UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 2001 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) 424-8800 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class - Common Stock, $2.50 Par Value; 41,528,854 shares outstanding as of April 30, 2001. 1
UNITED BANKSHARES, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS <TABLE> <CAPTION> Page ---- <S> <C> PART I. FINANCIAL INFORMATION Item 1. Financial Statements - -------------------------------------------------------------------------------------------- Consolidated Balance Sheets (Unaudited) March 31, 2001 and December 31, 2000................................................. 6 Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2001 and 2000........................................... 7 Consolidated Statement of Changes in Shareholders' Equity (Unaudited) for the Three Months Ended March 31, 2001................................ 8 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2001 and 2000 .................................. 9 Notes to Consolidated Financial Statements .......................................... 10 Information required by Item 303 of Regulation S-K Item 2. Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations........................................... 19 ----------------------------------- PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................. Not Applicable - ------------------------- Item 2. Changes in Securities............................................. Not Applicable - ----------------------------- Item 3. Defaults Upon Senior Securities .................................. Not Applicable - --------------------------------------- </TABLE> 2
UNITED BANKSHARES, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS--Continued <TABLE> <CAPTION> Page ---- <S> <C> Item 4. Submission of Matters to a Vote ------------------------------- of Security Holders............................................................... Not Applicable ------------------- Item 5. Other Information .................................................................... Not Applicable - -------------------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits required by Item 601 of Regulation S-K None (b) Reports on Form 8-K On April 20, 2001, United Bankshares, Inc. filed a Current Report under Items 5 and 7 to report the results of operations for the first quarter of 2001. </TABLE> 3
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED BANKSHARES, INC. ----------------------- (Registrant) Date May 11, 2001 /s/ Richard M. Adams ----------------------- ----------------------------------- Richard M. Adams, Chairman of the Board and Chief Executive Officer Date May 11, 2001 /s/ Steven E. Wilson ---------------------- ----------------------------------- Steven E. Wilson, Executive Vice President, Treasurer, Secretary and Chief Financial Officer 4
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) The March 31, 2001 and December 31, 2000, consolidated balance sheets of United Bankshares, Inc. and Subsidiaries, and the related consolidated statements of income for the three months ended March 31, 2001 and 2000, and the related consolidated statement of changes in shareholders' equity for the three months ended March 31, 2001, and the related condensed consolidated statements of cash flows for the three months ended March 31, 2001 and 2000, and the notes to consolidated financial statements appear on the following pages. 5
CONSOLIDATED BALANCE SHEETS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES <TABLE> <CAPTION> (Dollars in thousands, except par value) March 31 December 31 2001 2000 ---------------------------------- <S> <C> <C> Assets Cash and due from banks $ 107,376 $ 142,801 Interest-bearing deposits with other banks 1,325 884 Federal funds sold 46,875 1,125 ---------------------------------- Total cash and cash equivalents 155,576 144,810 Securities available for sale at estimated fair value (amortized cost-$1,001,808 at March 31, 2001 and $865,363 at December 31, 2000) 1,014,729 865,266 Securities held to maturity (estimated fair value-$289,409 at March 31, 2001 and $378,405 at December 31, 2000) 288,884 380,068 Loans held for sale 239,148 203,831 Loans Commercial, financial, and agricultural 574,158 564,887 Real estate: Single family residential 1,314,107 1,352,955 Commercial 701,971 711,054 Construction 185,846 164,505 Other 84,536 84,742 Installment 315,401 319,351 ---------------------------------- 3,176,019 3,197,494 Less: Unearned income (4,173) (5,000) ---------------------------------- Loans net of unearned income 3,171,846 3,192,494 Less: Allowance for loan losses (41,191) (40,532) ---------------------------------- Net loans 3,130,655 3,151,962 Bank premises and equipment 43,800 44,481 Accrued interest receivable 34,230 36,000 Other assets 77,782 78,129 ---------------------------------- TOTAL ASSETS $4,984,804 $4,904,547 ================================== Liabilities Domestic deposits: Noninterest-bearing $ 541,626 $ 539,415 Interest-bearing 2,921,075 2,852,034 ---------------------------------- Total deposits 3,462,701 3,391,449 Borrowings: Federal funds purchased 7,450 15,720 Securities sold under agreements to repurchase 329,283 313,349 Federal Home Loan Bank borrowings 681,446 706,512 Other borrowings 1,018 4,647 Accrued expenses and other liabilities 57,822 42,000 ---------------------------------- TOTAL LIABILITIES 4,539,720 4,473,677 Shareholders' equity Common stock, $2.50 par value; Authorized-100,000,000 shares; issued-43,381,769 at March 31, 2001 and December 31, 2000, including 1,794,540 and 1,616,498 shares in treasury at March 31, 2001 and December 31, 2000, respectively 108,454 108,454 Surplus 84,396 85,032 Retained earnings 288,860 278,682 Accumulated other comprehensive income (loss) 3,621 (4,964) Treasury stock, at cost (40,247) (36,334) ---------------------------------- TOTAL SHAREHOLDERS' EQUITY 445,084 430,870 ---------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,984,804 $4,904,547 ================================== </TABLE> See notes to consolidated unaudited financial statements. 6
