UNITED STATES SECURITIES
AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Commission file number
to 0-5583
UNITED CAROLINA BANCSHARES CORPORATION
(Exact name of Registrant as specified in its Charter)
North Carolina 56-0954530
(State of Incorporation) (I.R.S. Employer Identification No.)
127 West Webster Street
Whiteville, North Carolina 28472
(Address of principal executive offices) (Zip Code)
(910) 642-5131
(Registrant's telephone number, including area code)
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
As of November 12, 1996, there were 24,266,175 outstanding shares of
Registrant's $4.00 par value common capital stock which is the only class of
securities issued by the Registrant.
Total of 30 pages
1
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
September 30, December 31,
1996 1995
------------- ------------
(In thousands)
Assets:
Cash and due from banks - noninterest-bearing $ 184,770 $ 179,679
Federal funds sold and other short-term
investments 100,922 45,413
Securities available for sale (amortized
costs of $843,846,000 in 1996
and $764,923,000 in 1995) 840,061 769,956
Investment securities (approximate market
values of $49,585,000 in 1996
and $99,270,000 in 1995) 48,446 97,354
Loans, net of unearned income 3,068,910 2,826,987
Less reserve for credit losses (45,837) (43,464)
------------- ------------
Net loans 3,023,073 2,783,523
------------- ------------
Premises and equipment 55,984 58,002
Other assets 113,068 103,591
------------- ------------
Total assets $ 4,366,324 $ 4,037,518
============= ============
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing demand deposits $ 616,201 $ 578,864
Interest-bearing deposits:
NOW, savings, and money market deposits 1,420,125 1,354,193
Certificates of deposit of
$100,000 or more 291,223 206,235
Other time deposits 1,608,101 1,498,359
------------- ------------
Total deposits 3,935,650 3,637,651
Short-term borrowings 39,437 30,439
Mortgages and other notes payable 2,815 2,975
Other liabilities 47,108 43,305
------------- ------------
Total liabilities 4,025,010 3,714,370
------------- ------------
Stockholders' equity:
Preferred stock, par value $10 per share:
Authorized 2,000,000 shares; none issued
Common stock, par value $4 per share:
Authorized 40,000,000 shares; issued
24,265,134 shares in 1996 and
24,137,791 shares in 1995 97,061 96,551
Surplus 50,787 50,183
Retained earnings 195,989 173,491
Unrealized gains (losses) on
securities available for sale,
net of deferred income taxes (2,523) 2,923
------------- ------------
Total stockholders' equity 341,314 323,148
------------- ------------
Total liabilities and
stockholders' equity $ 4,366,324 $ 4,037,518
============= ============
See accompanying Notes to Consolidated Financial Statements
2
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Income
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Dollars in thousands except per share amounts)
Interest income:
Interest on loans $ 69,629 $ 65,620 $ 201,256 $ 189,283
Interest and dividends on:
Taxable securities 12,882 10,710 36,017 26,974
Tax-exempt securities 758 933 2,452 2,926
Interest on federal funds sold and
other short-term investments 427 1,911 2,661 4,985
------------ ------------ ------------ ------------
Total interest income 83,696 79,174 242,386 224,168
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits 37,285 35,938 108,711 96,664
Interest on short-term borrowings 658 485 1,420 2,256
Interest on mortgages and other notes payable 42 46 127 126
------------ ------------ ------------ ------------
Total interest expense 37,985 36,469 110,258 99,046
------------ ------------ ------------ ------------
Net interest income 45,711 42,705 132,128 125,122
Provision for credit losses 1,900 1,077 6,000 4,558
------------ ------------ ------------ ------------
Net interest income after provision for
credit losses 43,811 41,628 126,128 120,564
------------ ------------ ------------ ------------
Noninterest income:
Service charges on deposit accounts 6,087 5,998 18,645 17,656
Trust income 1,403 1,168 4,339 3,844
Insurance commissions 1,647 1,521 4,415 3,875
Mortgage banking fees 1,150 1,187 3,549 2,964
Brokerage and annuity commissions 586 618 1,741 1,702
Other service charges, commissions, and fees 1,869 1,426 5,040 3,712
Gains on mortgages originated for resale 210 263 552 472
Gains on trading account securities - 1 1 3
Gains (losses) on dispositions of securities - 4 (134) 7
Other operating income 297 204 319 554
------------ ------------ ------------ ------------
Total noninterest income 13,249 12,390 38,467 34,789
------------ ------------ ------------ ------------
Noninterest expenses:
Personnel expense 21,631 19,914 64,245 58,644
Occupancy expense 2,657 2,603 7,730 7,551
Equipment expense 1,684 1,851 5,133 5,399
Other operating expenses 12,558 9,230 33,052 29,642
------------ ------------ ------------ ------------
Total noninterest expenses 38,530 33,598 110,160 101,236
------------ ------------ ------------ ------------
Income before income taxes 18,530 20,420 54,435 54,117
Income tax provision 6,481 7,325 19,206 19,286
------------ ------------ ------------ ------------
Net income $ 12,049 $ 13,095 $ 35,229 $ 34,831
============ ============ ============ ============
Per share data:
Net income $ .50 $ .55 $ 1.46 $ 1.45
============ =========== ============ ============
Cash dividends declared $ .18 $ .166 $ .54 $ .48
============ =========== ============ ============
Book value at end of period $ 14.07 $ 12.99 $ 14.07 $ 12.99
============ =========== ============ ============
Average number of shares outstanding 24,237,208 24,123,909 24,191,324 24,087,679
============ =========== ============ ============
See accompanying Notes to Consolidated Financial Statements
3
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine Months Ended September 30, 1996 and 1995
Unrealized
Common Stock Gains
-------------------------- (Losses) on
Number of Aggregate Securities Total
Shares Par Retained Available Stockholders'
Outstanding Value Surplus Earnings For Sale, Net Equity
----------- ----------- ---------- ---------- ------------- -------------
(Dollars in thousands)
