UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT INDEX -- PAGE 68
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number: 05583
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 Number)
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Par Value $4.00 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __________
The aggregate market value of Registrant's Common Stock held by
nonaffiliates of Registrant as of March 3, 1997, was $1,018,205,519.
On March 3, 1997, there were 24,383,978 outstanding shares of Registrant's
$4.00 par value common stock which is the only class of securities issued by
Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant and Southern National Corporation's joint proxy
statement/prospectus for the 1997 Annual Meeting of Shareholders (the "UCB Proxy
Statement") filed with the Securities and Exchange Commission pursuant to
Regulation 14A are incorporated in Part III of this Report.
1
CROSS REFERENCE INDEX
PAGE
PART I Item 1 Business
Description of Business.............................................................. 3-5
Statistical Information
Net Interest Income Analysis -- Tax-Equivalent Basis................................. 12
Net Interest Income and Volume/Rate Changes -- Tax-Equivalent Basis.................. 13
Investment Portfolio................................................................. 41
Securities -- Maturity/Yield Schedule................................................ 19
Types of Loans....................................................................... 22
Loan Maturities...................................................................... 22
Interest Sensitivity................................................................. 29
Loan Loss Experience................................................................. 25
Average Deposits..................................................................... 27
Maturity Distribution of Large Denomination Time Deposits............................ 29
Return on Equity and Assets.......................................................... 31
Short-Term Borrowings................................................................ 9
Item 1(a) Executive Officers of Registrant..................................................... 5
Item 2 Properties........................................................................... 6
Item 3 Legal Proceedings.................................................................... 6
Item 4 Submission of Matters to a Vote of Security Holders.................................. 6
PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters............. 7
Item 6 Selected Financial Data.............................................................. 9
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................ 9-33
Item 8 Financial Statements and Supplementary Data
Consolidated Balance Sheets at December 31, 1996 and 1995............................ 34
Consolidated Statements of Income for each of the years in the three-year period
ended December 31, 1996......................................................... 35
Consolidated Statements of Stockholders' Equity for each of the years in the
three-year period ended December 31, 1996....................................... 36
Consolidated Statements of Cash Flows for each of the years in the three-year period
ended December 31, 1996......................................................... 37
Notes to Consolidated Financial Statements........................................... 38-64
Independent Auditors' Report......................................................... 65
Quarterly Financial Summary for 1996 and 1995........................................ 60-61
Item 9 Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................. 7
PART III Item 10 Directors and Executive Officers of the Registrant................................... 8
Item 11 Executive Compensation............................................................... 8
Item 12 Security Ownership of Certain Beneficial Owners and Management....................... 8
Item 13 Certain Relationships and Related Transactions....................................... 8
PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 66
(a)(1) Financial Statements (See Item 8 for reference)
(2) Financial Statement Schedules (Not applicable)
(3) Exhibits
(b) Reports on Form 8-K
Exhibit Index............................................................................................... 68
2
DESCRIPTION OF BUSINESS
REGISTRANT
United Carolina Bancshares Corporation ("UCB") is a North Carolina bank
holding company which was incorporated in 1969. UCB's primary business is the
ownership of the capital stock and promotion of the general business and
development of its two wholly-owned bank subsidiaries, United Carolina Bank and
United Carolina Bank of South Carolina. UCB's operating revenue and net income
are derived primarily from its bank subsidiaries through the payment of
dividends and service fees. At December 31, 1996, UCB and its subsidiaries had
consolidated total assets of $4.49 billion and total shareholders' equity of
$350.47 million.
BANK SUBSIDIARIES
United Carolina Bank is a federally-insured, state-chartered, nonmember
commercial bank headquartered in Whiteville, North Carolina. The Bank was
chartered in 1981 in connection with the consolidation of two wholly-owned
subsidiary banks of UCB which had been in continuous operation in North Carolina
since 1926 and 1930, respectively. United Carolina Bank currently operates 139
banking offices in 81 communities which are located primarily in the eastern,
central, and southern piedmont sections of North Carolina. United Carolina Bank
provides commercial and consumer banking services, including deposit, lending,
trust, investment, and related financial services, to the general public, other
banks and financial institutions, and governmental units and agencies located in
its geographic markets. United Carolina Bank, as agent, also provides insurance
services and products, including bonds, and property and casualty insurance. The
Bank has three wholly-owned subsidiaries: UCB Investor Services, Inc., United
Premium Services, Inc., and Webster Street Corporation. UCB Investor Services,
Inc. is a registered broker-dealer which provides brokerage services to the
general public in both North and South Carolina. All securities orders are taken
by UCB Investor Services on an agency basis for commission, and all executions
and clearings of securities sales are handled by an unaffiliated brokerage firm
as correspondent for UCB Investor Services. United Premium Services, Inc.
provides insurance premium financing to the general public, and Webster Street
Corporation is a Delaware-chartered investment holding company which holds
investment grade securities. At December 31, 1996, United Carolina Bank had
total assets of $4.08 billion, loans of $2.88 billion, and total equity capital
of $302.5 million.
United Carolina Bank of South Carolina is a federally-insured,
state-chartered, nonmember commercial bank headquartered in Greer, South
Carolina, which operates 16 banking offices in 8 communities located in
Greenville, Spartanburg, and Horry counties, South Carolina. The Bank was
organized in 1986 in connection with UCB's acquisition by merger of the Bank of
Greer which had been in continuous operation since 1925. United Carolina Bank of
South Carolina provides commercial and consumer banking services, including
deposit, lending, trust, investment, and related financial services, to the
general public in its geographic markets. The Bank has one wholly-owned
subsidiary, Investor Services, Inc., which contracts with UCB Investor Services,
Inc. to provide network brokerage services through the Bank to the general
public in South Carolina. At December 31, 1996, United Carolina Bank of South
Carolina had total assets of $386.8 million, loans of $265.6 million, and equity
capital of $26.6 million.
NONBANK SUBSIDIARIES
UCB has one nonbank subsidiary, UCB Facilities Corporation, which provides
building contractor services to UCB and its subsidiaries. UCB Facilities
Corporation is not a "significant subsidiary" as defined in the accounting rules
of the Securities and Exchange Commission.
RECENT DEVELOPMENTS
On November 1, 1996, Southern National Corporation ("SNC") and UCB entered
into an Agreement and Plan of Reorganization (the "Agreement"), as amended and
restated, pursuant to which UCB will be merged with and into SNC, and SNC will
be the surviving corporation. The Boards of Directors of UCB and SNC separately
approved the Agreement and the merger transaction contemplated thereby on
November 1, 1996. Upon consummation of the merger, each share of the common
stock of UCB (excluding shares held by any dissenting shareholders) issued and
outstanding at the effective time of the merger (as described in the Agreement)
will be converted into and exchanged for 1.135 shares (subject to possible
upward adjustment) of the common stock of SNC. The merger is intended to
constitute a tax-free transaction under the Internal Revenue Code of 1986, as
amended, and be accounted for as a pooling-of-interests. Consummation of the
merger, which is expected to occur near the middle of 1997, is subject to
various conditions, including, without limitation, approval by the shareholders
of UCB and SNC and receipt of all regulatory approvals required in connection
with the transactions contemplated by the Agreement. As soon as practicable
following the merger, United Carolina Bank and United Carolina Bank of
3
South Carolina will be merged with and into the bank subsidiaries of SNC
operating in North Carolina and South Carolina, respectively, with the SNC bank
subsidiaries being the surviving bank subsidiaries in each case.
On August 30, 1996, Tomlinson Insurors, Inc., a general insurance agency
located in Fayetteville, North Carolina, merged into UCB's North Carolina bank
subsidiary, United Carolina Bank. UCB issued 37,123 shares of its common stock
to consummate the merger with Tomlinson.
Effective March 29, 1996, UCB consummated a merger with Triad Bank
headquartered in Greensboro, North Carolina. Triad Bank, which merged into
United Carolina Bank, had 13 branch offices with $207.4 million in total assets
and $188.1 million in total deposits on the effective date of the merger. Under
the terms of the merger agreement, UCB exchanged 1,595,125 shares of its common
stock for all of the outstanding shares of Triad common stock.
Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank, Inc., headquartered in Plymouth, North Carolina. Seaboard Savings, which
merged into United Carolina Bank, had three branch offices with $46.3 million in
total assets and $40.7 million in total deposits on the effective date of the
merger. Under the terms of the merger agreement, UCB exchanged 418,641 shares of
its common stock for all of the outstanding shares of Seaboard common stock.
EMPLOYEES
As of January 31, 1997, UCB and its subsidiaries employed a total of 1,232
full-time and 900 part-time employees.
SUPERVISION AND REGULATION
As a registered bank holding company, UCB is subject to supervision and
regulation by the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956 and by the North Carolina Commissioner of Banks
under the North Carolina Bank Holding Company Act of 1984. As a publicly traded
company, UCB is required to file periodic reports under the Securities Exchange
Act of 1934 and is therefore subject to supervision and regulation by the
Securities and Exchange Commission. UCB's bank subsidiaries operate under the
jurisdiction of the Federal Deposit Insurance Corporation and the banking
commissions of their respective states of incorporation, and are subject to the
laws administered by those authorities and the rules and regulations promulgated
thereunder.
Banking is a business which is pervasively affected by state and federal
regulation. While some deregulation has been realized in recent years, the
operational and financial burden of compliance with banking laws and regulations
continues to be a significant factor for UCB's bank subsidiaries and the banking
industry in general.
INTERSTATE BANKING
The North Carolina Reciprocal Interstate Banking Act permits any
out-of-state bank holding company in the United States, with the approval of the
North Carolina Commissioner of Banks and appropriate federal regulators, to
acquire a North Carolina bank holding company or a North Carolina bank to the
same extent that the home state of the acquiror permits a North Carolina bank
holding company to acquire a bank or bank holding company in that state. The
North Carolina Interstate Branching Act permits any out-of-state bank, with the
approval of the North Carolina Commissioner of Banks and appropriate federal
regulators, to establish a branch banking office within North Carolina either by
DE NOVO entry; the purchase of an existing branch office; the purchase of all or
substantially all of the assets of a North Carolina bank; or, merger or
consolidation.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
enacted by the U.S. Congress permits a bank holding company to acquire banks
located in any state beginning September 29, 1995; commencing June 1, 1997,
banks will be permitted to merge across state lines (thereby creating interstate
branches), except where the home state of a bank has enacted a law opting out of
interstate bank mergers; commencing June 1, 1997, banks will be permitted to
branch DE NOVO into any state in which the bank does not already have a branch
if the state has enacted a law opting in for the purpose of DE NOVO interstate
bank branching; and, commencing September 29, 1995, banks may receive deposits,
renew time deposits, close loans, service loans, and receive payments on loans
and other obligations as agent for any bank or thrift affiliate, whether the
affiliate is located in a different state or the same state as the agent bank.
GOVERNMENT MONETARY POLICY AND ECONOMIC CONTROLS
As a bank holding company whose primary asset is the ownership of the
capital stock of its subsidiary banks, UCB is directly affected by government
monetary and fiscal policy and by regulatory measures affecting the banking
industry and the economy in general. The Federal Reserve has broad powers to
expand and contract the supply of money and credit. Among
4
the instruments of monetary policy used by the Federal Reserve to implement its
objectives are: open market operations in U.S. government securities; changes in
the discount rate on bank borrowings; and, changes in the reserve requirements
on bank deposits. These means are used in varying combinations to influence
overall growth of bank loans, investments, and deposits, and also affect
interest rates charged on loans or paid for deposits. UCB's subsidiary banks are
not members of the Federal Reserve, but are subject to reserve requirements
imposed on nonmember banks by the Federal Reserve. The monetary policies of the
Federal Reserve have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
COMPETITION
The banking laws of North Carolina and South Carolina allow statewide
branching; therefore, commercial banking in the Carolinas is highly competitive.
UCB's bank subsidiaries compete in many of their markets with larger banking
organizations, which have broader geographic markets and higher lending limits
and which can make more effective use of media advertising, support services,
and electronic technology than UCB and its bank subsidiaries. The principal
methods of competition among banks involve the periodic adjustment of interest
rates paid on deposits and charged for loans, and service and convenience to the
banking public.
In addition, UCB's bank subsidiaries also compete in their respective
market areas with other financial institutions, including savings and loan
associations, credit unions, securities firms, insurance companies, leasing
companies, finance companies, and loan production offices of out-of-state
financial institutions.
It is anticipated that the North Carolina Reciprocal Interstate Banking Act
and Interstate Branching Act and the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 will lead to increased bank consolidation and
competition in the Carolinas, but the extent and timing of such increased
competition cannot be predicted.
EXECUTIVE OFFICERS OF REGISTRANT
The names and ages of UCB's executive officers (designated by asterisk) and
other significant employees of UCB, and their positions and offices held with
UCB and/or its bank subsidiaries, are listed below.
* E. Rhone Sasser, age 60, is Chairman of the Board (since April 1986) and
Chief Executive Officer (since 1983) of UCB. Mr. Sasser is Chairman of the
Executive Committee of UCB's Board and he has been a Director of UCB since 1981.
Mr. Sasser also serves as: Chairman of the Board, Chief Executive Officer, and
Chairman of the Executive Committee of United Carolina Bank; Chairman of the
Board and member of the Executive Committee of United Carolina Bank of South
Carolina; and Director of UCB Investor Services, Inc. He has been employed by
UCB and United Carolina Bank or one of its predecessors for 29 years.
* Kenneth L. Miller, Jr., age 50, is President of UCB and its subsidiary,
United Carolina Bank (since July 1995). Prior to his appointment as President,
Mr. Miller was Executive Vice President of UCB and United Carolina Bank, and was
principally responsible for the administration of banking services in the
Carolinas. He serves as a Director of United Carolina Bank of South Carolina and
UCB Investor Services, Inc. Mr. Miller has been employed by UCB and United
Carolina Bank for 15 years.
* Jeff D. Etheridge, Jr., age 48, is Executive Vice President of UCB (since
October 1986) and its subsidiary, United Carolina Bank (since July 1985). He has
been employed by UCB and United Carolina Bank or one of its predecessors for 18
years. Mr. Etheridge is principally responsible for credit administration.
* Ronald C. Monger, age 48, is Executive Vice President (since January
1992) and Chief Financial Officer (since January 1985) of UCB and its
subsidiary, United Carolina Bank. He serves as a Director of UCB Investor
Services, Inc. and Webster Street Corporation. Mr. Monger has been employed by
UCB and United Carolina Bank or one of its predecessors for 20 years.
* David L. Thomas, age 50, is Executive Vice President of UCB and its
subsidiary, United Carolina Bank (since October 1986). He serves as a Director
of UCB Investor Services, Inc. Mr. Thomas has been employed by UCB and United
Carolina Bank for 15 years. He is principally responsible for the administration
of trust and related nonbanking financial services.
5
* Thomas A. Nicholson, Jr., age 52, is Senior Vice President of UCB (since
1991) and its subsidiary, United Carolina Bank (since 1984). Mr. Nicholson has
been employed by United Carolina Bank for 12 years. He is principally
responsible for human resources administration and management of UCB's
facilities.
* Howard V. Hudson, Jr., age 51, is Secretary and General Counsel of UCB
and its subsidiary, United Carolina Bank (since 1987). He also serves as
Secretary of United Carolina Bank of South Carolina, and as a Director of UCB
Investor Services, Inc. Mr. Hudson has been employed by United Carolina Bank for
16 years.
Preston E. Davenport, Jr., age 48, is Executive Vice President of United
Carolina Bank (since January 1994). He previously served as a Senior Vice
President and Regional Banking Executive of United Carolina Bank for 6 years.
Mr. Davenport has been employed by United Carolina Bank for 17 years. He is
principally responsible for administration of banking services for United
Carolina Bank.
Each of the above-named officers holds his respective position and office
with UCB or, as appropriate, with its bank subsidiary until the earlier of his
annual re-election, the appointment of his successor, or his removal by the UCB
or subsidiary's Board of Directors.
PROPERTIES
UCB's principal executive offices are located at 127 West Webster Street,
Whiteville, North Carolina 28472 which also serve as the principal offices of
United Carolina Bank and UCB Investor Services, Inc. The Whiteville executive
office complex is owned by United Carolina Bank.
As of February 27, 1997, UCB and its subsidiaries occupied a total of 173
buildings, of which 155 were used partly or wholly as deposit-taking branches.
Of the occupied buildings, United Carolina Bank owns in fee 78 buildings, and
United Carolina Bank of South Carolina owns in fee 6 buildings. The remaining
buildings are leased by the bank subsidiaries from third parties. Financial
information with respect to the real estate lease commitments of Registrant's
bank subsidiaries is incorporated herein by reference from Note 11 on page 55
herein. All facilities owned or leased by UCB and its subsidiaries are
considered by management to be adequate for the proper conduct of business. In
addition to the improved properties referenced above, UCB's subsidiaries own or
hold options on various parcels of unimproved realty for future expansion of
business.
Information with respect to mortgages on the properties described above is
incorporated herein by reference from Note 7 on page 46 herein.
LEGAL PROCEEDINGS
Various legal proceedings arising in the ordinary course of business are
pending or threatened against UCB and its subsidiaries. In the opinion of
management and its counsel, none of such pending or threatened legal proceedings
will have a material adverse effect on the consolidated financial position,
results of operations and/or liquidity of UCB and its subsidiaries.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of UCB's security holders through
solicitation of proxies or otherwise during the fourth quarter of 1996.
6
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
UCB common stock is traded on the NASDAQ National Market System under the
trading symbol UCAR.
The accompanying table sets forth the high and low per share prices of UCB
common stock as reported by NASDAQ and cash dividends per share declared for the
periods indicated. The per share prices reported represent actual transactions
and do not include markups, markdowns, or commissions. All per share prices and
dividends have been adjusted to reflect retroactively a 3-for-2 stock split
effected in the form of a stock dividend declared January 17, 1996.
CASH
PRICE RANGE DIVIDENDS
QUARTER HIGH LOW DECLARED
1996 4th $ 40.38 $ 23.25 $.18
3rd 24.50 21.25 .18
2nd 24.75 21.75 .18
1st 26.25 21.67 .18
1995 4th 26.00 22.50 .167
3rd 24.50 20.17 .167
2nd 20.67 19.33 .167
1st 19.33 16.17 .146
The approximate number of record holders of UCB common stock was 10,200 as
of March 3, 1997, (UCB's record date for purposes of its 1997 Annual Meeting of
Shareholders).
UCB's ability to pay cash dividends is subject to statutory restrictions
applicable to North Carolina business corporations in general. In this regard,
UCB is prohibited by North Carolina law from making any distribution to
shareholders, including the payment of cash dividends, which would render UCB
insolvent or unable to meet its obligations as they become due in the ordinary
course of business. Cash dividends from UCB's bank subsidiaries are the primary
source of funds for the payment of UCB's cash dividends. United Carolina Bank is
subject to certain statutory restrictions applicable to North Carolina banks
requiring that cash dividends be paid only from undivided profits. United
Carolina Bank of South Carolina is prohibited by South Carolina law from paying
any dividend which would render the Bank insolvent or unable to meet its
obligations as they come due. In addition, the payment of any proposed cash
dividend by United Carolina Bank of South Carolina must be approved by the South
Carolina State Board of Financial Institutions. At December 31, 1996, UCB's
North Carolina bank subsidiary had retained earnings of $223.7 million legally
available under North Carolina law for dividend payments. At December 31, 1996,
UCB's South Carolina subsidiary bank had total stockholder's equity of $26.6
million. UCB's bank subsidiaries are also subject to capital guidelines
promulgated pursuant to federal banking law which, in the event of a failure to
meet minimum standards, could restrict dividend payment.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the two years preceding December 31, 1996, there has been no change
in UCB's independent auditor. Further, there has been no disagreement between
UCB and its independent auditor on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which
would cause the auditor to make reference to such a matter in its report on
UCB's financial statements.
7
DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following thirteen persons currently serve on UCB's Board of Directors:
E. Rhone Sasser
Chairman of the Board and Chief Executive Officer of UCB and
United Carolina Bank; Chairman of the Board of United
Carolina Bank of South Carolina
J.W. Adams
Retired bank executive
John V. Andrews
President of Allvac
Russell M. Carter
President of Atlantic Corporation of Wilmington, Inc.
W. Eugene Carter
Owner of W.E. Carter Realty
Alfred E. Cleveland
Attorney
James L. Cresimore
Chairman of Allegiance Brokerage Co. and Smithfield
Companies, Inc.
Thomas P. Dillon
Business consultant
C. Frank Griffin
Attorney
James C. High
President of the News Reporter Company, Inc.
Jack E. Shaw
Chief Executive Officer of Shaw Resources, Inc.
Harold B. Wells
President of Wells Oldsmobile, Inc.
Charles M. Winston
Chairman of the Board of Winston Hotels, Inc.
Information concerning the directors' ages, business experience, positions
and offices held with UCB, and term of office is incorporated herein by
reference from the section entitled "Additional Matters Relating to the UCB
Meeting -- Election of Directors" included in the UCB Proxy Statement.
Reference is made to pages 5 and 6 herein for information concerning UCB's
executive officers.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Information pertaining to compliance with Section 16(a) beneficial
ownership reporting of UCB common stock by its directors, officers, and other
persons subject to Section 16 of the Exchange Act during 1996 is incorporated
herein by reference from the section entitled "Additional Matters Relating to
the UCB Meeting -- Section 16(a) Beneficial Ownership Reporting Compliance"
included in the UCB Proxy Statement.
EXECUTIVE COMPENSATION
Information concerning (a) executive compensation and employment contracts
is incorporated herein by reference from the sections entitled "Additional
Matters Relating to the UCB Meeting -- Compensation of Executive Officers,"
" -- Long-Term Incentive Plan," and " -- Employment Contracts and Change in
Control Agreements" included in the UCB Proxy Statement; (b) directors'
compensation is incorporated herein by reference from the section entitled
"Additional Matters Relating to the UCB Meeting -- Election of Directors" in the
UCB Proxy Statement; and (c) compensation committee interlocks and insider
participation in compensation decisions is incorporated herein by reference from
the section entitled "Additional Matters Relating to the UCB
Meeting -- Compensation Committee Interlocks and Insider Participation" included
in the UCB Proxy Statement.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the beneficial ownership of UCB common stock by its
directors, director nominees, executive officers named in the Summary
Compensation Table of the UCB Proxy Statement, all directors and executive
officers as a group, and by persons known to UCB to be the beneficial owner of
more than 5% of its common stock is incorporated herein by reference from the
section entitled "Additional Matters Relating to the UCB Meeting -- Security
Ownership" included in the UCB Proxy Statement.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain business relationships and transactions
between UCB and certain of its directors and executive officers is incorporated
herein by reference from the section entitled "Additional Matters Relating to
the UCB Meeting -- Transactions with Officers and Directors" included in the UCB
Proxy Statement.
8
UNITED CAROLINA BANCSHARES CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
EARNINGS OVERVIEW
Net income for the year ended December 31, 1996, amounted to $45,204,000
compared to $46,047,000 in 1995 and $31,237,000 in 1994. Net income for 1996
decreased $843,000, or 1.8%, from 1995. Net income for 1995 represented an
increase of $14,810,000, or 47.4%, over 1994 net income which included the
cumulative effect of a required change in accounting for postemployment
benefits. Before the cumulative effect of this change in accounting method,
which amounted to $316,000, or $.02 per share, income for the year ended
December 31, 1994, amounted to $31,553,000. As discussed more fully below,
Seaboard Savings Bank and Triad Bank merged with UCB during 1996. These mergers
were accounted for as poolings-of-interests, and, accordingly, all financial
statements presented include the accounts of these two organizations.
TABLE 1.
SELECTED FINANCIAL DATA
Years Ended December 31,
1996 1995 1994 1993
(Dollars in thousands except per share amounts)
Summary of operations:
Interest income................................................. $ 328,939 $ 304,091 $ 247,240 $ 214,748
Interest expense................................................ 149,732 135,443 92,542 81,649
Net interest income........................................... 179,207 168,648 154,698 133,099
Provision for credit losses..................................... 8,850 7,292 3,549 5,271
Net interest income after provision for credit losses......... 170,357 161,356 151,149 127,828
Noninterest income.............................................. 52,115 47,061 44,878 42,730
Noninterest expenses, excluding restructuring charges........... 152,713 137,296 134,799 121,117
Restructuring charges........................................... -- -- 11,906 --
Income before income taxes...................................... 69,759 71,121 49,322 49,441
Income tax provision.......................................... 24,555 25,074 17,769 16,146
Income before cumulative effects of changes in accounting
methods....................................................... 45,204 46,047 31,553 33,295
Cumulative effects of changes in accounting methods........... -- -- (316) 1,030
Net income...................................................... $ 45,204 $ 46,047 $ 31,237 $ 34,325
Per share data:
Income before cumulative effects of changes in accounting
methods..................................................... $ 1.87 $ 1.91 $ 1.32 $ 1.45
Net income.................................................... $ 1.87 $ 1.91 $ 1.30 $ 1.49
Cash dividends declared....................................... $ .72 $ .647 $ .56 $ .507
Book value at end of year..................................... $ 14.41 $ 13.39 $ 11.77 $ 11.33
Balance sheet data at year-end:
Total assets.................................................... $ 4,487,843 $4,037,518 $3,553,724 $3,342,388
Total earning assets............................................ 4,164,183 3,739,710 3,289,822 3,063,002
Loans, net of unearned income................................... 3,149,697 2,826,987 2,568,012 2,359,901
Total deposits.................................................. 4,049,426 3,637,652 3,138,586 2,999,456
Stockholders' equity............................................ $ 350,469 $ 323,148 $ 282,598 $ 269,839
Average balance sheet data:
Total assets.................................................... $ 4,216,461 $3,833,698 $3,403,729 $3,052,415
Total earning assets............................................ 3,944,737 3,583,222 3,169,734 2,830,698
Loans, net of unearned income................................... 2,983,830 2,733,085 2,459,192 2,099,149
Total deposits.................................................. 3,799,831 3,441,657 3,025,209 2,714,442
Stockholders' equity............................................ $ 334,160 $ 301,027 $ 277,986 $ 249,015
Performance ratios:
Income before cumulative effects of changes in accounting
methods as a percent of:
Average stockholders' equity.................................. 13.53% 15.30% 11.35% 13.37%
Average total assets.......................................... 1.07% 1.20% .93% 1.09%
Years Ended
December 31,
1992
Summary of operations:
Interest income................................................. $ 218,485
Interest expense................................................ 94,388
Net interest income........................................... 124,097
Provision for credit losses..................................... 12,446
Net interest income after provision for credit losses......... 111,651
Noninterest income.............................................. 39,777
Noninterest expenses, excluding restructuring charges........... 109,808
Restructuring charges........................................... --
Income before income taxes...................................... 41,620
Income tax provision.......................................... 12,968
Income before cumulative effects of changes in accounting
methods....................................................... 28,652
Cumulative effects of changes in accounting methods........... --
Net income...................................................... $ 28,652
Per share data:
Income before cumulative effects of changes in accounting
methods..................................................... $ 1.27
Net income.................................................... $ 1.27
Cash dividends declared....................................... $ .44
Book value at end of year..................................... $ 10.39
Balance sheet data at year-end:
Total assets.................................................... $2,971,124
Total earning assets............................................ 2,728,672
Loans, net of unearned income................................... 1,959,425
Total deposits.................................................. 2,630,694
Stockholders' equity............................................ $ 234,897
Average balance sheet data:
Total assets.................................................... $2,876,498
Total earning assets............................................ 2,666,291
Loans, net of unearned income................................... 1,931,475
Total deposits.................................................. 2,565,490
Stockholders' equity............................................ $ 224,190
Performance ratios:
Income before cumulative effects of changes in accounting
methods as a percent of:
Average stockholders' equity.................................. 12.78%
Average total assets.......................................... 1.00%
9
On a per share basis, net income amounted to $1.87 in 1996, a decline of
2.1% from the $1.91 per share earned in 1995. Net income per share in 1995
represented a 46.9% increase over the $1.30 per share earned in 1994. In
addition to the cumulative effect of a change in accounting method referred to
above, the 1994 results of operations included nonrecurring restructuring
charges totaling $11,906,000, or $.32 per share after applicable income tax
benefits, related to a staff reduction and branch consolidation program.
