SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
[Amendment No. __________]
Filed by the Registrant: [X]
Filed by a Party other than the Registrant: [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
United Community Bancorp
----------------------------------------------------
(Name of Registrant as Specified in Its Charter)
--
(Name of Person(s) Filing Proxy Statement, If
Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:_________
(2) Aggregate number of securities to which transaction applies:____________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined)_______________
(4) Proposed maximum aggregate value of transaction:________________________
(5) Total fee paid:_________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:_____________________________________________
(2) Form, Schedule or Registration Statement no.:_______________________
(3) Filing Party:_______________________________________________________
(4) Date Filed:_________________________________________________________
UNITED COMMUNITY BANCORP
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
----------------------------------------
TO BE HELD ON April 23, 2002
United Community Bancorp will hold its annual meeting of shareholders at
the Gateway Conference Center, 909 Highway 70 SW, Hickory, North Carolina, at
3:00 p.m. local time on April 23, 2002, to vote on the following proposals:
1. To elect eight members of the Board of Directors for one year terms.
2. To ratify the appointment of Dixon Odom PLLC as United Community
Bancorp's independent accountants for 2002.
3. To approve an amendment to the 1996 Incentive Stock Option Plan.
4. Any other matters that properly come before the annual meeting, or any
adjournments or postponements of the annual meeting.
Record holders of United Community Bancorp's Common Stock at the close of
business on February 28, 2002, will receive notice of and may vote at the
annual meeting, including any adjournments or postponements. Your Board of
Directors cordially invites you to attend the annual meeting.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING. YOUR BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MATTERS THAT YOU WILL VOTE ON AT
THE ANNUAL MEETING.
By Order of the Board of Directors
G. Marvin Lowder, Secretary
Hickory, North Carolina
March 8, 2002
UNITED COMMUNITY BANCORP
1039 SECOND STREET, N.E.
HICKORY, NORTH CAROLINA 28601
PROXY STATEMENT
Mailing Date: On or about March 8, 2002
ANNUAL MEETING OF SHAREHOLDERS
------------------------------
To Be Held April 23, 2002
General
This Proxy Statement is being furnished to the shareholders of United
Community Bancorp ("Bancorp") in connection with the solicitation by the Board
of Directors of Bancorp of proxies for use at its annual meeting of
shareholders. The purposes of Bancorp's annual meeting are to consider and vote
on (a) election of eight directors for one year terms; (b) ratification of the
appointment of Dixon Odom PLLC as Bancorp's independent accountants for 2002;
and (c) an amendment to the 1996 Incentive Stock Option Plan.
The principal executive office of Bancorp is located at 1039 Second
Street, N.E., Hickory, North Carolina 28601. Its telephone number is
(828) 431-2300.
This Proxy Statement is first being mailed to shareholders on or about
March 8, 2002.
Record Date; Voting Rights
Shareholders of record at the close of business on February 28, 2002 (the
"Record Date") are entitled to vote at the annual meeting, or at any
adjournment or postponement. As of December 31, 2001, there were 2,773,009
shares of Common Stock outstanding and entitled to vote held of record by
approximately 3,000 persons. Each share of Common Stock entitles the holder to
one vote on each matter submitted to a vote at the meeting. Pursuant to
Bancorp's Bylaws, a majority of the votes entitled to be cast by holders of
Common Stock, represented in person or by proxy, will constitute a quorum for
the transaction of business at the meeting. In accordance with North Carolina
law, shareholders will not be permitted to vote cumulatively in the election
of directors.
In the case of Proposal 1 below, the eight nominees receiving the greatest
number of votes shall be elected. In the case of Proposals 2 and 3 below, for
such a proposal to be approved, the number of votes cast for approval must
exceed the number of votes cast against approval. Broker non-votes and
abstentions are not treated as votes cast and therefore will not have any
effect on the vote for any Proposal.
The executive officers and directors of Bancorp, together with their
affiliates, beneficially owned, directly or indirectly, as of December
31, 2001, an aggregate of 310,019 shares of Bancorp's Common Stock (including
108,247 shares subject to outstanding, vested stock options) constituting
approximately 10.76% of the sum of (i) all shares outstanding and entitled to
vote on that date plus (ii) shares capable of being issued within 60 days upon
the exercise of stock options held by such persons.
Solicitation, Revocation and Use of Proxies
A proxy card is enclosed for your use. YOU ARE SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF BANCORP TO COMPLETE, DATE, SIGN, AND RETURN THE PROXY
CARD IN THE ACCOMPANYING ENVELOPE, which is postage-paid if mailed in the
United States.
You may revoke your proxy at any time before it is actually voted at the
annual meeting by delivering written notice of revocation to the Secretary of
Bancorp, G. Marvin Lowder, 1039 Second Street, N.E., Hickory, North Carolina
28601, by submitting a subsequently dated proxy, or by attending the annual
meeting and withdrawing the proxy. Each unrevoked proxy card properly executed
and received prior to the close of voting at the annual meeting will be voted
as indicated. Where specific instructions are not indicated, the proxy will be
voted "FOR" each of the Proposals listed in the notice of the meeting.
Expenses of Solicitation
The expense of preparing, printing and mailing this Proxy Statement will
be paid by Bancorp. In addition to the use of the mails, proxies may be
solicited personally or by telephone by regular employees of Bancorp or by its
bank subsidiaries, Catawba Valley Bank ( "Catawba"), or First Gaston Bank of
North Carolina ("First Gaston") without additional compensation. Bancorp will
reimburse banks, brokers and other custodians, nominees and fiduciaries for
their costs in sending the proxy materials to the beneficial owners of
Bancorp's Common Stock.
Authorization to Vote on Adjournment and Other Matters
By signing an appointment of proxy, shareholders will be authorizing the
proxyholders to vote in their discretion regarding any procedural motions which
may come before the annual meeting. For example, this authority could be used
to adjourn the annual meeting if Bancorp believes it is desirable to do so.
Adjournment or other procedural matters could be used to obtain more time
before a vote is taken in order to solicit additional proxies or to provide
additional information to shareholders. However, proxies voted against the
Proposals will not be used to adjourn the annual meeting. Bancorp does not
have any plans to adjourn the meeting at this time, but intends to do so, if
needed, to promote shareholder interests.
2
Beneficial Ownership of Voting Securities
As of December 31, 2001, the only shareholder known by Bancorp to own more
than 5% of Bancorp's Common Stock was First Charter Bank, Concord, North
Carolina, who owned, to the best knowledge of Bancorp, 147,411 shares of Common
Stock (5.32% of the total shares outstanding.)
As of December 31, 2001, the beneficial ownership of Bancorp's Common Stock
by directors individually, and by directors and executive officers as a group,
was as follows:
Amount and
Nature of Percent
Name Of Beneficial Of
Beneficial Owner Ownership(1)(3) Class(2)
---------------- --------------- --------
R. Steve Aaron 71,725(4) 2.49
David E. Cline 14,328 0.50
Loretta P. Dodgen, Ed.D. 7,214(5) 0.25
W. Alex Hall, Jr. 34,747 1.21
Robert P. Huntley 42,435(6) 1.47
W. Steve Ikerd 69,585(7) 2.42
H. Ray McKenney, Jr. 35,088(8) 1.22
Howard L. Pruitt 32,230 1.12
All Directors and
Executive Officers
as a group (9 persons) 310,019 10.76
(1) Except as otherwise noted, to the best knowledge of Bancorp's
management, the above individuals and group exercise sole voting and
investment power with respect to all shares shown as beneficially
owned: Dr. Dodgen - 389 shares.
(2) The calculation of the percentage of class beneficially owned by each
individual and the group is based on a total of 2,881,256 outstanding
shares of Common Stock which equal the sum of (i) 2,773,009 shares
outstanding as of December 31, 2001, plus (ii) 108,247 which is the
number of shares capable of being issued to directors and executive
officers within 60 days upon the exercise of vested stock options.
(3) Included are exercisable options to purchase an aggregate of 108,247
shares (57,196 vested options held by non-officer directors and 51,051
vested options held by executive officers).
(4) Includes 15,090 shares held by Mr. Aaron's spouse.
(5) Includes 377 shares held by Dr. Dodgen's spouse.
(6) Includes 7,850 shares held by Mr. Huntley's spouse.
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(7) Includes 13,726 shares held by Mr. Ikerd's spouse.
(8) Includes 2,162 shares held in trust for a minor by Mr. McKenney and
22,268 shares held by Mr. McKenney's affiliated companies.
Required Reports of Beneficial Ownership
Bancorp's directors and executive officers are required to file certain
reports with the Securities and Exchange Commission regarding the amount of and
changes in their beneficial ownership of Bancorp's Common Stock (including,
without limitation, an initial report following the person's election as an
officer or director of Bancorp and a report following the end of each month
during which there has been a change in a reporting person's beneficial
ownership). Based upon a review of copies of reports received by Bancorp, all
required reports of directors and executive officers of Bancorp were filed on a
timely basis.
PROPOSAL 1: ELECTION OF DIRECTORS
----------------------------------
Bancorp's Bylaws provide that its Board of Directors shall consist of
between eight and eighteen members, as determined by the Board of Directors or
the shareholders. If there are less than nine directors, the members shall be
elected for one year terms, and if there are nine or more directors, the Board
shall be divided into three classes approximately equal in number and elected
to staggered three year terms. The Board has set the number of directors at
eight. The eight directors named below, whose terms expire at the annual
meeting, have been renominated to the Board for one year terms.
Position(s) Director Principal Occupation and
Name and Age Held Since(1) Business Experience During Past 5 Years
- ------------ ---- -------- ---------------------------------------
R. Steve Aaron Director, 1995 President and Chief Executive Officer, United Community Bancorp;
(54) President President and Chief Executive Officer, Catawba Valley Bank,
and Chief Hickory, NC.
Executive
Officer
David E. Cline Director 1995 President, Cline Seabrook Company, Waxhaw, NC (development firm).
(52)
Loretta P. Dodgen, Ed.D. Director 1995 Management consultant and Vice President, Multiple Choice, Inc.,
(49) Gastonia, NC (training and organizational consulting firm).
W. Alex Hall, Jr. Director 1995 Executive Vice President of United Community Bancorp; President
(63) and and Chief Executive Officer, First Gaston Bank of North Carolina,
Executive Gastonia, NC.
Vice
President
4
Position(s) Director Principal Occupation and
Name and Age Held Since(1) Business Experience During Past 5 Years
- ------------ ---- -------- ---------------------------------------
Robert P. Huntley Director 1995 Private Investor; Executive Vice President, Newton Transportation
(63) Company, Inc. (trucking company) until March 1997.
W. Steve Ikerd Director 1995 President and Owner, Ikerd Enterprises, Hickory, NC (real estate
(61) developers).
H. Ray McKenney, Jr. Director 1995 President, McKenney Family Dealerships, Gaston County, NC (auto
(46) dealerships); Director, Holy Angels, Inc., Gastonia, NC (specialized
care facility).
Howard L. Pruitt Director 1995 Secretary, Southwood Furniture Company, Hickory, NC (furniture
(64) manufacturer); President, Pruitt Machinery, Inc., 1971-1995
(woodworking machinery sales).
(1) Includes service as a director of Catawba or First Gaston.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" EACH OF
---
THE NOMINEES FOR DIRECTOR FOR ONE YEAR TERMS.
Director Relationships
No director also is a director of any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934
(the "Exchange Act") or subject to the requirements of Section 15(d) of the
Exchange Act, or any company registered as an investment company under
the Investment Company Act of 1940.
Meetings and Committees of the Board of Directors
Bancorp's Board of Directors held thirteen meetings during 2001. Each
director attended 75% or more of the aggregate number of meetings of the Board
of Directors and any committees on which he or she served.
Bancorp's Board of Directors has several standing committees including an
Audit Committee, a Compensation Committee, and a Nominating Committee.
Audit Committee. The current members of the Audit Committee are Messrs.
Cline, Huntley, and Pruitt. The Audit Committee receives and reviews the annual
audit report of Bancorp's independent accountants and the reports of
examinations by bank regulatory agencies, and helps to formulate, implement
and review Bancorp's, Catawba's, and First Gaston's internal audit programs.
The Audit Committee also meets as needed with Bancorp's internal auditor.
The committee met four times in 2001.
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Report of the Audit Committee
During the course of its examination of Bancorp's audit process in 2001,
the Audit Committee reviewed and discussed the audited financial statements
with management. The Audit Committee also discussed with the independent
auditors, Dixon Odom PLLC, all matters required to be discussed by the
Statement of Auditing Standards No. 61, as amended. Furthermore, the Audit
Committee received from Dixon Odom PLLC disclosures regarding their
independence required by the Independence Standards Board Standard No. 1, as
amended and discussed with Dixon Odom PLLC their independence.
Based on the review and discussions above, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
Bancorp's annual report on Form 10-KSB for the year ended December 31, 2001 for
filing with the Securities and Exchange Commission.
The Audit Committee has written a charter.
Bancorp is listed on the Nasdaq SmallCap Market and the Audit Committee
members are "independent" as defined by the Nasdaq listing standards.
Dixon Odom PLLC does not perform information technology services for
Bancorp. The Audit Committee has considered whether Dixon Odom PLLC's
provision of other non-audit services is compatible with maintaining
independence of Dixon Odom PLLC. The Audit Committee has determined that it
is compatible with maintaining the independence of Dixon Odom PLLC.
