UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ___________
Commission file number 0-21656
UNITED COMMUNITY BANKS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-180-7304
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(State of incorporation) (I.R.S. Employer
Identification No.)
P.O. Box 398, 59 Highway 515
Blairsville, Georgia 30512
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(Address of principal executive (Zip Code)
offices)
(706) 745-2151
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(Telephone number)
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 XX NO
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Common stock, par value $1 per share: 6,260,280 shares
outstanding as of April 30, 1996
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 3
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
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UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1996 1995
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ASSETS (In Thousands)
Cash and due from banks $ 19,390 20,758
Federal funds sold 15,405 11,230
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Cash and cash equivalents 34,795 31,988
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Securities held to maturity (estimated fair value of $80,509 and $79,650) 79,260 78,821
Securities available for sale 65,112 65,046
Mortgage loans held for sale 9,803 12,048
Loans 464,846 444,092
Less: Allowance for loan losses (6,884) (6,545)
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Loans, net 457,962 437,547
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Premises and equipment 15,941 15,997
Accrued interest receivable 6,985 6,462
Other assets 12,882 11,760
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$ 682,739 659,669
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LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 64,422 62,753
Interest-bearing demand 124,995 114,825
Savings 39,468 38,947
Time 382,488 374,131
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Total deposits 611,373 590,656
Accrued expenses and other liabilities 5,065 3,676
Federal Home Loan Bank advances 8,947 9,001
Long-term debt 11,026 11,309
Convertible subordinated debentures 1,000 1,000
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Total liabilities 637,411 615,642
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Stockholders' equity:
Preferred stock - -
Common stock, $1 par value; 10,000,000 shares authorized;
6,260,280 shares issued and outstanding 6,260 6,260
Capital surplus 10,119 14,520
Net unrealized gain/(loss) on investment securities available for sale, net of tax (122) 251
Retained earnings 29,070 22,996
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Total stockholders' equity 45,327 44,027
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$ 682,739 659,669
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See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
For the Three Months Ended
March 31,
1996 1995
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(In Thousands Except Per Share Data)
INTEREST INCOME:
Interest and fees on loans $ 12,058 8,467
Interest on deposits with other banks 22 3
Interest on federal funds sold 223 118
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 1,613 699
State, county and municipal 464 526
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Total interest income 14,379 9,813
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INTEREST EXPENSE:
Interest on deposits:
Demand 1,004 815
Savings 258 229
Time 5,862 3,518
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7,124 4,562
Long-term debt, FHLB advances, subordinated debentures and
federal funds purchased 362 485
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Total interest expense 7,487 5,047
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Net interest income 6,893 4,766
Provision for loan losses 279 206
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Net interest income after provision for loan losses 6,614 4,560
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NONINTEREST INCOME:
Service charges and fees 609 382
Securities gains, net 31 (11)
Mortgage loan and related fees 467 291
Other noninterest income 213 325
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Total noninterest income 1,319 987
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NONINTEREST EXPENSE:
Salaries and employee benefits 2,935 2,083
Occupancy 792 597
Deposit insurance premiums 11 221
Other noninterest expense 1,613 827
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Total noninterest expense 5,351 3,728
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Earnings before income taxes 2,582 1,819
Income taxes 909 563
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NET EARNINGS $ 1,673 1,256
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Net earnings per common share $ 0.27 0.22
Weighted average shares outstanding 6,260,280 5,589,365
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See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
1996 1995
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(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,673 1,256
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 517 428
Provision for loan losses 279 206
Gain on sale of investment securities (31) 11
Change in assets and liabilities:
Interest receivable (523) (236)
Interest payable (352) (35)
Other assets (766) (852)
Accrued expenses and other liabilities 1,355 (241)
Change in mortgage loans held for sale 2,246 3,057
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Net cash provided by operating activities 4,398 3,594
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities held to maturity 4,512 2,516
Purchases of securities held to maturity (6,436) (594)
Proceeds from sales of securities available for sale 2,507 2,321
Proceeds from maturities and calls of securities available for sale 12,740 500
Purchases of securities available for sale (14,420) (14,057)
Net change in interest-bearing deposits with other banks - -
Net increase in loans (20,815) (11,062)
Purchase of bank premises and equipment (176) (803)
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Net cash used in investing activities (22,088) (21,179)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand and savings deposits 12,476 (1,843)
Net change in time deposits 8,358 36,173
Net increase in federal funds purchased - (8,300)
Proceeds from long-term debt - 4
Repayments of long-term debt (283) (630)
Proceeds from FHLB advances - 7,346
Repayments of FHLB advances (54) (87)
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Net cash provided by financing activities 20,497 32,663
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Net increase in cash and cash equivalents 2,807 15,078
Cash and cash equivalents at beginning of period 31,988 14,570
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Cash and cash equivalents at end of period $ 34,795 29,648
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 7,839 5,081
Income taxes $ 605 605
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Chance in dividends payable $ - -
Transfers of loans to other real estate owned $ 263 5
Change in unrealized gain (loss) on securities available for sale $ (595) 124
-5-
See accompanying notes to consolidated financial statements.