Excluding the net effect of these charges, income per share before the
cumulative effect of a change in accounting method for 1995 increased 16.5% over
the 1994 results on a pro forma basis.
The decrease in 1996 earnings compared to 1995 was principally due to
charges and expenses incurred in connection with merger activities and costs
related to the conversion of the central data processing applications systems
which were of a nonrecurring nature. In 1996, growth in net interest income and
noninterest income was more than offset by increases in the provision for credit
losses and in noninterest expenses compared to the prior year. The increase in
net interest income resulted from growth in average earning assets of 10.1% over
1995 while the increase in noninterest income was due to increased fees and
commissions from nondeposit services. The increase in the provision for credit
losses was the result of increased losses on consumer loans and an increase in
the reserve for credit losses to reflect growth in the loan portfolio. The
growth in noninterest expenses was the result of general growth and expansion in
business together with nonrecurring expenses related to merger activity and
costs associated with the data processing applications systems conversion
referred to above.
In addition to the above-mentioned effect of the restructuring charges on
1994 operating results, the primary factors contributing to the increase in 1995
earnings compared to 1994 was an 8.6% increase in tax-equivalent net interest
income resulting from growth in average earning assets of 13.0% together with an
increase of only 1.9% in noninterest expenses, excluding restructuring charges.
In 1995, tax-equivalent net interest income increased $13,488,000 over 1994, and
noninterest income increased $2,183,000, or 4.9%. The provision for credit
losses increased $3,743,000 in 1995 from $3,549,000 in 1994 while noninterest
expenses, excluding restructuring charges, were $2,497,000, or 1.9%, over the
1994 expenses.
MERGERS AND ACQUISITIONS
On November 1, 1996, UCB entered into a definitive agreement to merge into
Southern National Corporation ("SNC"), headquartered in Winston-Salem, North
Carolina. Under the terms of the agreement, UCB shareholders will receive 1.135
shares (subject to possible upward adjustment) of SNC common stock for each
share of UCB common stock owned. Concurrent with the execution of the agreement,
UCB granted SNC an option to purchase up to 4,828,960 shares of UCB common
stock, subject to adjustment, at an exercise price of $30.50 per share. The
exercise of the option is permitted only upon the occurrence of certain events
which generally relate to an actual or proposed acquisition of UCB by a third
party or the acquisition by a third party of a significant interest in the
equity of UCB. The merger, which is subject to shareholder and regulatory
approval, is expected to be consummated near the middle of 1997.
On August 30, 1996, UCB issued 37,123 shares of common stock to consummate
the merger of Tomlinson Insurors, Inc., a general insurance agency in
Fayetteville, North Carolina, into UCB's North Carolina subsidiary bank.
Tomlinson Insurors had total assets of $361,000 at the date the merger was
consummated. 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.
Effective March 29, 1996, UCB consummated a merger with Triad Bank
headquartered in Greensboro, North Carolina. Triad Bank had 13 branch offices
with $207.4 million in total assets and $188.1 million in total deposits at the
merger date. Under the terms of the agreement, UCB exchanged 1,595,125 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.
10
Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank, Inc., headquartered in Plymouth, North Carolina. Seaboard Savings Bank had
three branch offices with $46.3 million in total assets and $40.7 million in
total deposits at the merger date. Under the 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.
On May 19, 1995, UCB's North Carolina subsidiary bank purchased 12 branch
offices from subsidiaries of Southern National Corporation. As part of the
transaction, UCB purchased $26.8 million in loans and assumed $178.7 million in
deposits. Two of the branch offices acquired in the transaction were
subsequently sold to third-party banks during the fourth quarter of 1995. The
two divested branches in the aggregate had $4.8 million in loans and $32.6
million in deposits when sold. A premium of $10.1 million was paid for the
assumed deposit base of the branches retained.
On April 28, 1995, UCB issued 66,320 shares of common stock to consummate
the merger of United Agencies, Inc., a general insurance agency located in
Wilmington, North Carolina, into UCB's North Carolina subsidiary bank. United
Agencies had total assets of $252,000 at the date the merger was consummated.
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.
Effective August 31, 1994, UCB consummated a merger with the Bank of
Iredell, headquartered in Statesville, North Carolina. Bank of Iredell had five
branch offices with $88.7 million in total assets and $80.4 million in total
deposits at the merger date. UCB exchanged 963,004 shares of common stock for
all of the outstanding shares of common stock of Bank of Iredell. The merger was
accounted for as a pooling-of-interests, and, accordingly, all financial data
has been restated to include the accounts of the Bank of Iredell for all periods
presented.
During 1994, two insurance agencies merged into UCB's North Carolina
subsidiary bank. On March 31, 1994, UCB issued 41,614 shares of common stock to
consummate the merger with Sanford Real Estate, Loan, & Insurance Company, a
general insurance agency with offices in three North Carolina communities.
Effective November 30, 1994, UCB issued 12,990 shares of common stock to
complete the merger with Executive Insurance Company, Inc., a general insurance
agency in Charlotte, North Carolina. Each of these transactions was accounted
for as a pooling-of-interests; however, due to the immateriality of the size of
the insurance agencies in relation to UCB's consolidated financial position and
operating results, prior period financial statements have not been restated.
NET INTEREST INCOME
Net interest income, on a fully taxable basis, amounted to $181,165,000 in
1996, $171,154,000 in 1995, and $157,666,000 in 1994. Tax-equivalent net
interest income as a percentage of average earning assets amounted to 4.59% in
1996, 4.78% in 1995, and 4.97% in 1994. The major components of tax-equivalent
net interest income for the three years ended December 31, 1996, are shown in
Table 2.
11
TABLE 2.
SELECTED AVERAGE BALANCES, TAX-EQUIVALENT NET INTEREST INCOME, AND AVERAGE RATES
EARNED OR PAID
Years Ended December 31,
1996 1995 1994
INTEREST AVERAGE Interest Average
INCOME RATE Income Rate
AVERAGE OR EARNED Average or Earned Average
BALANCE EXPENSE(1) OR PAID Balance Expense(1) or Paid Balance
(Dollars in thousands)
Assets:
Earning assets:
Loans, net of
unearned income(2)........... $ 2,983,830 $272,576 9.14% $2,733,085 $255,693 9.36% $2,459,192
Taxable securities............. 818,190 48,760 5.96 672,173 38,232 5.69 570,468
Tax-exempt securities.......... 53,971 4,820 8.93 64,761 5,918 9.14 88,253
Federal funds sold and other
short-term investments....... 88,746 4,741 5.34 113,203 6,754 5.97 51,821
Total earning assets....... 3,944,737 330,897 8.39 3,583,222 306,597 8.56 3,169,734
Other assets..................... 271,724 250,476 233,995
Total assets............... $ 4,216,461 $3,833,698 $3,403,729
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW deposits................. $ 388,253 5,057 1.30 $ 364,621 6,028 1.65 $ 357,465
Savings and money market
deposits................... 1,007,897 37,851 3.76 913,497 34,883 3.82 890,979
Certificates of deposit of
$100,000 or more........... 254,079 14,378 5.66 216,674 12,409 5.73 184,113
Other time deposits.......... 1,573,686 90,458 5.75 1,408,556 79,300 5.63 1,078,217
Total interest-bearing
deposits................. 3,223,915 147,744 4.58 2,903,348 132,620 4.57 2,510,774
Short-term borrowings............ 35,938 1,823 5.07 45,373 2,653 5.85 71,405
Long-term borrowings............. 2,811 165 5.87 2,885 170 5.89 2,427
Total interest-bearing
liabilities.............. 3,262,664 149,732 4.59 2,951,606 135,443 4.59 2,584,606
Demand deposits.................. 575,916 538,309 514,435
Other liabilities................ 43,721 42,756 26,702
Stockholders' equity............. 334,160 301,027 277,986
Total liabilities and
stockholders' equity..... $ 4,216,461 $3,833,698 $3,403,729
Net interest income as a percent
of total earning assets........ $ 3,944,737 $181,165 4.59% $3,583,222 $171,154 4.78% $3,169,734
Years Ended December 31,
1994
Interest Average
Income Rate
or Earned
Expense(1) or Paid
Assets:
Earning assets:
Loans, net of
unearned income(2)........... $212,807 8.65%
Taxable securities............. 27,318 4.79
Tax-exempt securities.......... 7,652 8.67
Federal funds sold and other
short-term investments....... 2,431 4.69
Total earning assets....... 250,208 7.89
Other assets.....................
Total assets...............
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Interest-bearing deposits:
NOW deposits................. 6,265 1.75
Savings and money market
deposits................... 25,827 2.90
Certificates of deposit of
$100,000 or more........... 8,621 4.68
Other time deposits.......... 48,717 4.52
Total interest-bearing
deposits................. 89,430 3.56
Short-term borrowings............ 2,948 4.13
Long-term borrowings............. 164 6.76
Total interest-bearing
liabilities.............. 92,542 3.58
Demand deposits..................
Other liabilities................
Stockholders' equity.............
Total liabilities and
stockholders' equity.....
Net interest income as a percent
of total earning assets........ $157,666 4.97%
(1) TAX-EQUIVALENT ADJUSTMENTS (BASED ON A 35% TAX RATE): 1996, $1,958,000;
1995, $2,506,000; AND 1994, $2,968,000.
(2) NONACCRUAL LOANS ARE INCLUDED IN LOANS, NET OF UNEARNED INCOME.
The increase in tax-equivalent net interest income realized during 1996 was
the result of a 10.1% increase in total average earning assets, as the net yield
on earning assets declined to 4.59% in 1996 from 4.78% in 1995. Lower short-term
interest rates together with a highly competitive lending market have resulted
in the annualized yield on average earning assets decreasing by .17% in 1996
from 1995. 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. 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 resulted in
the average annualized rate paid on total interest-bearing deposits increasing
by .01% during 1996 as compared to 1995. The percentage of average earning
assets funded by interest-bearing liabilities increased to 82.71% in 1996 from
82.37% in 1995 while the percentage of average earning assets comprised of loans
declined to 75.64% in 1996 compared to 76.27% the prior year.
12
The growth in tax-equivalent net interest income in 1995 compared to 1994
was primarily the result of a 13.0% increase in the volume of average earning
assets, as the net yield on earning assets declined to 4.78% in 1995 from 4.97%
in 1994. The decline in the net yield on earning assets was principally due to
increased competition for core deposits and changes in the mix of
interest-bearing deposits to a higher percentage of consumer certificates of
deposit and a lower percentage of NOW, savings, and money market deposits. This
resulted in the average rate paid on interest-bearing deposits increasing 1.01%
in 1995 compared to 1994 while the yield on average earning assets increased
.67% in the same period. The increase in the percentage of average earning
assets funded by interest-bearing liabilities from the prior year and a change
in the mix of average earning assets both had adverse effects on the net
tax-equivalent yield on earning assets in 1995 as compared to the previous year.
The percentage of average earning assets funded by interest-bearing liabilities
increased to 82.37% in 1995 from 81.54% in 1994. For 1995, the percentage of
average earning assets made up of loans declined to 76.27% from 77.58% in 1994
due in large part to the previously mentioned branch purchases during 1995.
These branches accounted for $95.6 million in average earning assets for the
year but only $23.1 million in average loans. Net interest income for 1995 was
also aided by the rising interest rate environment during 1994 and 1995.
Increases in the prime lending rate as well as higher yields on securities and
short-term investments were principally responsible for the increase in the
tax-equivalent yield on earning assets to 8.56% in 1995 from 7.89% in 1994. The
effects on tax-equivalent net interest income from volume and rate changes are
summarized in Table 3.
TABLE 3.
EFFECTS ON TAX-EQUIVALENT NET INTEREST INCOME FROM VOLUME AND RATE CHANGES
Years Ended December 31,
1996 1995
CHANGES IN CHANGES IN TOTAL Changes in Changes in
AVERAGE AVERAGE INCREASE Average Average
VOLUME(1) RATES(1) (DECREASE) Volume(1) Rates(1)
(In thousands)
Interest income (tax-equivalent):
Loans.............................................. $ 23,019 $ (6,136) $ 16,883 $ 24,814 $ 18,072
Taxable securities................................. 8,630 1,898 10,528 5,316 5,598
Tax-exempt securities.............................. (967) (131) (1,098) (2,128) 394
Federal funds sold and other short-term
investments..................................... (1,357) (656) (2,013) 3,516 807
Total interest income......................... 29,325 (5,025) 24,300 31,518 24,871
Interest expense:
NOW deposits....................................... 372 (1,343) (971) 123 (360)
Savings and money market deposits.................. 3,553 (585) 2,968 668 8,388
Certificates of deposit of $100,000 or more........ 2,119 (150) 1,969 1,675 2,113
Other time deposits................................ 9,462 1,696 11,158 16,963 13,620
Interest-bearing deposits.......................... 15,506 (382) 15,124 19,429 23,761
Short-term borrowings.............................. (507) (323) (830) (1,284) 989
Long-term borrowings............................... (4) (1) (5) 29 (23)
Total interest expense........................ 14,995 (706) 14,289 18,174 24,727
Net interest income........................... $ 14,330 $ (4,319) $ 10,011 $ 13,344 $ 144
Years Ended December 31,
1995
Total
Increase
(Decrease)
Interest income (tax-equivalent):
Loans.............................................. $ 42,886
Taxable securities................................. 10,914
Tax-exempt securities.............................. (1,734)
Federal funds sold and other short-term
investments..................................... 4,323
Total interest income......................... 56,389
Interest expense:
NOW deposits....................................... (237)
Savings and money market deposits.................. 9,056
Certificates of deposit of $100,000 or more........ 3,788
Other time deposits................................ 30,583
Interest-bearing deposits.......................... 43,190
Short-term borrowings.............................. (295)
Long-term borrowings............................... 6
Total interest expense........................ 42,901
Net interest income........................... $ 13,488
(1) CHANGES ATTRIBUTABLE TO BOTH VOLUME AND RATE ARE ALLOCATED ON A WEIGHTED
BASIS.
13
NONINTEREST INCOME
Noninterest income amounted to $52,115,000 in 1996, an increase of
$5,054,000, or 10.7%, over 1995. Noninterest income for 1995 totaled
$47,061,000, which represented an increase of $2,183,000, or 4.9%, over 1994.
The majority of growth in noninterest income in 1996 compared to 1995 and in
1995 compared to 1994 was due to increases in fees and commissions generated
from nondeposit services. Service charges on deposits increased $556,000, or
2.3%, in 1996 and $169,000, or .7%, in 1995. The increases in both 1996 and 1995
were primarily the result of higher transaction volumes.
Trust revenues increased $740,000, or 14.1%, in 1996 over the 1995
revenues, which were $80,000, or 1.5%, higher than 1994. The increase in
revenues during 1996 was due to growth in the number of managed trust accounts
as well as increases in pricing on certain trust services while the increase in
1995 income was primarily due to growth in the number of managed trust accounts.
Total trust assets under administration amounted to $2,097,173,000 at December
31, 1996, $1,684,346,000 at December 31, 1995, and $1,486,923,000 at December
31, 1994.
Mortgage banking fees (primarily fees received for servicing loans and fees
on loans originated and sold in the secondary market) increased $687,000, or
17.0%, in 1996 over 1995 and $486,000, or 13.6%, in 1995 over 1994. These
increases were primarily the result of moderate purchases of servicing rights
and increased volumes of in-house originations. The aggregate principal balance
of the portfolio of mortgage loans serviced for third parties amounted to
$783,454,000 at December 31, 1996, $696,535,000 at December 31, 1995, and
$641,455,000 at December 31, 1994. Gains of $756,000 were recognized during 1996
on the sale of mortgages originated or purchased for sale in the secondary
market. This compares to gains of $760,000 in 1995 and $329,000 in 1994.
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 $964,000 in 1996 and $592,000 in 1995.
Insurance commissions increased $887,000, or 16.9%, in 1996 over 1995 and
$1,479,000, or 39.2%, in 1995 compared to 1994, primarily as the result of the
previously discussed mergers with two general insurance agencies, one in April
1995 and one in August 1996. Fees received on credit cards and discounts from
clearing merchants' credit card receipts increased $560,000, or 20.1%, in 1996
over 1995 which increased $73,000, or 2.7%, over 1994 as the result of higher
volumes of credit cards issued and merchant transactions processed. Brokerage
and annuity commissions increased $195,000, or 9.1%, in 1996 over 1995, which
declined $211,000, or 8.9%, from 1994. The increase in 1996 principally resulted
from increased mutual funds sales volume over 1995 while the decrease in 1995
resulted from a decline in sales of annuities and discount brokerage products.
The implementation of a consumer debit card program in November 1995 produced
$886,000 in revenue during 1996 compared to $20,000 in 1995. In addition, in
September 1996 UCB instituted a convenience fee for the use of UCB's automated
teller machines by non-UCB customers. This generated $475,000 in revenue during
the year.
Losses on sales of securities totaled $119,000 during 1996 compared to
gains of $7,000 in 1995 and losses of $54,000 in 1994. 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 subsequently
sold during the second quarter of 1996. Losses on the disposition of fixed
assets totaled $450,000 during 1996 compared to losses of $394,000 in 1995 and
gains of $29,000 in 1994. The 1996 losses 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 of 1996. The primary sources of noninterest
income for the three years ended December 31, 1996, are summarized in Table 4.
14
TABLE 4.
SUMMARY OF NONINTEREST INCOME
Years Ended December 31,
1996 1995 1994
(In thousands)
Service charges on deposit accounts.......................................................... $24,599 $24,043 $23,874
Insurance commissions........................................................................ 6,139 5,252 3,773
Trust income................................................................................. 5,983 5,243 5,163
Mortgage banking fees........................................................................ 4,737 4,050 3,564
Bankcard fees and merchant discount.......................................................... 3,340 2,780 2,706
Brokerage and annuity commissions............................................................ 2,347 2,152 2,363
Other service charges and fees............................................................... 3,769 2,293 2,200
Other operating income....................................................................... 1,011 871 923
Total core noninterest income........................................................... 51,925 46,684 44,566
Net gains on mortgages originated for resale................................................. 756 760 329
Net gains on trading account securities...................................................... 3 4 8
Net losses on dispositions of securities available for sale.................................. (183) -- (32)
Net gains (losses) on dispositions of investment securities.................................. 64 7 (22)
Net gains (losses) on disposal of fixed assets............................................... (450) (394) 29
Total noninterest income................................................................ $52,115 $47,061 $44,878
NONINTEREST EXPENSES, EXCLUDING RESTRUCTURING CHARGES
Noninterest expenses, excluding restructuring charges, totaled $152,713,000
in 1996, $137,296,000 in 1995, and $134,799,000 in 1994. These amounts represent
increases of $15,417,000, or 11.2%, in 1996 over 1995 and $2,497,000, or 1.9%,
in 1995 over 1994.
Personnel expense, the largest component of noninterest expenses, increased
$6,671,000, or 8.5%, in 1996. In 1995, personnel expense totaled $78,390,000,
which was a decrease of $196,000, or .2%, from 1994. Salaries and wages for 1996
amounted to $62,579,000, an increase of $3,843,000, or 6.5%, from the 1995
expense. This was attributable to normal increases in base compensation and an
increase of 61 in the average number of full-time equivalent employees compared
to the prior year. The increase in the average number of full-time equivalent
employees was principally due to the purchase of 12 branch offices from
subsidiaries of Southern National Corporation in May 1995 and the acquisitions
of the Wilmington and Fayetteville insurance agencies in April 1995 and August
1996, respectively. Other compensation expense increased $1,038,000, or 23.2%,
due in large measure to nonrecurring charges totaling $896,000 incurred in
connection with completing the two mergers during the first quarter of 1996.
15
TABLE 5.
SUMMARY OF NONINTEREST EXPENSES, EXCLUDING RESTRUCTURING CHARGES
Years Ended December 31,
1996 1995 1994
(In thousands)
Salaries and wages....................................................................... $ 62,579 $ 58,736 $ 58,231
Other compensation....................................................................... 5,520 4,482 4,152
Employee benefits........................................................................ 16,962 15,172 16,203
Total personnel expense............................................................. 85,061 78,390 78,586
Occupancy expense........................................................................ 10,388 10,226 10,357
Equipment expense........................................................................ 7,137 7,184 6,824
Data processing fees and software expense................................................ 7,811 5,399 4,264
Outside services......................................................................... 6,531 3,938 3,671
Marketing and business development....................................................... 4,968 4,733 4,122
Postage and delivery..................................................................... 4,154 3,940 3,569
Printing, stationery, and supplies....................................................... 3,886 3,824 2,992
Telephone expense........................................................................ 3,859 3,010 2,322
Travel expense........................................................................... 2,084 1,997 2,106
FDIC deposit insurance premiums.......................................................... 1,227 3,864 6,556
Amortization of capitalized mortgage servicing rights.................................... 994 691 1,440
Noncredit losses......................................................................... 5,690 2,053 1,213
Amortization of goodwill and other intangible assets..................................... 2,547 2,187 950
Other operating expenses................................................................. 6,376 5,860 5,827
Total noninterest expenses, excluding restructuring charges......................... $152,713 $137,296 $134,799
Salaries and wages for 1995 amounted to $58,736,000, an increase of
$505,000, or .9%, over the 1994 expense of $58,231,000. This increase was
attributable to normal increases in base compensation which offset the net
reduction of 172, or 8.4%, in the average number of full-time equivalent
employees. The net reduction in the average number of full-time equivalent
employees was principally due to implementation of the previously mentioned
restructuring plan which included the consolidation or sale of 15 branch
offices, staffing level changes at all branches, and the centralization of
certain functions. These initiatives to reduce staff were partially offset by
the previously discussed mergers and branch office acquisitions which increased
the average number of full-time equivalent employees by 72 for 1995. Excluding
the effect of these mergers and acquisitions, on a pro forma basis, the average
number of full-time equivalent employees for 1995 decreased by 244, or 10.8%,
from 1994. Other compensation expense for 1995 increased $330,000, or 7.9%, from
1994 primarily due to increases in temporary employment fees as a result of
staffing level changes made in conjunction with the restructuring.
Expenses for employee benefits increased $1,790,000, or 11.8%, to
$16,962,000 in 1996 from $15,172,000 in 1995. The increase in benefits expense
for 1996 was primarily attributable to increased net costs of providing group
medical, life, and disability insurance coverages for employees, increased
expenses associated with the postretirement benefit plans, and an increase in
the cost of UCB's employee savings plan (401(k) plan). The net costs of
providing group medical, life, and disability coverages for employees increased
$824,000, or 20.9%, compared to 1995 as the result of the increased number of
employees covered and an increase in the volume of medical services purchased.
Postretirement and postemployment benefit expenses increased $666,000, or 57.8%,
primarily due to an increase in the number of covered employees on disability
retirement as well as increased imputed interest expense on projected benefit
obligations which continued to grow in concert with the increasing average
length of service and age of the workforce. The increase in contributions to the
employee savings plan amounted to $259,000, or 10.3%, and was primarily the
result of the increased number of personnel.
Expenses for employee benefits decreased $1,031,000, or 6.4%, to
$15,172,000 in 1995 from $16,203,000 in 1994. The decrease in the expense for
1995 was primarily attributable to the reduction in the average number of
employees as discussed above. For 1995, the net cost of providing medical, life,
and disability coverages for employees declined $442,000, or 10.1%; expenses
associated with the defined benefit pension plans decreased $469,000, or 13.5%;
and payroll taxes decreased $166,000, or 3.8%.
16
Occupancy expense increased $162,000, or 1.6%, during 1996 compared to a
decrease of $131,000, or 1.3%, during 1995. The cost increases recorded during
1996 were primarily the result of the increase in branch locations and insurance
agency offices from the prior year. The decreases in cost recorded during 1995
were primarily the result of the elimination of branch locations as part of
implementing the previously mentioned restructuring plan.