This report is submitted by the Audit Committee:
David E. Cline
Robert P. Huntley
Howard L. Pruitt
Compensation Committee. The current members of the Compensation Committee
are Messrs. Cline, Huntley, and Dr. Dodgen. The Compensation Committee reviews
and approves all personnel salaries and benefits, recommends officer salaries
for Board of Director approval, and reviews and makes recommendations to the
Board of Directors regarding matters involving personnel policies. The
Compensation Committee met one time in 2001.
Nominating Committee. The current members of the Nominating Committee are
Dr. Dodgen and Messrs. Huntley, McKenney, and Pruitt. During 2001, the duties
of the Nominating Committee were carried out by the full Board of Directors.
The Committee did not meet during 2001. The Committee will consider candidates
recommended by shareholders. Bancorp's Bylaws provide that nominations for
director, other than those made by the Nominating Committee, shall
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be in writing and delivered or mailed to the Secretary of Bancorp not less than
120 days prior to any meeting of shareholders called for the election of
directors.
Director Compensation
Board Fees. In 2001, each director received $500 per month for service
on the Board of Directors.
Stock Option Plans
Bancorp has a number of option plans that it adopted from Catawba in
connection with the reorganization of Catawba into a holding company and from
First Gaston in connection with the acquisition of First Gaston by Bancorp.
1997 Nonqualified Stock Option Plan for Directors. The shareholders of
Catawba at the 1997 annual meeting approved the 1997 Nonqualified Stock Option
Plan for Directors (the "Nonqualified Option Plan"). In connection with the
reorganization of Catawba into a holding company form of organization which
resulted in the creation of Bancorp, the Nonqualified Option Plan was adopted
by Bancorp and options under such plan are now options of Bancorp. All options
are immediately exercisable for a ten year period from the date of grant and
terminate upon such director's resignation or completion of his term without
reelection. However, upon retirement from the Board of Directors or upon a
director's death, the options granted such director may be exercised within
twelve months of such event. A total of 10,864 options are reserved for
issuance under the Nonqualified Option Plan.
1996 Incentive Stock Option Plan. The shareholders of Catawba at the
1996 annual meeting approved the 1996 Incentive Stock Option Plan (the
"Incentive Option Plan"). In connection with the reorganization of Catawba into
a holding company form of organization which resulted in the creation of
Bancorp, the Incentive Option Plan was adopted by Bancorp and options under
such plan are now options of Bancorp. A total of 10,864 options are reserved
for issuance under the Incentive Option Plan. (See Proposal 3 regarding an
amendment to the Incentive Option Plan to permit an increase in the number of
options available to be issued thereunder.)
First Gaston Option Plans. As a result of Bancorp's acquisition of
First Gaston on December 31, 2001, Bancorp has adopted three First Gaston
option plans and options available under such plans are now options of
Bancorp. These plans are the FGB Stock Option Plan, FGB 1999 Nonstatutory
Stock Option Plan, and FGB 1999 Incentive Stock Option Plan (collectively,
the "Plans"). An aggregate total of 247,648 options were reserved for issuance
under the Plans. All options have been granted under the Plans and no other
options will be granted in the future.
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Executive Officers
Set forth below is certain information regarding Bancorp's executive
officers.
Name Age Position With Registrant Business Experience
- ---- --- ------------------------ -------------------
R. Steve Aaron 54 Director, President and Chief President and Chief Executive
Executive Officer, United Community Officer, United Community
Bancorp and Catawba Valley Bank. Bancorp and Catawba Valley Bank,
Hickory, NC.
W. Alex Hall, Jr. 63 Director and Executive Vice President, Executive Vice President of
United Community Bancorp; President and United Community Bancorp,
Chief Executive Officer, First Gaston Bank Hickory, NC; President and
of North Carolina Chief Executive Officer, First
Gaston Bank of North Carolina,
Gastonia, NC.
Executive Compensation
Executive officers of Bancorp do not receive any separate compensation
for such position. All officers and employees receive compensation only from
Catawba or First Gaston. Except for R. Steve Aaron and W. Alex Hall, no current
executive officer of Bancorp, Catawba, or First Gaston received compensation
for 1999, 2000, or 2001 which exceeded $100,000. The compensation information
for Messrs. Aaron and Hall is disclosed below:
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
AWARDS PAYOUTS
------ -------
Securities
Name and Underlying All Other
Principal Position Year Salary(1) Bonus($) Options Compensation($)
------------------ ---- -------- ------- ------- ---------------
R. Steve Aaron, 2001 $135,000 8,640 -0- 8,100(2)
President and 2000 $129,000 11,352 -0- 11,940(2)
Chief Executive 1999 $125,000 20,080 -0- 9,900(2)
Officer
W. Alex Hall, Jr., 2001 $168,205 5,555 4,333 3,988(3)
Executive Vice 2000 $153,000 6,273 -0- 28,000(3)
President 1999 $140,578 -0- -0- 3,716(3)
(1) Perquisites and personal benefits awarded to Messrs. Aaron or
Hall did not exceed 10% of the total annual salary and bonus in
any year reported.
(2) The amounts disclosed represent annual contributions in 2001,
2000, and 1999, of $8,100, $7,740, and $7,500, respectively, made
by Catawba on behalf of R. Steve Aaron to match pre-tax elective
deferral contributions (included under salary) made by R. Steve
Aaron under Section 401(k) of the Internal Revenue Code of
8
1986, as amended, and directors' fees paid in each of 2000 and 1999 of
$2,400, and $2,400, respectively.
(3) Amount shown consists of the vested portion of the annual increase in
Mr. Hall's liability reserve account balance under the First Gaston
supplemental retirement plan.
Employment Agreements
Mr. Aaron's Agreement. Catawba has entered into an employment and change
of control agreement with R. Steve Aaron (dated January 1, 2000) as its
President and Chief Executive Officer to establish his duties and compensation
and to provide for his continued employment with Catawba. The employment
agreement provides for an initial term of three years with an automatic renewal
at the end of the initial term and on each anniversary thereafter for an
additional one year term unless notified prior thereto in accordance with the
employment agreement. The employment agreement provides for an annual base
salary of $125,000, and for discretionary bonuses and participation in other
pension and profit-sharing retirement plans maintained by Catawba on behalf of
its employees, as well as fringe benefits normally associated with Mr. Aaron's
position or made available to all other employees. The employment agreement
provides that Mr. Aaron may be terminated for "cause" as defined in the
employment agreement, and that the employment agreement may otherwise be
terminated, in some cases with certain financial consequences incurred, by
Catawba or by Mr. Aaron. The employment agreement provides that should Catawba
terminate the employment agreement other than for cause or disability within 12
months after a "change in control", or should Mr. Aaron terminate the agreement
within such 12 months during which his compensation or responsibilities have
been reduced, or his workplace location has been moved more than 35 miles from
Hickory, North Carolina, then he shall receive a lump sum equal to 299% of his
average annual salary and cash bonus, and be covered by on Catawba's medical
and disability programs throughout the remaining term of the agreement. A
"Change of Control" shall be deemed to have occurred upon (i) any person
becoming the beneficial owner or otherwise acquiring control, directly or
indirectly, of securities of Catawba representing twenty-five percent (25%) or
more of the voting power of Catawba's then outstanding securities; (ii) the
acquisition by any Person in any manner of the ability to elect, or to control
the election, of a majority of the directors of Catawba; (iii) the merger of
Catawba into another entity, the merger of any entity into Catawba or the
acquisition of assets by Catawba, in any such case with the result that the
beneficial owners of Catawba's outstanding securities immediately prior to such
transaction do not beneficially own more than sixty percent (60%) of Catawba's
outstanding securities after the consummation of such transaction; (iv) the
sale or other transfer of more than fifty percent (50%) of the assets of
Catawba to any entity not controlled by Catawba; (v) the consummation of any
transaction by Catawba that results (A) in the majority of the Board after the
consummation of such transaction not being composed of Incumbent Directors, or
(B) the beneficial owners of Catawba's outstanding securities immediately prior
to the consummation of such transaction not beneficially owning more than sixty
percent (60%) of Catawba's outstanding securities after such transaction; or
(vi) the occurrence of any other event or circumstance which the Board
determines affects control of Catawba. The term "Incumbent Director" shall
mean any director who as of the execution of the employment agreement was a
member of the Board, or any
9
individual becoming a member of the Board subsequent to such execution whose
election by Catawba shareholders was recommended by at least two-thirds (2/3)
of the then incumbent Directors on the Board. The employment agreement also
contains a covenant not to compete for one year after termination which
prohibits Mr. Aaron, without the consent of Catawba, from being connected with
any business located in any county where Catawba or its subsidiaries have
offices and which competes with Catawba or its subsidiaries. Such covenant
shall not apply in the event that Mr. Aaron is terminated by Catawba without
cause.
Mr. Hall's Agreement. In 1998, First Gaston entered into an employment
agreement with Mr. Hall as President and Chief Executive Officer. Base
compensation equaled $134,000 which shall be reviewed annually in July of each
year and shall be increased immediately after such review by not less than 10%.
The employment agreement terminates on December 31, 2002 unless sooner
terminated for "cause" or voluntarily by Mr. Hall. The employment agreement
provides for appropriate fringe benefits of an executive officer and
accelerates the vesting of any options granted to Mr. Hall under the FGB Stock
Option Plan to December 31, 2002 unless grants are made thereunder within six
months of December 31, 2002. In the later case, such options shall be fully
vested on the first day subsequent to the six months following their dates of
grant. The employment agreement provides for the payment to Mr. Hall of an
amount equal to 2.99 times the total amount of his base salary and most recent
annual bonus, if any, should there be a "change in control" of First Gaston
followed by a "termination event". For purposes of the employment agreement,
"change in control" is defined as the accumulation of 25% or more of the voting
power of First Gaston's outstanding securities, the power by any person or
group to elect or control the election of a majority of the members of the
Board of Directors of First Gaston or the merger of First Gaston into another
entity whereby First Gaston's then existing shareholders do not beneficially
own more than 60% of First Gaston's outstanding securities after consummation
of the transaction, 50% of the assets of First Gaston are sold to an entity and
no longer controlled by First Gaston or a majority change in incumbent
directors.
Mr. Hall waived any rights to receipt of any payment under the "change in
control" provision of his contract upon consummation of the share exchange with
Bancorp. His contract remains in effect otherwise.
Stock Options
The following table sets forth information with regard to stock options
granted under the FGB Incentive Option Plan.
OPTION GRANTS IN FISCAL YEAR 2001
(INDIVIDUAL GRANTS)
Number of Securities
Underlying % of Total Options Exercise or
Name Options Granted (1) Granted to Employees Base Price ($/Share) Expiration Date
---- ------------------- -------------------- -------------------- ---------------
W. Alex Hall 4,332 14.01% $10.27 6/25/11
10
AGGREGATED OPTION EXERCISES IN FISCAL 2001
AND FISCAL YEAR END OPTION VALUES
Number of Securities
Underlining Unexercised Value of Unexercised
Options at In-the-Money Options at
Fiscal Year End Fiscal Year End
--------------- ---------------
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
R. Steve Aaron 1,000 $5,638 17,150 3,026 $61,677 $-0-
W. Alex Hall -0- -0- 31,445 4,332 $52,481 $-0-
Employee Savings Plans. Currently, Catawba and First Gaston have two
separate 401(k) savings plans. However, on April 1, 2002, the two plans will
be merged into a new employee savings plan.
Catawba's 401(k) Savings Plan. Catawba has adopted a tax-qualified
savings plan (the "Catawba Savings Plan") which covers all current full-time
employees and any new full-time employees who have been employed by Catawba for
six months. Under the Catawba Savings Plan, a participating employee may
contribute up to 16% of his or her base salary on a tax-deferred basis through
salary reduction as permitted under Section 401(k) of the Code. Catawba
contributes an amount equal to 100% of the first 6% of pre-tax salary
contributed by each participant and may make additional discretionary profit
sharing contributions to the Catawba Savings Plan on behalf of all
participants. Such discretionary profit sharing contributions may not exceed 6%
of the aggregate of the pre-tax base salaries of all participants in the
Catawba Savings Plan and are allocated among all participants on the basis of
the participant's age and level of compensation. Amounts deferred above the
first 6% of salary are not matched by Catawba. A participant's contributions
and Catawba's matching and profit sharing contributions under the Catawba
Savings Plan will be held in trust accounts for the benefit of participants. A
participant is at all times 100% vested with respect to his or her own
contributions under the Catawba Savings Plan, and becomes 100% vested in the
account for Catawba's matching and profit sharing contributions after
completing five years of service with Catawba. The value of a participant's
accounts under the Catawba Savings Plan becomes payable to him or her in full
upon retirement, total or permanent disability or termination of employment for
any other reason, or becomes payable to a designated beneficiary upon a
participant's death. The Catawba Savings Plan also will contain provisions for
withdrawals in the event of certain hardships. A participant's contributions,
vested matching and profit sharing contributions of Catawba, and any income
accrued on such contributions, are not subject to federal or state taxes until
such time as they are withdrawn by the participant.