Balance, January 1, 1996 24,137,791 $ 96,551 $ 50,183 $ 173,491 $ 2,923 $ 323,148
Net income - - - 35,229 - 35,229
Cash dividends declared,
$.54 per share - - - (12,778) - (12,778)
Issuance of common stock:
By pooled institution prior
to acquisition 29,949 120 327 45 - 492
Under stock option plans 61,133 245 442 - - 687
Insurance agency merger 37,123 149 (147) - - 2
Retirement of common stock (862) (4) (18) 2 - (20)
Unrealized losses on securities
available for sale, net of
applicable deferred income
taxes - - - - (5,446) (5,446)
----------- ----------- ---------- ---------- ------------- -------------
Balance, September 30, 1996 24,265,134 $ 97,061 $ 50,787 $ 195,989 $ (2,523) $ 341,314
=========== =========== ========== ========== ============= =============
Balance, January 1, 1995 24,017,725 96,071 50,134 141,953 (5,560) 282,598
Net income - - - 34,831 - 34,831
Cash dividends declared:
$.48 per share - - - (10,620) - (10,620)
By pooled institution prior
to merger - - - (51) - (51)
Issuance of common stock:
Under stock option plan 36,691 147 149 (49) - 247
By pooled institution prior
to merger 3,171 13 12 16 - 41
Insurance agency merger 66,320 265 (213) (88) - (36)
Unrealized gains on securities
available for sale, net of
applicable deferred income
taxes - - - - 6,289 6,289
----------- ----------- ---------- ---------- ------------- -------------
Balance, September 30, 1995 24,123,907 $ 96,496 $ 50,082 $ 165,992 $ 729 $ 313,299
=========== =========== ========== ========== ============= =============
See accompanying Notes to Consolidated Financial Statements
4
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
----------------------
1996 1995
--------- ---------
(In thousands)
Increase (decrease) in cash and cash equivalents: Cash flows from operating
activities:
Net income $ 35,229 $ 34,831
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net of accretio 9,537 7,436
Provision for credit losses 6,000 4,557
Net (increase) decrease in loans originated
for resale 6,711 (14,345)
Provision for deferred taxes and increase
(decrease)in taxes payable (330) 2,234
Increase in accrued interest receivable (1,905) (4,505)
(Increase) decrease in prepaid expenses (5,358) 2,019
Decrease in other accounts receivable 2,485 1,048
Increase (decrease) in accrued interest payable (202) 2,391
Increase in accrued expenses 3,419 1,572
Decrease in deferred loan fees,
net of deferred costs (1,294) (357)
Other, net 697 194
--------- ---------
Total adjustments 19,760 2,244
--------- ---------
Net cash provided by operating activities 54,989 37,075
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and issuer calls of
securities available for sale 408,763 403,065
Proceeds from sales of securities available for sale 10,539 --
Proceeds from maturities and issuer calls of
investment securities 12,468 12,722
Proceeds from sales of investment securities -- 3,810
Purchases of securities available for sale (461,610) (554,976)
Purchases of investment securities -- (36,310)
Net increase in loans outstanding (254,296) (194,842)
Purchases of premises and equipment (4,399) (2,586)
Proceeds from sales of premises and equipment 1,193 153
Purchases of mortgage loan servicing rights (1,658) (1,400)
Sales of foreclosed assets 572 1,982
Purchase of branches, net of cash received -- 136,569
Other, net (1,152) (2,571)
--------- ---------
Net cash used by investing activities (289,580) (234,384)
--------- ---------
Cash flows from financing activities:
Net increase in deposit accounts 297,998 302,004
Net increase (decrease) in federal funds purchased (8,935) 5,220
Net decrease in securities sold under agreement
to repurchase (9,808) (39,270)
Net increase (decrease) in other short-term
borrowings 27,740 (25,148)
Proceeds from issuance of long-term debt -- 702
Repayments of mortgages and other notes payable (185) (28)
Issuance of common stock, net 1,159 288
Dividends paid (12,778) (10,671)
--------- ---------
Net cash provided by financing activities 295,191 233,097
--------- ---------
Net increase in cash and cash equivalents 60,600 35,788
Cash and cash equivalents at beginning of period 225,092 244,660
--------- ---------
Cash and cash equivalents at end of period $ 285,692 $ 280,856
========= =========
Statement Continued on Next Page
5
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Continued
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 120,460 $ 96,563
========= =========
Income taxes $ 19,536 $ 17,197
========= =========
Significant noncash transactions:
Loans transferred to real estate acquired
in settlement of debt $ 3,870 $ 1,294
========= =========
Loans originated to facilitate the sale
of foreclosed assets $ 547 $ 397
========= =========
Unrealized gains (losses) on securities
available for sale $ (8,804) $ 8,962
========= =========
Investment securities transferred to
available for sale portfolio in connection
with business combinations $ 36,646 $ --
========= =========
Available for sale securities transferred
to investment portfolio in connection
with business combinations $ 240 $ --
========= =========
Issuance of common stock in merger acquisitions $ 2 $ (36)
========= =========
See accompanying Notes to Consolidated Financial Statements
6
United Carolina Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Basis of Presentation:
The accompanying consolidated financial statements, which are unaudited,
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial position at September 30, 1996, and December
31, 1995, and operating results of United Carolina Bancshares Corporation and
its subsidiaries for the three- and nine-month periods ended September 30, 1996
and 1995. All adjustments made to the unaudited financial statements were of a
normal recurring nature. The results of operations for the first nine months of
1996 are not necessarily indicative of the results of operations for the entire
year. As discussed in Note 13, during 1996, UCB consummated mergers with Triad
Bank and Seaboard Savings Bank, both of which were accounted for as
poolings-of-interests. Accordingly, the consolidated financial statements have
been restated to include the accounts of Triad Bank and Seaboard Savings Bank
for all periods presented.
Note 2.