Equipment expense for 1996 was $7,137,000, a decrease of $47,000, or .7%,
from the 1995 expense of $7,184,000 which was an increase of $360,000, or 5.3%,
over the $6,824,000 incurred during 1994. Equipment depreciation expense for
1996 declined $375,000, or 10.0%, primarily due to a merchandising system
utilized in the branch offices becoming fully depreciated during 1995 and the
elimination of computer equipment previously utilized by a merged institution.
Furniture and equipment depreciation expense for 1995 increased $216,000, or
6.1%, and expenses for the purchase of noncapitalized furniture increased
$135,000, or 41.3%, during 1995 primarily due to purchases related to the
previously mentioned acquisition of branch offices from another financial
institution and the installation of digital imaging equipment in certain support
areas.
Deposit insurance premiums paid to the Federal Deposit Insurance
Corporation (FDIC) decreased $2,637,000, or 68.2%, to $1,227,000 from $3,864,000
in 1995 which was a $2,692,000, or 41.1%, decrease from the 1994 expense of
$6,556,000. The decrease in the 1996 expense was due to the reduction in the
assessment rate to virtually zero on nonthrift deposits effective January 1,
1996. The reduction in the assessment rate was partially offset by a special
assessment levied by the FDIC in the third quarter of 1996 for the
recapitalization of the Savings Association Insurance Fund (SAIF) which amounted
to $767,000. The decrease in the 1995 expense resulted from the reduction in the
assessment rate from $.23 to $.04 per $100 of Bank Insurance Fund (BIF) insured
deposits that was adopted by the FDIC effective June 1, 1995.
Data processing fees and software expense increased $2,412,000, or 44.7%,
to $7,811,000, in 1996 from $5,399,000 in 1995. The 1995 expense increased
$1,135,000, or 26.6%, over the 1994 expense of $4,264,000. The increases
incurred during 1996 and 1995 were primarily due to higher software expense
resulting from the replacement of mainframe applications software and the
purchase of software designed to automate certain labor-intensive tasks as part
of the previously discussed restructuring plan. In addition, costs totaling
$452,000 relating to the previously mentioned consumer debit card transaction
program were included in the 1996 expense compared to $25,000 in 1995.
Marketing and business development expense increased $235,000, or 5.0%,
during 1996 and $611,000, or 14.8%, during 1995. The increased expense in 1996
and 1995 resulted from additional advertising related to campaigns designed to
increase commercial and consumer loan volume and deposit balances.
Outside services expense totaled $6,531,000 in 1996, $3,938,000 in 1995,
and $3,671,000 in 1994. The 1996 expense included costs applicable to UCB's
mergers with Seaboard Savings Bank, Inc., Triad Bank, Tomlinson Insurors, Inc.,
and the proposed merger with Southern National Corporation totaling $1,613,000
in the aggregate. In addition, expenses totaling approximately $1,087,000 were
incurred for systemwide training for the new central computer software
application and for professional services utilized in connection with the
conversion to the new system. The 1995 increase of $267,000 (7.3%) over 1994 was
primarily due to merger expenses related to the insurance agency acquired during
the year and professional fees incurred in connection with the mergers with
Seaboard Savings Bank, Inc. and Triad Bank. In addition, professional services
expense in 1995 included approximately $114,000 in costs associated with the
replacement of UCB's main applications software systems.
Amortization of capitalized mortgage loan servicing rights increased
$303,000, or 43.8%, during 1996 to $994,000 from $691,000 in 1995, which was a
decrease of $749,000, or 52.0%, from the 1994 expense. The increase in the
amortization during 1996 was the result of purchases of servicing rights over
the past 12 months and the capitalization of originated servicing rights
beginning April 1, 1995, as previously referred to. The decrease in the 1995
expense from the prior year was due to large packages of servicing rights
purchased in prior years becoming fully amortized at the end of 1994. At
December 31, 1996, unamortized originated mortgage servicing rights totaling
$1,338,000, net of a $30,000 valuation reserve, were carried as an intangible
asset on UCB's books compared to originated servicing rights totaling $448,000,
net of a $104,000 valuation at December 31, 1995. Amortization of originated
mortgage servicing rights totaled $148,000 in 1996 and $94,000 during 1995 and
is included in the capitalized mortgage loan servicing rights amortization
discussed above for comparison purposes. At December 31, 1996, unamortized
purchased mortgage servicing rights totaling $3,479,000 were carried as an other
asset on UCB's books compared to $3,235,000 at December 31, 1995, and $2,555,000
at December 31, 1994. The aggregate unpaid principal balances of the mortgage
loans on which servicing rights were purchased or capitalized amounted to
$746,821,000 at December 31, 1996, $501,936,000 at December 31, 1995, and
$408,187,000 at December 31, 1994.
17
Noncredit losses increased $3,637,000 to $5,690,000 in 1996 from $2,053,000
in 1995 which increased $840,000 from the 1994 total of $1,213,000. The increase
in the 1996 expense was primarily in connection with the September conversion to
a new central computer software applications system. The increase in the 1995
expense was primarily due to charges incurred to adjust the carrying value of
foreclosed property to the expected net realizable value and losses arising from
matters other than the collection of loans. In 1996, the net losses and other
expenses related to foreclosed assets amounted to $518,000 compared to $536,000
in 1995 and $329,000 in 1994.
Amortization of goodwill and other intangible assets increased to
$2,547,000 in 1996 from $2,187,000 in 1995 and $950,000 in 1994. The increases
in the 1996 and 1995 expenses resulted primarily from increases of $368,000 and
$1,365,000, respectively, in the amortization of deposit base premiums,
principally due to the purchase of 12 branches from subsidiaries of Southern
National Corporation during 1995. The increase in 1995 amortization of deposit
base premiums was partially offset by a decrease of $145,000 in goodwill
amortization due to the sale of certain branch operations during the year.
The increases in the remaining categories of noninterest expenses incurred
during 1996 and 1995 were primarily related to the continued expansion of
operations. Table 5 represents a breakdown of noninterest expenses, other than
restructuring charges, for the three years ended December 31, 1996.
RESTRUCTURING CHARGES
In October 1994, the Boards of Directors of UCB and its bank subsidiaries,
United Carolina Bank and United Carolina Bank of South Carolina, approved a plan
to restructure the operations of the bank subsidiaries to streamline procedures
in a manner to enhance the quality of financial services provided to customers
and increase operating efficiency. The major elements of the plan included
staffing level changes at all branches to better match customer arrival
patterns, a reduction in full-time staff positions as a result of the
centralization of certain functions and automation of many labor-intensive
tasks, and the consolidation or divestiture of certain branch offices.
Restructuring charges to implement the reorganization plan totaled
$11,906,000 in 1994. The plan included the elimination of approximately 235 jobs
that were classified as regular full-time positions through either a special
early retirement program or severance arrangements. Positions throughout the
company were eliminated, with the largest percentage of jobs being eliminated or
positions reduced in the branch operations. All employees 50 years of age or
older with a combined age plus years of service totaling 70 or more were offered
special early retirement benefits. The costs associated with increases in the
actuarially determined pension and postretirement medical expenses totaled
$9,427,000. Severance arrangements were awarded to employees whose positions
were scheduled to be eliminated and who either were not eligible for the special
early retirement benefits or who chose not to accept the special early
retirement offer. Expense related to the severance arrangements totaled
$346,000.
The restructuring plan included discontinuing the operation of 15 branch
offices through the consolidation of operations into other UCB offices or the
divestiture of the branch locations. The net cost of eliminating these offices,
including transferring the deposits, was $801,000. Included in this cost was
$1,149,000 of unamortized goodwill related to branch offices in communities
where UCB did not have nearby locations, and, therefore, it was likely that a
substantial amount of the customer accounts associated with these branch offices
would move to other financial institutions.
Professional fees associated with the restructuring plan totaled
$1,280,000. These included fees for the services of a consulting firm retained
to assist management in analyzing operations and developing the reorganization
plan and fees relating to the design and implementation of the special
retirement benefits and severance awards.
As of December 31, 1996, substantially all of the expected transactions
related to the restructuring plan had occurred. Accordingly, the accruals
initially set up to cover the expected costs of implementation have been
substantially eliminated.
INCOME TAXES
UCB's effective income tax rate was 35.20% in 1996, 35.26% in 1995, and
36.03% in 1994. The decrease in the effective tax rate during 1996 and 1995
compared to 1994 was the result of the increase in the percentage of income
derived from securities which are exempt from state taxes and an increase in
tax-exempt loans.
The effective income tax rate on income before taxes was 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.
18
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD
Effective January 1, 1994, UCB adopted Financial Accounting Standards No.
112 (FAS 112), "Employers' Accounting for Postemployment Benefits," which
requires the accrual of expenses for the estimated cost of benefits provided for
employees after employment but before retirement. The adoption of FAS 112
required immediate recognition of the actuarially determined liability for
postemployment benefits which amounted to $529,000 at December 31, 1993. The
mandatory adoption of FAS 112 resulted in a charge against net income of
$316,000, net of deferred income taxes, which was recorded as a cumulative
effect of a change in accounting method during the first quarter of 1994.
SECURITIES
Average aggregate securities available for sale and investment securities
totaled $872,161,000 in 1996, an increase of $135,227,000, or 18.3%, from
$736,934,000 in 1995 which was $78,213,000, or 11.9%, greater than the average
for 1994. The growth in average securities during 1996 and 1995 was primarily
the result of a higher level of growth in deposits relative to the growth in
loans. A portion of the relative disparity in growth rates between deposits and
loans during 1995 was due to the previously discussed deposit balances related
to the branch operations purchased in May 1995.
During 1996 and 1995, UCB was able to replace maturing securities with
higher yielding securities, thereby raising the average tax-equivalent yield on
securities available for sale and investment securities to 6.14% in 1996 from
5.99% in 1995 and 5.31% in 1994.
TABLE 6.
SECURITIES PORTFOLIOS MATURITY SCHEDULE
Scheduled Maturities at December 31, 1996
After 5 Years Total
After 1 Year Through 10
1 Year or Less Through 5 Years Years After 10 Years
Amount Yield Amount Yield Amount Yield Amount Yield Amount
(Dollars in thousands)
Securities available for sale at
approximate market value:
United States government securities..... $370,598 6.01 % $415,102 5.77 % $ -- -- % $ -- -- % $785,700
Obligations of United States government
agencies and corporations............. 42,597 5.35 9,833 5.91 284 5.88 -- -- 52,714
Obligations of states and political
subdivisions(1)....................... -- -- 1,002 5.35 -- -- 100 8.09 1,102
Mortgage-backed securities(2)........... 319 6.78 24,567 5.75 424 6.74 -- -- 25,310
Federal Home Loan Bank stock............ -- -- -- -- -- -- 12,200 7.25 12,200
Other securities........................ -- -- 35 5.86 -- -- 371 -- 406
Total securities available for sale... $413,514 5.93 % $450,539 5.76 % $ 708 6.39 % $12,671 7.04 % $877,432
Investment securities at amortized cost:
Obligations of states and political
subdivisions(3)....................... $ 5,255 8.62 % $ 24,382 8.75 % $13,766 8.15 % $2,687 9.84 % $ 46,090
Total investment securities........... $ 5,255 8.62 % $ 24,382 8.75 % $13,766 8.15 % $2,687 9.84 % $ 46,090
Scheduled Maturities at December 31, 1996
Total
Average
Maturity
Yield (Years)
Securities available for sale at
approximate market value:
United States government securities..... 5.88 % 1.17
Obligations of United States government
agencies and corporations............. 5.46 .58
Obligations of states and political
subdivisions(1)....................... 5.60 5.67
Mortgage-backed securities(2)........... 5.78 2.83
Federal Home Loan Bank stock............ 7.25 --
Other securities........................ -- --
Total securities available for sale... 5.87 % 1.17
Investment securities at amortized cost:
Obligations of states and political
subdivisions(3)....................... 8.62 % 4.17
Total investment securities........... 8.62 % 4.17
(1) IMPACT ON YIELDS FROM TAX-EQUIVALENT ADJUSTMENTS (BASED ON A 35% TAX RATE):
AFTER ONE YEAR THROUGH FIVE YEARS, 1.87%; AFTER TEN YEARS, 2.83%; TOTAL,
1.96%.
(2) AT DECEMBER 31, 1996, UCB OWNED COLLATERALIZED MORTGAGE OBLIGATIONS ISSUED
BY THE FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) WHICH HAD AN AMORTIZED
COST OF $8,918,000 AND A MARKET VALUE OF $8,770,000. UCB ALSO OWNED
COLLATERALIZED MORTGAGE OBLIGATIONS ISSUED BY THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA). THESE SECURITIES HAD AN AMORTIZED COST OF $11,454,000
AND A MARKET VALUE OF $11,189,000. UCB ALSO OWNED COLLATERALIZED MORTGAGE
OBLIGATIONS ISSUED BY A PRIVATE ISSUER AND GUARANTEED BY THE GOVERNMENT
NATIONAL MORTGAGE ASSOCIATION (GNMA). THESE SECURITIES HAD AN AMORTIZED COST
OF $319,000 AND A MARKET VALUE OF $336,000. OTHER MORTGAGE-BACKED
PASS-THROUGH SECURITIES ISSUED BY VARIOUS UNITED STATES GOVERNMENT AGENCIES
AND CORPORATIONS HAVING A BOOK VALUE OF $5,155,000 AND A MARKET VALUE OF
$5,015,000 WERE ALSO HELD AT DECEMBER 31, 1996. THE MORTGAGE-BACKED
SECURITIES ARE SHOWN AT THEIR WEIGHTED AVERAGE EXPECTED LIFE OBTAINED FROM
AN OUTSIDE EVALUATION OF THE AVERAGE REMAINING LIFE OF EACH SECURITY BASED
ON HISTORIC PREPAYMENT SPEEDS OF THE UNDERLYING MORTGAGES AT DECEMBER 31,
1996.
(3) IMPACT ON YIELDS FROM TAX-EQUIVALENT ADJUSTMENTS (BASED ON A 35% TAX RATE):
ONE YEAR OR LESS, 3.02%; AFTER ONE YEAR THROUGH FIVE YEARS, 3.06%; AFTER
FIVE YEARS THROUGH TEN YEARS, 2.85%; AFTER TEN YEARS, 3.44%; TOTAL, 3.02%.
19
At December 31, 1996, net unrealized gains of $164,000 were included in the
carrying value of securities classified by UCB as available for sale compared to
net unrealized gains of $5,033,000 at December 31, 1995, and net unrealized
losses of $7,453,000 at December 31, 1994. The net unrealized gains or losses in
the available for sale portfolio at each year-end were considered by management
to be of a temporary nature and caused by fluctuations in market interest rates,
not by concerns about the ability of the issuers to meet their obligations. Net
unrealized losses, net of applicable deferred income tax benefits, of $70,000
were reported as a separate component of stockholders' equity at December 31,
1996, compared to net unrealized gains, net of deferred income taxes, of
$2,923,000 at December 31, 1995, and net unrealized losses, net of deferred
income tax benefits, of $5,560,000 as of December 31, 1994.
UCB has invested in mortgage-backed securities with approximate market
values totaling $25,310,000 with expected average lives of two to five years.
These investments were classified as available for sale at December 31, 1996,
and were comprised of $20,295,000 in collateralized mortgage obligations issued
by agencies of the United States government or secured by mortgage-backed
securities guaranteed by United States government agencies and corporations. Of
these, $11,189,000 were issued by the Federal National Mortgage Association,
$8,770,000 were issued by the Federal Home Loan Mortgage Corporation, and
$336,000 were issued by various private issuers and secured by mortgage-backed
securities guaranteed by the Government National Mortgage Association. Other
mortgage-backed pass-through securities issued by various United States
government agencies and corporations totaling $5,015,000 were also held at
December 31, 1996. None of these securities were classified as high-risk
pursuant to existing bank regulatory guidelines.
The market value of the investment securities portfolio exceeded the book
value by $1,244,000 at December 31, 1996, and $1,916,000 at December 31, 1995.
The book value of the investment securities portfolio exceeded the market value
by $8,004,000 at December 31, 1994. The net unrealized losses in the investment
securities portfolio at December 31, 1994, were considered by management to be
of a temporary nature and caused by fluctuations in market interest rates, not
by concerns about the ability of the issuers to meet their obligations.
UCB's investments in state and municipal obligations totaled $47,192,000 at
December 31, 1996. Securities issued by the State of North Carolina and
municipalities located within North Carolina amounted to $24,922,000 and
represented 52.8% of total investments in state and municipal obligations; and
securities issued by the State of South Carolina and municipalities located
within South Carolina amounted to $12,298,000, or 26.1%, of the total.
At December 31, 1996, $20,520,000, or 43.5%, of UCB's municipal bond
holdings was composed of securities rated AAA by Moody's Investor Services (or
an equivalent rating by a comparable rating service); $3,858,000, or 8.2%, was
rated AA; $20,318,000, or 43.1%, was rated A; and $1,345,000, or 2.8%, was rated
BAA. UCB also owned municipal bonds with a book value of $152,000 at December
31, 1996, that had ratings of less than investment grade and securities with a
book value of $997,000 at December 31, 1996, which had not been rated by a
rating agency. Included in the unrated securities were bonds with a book value
of $952,000 that are collateralized by United States government securities. The
majority of the balance of unrated municipal bonds as well as the securities
that had ratings of less than investment grade were bonds issued by
municipalities located within UCB's market areas. UCB monitors the operation of
these municipalities, and it is management's opinion that no more than a normal
risk of loss exists on these securities.
20
During the period of November 15, 1995, through December 31, 1995, the
Financial Accounting Standards Board permitted a one-time opportunity for
institutions to reassess the appropriateness of the designations of all
securities and to redesignate securities if appropriate. On December 29, 1995,
UCB reclassified securities with a market value of $204,340,000 to available for
sale securities from held to maturity securities. This included $200,243,000 in
United States government securities, $2,473,000 in United States government
agencies securities, $1,102,000 in state and municipal securities, and $522,000
in other securities. The United States government and government agencies
securities were reclassified since their average remaining maturity was
approximately two years and more closely matched the maturity of existing
available for sale United States government and government agencies securities
held by UCB. The state and municipal obligations were transferred to allow UCB
the flexibility to exercise existing put options should market conditions
dictate such actions.
Other than the mortgage-backed securities previously discussed, UCB owned
no investment securities at December 31, 1996, which were considered derivative
investments by regulatory authorities.
A summary of UCB's securities portfolios as of the end of 1996 is presented
in Table 6 and in Note 2 of the notes to the consolidated financial statements.
LOANS
Average loans amounted to $2,983,830,000 in 1996, an increase of
$250,745,000, or 9.2%, over 1995. This compares to a growth in average loans
during 1995 of $273,893,000, or 11.1%, over 1994. At December 31, 1996, loans,
net of unearned income, totaled $3,149,697,000, which was $322,710,000, or
11.4%, higher than loans outstanding at December 31, 1995. At year-end 1995,
loans totaled $2,826,987,000, which was an increase of $258,969,000, or 10.1%,
over December 31, 1994. The loan growth experienced during the past two years
has resulted from increases in consumer loans other than those secured by real
estate, loans secured by 1-4 family residences, and loans for business and
investment purposes, much of which is secured by real estate.
A large portion of UCB's loan portfolio has historically been composed of
loans secured by various types of real estate. At December 31, 1996,
$1,886,449,000, or 59.9%, of UCB's loans was secured by liens on real property.
Included in this total are $773,093,000, or 24.6% of total loans, in credit
secured by liens on 1-4 family residential properties; and $1,113,356,000, or
35.3% of total loans, in credit secured by liens on other types of real estate.
A summary of the loan portfolio as of December 31, 1996, and at the end of
the preceding four years is shown in Table 7.
21
TABLE 7.
SUMMARY OF LOANS PORTFOLIO
December 31,
1996 1995 1994 1993
% OF % of % of % of
TOTAL Total Total Total
AMOUNT LOANS Amount Loans Amount Loans Amount Loans
(Dollars in thousands)
Breakdown of loans at
year-end:
Loans secured by real
estate:
Construction and land
acquisition and
development............. $ 297,921 9.46 % $ 226,326 8.00 % $ 187,852 7.31 % $ 168,004 7.12 %
Secured by nonfarm,
nonresidential
properties.............. 655,330 20.81 620,367 21.94 572,023 22.26 550,313 23.31
Secured by farmland....... 82,097 2.61 90,658 3.21 84,298 3.28 69,823 2.96
Secured by multifamily
residences.............. 78,008 2.47 65,097 2.30 66,135 2.58 53,836 2.27
Total loans secured by real
estate, excluding loans
secured by 1-4 family
residences(1)............. 1,113,356 35.35 1,002,448 35.45 910,308 35.43 841,976 35.66
Revolving credit secured
by 1-4 family
residences.............. 146,205 4.64 140,032 4.95 124,599 4.85 120,245 5.09
Other loans secured by 1-4
family residences....... 626,888 19.91 613,846 21.71 581,729 22.64 534,152 22.62
Total loans secured by 1-4
family residences......... 773,093 24.55 753,878 26.66 706,328 27.49 654,397 27.71
Total loans secured by
real estate............... 1,886,449 59.90 1,756,326 62.11 1,616,636 62.92 1,496,373 63.37
Commercial, financial, and
agricultural loans,
excluding loans secured by
real estate............... 340,242 10.81 296,778 10.49 262,063 10.20 271,993 11.52
Loans to individuals for
household, family, and
other personal
expenditures, excluding
loans secured by real
estate.................... 824,569 26.18 691,193 24.44 622,414 24.23 524,803 22.23
All other loans............. 98,006 3.11 83,507 2.96 68,097 2.65 68,016 2.88
Total loans................. 3,149,266 100.00 % 2,827,804 100.00 % 2,569,210 100.00 % 2,361,185 100.00 %
Net (unearned income)
deferred origination
costs................... 431 (817) (1,192) (1,353)
Total loans, net of unearned
income.................... $3,149,697 $2,826,987 $2,568,018 $2,359,832
December 31,
1992
% of
Total
Amount Loans
Breakdown of loans at
year-end:
Loans secured by real
estate:
Construction and land
acquisition and
development............. $ 170,023 8.67 %
Secured by nonfarm,
nonresidential
properties.............. 481,493 24.56
Secured by farmland....... 62,959 3.21
Secured by multifamily
residences.............. 33,983 1.74
Total loans secured by real
estate, excluding loans
secured by 1-4 family
residences(1)............. 748,458 38.18
Revolving credit secured
by 1-4 family
residences.............. 116,838 5.96
Other loans secured by 1-4
family residences....... 385,926 19.68
Total loans secured by 1-4
family residences......... 502,764 25.64
Total loans secured by
real estate............... 1,251,222 63.82
Commercial, financial, and
agricultural loans,
excluding loans secured by
real estate............... 242,671 12.38
Loans to individuals for
household, family, and
other personal
expenditures, excluding
loans secured by real
estate.................... 413,422 21.09
All other loans............. 53,177 2.71
Total loans................. 1,960,492 100.00 %
Net (unearned income)
deferred origination
costs................... (1,067)
Total loans, net of unearned
income.................... $1,959,425
Maturity schedule of selected categories of loans at December 31, 1996(2):
Construction Secured by
and Land Nonfarm, Secured by Commercial,
Acquisition and Nonresidential Secured by Multifamily Financial, and
Development Properties Farmland Residences Agricultural
(In thousands)
Due on demand............................ $ 49,571 $ 14,962 $ 210 $ 690 $ 16,720
Due in 1 year or less.................... 115,989 91,974 7,880 8,223 130,222
Due after 1 year through 5 years:
Floating interest rates................ 33,040 132,020 15,148 18,524 61,860
Fixed interest rates................... 47,898 271,029 16,449 26,005 97,655
Due after 5 years:
Floating interest rates................ 17,188 82,141 39,948 16,333 11,132
Fixed interest rates................... 34,235 63,204 2,462 8,233 22,653
Total................................ $ 297,921 $655,330 $ 82,097 $78,008 $340,242
Total
Due on demand............................ $ 82,153
Due in 1 year or less.................... 354,288
Due after 1 year through 5 years:
Floating interest rates................ 260,592
Fixed interest rates................... 459,036
Due after 5 years:
Floating interest rates................ 166,742
Fixed interest rates................... 130,787
Total................................ $ 1,453,598
(1) INCLUDES $8,864,000 AT DECEMBER 31, 1996; $16,084,000 AT DECEMBER 31, 1995;
$4,821,000 AT DECEMBER 31, 1994; $25,876,000 AT DECEMBER 31, 1993; AND
$21,118,000 AT DECEMBER 31, 1992, IN PERMANENT MORTGAGES ORIGINATED FOR SALE
IN THE SECONDARY MARKET WHICH ARE STATED AT THE LOWER OF AGGREGATE COST OR
MARKET VALUE.
(2) UCB'S EXPERIENCE HAS BEEN THAT CERTAIN LOANS WILL BE RENEWED, RESCHEDULED,
OR REPAID PRIOR TO THE STATED MATURITY. ADDITIONALLY, A SIGNIFICANT NUMBER
OF LOANS WILL BE RESCHEDULED AT MATURITY PURSUANT TO THE ORIGINAL TERMS OF
THE CREDIT AGREEMENTS, PROVIDED THAT APPLICABLE TERMS AND CONDITIONS HAVE
BEEN MET. ACCORDINGLY, THE ABOVE MATURITY SCHEDULE SHOULD NOT BE REGARDED AS
A FORECAST OF FUTURE CASH COLLECTIONS.
22
NONPERFORMING AND PROBLEM ASSETS
Nonperforming assets, which consists of foreclosed assets, nonaccrual
loans, and restructured loans, totaled $9,966,000 in the aggregate at December
31, 1996, $11,637,000 at December 31, 1995, and $21,311,000 at December 31,
1994. Nonperforming assets as a percentage of loans and foreclosed assets at
year-end amounted to .32% in 1996, .41% in 1995, and .83% in 1994. Total problem
assets (nonperforming assets and loans 90 days or more past due) amounted to
$19,656,000 at December 31, 1996, $17,191,000 at December 31, 1995, and
$26,150,000 at December 31, 1994. Total problem assets as a percentage of loans
and foreclosed assets at year-end was .62% in 1996, .61% in 1995, and 1.02% in
1994. A summary of nonperforming and problem assets outstanding at the end of
each of the past five years is shown in Table 8.