11
First Gaston's 401(K) Savings Plan. First Gaston has adopted a tax-
qualified savings plan (the "First Gaston Savings Plan") which covers all
full-time employees and any new full-time employees who have been employed by
First Gaston for one year. Under the savings plan, a participating employee may
contribute up to 15% of his or her base salary on a tax-deferred basis through
salary reduction as permitted under Section 401(k) of the Code. First Gaston
contributes an amount equal to 50% of the first 6% of pre-tax salary
contributed by each participant and may make additional discretionary profit
sharing contributions to the First Gaston Savings Plan and are allocated among
all participants on the basis of the participant's age and level of
compensation. Amounts deferred above the first 6% of salary are not matched by
First Gaston. A participant's contributions and First Gaston's matching and
profit sharing contributions under the First Gaston Savings Plan will be held
in trust accounts for the benefit of participants. A participant is at all
times 100% vested with respect to his or her own contributions under the First
Gaston Savings Plan, and becomes 100% vested with respect to his or her own
matching and profit sharing contributions after completing five years of
service with First Gaston. The value of a participant's accounts under the
First Gaston Savings Plan becomes payable to him or her in full upon
retirement, total or permanent disability, or termination of employment for any
other reason, or becomes payable to a designated beneficiary upon a
participant's death. The First Gaston Savings Plan also contains provisions for
withdrawals in the event of certain hardships. A participant's contributions,
vested matching and profit sharing contributions of First Gaston, and any
income accrued on such contributions, are not subject to federal or state taxes
until such time as they are withdrawn by the participant.
Indebtedness and Transactions Of Management
Bancorp has had, and expects to have in the future, banking transactions
in the ordinary course of business with certain of its current directors,
nominees for director, executive officers and their associates. All loans
included in such transactions were made on substantially the same terms,
including interest rates, repayment terms and collateral, as those prevailing
at the time such loans were made for comparable transactions with other
persons, and do not involve more than the normal risk of collectibility or
present other unfavorable features.
PROPOSAL 2: RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------------------------
The Board of Directors has appointed the firm of Dixon Odom PLLC,
Certified Public Accountants, as Bancorp's independent public accountants for
2002. A representative of Dixon Odom PLLC is expected to be present at the
annual meeting and available to respond to appropriate questions, and will have
the opportunity to make a statement if he desires to do so.
Bancorp has paid Dixon Odom PLLC fees in connection with its
assistance in Bancorp's annual audit and review of Bancorp's financial
statements. Sometimes, Bancorp engages Dixon Odom PLLC to assist in other areas
of financial planning.
12
The following table sets forth the fees paid to Dixon Odom PLLC in various
categories in 2001.
Amount
Category Paid
-------- --------
Audit Fees: $ 29,344
Financial Information System Design and Implementation Fees: -0-
All Other Fees(1): 23,668
--------
Total Fees Paid: $ 53,012
========
(1) Includes $19,800 paid to Dixon Odom PLLC in connection with Bancorp's
acquisition of First Gaston in 2001.
The Audit Committee has considered whether Dixon Odom PLLC's provision
of other non-audit services is compatible with maintaining independence of
Dixon Odom PLLC. The Audit Committee has determined that it is compatible with
maintaining the independence of Dixon Odom PLLC.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
---
RATIFICATION OF DIXON ODOM PLLC AS THE INDEPENDENT PUBLIC ACCOUNTANTS OF
BANCORP.
PROPOSAL 3: APPROVAL OF AMENDMENT TO THE
----------------------------------------
1996 INCENTIVE STOCK OPTION PLAN
--------------------------------
On January 10, 2002, the Board approved an amendment to the Incentive
Option Plan, subject to shareholder approval, to increase the shares available
thereunder. The amendment provides that an aggregate of 100,000 shares will be
added to the 10,864 shares currently reserved for issuance by Bancorp upon
exercise of stock options granted from time to time under the Incentive Option
Plan. Options granted under the Incentive Option Plan are intended to qualify
as "incentive stock options" within the meaning of Section 422A of the Code.
Under the Code, such options afford favorable tax treatment to recipients upon
compliance with certain restrictions but do not result in tax deductions to
Bancorp. The purpose of the Incentive Option Plan is to increase the
performance incentive for employees of Bancorp, to encourage the continued
employment of current employees and to attract new employees by facilitating
their purchase of a stock interest in Bancorp.
The Incentive Option Plan is administered by the Executive Committee of
the board. No member of the board who is not also an officer of Bancorp,
Catawba, or First Gaston is eligible to receive options under the Incentive
Option Plan. Employees of Bancorp are eligible to receive options under the
Incentive Option Plan at no cost to them other than the option exercise price.
Any options granted under the Incentive Option Plan are subject to a vesting
schedule whereby 20% of the options vest on each anniversary of the date of
grant until all options are vested. Generally, the exercise price for options
granted pursuant to the Incentive Option Plan may not be less than
13
100% of the fair market value of the shares on the date of grant. No option
will be exercisable more than ten years after the date that it is granted. In
the case of an employee who owns more than 10% of the shares at the time the
stock option is granted, the option price may not be less than 110% of the fair
market value of the shares on the date of the grant, and the option shall not
be exercisable more than five years from the date it is granted. The optionee
cannot transfer or assign any option other than by will or in accordance with
the laws of descent and distribution. In the event the optionee is discharged
for cause the options will immediately terminate. In the event an optionee's
employment is terminated for any reason other than cause or voluntary
separation on the part of the optionee (other than for retirement or
disability), the options are exercisable for three months. In the event of an
optionee's retirement, the options will continue to be exercisable for three
months following retirement. In the event an optionee becomes disabled or dies,
the options will continue to be exercisable for twelve months following the
date of the disability or death. Common stock subject to options which expire
or terminate prior to the exercise of the options shall lapse and such shares
shall again be available for future grants under the Incentive Option Plan.
Bancorp receives no monetary consideration at the time of granting
the stock options. The consideration, if any, which Bancorp receives from the
granting of such stock options is the further dedication of its employees in
the performance of their responsibilities, duties, and functions on behalf of
Bancorp. Upon exercise of options, Bancorp will receive payment of cash or
stock from the optionee in exchange for shares issued.
Subject to alternative minimum tax rules under the Code, a recipient
of a stock option under the Incentive Option Plan will not be taxed
upon either the grant of the option or on the date he or she exercises such
option. Unless subject to the alternative minimum tax, a recipient will be
taxed only upon the sale of the stock underlying the option and will be taxed
on the difference between the option price and the sales price of the stock.
The taxable amount will be treated as capital gain. If the Incentive Option
requirements are satisfied, Bancorp will receive no corresponding deduction for
any portion of the stock option.
If the amendment to the Incentive Option Plan is approved by the
shareholders, it will become effective immediately and options, if any,
granted prior to shareholder approval beyond the original 10,864 will become
exercisable pursuant to the Incentive Option Plan's vesting schedule. If the
amendment to the Incentive Option Plan is not approved by shareholders, the
number of shares available under the Incentive Option Plan will remain at
10,864, and all options granted prior to the shareholder vote will be forfeited
and void. The price of the Bancorp's common stock on December 31, 2001 was
$12.05.
OTHER MATTERS
The Board of Directors knows of no other business that will be brought
before the annual meeting. Should other matters properly come before the annual
meeting, the proxies will be authorized to vote shares represented by each
appointment of proxy in accordance with their best judgment on such matters.
14
PROPOSALS FOR 2003 ANNUAL MEETING
It is anticipated that the 2003 Annual Meeting will be held on a date
during April 2003. Any proposal of a shareholder which is intended to be
presented the 2003 annual meeting must be received by Bancorp at its main
office in Hickory, North Carolina no later than November 15, 2002 in order that
any such proposal be timely received for inclusion in the proxy statement and
appointment of proxy to be issued in connection with that meeting. If a
proposal for the 2003 Annual Meeting is not expected to be included in the
proxy statement for that meeting, the proposal must be received by Bancorp by
February 15, 2003 for it to be timely received for consideration. Bancorp will
use its discretionary authority for any proposals received thereafter.
15
REVOCABLE PROXY
UNITED COMMUNITY BANCORP
1039 Second Street, N.E.
Hickory, North Carolina 28601
APPOINTMENT OF PROXY
SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints Barbara D. Myers, Carole F. Teague, and
Joe S. Tripp or any of them, as attorneys and proxies, with full power of
substitution, to vote all shares of the common stock of United Community
Bancorp ("Bancorp") held of record by the undersigned on February 28, 2002, at
the Annual Meeting of Shareholders of Bancorp to be held at the Gateway
Conference Center, 909 Highway 70 SW, Hickory, North Carolina, at 3:00 p.m. on
April 23, 2002, and at any adjournments thereof. The undersigned hereby directs
that the shares represented by this appointment of proxy be voted as follows on
the proposals listed below:
1. ELECTION OF DIRECTORS: Proposal to elect eight directors of Bancorp for
one-year terms or until their successors are duly elected and qualified.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote
(except as indicated otherwise for all nominees listed
below). below.
NOMINEES: R. Steve Aaron
David E. Cline
Loretta P. Dodgen, Ed.D.
W. Alex Hall, Jr.
Robert P. Huntley
W. Steve Ikerd
H. Ray McKenney, Jr.
Howard L. Pruitt
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the line below.
--------------------------------------------------------------------------
2. RATIFICATION OF INDEPENDENT ACCOUNTANTS: Proposal to ratify the
appointment of Dixon Odom PLLC as Bancorp's independent accountants for
2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF AMENDMENT TO THE 1996 INCENTIVE STOCK OPTION PLAN: An
amendment to the 1996 Incentive Stock Option Plan increasing the number of
shares available under the plan by 100,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. OTHER BUSINESS: On such other matters as may properly come before the
Annual Meeting, the proxies are authorized to vote the shares represented
by this appointment of proxy in accordance with their best judgment.
PLEASE DATE AND SIGN THIS APPOINTMENT OF PROXY ON THE REVERSE
-------------------------------------------------------------
SIDE AND RETURN TO UNITED COMMUNITY BANCORP
-------------------------------------------
THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED AS
DIRECTED ABOVE. IN THE ABSENCE OF ANY DIRECTION, SUCH SHARES WILL BE VOTED FOR
THE ELECTION OF EACH OF THE NOMINEES LISTED IN PROPOSAL 1 BY CASTING AN EQUAL
NUMBER OF VOTES FOR EACH SUCH NOMINEE, AND FOR PROPOSALS 2 AND 3. IF, AT OR
BEFORE THE TIME OF THE MEETING, ANY NOMINEE LISTED IN PROPOSAL 1 HAS BECOME
UNAVAILABLE FOR ANY REASON, THE PROXIES ARE AUTHORIZED TO VOTE FOR A SUBSTITUTE
NOMINEE. THIS APPOINTMENT OF PROXY MAY BE REVOKED BY THE HOLDER OF THE SHARES
TO WHICH IT RELATES AT ANY TIME BEFORE IT IS EXERCISED BY FILING WITH THE
SECRETARY OF BANCORP A WRITTEN INSTRUMENT REVOKING IT OR A DULY EXECUTED
APPOINTMENT OF PROXY BEARING A LATER DATE OR BY ATTENDING THE ANNUAL MEETING
AND ANNOUNCING HIS OR HER INTENTION TO VOTE IN PERSON.
Dated: ----------------------------------, 2002
-----------------------------------------------
Signature
-----------------------------------------------
Signature if held jointly
Instruction: Please sign above exactly as your
name appears on this appointment of proxy. Joint
owners of shares should both sign. Fiduciaries or
other persons signing in a representative capacity
should indicate the capacity in which they are
signing.
IMPORTANT: TO INSURE THAT A QUORUM IS PRESENT, PLEASE SEND IN YOUR
APPOINTMENT OF PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING. EVEN
IF YOU SEND IN YOUR APPOINTMENT OF PROXY, YOU WILL BE ABLE TO VOTE IN PERSON AT
THE MEETING IF YOU SO DESIRE.
UNITED COMMUNITY BANCORP
AND SUBSIDIARIES
2001 ANNUAL REPORT
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
- --------------------------------------------------------------------------------
Table of Letter from the President ............................. 1
Contents
Selected Financial and Other Data ..................... 2
Management's Discussion and Analysis .................. 3
Independent Auditors' Report .......................... 9
Financial Statements .................................. 10
Notes to Financial Statements ......................... 13
Directors ............................................. 37
General Corporate Information ......................... 38
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
REPORT OF MANAGEMENT
- --------------------------------------------------------------------------------
Dear Shareholders, Customers and Friends:
The year 2001 will long be remembered for two things. It is the year that our
country slipped into a recession after the longest expansion of our economy in
history and it's the year that our nation was brought to reality about the evil
forces that are in our world as a result of the September 11/th/ tragedy.
Despite these two unfortunate events, I am proud to tell you that 2001 was a
tremendous year in the life of your holding company. The holding company's
profits were basically neutral when compared to the year 2000 even though we
suffered interest margin compression brought on by a record number of interest
rate cuts by the Federal Reserve as they struggled to get our economy turned
around. Reductions in interest income were offset by increases in fee income and
expense control.
The year 2001 is also the year in which we reached one of our long-range
objectives and that was attracting another bank to join our bank holding
company. In May of 2001, we announced the merger-of-equals with First Gaston
Bank of Gastonia, North Carolina. This transaction was completed on December 31,
2001. This merger brings your holding company's assets to approximately $325
million.