Securities:
The following is a summary of the securities portfolios by major
classification:
September 30, 1996
--------------------------------------------------------
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
(In thousands)
Securities available for sale:
United States government securities $ 749,033 $ 825 $ 3,635 $ 746,223
Obligations of United States government
agencies and corporations 52,174 54 243 51,985
Mortgage-backed securities 27,199(1) 30 819 26,410(1)
Obligations of states and political subdivisions 1,100 3 -- 1,103
Federal Home Loan Bank stock 13,886 -- -- 13,886
Other securities 454 -- -- 454
----------- ----------- ----------- -----------
Total securities available for sale $ 843,846 $ 912 $ 4,697 $ 840,061
=========== =========== =========== ===========
Investment securities:
Obligations of states and political subdivisions $ 48,446 $ 1,224 $ 85 $ 49,585
----------- ----------- ----------- -----------
Total investment securities $ 48,446 $ 1,224 $ 85 $ 49,585
=========== =========== =========== ===========
<FN>
(1) At September 30, 1996, UCB owned collateralized mortgage obligations issued
by the Federal Home Loan Mortgage Corporation (FHLMC) which had an amortized
cost of $9,603,000 and a market value of $9,396,000; and collateralized mortgage
obligations issued by the Federal National Mortgage Association (FNMA) which had
an amortized cost of $11,826,000 and a market value of $11,423,000. In addition,
UCB also owned mortgage-backed pass-through securities guaranteed by the
Government National Mortgage Association (GNMA) which had an amortized cost of
$226,000 and a market value of $232,000; mortgage-backed pass-through securities
issued by FNMA with an amortized cost of $2,016,000 and market value of
$1,936,000; and mortgage-backed pass-through securities guaranteed by FHLMC with
an amortized cost of $3,194,000 and a market value of $3,074,000. UCB also owned
collateralized mortgage obligations issued by a private issuer and guaranteed by
the Government National Mortgage Association (GNMA) which had an amortized cost
of $334,000 and a market value of $349,000. At September 30, 1996, none of the
collateralized mortgage obligations owned by UCB were considered high-risk
mortgage securities under current regulatory guidelines.
</FN>
7
Notes to Consolidated Financial Statements (Continued)
Note 2. Securities - Continued
December 31, 1995
-----------------------------------------------------
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
(In thousands)
Securities available for sale:
United States government securities $ 585,795 $ 5,521 $ 127 $ 591,189
Obligations of United States government
agencies and corporations 136,590 4 74 136,520
Mortgage-backed securities 29,628 53 346 29,335
Obligations of states and political subdivisions 1,340 2 -- 1,342
Federal Home Loan Bank stock 10,941 -- -- 10,941
Other securities 629 -- -- 629
----------- ----------- ----------- -----------
Total securities available for sale $ 764,923 $ 5,580 $ 547 $ 769,956
=========== =========== =========== ===========
Investment securities:
United States government securities $ 10,396 $ 141 $ 168 $ 10,369
Obligations of United States government
agencies and corporations 21,713 -- -- 21,713
Mortgage-backed securities 4,508 16 44 4,480
Obligations of states and political subdivisions 60,660 2,011 40 62,631
Other securities 77 -- -- 77
----------- ----------- ----------- -----------
Total investment securities $ 97,354 $ 2,168 $ 252 $ 99,270
=========== =========== =========== ===========
Note 3.
Loans:
The consolidated loan portfolio is summarized by major classification as
follows:
September 30, December 31,
1996 1995
------------- -------------
(In thousands)
Loans secured by real estate:
Construction and land acquisition
and development $ 268,818 $ 226,326
Secured by nonfarm, nonresidential
properties 655,490 620,367
Secured by farmland 86,734 90,658
Secured by multifamily residences 68,221 65,097
------------- -------------
Total loans secured by real estate,
excluding loans secured by
1-4 family residences 1,079,263 1,002,448
------------- -------------
Revolving credit secured by
1-4 family residences 148,165 140,032
Other loans secured by
1-4 family residences 669,367 613,846
------------- -------------
Total loans secured by
1-4 family residences 817,532 753,878
------------- -------------
Total loans secured by real estate 1,896,795 1,756,326
Commercial, financial, and agricultural
loans, excluding loans secured
by real estate 333,403 296,778
Loans to individuals for household,
family, and other personal
expenditures, excluding loans
secured by real estate 721,101 691,193
All other loans 117,134 83,507
------------- -------------
Total loans 3,068,433 2,827,804
Net (unearned income) deferred
origination costs 477 (817)
------------- -------------
Loans, net of unearned income $ 3,068,910 $ 2,826,987
============= =============
8
Notes to Consolidated Financial Statements (Continued)
Note 4.
Nonperforming and Problem Assets:
The following is a summary of nonperforming and problem assets:
September 30, December 31,
1996 1995
------------- -------------
(In thousands)
Foreclosed assets $ 8,782 $ 5,234
Nonaccrual loans 2,769 6,403
------------- -------------
Total nonperforming assets 11,551 11,637
Loans 90 days or more past due,
excluding nonaccrual loans 6,388 5,554
------------- -------------
Total problem assets $ 17,939 $ 17,191
============= =============
At September 30, 1996, the recorded investment in loans that are considered
impaired under Financial Accounting Statement No. 114 was $2,769,000, all of
which were on a nonaccrual basis. Included in this amount was $2,566,000 of
impaired loans for which $550,000 of the reserve for credit losses was assigned.
The average recorded investment during the first nine months of 1996 in loans
classified as impaired at September 30, 1996, was approximately $2,857,000. For
the nine months ended September 30, 1996, UCB recognized interest income on
these impaired loans of $23,000 using the cash basis of accounting.
Note 5.
Reserve for Credit Losses:
The following table sets forth the analysis of the consolidated reserve
for credit losses:
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands)
Balance, beginning of period $ 45,212 $ 43,393 $ 43,464 $ 41,341
Provision for credit losses 1,900 1,077 6,000 4,558
Recovery of losses previously
charged off 845 555 2,702 2,652
Losses charged to reserve (2,120) (1,855) (6,329) (5,381)
-------- -------- -------- --------
Balance, end of period $ 45,837 $ 43,170 $ 45,837 $ 43,170
======== ======== ======== ========
9
Notes to Consolidated Financial Statements (Continued)
Note 6.