At December 31, 1996, $7,909,000, or 79.4%, of UCB's nonperforming assets
was comprised of loans secured by real estate or foreclosed assets (valued at
the lower of cost or estimated fair value, net of estimated disposal costs)
taken in full or partial settlement of loans secured by real estate. A breakdown
of nonperforming assets by major classification is shown in Table 9.
Accrual of interest income on loans is suspended when, in the judgment of
UCB's management, doubts exist as to the collectibility of additional interest
within a reasonable period of time. Net unrecorded and foregone interest income
related to loans that were classified as nonaccrual at each of the past three
year-ends amounted to $141,000 in 1996, $472,000 in 1995, and $702,000 in 1994.
TABLE 8.
SUMMARY OF NONPERFORMING AND PROBLEM ASSETS
December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
Foreclosed assets...................................................... $ 7,493 $ 5,234 $ 5,996 $ 7,960 $12,786
Nonaccrual loans....................................................... 2,473 6,403 6,492 13,962 20,139
Total foreclosed assets and nonaccrual loans......................... 9,966 11,637 12,488 21,922 32,925
Restructured loans..................................................... -- -- 8,823 9,033 9,535
Total nonperforming assets........................................... 9,966 11,637 21,311 30,955 42,460
Loans 90 days or more past due, excluding nonaccrual loans............. 9,690 5,554 4,839 7,374 6,203
Total problem assets................................................. $19,656 $17,191 $26,150 $38,329 $48,663
As a percent of loans and foreclosed assets at year-end:
Foreclosed assets and nonaccrual loans............................... .32% .41% .49% .93% 1.67%
Total nonperforming assets........................................... .32 .41 .83 1.31 2.15
Total problem assets................................................. .62% .61% 1.02% 1.62% 2.47%
Effective January 1, 1995, UCB adopted Financial Accounting Standards No.
114 (FAS 114), "Accounting by Creditors for Impairment of a Loan" and Financial
Accounting Standards No. 118 (FAS 118), "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures." These statements amended FAS
5, "Accounting for Contingencies," to clarify that a creditor should evaluate
the collectibility of both contractual interest and principal of a receivable
when assessing the need for a loss accrual; and FAS 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructurings," to require a creditor to
account for a troubled debt restructuring involving a modification of terms at
fair value as of the date of the restructuring. At December 31, 1996, the
recorded investment in loans that are considered impaired under FAS 114 was
$2,473,000, all of which was on a nonaccrual basis. Included in this amount was
$1,395,000 of impaired loans for which $350,000 of the reserve for credit losses
was assigned. The average recorded investment during 1996 in loans classified as
impaired at December 31, 1996, was approximately $2,616,000. During 1996, UCB
recognized interest income on these impaired loans of $48,000 using the cash
basis of accounting. Prior to January 1, 1995, UCB measured loan impairment in a
manner generally consistent with the methods prescribed in FAS 114 and, as a
result, no additional reserves for credit losses were required as a result of
adoption of this accounting standard.
23
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 $18,144,000 at December 31, 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.
TABLE 9.
BREAKDOWN OF NONPERFORMING ASSETS
December 31, 1996
Total
Nonperforming Assets
Foreclosed Nonaccrual Percent
Assets(1) Loans Amount of Total
(Dollars in thousands)
Secured by real estate:
Construction and land acquisition and development................................ $3,286 $ -- $3,286 32.97%
Secured by nonfarm, nonresidential properties:
Manufacturing, warehouse, and other industrial properties..................... -- 1,032 1,032 10.36
Shopping centers, restaurants, and other retail properties.................... 448 1,127 1,575 15.80
Hotel/motel................................................................... 629 -- 629 6.31
All other..................................................................... 492 -- 492 4.94
Total secured by nonfarm, nonresidential properties......................... 1,569 2,159 3,728 37.41
Secured by farmland.............................................................. -- 36 36 .36
Total secured by real estate other than 1-4 family residences.................... 4,855 2,195 7,050 70.74
Secured by 1-4 family residences.............................................. 777 82 859 8.62
Total secured by real estate..................................................... 5,632 2,277 7,909 79.36
All other........................................................................ 1,861 196 2,057 20.64
Total....................................................................... $7,493 $2,473 $9,966 100.00%
(1) REPRESENTS CARRYING VALUE OF COLLATERAL TAKEN IN SETTLEMENT, OR PARTIAL
SETTLEMENT, OF LOANS.
PROVISION AND RESERVE FOR CREDIT LOSSES
The provision for credit losses amounted to $8,850,000 in 1996, an increase
of $1,558,000 over the $7,292,000 provision in 1995, which was an increase of
$3,743,000 over the $3,549,000 recorded in 1994. Credit losses, net of
recoveries, totaled $6,176,000 in 1996 compared to $5,169,000 in 1995 and
$4,126,000 in 1994. Net credit losses amounted to .21% of average loans
outstanding during 1996, .19% in 1995, and .17% in 1994.
The reserve for credit losses amounted to $46,138,000 at December 31, 1996,
an increase of $2,674,000, or 6.2%, from the level at December 31, 1995. The
reserve for credit losses totaled $43,464,000 at December 31, 1995, which was an
increase of $2,123,000, or 5.1%, from the year-end 1994 reserve. The reserve for
credit losses was equal to 1.46% of loans outstanding at December 31, 1996,
compared to 1.54% at year-end 1995 and 1.62% at year-end 1994.
24
TABLE 10.
SUMMARY OF CREDIT LOSS EXPERIENCE AND RESERVE FOR CREDIT LOSSES
Years Ended December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
Reserve for credit losses at beginning of year......................... $ 43,464 $41,341 $41,918 $38,287 $32,873
Loans charged off:
Loans secured by real estate:
Construction and land acquisition and development................. (153) (803) (710) (1,667) (2,309)
Other loans secured by real estate, excluding 1-4 family
residences...................................................... (306) (846) (1,043) (1,977) (1,785)
Secured by 1-4 family residences.................................. (509) (363) (684) (698) (1,096)
Commercial, financial, and agricultural loans........................ (375) (738) (896) (920) (1,492)
Loans to individuals for household, family, and other personal
expenditures, excluding loans secured by real estate.............. (8,246) (5,587) (2,931) (2,141) (2,756)
Total loans charged off......................................... (9,589) (8,337) (6,264) (7,403) (9,438)
Recoveries of losses previously charged off:
Loans secured by real estate:
Construction and land acquisition and development................. 645 392 169 606 202
Other loans secured by real estate, excluding 1-4 family
residences...................................................... 805 506 304 1,431 771
Secured by 1-4 family residences.................................. 270 193 367 227 299
Commercial, financial, and agricultural loans........................ 433 1,125 510 320 551
Loans to individuals for household, family, and other personal
expenditures, excluding loans secured by real estate.............. 1,260 952 788 551 583
Total recoveries................................................ 3,413 3,168 2,138 3,135 2,406
Net loans charged off........................................... (6,176) (5,169) (4,126) (4,268) (7,032)
Reserve of purchased financial institution............................. -- -- -- 2,628 --
Provision for credit losses............................................ 8,850 7,292 3,549 5,271 12,446
Reserve for credit losses at end of year............................... $ 46,138 $43,464 $41,341 $41,918 $38,287
Allocation of reserve for credit losses at end of year(1):
Loans secured by real estate........................................... $ 22,747 $23,010 $22,722 $23,572 $24,929
Commercial, financial, and agricultural loans.......................... 4,522 4,546 4,471 4,475 3,927
Loans to individuals for household, family, and other personal
expenditures, excluding loans secured by real estate................. 12,563 9,643 7,214 6,127 3,537
All other loans........................................................ 1,049 1,080 680 753 738
Unassigned portion of reserve for credit losses........................ 5,257 5,185 6,254 6,991 5,156
Total reserve for credit losses at end of year.................. $ 46,138 $43,464 $41,341 $41,918 $38,287
Reserve for credit losses as a percent of loans outstanding at
year-end............................................................. 1.46% 1.54% 1.62% 1.79% 1.95%
Reserve for credit losses as a multiple of nonaccrual loans at
year-end............................................................. 18.66X 6.79x 6.37x 3.00x 1.91x
Reserve for credit losses as a multiple of nonaccrual and restructured
loans at year-end.................................................... 18.66X 6.79x 2.70x 1.82x 1.29x
Reserve for credit losses as a multiple of loans charged off,
net of recoveries.................................................... 7.47X 8.41x 10.02x 9.82x 5.44x
Provision for credit losses as a percent of loans charged off,
net of recoveries.................................................... 143.30% 141.07% 86.02% 123.50% 176.99%
Recoveries of losses previously charged off as a percent of
loans charged off.................................................... 35.59% 38.00% 34.13% 42.35% 25.49%
Loans charged off, net of recoveries, as a percent of average
loans outstanding.................................................... .21% .19% .17% .20% .36%
(1) THE RESERVE FOR CREDIT LOSSES HAS BEEN ALLOCATED ONLY ON AN APPROXIMATE
BASIS. THE ENTIRE AMOUNT OF THE RESERVE IS AVAILABLE TO ABSORB LOSSES
OCCURRING IN ANY CATEGORY. THE ALLOCATION IS NOT NECESSARILY INDICATIVE OF
FUTURE LOSSES.
25
The increase in the provision for credit losses in 1996 and 1995 compared
to the prior year was the result of increases in net loans charged off and
increases in the reserve for credit losses. The reserve for credit losses was
increased during both 1996 and 1995 due to growth in loans and increases in the
loss experience in several categories of consumer loans. In determining the
level of the reserve for credit losses, management evaluates the risk inherent
in the loan portfolio and changes in the nature and volumes of loans
outstanding. This evaluation takes into consideration loan loss experience, 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 the market areas served.
All loans are subject to various reviews and re-evaluations of
creditworthiness throughout the term of the agreement. These reviews focus on
such areas as the borrower's financial position, operating results and cash
flow, payment history, delinquency status, documentation, and, if applicable,
evaluation of collateral value. Loans to borrowers who currently, or in
management's judgment, may in the near future, experience difficulty in
complying with the terms of their credit are closely monitored by central credit
administration. Loans are charged off when management concludes it is probable
there will be a partial or total failure to collect the amount due. Also,
examiners from bank regulatory agencies periodically review UCB's loan portfolio
and may require UCB 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. In management's opinion, UCB's reserve for credit losses was
adequate to absorb losses from the loan portfolio at December 31, 1996; however,
adverse changes in the economic conditions in UCB's market areas could lead to a
decline in the overall quality of the loan portfolio which could result in
future increases in credit loss provisions necessitated by higher levels of net
loan charge-offs and additions to the reserve for credit losses. A summary of
the reserve for credit losses for each of the past five years is provided in
Table 10.
DEPOSITS
UCB relies on deposits generated through its branch office network to
provide the majority of funds needed to support asset growth. More specifically,
core deposits (defined by UCB as total deposits less certificates of deposit
issued in denominations of $100,000 or more) are the primary source of funding
utilized by UCB. UCB's balance sheet growth is largely determined by the
availability of deposits in its markets, the cost of attracting available
deposits, and the prospects of profitably utilizing available deposits by
increasing loans or investments.
Average total deposits for the year ended December 31, 1996, amounted to
$3,799,831,000, which was an increase of $358,174,000, or 10.4%, over 1995. For
1995, total deposits averaged $3,441,657,000, an increase of $416,448,000, or
13.8%, over 1994. The purchase of 12 branch offices from subsidiaries of
Southern National Corporation in May 1995 added approximately $139,368,000 to
the year-end 1995 totals and $105,328,000 to average deposits for 1995. Average
core deposits totaled $3,545,752,000 in 1996, an increase of $320,769,000, or
9.9%, over 1995. In 1995, average core deposits increased $383,887,000, or
13.5%, over 1994.
Certificates of deposit in denominations of less than $100,000 increased
$162,006,000, or 12.6%, in 1996 over 1995. Continued active competition for core
deposits has resulted in a change in the mix of interest-bearing deposits to a
higher relative percentage of consumer certificates of deposit and a lower
percentage of NOW, savings, and money market deposits. During 1995, consumer
certificates of deposit comprised 44.1% of interest-bearing deposits with 44.0%
made up of lower cost NOW, savings, and money market deposits. For 1996, the
percentage of interest-bearing deposits made up of consumer certificates of
deposit increased to 44.8% with a corresponding decrease to 43.3% in the
percentage comprised of NOW, savings, and money market deposits.
26
The average balance of certificates of deposit issued in denominations of
$100,000 or more increased $37,405,000, or 17.3%, in 1996 over 1995, which was a
$32,561,000, or 17.7%, increase over the 1994 average balance. While not a major
source of funding, UCB remained competitive in the market for these deposits
during 1996, and the percentage of total deposits represented by large
denomination certificates of deposit increased to 6.7% of total deposits in 1996
from 6.3% in 1995.
Interest-bearing deposits made up 84.8% of UCB's average total deposits in
1996 compared to 84.4% in 1995 and 83.0% in 1994. Interest-bearing core deposits
comprised 83.8% of average core deposits in 1996 versus 83.3% in 1995 and 81.9%
in 1994. Average deposits for the five years ended December 31, 1996, are
summarized in Table 11.
TABLE 11.
SUMMARY OF AVERAGE DEPOSITS
Years Ended December 31,
1996 1995 1994 1993
PERCENT Percent Percent Percent
AVERAGE OF Average of Average of Average of
BALANCE TOTAL Balance Total Balance Total Balance Total
(Dollars in thousands)
Noninterest-bearing core
deposits.................... $ 575,916 15.15 % $ 538,309 15.64 % $ 514,435 17.00 % $ 462,102 17.03 %
Interest-bearing core
deposits:
NOW deposits................ 388,253 10.22 364,621 10.59 357,465 11.81 327,390 12.06
Savings deposits............ 231,250 6.08 242,435 7.04 262,701 8.68 220,021 8.11
Money market deposits....... 776,647 20.44 671,062 19.50 628,278 20.77 602,772 22.21
Certificates of deposit less
than $100,000............. 1,443,051 37.98 1,281,045 37.22 944,309 31.22 821,797 30.27
Other time deposits......... 130,635 3.44 127,511 3.71 133,908 4.43 130,945 4.82
Total interest-bearing
core deposits........... 2,969,836 78.16 2,686,674 78.06 2,326,661 76.91 2,102,925 77.47
Total core deposits....... 3,545,752 93.31 3,224,983 93.70 2,841,096 93.91 2,565,027 94.50
Certificates of deposit of
$100,000 or more............ 254,079 6.69 216,674 6.30 184,113 6.09 149,415 5.50
Total deposits............ $ 3,799,831 100.00 % $ 3,441,657 100.00 % $ 3,025,209 100.00 % $ 2,714,442 100.00 %
Years Ended December 31,
1992
Percent
Average of
Balance Total
Noninterest-bearing core
deposits.................... $ 397,154 15.48 %
Interest-bearing core
deposits:
NOW deposits................ 283,636 11.06
Savings deposits............ 174,700 6.81
Money market deposits....... 584,581 22.79
Certificates of deposit less
than $100,000............. 778,820 30.36
Other time deposits......... 144,629 5.63
Total interest-bearing
core deposits........... 1,966,366 76.65
Total core deposits....... 2,363,520 92.13
Certificates of deposit of
$100,000 or more............ 201,970 7.87
Total deposits............ $ 2,565,490 100.00 %
LIQUIDITY AND INTEREST-SENSITIVITY
The principal goals of UCB's asset and liability management policy are the
maintenance of adequate liquidity and the management of interest rate risk.
Liquidity is the ability to fund the needs of UCB's borrowers and depositors.
Interest rate risk management attempts to balance the effects of interest rate
changes on interest-sensitive assets and liabilities in an effort to insulate
net interest income from wide fluctuations which could result from changes in
interest rates.
27
TABLE 12.
SHORT-TERM BORROWING DATA
Securities Sold Treasury Tax
Federal Funds Under Agreement and Loan
Purchased to Repurchase Notes
(Dollars in thousands)
December 31, 1996:
Balance outstanding at end of year................................. $11,920 $15,858 $14,743
Maximum amount outstanding at any month-end
during the year................................................. 29,250 40,040 15,625
Average balance outstanding during the year........................ 17,481 6,426 7,004
Average interest rate paid during the year......................... 5.19% 4.41% 4.91%
Average interest rate payable at end of year....................... 6.88% 4.72% 5.15%
December 31, 1995:
Balance outstanding at end of year................................. $16,820 $10,936 $ 2,683
Maximum amount outstanding at any month-end
during the year................................................. 22,610 28,216 4,250
Average balance outstanding during the year........................ 17,227 11,636 3,098
Average interest rate paid during the year......................... 5.79% 5.25% 5.62%
Average interest rate payable at end of year....................... 5.50% 4.70% 5.15%
December 31, 1994:
Balance outstanding at end of year................................. $10,740 $49,203 $ 2,876
Maximum amount outstanding at any month-end
during the year................................................. 52,095 47,612 4,115
Average balance outstanding during the year........................ 19,626 22,846 2,993
Average interest rate paid during the year......................... 3.84% 4.02% 4.19%
Average interest rate payable at end of year....................... 5.30% 5.39% 5.20%
Federal
Home
Loan
Bank
Advances
December 31, 1996:
Balance outstanding at end of year................................. $ --
Maximum amount outstanding at any month-end
during the year................................................. 20,000
Average balance outstanding during the year........................ 5,027
Average interest rate paid during the year......................... 5.72%
Average interest rate payable at end of year....................... --%
December 31, 1995:
Balance outstanding at end of year................................. $ --
Maximum amount outstanding at any month-end
during the year................................................. 25,000
Average balance outstanding during the year........................ 13,412
Average interest rate paid during the year......................... 6.48%
Average interest rate payable at end of year....................... --%
December 31, 1994:
Balance outstanding at end of year................................. $ 27,250
Maximum amount outstanding at any month-end
during the year................................................. 27,250
Average balance outstanding during the year........................ 25,940
Average interest rate paid during the year......................... 4.54%
Average interest rate payable at end of year....................... 6.43%
It is UCB's policy to ensure that adequate funds are available at all times
to meet the needs of its customers. Cash and cash equivalents, maturing
investments and loans, and securities available for sale are principal sources
of liquidity. Secondary sources of liquidity consist principally of UCB's
ability to raise funds through means other than increasing core deposits. This
includes maintaining the ability to increase the portfolio of large denomination
certificates of deposit, keeping federal funds lines from regional and money
center banks available, having access to the discount window of the Federal
Reserve Bank, as well as maintaining the ability to generate funds through
securitizing assets for sale in the secondary market and through issuing
long-term debt and equity if appropriate. In addition, UCB's subsidiary banks
are members of the Federal Home Loan Bank System which offers a variety of
services to its members including credit facilities. At December 31, 1996, UCB's
subsidiary banks had immediately available credit from the Federal Home Loan
Bank of Atlanta totaling $106,504,000 collateralized by a blanket lien on
qualifying loans secured by first mortgages on 1-4 family residences. This
amount could be increased to $416,171,000 by the purchase of an additional
$34,564,000 of common stock in the Federal Home Loan Bank of Atlanta. Additional
amounts may be made available by using alternative collateralization methods.
These funds could be drawn upon to satisfy liquidity needs or for other purposes
deemed appropriate.
UCB defines interest rate risk as the effect that changes in general
interest rate trends would have on interest income and expense generated by the
various categories of earning assets and interest-bearing liabilities. It is
UCB's policy to maintain portfolios of earning assets and interest-bearing
liabilities with maturities or repricing opportunities that will afford
protection, to the extent practical, against wide interest rate fluctuations.
Table 13 shows the interest-sensitivity of UCB's balance sheet on December 31,
1996. It should be noted that this table reflects the interest-sensitivity of
the balance sheet as of a specific date and is not necessarily indicative of
UCB's position on other dates. At December 31, 1996, UCB had a cumulative
liability-sensitive static gap position (interest-bearing liabilities subject to
interest rate changes exceeded earning assets subject to changes in interest
rates) of $314,071,000 for 30 days and $833,876,000 for one year. This generally
indicates that net interest income would experience downward pressure in a
rising interest rate environment and would benefit from a declining interest
rate environment. Included in interest-bearing liabilities subject to interest
rate changes within 30 days are deposits totaling $869,286,000 at December 31,
1996, comprised of NOW, savings, and certain types of money market
28
deposits with interest rates set by management. These types of deposits
historically have not repriced coincidentally with or in the same proportion as
general market indicators; therefore, UCB believes that in the near term net
interest income would not likely experience significant downward pressure from
rising interest rates.
TABLE 13.
INTEREST-SENSITIVITY ANALYSIS
December 31, 1996
181 Day-
1-30 Day 31-90 Day 91-180 Day 1 Year Non-
Sensitive Sensitive Sensitive Sensitive Sensitive(1) Total
(Dollars in thousands)
Earning assets:
Loans, net of unearned income............. $1,205,795 $ 101,990 $ 137,298 $ 268,572 $ 1,436,042 $3,149,697
Taxable securities........................ 54,005 53,690 70,653 247,405 450,768 876,521
Tax-exempt securities..................... 1,100 1,536 1,984 1,595 40,786 47,001
Short-term investments.................... 90,964 -- -- -- -- 90,964
Total earning assets................... $1,351,864 $ 157,216 $ 209,935 $ 517,572 $ 1,927,596 $4,164,183
Interest-bearing liabilities:
NOW deposits.............................. $ 422,164 $ -- $ -- $ -- $ -- $ 422,164
Savings deposits.......................... 227,938 -- -- -- -- 227,938
Money market deposits..................... 799,031 -- -- -- -- 799,031
Certificates of deposit of $100,000 or
more................................... 67,299 47,113 58,298 95,351 47,610 315,671
Certificates of deposit less than
$100,000............................... 87,308 113,772 284,830 738,098 285,231 1,509,239
Other time deposits....................... 19,657 16,600 19,858 30,582 55,672 142,369
Short-term borrowings..................... 42,521 -- -- -- -- 42,521
Mortgages and other notes payable......... 17 4 6 16 2,230 2,273
Total interest-bearing liabilities..... $1,665,935 $ 177,489 $ 362,992 $ 864,047 $ 390,743 $3,461,206
Cumulative interest-sensitivity gap......... $ (314,071) $(334,344) $ (487,401) $(833,876)
Cumulative ratio of interest-sensitive
assets to interest-sensitive
liabilities............................... 81.15% 81.86% 77.91% 72.84%
(1) EARNING ASSETS AND INTEREST-BEARING LIABILITIES THAT ARE NOT SENSITIVE TO
INTEREST RATE CHANGES WITHIN ONE YEAR BECAUSE OF MATURITIES OR FIXED
INTEREST RATES.
CAPITAL RESOURCES AND DIVIDENDS
Stockholders' equity increased 8.6% to $350,469,000 at December 31, 1996,
from the 1995 year-end total of $323,148,000 primarily as a result of earnings
retained after dividends. Average stockholders' equity as a percentage of
average total assets amounted to 7.93% in 1996, 7.85% in 1995, and 8.17% in
1994.
Regulatory guidelines relating to capital adequacy in effect at December
31, 1996, included minimum risk-based ratios which assess capital adequacy while
encompassing all credit risks, including those related to off-balance sheet
activities. Capital ratios under these guidelines are computed by weighting the
relative credit risk of each asset category, including off-balance sheet assets
to derive risk-weighted assets. The risk-based guidelines require minimum ratios
of core (Tier I) capital (common stockholders' equity, net of intangible assets
other than mortgage servicing rights, and qualifying perpetual preferred stock,
subject to certain limitations) to risk-weighted assets of 4.0% and total
regulatory capital (core capital, unallocated reserve for credit losses up to
1.25% of risk-weighted assets, mandatory convertible securities, preferred
stock, and subordinated debt, subject to certain limitations) to risk-weighted
assets of 8.0%. As of December 31, 1996, UCB had a ratio of core (Tier I)
capital to risk-weighted assets of 11.15% and a ratio of total regulatory
capital to risk-weighted assets of 12.40%.
29
In addition to the guidelines discussed above, a minimum leverage ratio of
core (Tier I) capital, as defined for risk-based guidelines, to average total
assets for the previous quarter is required by federal bank regulators, ranging
from 3% to 5%, subject to federal bank regulatory evaluation of the
organization's overall safety and soundness. At December 31, 1996, UCB had a
ratio of year-end core (Tier I) capital to average total assets less intangible
assets other than purchased mortgage servicing rights for the three months ended
December 31, 1996, of 7.64%.
TABLE 14.
RISK-BASED CAPITAL AND INTANGIBLE ASSETS
December 31,
1996 1995 1994
(Dollars in thousands)
Stockholders' equity................................................................ $ 350,469 $ 323,148 $ 282,598
Intangible assets, excluding capitalized mortgage servicing rights.................. (11,755) (14,663) (7,977)
Unrealized (gains) losses on securities available for sale,
net of applicable deferred income taxes........................................... 70 (2,923) 5,560
Tier I capital.................................................................... 338,784 305,562 280,181
Qualifying reserve for credit losses (limited to 1.25% of risk-weighted assets)..... 37,966 33,979 30,840
Tier II capital................................................................... 37,966 33,979 30,840
Total regulatory capital............................................................ $ 376,750 $ 339,541 $ 311,021
Total risk-weighted assets.......................................................... $3,037,280 $2,718,399 $2,480,301
Tier I capital as a percent of risk-weighted assets................................. 11.15% 11.24% 11.30%
Total regulatory capital as a percent of risk-weighted assets....................... 12.40% 12.49% 12.54%
Leverage ratio(1)................................................................... 7.64% 7.65% 8.02%
Intangible assets:
Purchased deposit-base premiums................................................... $ 7,359 $ 9,219 $ 381
Goodwill and other intangible assets.............................................. 4,396 5,444 7,596
Total intangible assets, excluding capitalized mortgage servicing rights............ 11,755 14,663 7,977
Capitalized mortgage servicing rights(2).......................................... 4,817 3,683 2,555
Total intangible assets............................................................. $ 16,572 $ 18,346 $ 10,532
(1) COMPUTED BY DIVIDING PERIOD-END TIER I CAPITAL BY AVERAGE TOTAL ASSETS LESS
INTANGIBLE ASSETS OTHER THAN CAPITALIZED MORTGAGE SERVICING RIGHTS FOR THE
THREE MONTHS ENDED DECEMBER 31.