During 2001, Catawba Valley Bank opened a new office on Springs Road in Hickory,
North Carolina. First Gaston Bank purchased property to open a new branch in
Stanley, North Carolina during the year.
As a result of the merger, your stock now trades on the NASDAQ "small cap"
market and we now have six market makers in the holding company stock. We
believe your stock has been under valued for the past year, and we feel the new
market and market makers will enhance the trade price of the stock. We thank you
for owning our stock, and we pledge our best efforts to make this a rewarding
investment.
Sincerely
R. Steve Aaron,
President
- --------------------------------------------------------------------------------
Page 1
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
SELECTED FINANCIAL INFORMATION AND OTHER DATA
- --------------------------------------------------------------------------------
The following table sets forth certain financial data for the years ended
December 31, 2001 and 2000.
2001 2000
------------- ----------------
INCOME STATEMENT
Net interest income $ 10,303,739 $ 9,689,510
Provision for loan losses 927,000 1,117,972
Non-interest income 3,606,101 1,852,123
Non-interest expenses 9,074,900 6,816,920
Net income 2,629,786 2,679,120
PER SHARE DATA/(1)/
Basic income $ .95 $ .97
Diluted income .93 .94
Book value 11.32 11.35
BALANCE SHEET
Total assets $ 325,473,716 $ 267,494,617
Total deposits 259,147,137 220,004,365
Total loans 240,320,926 195,017,566
Allowance for loan losses 3,454,218 2,937,610
Investment securities 62,328,059 50,130,266
Total earning assets 312,513,977 254,184,998
Stockholders' equity 31,387,795 28,615,575
SELECTED OTHER DATA
Return on average assets .89% 1.13%
Return on average equity 8.77% 9.93%
Average equity to average assets 10.12% 11.42%
Interest rate spread 2.93% 3.60%
Net yield on average interest-earning
assets 3.62% 4.37%
Average interest-earning assets to
average interest-bearing liabilities 117.03% 116.53%
Ratio of non-interest expense to
average total assets 3.06% 2.89%
Nonperforming loans to total loans .24% .10%
Allowance for loan losses to total loans 1.44% 1.51%
/(1)/Adjusted to reflect the dilutive effect of a 10% stock dividend in 2001.
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Page 2
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The following pages of this report represent management's discussion and
analysis of our consolidated financial condition and results of operations of
United Community Bancorp and Subsidiaries. The objective of this discussion is
to provide the reader with a clear, concise and complete understanding of the
financial condition and results of operations of United Community Bancorp and
Subsidiaries. This discussion and analysis is intended to complement, and should
be read in conjunction with, the audited financial statements of the Company and
related notes appearing elsewhere in this annual report to stockholders.
OVERVIEW
United Community Bancorp (formally Catawba Valley Bancshares, Inc.), a bank
holding company, was organized on June 30, 1998 and elected to become a
financial services holding company on October 16, 2001. The holding company is
headquartered in Hickory, North Carolina, and owns two state chartered banks,
Catawba Valley Bank, headquartered in Hickory, North Carolina, and First Gaston
Bank of North Carolina, headquartered in Gastonia, North Carolina. On December
31, 2001, First Gaston Bank became the wholly owned subsidiary of United
Community Bancorp under an Agreement and Plan of Share Exchange (the
"Agreement"). Under the Agreement, the Holding Company's name was changed from
Catawba Valley Bancshares, Inc. to "United Community Bancorp." The transaction,
which was initiated prior to June 30, 2001, was accounted for as a
pooling-of-interests.
Catawba Valley Bank was incorporated in 1995 and provides a full range of
banking services from four locations, three located in Hickory and one in
Newton. Catawba Valley Bank's market area consists of the area within a 10-mile
radius of the city of Hickory, North Carolina and includes parts of Catawba
County, Burke County, Caldwell County and Alexander County, North Carolina.
Catawba Valley Bank also has a wholly owned subsidiary, Valley Financial
Services. This subsidiary sells insurance and non-insured investment products to
its customers. On January 1, 2002, Valley Financial Services became a subsidiary
of the holding company and will be offering services to customers of both
Catawba Valley Bank and First Gaston Bank, as well as to the public at large.
First Gaston Bank was also incorporated in 1995. First Gaston Bank's market area
includes the city of Gastonia, North Carolina, and the cities of Belmont and
Mount Holly and parts of Gaston County. First Gaston Bank currently provides
full service banking from each of its three branch offices which are located in
Gastonia, Belmont and Mount Holly.
United Community Bancorp had deposits of $259 million as of December 31, 2001
while loans totaled $240 million.
Real estate secured loans, including construction loans and loans secured by
existing commercial and residential properties, comprise the majority of our
loan portfolio, with the balance of our loans consisting of commercial and
industrial loans and loans to individuals.
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Page 3
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION AT DECEMBER 31, 2001 AND DECEMBER 31, 2000
During 2001, the Company's total assets increased $58.0 million, or 21.7%, to
$325.5 million at December 31, 2001 from $267.5 million at December 31, 2000.
The growth in our total assets is primarily attributable to strong loan growth
resulting from our continued efforts to develop the brand names of our Banks in
the markets served by both Catawba Valley Bank and First Gaston Bank. Gross
loans increased $45.3 million, or 23.2%, during 2001 from $195.0 million at
December 31, 2000 to $240.3 million at December 31, 2001. This growth occurred
primarily in our mortgage, construction and commercial segments of our loan
portfolio. Commercial and construction loans increased by $32.1 million during
the year, representing 70.9% of our loan growth, while residential mortgage
loans, including equity lines, increased $11.0 million, accounting for 24.3% of
the total increase in gross loans. The remainder of the growth in our loan
portfolio resulted from a net increase in consumer loans of $2.5 million.
In addition to the aforementioned growth in our loan portfolio, our investment
securities increased $12.2 million from $50.1 million at December 31, 2000 to
$62.3 million at the end of 2001. Of this increase, approximately $500,000
resulted from net unrealized gains on these securities. With the decreasing
interest rate environment, our strategy was to lengthen the average maturity of
our investment portfolio without losing yield. Throughout the year, the Banks
invested in municipals, FHLB Bonds and mortgage backed securities.
Customer deposits continued to be our principal funding source in 2001 allowing
us to fund the growth in loans and investment securities, our highest yielding
interest earning assets, discussed above. At December 31, 2001, deposits totaled
$259.1 million, an increase of $39.1 million or 17.8% compared with $220.0
million at December 31, 2000. Due to the rapid decline in interest rates during
the past year, the demand for loans outpaced our deposit growth. Therefore, we
utilized different types of funding sources in addition to customer deposits. We
increased our balance of Federal Home Loan Bank advances by $14.5 million to
$25.0 million at December 31, 2001, and we increased the level of our Federal
funds purchased, a type of overnight borrowing, by $2.1 million to $3.3 million
at the end of the year. We also applied $1.3 million of our cash and cash
equivalents towards the growth of our interest-earning assets during 2001.
At December 31, 2001, stockholders' equity totaled $31.4 million, an increase of
$2.8 million from the total of $28.6 million at the end of 2000. This increase
resulted primarily from our net income for 2001 of $2.6 million. Unrealized
gains on our investment securities, net of tax, of $333,000 also contributed to
the increase in the Company's equity. Additionally, the Company was able to pay
a 10% stock dividend along with a cash dividend of $197,000, or $.12 per share
in 2001. At December 31, 2001, the Company, Catawba Valley Bank, and First
Gaston Bank continued to exceed all applicable regulatory guidelines.
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Page 4
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000
Net Income
The Company earned net income of $2.6 million or $.95 per share for 2001, as
compared with net income of $2.7 million or $.97 per share in 2000, a decrease
of $49,000 or $.02 per share. In 2001, we continued to grow despite the
declining interest rate environment and the general economic downturn. Our total
interest earning assets averaged $284.3 million during the current year compared
to $221.5 million in 2000, an increase of 28.4%. Additionally, our non-interest
income grew rapidly in the current year, up $1.7 million to $3.6 million in 2001
versus $1.9 million for 2000. This increase of 89.5% mainly resulted from the
efforts of our mortgage department in the form of increased loan servicing fees.
Our provision for loan losses decreased by 17% or $191,000 in 2001. These
factors, all of which positively impacted our earnings, were offset by the
increase in our non-interest expenses of $2.3 million in 2001 and the increase
in our effective tax rate from 25.7% in 2000 to 32.7% in 2001. All of the
aforementioned factors significantly affecting net income for 2001 are analyzed
in greater detail in the discussion that follows.
Net Interest Income
Like most financial institutions, the primary component of earnings for our
banks, Catawba Valley and First Gaston, is net interest income. Net interest
income is the difference between interest income, principally from loan and
investment securities portfolios, and interest expense, principally on customer
deposits and borrowings. Changes in net interest income result from changes in
volume, spread and margin. For this purpose, volume refers to the average dollar
level of interest-earning assets and interest-bearing liabilities, spread refers
to the difference between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities, and margin refers to net interest
income divided by average interest-earning assets. Margin is influenced by the
level and relative mix of interest-earning assets and interest-bearing
liabilities, as well as by levels of noninterest-bearing liabilities and
capital.
Net interest income increased $614,000 to $10.3 million for the year ended
December 31, 2001, compared to the $9.7 million earned in 2000. Total interest
income benefited from strong growth in the level of average earning assets,
which offset lower asset yields caused by the dramatic trend of declining
interest rates throughout the year. The growth in our earning assets enabled us
to increase the ratio of average interest-earning assets to average
interest-bearing liabilities from 116.5% in 2000 to 117.0% in 2001.
Approximately three-fourths of our interest earning-assets repriced immediately
when interest rates declined during the year while the rates for the predominant
portion of our interest-bearing liabilities were fixed until maturity. Given
this, the net yield on our average interest-earning assets decreased from 4.37%
in 2000 to 3.62% in 2001, and our net interest rate spread decreased from 3.60%
in 2000 to 2.93% in 2001.
Provision for Loan Losses
Our allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. We increase our allowance for loan losses
by provisions charged to operations and by recoveries of amounts previously
charged off, and we reduce our allowance by loans charged off. We evaluate the
adequacy of the allowance at least quarterly. In evaluating the adequacy of the
allowance, we consider the growth, composition and industry
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Page 5
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
diversification of the portfolio, historical loan loss experience, current
delinquency levels, adverse situations that may affect a borrower's ability to
repay estimated value of any underlying collateral, prevailing economic
conditions and other relevant factors deriving from our history of operations.
We follow a loan review program designed to evaluate the credit risk in our loan
portfolio. Through this loan review process, we maintain an internally
classified watch list that helps management assess the overall quality of the
loan portfolio and the adequacy of the allowance for loan losses. In
establishing the appropriate classification for specific assets, management
considers, among other factors, the estimated value of the underlying
collateral, the borrower's ability to repay, the borrower's payment history and
the current delinquent status. As a result of this process, certain loans are
categorized as substandard, doubtful or loss and reserves are allocated based on
management's judgment and historical experience. Testing by our internal
auditors and by other independent third parties contracted with to perform
reviews of our loans helps to validate this process. In addition, regulatory
agencies, as an integral part of their examinations process, periodically review
our allowance for loan losses and may require us to make additional provisions
based upon information available to them at the time of their examination.
Our provision for loan losses for 2001 and 2000 was $927,000 and $1.1 million,
respectively, and resulted from the process and policies described above. The
allowance for loan losses at December 31, 2001 totaled $3.5 million, or 1.44% of
total loans. Management believes that the allowance is adequate to absorb losses
inherent in the loan portfolio.
Non-Interest Income
Non-interest income increased from $1.9 million in 2000 to $3.6 million in 2001,
an increase of $1.8 million. The primary component of this increase was the rise
in income from mortgage operations, which results from the origination of
residential mortgage loans for lenders in the secondary market, of $993,000 from
$545,000 in 2000 to $1.5 million in 2001. Additionally, due to our overall
growth in deposits in 2001 combined with the new products that we offered to our
customers this year, service charges on deposit accounts increased $429,000, or
53.8%, to $1.2 million.
Non-Interest Expenses
Non-interest expenses amounted to $9.1 million and $6.8 million for the years
ended December 31, 2001 and 2000, respectively, an increase of $2.3 million. The
components of our non-interest expenses, which made the primary contributions to
this increased level of expense are as follows: Compensation and employee
benefits increased $1.0 million from $3.7 million in 2000 to $4.7 million in
2001 due to additional personnel added in conjunction with the opening of
Catawba Valley Bank's fourth branch location during the first quarter of 2001
and to increased compensation related to the Company's mortgage operations. Much
of the compensation for the personnel in mortgage operations is commission based
and therefore increased along with the increase in volume during the year
discussed under the non-interest income caption. Professional fees expense
increased from $245,000 in 2000 to $665,000 in 2001 resulting largely from
increased and non-recurring costs incurred regarding the Company's acquisition
of First Gaston Bank, which was competed on December 31, 2001. The remainder of
the increase in the Company's non-interest expense was attributable to the
overall growth of the Company, which included the opening of Catawba Valley
Bank's operations center in 2001. The single largest increase in the expenses
classified as "Other" non-interest expenses in
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Page 6
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
our consolidated statements of operations for 2001 was an increase in the
provision for losses on foreclosed assets of $121,000. The provision is made to
reduce the carrying value of those assets to the lower of their carrying amount
or fair value less costs to sell.