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES <TABLE> <CAPTION> (Dollars in thousands, except per share data) Three Months Ended March 31 ---------------------------------- 2001 2000 ---------------------------------- <S> <C> <C> Interest income Interest and fees on loans $ 71,142 $ 69,843 Interest on federal funds sold and other short-term investments 247 112 Interest and dividends on securities: Taxable 17,981 20,735 Tax-exempt 2,627 2,578 ---------------------------------- Total interest income 91,997 93,268 Interest expense Interest on deposits 33,150 29,046 Interest on short-term borrowings 3,816 3,887 Interest on Federal Home Loan Bank advances 10,811 13,609 ---------------------------------- Total interest expense 47,777 46,542 ---------------------------------- Net interest income 44,220 46,726 Provision for loan losses 2,499 2,547 ---------------------------------- Net interest income after provision for loan losses 41,721 44,179 Other income Income from mortgage banking operations 5,225 3,383 Service charges, commissions, and fees 6,017 5,093 Trust department income 2,015 1,692 Security gains 142 318 Other income 546 315 ---------------------------------- Total other income 13,945 10,801 Other expense Salaries and employee benefits 14,483 13,739 Net occupancy expense 2,658 3,161 Other expense 9,855 11,243 ---------------------------------- Total other expense 26,996 28,143 ---------------------------------- Income before income taxes 28,670 26,837 Income taxes 9,318 8,849 ---------------------------------- Net income $ 19,352 $ 17,988 ================================== Earnings per common share: Basic $ 0.46 $ 0.43 ================================== Diluted $ 0.46 $ 0.42 ================================== Dividends per common share $ 0.22 $ 0.21 ================================== Average outstanding shares: Basic 41,703,350 42,272,860 Diluted 42,020,236 42,657,425 </TABLE> See notes to consolidated unaudited financial statements. 7
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands, except per share data) <TABLE> <CAPTION> Three Months Ended March 31, 2001 ------------------------------------------------------------------------------------------ Common Stock Accumulated ------------------------- Other Total Par Retained Comprehensive Treasury Shareholders' Shares Value Surplus Earnings Income (Loss) Stock Equity ------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> Balance at January 1, 2001 43,381,769 $ 108,454 $85,032 $278,682 ($4,964) ($36,334) $430,870 Comprehensive income (loss): Net income - - - 19,352 - - 19,352 Other comprehensive income (loss), net of tax: Unrealized gains on securities of $8,555 net of reclassification adjustment for gains included in net income of $92 - - - - 8,463 - 8,463 Amortization of the unrealized loss for securities transferred from the available-for-sale to the held-to-maturity investment portfolio - - - - 122 - 122 ---------------- Total comprehensive income 27,937 Purchase of treasury stock (225,000 shares) - - - - - (4,967) (4,967) Cash dividends ($0.22 per share) - - - (9,174) - - (9,174) Common stock options exercised (46,958 shares) - - (636) - - 1,054 418 ------------------------------------------------------------------------------------------ Balance at March 31, 2001 43,381,769 $ 108,454 $84,396 $288,860 $3,621 ($40,247) $445,084 ========================================================================================== </TABLE> See notes to consolidated unaudited financial statements 8
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES (Dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31 --------------------------- 2001 2000 --------------------------- <S> <C> <C> NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (1,869) $ 32,742 INVESTING ACTIVITIES Proceeds from maturities and calls of investment securities 23,702 5,931 Purchases of investment securities (1,000) (110) Proceeds from sales of securities available for sale 16,048 72,221 Proceeds from maturities and calls of securities available for sale 49,248 32,077 Purchases of securities available for sale (132,862) (36,023) Net purchases of bank premises and equipment (610) (595) Net cash paid in branch divestiture (8,644) Net change in loans 20,643 (62,787) --------------------------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (33,475) 10,714 FINANCING ACTIVITIES Cash dividends paid (9,174) (8,964) Proceeds from exercise of stock options 418 1,133 Acquisition of treasury stock (4,967) (11,139) Repayment of Federal Home Loan Bank borrowings (25,156) (590,159) Proceeds from Federal Home Loan Bank borrowings 90 551,390 Changes in: Deposits 80,864 13,520 Federal funds purchased, securities sold under agreements to repurchase and other borrowings 4,035 (48,889) --------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 46,110 (93,108) --------------------------- Increase (decrease) in cash and cash equivalents 10,766 (49,652) Cash and cash equivalents at beginning of year 144,810 159,808 --------------------------- Cash and cash equivalents at end of period $155,576 $110,156 =========================== </TABLE> See notes to consolidated unaudited financial statements. 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) UNITED BANKSHARES, INC. AND SUBSIDIARIES 1. GENERAL The accompanying unaudited consolidated interim financial statements of United Bankshares, Inc. and Subsidiaries ("United") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, the financial statements do not contain all of the information and footnotes required by generally accepted accounting principles. The financial statements presented in this report have not been audited. The accounting and reporting policies followed in the presentation of these financial statements are consistent with those applied in the preparation of the 2000 annual report of United Bankshares, Inc. on Form 10-K. In the opinion of management, adjustments necessary for a fair presentation of financial position and results of operations for the interim periods have been made. Such adjustments are of a normal and recurring nature. In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, (SFAS No. 133), "Accounting for Derivative Instruments and Hedging Activities" as amended by FASB 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 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 became effective for United beginning January 1, 2001. The adoption of this standard did not 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 the future. In September 2000, the FASB issued Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of FASB Statement No. 125" ("SFAS 140"). 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 did not 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 10