(2) CAPITALIZED MORTGAGE SERVICING RIGHTS HAD AN ESTIMATED FAIR VALUE OF
$9,290,000 AT DECEMBER 31, 1996; $4,939,000 AT DECEMBER 31, 1995; AND
$4,898,000 AT DECEMBER 31, 1994.
The FDIC has issued regulations assigning each financial institution to one
of three capital groups (well capitalized, adequately capitalized, or
undercapitalized) based on the relative strength of its capital ratios. In order
to be considered well capitalized, a financial institution must have a total
risk-based capital ratio greater than 10%, Tier I risk-based capital ratio
greater than 6%, and Tier I leverage capital ratio greater than 5%. Based on
these requirements, UCB is currently considered to be well capitalized. Table 14
sets forth summary information with respect to UCB's regulatory capital ratios
at December 31, 1996, 1995, and 1994.
Cash dividends declared by UCB totaled $.72 per share in 1996 and amounted
to $17,146,000 compared to $.647 per share, or $14,404,000, in 1995, and $.56
per share, or $12,061,000, in 1994. Total cash dividends declared as a percent
of income before the cumulative effect of a change in accounting method amounted
to 37.93% in 1996, 31.28% in 1995, and 38.22% in 1994.
30
TABLE 15.
EQUITY CAPITAL GENERATION AND CAPITAL RATIOS
Years Ended December 31,
1996 1995 1994 1993 1992
(Dollars in thousands)
Summary of changes in stockholders' equity:
Balance, January 1............................................. $323,148 $282,598 $269,839 $234,897 $215,126
Net income.................................................. 45,204 46,047 31,237 34,325 28,652
Cash dividends declared..................................... (17,146) (14,404) (12,061) (10,690) (9,198)
Net issuance (retirement) of common stock................... 2,256 424 (12) 8,045 317
Unrealized gains (losses) on securities available for sale,
net of applicable deferred income taxes................... (2,993) 8,483 (6,405) 848 --
Balance, December 31........................................... $350,469 $323,148 $282,598 $269,839 $234,897
Stockholders' equity as a percent of total assets at
December 31.................................................... 7.81% 8.00% 7.95% 8.07% 7.91%
Average stockholders' equity as a percent of average
total assets................................................... 7.93 7.85 8.17 8.16 7.79
Income before cumulative effects of changes in accounting methods
as a percent of average stockholders' equity................... 13.53 15.30 11.35 13.37 12.78
Cash dividends declared as a percent of income before cumulative
effects of changes in accounting methods....................... 37.93 31.28 38.22 32.11 32.10
Income before cumulative effects of changes in accounting
methods, less cash dividends declared, as a percent of average
stockholders' equity........................................... 8.40% 10.51% 7.01% 9.08% 8.68%
UCB's policy is to pay cash dividends that approximate 30% to 35% of
operating income before the cumulative effect of changes in accounting methods;
however, payments that exceed this level may occur if, in management's judgment,
the underlying reason for the higher payout ratio is of a temporary or
nonrecurring nature and the dividend payments can be made without materially
adversely affecting UCB's capital ratios. Table 15 sets forth historical summary
information with respect to UCB's equity capital generation, dividend payment
history, and equity capital ratios.
At December 31, 1996, long-term debt consisted of advances from the Federal
Home Loan Bank of Atlanta of $2,176,000 and certain other loans, primarily in
the form of mortgages, which amounted to $97,000. UCB's low level of long-term
debt relative to equity capital would allow significant increases in debt levels
if market conditions were appealing and the proceeds from any debt issuances
were needed for general funding purposes or to support expansion.
The management of UCB continually monitors and evaluates the present and
expected business environment, including general economic conditions and changes
in regulatory requirements, and in particular, how such conditions relate, or
are likely to relate, to UCB's market areas and the operations of UCB and its
competitors. Based on such ongoing evaluations, the management of UCB is not
currently aware of any known trends, events, or uncertainties, other than those
otherwise discussed, which will have, or that are reasonably likely to have, a
material adverse effect on the liquidity, capital resources, or overall
operations of UCB.
ACCOUNTING AND REGULATORY ISSUES
As previously reported, UCB was required to adopt the provisions of
Financial Accounting Standards No. 112 (FAS 112), "Employers' Accounting for
Postemployment Benefits," which requires the accrual of expenses for the
estimated cost of benefits provided for employees after employment but before
retirement. The adoption of FAS 112 required immediate recognition of the
actuarially determined liability for postemployment benefits which amounted to
$529,000 at December 31, 1993. The adoption of FAS 112 resulted in a charge
against net income of $316,000, net of deferred income taxes, which was recorded
as a cumulative effect of a change in accounting method during the first quarter
of 1994.
As previously discussed, effective January 1, 1995, UCB adopted Financial
Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for Impairment
of a Loan," and Financial Accounting Standards No. 118 (FAS 118), "Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosures." FAS
114 amended FAS 5, "Accounting for Contingencies," to clarify that a creditor
should evaluate the collectibility of both contractual interest and principal of
a
31
receivable when assessing the need for a loss accrual; and FAS 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings," to require a
creditor to account for a troubled debt restructuring involving a modification
of terms at fair value as of the date of the restructuring. FAS 118 revises FAS
114 to permit companies to use their existing income recognition policies with
respect to impaired loans rather than those set forth in FAS 114 and requires a
creditor to disclose certain information concerning income recognition on
impaired loans. Prior to January 1, 1995, UCB measured loan impairment in a
manner generally consistent with the methods prescribed in FAS 114 and, as a
result, no additional reserves for credit losses were required due to the
adoption of this accounting standard.
In October 1994, the FASB issued Financial Accounting Standards No. 119
(FAS 119), "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments," which requires improved disclosures about derivative
financial instruments, such as futures, forward, swap or option contracts, or
other financial instruments with similar characteristics. This statement
requires that a distinction be made between financial instruments held or issued
for the purpose of trading (including dealing or other activities reported in a
trading account and measured at fair value) and financial instruments held or
issued for purposes other than trading. It also amends existing requirements of
FAS 105, "Disclosure of Information about Financial Instruments with Off-Balance
Sheet Risk and Financial Instruments with Concentrations of Credit Risk," and
FAS 107, "Disclosures about Fair Value of Financial Instruments," to require
that same distinction in certain disclosures required by those statements. UCB
adopted FAS 119 in 1994 and has made the required disclosures in its
consolidated financial statements.
As previously discussed, effective April 1, 1995, UCB adopted Financial
Accounting Standards No. 122 (FAS 122), "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." This statement amends certain
provisions of FAS 65 to eliminate the distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and rights to service mortgage loans for others that are acquired through
purchase transactions. Under FAS 65, the cost of originated mortgage servicing
rights was not recognized as an asset and was charged to earnings when the
related loan was sold. As a result of adopting FAS 122, beginning April 1995,
the estimated fair values of the rights to service mortgage loans for others
have been capitalized on loans originated by UCB. Gains on the sale of mortgage
loans into the secondary market totaling $964,000 in 1996 and $592,000 in 1995
were recorded due to the adoption of FAS 122.
FAS 122 has a different cost allocation methodology than FAS 65 for
purchased mortgage servicing rights. FAS 65 allocated such costs incurred in
excess of the market value of the loans without the servicing rights, whereas
FAS 122 allocates costs based on the relative market values of the purchased
servicing rights and the related loans. The application of the FAS 122 cost
allocation method to purchased mortgage servicing rights acquired during the
year ended December 31, 1996, was not material.
FAS 122 also requires that all capitalized mortgage servicing rights be
evaluated for impairment based on the excess of the carrying amount of such
rights over their fair value. For purposes of measuring impairment, capitalized
mortgage servicing rights are stratified on the basis of one or more of the
predominant risk characteristics of the underlying loans. The adoption of FAS
122 resulted in a valuation adjustment of $30,000 to capitalized mortgage
servicing rights at December 31, 1996, and $104,000 at December 31, 1995.
In March 1995, the FASB issued Financial Accounting Standards No. 121 (FAS
121), "Accounting for the 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.
32
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. Disclosures concerning the effect of the application of the fair value-based
method of accounting defined by FAS 123 on net income and earnings per share are
contained in Note 8 to the consolidated financial statements.
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 applied only 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.
33
UNITED CAROLINA BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
1996 1995
(In thousands)
ASSETS:
Cash and due from banks -- noninterest-bearing.................................................. $ 199,487 $ 179,679
Federal funds sold and other short-term investments............................................. 90,964 45,413
Securities available for sale (amortized costs of $877,268,000 in 1996
and $764,923,000 in 1995).................................................................... 877,432 769,956
Investment securities (approximate market values of $47,334,000 in 1996
and $99,270,000 in 1995)..................................................................... 46,090 97,354
Loans, net of unearned income................................................................... 3,149,697 2,826,987
Less reserve for credit losses............................................................. (46,138) (43,464)
Net loans............................................................................... 3,103,559 2,783,523
Premises and equipment.......................................................................... 55,872 58,002
Other assets.................................................................................... 114,439 103,591
Total assets............................................................................ $ 4,487,843 $4,037,518
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits:
Noninterest-bearing demand deposits.......................................................... $ 633,014 $ 578,865
Interest-bearing deposits:
NOW, savings, and money market deposits.................................................... 1,449,133 1,354,193
Certificates of deposit of $100,000 or more................................................ 315,671 206,235
Other time deposits........................................................................ 1,651,608 1,498,359
Total deposits.......................................................................... 4,049,426 3,637,652
Short-term borrowings........................................................................... 42,521 30,439
Mortgages and other notes payable............................................................... 2,273 2,975
Other liabilities............................................................................... 43,154 43,304
Total liabilities....................................................................... 4,137,374 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 24,316,631 shares in 1996
and 24,137,791 shares in 1995........................................................... 97,267 96,551
Surplus...................................................................................... 51,676 50,183
Retained earnings............................................................................ 201,596 173,491
Unrealized gains (losses) on securities available for sale,
net of deferred income taxes............................................................... (70) 2,923
Total stockholders' equity.............................................................. 350,469 323,148
Total liabilities and stockholders' equity.............................................. $ 4,487,843 $4,037,518
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
34
UNITED CAROLINA BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31,
1996 1995 1994
(Dollars in thousands
except per share amounts)
INTEREST INCOME:
Interest on loans................................................................ $272,301 $255,251 $212,511
Interest and dividends on:
Taxable securities............................................................ 48,760 38,232 27,318
Tax-exempt securities......................................................... 3,137 3,854 4,980
Interest on federal funds sold and other short-term investments.................. 4,741 6,754 2,431
Total interest income....................................................... 328,939 304,091 247,240
INTEREST EXPENSE:
Interest on deposits............................................................. 147,744 132,620 89,430
Interest on short-term borrowings................................................ 1,823 2,653 2,948
Interest on mortgages and other notes payable.................................... 165 170 164
Total interest expense...................................................... 149,732 135,443 92,542
NET INTEREST INCOME................................................................ 179,207 168,648 154,698
PROVISION FOR CREDIT LOSSES........................................................ 8,850 7,292 3,549
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES.............................. 170,357 161,356 151,149
NONINTEREST INCOME:
Service charges on deposit accounts.............................................. 24,599 24,043 23,874
Trust income..................................................................... 5,983 5,243 5,163
Mortgage banking fees............................................................ 4,737 4,050 3,564
Insurance commissions............................................................ 6,139 5,252 3,773
Brokerage and annuity commissions................................................ 2,347 2,152 2,363
Other service charges, commissions, and fees..................................... 7,109 5,073 4,906
Net gains on mortgages originated for resale..................................... 756 760 329
Net gains on trading account securities.......................................... 3 4 8
Net losses on dispositions of securities available for sale...................... (183) -- (59)
Net gains on dispositions of investment securities............................... 64 7 5
Other operating income........................................................... 561 477 952
Total noninterest income.................................................... 52,115 47,061 44,878
NONINTEREST EXPENSES:
Personnel expense................................................................ 85,061 78,390 78,586
Occupancy expense................................................................ 10,388 10,226 10,357
Equipment expense................................................................ 7,137 7,184 6,824
Other noninterest expenses, excluding restructuring charges...................... 50,127 41,496 39,032
Restructuring charges............................................................ -- -- 11,906
Total noninterest expenses.................................................. 152,713 137,296 146,705
INCOME BEFORE INCOME TAXES......................................................... 69,759 71,121 49,322
Income tax provision............................................................. 24,555 25,074 17,769
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING METHOD................... 45,204 46,047 31,553
Cumulative effect of a change in accounting method............................... -- -- (316)
NET INCOME......................................................................... $ 45,204 $ 46,047 $ 31,237
PER SHARE DATA:
Income before cumulative effects of changes in accounting methods................ $ 1.87 $ 1.91 $ 1.32
Net income....................................................................... $ 1.87 $ 1.91 $ 1.30
Cash dividends declared.......................................................... $ .72 $ .647 $ .56
Book value at year-end........................................................... $ 14.41 $ 13.39 $ 11.77
Average number of shares outstanding............................................... 24,210,796 24,099,190 23,954,818
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
35
UNITED CAROLINA BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
THREE YEARS ENDED DECEMBER 31, 1996
Unrealized
Gains
(Losses)
Common Stock on
Number of Securities
Shares Aggregate Retained Available
Outstanding Par Value Surplus Earnings for Sale
(Dollars in thousands)
Balance, January 1, 1994, as previously reported............ 21,938,462 $87,754 $ 42,901 $120,415 $ 845
Merger with Seaboard Savings Bank......................... 415,752 1,663 1,773 2,104 --
Merger with Triad Bank.................................... 1,470,075 5,881 5,069 1,434 --
Balance, January 1, 1994, as restated....................... 23,824,289 95,298 49,743 123,953 845
Net income................................................ -- -- -- 31,237 --
Cash dividends declared, $.56 per share................... -- -- -- (11,939) --
Cash dividend declared by pooled bank prior to merger..... -- -- -- (122) --
Issuance of common stock:
To effect insurance agencies mergers................... 54,604 218 (612) (73) --
By pooled banks prior to mergers....................... 140,389 561 1,027 (1,105) --
Retirement of common stock................................ (1,557) (6) (24) 2 --
Unrealized losses on securities available for sale,
net of applicable deferred income taxes................ -- -- -- -- (6,405)
Balance, December 31, 1994.................................. 24,017,725 96,071 50,134 141,953 (5,560)
Net income................................................ -- -- -- 46,047 --
Cash dividends declared, $.647 per share.................. -- -- -- (14,313) --
Cash dividend declared by pooled bank prior to
merger................................................. -- -- -- (91) --
Issuance of common stock:
By pooled banks prior to mergers....................... 17,055 68 113 32 --
To effect insurance agency merger...................... 66,320 265 (214) (88) --
Under stock option plans............................... 36,691 147 150 (49) --
Unrealized gains on securities available for sale,
net of applicable deferred income taxes................ -- -- -- -- 8,483
Balance, December 31, 1995.................................. 24,137,791 96,551 50,183 173,491 2,923
Net income................................................ -- -- -- 45,204 --
Cash dividends declared, $.72 per share................... -- -- -- (17,146) --
Issuance of common stock:
By pooled banks prior to mergers....................... 29,949 120 327 45 --
To effect insurance agency merger...................... 37,123 149 (147) -- --
Under stock option plans............................... 112,630 451 1,331 -- --
Retirement of common stock............................. (862) (4) (18) 2 --
Unrealized losses on securities available for sale,
net of applicable deferred income taxes................ -- -- -- -- (2,993)
Balance, December 31, 1996.................................. 24,316,631 $97,267 $ 51,676 $201,596 $ (70)
Total
Stockholders'
Equity
Balance, January 1, 1994, as previously reported............ $ 251,915
Merger with Seaboard Savings Bank......................... 5,540
Merger with Triad Bank.................................... 12,384
Balance, January 1, 1994, as restated....................... 269,839
Net income................................................ 31,237
Cash dividends declared, $.56 per share................... (11,939)
Cash dividend declared by pooled bank prior to merger..... (122)
Issuance of common stock:
To effect insurance agencies mergers................... (467)
By pooled banks prior to mergers....................... 483
Retirement of common stock................................ (28)
Unrealized losses on securities available for sale,
net of applicable deferred income taxes................ (6,405)
Balance, December 31, 1994.................................. 282,598
Net income................................................ 46,047
Cash dividends declared, $.647 per share.................. (14,313)
Cash dividend declared by pooled bank prior to
merger................................................. (91)
Issuance of common stock:
By pooled banks prior to mergers....................... 213
To effect insurance agency merger...................... (37)
Under stock option plans............................... 248
Unrealized gains on securities available for sale,
net of applicable deferred income taxes................ 8,483
Balance, December 31, 1995.................................. 323,148
Net income................................................ 45,204
Cash dividends declared, $.72 per share................... (17,146)
Issuance of common stock:
By pooled banks prior to mergers....................... 492
To effect insurance agency merger...................... 2
Under stock option plans............................... 1,782
Retirement of common stock............................. (20)
Unrealized losses on securities available for sale,
net of applicable deferred income taxes................ (2,993)
Balance, December 31, 1996.................................. $ 350,469
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
UNITED CAROLINA BANCSHARES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
1996 1995 1994
(In thousands)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................................................. $ 45,204 $ 46,047 $ 31,237
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, net of accretion....................................... 11,606 9,817 8,394
Provision for credit losses........................................................... 8,850 7,292 3,549
Net (increase) decrease in loans originated for resale................................ 4,995 (11,263) 21,064
Provision for deferred taxes and decrease in taxes payable............................ (2,243) (5) (3,791)
Increase in accrued interest receivable............................................... (412) (7,267) (4,355)
(Increase) decrease in prepaid expenses............................................... (6,170) 1,484 (4,713)
(Increase) decrease in other accounts receivable...................................... (1,740) (1,843) 14,917
Increase in accrued interest payable.................................................. 1,143 4,020 1,121
Increase (decrease) in accrued expenses............................................... (953) (565) 14,198
Decrease in deferred loan fees, net of deferred costs................................. (1,248) (178) (206)
Decrease in unearned income on loans.................................................. -- (1) (42)
Other, net............................................................................ 662 492 498
Total adjustments................................................................... 14,490 1,983 50,634
Net cash provided by operating activities........................................... 59,694 48,030 81,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and issuer calls of securities available for sale.............. 540,007 623,933 198,200
Proceeds from maturities and issuer calls of investment securities...................... 14,792 13,796 18,808
Proceeds from sales of securities available for sale.................................... 12,225 -- 25,281
Proceeds from sales of investment securities............................................ -- 3,810 --
Purchases of securities available for sale.............................................. (627,804) (791,581) (198,006)
Purchases of investment securities...................................................... -- (69,598) (10,420)
Net increase in loans outstanding....................................................... (336,046) (230,780) (237,399)
Purchases of premises and equipment..................................................... (5,558) (3,914) (5,512)
Proceeds from sales of premises and equipment........................................... 1,450 1,741 1,091
Purchases and originations of mortgage loan servicing rights............................ (2,054) (1,331) (701)
Sales of foreclosed assets.............................................................. 1,495 2,234 5,772
Net cash acquired in purchase of branch offices......................................... -- 110,376 --
Other, net.............................................................................. (1,079) (6,409) 6,403
Net cash used in investing activities............................................... (402,572) (347,723) (196,483)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts........................................................ 411,774 352,664 139,130
Net increase (decrease) in federal funds purchased...................................... (4,900) 6,080 (15,560)
Net increase (decrease) in securities sold under agreement to repurchase................ 4,922 (37,784) 34,946
Net increase (decrease) in other short-term borrowings.................................. 12,060 (27,926) 25,255
Proceeds from mortgages and other notes payable......................................... -- 702 --
Repayments of mortgages and other notes payable......................................... (727) (32) (212)
Issuance of common stock................................................................ 2,274 461 483
Retirement of common stock.............................................................. (20) -- (28)
Dividends paid.......................................................................... (17,146) (14,404) (12,061)
Net cash provided by financing activities........................................... 408,237 279,761 171,953
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................................... 65,359 (19,932) 57,341
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................................ 225,092 245,024 187,683
CASH AND CASH EQUIVALENTS AT END OF YEAR.................................................. $ 290,451 $ 225,092 $ 245,024
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest................................................................................ $ 148,589 $ 131,989 $ 91,177
Income taxes............................................................................ $ 26,797 $ 24,875 $ 21,654
SIGNIFICANT NONCASH TRANSACTIONS:
Loans transferred to real estate acquired in settlement of debt......................... $ 4,402 $ 1,676 $ 4,543
Loans originated to facilitate the sale of foreclosed assets............................ $ 994 $ 638 $ 372
Investment securities transferred to securities available for sale portfolio............ $ 36,646 $ 203,101 $ 14,815
Securities available for sale transferred to investment securities portfolio............ $ 240 $ -- $ 2,316
Unrealized gains (losses) on securities available for sale.............................. $ (4,869) $ 12,486 $ (8,774)
Issuance of common stock in insurance agencies mergers.................................. $ 2 $ (37) $ (467)
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
37
UNITED CAROLINA BANCSHARES CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND REPORTING -- The consolidated financial
statements include the accounts of United Carolina Bancshares Corporation
(Parent Company) and its subsidiaries, the principal ones being United Carolina
Bank and United Carolina Bank of South Carolina. All significant intercompany
balances and transactions have been eliminated. In certain instances, amounts
reported in prior consolidated financial statements have been reclassified to
present them in the format selected for 1996. Such reclassifications had no
effect on the net income or stockholders' equity as previously reported. The
consolidated financial statements for periods prior to 1996 have been restated
to include the accounts of Seaboard Savings Bank, Inc. and Triad Bank which were
acquired by merger during 1996 and accounted for as poolings-of-interests.
BASIS OF FINANCIAL STATEMENT PRESENTATION -- The financial statements have
been prepared in conformity with generally accepted accounting principles. In
the preparation of the financial statements, management was required to make
certain estimates and assumptions that affected the reported value of certain
assets and liabilities at the end of each year presented and the revenues and
expenses for those periods. Actual results could differ from these estimates and
assumptions.
SECURITIES AVAILABLE FOR SALE -- Securities classified as available for
sale are purchased with the intent to hold until maturity; however, infrequent
sales may be necessary due to liquidity needs arising from unanticipated deposit
and loan fluctuations, changes in regulatory capital and investment
requirements, or significant unforeseen changes in market conditions, including
interest rates and market values of securities held in the portfolio.
Investments in securities available for sale are stated at market value with the
resultant unrealized gains and losses included as a component of stockholders'
equity, net of applicable deferred income taxes. Gains and losses from sales of
securities available for sale are recognized using the identified certificate
method. See Note 2.
INVESTMENT SECURITIES -- Securities are classified as held to maturity
(investment securities) at the time of purchase when UCB has the ability and
positive intent to hold such securities to maturity. Investments in debt
securities are stated at cost, adjusted for amortization of premium and
accretion of discount computed on a level-yield basis. Gains and losses from
dispositions of investment securities are recognized using the identified
certificate method. See Note 2.
TRADING ACCOUNT SECURITIES -- Debt securities purchased with the intent to
sell at a short-term profit are classified as trading account securities and are
stated at market value at the reporting date. Realized and unrealized changes in
market value are recognized in net trading revenue in the period in which the
changes occur.
LOANS -- Loans are stated at the principal amount outstanding, less
unearned income and deferred nonrefundable loan fees, net of certain origination
costs. Interest on substantially all loans is accrued on the unpaid principal
balance outstanding. Nonrefundable loan origination fees and costs associated
with the lending process are deferred and recognized as a yield adjustment over
the life of the related loan. See Note 3.
Mortgage loans originated for sale in the secondary market are stated at
the lower of aggregate cost or market value. Gains and losses on hedges of
mortgage loans held for sale in the secondary market are included in the
carrying amounts of such loans and are ultimately recognized in income as part
of the underlying gain or loss on the sale of the underlying asset. See Note 3.
Accrual of interest income on loans is suspended when, in management's
judgment, doubts exist as to the collectibility of additional interest within a
reasonable time. Loans are returned to accrual status when management
determines, based on an evaluation of the underlying collateral together with
the borrower's payment record and financial condition, that the borrower has the
ability and intent to meet the contractual obligations of the loan agreement.
See Note 3.
Real or personal properties taken in settlement of loans either through
foreclosure, repossession, or in lieu of foreclosure are carried at the lower of
the unpaid loan balance for which the property served as collateral or estimated
fair value less estimated disposal costs. Costs incurred during the period of
ownership of the property are charged to other operating expenses. Gains and
losses from disposition or revaluation of the estimated fair value of the
property after acquisition are charged or credited to other operating expenses
as incurred or realized.
38
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
RESERVE FOR CREDIT LOSSES -- The reserve for credit losses is established
by provisions charged to operations and is maintained at a level that, in the
opinion of management, is adequate to absorb inherent losses from the lending
activities of UCB's subsidiaries. The level of the reserve is based on
historical loss experience, adjusted when required to give current recognition
to economic and other relevant factors. In determining the level of the reserve
for credit losses, management takes into consideration loan volumes and
outstandings, loan loss experience, 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 the market areas
served. Adverse changes in the economic conditions in UCB's market areas,
however, may 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. See Note 3.
MORTGAGE SERVICING RIGHTS -- Purchased mortgage servicing rights represent
the acquisition costs, net of accumulated amortization, of mortgage servicing
rights purchased from third parties. Originated mortgage servicing rights
represent the capitalized estimated fair values of the rights to service
mortgage loans for others on loans originated by UCB for sale in the secondary
market. Mortgage servicing rights are currently amortized over a period of seven
years, adjusted when appropriate to give effect to changes in prepayment speeds
of the underlying mortgages. In accordance with bank regulatory requirements, an
outside party valued the portfolio of purchased mortgage servicing rights as of
the end of each calendar quarter during the three years ended December 31, 1996,
for the purpose of calculating regulatory capital and regulatory capital ratios.