Provision for Income Taxes
The Company's effective tax rate (income taxes as a percentage of income before
income taxes) for 2001 was 32.7% and 25.7% for the years ended December 31, 2001
and 2000, respectively. The increase in the Company's effective tax rate results
from the income tax expense in 2000 for its wholly owned subsidiary, First
Gaston Bank. At December 31, 1999 First Gaston had established a valuation
allowance of $308,000 for certain of its deferred tax assets. During 2000, the
management of First Gaston determined that this valuation allowance was no
longer necessary, and the allowance was released through a credit to income tax
expense.
LIQUIDITY AND CAPITAL RESOURCES
Maintaining adequate liquidity while managing interest rate risk is the primary
goal of the Company's asset and liability management strategy. Liquidity is the
ability to fund the needs of the Company's borrowers and depositors, pay
operating expenses, and meet regulatory liquidity requirements. Maturing
investments, loan and mortgage-backed security principal repayments, deposit
growth and borrowings are presently the main sources of the Company's liquidity.
The Company's primary uses of liquidity are to fund loans and to make
investments.
As of December 31, 2001, liquid assets, consisting of cash and cash equivalents
and investment securities were approximately $72.5 million, which represents
22.3% of total assets and 26.9% of total deposits and borrowings. Supplementing
this liquidity, the Company, through its bank subsidiaries, had $17 million of
credit available from the Federal Home Loan Bank and available lines of credit
from correspondent banks totaling $2.5 million. At December 31, 2001,
outstanding commitments to extend credit were $824,000 and undisbursed line of
credit balances totaled $52.8 million. Management believes that the combined
aggregate liquidity position of the Company is sufficient to meet the funding
requirements of loan demand and deposit maturities and withdrawals in the near
term.
Certificates of deposit represented 64.6% of the Company's total deposits at
December 31, 2001. The Company's growth strategy will include efforts focused at
increasing the relative volume of transaction deposit accounts. Certificates of
deposit of $100,000 or more represented 25.1% of the Company's total deposits at
year-end. These deposits are generally considered rate sensitive, but management
believes many of them are relationship-oriented. While the Company will need to
pay competitive rates to retain these deposits at maturity, there are other
subjective factors that will determine the Company's continued retention of
those deposits.
Banks and bank holding companies, as regulated institutions, must meet required
levels of capital. The FDIC, the primary regulator of Catawba Valley Bank and
First Gaston Bank, and the Federal Reserve, the primary regulator of United
Community Bancorp, have adopted minimum capital regulations or guidelines that
categorize components and the level of risk associated with various types of
assets. Financial institutions are expected to maintain a level of capital
commensurate with the risk profile assigned to its assets in accordance with
these guidelines.
- --------------------------------------------------------------------------------
Page 7
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
At December 31, 2001, both United Community and each of its bank subsidiaries
maintained capital levels exceeding the minimum levels for "well capitalized"
bank holding companies and banks.
IMPACT OF INFLATION AND CHANGING PRICES
A commercial bank has an asset and liability composition that is distinctly
different from that of a company with substantial investments in plant and
inventory because the major portion of its assets are monetary in nature. As a
result, a bank's performance may be significantly influenced by changes in
interest rates. Although the banking industry is more affected by changes in
interest rates than by inflation in the prices of goods and services, inflation
is a factor which may influence interest rates. However, the frequency and
magnitude of interest rate fluctuations do not necessarily coincide with changes
in the general inflation rate. Inflation does affect operating expenses in that
personnel expenses and the cost of supplies and outside services tend to
increase more during periods of high inflation.
FORWARD-LOOKING INFORMATION
This annual report to stockholders contains certain forward-looking statements
consisting of estimates with respect to the financial condition, results of
operations and other business of United Community Bancorp that are subject to
various factors which could cause actual results to differ materially from those
estimates. Factors which could influence the estimates include changes in
national, regional and local market conditions, legislative and regulatory
conditions, and the interest rate environment.
MARKET FOR COMMON STOCK
As of December 31, 2001 there were approximately 3,000 shareholders of record of
United Community Bancorp common stock. The stock is now traded on the NASDAQ
small cap market under the symbol UCBB. Bancorp currently has six market makers.
They are: IJL/ Wachovia, Trident Securities, Scott & Stringfellow, Sterne, Agee
& Leach, Ryan Beck & Company and Anderson & Strudwick. The table below lists the
high and low sale prices.
2001 2000*
---- -----
Period High Low High Low
------ ---- --- ---- ---
First Quarter $ 15.00 $ 9.00 $ 14.77 $ 12.73
Second Quarter 15.50 12.10 15.45 12.73
Third Quarter 14.50 11.25 14.55 12.85
Fourth Quarter 12.30 11.71 13.64 8.41
*Adjusted for 10% stock dividend February 28, 2001.
- --------------------------------------------------------------------------------
Page 8
[LOGO]
DIXON ODOM pllc
Certified Public Accountants and Consultants
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
United Community Bancorp and Subsidiaries
Hickory, North Carolina
We have audited the accompanying consolidated balance sheets of United Community
Bancorp (formerly "Catawba Valley Bancshares, Inc.") and Subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. 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.
The consolidated financial statements as of December 31, 2000 and for the year
then ended have been restated to reflect the pooling of interests with First
Gaston Bank of North Carolina as described in Note A to the consolidated
financial statements. We did not audit the 2000 financial statements of First
Gaston Bank of North Carolina, which statements reflect total assets of
$111,986,171 as of December 31, 2000, and total revenues of $9,175,824 for the
year then ended. Those statements were audited by other auditors whose report
has been furnished to us, and our opinion, insofar as it relates to the amounts
included for First Gaston Bank of North Carolina as of December 31, 2000 and for
the year then ended, is based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 and the report of
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of United Community
Bancorp and Subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ Dixon Odom PLCC
Sanford, North Carolina
January 18, 2002
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Page 9
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
2001 2000
---------------- ----------------
Assets
Cash and due from banks $ 4,491,503 $ 5,426,796
Interest-bearing deposits in banks 3,213,034 3,823,744
Federal funds sold 2,460,431 1,711,825
Time deposits in banks 299,000 793,978
Investment securities available for sale (Note C) 62,328,059 50,130,266
Loans (Note D) 240,320,926 195,017,566
Less allowance for loan losses (3,454,218) (2,937,610)
---------------- ----------------
Net loans 236,866,708 192,079,956
Factored accounts receivable 2,567,527 1,975,419
Stock in the Federal Home Loan Bank, at cost 1,325,000 732,200
Bank premises and equipment (Note E) 7,507,478 6,513,768
Foreclosed assets 1,073,214 505,429
Other assets 3,341,762 3,801,236
---------------- ----------------
Total assets $ 325,473,716 $ 267,494,617
================ ================
Liabilities and Stockholders' Equity
Deposits: (Note F)
Non-interest-bearing demand $ 25,060,210 $ 18,645,519
Money market and NOW accounts 59,517,063 54,418,066
Savings 7,239,892 6,100,576
Time, $100,000 and over 65,026,463 47,185,127
Other time 102,303,509 93,655,077
---------------- ----------------
Total deposits 259,147,137 220,004,365
Federal Home Loan Bank Advances (Note G) 25,500,000 11,000,000
Securities sold under agreement to repurchase 4,990,870 5,421,571
Federal funds purchased 3,275,000 1,210,000
Accrued expenses and other liabilities 1,172,914 1,243,106
---------------- ----------------
Total liabilities 294,085,921 238,879,042
---------------- ----------------
Stockholders' equity: (Notes I and L)
Preferred stock, no par value, 1,000,000 shares
authorized; none issued - -
Common stock, $1 par value, 9,000,000 shares
authorized; 2,773,009 and 2,520,609 shares issued and
outstanding in 2001 and 2000, respectively 2,773,009 2,520,609
Additional paid-capital 26,714,550 23,619,564
Retained earnings 1,307,401 2,215,660
Accumulated other comprehensive income 592,835 259,742
---------------- ----------------
Total stockholders' equity 31,387,795 28,615,575
---------------- ----------------
Total liabilities and stockholders' equity $ 325,473,716 $ 267,494,617
================ ================
Commitments (Notes H and J)
- --------------------------------------------------------------------------------
The accompany notes are an integral part of the financial statements. Page 10
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000
- --------------------------------------------------------------------------------
2001 2000
---------------- ----------------
Interest income
Loans $ 17,654,668 $ 16,800,420
Investment securities 3,814,316 2,680,026
Federal funds sold 78,325 116,813
Interest-bearing deposits with banks 304,155 435,962
---------------- ----------------
Total interest income 21,851,464 20,033,221
---------------- ----------------
Interest expense
Time deposits, $100,000 and over 3,047,976 2,324,003
Other deposits 7,251,800 7,204,624
Borrowings 1,247,949 815,084
---------------- ----------------
Total interest expense 11,547,725 10,343,711
---------------- ----------------
Net interest income 10,303,739 9,689,510
Provision for loan losses 927,000 1,117,972
---------------- ----------------
Net interest income after provision for
loan losses 9,376,739 8,571,538
---------------- ----------------
Non-interest income
Service charges on deposit accounts 1,226,911 797,896
Factoring operations 332,798 296,545
Mortgage operations 1,538,350 544,920
Other 508,042 212,762
---------------- ----------------
Total non-interest income 3,606,101 1,852,123
---------------- ----------------
Non-interest expenses
Compensation and employee benefits 4,707,986 3,669,886
Occupancy and equipment 1,003,068 906,786
Professional fees 665,098 245,042
Stationery, printing and supplies 235,739 198,080
Advertising and business promotion 221,360 210,771
Data processing 651,126 547,634
Other 1,590,523 1,038,721
---------------- ----------------
Total non-interest expenses 9,074,900 6,816,920
---------------- ----------------
Income before income taxes 3,907,940 3,606,741
Income taxes (Note K) 1,278,154 927,621
---------------- ----------------
Net income $ 2,629,786 $ 2,679,120
================ ================
Net income per common share
Basic $ .95 $ .97
================ ================
Diluted $ .93 $ .94
================ ================
- --------------------------------------------------------------------------------
The accompany notes are an integral part of the financial statements. Page 11
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2001 and 2000
- --------------------------------------------------------------------------------
Accumulated
Additional other
Common stock paid-in Retained comprehensive Total
---------------------------
Shares Amount capital earnings income (loss) equity
------------ ------------- -------------- ----------- ------------ -------------
Balance at December 31,
1999 as originally reported 1,495,351 $ 1,495,351 $ 13,602,333 $ 301,140 $ (378,053) $ 15,020,771
Restatement for pooling
of interests (Note A) 1,023,414 1,023,414 9,998,831 (585,158) (117,462) 10,319,625
------------ ------------- -------------- ----------- ------------ -------------
Balance at December 31,
1999 as restated 2,518,765 2,518,765 23,601,164 (284,018) (495,515) 25,340,396
Comprehensive income:
Net income - - - 2,679,120 - 2,679,120
Unrealized holding gains
on available-for-sale
securities, net of
reclassification
adjustment and tax effects - - - - 755,257 755,257
-------------
Total comprehensive income 3,434,377
-------------
Stock options exercised 1,844 1,844 18,400 - - 20,244
Cash dividends paid - - - (179,442) - (179,442)
------------ ------------- -------------- ----------- ------------ -------------
Balance at December 31,
2000 2,520,609 2,520,609 23,619,564 2,215,660 259,742 28,615,575
Comprehensive income:
Net income - - - 2,629,786 - 2,629,786
Unrealized holding gains
on available-for-sale
securities, net of
reclassification
adjustment and tax effects - - - - 333,093 333,093
-------------
Total comprehensive income 2,962,879
-------------
Stock options exercised 1,000 1,000 5,787 - - 6,787
10% stock dividend 251,400 251,400 3,089,199 (3,340,599) - -
Cash dividends paid - - - (197,446) - (197,446)
------------ ------------- -------------- ----------- ------------ -------------
Balance at December 31,
2001 2,773,009 $ 2,773,009 $ 26,714,550 $ 1,307,401 $ 592,835 $ 31,387,795
============ ============= ============== =========== ============ =============
- --------------------------------------------------------------------------------
The accompany notes are an integral part of the financial statements. Page 12
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000
- --------------------------------------------------------------------------------
2001 2000
--------------- ---------------
Cash flows from operating activities
Net income $ 2,629,786 $ 2,679,120
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 552,264 524,132
Net accretion of securities (299,172) (73,402)
Net amortization of loan fees 124,824 162,034
Deferred income taxes (168,903) (461,595)
Provision for loan losses 927,000 1,117,972
Provision for losses on foreclosed assets 138,782 18,000
Deferred compensation 31,609 28,000
Net (gains) losses on securities (121,246) 43,020
Net gains on sale of loans (6,356) (1,793)
Net (gains) losses on sales of equipment 6,108 (7,650)
Net losses from sale of foreclosed assets 3,028 -
Change in assets and liabilities:
(Increase) decrease in other assets 456,783 (1,484,278)
Increase (decrease) in other liabilities (101,800) 556,917
-------------- ---------------
Net cash provided by operating activities 4,172,707 3,100,477
-------------- ---------------
Cash flows from investing activities
Purchase of securities available for sale (42,550,173) (27,578,966)
Purchase of Federal Home Loan Bank stock (592,800) (250,300)
Proceeds from sales, maturities and calls of
investment securities 31,277,485 6,797,238
Net increase in loans (46,632,345) (53,636,928)
Net (increase) decrease in factored accounts receivable (592,108) 3,304,434
Proceeds from sale of other real estate 90,530 564,700
Purchases of premises and equipment (1,552,082) (985,780)
-------------- ---------------
Net cash used by investing activities (60,551,493) (71,785,602)
-------------- ---------------
Cash flows from financing activities
Net increase in noninterest-bearing deposits 6,414,693 4,129,179
Net increase in interest-bearing deposits 32,728,078 44,946,315
Net increase (decrease) in securities sold under
agreements to repurchase (430,701) 1,210,000
Net increase in federal funds purchased 2,065,000 2,483,329
Net increase in Federal Home Loan Bank advances 14,500,000 6,000,000
Payment of dividends (197,446) (179,442)
Proceeds from exercise of stock options 6,787 20,244
-------------- ---------------
Net cash provided by financing activities 55,086,411 58,609,625
-------------- ---------------
Net decrease in cash and cash equivalents (1,292,375) (10,075,500)
Cash and cash equivalents, beginning of year 11,756,343 21,831,843
-------------- ---------------
Cash and cash equivalents, end of year $ 10,463,968 $ 11,756,343
============== ===============
- --------------------------------------------------------------------------------
The accompany notes are an integral part of the financial statements. Page 13
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND OPERATIONS
On December 31, 2001, with approval from regulators, First Gaston Bank of North
Carolina ("First Gaston Bank") became the wholly owned subsidiary of United
Community Bancorp (the "Holding Company") under an Agreement and Plan of Share
Exchange (the "Agreement") whereby shareholders of First Gaston Bank exchanged
each share of their common stock for 0.8934 shares of the common stock of the
Holding Company, for a total issuance of 1,127,123 shares of United Community
Bancorp common stock. Under the Agreement, the Holding Company's name was
changed from Catawba Valley Bancshares, Inc. to "United Community Bancorp" and
the minimum number of directors provided for under its bylaws was reduced from
nine to eight. The transaction, which was initiated prior to June 30, 2001, was
accounted for as a pooling-of-interests. Under the pooling-of-interests method
of accounting, the recorded amounts of the assets and liabilities of First
Gaston Bank were carried forward at their previously recorded amounts.