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. 2. BASIS OF PRESENTATION The accompanying consolidated interim financial statements include the accounts of United and its wholly-owned subsidiaries. United considers all of its principal business activities to be bank related. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Dollars are in thousands, except per share and share data. 3. INVESTMENT SECURITIES The amortized cost and estimated fair values of securities available for sale are summarized as follows: <TABLE> <CAPTION> March 31, 2001 --------------------------------------------------------------- Gross Gross Estimated (In thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 150,619 $ 1,678 $ 307 $ 151,990 State and political subdivisions 53,130 345 386 53,089 Mortgage-backed securities 682,990 14,233 634 696,589 Marketable equity securities 8,551 1,020 1,815 7,756 Other 106,518 166 1,379 105,305 --------------------------------------------------------------- Total $1,001,808 $ 17,442 $4,521 $1,014,729 =============================================================== </TABLE> 11
<TABLE> <CAPTION> December 31, 2000 --------------------------------------------------------------- (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------- <S> <C> <C> <C> <C> 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 =============================================================== </TABLE> The cumulative net unrealized holding loss on available for sale securities resulted in an increase of $3,621 and a decrease of $4,964 to shareholders' equity, net of deferred income taxes at March 31, 2001 and December 31, 2000, respectively. The amortized cost and estimated fair value of securities available for sale at March 31, 2001 and 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. <TABLE> <CAPTION> March 31, 2001 December 31, 2000 ---------------------------------- ---------------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ---------------------------------- ---------------------------------- <S> <C> <C> <C> <C> Due in one year or less $ 29,197 $ 29,255 $ 20,690 $ 20,661 Due after one year through five years 82,118 83,082 68,436 68,238 Due after five years through ten years 136,881 138,577 146,984 147,021 Due after ten years 745,061 755,181 620,702 620,712 Marketable equity securities 8,551 8,634 8,551 8,634 ---------------------------------- ---------------------------------- Total $1,001,808 $1,014,729 $865,363 $865,266 ================================== ================================== </TABLE> The preceding table includes $696,589 and $576,610 of mortgage-backed securities at March 31, 2001 and December 31, 2000, respectively, with an amortized cost of $682,990 and $574,292 at March 31, 2001 and December 31, 2000, respectively. Maturities of mortgage-backed securities are based upon the estimated average life. With the adoption of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 137, 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. 12
The amortized cost and estimated fair values of securities held to maturity are summarized as follows: <TABLE> <CAPTION> March 31, 2001 --------------------------------------------------------------- Gross Gross Estimated (In thousands) Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------- <S> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 33,928 $ 207 $ 44 $ 34,091 State and political subdivisions 92,310 2,058 743 93,625 Mortgage-backed securities 5,417 95 5,512 Other 157,229 758 1,806 156,181 --------------------------------------------------------------- Total $288,884 $3,118 $2,593 $289,409 =============================================================== </TABLE> <TABLE> <CAPTION> December 31, 2000 --------------------------------------------------------------- (In thousands) Gross Gross Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------------------------------------------------------- <S> <C> <C> <C> <C> 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 =============================================================== </TABLE> The amortized cost and estimated fair value of securities held to maturity at March 31, 2001, and December 31, 2000, by contractual maturity follow. Expected maturities may differ from contractual maturities because the issuers may have the right to call or prepay obligations with or without call or prepayment penalties. <TABLE> <CAPTION> March 31, 2001 December 31, 2000 ---------------------------------- ---------------------------------- Estimated Estimated Amortized Fair Amortized Fair Cost Value Cost Value ---------------------------------- ---------------------------------- <S> <C> <C> <C> <C> Due in one year or less $ 2,052 $ 2,469 $ 7,711 $ 7,725 Due after one year through five years 31,733 32,971 47,862 48,563 Due after five years through ten years 74,464 75,564 90,590 90,365 Due after ten years 180,635 178,405 233,905 231,752 ---------------------------------- ---------------------------------- Total $288,884 $289,409 $380,068 $378,405 ================================== ================================== </TABLE> The preceding table includes $5,512 and $70,279 of mortgage-backed securities at estimated fair value at March 31, 2001 and December 31, 2000, respectively, with an amortized cost of $5,417 and $70,648 at March 31, 2001 and December 31, 2000, respectively. 13
Maturities of the mortgage-backed securities are based upon the estimated average life. There were no sales of held to maturity securities. 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 will be retained in the carrying value of the held to maturity securities. The cumulative unrealized loss, net of deferred taxes, of $5,270 will be retained as a separate component of shareholders' equity. Such amounts will be amortized over the estimated remaining life of the securities. At March 31, 2001, the cumulative unrealized loss balances, gross and net of deferred taxes, were $7,353 and $4,779, respectively. The carrying value of securities pledged to secure public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law, approximated $801,273 and $788,899 at March 31, 2001 and December 31, 2000, respectively. 4. NONPERFORMING LOANS Nonperforming loans are summarized as follows: <TABLE> <CAPTION> March 31, 2001 December 31, 2000 ---------------- ----------------- <S> <C> <C> Loans past due 90 days or more and still accruing interest $4,698 $ 4,717 Nonaccrual loans 7,588 8,131 ---------------- ----------------- Total nonperforming loans $12,286 $12,848 ================ ================= </TABLE> 5. ALLOWANCE FOR LOAN LOSSES The adequacy of the allowance for loan losses is based on management's evaluation of the relative risks inherent in the loan portfolio. A progression of the allowance for loan losses for the periods presented is summarized as follows: <TABLE> <CAPTION> Three Months Ended March 31 ------------------------------------ 2001 2000 ----------------- --------------- <S> <C> <C> Balance at beginning of period $ 40,532 $ 39,599 Provision charged to expense 2,499 2,547 ----------------- --------------- 43,031 42,146 Loans charged-off (2,672) (2,859) Less recoveries 832 203 ----------------- --------------- Net Charge-offs (1,840) (2,656) ----------------- --------------- Balance at end of period $41,191 $39,490 ================= =============== </TABLE> 14