These valuations were performed using discounted cash flows as a basis for
determining fair value. See Note 4.
PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line method
over the estimated useful lives of the assets. Furniture and equipment are
depreciated using lives ranging from five to ten years, and buildings are
depreciated using a 39-year life. Leasehold improvements are amortized over the
terms of the respective leases or estimated useful lives of the improvements,
whichever is shorter. For income tax purposes, depreciation is computed
primarily using an accelerated method over the lives prescribed by current tax
regulations. Gains from sale/leaseback transactions are amortized over the terms
of the respective leases of the facilities as reductions in occupancy expense.
See Note 5.
INTANGIBLE ASSETS -- Purchased deposit-base premiums represent the portion
of the purchase price of acquired branch operations allocated to the core
deposit base. Purchased deposit-base premiums are amortized on an accelerated
method over a seven-year period. Goodwill, all of which arose from the 1993
acquisition of Home Federal Savings Bank of Eastern North Carolina, is being
amortized on a straight-line basis over ten years. Management reviews the
appropriateness of the amortization period and the balance of intangible assets
outstanding when economic events occur which may negatively impact the value of
such intangible assets to UCB and adjusts the remaining amortization period
and/or balance as deemed appropriate.
INCOME AND EXPENSE RECOGNITION -- The accrual method of accounting is used
for all significant categories of income and expense. Immaterial amounts of
insurance commissions, trust income, and other miscellaneous fees are reported
when received.
PENSION PLANS -- The qualified defined benefit pension plan covers all
employees with one or more years of service with UCB or its subsidiaries.
Pension costs are accounted for in accordance with the requirements of Financial
Accounting Standards No. 87 (FAS 87), "Employers' Accounting for Pensions." The
projected unit credit method is utilized for computing net periodic pension
cost. UCB's funding policy is to contribute annually an amount calculated under
the normal cost actuarial method. See Note 8.
The nonqualified supplemental pension plan covers designated senior
officers with one or more years of service with UCB or its subsidiaries. Pension
costs are accounted for in accordance with the requirements of FAS 87 utilizing
the projected unit credit method for computing net periodic pension costs. UCB's
policy is to fund supplemental pension benefits on a cash basis. See Note 8.
39
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
POSTRETIREMENT MEDICAL BENEFITS -- UCB provides health care benefits to
retired employees. Beginning in 1993, postretirement medical costs were
accounted for in accordance with the requirements of Financial Accounting
Standards No. 106 (FAS 106), "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The net claims model is utilized to determine UCB's
projected liability. UCB's policy is to fund current claims as presented. Prior
to 1993, UCB accounted for postretirement medical benefits on a cash basis. See
Note 8.
POSTEMPLOYMENT MEDICAL BENEFITS -- UCB provides health care benefits to
substantially all employees who have become disabled. Beginning in 1994,
postemployment medical costs are accounted for in accordance with the
requirements of Financial Accounting Standards No. 112 (FAS 112), "Employers'
Accounting for Postemployment Benefits." The net claims model is utilized to
determine UCB's projected liability. UCB's policy is to fund current claims as
presented. Prior to 1994, UCB accounted for postemployment medical benefits on a
cash basis. See Note 8.
INCOME TAX PROVISION -- The income tax provision is based on financial
statement income adjusted for certain items, primarily tax-exempt interest. The
account includes a provision for deferred income taxes which arise from the
income tax effect of the differences in the carrying values of assets and
liabilities reported for financial statement and income tax purposes. See Note
9.
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.
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 acquisitions by merger of Seaboard Savings Bank and
Triad Bank, (see Note 17), 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 acquisitions by merger of 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.
40
NOTE 2 -- SECURITIES
The Financial Accounting Standards Board (FASB) has issued Financial
Accounting Standards No. 115 (FAS 115), "Accounting for Certain Investments in
Debt and Equity Securities." This statement addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. These investments are to
be classified in three categories and accounted for as follows: (1) debt
securities that the entity has the positive intent and the ability to hold to
maturity are classified as held to maturity and reported at amortized cost; (2)
debt and equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities and
reported at fair value, with unrealized gains and losses included in earnings;
and (3) debt and equity securities not classified as either held to maturity or
trading securities are classified as available for sale and reported at fair
value, with net unrealized gains and losses excluded from earnings and reported
as a separate component of stockholders' equity.
During 1994, pursuant to the provisions of FAS 115, securities classified
as held to maturity by a pooled bank with an amortized cost of $300,000 were
transferred to the available for sale category. In addition, securities
classified as available for sale by a pooled bank with an amortized cost of
$2,316,000 were transferred to the held to maturity category. These transfers
were instituted to conform acquired portfolios of securities to the
classifications used by UCB.
During the period of November 15, 1995, through December 31, 1995, the
Financial Accounting Standards Board permitted a one-time reassessment of the
appropriateness of the designations of all securities and a redesignation of
securities if appropriate. As a result of this reassessment, UCB reclassified
securities with a book value of $203,101,000 and a market value of $204,340,000
to securities available for sale from investment securities.
The following is a summary of the securities portfolios by major
classification:
December 31,
1996 1995 1994
APPROXIMATE Approximate
AMORTIZED UNREALIZED UNREALIZED MARKET Amortized Unrealized Unrealized Market Amortized
COST GAINS LOSSES VALUE Cost Gains Losses Value Cost
(In thousands)
Securities available for
sale:
United States government
securities............... $784,943 $1,882 $1,125 $ 785,700 $585,795 $5,521 $127 $ 591,189 $329,070
Obligations of United
States government
agencies and
corporations............. 52,773 59 118 52,714 136,590 4 74 136,520 20,917
Mortgage-backed
securities(1)............ 25,846 34 570 25,310 29,628 53 346 29,335 34,830
Obligations of states and
political subdivisions... 1,100 2 -- 1,102 1,340 2 -- 1,342 --
Federal Home Loan Bank
stock.................... 12,200 -- -- 12,200 10,941 -- -- 10,941 10,877
Other securities.......... 406 -- -- 406 629 -- -- 629 69
Total securities
available for
sale.................. $877,268 $1,977 $1,813 $ 877,432 $764,923 $5,580 $547 $ 769,956 $395,763
Investment securities:
United States government
securities............... $ -- $ -- $ -- $ -- $ 10,396 $ 141 $168 $ 10,369 $140,161
Obligations of United
States government
agencies and
corporations............. -- -- -- -- 21,713 -- -- 21,713 23,615
Mortgage-backed
securities............... -- -- -- -- 4,508 16 44 4,480 5,633
Obligations of states and
political subdivisions... 46,090 1,286 42 47,334 60,660 2,011 40 62,631 77,071
Other securities.......... -- -- -- -- 77 -- -- 77 798
Total investment
securities............ $ 46,090 $1,286 $ 42 $ 47,334 $ 97,354 $2,168 $252 $ 99,270 $247,278
December 31,
1994 Approximate
Unrealized Unrealized Market
Gains Losses Value
Securities available for
sale:
United States government
securities............... $ -- $4,262 $ 324,808
Obligations of United
States government
agencies and
corporations............. -- 73 20,844
Mortgage-backed
securities(1)............ 1 3,118 31,713
Obligations of states and
political subdivisions... -- -- --
Federal Home Loan Bank
stock.................... -- -- 10,877
Other securities.......... -- 1 68
Total securities
available for
sale.................. $ 1 $7,454 $ 388,310
Investment securities:
United States government
securities............... $ -- $7,806 $ 132,355
Obligations of United
States government
agencies and
corporations............. -- 194 23,421
Mortgage-backed
securities............... -- -- 5,633
Obligations of states and
political subdivisions... 1,035 1,039 77,067
Other securities.......... -- -- 798
Total investment
securities............ $1,035 $9,039 $ 239,274
(1) AT DECEMBER 31, 1996, UCB OWNED COLLATERALIZED MORTGAGE OBLIGATIONS ISSUED
BY THE FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC) WHICH HAD AN AMORTIZED
COST OF $8,918,000 AND A MARKET VALUE OF $8,770,000; AND COLLATERALIZED
MORTGAGE OBLIGATIONS ISSUED BY THE FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) WHICH HAD AN AMORTIZED COST OF $11,454,000 AND A MARKET VALUE OF
$11,189,000. UCB ALSO OWNED COLLATERALIZED MORTGAGE OBLIGATIONS ISSUED BY A
PRIVATE ISSUER AND GUARANTEED BY THE GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION (GNMA). THESE SECURITIES HAD AN AMORTIZED COST OF $319,000 AND A
MARKET VALUE OF $336,000. OTHER MORTGAGE-BACKED PASS-THROUGH SECURITIES
ISSUED BY VARIOUS UNITED STATES GOVERNMENT AGENCIES AND CORPORATIONS WITH A
BOOK VALUE OF $5,155,000 AND A MARKET VALUE OF $5,015,000 WERE ALSO HELD AT
DECEMBER 31, 1996. AT DECEMBER 31, 1996, NONE OF THE COLLATERALIZED MORTGAGE
OBLIGATIONS OWNED BY UCB WERE CONSIDERED HIGH-RISK MORTGAGE SECURITIES UNDER
CURRENT REGULATORY GUIDELINES.
41
NOTE 2 -- SECURITIES -- CONTINUED
The aggregate amortized costs and approximate market values of the
securities available for sale and investment securities portfolios at December
31, 1996, by remaining contractual maturity are summarized as follows:
Securities Available
for Sale Investment Securities
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
(In thousands)
Debt securities:
Due in 1 year or less............................................ $ 412,459 $ 413,195 $ 5,255 $ 5,298
Due in 1 year through 5 years.................................... 425,994 425,972 24,382 25,143
Due after 5 years through 10 years............................... 298 284 13,766 14,034
Due after 10 years............................................... 100 100 2,687 2,859
Mortgage-backed securities....................................... 25,846 25,310 -- --
Total debt securities......................................... 864,697 864,861 46,090 47,334
Equity securities.................................................. 12,571(1) 12,571(1) -- --
Total securities.............................................. $ 877,268 $ 877,432 $46,090 $47,334
(1) AT DECEMBER 31, 1996, UCB OWNED STOCK IN THE FEDERAL HOME LOAN BANK OF
ATLANTA WITH BOOK AND MARKET VALUES OF $12,200,000, WHICH IS INCLUDED IN
EQUITY SECURITIES AND CLASSIFIED AS AVAILABLE FOR SALE.
In 1995, investment securities with book values of $3,810,000 were put back
to their issuers with no resulting gains or losses. The decisions to exercise
the put options contained in the original bond purchase agreements were the
result of the lowering of the debt ratings on these securities in 1995 to a
level below the minimum standards specified by UCB's investment policy. Gross
gains of $64,000 in 1996, $7,000 in 1995, and $5,000 in 1994 were realized as
the result of securities called for early redemption by the issuers.
Proceeds from the sale of investments in securities classified as available
for sale amounted to $12,225,000 in 1996 and $25,281,000 in 1994. Gross gains of
$13,000 and gross losses of $196,000 were realized on the 1996 sales, and gross
losses of $59,000 were realized on the 1994 sales.
During 1996, securities classified as held to maturity by pooled banks with
an amortized cost of $36,646,000 have been transferred to the available for sale
category. In addition, securities classified as available for sale by pooled
banks with an amortized cost of $240,000 have been transferred to the held to
maturity category. These transfers were instituted to conform the acquired
portfolios of securities to the classifications used by UCB.
Securities with book values of $398,323,000 at December 31, 1996, and
$388,540,000 at December 31, 1995, were pledged to secure public funds on
deposit, securities sold under agreement to repurchase, and for other purposes
required by law. See Note 6.
At December 31, 1996, UCB owned securities of no issuers other than the
United States government that exceeded 10% of UCB's stockholders' equity.
At December 31, 1996, UCB owned municipal bonds with a book value of
$152,000 that had ratings of less than investment grade and securities with a
book value of $997,000 at December 31, 1996, which had not been rated by a
rating agency. Included in the unrated securities were bonds with a book value
of $952,000 that are collateralized by United States government securities. The
majority of the balance of unrated municipal bonds as well as the securities
that had ratings of less than investment grade were bonds issued by
municipalities located within UCB's market areas. UCB monitors the operations of
these municipalities, and it is management's opinion that no more than a normal
risk of loss exists on these securities.
Other than the mortgage-backed securities discussed above, UCB owned no
securities at December 31, 1996, which were considered derivative investments by
regulatory authorities.
42
NOTE 3 -- LOANS AND RESERVE FOR CREDIT LOSSES
The following is a summary of loans outstanding by major classification:
December 31,
1996 1995
(In thousands)
Loans secured by real estate:
Construction and land acquisition and development............................................... $ 297,921 $ 226,326
Secured by nonfarm, nonresidential properties................................................... 655,330 620,367
Secured by farmland............................................................................. 82,097 90,658
Secured by multifamily residences............................................................... 78,008 65,097
Total loans secured by real estate, excluding loans secured by
1-4 family residences...................................................................... 1,113,356 1,002,448
Revolving credit secured by 1-4 family residences............................................... 146,205 140,032
Other loans secured by 1-4 family residences(1)................................................. 626,888 613,846
Total loans secured by 1-4 family residences................................................. 773,093 753,878
Total loans secured by real estate........................................................... 1,886,449 1,756,326
Commercial, financial, and agricultural loans, excluding loans secured by real estate............. 340,242 296,778
Loans to individuals for household, family, and other personal expenditures,
excluding loans secured by real estate.......................................................... 824,569 691,193
All other loans and lease receivables............................................................. 98,006 83,507
Total loans.................................................................................. 3,149,266 2,827,804
Net (unearned income) deferred origination costs................................................ 431 (817)
Loans, net of unearned income................................................................ $3,149,697 $2,826,987
(1) INCLUDES $8,864,000 AT DECEMBER 31, 1996, AND $16,084,000 AT DECEMBER 31,
1995, IN PERMANENT MORTGAGES ORIGINATED FOR SALE IN THE SECONDARY MARKET
WHICH ARE STATED AT THE LOWER OF AGGREGATE COST OR MARKET VALUE.
It is UCB's policy to review each prospective credit in order to determine
acceptable repayment terms, levels of collateral required, if any, and such
other conditions as may be appropriate to secure the credit prior to commitment.
The type of collateral accepted ranges from highly liquid assets, such as cash
on deposit, to unimproved real estate.
At December 31, 1996, substantially all of UCB's loan portfolio was
originated by UCB to borrowers either domiciled in or who had business
operations in North Carolina or South Carolina. UCB had no excessive
concentrations of credit to borrowers in any other market. At December 31, 1996,
$1,886,449,000, or 59.9%, of UCB's loan portfolio was composed of loans
collateralized by liens on real estate which included $773,093,000 (24.6% of
total loans) in loans collateralized by liens on 1-4 family residences.
The following is a summary of nonperforming and problem assets. Net
unrecorded and foregone interest income of $141,000 in 1996, $472,000 in 1995,
and $702,000 in 1994 was attributable to loans carried in nonaccrual status and
loans accounted for as troubled debt restructurings at each year-end.
December 31,
1996 1995
(In thousands)
Foreclosed assets....................................................................................... $ 7,493 $ 5,234
Nonaccrual loans........................................................................................ 2,473 6,403
Total nonperforming assets............................................................................ 9,966 11,637
Loans 90 days or more past due, excluding nonaccrual loans.............................................. 9,690 5,554
Total problem assets.................................................................................. $19,656 $17,191
43
NOTE 3 -- LOANS AND RESERVE FOR CREDIT LOSSES -- CONTINUED
Effective January 1, 1995, UCB adopted Financial Accounting Standards No.
114 (FAS 114), "Accounting by Creditors for Impairment of a Loan," and Financial
Accounting Standards No. 118 (FAS 118), "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures." These statements amend FAS 5,
"Accounting for Contingencies," to clarify that a creditor should evaluate the
collectibility of both contractual interest and principal of a receivable when
assessing the need for a loss accrual; and FAS 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings," to require a creditor to account
for a troubled debt restructuring involving a modification of terms at fair
value as of the date of the restructuring. Prior to January 1, 1995, UCB
measured loan impairment in a manner generally consistent with the methods
prescribed in FAS 114, and, as a result, no additions to the reserve for credit
losses were required due to the adoption of this accounting standard.
The following table sets forth certain pertinent information regarding
impaired loans:
At December 31,
or
for the Years
then Ended
1996 1995
(In thousands)
Impaired loans at year-end............................................................................... $2,473 $6,404
Impaired loans at year-end which had an assigned reserve for credit losses............................... 1,395 3,189
Reserve for credit losses assigned to impaired loans at year-end......................................... 350 608
Average balance of impaired loans........................................................................ 2,616 7,100
Cash basis interest income recognized on impaired loans.................................................. $ 48 $ 120
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 $18,144,000 at December 31, 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.
The following table sets forth the analysis of the consolidated reserve for
credit losses:
Years Ended December 31,
1996 1995 1994
(In thousands)
Balance, January 1........................................................................... $ 43,464 $41,341 $41,918
Provision for credit losses................................................................ 8,850 7,292 3,549
Recoveries of losses previously charged off................................................ 3,413 3,168 2,138
Losses charged to reserve.................................................................. (9,589) (8,337) (6,264)
Balance, December 31......................................................................... $ 46,138 $43,464 $41,341
UCB's subsidiary banks have had loan transactions with directors and
executive officers of UCB and its subsidiaries and their associates. In
management's opinion, all such loans were made on the same terms, including
interest rates and collateral, as those prevailing for comparable transactions
with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. None of these loans were
classified as problem assets at December 31, 1996. Summary data with respect to
these transactions follows:
Balance at
Beginning Amounts
of Year(1) Additions Collected
(In thousands)
Year ended December 31, 1996................................................. $ 40,973 $ 33,008 $ 40,578
Balance at
End of Year(1)
Year ended December 31, 1996................................................. $ 33,403
(1) DOES NOT INCLUDE LOANS TO UNAFFILIATED BORROWERS PURCHASED FROM CERTAIN
DIRECTORS OF UCB AND ITS SUBSIDIARIES AND THEIR ASSOCIATES FOR WHICH THE
DIRECTORS AND THEIR ASSOCIATES HAVE NO DIRECT OR CONTINGENT LIABILITY FOR
REPAYMENT. THE LOANS, WHICH HAVE NONPREFERENTIAL TERMS, HAD AGGREGATE
PRINCIPAL BALANCES OUTSTANDING OF $39,526,000 AT JANUARY 1, 1996, AND
$43,637,000 AT DECEMBER 31, 1996.
44
NOTE 4 -- MORTGAGE SERVICING RIGHTS
Effective April 1, 1995, UCB adopted the provisions of Financial Accounting
Standards No. 122 (FAS 122), "Accounting for Mortgage Servicing Rights, an
amendment of FASB Statement No. 65." This statement amends certain provisions of
FAS 65 to eliminate the distinction between rights to service mortgage loans for
others that are acquired through loan origination activities and rights to
service mortgage loans for others that are acquired through purchase
transactions. Under FAS 65, the cost of originated mortgage servicing rights was
not recognized as an asset and was charged to earnings when the related loan was
sold. As a result of adopting FAS 122, beginning April 1995, the estimated fair
values of the rights to service mortgage loans for others have been capitalized
on loans originated by UCB. This resulted in an increase in the gains on the
sale of mortgage loans into the secondary market totaling $964,000 during 1996
and $592,000 during 1995.
FAS 122 has a different cost allocation methodology than FAS 65 for
purchased mortgage servicing rights. FAS 65 allocated such costs incurred in
excess of the market value of the loans without the servicing rights, whereas
FAS 122 allocates costs based on the relative market values of the purchased
servicing rights and the related loans. The application of the FAS 122 cost
allocation method to purchased mortgage servicing rights acquired during 1996
and 1995 was not material.
FAS 122 also requires that all capitalized servicing rights be evaluated
for impairment based on the excess of the carrying amount of such rights over
their fair value. For purposes of measuring impairment, capitalized mortgage
servicing rights are stratified on the basis of one or more of the predominant
risk characteristics of the underlying loans. The adoption of FAS 122 resulted
in an impairment adjustment to capitalized mortgage servicing rights of $30,000
at December 31, 1996, and $104,000 at December 31, 1995.
The following is an analysis of capitalized mortgage servicing rights:
Years Ended December
31,
1996 1995
(In thousands)
Balance, January 1........................................................................................ $ 3,787 $2,555
Originated servicing rights............................................................................. 964 592
Purchased servicing rights.............................................................................. 1,090 1,331
Amortization............................................................................................ (994) (691)
Balance, December 31...................................................................................... 4,847 3,787
Valuation allowance..................................................................................... (30) (104)
Net balance, December 31.................................................................................. $ 4,817 $3,683
NOTE 5 -- PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
Accumulated Net Book
Cost Depreciation Value
(In thousands)
December 31, 1996:
Land................................................................................... $ 13,863 $ -- $ 13,863
Buildings and leasehold improvements................................................... 54,255 23,025 31,230
Furniture and equipment................................................................ 36,300 25,521 10,779
Total............................................................................... $104,418 $48,546 $ 55,872
December 31, 1995:
Land................................................................................... $ 15,028 $ -- $ 15,028
Buildings and leasehold improvements................................................... 53,343 21,396 31,947
Furniture and equipment................................................................ 34,967 23,940 11,027
Total............................................................................... $103,338 $45,336 $ 58,002
45
NOTE 5 -- PREMISES AND EQUIPMENT -- CONTINUED
Depreciation expense is included in the consolidated statements of income
as follows:
Years Ended December 31,
1996 1995 1994
(In thousands)
Depreciation charged to occupancy expense................................................... $1,855 $1,878 $2,010
Depreciation charged to equipment expense................................................... 3,365 3,740 3,524
Depreciation charged to other operating expenses............................................ 187 217 191
Total depreciation expense................................................................ $5,407 $5,835 $5,725
NOTE 6 -- SHORT-TERM BORROWINGS
Short-term borrowings are summarized as follows:
December 31,
1996 1995
(In thousands)
Federal funds purchased.............................................................................. $ 11,920 $16,820
Securities sold under agreement to repurchase........................................................ 15,858 10,936
Treasury tax and loan depository note accounts....................................................... 14,743 2,683
Total short-term borrowings........................................................................ $ 42,521 $30,439
Federal funds purchased represent unsecured overnight borrowings from other
financial institutions by UCB's subsidiary banks. Treasury tax and loan
depository note accounts are payable on demand to the United States Treasury by
UCB's subsidiary banks and are collateralized by state, county, and municipal
securities. Interest on borrowings under these arrangements is payable monthly
at .25% below the average federal funds rate as quoted by the Federal Reserve
Board. 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.
A summary of securities sold under agreement to repurchase is as follows:
Years Ended
December 31,
1996 1995
(Dollars in
thousands)
Balance outstanding at end of year..................................................................... $15,858 $10,936
Maximum amount outstanding at any month-end during the year............................................ 40,040 28,216
Average balance outstanding during the year............................................................ 6,426 11,636
Average interest rate paid during the year............................................................. 4.41% 5.25%
Average interest rate payable at end of year........................................................... 4.72% 4.70%
NOTE 7 -- MORTGAGES AND OTHER NOTES PAYABLE
Mortgages payable totaled $97,000 at December 31, 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 $540,000 at
December 31, 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 bears interest at an annual rate of 10%, payable
monthly. The principal was paid March 1, 1996.
Advances from the Federal Home Loan Bank of Atlanta with an initial
maturity of more than one year totaled $2,176,000 at December 31, 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 8.15%, payable monthly, with
principal due at various maturities.
46
NOTE 7 -- MORTGAGES AND OTHER NOTES PAYABLE -- CONTINUED
At December 31, 1996, UCB's subsidiary banks had immediately available
credit lines from the Federal Home Loan Bank of Atlanta totaling $106,504,000
collateralized by blanket liens on qualifying loans secured by first mortgages
on 1-4 family residences. This amount could be increased to $416,171,000 by the
purchase of an additional $34,564,000 of common stock in the Federal Home Loan
Bank of Atlanta by UCB's subsidiary banks.
NOTE 8 -- EMPLOYEE BENEFIT AND INCENTIVE COMPENSATION PLANS
UCB and its subsidiaries maintain a noncontributory qualified defined
benefit pension plan covering all eligible employees with one or more years of
service as of the beginning of the plan's fiscal year. Benefits are based on
years of service and the average of the highest basic compensation paid in any
five consecutive calendar years during the ten calendar years preceding the
earlier of the employee's actual or normal retirement age.
The net periodic pension cost charged to operating expense related to this
plan was $2,155,000 in 1996, $2,449,000 in 1995, and $3,097,000 in 1994. In
addition, $5,707,000 was expensed during 1994 in connection with the
restructuring charges incurred. See Note 18.