Historical financial information included in these consolidated financial
statements has been restated to include the financial position, results of
operations and cash flows of First Gaston Bank.
Catawba Valley Bank, a wholly owned subsidiary of United Community Bancorp, was
incorporated on October 3, 1995 and began banking operations on November 1,
1995. Catawba Valley Bank currently has four locations in Catawba County, North
Carolina, and is engaged in commercial and retail banking, operating under the
banking laws of North Carolina and the rules and regulations of the Federal
Deposit Insurance Corporation and the North Carolina Commissioner of Banks.
Valley Financial Services, Inc. is a wholly owned subsidiary of Catawba Valley
Bank whose principal business activity is that of an agent for various insurance
products and non-bank investment products and services.
First Gaston Bank was incorporated on March 16, 1995 and began banking
operations on July 11, 1995. First Gaston Bank currently serves Gaston County,
North Carolina and surrounding areas through its three banking offices and is
engaged in commercial and retail banking, operating under the banking laws of
North Carolina and the rules and regulations of the Federal Deposit Insurance
Corporation and the North Carolina Commissioner of Banks.
Both Catawba Valley Bank and First Gaston Bank undergo periodic examinations by
those regulatory authorities referred to above.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
United Community Bancorp, Catawba Valley Bank, First Gaston Bank, and Valley
Financial Services, Inc., collectively referred to as the "Company." All
significant intercompany transactions and balances are eliminated in
consolidation.
- --------------------------------------------------------------------------------
Page 14
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and amounts due from banks, federal funds sold,
interest-bearing deposits in banks, and time deposits in banks.
Securities Held to Maturity
Bonds and notes for which the Company has the positive intent and ability to
hold to maturity are reported at cost, adjusted for premiums and discounts that
are recognized in interest income using the interest method over the period to
maturity.
Securities Available for Sale
Available-for-sale securities are reported at fair value and consist of bonds
and notes not classified as trading securities nor as held-to-maturity
securities. Unrealized holding gains and losses on available-for-sale securities
are reported as a net amount in other comprehensive income. Gains and losses on
the sale of available-for-sale securities are determined using the
specific-identification method. Declines in the fair value of individual
held-to-maturity and available-for-sale securities below their cost that are
other than temporary would result in write-downs of the individual securities to
their fair value. Such write-downs would be included in earnings as realized
losses. Premiums and discounts are recognized in interest income using the
interest method over the period to maturity.
Loans
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans. Interest income is
accrued on the unpaid principal balance. Loan origination fees, net of certain
direct origination costs, are deferred and recognized as an adjustment of the
related loan yield using the interest method.
________________________________________________________________________________
Page 15
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans (Continued)
The accrual of interest on mortgage and commercial loans is discontinued at the
time the loan is 90 days delinquent unless the credit is well-secured and in
process of collection. Credit card loans and other personal loans are typically
charged off no later than 180 days past due. In all cases, loans are placed on
nonaccrual or charged-off at an earlier date if collection of principal or
interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income. The interest on these loans
is accounted for on the cash-basis or cost-recovery method until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. The provision
for loan losses is based upon management's best estimate of the amount needed to
maintain the allowance for loan losses at an adequate level. Loan losses are
charged against the allowance when management believes the uncollectibility of a
loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of the current status of the portfolio, historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the
borrower's ability to repay, estimated value of any underlying collateral, and
prevailing economic conditions. Management segments the loan portfolio by loan
type in considering each of the aforementioned factors and their impact upon the
level of the allowance for loan losses.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
Therefore, while management uses the best information available to make
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the assumptions used in making the evaluations. In
addition, regulatory examiners may require the Company to recognize changes to
the allowance for loan losses based on their judgments about information
available to them at the time of their examination.
A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due.
________________________________________________________________________________
Page 16
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses (Continued)
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the significance
of payment delays and payment shortfalls on a case-by-case basis, taking into
consideration all of the circumstances surrounding the loan and the borrower,
including the length of the delay, the reasons for the delay, the borrower's
prior payment record, and the amount of the shortfall in relation to the
principal and interest owed. Impairment is measured on a loan by loan basis for
commercial and construction loans by either the present value of expected future
cash flows discounted at the loan's effective interest rate, the loan's
obtainable market price, or the fair value of the collateral if the loan is
collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.
At December 31, 2000, the Company had impaired loans with a carrying value of
approximately $206,000. At December 31, 2001 the Company had no loans that were
considered impaired.
Foreclosed Assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale and
are initially recorded at fair value at the date of foreclosure, establishing a
new cost basis. Subsequent to foreclosure, valuations are periodically performed
by management and the assets are carried at the lower of carrying amount or fair
value less cost to sell. Revenue and expenses from operations and changes in the
valuation allowance are included in net expenses from foreclosed assets.
Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated on the straight-line method over the estimated useful
lives of the assets. The estimated lives for buildings are 40 years and the
estimated lives for equipment and fixtures range from 3 to 20 years. Leasehold
improvements are amortized over the terms of the respective leases or the
estimated useful lives of the improvements, whichever is shorter. Repairs and
maintenance costs are charged to operations as incurred, and additions and
improvements to premises and equipment are capitalized. Upon sale or retirement,
the cost and related accumulated depreciation are removed from the accounts and
any gains or losses are reflected in current operations.
________________________________________________________________________________
Page 17
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales when control over the
assets has been surrendered. Control over transferred assets is deemed to be
surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
Stock in Federal Home Loan Bank of Atlanta
As a requirement for membership, the Banks invest in stock of the Federal Home
Loan Bank of Atlanta. This investment is carried at cost.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Deferred
tax assets are reduced by a valuation allowance if it is more likely than not
that the tax benefits will not be realized.
Stock Compensation Plans
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for
Stock-Based Compensation, encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date (or other measurement date) over the amount
an employee must pay to acquire the stock. Stock options issued under the
Company's stock option plans have no intrinsic value at the grant date and,
under Opinion No. 25, no compensation cost is recognized for them. The Company
has elected to continue with the accounting methodology in Opinion No. 25 and,
as a result, has provided pro forma disclosures of net income and earnings per
share and other disclosures as if the fair value based method of accounting had
been applied.
Per Share Data
Basic and diluted net income per common share is computed based on the weighted
average number of shares outstanding during each period after retroactively
adjusting for the stock dividends. Diluted net income per common share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the net income of the Company.
________________________________________________________________________________
Page 18
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Per Share Data (Continued)
Basic and diluted net income per common share have been computed based upon net
income as presented in the accompanying consolidated statements of operations
divided by the weighted average number of common shares outstanding or assumed
to be outstanding as summarized below:
2001 2000
-------------- --------------
Weighted average number of common
shares used in computing basic net
income per common share 2,772,513 2,771,534
Effect of dilutive stock options 69,763 82,463
-------------- --------------
Weighted average number of
common shares and dilutive
potential common shares used in
computing diluted net income per
common share 2,842,276 2,853,997
============== ==============
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains
and losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
The components of other comprehensive income and related tax effects are as
follows:
2001 2000
-------------- --------------
Unrealized holding gains on available-for-sale
securities $ 625,933 $ 1,101,309
Reclassification adjustment for losses (gains)
realized in income (121,246) 43,020
-------------- --------------
Net unrealized gains 504,687 1,144,329
Tax effect (171,594) (389,072)
-------------- --------------
Net of tax amount $ 333,093 $ 755,257
============== ==============
________________________________________________________________________________
Page 19
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivative Financial Instruments
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities.
This Statement established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
The Company has no derivative financial instruments and does not engage in any
hedging activities; accordingly, the adoption of the statement did not affect
the Company's financial statements.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that all business combinations initiated after
June 30, 2001 be accounted for using the purchase method. SFAS No. 142 changes
the accounting for goodwill and certain other intangible assets from an
amortization method to an impairment only approach. Since the Company does not
have goodwill or other intangible assets, the adoption of SFAS Nos. 141 and 142
on January 1, 2002 is not expected to significantly affect the Company's
financial statements.
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations, and in July 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
SFAS No. 143 requires that obligations associated with the retirement of
tangible long-lived assets be recorded as a liability when those obligations are
incurred, with the amount of liability initially measured at fair value. SFAS
No. 143 will be effective for financial statements for fiscal years beginning
after June 15, 2002, though early adoption is encouraged. The application of
this statement is not expected to have a material impact on the Company's
financial statements.
SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144
applies to all long-lived assets, including discontinued operations, and amends
Accounting Principles Board Opinion No. 30, Reporting the Results of Operations
- - Reporting Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144
requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book or fair value less cost to sell. SFAS No. 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001, and its provisions are generally expected to be applied prospectively. The
application of this statement is not expected to have a material impact on the
Company's financial statements.
________________________________________________________________________________
Page 20
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassifications
Certain amounts in the 2000 financial statements have been reclassified to
conform to the 2001 presentation. The reclassifications had no effect on net
income or stockholders' equity as previously reported.
NOTE C - INVESTMENT SECURITIES
The amortized cost and estimated market values of securities available for sale
at December 31 are as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---------------- -------------- -------------- ----------------
2001
U.S. Government agencies $ 29,276,291 $ 796,102 $ 23,599 $ 30,048,794
Municipal agencies 9,313,362 197,654 98,820 9,412,196
Mortgage-back securities 22,234,956 213,376 193,988 22,254,344
Corporate bonds 605,216 7,509 - 612,725
---------------- -------------- -------------- ----------------
$ 61,429,825 $ 1,214,641 $ 316,407 $ 62,328,059
================ ============== ============== ================
2000
U.S. Government agencies $ 34,865,058 $ 351,877 $ 119,238 $ 35,097,697
Municipal agencies 6,573,915 142,934 4,640 6,712,209
Mortgage back securities 8,297,745 52,988 30,373 8,320,360
---------------- -------------- -------------- ----------------
$ 49,736,718 $ 547,799 $ 154,251 $ 50,130,266
================ ============== ============== ================
At December 31, 2001 and 2000, investment securities with a carrying value of
$6,839,939 and $5,098,994, respectively, were pledged to secure public deposits
and for other purposes required or permitted by law. At December 31, 2001 and
2000, the carrying amount of securities pledged to secure repurchase agreements
and Federal Home Loan Bank advances combined was $18,799,767 and $11,835,449,
respectively.
The amortized cost and estimated fair values of securities available for sale at
December 31, 2001 are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
- --------------------------------------------------------------------------------
Page 21
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE C - INVESTMENT SECURITIES (Continued)
Available for sale
-------------------------------------
Amortized Estimated
cost fair value
----------------- -----------------
Due in one year or less $ 1,972,417 $ 2,006,319
Due after one year through five years (5) 18,011,208 18,481,593
Due after five years through ten years (10) 24,132,089 24,653,810
Due after ten years 17,314,111 17,186,337
----------------- -----------------
$ 61,429,825 $ 62,328,059
================= =================
For the years ended December 31, 2001 and 2000, proceeds from sales of
investment securities available for sale amounted to $8,918,500 and $2,990,558,
respectively. Gross realized gains in 2001 and 2000 from these sales amounted to
$151,844 and $14,680, respectively. Gross realized losses in 2001 and 2000 from
these sales amounted to $30,602 and $57,670, respectively.