Short-Term Borrowings
The following table sets forth certain data with respect to UCB's
short-term borrowings:
September 30, 1996 December 31, 1995
-------------------------------------------- --------------------------------------------
Securities Federal Securities Federal
Sold Under Treasury Home Sold Under Treasury Home
Federal Agreement Tax and Loan Federal Agreement Tax and Loan
Funds to Loan Bank Funds to Loan Bank
Purchased Repurchase Notes Advances Purchased Repurchase Notes Advances
--------- ---------- -------- -------- --------- ---------- -------- --------
(Dollars in thousands)
Balance outstanding at end
of period $ 7,885 $ 1,128 $ 10,424 $ 20,000 $ 16,820 $ 10,936 $ 2,683 $ -
Maximum amount outstanding
at any month-end during
the period 29,250 40,040 14,373 20,000 22,610 28,216 4,250 25,000
Average balance outstanding
during the period 19,761 6,737 5,923 5,036 17,227 11,636 3,098 13,412
Average interest rate paid
during the period 5.11% 4.48% 5.04% 5.72% 5.79% 5.25% 5.62% 6.48%
Average interest rate
payable at end of period 5.69% 3.71% 5.20% 5.63% 5.50% 4.70% 5.15% - %
Federal funds purchased represent unsecured borrowings from other
financial institutions by UCB's subsidiary banks for their own temporary funding
requirements.
Securities sold under agreement to repurchase represent short-term
borrowings by UCB's subsidiary banks with maturities ranging from 1 to 89 days
collateralized by securities of the United States government or its agencies.
Treasury Tax and Loan notes consist of the balances outstanding in UCB's
subsidiary banks' treasury tax and loan depository note accounts that are
payable on demand to the United States Treasury and collateralized by qualified
debt securities. Interest on borrowings under these arrangements is payable
monthly at 1/4% below the average federal funds rate as quoted by the Federal
Reserve Board.
Federal Home Loan Bank advances represent borrowings from the Federal Home
Loan Bank of Atlanta by UCB's subsidiary banks pursuant to lines of credit
collateralized by blanket liens on qualifying loans secured by first mortgages
on 1-4 family residences. These advances have an initial maturity of less than
one year with interest payable monthly.
10
Notes to Consolidated Financial Statements (Continued)
Note 7.
Mortgages and Other Notes Payable:
Mortgages payable totaled $99,000 at September 30, 1996, and $121,000 at
December 31, 1995. The mortgages bear interest at annual rates ranging from
8.75% to 10% and are collateralized by premises with book values of
approximately $542,000 at September 30, 1996, and $470,000 at December 31, 1995.
The mortgages are payable primarily in monthly installments totaling
approximately $3,000, including interest.
Other notes payable totaled $125,000 at December 31, 1995, and consisted
of an unsecured note payable which bore interest at an annual rate of 12%,
payable monthly, with the principal paid on March 1, 1996.
Advances from the Federal Home Loan Bank of Atlanta with initial
maturities of more than one year totaled $2,716,000 at September 30, 1996, and
$2,729,000 at December 31, 1995. The advances are collateralized by a blanket
lien on qualifying loans secured by first mortgages on 1-4 family residences and
bear interest at rates ranging from 3.50% to 8.30%, payable monthly, with
principal due in various maturities beginning November 24, 1996.
Note 8.
Income Taxes:
The effective tax rate on income before income taxes is lower than the
combined statutory federal and state rates primarily because interest earned on
investments in debt instruments of state, county, and municipalities is exempt
from federal income tax and partially exempt from state income tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.
11
Notes to Consolidated Financial Statements (Continued)
Note 9.
Supplementary Income Statement Information:
The following is a breakdown of items included in "Other operating
expenses" on the consolidated statements of income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands)
Other operating expenses:
Data processing fees and software expense $ 2,234 $ 1,280 $ 5,791 $ 3,719
Marketing and business development 1,234 1,142 3,551 3,380
Professional services 1,222 868 3,326 2,545
Postage and delivery 1,126 1,040 3,164 2,963
Printing, stationery, and supplies 986 904 2,852 2,947
Telephone expense 962 804 2,749 2,185
FDIC deposit insurance premiums 962 (61) 1,173 3,465
Noncredit losses 955 356 1,418 860
Amortization of goodwill and other intangible assets 637 815 1,917 1,407
Travel expense 538 484 1,525 1,416
Insurance and taxes, other than taxes on income 330 375 1,016 1,156
Amortization of capitalized mortgage servicing rights 261 175 720 472
Donations 97 76 309 239
Other expenses 1,014 972 3,541 2,888
-------- -------- -------- --------
Total other operating expenses $ 12,558 $ 9,230 $ 33,052 $ 29,642
======== ======== ======== ========
Note 10.
Per Share Data:
Earnings per share are computed based on the weighted average number of
shares outstanding during each period, adjusted retroactively for the
pooling-of-interests mergers with Seaboard Savings Bank and Triad Bank, and the
3-for-2 stock split effected in the form of a stock dividend declared January
17, 1996. Cash dividends per share are computed based on the historical number
of shares outstanding at date of declaration adjusted retroactively for the
3-for-2 stock split. Book values per share are computed based on the number of
shares outstanding at the end of each period, adjusted retroactively for the
mergers with Seaboard Savings Bank and Triad Bank and the 3-for-2 stock split.
Dilution of earnings per share that would result from the exercise of all
outstanding stock options was immaterial.
12
Notes to Consolidated Financial Statements (Continued)
Note 11.
Statements of Cash Flows:
For purposes of the statements of cash flows, UCB considers cash and cash
equivalents to include cash and due from banks, federal funds sold, and other
short-term investments.
Note 12.
Legal Proceedings:
Various legal proceedings are pending or threatened against UCB and its
subsidiaries. All the foregoing are routine proceedings, pending or threatened,
which are incidental to the ordinary course of UCB's and its subsidiaries'
business. In the judgment of management and its counsel, none of such pending or
threatened legal proceedings will have a material adverse effect on the
consolidated financial position of UCB and its subsidiaries.
Note 13.
Mergers and Acquisitions:
On April 28, 1995, UCB issued 66,320 shares of common stock to consummate
the merger with United Agencies, Inc., a general insurance agency located in
Wilmington, North Carolina. Total assets of $252,000 were acquired in the
transaction. The merger was accounted for as a pooling-of-interests; however,
due to the immateriality of the transaction in relation to UCB's consolidated
financial position and operating results, prior period financial statements have
not been restated.