The major assumptions used in preparing the actuarial calculations for the
qualified defined benefit pension plan are set forth in the following table:
Years Ended December 31,
1996 1995 1994
For determining liability disclosures at year-end:
Weighted average discount rate............................................................... 7.5% 7.5% 8.0%
Expected increase in salary levels........................................................... 5.5% 5.5% 5.5%
For determining net pension expense for the year:
Weighted average discount rate............................................................... 7.5% 8.0% 7.0%
Expected long-term return on plan assets..................................................... 9.0% 8.0% 8.0%
Expected increase in salary levels........................................................... 5.5% 5.5% 5.5%
The following table sets forth the qualified pension plan's funded status
and amounts recognized in UCB's Consolidated Balance Sheets:
December 31,
1996 1995
(In thousands)
Actuarial present value of accumulated benefit obligation:
Vested benefits.................................................................................... $ 43,295 $ 40,961
Nonvested benefits................................................................................. 613 575
Total present value of accumulated benefit obligation........................................... $ 43,908 $ 41,536
Projected benefit obligation......................................................................... $ 60,540 $ 56,714
Plan assets at fair value, primarily marketable securities........................................... (56,912) (46,259)
Projected benefit obligation in excess of plan assets................................................ 3,628 10,455
Unrecognized net transition asset being amortized over 17 years...................................... 2,281 2,565
Unrecognized prior service costs..................................................................... (768) (852)
Unrecognized net loss................................................................................ (5,330) (6,812)
Accrued plan liability (prepaid pension cost) included in the consolidated balance sheets.......... $ (189) $ 5,356
47
NOTE 8 -- EMPLOYEE BENEFIT AND INCENTIVE COMPENSATION PLANS -- CONTINUED
The net periodic pension cost applicable to the qualified pension plan
included the following components:
Years Ended December 31,
1996 1995 1994
(In thousands)
Service costs-benefits earned during the period................................................ $2,506 $ 2,006 $ 2,571
Interest costs on projected benefit obligation................................................. 4,133 3,760 3,172
Return on plan assets.......................................................................... (5,762) (6,545) 535
Net amortization and deferrals................................................................. 1,278 3,231 (3,181)
Net pension expense applicable to qualified plan............................................. $2,155 $ 2,452 $ 3,097
UCB and its subsidiaries maintain a nonqualified supplemental pension plan
to provide benefits to senior officers where the salary replacement ratio under
UCB's qualified defined benefit plan is projected to be less than 60% of final
average pay at normal retirement. This plan is designed to provide a minimum
level of benefits after consideration of benefits received from UCB's qualified
pension plan, 50% of primary social security, and pension benefits received from
previous employers. The net periodic pension cost charged to operations for the
supplemental pension plan was $589,00 in 1996, $562,000 in 1995, and $383,000 in
1994. In addition, $2,347,000 was expensed during 1994 in connection with the
restructuring charges incurred. See Note 18.
The major assumptions used in preparing the actuarial calculations for the
nonqualified supplemental pension plan are the same as those used for the
noncontributory qualified defined benefit pension plan.
The following table sets forth the supplemental pension plan's funded
status and amounts recognized in UCB's Consolidated Balance Sheets:
December 31,
1996 1995
(In thousands)
Actuarial present value of accumulated benefit obligation:
Vested benefits......................................................................................... $ 4,113 $3,832
Nonvested benefits...................................................................................... 697 541
Total present value of accumulated benefit obligation................................................ $ 4,810 $4,373
Projected benefit obligation.............................................................................. $ 5,338 $4,885
Plan assets at fair value................................................................................. -- --
Projected benefit obligation in excess of plan assets..................................................... 5,338 4,885
Intangible asset to recognize minimum liability........................................................... 241 487
Unrecognized prior service costs.......................................................................... (849) (950)
Unrecognized net gain..................................................................................... 80 80
Accrued plan liability included in the consolidated balance sheets................................... $ 4,810 $4,502
The net periodic pension cost applicable to the supplemental pension plan
included the following components:
Years Ended
December 31,
1996 1995 1994
(In thousands)
Service costs-benefits earned during the period....................................................... $122 $101 $124
Interest costs on projected benefit obligation........................................................ 365 360 153
Amortization of prior service costs................................................................... 102 101 106
Pension expense applicable to supplemental plan..................................................... $589 $562 $383
UCB and its subsidiaries maintain a defined benefit retiree health care
plan covering all employees who retire after age 55 with ten years of service.
Lifetime benefits provided by the plan for each covered employee is limited to
$1,000,000.
48
NOTE 8 -- EMPLOYEE BENEFIT AND INCENTIVE COMPENSATION PLANS -- CONTINUED
Retired employees may purchase similar health care benefits for their spouses,
subject to the same lifetime limitation. Effective January 1, 1993, UCB adopted
FAS 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," which requires the recognition of the accumulated benefit obligation
for UCB's retiree health care plan as well as the periodic costs of providing
retiree health coverage. The actuarial present value of the accumulated
postretirement health care benefit obligation amounted to $7,890,000 at January
1, 1993, and is being amortized over 20 years.
Net periodic retiree health care expense charged to operations was
$1,077,000 in 1996, $1,116,000 in 1995, and $1,026,000 in 1994. In addition,
$1,130,000 was expensed during 1994 in connection with the restructuring charges
incurred. See Note 18. The projected benefit obligation was determined using a
weighted average discount rate of 7.5% at December 31, 1996 and 1995, and 8.0%
at December 31, 1994, and an expected inflation rate for health care expenses
for each year starting at 12.0% in the current year and graded to 6.0% after 12
years. Increasing the health care cost trend rates by one percentage point would
increase the accumulated postretirement benefit obligation at December 31, 1996,
by $702,000 and annual aggregate service and interest costs by $51,000.
The following table sets forth the retiree health care plan's funded status
and amounts recognized in UCB's Consolidated Balance Sheets:
December 31,
1996 1995
(In thousands)
Actuarial present value of accumulated benefit obligation:
Retirees.............................................................................................. $ 7,873 $7,659
Fully eligible active plan participants............................................................... 254 225
Other active plan participants........................................................................ 1,035 886
Total present value of accumulated benefit obligation.............................................. 9,162 8,770
Plan assets at fair value............................................................................... -- --
Present value of accumulated benefit obligation in excess of plan assets................................ 9,162 8,770
Unrecognized net transition asset being recognized over 20 years........................................ (6,312) (6,707)
Unrecognized net gain................................................................................... 1,532 1,582
Accrued plan liability included in the consolidated balance sheets................................. $ 4,382 $3,645
Postretirement health care expense included the following components:
Years Ended
December 31,
1996 1995 1994
(In thousands)
Service costs-benefits earned during the period.................................................. $ 95 $ 76 $ 110
Interest costs on present value of accumulated benefit obligation................................ 638 672 523
Net amortization and deferrals................................................................... 344 368 393
Postretirement health care expense............................................................. $1,077 $1,116 $1,026
UCB and its subsidiaries maintain a defined contribution postemployment
health care plan covering all employees who become disabled. Lifetime benefits
provided by the plan for each covered disabled former employee is limited to
$1,000,000. Similar health care benefits may be purchased for their spouses,
subject to the same lifetime limitation. Effective January 1, 1994, UCB adopted
FAS 112, "Employers' Accounting for Postemployment Benefits," which requires the
accrual of expenses for the estimated cost of benefits provided for employees
after employment but before retirement. The adoption of FAS 112 required
immediate recognition of the actuarially determined liability for postemployment
benefits which amounted to $529,000 at December 31, 1993. The recognition of the
liability, net of related deferred income taxes, resulted in a charge against
net income of $316,000 which was reported separately in the consolidated
statement of income for the year ended December 31, 1994, as a cumulative effect
of a change in accounting method. The net periodic postemployment health care
expense charged to operations was $742,000 in 1996, $37,000 in 1995, and $52,000
in 1994.
49
NOTE 8 -- EMPLOYEE BENEFIT AND INCENTIVE COMPENSATION PLANS -- CONTINUED
The accumulated postemployment health care benefit obligation amounted to
$901,000 at December 31, 1996, and $394,000 at December 31, 1995. The
accumulated postemployment health care benefit obligation at December 31, 1996,
was determined using a weighted average discount rate of 7.5% and an expected
inflation rate for health care expenses starting at 11.25% per year graded to
6.25% after ten years. The accumulated postemployment health care benefit
obligation at December 31, 1995, was determined using a weighted average
discount rate of 8.0% and an expected inflation rate for health care expenses
starting at 14.0% per year graded to 6.5% after five years.
UCB maintains a tax-qualified employee savings plan which was established
pursuant to Section 401(k) of the Internal Revenue Code. Regular employees who
participate may contribute up to 7% of their annual compensation (not to exceed
$9,500) to the plan. UCB contributes an amount equal to the employee's
contribution, not to exceed the lesser of $9,000 or 6% of the employee's annual
compensation, and may make an additional discretionary profit-sharing
contribution to the plan. Total employer contributions to the savings plan
amounted to $2,783,000 in 1996, $2,477,000 in 1995, and $2,551,000 in 1994. No
discretionary profit-sharing contributions have been made to the plan since its
inception in 1985. The plan purchased 288,844 shares of UCB common stock during
the year ended December 31, 1996, 322,121 shares during 1995, and 370,753 shares
during 1994. The plan held 2,627,750 shares of UCB common stock at December 31,
1996, 2,503,158 shares at December 31, 1995, and 2,478,139 shares at December
31, 1994.
Effective January 1, 1994, UCB established a long-term incentive
compensation plan for the benefit of members of senior management. Under the
terms of the plan, awards, which have a value contingent upon the level of
future corporate performance compared to predetermined targets, have been
granted subject to a five-year vesting period. Any payments to participants
pursuant to this plan will generally be made in UCB common stock at the end of
the vesting period except under certain defined circumstances. Charges to
operating expenses in connection with the 1994 long-term incentive plan amounted
to $533,000 in 1996, $836,000 in 1995, and $557,000 in 1994.
During 1995, UCB established a Stock Option and Incentive Award Plan which
was approved by shareholders at the annual meeting in April 1996. Under the
terms of the plan, options to purchase up to 900,000 shares may be granted to
members of UCB's management. The option price per share of options granted under
the plan was the median bid/asked closing price per share of UCB's common stock
as quoted by the National Association of Securities Dealers Automated Quotation
system on the date of the grant. Options may be exercised after vesting periods
ranging from two to five years. The plan replaced a nonqualified stock option
plan which has expired.
As described above, UCB had three stock-based compensation plans at
December 31, 1996. UCB adopted Financial Accounting Standards No. 123 (FAS 123),
"Accounting for Stock-Based Compensation," on January 1, 1996, and elected to
continue to measure compensation cost relative to these plans using APB No. 25
(APB 25) in 1995 and 1996. Accordingly, since all grants of stock options were
made at the prevailing market price on the date of grant, no compensation cost
was recorded for grants of stock options in 1996 or 1995. The disclosure of the
pro forma net income and earnings per share as if the fair value-based
accounting method of FAS 123 had been used to account for stock-based
compensation cost is required only for awards granted after December 31, 1994,
and is provided below. The effect on the pro forma net income for 1995 and 1996
of options granted prior to 1995 has not been determined. Consequently, the
effects of applying FAS 123 pro forma disclosures during the initial phase-in
period may not be representative of the effects on reported net income in future
years.
Years Ended December 31,
1996 1995
(In thousands except
per share amounts)
Net income:
As reported................................................................................... $ 45,204 $46,047
Pro forma..................................................................................... $ 45,125 $46,007
Earnings per share:
As reported................................................................................... $ 1.87 $ 1.91
Pro forma..................................................................................... $ 1.86 $ 1.91
50
NOTE 8 -- EMPLOYEE BENEFIT AND INCENTIVE COMPENSATION PLANS -- CONTINUED
The per share weighted average fair value of stock options granted during
1996 and 1995 was $2.25 and $4.53, respectively, on the grant dates. The fair
value of each option granted during 1996 and 1995 was estimated using the
Modified Black-Scholes option-pricing model with the following weighted average
assumptions:
Years Ended December 31,
1996 1995
Dividend yield........................................................................... 3.2% 3.2%
Risk-free interest rates................................................................. 5.2% 5.6% and 6.1%
Volatility............................................................................... 20.9% 20.9%
Expected lives........................................................................... 2 YEARS 2 Years and 6 Years
The following table sets forth the pertinent data regarding the options
outstanding with respect to UCB's stock option plans:
Years Ended December 31,
1996 1995 1994
WEIGHTED Weighted
NUMBER AVERAGE Number Average Number
OF SHARES PRICE of Shares Price of Shares
Options outstanding at beginning of year............... 420,009 $11.73 396,813 $ 9.47 435,114
Options granted........................................ 5,000 20.78 75,851 20.28 42,009
Options exercised...................................... (117,091) 9.04 (52,573) 6.96 (64,610)
Options forfeited...................................... (797)(1) 20.70 (82) 8.25 (15,700)
Options outstanding at end of year..................... 307,121 $12.88 420,009 $11.73 396,813
Options exercisable at end of year..................... 193,503 $ 9.53 160,942 $ 8.49 193,134
Years Ended December 31,
Weighted
Average
Price
Options outstanding at beginning of year............... $ 8.82
Options granted........................................ 12.34
Options exercised...................................... 6.74
Options forfeited...................................... 10.40
Options outstanding at end of year..................... $ 9.47
Options exercisable at end of year..................... $ 8.07
(1) INCLUDES SHARES FORFEITED DUE TO TRUNCATION OF FRACTIONAL SHARES CAUSED BY
CONVERSION RATIOS IN MERGERS WITH SEABOARD SAVINGS BANK AND TRIAD BANK.
The following table summarizes information concerning stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Weighted Average Weighted
Range of Number Remaining Weighted Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
$ 5.58 to $ 9.99 73,879 6.4 Years $ 6.63 73,879 $ 6.63
10.00 to 14.99 150,497 8.4 Years 11.73 114,956 10.93
15.00 to 19.99 9,000 10.0 Years 18.17 -- --
20.00 to 20.83 73,745 6.8 Years 20.83 4,668 20.79
$ 5.58 to $20.83 307,121 7.6 Years $12.88 193,503 $ 9.53
Effective January 1, 1994, UCB established the Management Incentive Plan to
provide annual incentive compensation in addition to base salary to key
management and staff employees. The maximum aggregate incentive compensation
which may be awarded pursuant to this plan in any year is determined based on a
percentage of the participants' base salaries for the calendar year adjusted to
reflect UCB's achievement of the corporate performance target for net operating
earnings per share (income per share before cumulative effects of changes in
accounting methods for the calendar year adjusted for the net effect of
poolings-of-interest merger acquisitions, restructuring charges, and certain
other adjustments) and, in some cases, the attainment of performance targets
established for individual operating units. The charge to operating expenses in
connection with the Management Incentive Plan was $2,113,000 in 1996, $1,958,000
in 1995, and $2,351,000 in 1994.
51
NOTE 9 -- INCOME TAX PROVISION
Components of the consolidated income tax provision are as follows:
Years Ended December 31,
1996 1995 1994
(In thousands)
Taxes currently payable:
Federal................................................................................ $23,130 $22,642 $17,228
State.................................................................................. 2,083 2,750 2,386
Total taxes currently payable....................................................... 25,213 25,392 19,614
Net deferred income tax benefits:
Federal................................................................................ (597) (307) (1,394)
State.................................................................................. (61) (11) (451)
Total net deferred income tax benefits.............................................. (658) (318) (1,845)
Total income tax provision............................................................... $24,555 $25,074 $17,769
Total income tax expense for the periods shown below is less than the
amount computed by applying the statutory federal income tax rate (35% in 1996,
1995, and 1994) to income before income taxes for the following reasons:
Years Ended December 31,
1996 1995 1994
(In thousands)
Computed income tax provision................................................................ $24,416 $24,892 $17,263
Increase (decrease) in taxes resulting from:
Tax-exempt income on loans and investments.............................................. (1,534) (1,760) (1,966)
State income taxes, net of federal tax benefit.......................................... 1,314 1,780 1,258
Other, net.............................................................................. 359 162 1,214
Total income tax provision................................................................... $24,555 $25,074 $17,769
Income tax provision related to gains (losses) on dispositions of securities................. $ (42) $ 3 $ (22)
52
NOTE 9 -- INCOME TAX PROVISION -- CONTINUED
At December 31, 1996, UCB had recorded a net deferred tax asset of
$18,131,000. This deferred tax asset is less than the income taxes paid in prior
years that are currently available to offset tax losses, therefore, no valuation
allowance is necessary for deferred tax assets at December 31, 1996. The sources
and tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are shown below:
December 31,
1996 1995
(In thousands)
Reserve for credit losses............................................................................... $18,448 $16,829
Deferred gains on asset sales........................................................................... 694 767
Benefit plan accruals................................................................................... 4,449 4,680
Deferred compensation accruals.......................................................................... 816 609
Other temporary differences creating deferred tax assets................................................ 2,966 2,159
Total deferred tax assets............................................................................. 27,373 25,044
Accelerated depreciation................................................................................ 3,207 3,322
Deferred loan origination fees, net of deferred costs................................................... 2,196 1,478
Other temporary differences creating deferred tax liabilities........................................... 3,839 5,243
Total deferred tax liabilities........................................................................ 9,242 10,043
Net deferred tax assets............................................................................ $18,131 $15,001
NOTE 10 -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following is a breakdown of items included in "Other noninterest
expenses, excluding restructuring charges" on the consolidated statements of
income:
Years Ended December 31,
1996 1995 1994
(In thousands)
Data processing fees and software expense.................................................. $ 7,811 $ 5,399 $ 4,264
Outside services........................................................................... 6,531 3,938 3,671
Noncredit losses........................................................................... 5,690 2,053 1,213
Marketing and business development......................................................... 4,968 4,733 4,122
Postage and delivery....................................................................... 4,154 3,940 3,569
Printing, stationery, and supplies......................................................... 3,886 3,824 2,992
Telephone expense.......................................................................... 3,859 3,010 2,322
Amortization of goodwill and other intangible assets....................................... 2,547 2,187 950
Travel expense............................................................................. 2,084 1,997 2,106
Insurance and taxes, other than taxes on income............................................ 1,519 1,523 1,470
FDIC deposit insurance premiums............................................................ 1,227 3,864 6,556
Amortization of capitalized mortgage servicing rights...................................... 994 691 1,440
Subscriptions and dues..................................................................... 634 629 651
Donations.................................................................................. 465 345 698
Other expenses............................................................................. 3,758 3,363 3,008
Total other noninterest expenses, excluding restructuring charges....................... $ 50,127 $ 41,496 $ 39,032
53
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS -- In the normal course
of business, UCB's banking subsidiaries are parties to financial instruments
with off-balance sheet risks. These financial instruments include commitments to
extend credit, financial guarantees, standby letters of credit, permanent
mortgage loans sold with limited recourse provisions, and forward contracts
represented by commitments to sell securitized mortgage loans. Although the
principal balances of these instruments are not reflected in the accompanying
financial statements, credit and market risks are inherent in these
transactions.
UCB's exposure to credit loss in the event of nonperformance by the party
to whom credit or financial guarantees have been extended is represented by the
contractual amount of the financial instruments. UCB maintains the same credit
policies in making off-balance sheet commitments and financial guarantees as it
does for its on-balance sheet instruments.
Forward contracts to deliver securitized mortgage loans do not represent
exposure to credit loss; rather, they represent market exposure to potential
interest rate risk. UCB controls the market risk of its forward contracts to
deliver securitized mortgage loans by monitoring the volume of loan applications
in process, the estimated closure rate of applications in process, the volume of
commitments to purchase mortgage loans originated by third parties, and the
overall direction of mortgage rates in the secondary market.
The following table sets forth the pertinent information concerning UCB's
off-balance sheet financial instruments with credit or market risk at year-end:
Contract Amount
at December 31,
1996 1995
(In thousands)
Unfunded commitments to extend credit:
Commercial real estate, construction, and land acquisition and development loans................. $ 260,721 $ 211,348
Revolving consumer lines of credit secured primarily by junior liens on 1-4 family residences.... 145,508 135,075
Credit card and other unsecured consumer credit lines............................................ 110,874 123,952
All other loans.................................................................................. 191,503 246,068
Total unfunded commitments to extend credit................................................... $ 708,606 $ 716,443
Standby letters of credit........................................................................ $ 16,688 $ 17,800
Commercial letters of credit..................................................................... $ 1,892 $ 2,296
Permanent mortgage loans sold with limited recourse.............................................. $ 3,296 $ 4,144
Financial instruments whose contract amounts exceed the amount of credit risk:
Forward contracts to deliver securitized mortgage loans.......................................... $ 26,130 $ 47,358
Commitments to extend credit are agreements to lend which remain
outstanding over a specified period (usually one year) unless conditions stated
in the contract have been violated. Many of the commitments are expected to
expire without being drawn upon; therefore, the total unfunded commitment
amounts do not necessarily represent future cash requirements. Collateral
obtained, if any, upon extension of credit is based on management's credit
evaluation of the borrower. The collateral may include, but is not limited to,
marketable securities and other liquid assets, accounts receivable, inventory,
and real and personal property. Except for $30,591,000 in commercial lines of
credit which have maturities of more than one year and do not require a separate
credit decision before being drawn upon, UCB's loan commitments are short-term
(less than one year) by contract or are generally restricted to separate credit
decisions for advances pursuant to the commitments.
Included in commitments to extend credit are commitments to originate
residential mortgage loans to be held for sale of approximately $12,266,000 at
December 31, 1996, and $15,476,000 at December 31, 1995, with terms generally
not exceeding 90 days. As discussed in Note 3, mortgage loans held for sale,
which are carried at the lower of aggregate cost or market value and are
included in total loans, were approximately $8,864,000 and $16,084,000 at
December 31, 1996 and 1995, respectively. In connection with the commitments to
originate residential mortgage loans and mortgage loans held for sale,
management has entered into forward commitments to sell residential mortgage
loans totaling $26,130,000 at December 31, 1996, and $47,358,000 at December 31,
1995. Such forward commitments are entered into to reduce UCB's exposure to
54
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES -- CONTINUED
market risk arising from potential changes in interest rates, which could alter
the underlying market value of the commitments to originate residential mortgage
loans and of mortgage loans held for sale. The forward commitments are at fixed
prices and are scheduled to settle at specified dates which generally do not
exceed 90 days. Loans held for sale and the commitments to originate residential
mortgage loans are valued using the fixed prices of the forward commitments to
sell mortgage loans. Loans held for sale and commitments to originate
residential mortgage loans not covered by existing forward commitments to sell
loans are valued using quoted market prices appropriate for the related loan
characteristics and interest rate levels. Forward commitments not fully
satisfied by loans held for sale and commitments to originate mortgage loans are
valued based on what it would cost to purchase loans in the open market to
fulfill the commitments. The net result of this valuation process is used in
recording the carrying value of mortgage loans held for sale at the lower of
aggregate cost or fair value. The fair value of the mortgage loans held for sale
exceeded the aggregate cost by $202,000 at December 31, 1996, and $256,000 at
December 31, 1995.
Standby letters of credit and financial guarantees written are commitments
issued by UCB's subsidiary banks to guarantee the performance of a customer to a
third party. The financial instruments are generally short-term (less than one
year) as stated in the contract or are cancelable by UCB at any time. The credit
risk involved in issuing letters of credit is substantially equivalent to that
involved in extending loan commitments, and, accordingly, underwriting
requirements are essentially identical.
LEASE COMMITMENTS -- Subsidiaries of UCB occupy premises and use equipment
under operating lease agreements. Rental expense under such agreements was as
follows:
Years Ended December 31,
1996 1995 1994
(In thousands)
Rent on premises............................................................................ $ 3,440 $ 3,211 $ 3,057
Rent on equipment........................................................................... 446 462 476
Total rental expense...................................................................... $ 3,886 $ 3,673 $ 3,533
A summary of lease commitments outstanding at December 31, 1996, with terms
of more than 12 months follows. Commitments related to equipment leases are
primarily for data processing equipment as leases on other equipment are
generally cancelable within one year.
Premises Equipment Total
(In thousands)
Years ending December 31,
1997........................................................................................ $ 4,257 $ 315 $ 4,572
1998........................................................................................ 4,142 226 4,368
1999........................................................................................ 3,536 183 3,719
2000........................................................................................ 3,328 165 3,493
2001........................................................................................ 3,134 115 3,249
Thereafter.................................................................................. 21,950 -- 21,950
Total commitments......................................................................... $ 40,347 $ 1,004 $ 41,351
Substantially all leases on premises have renewal options, most of which
will likely be exercised. If exercised, additional lease expense of at least
$79,917,000 in the aggregate will be incurred during the option periods.
Therefore, it is not expected that future lease expense will be less than the
expense for 1996.
The above lease commitments are based upon current and future rentals as
stated in the lease agreements. No estimates have been included for future
rental increases that may result from adjustments related to the Consumer Price
Index or other cost of living standards that are included in the terms of
certain of the above leases. In management's opinion, any future increases in
rentals that may result from such adjustments are not expected to impact
materially the overall operating results of UCB on a consolidated basis.
55
NOTE 11 -- COMMITMENTS AND CONTINGENT LIABILITIES -- CONTINUED
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, none of such pending
or threatened legal proceedings will have a material adverse effect on the
consolidated operations, liquidity, or financial position of UCB and its
subsidiaries.
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS 107, "Disclosures about Fair Value of Financial Instruments," requires
corporations to disclose the fair value of its financial instruments, whether or
not recognized in the balance sheet, where it is practical to estimate that
value.
Fair value estimates made as of December 31, 1996 and 1995, are based on
relevant market information about the financial instruments. These estimates do
not reflect any premium or discount that could result from offering for sale at
one time the corporation's entire holding of a particular financial instrument.
In cases where quoted market prices are not available, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates. In
addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The following methods and assumptions were used by UCB in estimating its
fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS -- The carrying amounts reported in the balance
sheets for cash and short-term instruments approximate those assets' fair
values.
SECURITIES AVAILABLE FOR SALE AND INVESTMENT SECURITIES -- Fair values were
based on quoted market prices, where available. If quoted market prices were not
available, fair values were based on quoted market prices of comparable
instruments.
LOANS -- The carrying values, reduced by estimated inherent credit losses,
of variable-rate loans and other loans with short-term characteristics were
considered fair values. The fair value of certain 1-4 family residential loans
was based on quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan characteristics
and credit losses inherent in the portfolio. For other loans, the fair market
values were calculated by discounting scheduled future cash flows using current
interest rates offered on loans with similar terms adjusted to reflect the
estimated credit losses inherent in the portfolio.
CAPITALIZED MORTGAGE SERVICING RIGHTS -- Fair values were calculated based
on discounting estimated future cash flows utilizing market rates of interest
and expected servicing costs determined by the risk characteristics and
maturities of the underlying loans.
ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE -- The carrying
amounts reported in the balance sheets for accrued interest receivable and
accrued interest payable approximate their fair values.
DEPOSIT LIABILITIES -- The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, NOW, savings, and money market
deposits, was, by definition, equal to the amount payable on demand as of
December 31, 1996 and 1995. The fair value of certificates of deposit was based
on the discounted value of contractual cash flows, calculated using the discount
rates that equaled the interest rates offered at the valuation date for deposits
of similar remaining maturities.