NOTE D - LOANS AND ALLOWANCES FOR LOAN LOSSES
Loans at December 31 are summarized as follows:
2001 2000
----------------- -----------------
Commercial $ 61,954,225 $ 50,144,729
Mortgage loans on real estate:
Construction and land development 46,282,600 28,002,475
Residential, 1-4 families 40,879,037 37,028,434
Residential, 5 or more families 6,713,006 4,609,832
Residential, home equity 22,940,162 17,867,651
Farmland 144,130 321,628
Nonfarm, nonresidential 37,686,268 35,719,728
Consumer installment loans 22,907,452 20,426,275
Other 1,056,080 1,074,005
----------------- -----------------
240,562,960 195,194,757
Less:
Allowance for loan losses 3,454,218 2,937,610
Net deferred loan fees 242,034 177,191
----------------- -----------------
Loans, net $ 236,866,708 $ 192,079,956
================= =================
The Company has granted loans to certain directors and executive officers of the
Company and to their associates. During 2001 and 2000, $11,445,679 and
$9,627,523, respectively, in new loans were made and repayments of $8,950,731
and $9,746,859, respectively, were collected, resulting in a balance of
$12,750,558 and $10,255,610 at December 31, 2001 and 2000, respectively.
- --------------------------------------------------------------------------------
Page 22
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE D - LOANS AND ALLOWANCES FOR LOAN LOSSES (Continued)
A summary of the activity in the allowance for loan losses for the years ended
December 31 is as follows:
2001 2000
-------------- ---------------
Balance, beginning of the year $ 2,937,610 $ 2,331,279
Provision for loan losses 927,000 1,117,972
Charge offs (425,824) (555,065)
Recoveries 15,432 43,424
--------------- ---------------
Balance, end of year $ 3,454,218 $ 2,937,610
=============== ===============
The following is a summary of the principal balances of loans on nonaccrual
status and loans past due ninety days or more:
2001 2000
-------------- ---------------
Loans contractually past due 90 days or more and/or on nonaccrual
status:
Nonaccrual loans $ 434,585 $ 58,734
Past due loans 90 days or more 142,940 138,576
-------------- ---------------
$ 577,525 $ 197,310
============== ===============
During the years ended December 31, 2001 and 2000, interest income of
approximately $41,919 and $6,425, respectively, was not recorded related to
loans accounted for on a nonaccrual basis.
NOTE E - PREMISES AND EQUIPMENT
Premises and equipment at December 31 are summarized as follows:
2001 2000
-------------- ---------------
Land $ 1,868,778 $ 1,634,821
Leasehold improvements 179,565 104,177
Equipment and fixtures 3,198,594 3,176,281
Buildings 4,619,312 3,134,355
-------------- ---------------
9,866,249 8,049,634
Less accumulated depreciation and amortization 2,374,476 1,941,699
-------------- ---------------
7,491,773 6,107,935
Construction in progress 15,705 405,833
-------------- ---------------
$ 7,507,478 $ 6,513,768
============== ===============
- --------------------------------------------------------------------------------
Page 23
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE E - PREMISES AND EQUIPMENT (Continued)
Depreciation and amortization expense for the years ended December 31, 2001 and
2000 amounted to $552,264 and $524,132, respectively.
NOTE F - DEPOSITS
The aggregate amount of time deposits in denominations of $100,000 or more at
December 31, 2001 and 2000 was $65,026,463 and $47,185,127, respectively.
At December 31, 2001, the scheduled maturities of time deposits (in thousands)
are as follows:
2002 $ 140,148
2003 23,869
2004 2,833
2005 79
2006 401
------------
$ 167,330
============
NOTE G - BORROWINGS
Short-term debt consists of federal funds purchased and securities sold under
agreements to repurchase, which generally mature within one to four days from
the transaction date. Additional information at December 31, 2001 and 2000 and
for the years then ended is summarized below:
2001 2000
----------------- ---------------
Outstanding balance at December 31 $ 8,265,870 $ 6,631.571
================= ===============
Year-end weighted average rate 1.81% 5.99%
================= ===============
Daily average outstanding during the year $ 5,234,869 $ 4,326,064
================= ===============
Average rate for the year 3.44% 5.61%
================= ===============
Maximum outstanding at any month-end during the year $ 8,922,755 $ 11,951,212
================= ===============
- --------------------------------------------------------------------------------
Page 24
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE G - BORROWINGS (Continued)
Federal Home Loan Bank Advances
Advances from the Federal Home Loan Bank of Atlanta consists of the following at
December 31, 2001 and 2000:
Interest
Maturity Rate 2001 2000
--------------------------- -------------- ---------------- ----------------
04/26/2001 ........... 6.89% ........ $ - $ 3,000,000
06/28/2001 ........... 6.32% ........ - 1,000,000
07/23/2001 ........... 6.77% ........ - 1,000,000
10/30/2001 ........... 6.80% ........ - 5,000,000
01/02/2002 ........... 6.89% ........ 3,000,000 -
11/13/2002 ........... 2.30% ........ 3,000,000 -
10/23/2002 ........... 2.73% ........ 2,000,000 -
03/26/2003 ........... 3.19% ........ 2,000,000 -
04/17/2003 ........... 2.99% ........ 2,500,000 -
11/16/2009 ........... 3.93% ........ 3,000,000 -
03/17/2010 ........... 5.71% ........ 1,000,000 1,000,000
01/12/2011 .. ........ 4.68% ........ 1,000,000 -
02/01/2011 ........... 4.73% ........ 7,000,000 -
05/02/2011 ........... 4.16% ........ 1,000,000 -
---------------- ----------------
$ 25,500,000 $ 11,000,000
================ ================
Pursuant to collateral agreements with the Federal Home Loan Bank, advances are
secured by qualifying first mortgage loans and investment securities.
At December 31, 2001, the Company, through its bank subsidiaries, had an
additional $17 million of credit available from the Federal Home Loan Bank and
available lines of credit totaling $2.5 million from correspondent banks.
NOTE H - LEASES
The Company's subsidiary, Catawba Valley Bank, has a noncancelable operating
lease for a branch location that expires in 2005. The lease has two five-year
renewal options based on market rates. Catawba Valley Bank has another
noncancelable operating lease for a location for its mortgage banking operations
that expires in 2004. Future minimum lease payments under these leases for years
subsequent to December 31, 2001 are as follows:
2002 $ 52,040
2003 52,040
2004 52,040
2005 17,020
-----------
$ 173,140
===========
Total rental expense related to the operating leases was $52,670 and $52,711 for
the years ended December 31, 2001 and 2000, respectively.
- --------------------------------------------------------------------------------
Page 25
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE I - EMPLOYEE BENEFIT PLANS
Deferred Compensation and Life Insurance
In 1999, the Company's subsidiary, First Gaston Bank, adopted a deferred
compensation plan, which supersedes a 1996 plan, to provide future compensation
upon retirement for the president. Under plan provisions, aggregate annual
payments projected to range from $44,838 to $68,674 are payable for 10 years,
generally beginning at age 65. Liability accrued for compensation deferred under
the plan amounts to $218,521 and $190,412 at December 31, 2001 and 2000,
respectively. Charges to income are based on changes in the cash value of
insurance (funding the liability) relative to the present value of the
accumulated benefit obligation.
First Gaston Bank is the owner and beneficiary of a life insurance policy
designed to fund the deferred compensation liability. The policy's cash value
totaled $736,693 and $702,346 at December 31, 2001 and 2000, respectively.
Defined Contribution Plan
Both Catawba Valley Bank and First Gaston Bank sponsor a contributory
profit-sharing plan which provide for participation by substantially all
employees. Participants may make voluntary contributions resulting in salary
deferrals in accordance with Section 401(k) of the Internal Revenue Code. The
plans provide for employee contributions up to 15% of the participant's annual
salary and an employer contribution of up to 100% matching of the first 6% of
pre-tax salary contributed by each participant. The Banks may make additional
discretionary profit sharing contributions to the plan on behalf of all
participants. Amounts deferred above the first 6% of salary are not matched by
the Banks. Contributions to the plans for the years ended December 31, 2001 and
2000 were $97,292 and $81,759, respectively.
Stock Option Plans
The Company has an incentive stock option plan (the "Employee Plan") which is
intended to attract and induce continued employment of key employees and to
provide them an opportunity to acquire a proprietary interest in the Company and
to align their long-term interests with that of the stockholders. Non-employee
directors do not participate in the Employee Plan. The exercise price of each
share of common stock covered by an option is equal to the fair market value per
share of the Company's common stock on the date the option is granted. These
qualified options have a vesting schedule which provides that 20% of the options
granted will vest on the first annual anniversary of the date of the grant and
20% will vest on each subsequent annual anniversary date, so that the options
will be completely vested at the end of five years after the date of grant.
Options under the Employee Plan expire ten years after the grant date.
The Company also has a nonqualified stock option plan for directors (the
"Director Plan") which is intended to attract capable individuals to serve on
the Boards of Directors of the Company and its bank subsidiaries. Employee
directors do not participate in the Director Plan. The exercise price of each
share of common stock covered by an option is equal to the fair market value per
share of the Company's common stock on the date the option is granted. Options
under the Director Plan fully vest at the date of grant and expire ten years
after the grant date.
- --------------------------------------------------------------------------------
Page 26
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE I - EMPLOYEE BENEFIT PLANS (Continued)
A summary of the transactions for the Company's option plans as of and for the
years ended December 31, 2001 and 2000, which reflects all stock dividends paid
to date, is as follows:
Outstanding Options
---------------------------------
Shares Weighted
Available Average
for Future Number Exercise
Grants Outstanding Price
-------------- ---------------- --------------
At December 31, 1999 74,164 382,502 $ 8.82
Options granted (34,986) 34,986 12.15
Options exercised - (2,028) 8.76
Options expired and forfeited 13,312 (13,312) 10.86
-------------- --------------- --------------
At December 31, 2000 52,490 402,148 8.98
Options granted (41,903) 41,903 9.86
Options exercised - (1,000) 7.16
Options expired and forfeited 277 (277) 10.77
-------------- --------------- --------------
At December 31, 2001 10,864 442,774 $ 9.25
============== =============== ==============
Additional information relating to the plans is detailed below:
2001 2000
-------------- --------------
Outstanding options:
Range of exercise prices
From $ 7.16 $ 7.16
To $ 19.94 $ 19.84
Remaining contractual life in months 108 108
Exercisable options outstanding at December 31:
Number 429,255 325,186
Exercise price $ 9.09 $ 8.35
Had compensation costs for the Company's stock option plans been determined
based on the fair value at the grant date for awards in 2001 and 2000, the
Company's net income and net income per share would have changed to the pro
forma amounts indicated as follows:
2001 2000
-------------- --------------
Net income as reported $ 2,629,786 $ 2,679,120
Net income pro forma 2,207,904 2,482,969
Basic net income per common share
As reported .95 .97
Pro forma .80 .90
Diluted net income per common share
As reported .93 .94
Pro forma .78 .87
- --------------------------------------------------------------------------------
Page 27
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE I - EMPLOYEE BENEFIT PLANS (Continued)
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 2001 and 2000, respectively: dividend yield of 1.21% and 1.08%;
expected volatility of 38% and 16%; risk free interest rate of 3.50% and 6.00%;
and weighted average expected lives of seven years.
NOTE J - OFF-BALANCE SHEET RISK
The Company's wholly owned bank subsidiaries (the "Banks") are parties to
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the balance sheet. The contract
or notional amounts of those instruments reflect the extent of involvement the
Banks have in particular classes of financial instruments. The Banks use the
same credit policies in making commitments and conditional obligations as they
do for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of conditions established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Banks upon extension of credit is based on management's
credit evaluation of the borrower. Collateral obtained varies but may include
real estate, stocks, bonds, and certificates of deposit.
A summary of the contract amount of the Bank's exposure to off-balance sheet
risk as of December 31, 2001 is as follows:
Financial instruments whose contract amounts represent credit risk:
Undisbursed lines of credit $ 52,810,463
Commitments to extend credit 824,250
NOTE K - INCOME TAXES
Allocation of federal and state income tax expense between current and deferred
portions for the years ended December 31 is as follows:
2001 2000
------------- -------------
Current $ 1,447,057 $ 1,389,216
Deferred (168,903) (461,595)
------------- ------------
$ 1,278,154 $ 927,621
============= ============
- --------------------------------------------------------------------------------
Page 28
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE K - INCOME TAXES (Continued)
A reconciliation of income tax expense computed at the statutory federal income
tax rate to income tax expense included in the consolidated statements of
operations is as follows:
2001 2000
------------ ------------
Tax at statutory federal rate $ 1,328,700 $ 1,226,292
State income tax, net of federal benefit 177,811 164,107
U. S. Government and municipal interest (238,162) (148,102)
Other 9,805 (6,984)
Change in deferred tax asset valuation allowance - (307,692)
------------ ------------
$ 1,278,154 $ 927,621
============ ============
The components of the net deferred tax asset, included in other assets, are as
follows:
2001 2000
------------- ------------
Deferred tax assets:
Allowance for loan losses $ 1,143,834 $ 947,744
Deferred compensation 85,589 64,740
Other 72,028 -
------------- ------------
Total deferred tax assets 1,301,451 1,012,484
------------- ------------
Deferred tax liabilities:
Depreciation 81,189 62,039
Unrealized investment gain 305,400 133,887
Other 152,764 51,850
------------- ------------
Total deferred tax liabilities 539,353 247,776
------------- ------------
Net deferred tax asset $ 762,098 $ 764,708
============= ============
NOTE L - REGULATORY RESTRICTIONS
The Company (on a consolidated basis) and the Banks are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and Banks' financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
- --------------------------------------------------------------------------------
Page 29
other factors. Prompt corrective action provisions are not applicable to bank
holding companies.