On May 19, 1995, UCB's North Carolina subsidiary bank acquired the deposits
and certain other assets of twelve North Carolina bank branches from another
financial institution. At the date of the acquisition, the acquired branches had
$26.8 million in loans and $178.7 million in deposits. Subsequent to the
acquisition, two of the branches not located in existing UCB markets were sold
to two commercial banks. These branches had $4.8 million in loans and $32.6
million in deposits when sold. A premium of $10.1 million was paid on the
assumed deposit base of the branches retained.
Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank, Inc., headquartered in Plymouth, North Carolina. Under terms of the
agreement, UCB exchanged 418,641 shares of common stock for all of the
outstanding shares of Seaboard common stock. The merger was accounted for as a
pooling-of-interests, and accordingly, the accompanying consolidated financial
statements have been restated to include the accounts of Seaboard Savings Bank
for all periods presented.
Effective March 29, 1996, UCB consummated a merger with Triad Bank
headquartered in Greensboro, North Carolina. Under terms of the agreement, UCB
exchanged 1,551,874 shares of common stock for all of the outstanding shares of
Triad common stock. The merger was accounted for as a pooling-of-interests, and
accordingly, the accompanying consolidated financial statements have been
restated to include the accounts of Triad Bank for all periods presented.
13
Notes to Consolidated Financial Statements (Continued)
On August 30, 1996, UCB issued 37,123 shares of common stock to consummate
the merger with Tomlinson Insurors, Inc. a general insurance agency in
Fayetteville, North Carolina. Total assets of $361,000 were acquired in the
transaction. The merger was accounted for as a pooling-of-interests; however,
due to the immateriality of the transaction in relation to UCB's consolidated
financial position and operating results, prior period financial statements have
not been restated.
Note 14.
Subsequent Event:
On November 1, 1996, UCB executed a definitive merger agreement with
Southern National Corporation headquartered in Winston-Salem, North Carolina.
The transaction will be accounted for as a pooling of interests in which UCB
shareholders will receive 1.135 shares of Southern National common stock for
each share of UCB common stock held. The merger, which is subject to approval by
the shareholders of both companies as well as by federal and state banking
regulators, is expected to be completed by the second quarter of 1997.
14
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Nine Months Ended September 30, 1996, Compared to 1995
Summary
Net income totaled $35,229,000 for the nine months ended September 30,
1996, an increase of 1.1% over the $34,831,000 earned in 1995. On a per share
basis, net income amounted to $1.46 per share for the first nine months of 1996,
an increase of .7% over the $1.45 per share earned in the comparable period of
1995. The increase in 1996 earnings resulted from growth in net interest income
and in noninterest income from the 1995 period. The increase in net interest
income resulted from growth in average earning assets of 9.8% over the
corresponding period of 1995. The majority of the increase in noninterest income
resulted from increased service charges on deposits as well as increases in fees
and commissions from nondeposit services including trust, mortgage banking,
credit cards, and general insurance.
The 1996 results included the effects of nonrecurring charges and
expenses totaling $1,531,000, net of applicable income tax benefits, incurred in
connection with completing the mergers with Seaboard Savings Bank and Triad Bank
which were completed during the first quarter of the year. The current year's
earnings were also affected by a special assessment by the Federal Deposit
Insurance Corporation (FDIC) for the recapitalization of the Savings Association
Insurance Fund (SAIF) which amounted to $815,000, or $489,000, net of applicable
income tax benefits. Excluding the effects of these nonrecurring charges and
expenses, on a pro forma basis, earnings for the first nine months of 1996
amounted to $37,249,000, or $1.54 per share, an increase of 6.8% over the
operating earnings for the first nine months of 1995. Both mergers referred to
above were accounted for as poolings-of-interests, and, accordingly, all
financial data
15
has been restated to include the accounts of Seaboard Savings Bank and Triad
Bank for all periods presented.
Net Interest Income
Net interest income increased $7,006,000, or 5.6%, for the nine months
ended September 30, 1996, compared to the same period of 1995. This was the
result of an increase of $345,306,000, or 9.8%, in the level of average earning
assets with a decrease of .16% in the overall tax-equivalent yield, combined
with an increase of $297,611,000, or 10.3%, in the average balance of
interest-bearing liabilities with an increase of .04% in the average rate paid.
The net tax-equivalent yield on earning assets decreased to 4.61% on an
annualized basis in the first nine months of 1996 from 4.82% in the same period
of 1995. The continued competition for core deposits and changes in the mix of
interest-bearing deposits to a higher percentage of certificates of deposit and
a lower percentage of NOW, savings, and money market deposits have resulted in
the average annualized rate paid on total interest-bearing deposits increasing
by .05% in the first nine months of 1996 compared to 1995. Reductions in the
prime lending rate and a highly competitive lending market have resulted in the
annualized yield on average earning assets decreasing by .16% in the first three
quarters of 1996 compared to the 1995 measurement period. In addition, an
increase in the percentage of earning assets funded by interest-bearing
liabilities from the prior year and a change in the mix of earning assets from
loans to securities and short-term investments both had adverse effects on the
net tax-equivalent yield on earning assets in 1996 as compared to 1995. The
percentage of average earning assets funded by interest-bearing liabilities
increased to 82.71% in the first nine months of 1996 from 82.37% in
16
the comparable period of 1995 while the percentage of average earning assets
comprised of loans declined to 75.95% for the nine months ended September 30,
1996, compared to 76.79% the prior year.
For the nine months ended September 30, 1996, interest income from
loans increased $11,973,000, or 6.3%, over the first three quarters of 1995.
This was due to an increase of $232,760,000, or 8.6%, in average loans
outstanding as the annualized tax-equivalent yield on average loans declined to
9.16% from 9.37% in 1995. The decrease in the yield on the loan portfolio for
1996 was primarily the result of a lower prevailing prime lending rate which
averaged 8.28% during the first nine months of 1996 compared to 8.86% in the
first three quarters of 1995.
Interest income from investment securities and securities available for
sale for the first three quarters of 1996 increased $8,569,000, or 28.7%, from
the corresponding period of 1995. This was due to an increase in the annualized
tax-equivalent yield on the aggregate portfolio to 6.15% from 5.94% a year
earlier, primarily due to higher rates earned on U.S. government securities, and
an increase in the aggregate average balance of investment securities and
securities available for sale of $156,055,000, or 22.1%, from the nine month
period of 1995.