SHORT-TERM BORROWINGS -- The carrying amounts of federal funds purchased,
borrowings under repurchase agreements, and other short-term borrowings
approximated their fair values.
MORTGAGES AND OTHER NOTES PAYABLE -- Rates currently available to UCB for
debt with similar terms and remaining maturities were used to estimate fair
value of existing mortgages and other notes payable.
56
NOTE 12 -- FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
The following is a summary of the carrying amounts and estimated fair
values of UCB's financial assets and liabilities:
December 31,
1996 1995
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
(In thousands)
Financial assets:
Cash and due from banks -- noninterest-bearing..................... $ 199,487 $ 199,487 $ 179,679 $ 179,679
Federal funds sold and other short-term
investments..................................................... 90,964 90,964 45,413 45,413
Securities available for sale...................................... 877,432 877,432 769,956 769,956
Investment securities.............................................. 46,090 47,334 97,354 99,270
Loans, net of reserve for credit losses............................ 3,103,559 3,104,210 2,783,523 2,783,666
Capitalized mortgage servicing rights.............................. 4,817 9,290 3,683 4,939
Accrued interest receivable........................................ $ 32,570 $ 32,570 $ 32,118 $ 32,118
Financial liabilities:
Deposits........................................................... $ 4,049,426 $ 4,057,210 $3,637,651 $3,638,689
Short-term borrowings.............................................. 42,521 42,521 30,439 30,439
Mortgages and other notes payable.................................. 2,273 2,123 2,975 2,755
Accrued interest payable........................................... $ 13,277 $ 13,277 $ 12,138 $ 12,138
At December 31, 1996 and 1995, UCB had outstanding standby letters of
credit and commitments to extend credit. These off-balance sheet financial
instruments are generally exercisable at the market rate prevailing at the date
the underlying transaction will be completed, and, therefore, they were deemed
to have no current fair market value. See Note 11.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the discounted value of fee
revenues generated by the trust department, the mortgage banking operation, the
insurance department, and the brokerage operation; nor is the value of deferred
tax assets, premises and equipment, or deposit-base premiums on core deposits
considered.
NOTE 13 -- REGULATORY RESTRICTIONS
UCB and its subsidiary banks are subject to certain requirements imposed by
state and federal banking statutes and regulations. These requirements, among
other things, establish minimum levels of capital, restrict the amount of
dividends that may be distributed, and require that reserves on deposit
liabilities be maintained in the form of vault cash or noninterest-bearing
deposits with the Federal Reserve Bank.
North Carolina law prohibits United Carolina Bancshares Corporation (Parent
Company) from making any distributions to shareholders, including the payment of
cash dividends, which would render it insolvent or unable to meet its
obligations as they become due in the ordinary course of business. At December
31, 1996, United Carolina Bancshares Corporation had total stockholders' equity
of $350,469,000.
North Carolina law restricts the payment of dividends by UCB's North
Carolina subsidiary bank to the amount of its retained earnings. At December 31,
1996, the Bank had retained earnings of $223,742,000 legally available under
North Carolina law for dividend payments.
UCB's South Carolina subsidiary bank is prohibited by South Carolina law
from paying any cash dividend which would render the Bank insolvent or unable to
meet its obligations as they become due. Further, the payment of any cash
dividend is subject to the prior approval of the South Carolina State Board of
Financial Institutions. At December 31, 1996, UCB's South Carolina subsidiary
bank had total stockholder's equity of $26,585,000.
57
NOTE 13 -- REGULATORY RESTRICTIONS -- CONTINUED
In addition to the dividend restrictions imposed by state statutes, UCB and
its subsidiary banks are subject to federal regulatory risk-based capital
guidelines for banks and bank holding companies. These guidelines require
minimum ratios of core capital (common stockholders' equity, net of goodwill,
and qualifying perpetual preferred stock, subject to certain limitations) to
risk-weighted assets of 4.0% and total capital (core capital, reserve for credit
losses up to 1.25% of risk-weighted assets, mandatory convertible securities,
preferred stock, and subordinated debt, subject to certain limitations) to risk-
weighted assets of 8.0%. Furthermore, financial institutions with a ratio of
core capital to risk-weighted assets of at least 6.0% and a ratio of total
capital to risk-weighted assets of at least 10.0% are considered to be well
capitalized. As of December 31, 1996, UCB and its subsidiaries (consolidated)
had a ratio of core capital to risk-weighted assets of 11.15% and a ratio of
total capital to risk-weighted assets of 12.40%. UCB currently meets the
requirements to be considered a well capitalized financial institution.
Regulatory guidelines also require a minimum leverage ratio of core capital, as
defined for risk-based guidelines, to average total assets for the previous
quarter, ranging from 3% to 5%, subject to federal bank regulatory evaluation of
the organization's overall safety and soundness. At December 31, 1996, UCB and
its subsidiaries (consolidated) had a ratio of core capital to average total
assets less intangible assets other than capitalized mortgage servicing rights
for the three months ended December 31, 1996, of 7.64%. Pursuant to federal law,
UCB and its subsidiaries are subject to significant restrictions on operations,
including capital distributions, in the event minimum capital ratios are not
maintained.
For the reserve maintenance period in effect at December 31, 1996, UCB's
subsidiary banks were required to maintain average daily vault cash and
noninterest-bearing deposits with the Federal Reserve Bank in the aggregate
amount of $83,273,000 as reserves on deposit liabilities.
UCB's subsidiary banks are members of the Federal Home Loan Bank of Atlanta
(FHLB). Member institutions are required to maintain a minimum investment in the
common stock of the FHLB based on the asset size of the member institution and
the amount of qualifying 1-4 family residential loans. At December 31, 1996,
UCB's subsidiary banks owned $12,200,000 of FHLB common stock.
58
NOTE 14 -- PARENT COMPANY FINANCIAL DATA
Condensed financial information for United Carolina Bancshares Corporation
(Parent Company) is as follows:
December 31,
CONDENSED BALANCE SHEETS 1996 1995
(In thousands)
ASSETS:
Cash on demand deposit with bank subsidiary...................................................... $ 3,187 $ 1,140
Securities available for sale at market value:
United States government securities (amortized costs of $999,000 in 1996
and $250,000 in 1995)....................................................................... 1,007 251
Obligations of United States government agencies (amortized costs
of $19,483,000 in 1996 and $19,555,000 in 1995)............................................. 19,479 19,551
Total securities available for sale......................................................... 20,486 19,802
Investments in subsidiaries at underlying book value:
Bank subsidiaries.............................................................................. 329,075 303,770
Nonbank subsidiaries........................................................................... 745 745
Total investments in subsidiaries........................................................... 329,820 304,515
Other assets..................................................................................... 1,259 1,491
Total assets................................................................................ $ 354,752 $ 326,948
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accrued taxes, expenses, and other liabilities................................................... $ 4,283 $ 3,800
Stockholders' equity............................................................................. 350,469 323,148
Total liabilities and stockholders' equity.................................................. $ 354,752 $ 326,948
Years Ended December 31,
CONDENSED STATEMENTS OF INCOME 1996 1995 1994
(In thousands)
Dividends from bank subsidiaries........................................................... $ 17,146 $14,313 $11,939
Interest income from bank subsidiary....................................................... 16 20 24
Management fees from bank subsidiaries..................................................... 5,200 2,972 2,760
Interest on securities..................................................................... 1,086 955 774
Total operating income.................................................................. 23,448 18,260 15,497
Personnel expense.......................................................................... 2,056 2,097 1,990
Other expenses............................................................................. 2,981 1,544 2,006
Total operating expenses................................................................ 5,037 3,641 3,996
Income before income taxes................................................................. 18,411 14,619 11,501
Income tax provision (benefit).......................................................... 1,012 95 (150)
Income before equity in undistributed net income of subsidiaries........................... 17,399 14,524 11,651
Equity in undistributed net income of subsidiaries:
Bank subsidiaries..................................................................... 27,805 31,519 19,582
Nonbank subsidiaries.................................................................. -- 4 4
Net income................................................................................. $ 45,204 $46,047 $31,237
59
NOTE 14 -- PARENT COMPANY FINANCIAL DATA -- CONTINUED
Years Ended December 31,
CONDENSED STATEMENTS OF CASH FLOWS 1996 1995 1994
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................ $ 45,204 $ 46,047 $ 31,237
Adjustments to reconcile net income to net cash provided
by operating activities:
Undistributed earnings of bank subsidiaries......................................... (27,805) (31,519) (19,582)
Undistributed earnings of nonbank subsidiaries...................................... -- (4) (4)
Provision for deferred income taxes and changes in income taxes payable............. 57 (295) (300)
Other, net.......................................................................... 160 696 611
Total adjustments................................................................ (27,588) (31,122) (19,275)
Net cash provided by operating activities........................................ 17,616 14,925 11,962
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities............................................ (50,024) (39,096) (36,349)
Maturities of available for sale securities........................................... 49,347 37,839 35,459
Net cash used by investing activities............................................ (677) (1,257) (890)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of shares retired....................................... 2,254 461 455
Dividends paid........................................................................ (17,146) (14,404) (12,061)
Net cash used by financing activities............................................ (14,892) (13,943) (11,606)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 2,047 (275) (534)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................................... 1,140 1,415 1,949
CASH AND CASH EQUIVALENTS AT END OF YEAR................................................. $ 3,187 $ 1,140 $ 1,415
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Income taxes, net of reimbursements from subsidiaries................................. $ 194 $ 110 $ 136
SIGNIFICANT NONCASH TRANSACTIONS:
Unrealized gains (losses) on securities available for sale............................ $ 7 $ 60 $ (58)
Unrealized gains (losses) on subsidiaries' securities available for sale.............. $ (4,876) $ 12,426 $ (8,716)
Issuance of common stock in insurance agencies mergers................................ $ 2 $ (37) $ (467)
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial data for the years ended December
31, 1996 and 1995, is as follows:
1996
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except per share amounts)
Net interest income............................................................. $42,794 $43,623 $45,711 $47,079
Provision for credit losses..................................................... 2,200 1,900 1,900 2,850
Noninterest income.............................................................. 12,167 13,051 13,249 13,648
Noninterest expenses............................................................ 36,205 35,425 38,530 42,553
Net income...................................................................... $10,553 $12,627 $12,049 $ 9,975
Per share:
Net income.................................................................... $ .44 $ .52 $ .50 $ .41
60
NOTE 15 -- QUARTERLY FINANCIAL DATA (UNAUDITED) -- CONTINUED
1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
(In thousands except per share amounts)
Net interest income............................................................. $40,837 $41,580 $42,704 $43,527
Provision for credit losses..................................................... 2,279 1,202 1,076 2,735
Noninterest income.............................................................. 10,992 11,406 12,391 12,660
Noninterest expenses............................................................ 33,177 34,460 33,598 36,061
Net income...................................................................... $10,525 $11,211 $13,095 $11,216
Per share:
Net income.................................................................... $ .44 $ .46 $ .55 $ .46
NOTE 16 -- NORTH CAROLINA SUBSIDIARY BANK FINANCIAL DATA
The following is a summary of condensed consolidated financial data for
United Carolina Bank (North Carolina Subsidiary Bank) and its subsidiaries:
December 31,
BALANCE SHEET DATA 1996 1995
(In thousands)
ASSETS:
Cash and due from banks -- noninterest-bearing............................................... $ 194,858 $ 175,733
Federal funds sold and other short-term investments.......................................... 91,956 45,405
Securities available for sale................................................................ 761,611 685,522
Investment securities........................................................................ 36,792 48,558
Loans, net of unearned income................................................................ 2,884,062 2,602,632
Less reserve for credit losses............................................................. (42,212) (40,008)
Net loans............................................................................... 2,841,850 2,562,624
Other assets................................................................................. 156,732 147,732
Total assets............................................................................ $ 4,083,799 $3,665,574
LIABILITIES AND STOCKHOLDER'S EQUITY:
Deposits:
Noninterest-bearing demand deposits........................................................ $ 597,817 $ 542,054
Interest-bearing deposits.................................................................. 3,109,294 2,770,369
Total deposits.......................................................................... 3,707,111 3,312,423
Short-term borrowings........................................................................ 36,382 35,305
Mortgages and other notes payable............................................................ 2,273 2,975
Accrued taxes, expenses, and other liabilities............................................... 35,543 36,576
Total liabilities....................................................................... 3,781,309 3,387,279
Stockholder's equity......................................................................... 302,490 278,295
Total liabilities and stockholder's equity.............................................. $ 4,083,799 $3,665,574
61
NOTE 16 -- NORTH CAROLINA SUBSIDIARY BANK FINANCIAL DATA -- CONTINUED
Years Ended December 31,
INCOME STATEMENT DATA 1996 1995 1994
(In thousands)
Interest income........................................................................ $ 299,130 $277,525 $ 225,714
Interest expense....................................................................... 135,261 122,952 84,203
Net interest income................................................................. 163,869 154,573 141,511
Provision for credit losses............................................................ 7,800 6,492 3,049
Net interest income after provision for credit losses............................... 156,069 148,081 138,462
Noninterest income..................................................................... 51,380 46,273 44,087
Noninterest expenses, excluding restructuring charges.................................. 144,365 128,977 126,255
Restructuring charges.................................................................. -- -- 10,248
Income before income taxes............................................................. 63,084 65,377 46,046
Income tax provision................................................................ 21,822 23,283 16,914
Income before cumulative effects of changes in accounting methods...................... 41,262 42,094 29,132
Cumulative effects of changes in accounting methods................................. -- -- (316)
Net income............................................................................. $ 41,262 $ 42,094 $ 28,816
NOTE 17 -- MERGERS AND ACQUISITIONS
On November 1, 1996, UCB entered into a definitive agreement to merge into
Southern National Corporation ("SNC"), headquartered in Winston-Salem, North
Carolina. Under the terms of the agreement, UCB shareholders will receive 1.135
shares (subject to possible upward adjustment) of SNC common stock for each
share of UCB common stock owned. Concurrent with the execution of the agreement,
UCB granted SNC an option to purchase up to 4,828,960 shares of UCB common
stock, subject to adjustment, at an exercise price of $30.50 per share. The
exercise of the option is permitted only upon the occurrence of certain events
which generally relate to an actual or proposed acquisition of UCB by a third
party or the acquisition by a third party of a significant interest in the
equity of UCB. The merger, which is subject to shareholder and regulatory
approval, is expected to be consummated near the middle of 1997.
On August 30, 1996, UCB issued 37,123 shares of common stock to consummate
the merger of Tomlinson Insurors, Inc., a general insurance agency in
Fayetteville, North Carolina, into UCB's North Carolina subsidiary bank.
Tomlinson Insurors had total assets of $361,000 at the date the merger was
consummated. 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.
Effective March 29, 1996, UCB consummated a merger with Triad Bank
headquartered in Greensboro, North Carolina. Triad Bank had 13 branch offices
with $207.4 million in total assets and $188.1 million in total deposits at the
merger date. Under the terms of the agreement, UCB exchanged 1,595,125 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.
Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank, Inc., headquartered in Plymouth, North Carolina. Seaboard Savings Bank had
three branch offices with $46.3 million in total assets and $40.7 million in
total deposits at the merger date. Under the 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.
62
NOTE 17 -- MERGERS AND ACQUISITIONS -- CONTINUED
The consolidated statement of income for the year ended December 31, 1996,
includes $304,000 and $3,401,000, respectively, of total income; $3,000 and
$1,917,000 of net interest income, respectively; and net losses of $238,000 and
$601,000, respectively, related to the operations of Seaboard Savings Bank and
Triad Bank prior to the dates of the respective mergers. The following presents
on a pro forma basis the contributions of UCB, Seaboard Savings Bank, and Triad
Bank to the restated results for the years ended December 31, 1995 and 1994.
UCB Seaboard
as Previously Savings Triad UCB as
Reported Bank Bank Restated
(In thousands except per share amounts)
Year ended December 31, 1995:
Total income................................................................. $ 330,506 $4,448 $ 16,198 $ 351,152
Net interest income.......................................................... 157,886 2,033 8,729 168,648
Net income (loss)............................................................ $ 44,199 $ (236) $ 2,084 $ 46,047
Per share:
Net income................................................................ $ 2.00 $ 1.91
Year ended December 31, 1994:
Total income................................................................. $ 274,831 $3,679 $ 13,608 $ 292,118
Net interest income.......................................................... 144,835 2,117 7,746 154,698
Income before cumulative effect of a change in accounting method............. 30,066 317 1,170 31,553
Net income................................................................... $ 29,750 $ 317 $ 1,170 $ 31,237
Per share:
Income before cumulative effect of a change in accounting method.......... $ 1.37 $ 1.32
Net income................................................................ $ 1.35 $ 1.30
On May 19, 1995, UCB's North Carolina subsidiary bank purchased 12 branch
offices from subsidiaries of Southern National Corporation. As part of the
transaction, UCB purchased $26.8 million in loans and assumed $178.7 million in
deposits. Two of the branch offices acquired in the transaction were
subsequently sold to third-party banks during the fourth quarter of 1995. The
two divested branches in the aggregate had $4.8 million in loans and $32.6
million in deposits when sold. A premium of $10.1 million was paid for the
assumed deposit base of the branches retained.
On April 28, 1995, UCB issued 66,320 shares of common stock to consummate
the merger of United Agencies, Inc., a general insurance agency located in
Wilmington, North Carolina, into UCB's North Carolina subsidiary bank. United
Agencies had total assets of $252,000 at the date the merger was consummated.
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.
Effective August 31, 1994, UCB consummated a merger with the Bank of
Iredell, headquartered in Statesville, North Carolina. Bank of Iredell had five
branch offices with $88.7 million in total assets and $80.4 million in total
deposits at the merger date. UCB exchanged 963,004 shares of common stock for
all of the outstanding shares of common stock of Bank of Iredell. The merger was
accounted for as a pooling-of-interests, and, accordingly, all financial data
has been restated to include the accounts of the Bank of Iredell for all periods
presented.
During 1994, two insurance agencies merged into UCB's North Carolina
subsidiary bank. On March 31, 1994, UCB issued 41,614 shares of common stock to
consummate the merger with Sanford Real Estate, Loan, & Insurance Company, a
general insurance agency with offices in three North Carolina communities.
Effective November 30, 1994, UCB issued 12,990 shares of common stock to
complete the merger with Executive Insurance Company, Inc., a general insurance
agency in Charlotte, North Carolina. Each of these transactions was accounted
for as a pooling-of-interests; however, due to the immateriality of the size of
the insurance agencies in relation to UCB's consolidated financial position and
operating results, prior period financial statements have not been restated.
63
NOTE 18 -- RESTRUCTURING CHARGES
In October 1994, the Boards of Directors of UCB and its bank subsidiaries,
United Carolina Bank and United Carolina Bank of South Carolina, approved a plan
to restructure the operations of the aforementioned bank subsidiaries to
streamline procedures in a manner that would enhance the quality of financial
services provided to customers and reduce future operating costs. The major
elements of the plan included staffing level changes at all branches to better
match customer arrival patterns, a reduction in full-time staff positions as a
result of the centralization of certain functions and automation of many
labor-intensive tasks, and the consolidation or divestiture of certain branch
offices.
Restructuring charges to implement the reorganization plan totaled
$11,906,000 in 1994. The plan included the elimination of approximately 235 jobs
that were classified as regular full-time positions through either a special
early retirement program or severance arrangements. Positions throughout the
company were eliminated, with the largest percentage of jobs eliminated or
positions reduced in the branch operations. All employees 50 years of age or
older with a combined age plus years of service totaling 70 or more were offered
special early retirement benefits. The costs associated with increases in the
actuarially determined pension and postretirement medical expenses totaled
$9,427,000. Severance arrangements were awarded to employees whose positions
have been or are scheduled to be eliminated and who either were not eligible for
the special early retirement benefits or who chose not to accept the special
early retirement offer. Expense related to the severance arrangements totaled
$346,000.
The restructuring plan included discontinuing the operation of 15 branch
offices through the consolidation of operations into other UCB offices or the
divestiture of the branch locations. The estimated net cost of eliminating these
offices, including transferring the deposits, was $801,000. Included in this
cost was $1,149,000 of unamortized goodwill related to branch offices in
communities where UCB did not have nearby locations, and, therefore, it was
likely that a substantial amount of the customer accounts associated with these
branch offices would move to other financial institutions.
Professional fees associated with the restructuring plan totaled
$1,280,000. These included fees for the services of a consulting firm retained
to assist management in analyzing operations and developing the reorganization
plan and fees relating to the design and implementation of the special
retirement benefits and severance awards.
As of December 31, 1996, substantially all of the expected transactions
related to the restructuring plan have occurred. Accordingly, the accruals
initially set up to cover the expected costs of implementation have been
substantially eliminated.
64
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDERS
UNITED CAROLINA BANCSHARES CORPORATION:
We have audited the accompanying consolidated balance sheets of United
Carolina Bancshares Corporation and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of United
Carolina Bancshares Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 8 to the consolidated financial statements, on January
1, 1994, the Corporation adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits."
KPMG PEAT MARWICK LLP
Raleigh, North Carolina
February 21, 1997
65
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS. Reference Item 8, Cross Reference Index on page 2,
for information concerning UCB's consolidated financial statements and report of
independent auditors.
FINANCIAL STATEMENT SCHEDULES. Not applicable.
EXHIBITS. The exhibits listed on the Exhibit Index on page 68 of this Form
10-K are incorporated herein by reference. Of these exhibits, the following
constitute management contracts or compensatory plans or arrangements between
UCB and certain of its officers, and UCB and its directors:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
(10)(a) UCB's 1994 Management Incentive Award Plan, as amended
(10)(b) UCB's 1994 Long-Term Incentive Plan
(10)(c) UCB's Key Employee Stock Option Plan, as amended in 1992
(10)(d) UCB's form of Employment Agreement and schedule of participants
(10)(e) UCB's Benefit Equivalency Plan for Senior Management Employees of UCB and
Affiliated Companies, as amended
(10)(f) UCB's 1994 Director Retirement Plan
REPORTS ON FORM 8-K. The following Report on Form 8-K was filed by UCB with
the Securities and Exchange Commission during the fourth quarter of 1996: Report
on Form 8-K (Item 5. Other Events) dated November 1, 1996, relating to the
announcement of UCB's merger agreement with Southern National Corporation
("SNC") pursuant to which UCB will be acquired by SNC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNITED CAROLINA BANCSHARES CORPORATION
BY: /S/ E. RHONE SASSER
E. RHONE SASSER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE CAPACITY DATE
/s/ E. RHONE SASSER Chairman and Chief Executive Officer March 13, 1997
E. RHONE SASSER
/s/ RONALD C. MONGER Executive Vice President and March 13, 1997
Chief Financial Officer
RONALD C. MONGER (Principal Financial Officer)
/s/ JOHN F. WATSON Controller (Principal Accounting Officer) March 13, 1997
JOHN F. WATSON
/s/ J. W. ADAMS Director March 13, 1997
J. W. ADAMS
/s/ JOHN V. ANDREWS Director March 13, 1997
JOHN V. ANDREWS
66
SIGNATURE CAPACITY DATE
/s/ Director March 13, 1997
RUSSELL M. CARTER
/s/ W. E. CARTER Director March 13, 1997
W. E. CARTER
/s/ ALFRED E. CLEVELAND Director March 13, 1997
ALFRED E. CLEVELAND
/s/ JAMES L. CRESIMORE Director March 13, 1997
JAMES L. CRESIMORE
/s/ Director March 13, 1997
THOMAS P. DILLON
/s/ C. FRANK GRIFFIN Director March 13, 1997
C. FRANK GRIFFIN
/s/ JAMES C. HIGH Director March 13, 1997
JAMES C. HIGH
/s/ E. RHONE SASSER Director March 13, 1997
E. RHONE SASSER
/s/ JACK E. SHAW Director March 13, 1997
JACK E. SHAW
/s/ HAROLD B. WELLS Director March 13, 1997
HAROLD B. WELLS
/s/ CHARLES M. WINSTON Director March 13, 1997
CHARLES M. WINSTON
67
EXHIBIT INDEX
EXHIBIT NUMBER
PER ITEM 601
OF REGULATION
S-K DESCRIPTION OF EXHIBIT SEQUENTIAL PAGE NUMBER
(3)(a) UCB's Restated Charter Incorporated by reference to Exhibit I to UCB's
1988 Form 10-K
(3)(b) UCB's By-laws Incorporated by reference to Exhibit (3)(b) to
UCB's 1991 Form 10-K
(4) Specimen of UCB's common stock certificate Incorporated by reference to Exhibit IV to UCB's
1988 Form 10-K
(10)(a) UCB's 1994 Management Incentive Incorporated by reference to Exhibit (10)(a) to
Award Plan, as amended Registrant's 1994 Form 10-K
(10)(b) UCB's 1994 Long-Term Incentive Incorporated by reference to Exhibit (10)(b) to
Award Plan UCB's Form 10-Q for the quarterly period ended
March 31, 1994
(10)(c) UCB's 1986 Key Employee Stock Option Plan, as Incorporated by reference to Exhibit (10)(c) to
amended UCB's 1992 Form 10-K
(10)(d)(1), Form of Employment Agreement between UCB, its Incorporated by reference to Exhibits
(2),(3) bank subsidiaries and eight (8) (10)(d)(1), (2) and (3) to Registrant's 1994
executive officers Form 10-K
(10)(e) UCB's Benefit Equivalency Plan for Senior Incorporated by reference to Exhibit (10)(e) to
Management Employees of UCB and Affiliated Registrant's 1994 Form 10-K
Companies, as amended
(10)(f) UCB's 1994 Director Retirement Plan Incorporated by reference to Exhibit (10)(f) to
Registrant's 1995 Form 10-K
(22) Subsidiaries of UCB Page 69 (not included)
(24) Consent of KPMG Peat Marwick LLP Page 70 (not included)
(25) Power of Attorney Page 71 (not included)
(27) Financial Data Schedule Page 72 (not included)
A copy of any exhibit will be furnished to a shareholder upon written request.
68