- --------------------------------------------------------------------------------
Page 30
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE L - REGULATORY RESTRICTIONS (Continued)
Quantitative measures established by regulation to ensure capital adequacy
require the Company and its bank subsidiaries to maintain minimum amounts and
ratios (set forth in the following table) of total and Tier 1 capital (as
defined in the regulations) to risk-weighted assets (as defined) and of Tier 1
capital (as defined) to average assets (as defined). Management believes, as of
December 31, 2001 and 2000, that the Company and the Banks met all capital
adequacy requirements to which they are subject.
As of December 31, 2001, the most recent notification from the Federal Deposit
Insurance Corporation categorized both Catawba Valley Bank and First Gaston Bank
as well capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, an institution must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in
the following tables. There are no conditions or events since the notification
that management believes have changed the Banks' category. The Company's and the
Banks' actual capital amounts and ratios as of December 31, 2001 and 2000 are
also presented in the table.
Minimum To Be Well
Minimum Capitalized Under
For Capital Prompt Corrective
Actual Requirement Action Provisions
-------------------------- ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ------------- ---------- ------------- ----------- ------------
December 31, 2001: (Dollars in Thousands)
Total Capital to Risk
Weighted Assets: $ $ $
Consolidated 31,388 12.39% 20,269 8.00% N/A N/A
Catawba Valley Bank 18,656 13.16% 11,344 8.00% 14,180 10.00%
First Gaston Bank 13,849 12.41% 8,925 8.00% 11,157 10.00%
Tier 1 Capital to Risk
Weighted Assets:
Consolidated 30,795 12.15% 10,135 4.00% N/A N/A
Catawba Valley Bank 18,294 12.90% 5,672 4.00% 8,508 6.00%
First Gaston Bank 12,454 11.16% 4,463 4.00% 6,694 6.00%
Tier 1 Capital to
Average Assets:
Consolidated 30,795 9.46% 13,019 4.00% N/A N/A
Catawba Valley Bank 118,294 9.61% 7,613 4.00% 9,516 5.00%
First Gaston Bank 12,454 9.21% 4,463 4.00% 6,758 5.00%
December 31, 2000:
Total Capital to Risk
Weighted Assets:
Consolidated 28,616 13.87% 16,504 8.00% N/A N/A
Catawba Valley Bank 16,980 14.49% 9,375 8.00% 11,719 10.00%
First Gaston Bank 11,635 13.06% 7,129 8.00% 8,911 10.00%
Tier 1 Capital to Risk
Weighted Assets:
Consolidated 28,336 13.74% 8,252 4.00% N/A N/A
Catawba Valley Bank 16,739 14.28% 4,688 4.00% 7,032 6.00%
First Gaston Bank 11,597 13.01% 3,564 4.00% 5,346 6.00%
Tier 1 Capital to
Average Assets:
Consolidated 28,336 10.83% 10,469 4.00% N/A N/A
Catawba Valley Bank 16,980 11.02% 6,161 4.00% 7,701 5.00%
First Gaston Bank 11,597 10.77% 4,308 4.00% 5,385 5.00%
- --------------------------------------------------------------------------------
Page 31
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows.
In that regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and Cash Equivalents and Time Deposits with Other Financial Institutions
The carrying amounts reported in the balance sheet for cash, short-term
instruments and time deposits approximate those assets' fair value.
Investment Securities
Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.
Federal Home Loan Bank Stock
The carrying value of Federal Home Loan Bank stock approximates fair value based
on the redemption provisions of the Federal Home Loan Bank.
Loans Receivable
The fair values for loans are estimated using discounted cash flow analyses
using interest rates currently being offered for loans with similar terms. The
carrying amount of accrued interest approximates its fair value.
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UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
Deposits
The fair values disclosed for deposits with no stated maturity (e.g., interest
and non-interest checking, passbook savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). Fair values for deposits with a
stated maturity date (time deposits) are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on these
accounts to a schedule of aggregated expected monthly maturities on time
deposits. The carrying amounts of accrued interest approximate fair value.
Borrowings
The fair values are based on discounting expected cash flows at the interest
rate for debt with the same or similar remaining maturities and collected
requirements.
Financial Instruments with Off-Balance Sheet Risk
With regard to financial instruments with off-balance sheet risk discussed in
Note J, it is not practicable to estimate the fair value of future financing
commitments.
The following table reflects the estimated fair values and carrying values at
December 31:
2001 2000
------------------------ -----------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
----------- ------------ ----------- -----------
(Dollars in thousands)
Financial assets:
Cash and cash equivalents $ 10,464 $ 10,464 $ 11,756 $ 11,756
Securities available for sale 61,430 62,328 49,737 50,130
Federal Home Loan Bank stock 1,325 1,325 732 732
Loans receivable, net 236,867 243,209 192,080 193,821
Financial liabilities:
Deposits with no stated maturity 91,817 89,388 79,164 81,928
Deposits with stated maturity 167,330 169,978 140,840 140,540
Advances from the Federal
Home Loan Bank of Atlanta 25,500 25,958 11,000 11,024
Securities sold under agreements
to repurchase 4,991 4,991 5,422 5,422
Federal funds purchased 3,275 3,275 1,210 1,210
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UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE N - PARENT COMPANY FINANCIAL DATA
The following is a summary of the condensed financial statements of United
Community Bancorp as of and for the years ended December 31, 2001 and 2000:
Condensed Balance Sheets
December 31, 2001 and 2000
2001 2000
---------------- ---------------
(dollars in thousands)
Assets
Cash and due from banks $ 46 $ 19
Investment in subsidiaries 31,342 28,597
---------------- ---------------
$ 31,388 $ 28,616
================ ===============
Liabilities and Stockholders' Equity
Liabilities:
Other liabilities $ - $ -
Stockholders' equity:
Common stock 2,773 2,520
Additional paid in capital 26,715 23,620
Retained earnings, substantially restricted 1,307 2,216
Accumulated other comprehensive income 593 260
---------------- ---------------
$ 31,388 $ 28,616
================ ===============
Condensed Statements of Operations
Years Ended December 31, 2001 and 2000
2001 2000
---------------- ---------------
(dollars in thousands)
Equity in undistributed income $ 2,663 $ 2,681
Other expense (12) (2)
Franchise tax (21) -
---------------- ---------------
Net income $ 2,630 $ 2,679
================ ===============
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UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE N - PARENT COMPANY FINANCIAL DATA (Continued)
Condensed Statements of Cash Flows
Years Ended December 31, 2001 and 2000
2001 2000
------- -------
(dollars in thousands)
Cash Flows from Operating Activities:
Net income $ 2,630 $ 2,679
Noncash items included in net income:
Equity in earnings of subsidiaries (2,663) (2,681)
------- -------
Net cash used by operating activities (33) (2)
------- -------
Cash Flows from Investing Activities:
Upstream dividend received from subsidiaries 250 200
------- -------
Net cash provided by investing activities 250 200
------- -------
Cash Flows from Financing Activities:
Cash dividends paid (197) (179)
Exercise of stock options 7 -
------- -------
Net cash used in financing activities (190) (179)
------- -------
Net increase in cash: 27 19
Beginning 19 -
------- -------
Ending $ 46 $ 19
======= =======
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UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE O - PLAN OF SHARE EXCHANGE INFORMATION
As discussed in Note A, on December 31, 2001 the Company completed a Plan of
Share Exchange for the acquisition of First Gaston Bank in a transaction
accounted for as a pooling of interests. Accordingly, all historical information
included in these consolidated financial statements has been restated to include
the financial position, results of operations and cash flows of First Gaston
Bank. The Company incurred expenses of approximately $236,000 during 2001 in
connection with the Plan of Share Exchange. These expenses consisted primarily
of professional fees and are included in other non-interest expenses in the
consolidated statements of operations.
Separate financial information for the pooled entities as of and for the years
ended December 31, 2001 and 2000 is as follows:
United First
Community Gaston
Bancorp Bank Combined
--------------- ---------------- -----------------
2001:
Total assets $ 188,107,249 $ 137,366,467 $ 325,473,716
Total revenues 15,111,037 10,346,528 25,457,565
Net interest income 5,962,702 4,341,037 10,303,739
Net income 1,771,386 858,400 2,629,786
Net income per common share:
Basic 1.08 0.68 0.95
Diluted 1.04 0.68 0.93
2000:
Total assets $ 155,508,446 $ 111,986,171 $ 267,494,617
Total revenues 12,709,520 9,175,824 21,885,344
Net interest income 5,393,503 4,296,007 9,689,510
Net income 1,539,536 1,139,584 2,679,120
Net income per common share:
Basic 0.94 0.99 0.97
Diluted 0.90 0.97 0.94
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UNITED COMMUNITY BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001 and 2000
- --------------------------------------------------------------------------------
NOTE P - SUPPLEMENTAL DISCLOSURE FOR STATEMENT OF CASH FLOWS
2001 2000
-------------- -------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest $ 7,242,551 $ 9,686,913
Income taxes 1,711,106 1,103,000
Supplemental Disclosure of Noncash Investing
and Financing Activities
Transfer of loans to foreclosed real estate $ 800,125 $ 1,080,479
Change in unrealized gain (loss) on available-for-sale
securities, net of tax 333,093 755,257
Common stock distributed as a dividend
Common stock $ 251,400 $ -
Additional paid in capital 3,089,199 -
-------------- -------------
Fair value of stock dividend $ 3,340,599 $ -
============== =============
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Page 37
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
DIRECTORS
- --------------------------------------------------------------------------------
David E. Cline - Chairman
Cline Seabrook Company
R. Steve Aaron
President/CEO - Catawba Valley Bank
Loretta Dodgen, PhD.
Multiple Choice, Inc.
W. Alex Hall
President/CEO - First Gaston Bank
Robert P. Huntley
Certified Public Accountant
Real-estate Developer
W. Steve Ikerd - Vice Chairman
President - Ikerd Enterprises
H. Ray McKenney, Jr.
McKenney Family Dealerships
Howard L. Pruitt
Southwood Furniture Co.
Real-estate Developer
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Page 38
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
GENERAL CORPORATE INFORMATION
- --------------------------------------------------------------------------------
UNITED COMMUNITY BANCORP
1039 Second Street, NE
Hickory, North Carolina 28601
(888) 894-2483
OFFICERS
R. Steve Aaron W. Alex Hall
President, Chief Executive Officer Executive Vice President
Susan B. Mikels G. Marvin Lowder
Chief Financial Officer / Treasurer Secretary
CATAWBA VALLEY BANK
Main Office Mortgage Center
1039 Second Street, NE 1125 Second Street, NE
Hickory, North Carolina 28601 Hickory, North Carolina 28601
(828) 431-2300 (828) 431-2300
Branches
1445 Second Avenue, NW 3244 Springs Road NE 2675 NW Boulevard
Hickory, North Carolina 28601 Hickory, North Carolina 28602 Newton, North Carolina 28658
(828) 431-2333 (828) 441-1600 (828) 464-9911
FIRST GASTON BANK
Main Office
804 South New Hope Road
Gastonia, North Carolina 28054
(704) 865-4202
Branches
6440 Wilkinson Blvd. 701 South Main Street
Belmont, North Carolina 28012 Mt. Holly, North Carolina 28120
(704) 825-4250 (704) 827-5140
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Page 39
UNITED COMMUNITY BANCORP AND SUBSIDIARIES
GENERAL CORPORATE INFORMATION
- --------------------------------------------------------------------------------
Independent Auditors
Dixon Odom PLLC
408 Summit Drive
Post Office Box 70
Sanford, North Carolina 27331-0070
Special Counsel
Gaeta & Glesener, P.A.
808 Salem Woods Drive
Suite 201
Raleigh, North Carolina 27615
Stock Transfer Agent
First-Citizens Bank & Trust Company
100 East Tryon Street
Raleigh, North Carolina 27603
Notice of Annual Meeting
The Annual Meeting of the shareholders of United Community Bancorp will be held
on April 23, 2002 at 3:00 p.m. at the Gateway Conference Center, 909 Highway 70
SW, Hickory, North Carolina.
A copy of the United Community Bancorp Annual Report on Form 10-KSB as filed
with the Securities and Exchange Commission will be furnished without charge to
the stockholders as of the record date, upon written request to Susan B. Mikels,
Chief Financial Officer/Treasurer, United Community Bancorp, Post Office Box
1907, Hickory, North Carolina 28603
This annual report serves as the annual financial disclosure statement furnished
pursuant to the Federal Deposit Insurance Corporation's rules and regulations.
This statement has not been reviewed or confirmed for accuracy or relevance by
the Federal Deposit Insurance Corporation.
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