lock commitments) and investors (best efforts commitments) on loans originated for sale in its mortgage banking operations. These commitments are entered into with the borrower and investor to manage the inherent interest rate and pricing risk associated with selling loans in the secondary market. These derivatives are accounted for by recognizing the fair value of the contracts and commitments on the balance sheet as either a freestanding asset or liability. At June 30, 2002, United had commitments to originate $177,893 of mortgage loans to sell in the secondary market.

United and its subsidiaries are currently involved, in the normal course of business, in various legal proceedings. Management is vigorously pursuing all of its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved without material effect on financial position or results of operations.

United’s principal business activities are community banking and mortgage banking. The following information is based on United’s current management structure and presents results of operations as if the community banking and mortgage banking segments were operated on a stand alone basis. The results are not necessarily comparable with similar information of other companies.