The average recorded investment in impaired loans during the quarter ended March 31, 2001 and for the year ended December 31, 2000 was approximately $11,491 and $15,557, respectively. For the quarters ended March 31, 2001 and 2000, United recognized interest income on the impaired loans of approximately $121 and $211, respectively, substantially all of which was recognized using the accrual method of income recognition. At March 31, 2001, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $10,497 (of which $7,589 was on a nonaccrual basis). Included in this amount is $6,077 of impaired loans for which the related allowance for loan losses is $1,041 and $4,420 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 $319 and $555 for the quarters ended March 31, 2001 and 2000, respectively. 6. COMMITMENTS AND CONTINGENT LIABILITIES United and its subsidiaries are currently involved, in the normal course of business, in various legal proceedings. Management is vigorously pursuing all of its legal and factual defenses and, after consultation with legal counsel, believes that all such litigation will be resolved without material effect on financial position or results of operations. 15
7. LINE OF BUSINESS REPORTING United's principal business activities are community banking and mortgage banking. The following information is based on United's current management structure and presents results of operations as if the community banking and mortgage banking segments were operated on a stand alone basis. The results are not necessarily comparable with similar information of other companies. <TABLE> <CAPTION> General Mortgage Community Corporate Banking Banking And Other* Consolidated ------------------------------------------------------------- (In thousands) <S> <C> <C> <C> <C> March 31, 2001 - -------------- Net interest income $ 1,534 $ 42,573 $ 113 $ 44,220 Provision for loan losses - 2,499 - 2,499 Net interest income after provision for loan losses 1,534 40,074 113 41,721 Noninterest income 5,225 8,707 13 13,945 Noninterest expense 4,739 21,681 576 26,996 Income before income taxes 2,020 27,100 (450) 28,670 Income tax expense 540 8,924 (146) 9,318 Net income 1,480 18,176 (304) 19,352 Average total assets 179,969 4,682,002 (11,785) 4,850,186 March 31, 2000 - -------------- Net interest income $ 1,470 $ 44,910 $ 346 $ 46,726 Provision for loan losses 16 2,531 - 2,547 Net interest income after provision for loan losses 1,454 42,379 346 44,179 Noninterest income 3,430 6,024 1,347 10,801 Noninterest expense 3,178 24,859 106 28,143 Income (loss) before income taxes 1,706 23,544 1,587 26,837 Income tax expense 337 7,989 523 8,849 Net income (loss) 1,369 15,555 1,064 17,988 Average total assets 91,906 4,891,166 (8,320) 4,974,752 </TABLE> * General corporate and other includes intercompany eliminations 8. COMPREHENSIVE INCOME Comprehensive income consists of two components: (1) net income reported on the consolidated statements of income and changes in the fair value of available for sale securities reported as a component of shareholders' equity, net of any realized after-tax gain or loss on sales or calls of investment securities included in consolidated net income and (2) the after-tax amortization of the unrealized loss on debt securities transferred into the held to maturity category from the available for sale category. 16
The components of total comprehensive income for the three months ended March 31, 2001 and 2000 are as follows: <TABLE> <CAPTION> Three Months Ended March 31 ---------------------------------- 2001 2000 ---------------- ----------------- <S> <C> <C> Net Income $ 19,352 $ 17,988 Other Comprehensive Income (Loss), Net of Tax: Unrealized gain (loss) on available-for-sale securities arising during the period 8,555 (1,004) Less: Reclassification adjustment for gains included in net income (92) (207) Amortization of the unrealized loss for securities transferred from the available-for-sale to the held to maturity investment portfolio 122 ---------------- ----------------- Total Comprehensive Income $ 27,937 $ 16,777 ================ ================= </TABLE> 9. EARNINGS PER SHARE The reconciliation of the numerator and denominator of basic earnings per share with that of diluted earnings per share is presented as follows: Three Months Ended March 31 ------------------------- (Dollars in thousands, except per share) 2001 2000 ----------- ----------- Basic Net Income $ 19,352 $ 17,988 =========== =========== Average common shares outstanding 41,703,350 42,272,860 =========== =========== Earnings per basic common share $ 0.46 $ 0.43 Diluted Net Income $ 19,352 $ 17,988 =========== =========== Average common shares outstanding 41,703,350 42,272,860 Equivalents from stock options 316,886 384,565 ----------- ----------- Average diluted shares outstanding 42,020,236 42,657,425 =========== =========== Earnings per diluted common share $ 0.46 $ 0.42 17
10. EARNING ASSETS AND INTEREST-BEARING LIABILITIES The following table shows the daily average balance of major categories of assets and liabilities for each of the three month periods ended March 31, 2001 and March 31, 2000 with the interest rate earned or paid on such amount. <TABLE> <CAPTION> Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 -------------------------------------- ------------------------------------ Average Avg. Average Avg. (Dollars in thousands) Balance Interest Rate Balance Interest Rate -------------------------------------- ------------------------------------ <S> <C> <C> <C> <C> <C> <C> ASSETS Earning Assets: Federal funds sold and securities repurchased under agreements to resell and other short-term investments $ 16,178 $ 247 6.19% $ 6,996 $ 112 6.46% Investment Securities: Taxable 1,052,439 17,981 6.93% 1,229,866 20,735 6.78% Tax-exempt (1) (2) 195,878 3,652 7.56% 201,342 3,607 7.20% -------------------------------------- ------------------------------------ Total Securities 1,248,317 21,633 7.03% 1,431,208 