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements have not
been audited. The results of operations are not necessarily
indicative of the results of operations for the full year or any
other interim periods.
The accounting principals followed by United Community Banks,
Inc. ("United") and its bank subsidiaries and the methods of
applying these principals conform with generally accepted
accounting principals and with general practices within the
banking industry. Certain principals which significantly affect
the determination of financial position, results of operation and
cash flows are summarized below and in United's annual report on
Form 10-K for the year ended December 31, 1995.
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
United and its wholly-owned subsidiaries, Union County Bank
(UCB), Citizens Bank (Citizens), Peoples Bank of Fannin County
(Peoples), Towns County Bank (Towns) and White County Bank
(White). All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain items in prior
period's financial statements have been reclassified to conform
with the current financial statement presentation.
The consolidated financial information furnished herein
reflects all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results of
operations and financial position for the periods covered herein
and are normal and recurring in nature. For further information,
refer to the consolidated financial statements and footnotes
included in United's annual report on Form 10-K for the year
ended December 31, 1995.
(2) Earnings Per Share
------------------
Earnings per share amounts are based on the weighted average
number of shares outstanding. Fully diluted earnings per share
are not presented because the assumed conversion of the
subordinated debentures do not result in material dilution.
(3) Recently Issued Accounting Standards
------------------------------------
During 1995, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123, Accounting for Stock-Based Compensation.
This new standard became effective January 1, 1996, and will
require United to disclose the fair value of employee stock
options granted in 1995 and subsequent years. Since United will
not be required to record the options at fair market value,
management does not expect this new standard to have a material
impact on the consolidated financial statements.
(4) Common Stock Offering
---------------------
On October 26, 1995, the board of directors declared a share
dividend of four common shares per one outstanding share (4:1)
payable to shareholders of record on November 6, 1995. All
references in the accompanying Financial Statements with regard
to the number of shares of common stock and the per share amounts
have been restated to reflect this stock dividend.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
OVERVIEW
Net Earnings for the quarter ended March 31, 1996 increased to
$1,673,000 or 33 percent over net earnings for the first quarter
of 1995. Net earnings per common share for the first quarter
also increased 19 percent from the same period in 1995 to $0.27.
Net interest income increased 45 percent for the quarter ended
March 31, 1996 over the same period of 1995 to 6.9 million. For
the first quarter, the provision for loan losses increased 35
percent to $279 thousand for the three month period. Noninterest
income and expense rose 34 percent and 44 percent respectively
for the first quarter of 1996.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1996
increased $2.1 million over the first quarter of 1995. This
increase was the result of a $4.5 million, or 47 percent,
increase in interest income and a $2.4 million, or 51 percent
increase in interest expense. The increase in interest income
was due to an increase in earning assets of $184 million coupled
with a 25 basis point increase in the average yield on earning
assets from 9.01 percent to 9.26 percent.
NET INTEREST MARGIN
The difference between the overall interest income on earning
assets and the interest expense paid on all funding sources,
including noninterest bearing deposits, is referred to as the net
interest margin. For the first three months of 1996 the net
interest margin was 4.44 percent compared to 4.38 percent for the
same period in 1995. This 6 basis point increase resulted from
the changes in rates and volumes of earning assets and the
corresponding funding sources noted previously. A 25 basis point
increase in the rate received on earning assets was partially
offset by a 29 basis point increase in the rates paid on
deposits. In addition, the net interest margin was positively
impacted by a 70 percent increase in noninterest bearing funds.
NONINTEREST INCOME AND EXPENSE
Noninterest income for the first three months of 1996 increased
$332 thousand, or 34 percent over the same period in 1995.
Service charges on deposits increased over $227 thousand, or 59
percent. The increase in service charges resulted by the
increase in number of accounts and balances outstanding in
transaction deposit accounts. Mortgage loan and related fees
increased $176 thousand, or 60% as a result in increased volume
due to a decline in interest rates for the first three months of
1996. Gains on investment securities sold during the first
quarter of 1996 were not material.