Interest income from federal funds sold and other short-term
investments totaled $2,661,000 in the first nine months of 1996, a decrease of
$2,324,000 from the same period of 1995. This was the result of a decrease of
$43,509,000 in the average balances invested and a decline in the average yield
to 5.32% for the first three quarters of 1996 from 6.04% in 1995.
Interest expense on deposits increased $12,047,000, or 12.5% in the
nine months ended September 30, 1996, compared to 1995. The average balance of
total interest-bearing deposits
17
increased $311,453,000, or 10.9%, in the first three quarters of 1996 compared
to 1995. This was the result of an increase of $172,265,000, or 13.8%, in the
average balances of certificates of deposit less than $100,000 and an increase
of $126,448,000, or 9.2%, in the average balances of NOW, savings, money market
accounts, and other time deposits. Certificates of deposit of $100,000 or more
increased $12,740,000, or 5.8%, compared to the prior year. Certificates of
deposit less than $100,000 as a percentage of total interest-bearing deposits
increased to 45.0% during the nine months ended September 30, 1996, from 43.9%
in the first three quarters of 1995. The change in the mix of deposits coupled
with active competition for deposits in general combined to increase the average
annualized rate paid on total interest-bearing deposits to 4.59% for the first
nine months of 1996 from 4.54% in the same period of 1995.
The average annualized interest rate paid on borrowings during the
first three quarters of 1996 decreased to 5.13% from 5.88% in 1995, principally
due to a decrease in rates paid on Federal funds purchased and securities sold
under agreement to repurchase. The average balances of borrowed funds decreased
by $13,842,000 in the first nine months of 1996 from the corresponding period of
1995.
Provision and Reserve for Credit Losses
The provision for credit losses amounted to $6,000,000 for the nine
months ended September 30, 1996, compared to $4,558,000 in 1995. Net credit
losses amounted to $3,627,000, or .16% of average loans outstanding, on an
annualized basis, in the first nine months of 1996 compared to $2,729,000, or
.13% of average loans outstanding, on an annualized basis,
18
for the comparable period of 1995. The increase in net credit losses resulted
primarily from an increase in losses on consumer loans.
Nonperforming assets (foreclosed assets, nonaccrual loans, and
restructured loans) totaled $11,551,000, or .38% of loans and foreclosed assets,
at September 30, 1996, compared to $11,637,000, or .41% of loans and foreclosed
assets, at December 31, 1995. Loans 90 days or more past due that continue to
accrue interest totaled $6,388,000 at September 30, 1996, compared to $5,554,000
at December 31, 1995.
At September 30, 1996, the recorded investment in loans that are
considered impaired under FAS 114 was $2,769,000, all of which were on a
nonaccrual basis. Included in this amount was $2,566,000 of impaired loans for
which $550,000 of the reserve for credit losses was assigned. The average
recorded investment during the first nine months of 1996 in loans classified as
impaired at September 30, 1996, was approximately $2,857,000. For the nine
months ended September 30, 1996, UCB recognized interest income on these
impaired loans of $23,000 using the cash basis of accounting.
In addition to the nonperforming and problem assets described above,
which included loans considered impaired under FAS 114, UCB had loans to various
borrowers totaling approximately $9,151,000 at September 30, 1996, for which
management has serious concerns regarding the ability of the borrowers to
continue to comply with present loan repayment terms which could result in some
or all of these loans becoming classified as problem assets. These concerns
resulted from various credit considerations, including the financial position,
operating results and cash flow of the borrowers, and the current estimated fair
value of the underlying collateral.
19
The reserve for credit losses amounted to $45,837,000, or 1.49% of
loans outstanding, at September 30, 1996, compared to $43,464,000, or 1.54% of
loans outstanding, at December 31, 1995. In determining the level of the reserve
for credit losses, management takes into consideration loan volumes and
outstandings, loan loss experience, delinquency trends, risk ratings assigned to
nonconsumer loans, identified problem loans, the present and expected economic
conditions in general, and, in particular, how such conditions relate to UCB. In
management's opinion, UCB's reserve for credit losses was adequate to absorb
losses from the loan portfolio at September 30, 1996; however, adverse changes
in the economic conditions in UCB's market area could lead to a decline in the
overall quality of the loan portfolio and necessitate future additions to the
reserve for credit losses. Also, examiners from bank regulatory agencies
periodically review UCB's loan portfolio and may require the corporation to
charge off loans and/or increase the reserve for credit losses to reflect their
assessment of the collectibility of loans in the portfolio based on information
available to them at the time of their examination.
Noninterest Income and Expense
Total noninterest income increased $3,678,000, or 10.6%, in the first
nine months of 1996 over the same period of 1995. Service charges on deposit
accounts increased $989,000, or 5.6%, principally due to increased business
volume and price increases for certain deposit services. Other service charges,
commissions, and fees increased $2,987,000 to $19,084,000 during the first three
quarters of 1996 primarily due to increases in trust revenues, insurance
commissions, fees for the use of automated teller machines, fees from issuance
and usage of credit and debit cards, and mortgage banking fees. Trust revenues
increased $495,000, or 12.9%, primarily due
20
to growth in the number of managed trust accounts as well as increases in
pricing on certain trust services. Commissions from the general insurance agency
operations increased $550,000, or 20.4%, primarily as the result of the merger
with an insurance agency in Wilmington, North Carolina, in April 1995 and an
agency in Fayetteville, North Carolina, in August 1996. Fees collected for the
use of UCB's automated teller machines by depositors of other institutions
increased $122,000, or 13.4%, due to increased transaction volume. Bankcard
merchant discount and fees increased $434,000, or 21.4%, due to higher volumes
of credit cards issued and merchant transactions processed. The implementation
of a consumer debit card program in November 1995 produced $450,000 in merchant
discounts and $136,000 in fees from cardholders during the first nine months of
1996. Mortgage banking fees increased $585,000, or 19.7%, due to an increase in
loan originations.
Net gains on sales of mortgage loans into the secondary market amounted
to $552,000 in the nine-month period of 1996 compared to $472,000 a year ago.
Included in these amounts were gains recorded as a result of the April 1995
adoption of the provisions of Financial Accounting Standards No. 122 (FAS 122)
totaling $741,000 in 1996 and $328,000 in 1995.