24,342 6.84% Loans, net of unearned income (1) (2) (3) 3,359,725 72,985 8.76% 3,288,222 71,689 8.75% Allowance for loan losses (40,901) (39,609) -------------- -------------- Net loans 3,318,824 8.87% 3,248,613 8.80% -------------------------------------- ------------------------------------ Total earning assets 4,583,319 $ 94,865 8.33% 4,686,817 $ 96,143 8.22% ------------------------- ----------------------- Other assets 266,867 287,935 -------------- -------------- TOTAL ASSETS $ 4,850,186 $ 4,974,752 ============== ============== LIABILITIES Interest-Bearing Funds: Interest-bearing deposits $ 2,865,822 $ 33,150 4.69% $ 2,770,075 $ 29,046 4.22% Federal funds purchased, repurchase agreements and other short-term borrowings 319,938 3,816 4.84% 322,221 3,887 4.85% FHLB advances 686,763 10,811 6.38% 960,393 13,609 5.70% -------------------------------------- ------------------------------------ Total Interest-Bearing Funds 3,872,523 47,777 5.00% 4,052,689 46,542 4.62% ------------------------- ----------------------- Demand deposits 479,797 462,542 Accrued expenses and other liabilities 58,736 58,664 -------------- -------------- TOTAL LIABILITIES 4,411,056 4,573,895 SHAREHOLDERS' EQUITY 439,130 400,857 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,850,186 $ 4,974,752 ============== ============== NET INTEREST INCOME $ 47,088 $ 49,601 ============ ============ INTEREST SPREAD 3.33% 3.60% NET INTEREST MARGIN 4.10% 4.23% </TABLE> (1) The interest income and the yields on federally nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory federal income tax rate of 35%. (2) The interest income and the yields on state nontaxable loans and investment securities are presented on a tax-equivalent basis using the statutory state income tax rate of 9%. (3) Nonaccruing loans are included in the daily average loan amounts outstanding. 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a broad overview of the financial condition and results of operations and is not intended to replace the more detailed discussion which is presented under specific headings on the following pages. OVERVIEW Net income for the first quarter of 2001 was $19.35 million or $0.46 per share compared to $17.99 million or $0.42 per share for the first quarter of 2000. This represents a 7.58% increase in net income and a 9.53% increase in earnings per share. United's annualized return on average assets was 1.62% and return on average shareholders' equity was 17.87% for the first quarter of 2001 as compared to 1.45% and 18.05% for the first quarter of 2000. The net interest margin was 4.10% for the first three months of 2001. Tax-equivalent net interest income declined $2.51 million or 5.07% for the first three months of 2001 as compared to the same period for 2000. The provision for loan losses remained relatively flat compared to the previous year-to-date. Noninterest income increased $3.14 million or 29.11% for the first three months of 2001 when compared to the first three months of 2000. Noninterest expenses decreased $1.15 million or 4.08% for the first three months of 2001 compared to the same period in 2000. United's effective tax rate was 32.50% and 32.97% in 2001 and 2000, respectively. Total assets grew slightly to $4.98 billion at March 31, 2001, an $80.26 million or 1.64% increase from year end. In terms of asset composition since year end 2000, the March 31, 2001 balance sheet reflects a $10.77 million increase in cash and cash equivalents and a $58.28 million increase in investment securities. Overall, loans held for sale increased $35.32 million as loan originations exceeded sales in the secondary market. Portfolio loans, net of unearned income declined slightly from December 31, 2000. All other categories of assets were moderately flat compared to year end 2000. Interest-bearing deposits increased $69.04 million compared to year end while noninterest-bearing deposits increased only slightly for the quarter. United's total borrowed funds decreased $21.03 million or 2.03% as FHLB borrowings decreased $25.07 million and was partially offset by increased short-term borrowings of $4.04 million to capitalize on lower short-term interest rates. Accrued expenses and other liabilities increased $15.82 million or 37.67% since year end 2000 primarily as a result of a timing difference in the payment of income taxes. Shareholders' equity increased $14.21 million or 3.30% as compared to December 31, 2000 as United continued to balance capital adequacy and returns to shareholders. At March 31, 2001, United's regulatory capital ratios, including those of its bank subsidiaries, exceeded the levels established for well-capitalized institutions. 19
RESULTS OF OPERATIONS NET INTEREST INCOME For the quarters ended March 31, 2001 and 2000, tax-equivalent net interest income was $47.09 million and $49.60 million, respectively. These results represent a decrease of $2.51 million or 5.07% during the first quarter of 2001 when compared to the prior-year quarter. United's tax-equivalent net interest margin was 4.10% for the first three months of 2001 and 4.23% for the same period in 2000. The decline in the margin results was due to a 27 basis point narrowing of the interest spread between earning assets and interest-bearing funds. The level of both earning assets and interest-bearing liabilities remained relatively flat for the first quarter of 2001 when compared to the first quarter of 2000. PROVISION FOR LOAN LOSSES United's asset quality continues to be sound. Nonperforming loans were $12.29 million at March 31, 2001 and $12.85 million at December 31, 2000 which represented 0.25% of total assets at the end of the first three months of 2001, as compared to 0.26% for United at year end 2000. 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 and loans past due 90 days or more were $7.59 million and $4.70 million, respectively at March 31, 2001 as compared to $8.13 million and $4.72 million, respectively at year end 2000. Total nonperforming assets of $14.68 million, including OREO of $2.40 million at March 31, 2001, represented 0.29% of total assets at the end of the first quarter. At March 31, 2001, impaired loans were $10.50 million, a decrease of $2.01 million or 16.05% from the $12.50 million in impaired loans at December 31, 2000. For further details, see Note 5 to the unaudited consolidated financial statements. United evaluates the adequacy of the allowance for loan losses on a quarterly basis and its loan administration policies are focused upon the risk characteristics of the loan portfolio. United's process for evaluating the allowance is a formal company-wide process that focuses on early identification of potential problem credits and procedural discipline in managing and accounting for those credits. Allocations are made for specific commercial loans based upon management's estimate of the borrowers' ability to repay and other factors impacting collectibility. Other commercial loans not specifically reviewed on an individual basis are evaluated based on historical loan percentages applied to loan pools that have been segregated by risk. Allocations for loans other than commercial loans are made based upon historical loss experience adjusted for current conditions. 