Noninterest expenses increased $1.6 million, or 44 percent,
during the first three months of 1996 over the same period in
1995. Salaries and employee benefits increased $852 thousand, or
41 percent, for the first quarter. The increase in salaries and
benefits were the result of the addition of personnel in
connection with the White County acquisition as well as the
branch banking facilities acquired by Citizens. Net occupancy
expense increased 33 percent due primarily to the increased
depreciation and occupancy expenses resulting for the White and
Citizens branch acquisitions. FDIC deposit insurance premiums
decreased $210 thousand or 95 percent as a result of the
recalculated FDIC assessment. Other noninterest expense,
including stationary and supplies and advertising, increased $786
thousand during the quarter.
INCOME TAXES
Income tax expense increased during the first quarter of 1996
compared to the same period in 1995 by $346 thousand or 61
percent. The effective tax rates for the three months ended
March 31, 1996 and 1995 were 35 percent and 31 percent,
respectively. The increases are due primarily to the combined
efforts of increased levels of pretax income, and a lower mix of
tax-exempt securities held in portfolio. Management expects the
trend of an increasing effective tax rate to continue.
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PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for loan losses for the three months ended March
31, 1996 increased $73 thousand to $279 thousand from the $207
thousand reported for the same period in 1995. Management
considers the size and character of the loan portfolio, changes
in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations
of loans to specific borrowers and existing and prospective
economic conditions when determining the adequacy of the
allowance for loan losses. The allowance for loan losses at
March 31, 1996 was $6.9 million compared to $6.5 million at
December 31, 1995. The ratio of the allowance for loan losses to
loans outstanding at March 31, 1996 was 1.45 percent compared to
1.43 percent at December 31, 1995. It is management s belief
that the allowance for loan losses is adequate to absorb probable
loss in the portfolio.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets, comprised of nonaccrual loans and other
real estate owned, totaled $1.45 million at March 31, 1996
compared to $2.2 million at December 31, 1995. Nonperforming
assets as a percentage of total loans and other real estate owned
was 0.31 percent at March 31, 1996 and 0.48 percent at December
31, 1995.
United regularly monitors selected accruing loans for which
general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. This
continuous monitoring of the loan portfolio and the related
identification of loans with a high degree of credit risk are
essential parts of United's credit management. Management
continues to emphasize maintaining a low level of nonperforming
assets and returning current nonperforming assets to an earning
status.
At March 31, 1996, management was unaware of any known trends,
events or uncertainties that will have or that are reasonably
likely to have a material effect on United's liquidity, capital
resources or operations.
FINANCIAL CONDITION
OVERVIEW
Total assets at March 31, 1996 were $683 million representing a
$23 million or a 3.5 percent increase from December 31, 1995 and
a $192 million or a 39 percent increase from March 31, 1995.
ASSETS AND FUNDING
At March 31, 1995, earning assets totaled $634 million, an
increase of $23 million from December 31, 1995. The mix of
earning assets remained relatively the same during the first
three months of 1996. Loans comprised 75 percent of total
earning assets, while the percentage of earning assets
represented by total investment securities was 23 percent at
March 31, 1996 and December 31, 1995.
Interest bearing deposits at March 31, 1996 increased $19 million
from December 31, 1995, while non-interest bearing deposits
increased over $1.6 million since December 31, 1995. At March
31, 1996, deposits accounted for 90 percent of United s funding,
unchanged from year end.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $4.4 million
for the three months ended March 31, 1996. For the first quarters
of 1996, net cash used by investing activities of $22 million
consisted of proceeds from maturities of investments securities
of $17.2 million, proceeds from sales of investment securities of
$2.5 million offset by cash outflows of $20.9 million in
investment security purchases, a $20.8 million increase in loans
outstanding and purchases of bank premises and equipment of $176
thousand. Net cash provided by financing activities consisted
largely of the $20.8 million increase in deposit and time
accounts and were offset slightly by payments of $337 thousand on
United s long-term debt and FHLB repayments.
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LIQUIDITY AND CAPITAL RESOURCES (Continued)
Total stockholders' equity at March 31, 1996, was 6.64 percent of
total assets compared to 6.67 percent at December 31, 1996. The
slight decrease since year end 1996 reflects the asset growth of
$23 million and the change of $595 thousand in the unrealized
loss in United s available for sale investment portfolio offset
by retained net earnings from the first quarter.
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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
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Item 2. Changes in Securities - None
---------------------
Item 3. Defaults Upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - None
---------------------------------------------------
Item 5. Other Information - None
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K - None
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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
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 COMMUNITY BANKS, INC.
By: /s/ Jimmy C. Tallent
Jimmy C. Tallent, President
(Principal Executive Officer)
Date: May 10, 1996
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: May 10, 1996
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