Losses on the sale of securities totaled $134,000 in the nine months
ended September 30, 1996, compared to gains of $7,000 in the same period of
1995. The 1996 amount includes $198,000 in losses related to the disposition of
certain securities obtained in the previously mentioned merger with Triad Bank.
These securities, which consisted of structured notes and other investments with
derivative features, did not comply with UCB's investment policy and were
therefore reclassified from investment securities to available for sale
securities and written down to the then current market value at the merger date.
These securities were actually sold during
21
the second quarter of 1996. Losses on the disposition of fixed assets totaled
$422,000 during the first three quarters of 1996 compared to losses of $77,000
in the similar period of 1995. The 1996 loss included $568,000 in write-downs on
fixed assets rendered obsolete or redundant as a result of the two mergers
completed during the first quarter.
Total noninterest expenses increased $8,924,000, or 8.8%, in the nine
months ended September 30, 1996, compared to the same period of 1995. Total
personnel expense increased $5,601,000, or 9.6%, in the nine-month period of
1996 compared to 1995. Regular and part-time salaries increased by $2,429,000,
or 5.6%, in the first nine months of 1996 due to increases in base compensation
and an increase of 50, or 2.7%, in the average number of full-time equivalent
employees. The increase in the average number of full-time equivalent employees
was principally due to the purchase of twelve branch offices from another
financial institution in May 1995 and the acquisitions of the Wilmington and
Fayetteville insurance agencies. Other compensation expense increased
$1,175,000, or 100.8%, due in large measure to nonrecurring charges totaling
$860,000 incurred in connection with completing the two mergers during the first
quarter of 1996.
Occupancy expense increased $179,000, or 2.4%, during the first nine
months of 1996 as compared to 1995. Rental expense increased $127,000, or 5.3%,
and repairs and maintenance expense increased $105,000, or 6.8%. These cost
increases were principally due to the increase in branch locations and insurance
agency offices from the prior year.
Equipment expense decreased $266,000, or 4.9%, for the first half of
1996 as compared to the same period of 1995. Depreciation expense declined
$216,000, or 7.9%, primarily due to a merchandising display system utilized in
the branch offices becoming fully depreciated during the
22
second half of 1995 and the elimination of computer equipment previously
utilized by Seaboard Savings Bank. Equipment rental expense decreased $38,000,
or 11.2%, due to the purchase during 1996 of computer equipment which had
previously been leased.
Other operating expenses increased $3,410,000, or 11.5%, during the
first nine months of 1996 as compared to 1995. The most significant factor
affecting other operating expenses was a decline of $2,292,000, or 66.2%, in
deposit insurance premiums from the nine-month period of 1995. This was due to a
reduction in the assessment rate from $.23 to $.04 effective September 1, 1995,
and a subsequent reduction to virtually zero on nonthrift deposits effective
January 1, 1996. This reduction was partially offset by the special assessment
by the FDIC previously mentioned for the recapitalization of the SAIF. Marketing
and business development expenses increased $171,000, or 5.3%, primarily due to
increased advertising related to campaigns designed to increase installment loan
volume and deposit balances. Professional services expense for the first nine
months of 1996 increased $780,000, or 30.6%. The current year's professional
services included expenses applicable to UCB's acquisitions by merger of
Seaboard Savings Bank and Triad Bank and the Fayetteville insurance agency
totaling $262,000 and approximately $487,000 for system wide training for a new
central computer software applications system. The 1995 expenses were reduced by
legal fees refunded in a bankruptcy proceeding involving a former customer.
Outside data processing fees increased $2,072,000, or 45.2%, compared
to 1995 primarily due to increased software amortization expense ($1,481,000, or
153.2% increase), increased software maintenance costs ($196,000, or 36.4%), and
processing expenses related to the consumer debit card transaction program
referred to previously ($289,000 increase). The
23
increases in software amortization and software maintenance costs principally
relate to the replacement of mainframe applications software.
The amortization of capitalized mortgage loan servicing rights
increased $248,000, or 52.5%, from the prior year due primarily to the
capitalization of originated servicing rights beginning April 1, 1995, as
previously discussed. Telephone expense increased $564,000, or 25.8%, as a
result of increased use of the automated voice response customer service system
and the introduction in 1995 of a staffed bank-by-phone customer service
department, both of which are accessed by customers utilizing toll-free
telephone numbers. Amortization of deposit base premiums increased to $508,000,
or 57.3% as the result of the May 1995 branch purchases referred to previously.
Increases in other categories of noninterest expenses were generally the result
of increases in the costs related to purchased services.
Income Tax Provision
The provision for income tax decreased $80,000 in the nine months ended
September 30, 1996, compared to the corresponding period of 1995. The decrease
in the income tax provision was principally the net result of an increase of
$374,000 in tax-exempt income which offset an increase of $183,000 in
nondeductible merger related expenses.
The effective income tax rate on income before taxes is lower than the
combined statutory federal and state rates primarily because interest earned on
investments in debt instruments of states, counties, and municipalities is
exempt from federal income tax and may be exempt from state income tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.
24
Results of Operations - Three Months Ended September 30, 1996, Compared to 1995
Summary
Net income for the three months ended September 30, 1996, amounted to
$12,049,000, or $.50 per share, compared to $13,095,000, or $.55 per share, for
the third quarter of 1995. The 1996 operating results represent a decrease of
$1,046,000, or 8.0%, from the third quarter of 1995 (9.1% decrease in earnings
per share). The decrease in earnings was primarily the result of an increase in
the provision for credit losses as a result of continued growth in loans, the
previously mentioned special assessment by the FDIC, and costs associated with
the implementation of a new central computer software applications system.
Net Interest Income
Net interest income increased $3,006,000 (7.0%) in the third quarter of
1996 compared to 1995. This was the net result of an increase of $251,872,000
(6.8%) in the average level of earning assets, a decrease of .08% in the
annualized tax-equivalent yield on earning assets, combined with an increase of
$205,165,000 (6.7%) in the average balance of interest-bearing liabilities, and
a decrease of .09% in the average annualized rate paid on interest-bearing
liabilities. The annualized tax-equivalent net interest yield on average earning
assets was 4.63% in the third quarter of both 1996 and 1995.