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 March 31, 2001 produced increased allocations within two of four loan categories. The components of the allowance allocated to commercial loans increased $2.2 million, as a result of changes in historical loss factors. The real estate construction loan pool allocation increased by $122 thousand as a result of changes in volume. The consumer loan pool allocation decreased $130 thousand as a result of changes in volume and historical loss factors for this pool. The components of the allowance allocated to real estate loans decreased $245 thousand as a result of changes in volume and historical loss factors. 20
At March 31, 2001 and December 31, 2000, the allowance for loan losses was 1.30% and 1.27% of period-end loans, net of unearned income, respectively. At March 31, 2001 and December 31, 2000, the ratio of the allowance for loan losses to nonperforming loans was 335.3% and 315.5%, respectively. Management believes that the allowance for loan losses of $41.19 million at March 31, 2001, is adequate to provide for potential losses on existing loans based on information currently available. For the quarters ended March 31, 2001 and 2000, the provision for loan losses was $2.50 million and $2.55 million, respectively. Total net charge-offs were $1.84 million in the first three months of 2001 and $2.66 million during the same time period in 2000, which represents 0.05% and 0.08% of average loans for the respective quarters. The decrease in net charge-offs from the previous year quarter was primarily attributed to increased recoveries on commercial loans and fewer charge-offs of junior-lien mortgages. Note 5 to the accompanying unaudited consolidated financial statements provides a progression of the allowance for loan losses. Management is not aware of any potential problem loans, trends or uncertainties which it reasonably expects will materially impact future operating results, liquidity, or capital resources which have not been disclosed. Additionally, management has disclosed all known material credits which cause management to have serious doubts as to the ability of such borrowers to comply with the loan repayment schedules. OTHER INCOME Other income consists of all revenues which are not included in interest and fee income related to earning assets. Noninterest income has been and will continue to be an important factor for improving United's profitability. Recognizing the importance, management continues to evaluate areas where noninterest income can be enhanced. Noninterest income increased $3.14 million or 29.11% for the first quarter of 2001 when compared to the same period in 2000. Income from mortgage banking operations increased $1.84 million or 54.45% for the first three months of 2001 as compared to the same period in 2000 due to increased loan sales in the secondary market. Sales of mortgage loans were $391.07 million for the first quarter of 2001 as compared to $218.93 million for the first quarter of 2000, an increase of 78.63%. Trust fees increased $323 thousand or 19.09% while deposit services fees increased $924 thousand or 18.14% compared to the first quarter of 2000. OTHER EXPENSES Just as management continues to evaluate areas where noninterest income can be enhanced, it strives to improve the efficiency of its operations to reduce costs. Other expenses include all items of expense other than interest expense, the provision for loan losses, and income taxes. Other expenses decreased $1.15 million or 4.08% for the first quarter ended March 31, 2001 as compared to the same period in 2000. Total salaries and benefits increased by 5.42% or $744 thousand for the first quarter of 2001 when compared to the same period of 2000. The increase was due mainly to higher sales activity in the mortgage banking segment as compensation and incentives for its personnel are significantly tied to activity levels. Net occupancy expense for the first quarter of 2001 decreased by $503 thousand or 15.91% when compared to the first quarter of 2000. The overall change in net occupancy expense for the first quarter of 2001 was 21
due mainly to decreases in both real property taxes on owned premises and rental expense on leased offices. Other expense decreased $1.39 million or 12.35% for the first quarter of 2001 when compared to the previous year quarter. United divested of a branch office and sold other bank premises during the quarter for a total gain of $1.24 million. Market Risk The objective of United's Asset/Liability Management function is to maintain consistent growth in net interest income within United's policy guidelines. This objective is accomplished through the management of balance sheet liquidity and interest rate risk exposures due to changes in economic condition, interest rate levels and customer preferences. Management considers interest rate risk to be United's most significant market risk. Interest rate risk is the exposure to adverse changes in the net interest income of United as a result of changes in interest rates. Consistency in United's earnings is largely dependent on the effective management of interest rate risk. United employs a variety of measurement techniques to identify and manage its exposure to changing interest rates. One such technique utilizes an earnings simulation model to analyze net interest income sensitivity to movements in interest rates. The model is based on actual cash flows and repricing characteristics for on and off-balance sheet instruments and incorporates market-based assumptions regarding the impact of changing interest rates on the prepayment rate of certain assets and liabilities. The model also includes executive management projections for activity levels in product lines offered by United. Assumptions based on the historical behavior of deposit rates and balances in relation to changes in interest rates are also incorporated into the model. These assumptions are inherently uncertain and, as a result, the model cannot precisely measure net interest income or precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and management strategies. Interest sensitive assets and liabilities are defined as those assets or liabilities that mature or are repriced within a designated time- frame. The principal function of interest rate risk management is to maintain an appropriate relationship between those assets and liabilities that are sensitive to changing market interest rates. The difference between rate sensitive assets and rate sensitive liabilities for specified periods of time is known as the "GAP." United closely monitors the sensitivity of its assets and liabilities on an on-going basis and projects the effect of various interest rate changes on its net interest margin. As shown in the interest rate sensitivity gap table in this section, United was liability sensitive (more liabilities repricing than assets) in the one year horizon. On the surface, this would indicate that rising market interest rates would reduce United's earnings and declining market interest rates would increase earnings. United, however, has not experienced the kind of earnings volatility indicated from the cumulative gap. This is because a significant portion of United's retail deposit base does not reprice on a contractual basis. Management has estimated, based upon historical analyses, that United's savings deposits are less sensitive to interest rate changes than are other forms of deposits. The GAP table presented herein has been adapted to show the estimated differences in interest rate sensitivity which result when the retail deposit base is assumed to reprice in a manner consistent with historical trends. (See "Management Adjustments" in the GAP table). Using these estimates, United was asset sensitive in the one year horizon in the amount of $194 22
million or 4.07% of the cumulative gap to related earning assets. To further aid in interest rate management, United's subsidiary banks are members of the Federal Home Loan Bank (FHLB). The use of FHLB advances provides United with a low risk means of matching maturities of earning assets and interest-bearing funds to achieve a desired interest rate spread over the life of the earning assets. Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. United's Asset/Liability Management Committee (ALCO), which includes senior management representatives and reports to the Board of Directors, monitors and manages interest rate risk to maintain an acceptable level of change to net interest income as a result of changes in interest rates. Policy established for interest rate risk is stated in terms of the change in net interest income over a one-year and two-year horizon given an immediate and sustained increase or decrease in interest rates. The current limits approved by the Board of Directors are structured on a staged basis with each stage requiring specific actions. The following table shows United's estimated earnings sensitivity profile after management's adjustments as of March 31, 2001 and March 31, 2000: Change in Interest Rates Percentage Change in Net Interest Income -------------------------------------------- (basis points) March 31, 2001 March 31, 2000 -------------- -------------- -------------- +200 -1.65% -3.97% -200 -4.72% 3.71% At March 31, 2001, given an immediate, sustained 200 basis point upward shock to the yield curve used in the simulation model, it was estimated net interest income for United would decrease by 1.65% over one year as compared to an decrease of 3.97% at March 31, 2000. A 200 basis point immediate, sustained downward shock in the yield curve would decrease net interest income by an estimated 4.72% over one year at March 31, 2001 as compared to a increase of 3.71% at March 31, 2000. All of these estimated changes in net interest income are and were within the policy guidelines established by the Board of Directors. 23
The following table shows the interest rate sensitivity GAP as of March 31, 2001: Interest Rate Sensitivity Gap <TABLE> <CAPTION> Days ----------------------------------- Total 1-5 Over 5 0-90 91-180 181-365 One Year Years Years Total --------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> ASSETS Interest-Earning Assets: Federal funds sold and securities purchased under agreements to resell and other short-term investments $ 48,200 $ 48,200 $ 48,200 Investment and Marketable Equity Securities Taxable 102,043 $ 23,415 $ 49,230 174,688 $ 312,729 $ 670,797 1,158,214 Tax-exempt 310 2,398 202 2,910 11,558 130,931 145,399 Loans, net of unearned income 1,249,070 175,804 325,373 1,750,247 814,777 845,970 3,410,994 --------------------------------------------------------------------------------------- Total Interest-Earning Assets $1,399,623 $ 201,617 $ 374,805 $1,976,045 $1,139,064 $1,647,698 $4,762,807 ========== ========== ========== ========== ========== ========== ========== LIABILITIES Interest-Bearing Funds: Savings and NOW accounts $1,200,925 $1,200,925 $1,200,925 Time deposits of $100,000 & over 81,971 $ 51,923 $ 145,036 278,930 $ 108,403 $ 125 387,458 Other time deposits 279,818 269,314 377,020 926,152 406,279 261 1,332,692 Federal funds purchased, repurchase agreements and other short-term borrowings 272,998 10,000 282,998 54,753 337,751 FHLB advances 20,228 20,228 47,500 613,718 681,446 --------------------------------------------------------------------------------------- Total Interest-Bearing Funds $1,835,712 $ 321,237 $ 552,284 $2,709,233 $ 616,935 $ 614,104 $3,940,272 ========== ========== ========== ========== ========== ========== ========== Interest Sensitivity Gap $ (436,089) $ (119,620) $ (177,479) $ (733,188) $ 522,129 $1,033,594 $ 822,535 ========== ========== ========== ========== ========== ========== ========== Cumulative Gap $ (436,089) $ (555,709) $ (733,188) $ (733,188) $ (211,059) $ 822,535 $ 822,535 ========== ========== ========== ========== ========== ========== ========== Cumulative Gap as a Percentage of Total Earning Assets (9.16%) (11.67%) (15.39%) (15.39%) (4.43%) 17.27% 17.27% Management Adjustments $1,159,080 $ (77,311) $ (154,505) $ 927,264 $ (927,264) $ 0 Off-Balance Sheet Activities --------------------------------------------------------------------------------------- Cumulative Management Adjusted Gap and Off-Balance Sheet Activities $ 772,991 $ 526,060 $ 194,076 $ 194,076 $ (211,059) $ 822,535 $ 822,535 ========== ========== ========== ========== ========== ========== ========== Cumulative Management Adjusted Gap and Off-Balance Sheet Activities as a Percentage of Total Earning Assets 15.18% 11.05% 4.07% 4.07% (4.43%) 17.27% 17.27% ========== ========== ========== ========== ========== ========== ========== </TABLE> 24