Provision for Credit Losses
The provision for credit losses increased $823,000 (76.4%) to
$1,900,000 in the third quarter of 1996 compared to 1995. The increase was
principally due to growth in loans
25
outstanding compared to the prior year. Net credit losses for the three months
ended September 30, 1996, were $1,275,000, or .17% of average loans on an
annualized basis, compared to $1,300,000, or .18% of average loans, on an
annualized basis in 1995.
Noninterest Income and Expense
Noninterest income increased $859,000 (6.9%) during the third quarter
of 1996 compared to 1995. Service charges on deposit accounts increased $89,000
(1.5%) over the prior year due to increased business volume. Fees received on
credit cards and discounts from clearing merchant's credit card receipts
increased $74,000, or 8.9%, as the result of higher volumes of credit cards
issued and merchant transactions processed. The consumer debit card program
discussed previously added $236,000 in merchant discount and cardholder fees.
Gains on the origination of mortgage loans for sale in the secondary market
amounted to $210,000 in the third quarter of 1996, compared to gains of $263,000
realized in the same period of 1995. The gains in 1996 include $194,000 recorded
as a result of the adoption of the provisions of FAS 122 compared to $249,000 in
the third quarter of 1995.
Total noninterest expense increased $4,932,000 (14.7%) during the three
months ended September 30, 1996, compared to 1995. Deposit insurance premiums
amounted to $962,000 for the third quarter of 1996, $815,000 of which relate to
the special assessment previously discussed. This compares to a net credit of
$61,000 in 1995 resulting from the reduction in the assessment rate from $.23 to
$.04 per $100 of deposits that was adopted by the FDIC in September 1995
retroactive to June 1, 1995. Changes in other categories of expenses were mainly
the result of those factors covered in the nine-month discussion.
26
Financial Condition
The financial condition of the Corporation, with respect to liquidity
and dividends at September 30, 1996, has not changed significantly since
December 31, 1995. At September 30, 1996, stockholders' equity amounted to 7.82%
of total assets compared to 8.00% at December 31, 1995. At September 30, 1996,
UCB had a ratio of core capital to weighted risk assets of approximately 11.29%
and a ratio of total capital to weighted risk assets of approximately 12.54%,
computed using the Federal Reserve guidelines for risk-based capital
requirements, and a ratio of quarter-end core capital to average total assets
for the three months ended September 30, 1996, of 7.84%.
On an annualized basis, net income as a percentage of average
stockholders' equity amounted to 14.27% for the first nine months of 1996
compared to 15.74% for the same period of 1995. Cash dividends declared
represented 36.27% of net income in the first three quarters of 1996 compared to
30.67% for the nine months ended September 30, 1995.
At September 30, 1996, UCB owned debt securities that had not been
rated by a rating agency with a book value of $1,404,000. In addition, debt
securities with a book value of $152,000 were owned at September 30, 1996, that
had less than investment grade ratings. Included in the unrated securities were
bonds with a book value of $1,352,000 that are collateralized by U.S. government
securities. Substantially all of these investments were securities issued by
municipalities located within UCB's market area. It is management's opinion that
no more than a normal risk of loss exists on these securities.
27
Accounting and Regulatory Issues
In March 1995, the FASB issued Financial Accounting Standards No. 121
(FAS 121), "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for those to be disposed of.
This statement requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss should be
recognized if the sum of the undiscounted future cash flows is less than the
carrying amount of the asset. Those assets to be disposed of are to be reported
at the lower of the carrying amount or fair value less costs to sell. UCB
adopted FAS 121 on January 1, 1996, with no material effect on the consolidated
financial statements.
In October 1995, the FASB issued Financial Accounting Standards No. 123
(FAS 123), "Accounting for Stock-Based Compensation," which encourages companies
to account for stock compensation awards based on their fair value at the date
the awards are granted. The resulting compensation cost would be shown as an
expense on the income statement. Companies may choose to continue to measure
compensation for stock-based plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." Entities electing to continue the accounting prescribed in
APB 25 will be required to disclose in the notes to the financial statements
what net income and earnings per share would have been if the fair value based
method of accounting defined in FAS 123 had been applied. UCB adopted FAS 123 on
January 1, 1996, and elected to continue to measure compensation cost using APB
25. UCB will make any appropriate disclosures in the consolidated
28
financial statements for the year ending December 31, 1996, of net income and
earnings per share as if the fair value-based method of accounting defined in
FAS 123 had been applied. Management has not yet quantified these pro forma
disclosures.
In September 1996, the FASB issued Financial Accounting Standards No.
125 (FAS 125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes accounting standards for
determining when a liability should be considered extinguished through the
transfer of assets to a creditor or setting aside assets dedicated to eventually
settling a liability. The statement provides conditions for determining if a
transferor has surrendered control over transferred financial assets and
requirements for derecognizing a liability when it is extinguished. The
statement also requires the recognition of either a servicing asset or a
servicing liability when an entity undertakes an obligation to service financial
assets. Such servicing assets or liabilities shall be amortized in proportion to
and over the period of the estimated net servicing income or loss, as
appropriate. FAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, to
be only applied on a prospective basis. The application of FAS 125 is not
anticipated to have a material impact on UCB's financial condition or results of
operations.
The FASB also issues exposure drafts for proposed statements of financial
accounting standards. Such exposure drafts are subject to comment from the
public, to revisions by the FASB, and to final issuance by the FASB as
statements of financial accounting standards. Management considers the effect of
any proposed statements on the corporation's consolidated financial statements
and monitors the status of any changes to issued exposure drafts and to
proposed effective dates.
UCB and its subsidiaries are subject to regulation and examination by state
and federal bank regulatory agencies and are subject to the accounting and
disclosure requirements of the Securities and Exchange Commission. There are no
pending material regulatory recommendations or actions concerning UCB with which
management has not complied.
29
SIGNATURE
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 CAROLINA BANCSHARES CORPORATION
November 13, 1996 By /s/John F. Watson
--------------------------
John F. Watson
Controller
November 13, 1996 By /s/Ronald C. Monger
--------------------------
Ronald C. Monger
Executive Vice President &
Chief Financial Officer
30