LIQUIDITY AND CAPITAL RESOURCES United maintains, in the opinion of management, liquidity which is sufficient to satisfy its depositors' requirements and the credit needs of its customers. Like all banks, United depends upon its ability to renew maturing deposits and other liabilities on a daily basis and to acquire new funds in a variety of markets. A significant source of funds available to United is "core deposits". Core deposits include certain demand deposits, statement and special savings and NOW accounts. These deposits are relatively stable and they are the lowest cost source of funds available to United. Short-term borrowings have also been a significant source of funds. These include federal funds purchased and securities sold under agreements to repurchase. Repurchase agreements represent funds which are obtained as the result of a competitive bidding process. Liquid assets are cash and those items readily convertible to cash. All banks must maintain sufficient balances of cash and near-cash items to meet the day-to-day demands of customers. Other than cash and due from banks, the available for sale securities portfolio, loans held for sale and maturing loans and investments are the primary sources of liquidity. The goal of liquidity management is to ensure the ability to access funding which enables United to efficiently satisfy the cash flow requirements of depositors and borrowers and meet United's cash needs. Liquidity is managed by monitoring funds availability from a number of primary sources. Funding is available from cash and cash equivalents, unused short-term borrowing and a geographically dispersed network of subsidiary banks providing access to a diversified and substantial retail deposit market. Short-term needs can be met through a wide array of sources such as correspondent and downstream correspondent federal funds and utilization of Federal Home Loan Bank advances. Other sources of liquidity available to United to provide long-term as well as short-term funding alternatives, in addition to FHLB advances, are long-term certificates of deposit, lines of credit, and borrowings that are secured by bank premises or stock of United's subsidiaries. In the normal course of business, United through ALCO, evaluates these as well as other alternative funding strategies that may be utilized to meet short-term and long-term funding needs. For the three months ended March 31, 2001, cash of $1.87 million was used in operations by United primarily as a result of $31.89 million of excess originations over sales of mortgage loans to sell in the secondary market. During the same period, net cash of $33.48 million was used in investing activities which was primarily due to $44.86 million of excess purchases of investment securities over net proceeds from calls and maturities of investment securities. During the first three months of 2001, net cash of $46.11 million was provided by financing activities, primarily due to growth in deposits of $80.86 million, which more than offset net repayment of approximately $25.16 million of FHLB borrowings, payment of $9.17 million in cash dividends and $4.97 million for acquisitions of United shares under the stock repurchase program. The net effect of this activity was an increase in cash and cash equivalents of $10.77 million for the first three months of 2001. United anticipates it can meet its obligations over the next 12 months and has no material commitments for capital expenditures. There are no known trends, demands, commitments, or events that will result in or that are reasonably likely to result in United's liquidity increasing or decreasing in any material way. United also has lines of credit available. 25
The Asset and Liability Committee monitors liquidity to ascertain that a liquidity position within certain prescribed parameters is maintained. In addition, variable rate loans are a priority. These policies help to protect net interest income against fluctuations in interest rates. No changes are anticipated in the policies of United's Asset and Liability Committee. CAPITAL Total shareholders' equity increased $14.21 million to $445.08 million from $430.87 million at December 31, 2000. Included in the shareholders' equity balance at March 31, 2001 is the previously mentioned cumulative unrealized loss, net of deferred taxes, of $5.27 million for the transfer of debt securities from the available for sale portfolio into the held to maturity portfolio. This amount will be amortized over the estimated remaining life of the securities. Since year end, United has experienced an increase of $8.46 million, net of deferred income taxes, in the fair value of its available for sale investment portfolio due primarily to decreased market interest rates. During the quarter, 225,000 shares were repurchased under a plan announced by United in May of 2000 to repurchase up to 1.675 million shares of its common stock on the open market. Through March 31, 2001, 444,300 shares have been repurchased since the plan's implementation. United's equity to assets ratio was 8.93% at March 31, 2001, as compared to 8.79% at December 31, 2000. The primary capital ratio, capital and reserves to total assets and reserves, was 9.68% at March 31, 2001, as compared to 9.53% at December 31, 2000. Cash dividends of $0.22 per common share for the first quarter of 2001 represent an increase of 5% over the $0.21 paid for first quarter of 2000. Total cash dividends were approximately $9.17 million for the first quarter of 2001, an increase of 3.33% over the comparable period of 2000. United seeks to maintain a proper relationship between capital and total assets to support growth and sustain earnings. United's average equity to average asset ratio was 9.05% at March 31, 2000 and 8.06% at March 31, 2000. Based on regulatory requirements, United and its banking subsidiaries are categorized as "well capitalized" institutions. United's risk-based capital ratios of 11.74% at March 31, 2001 and 11.77% at December 31, 2000, are both significantly higher than the minimum regulatory requirements. United's Tier I capital and leverage ratios of 10.65% and 8.37%, respectively, at March 31, 2001, are also well above regulatory minimum requirements. 26