UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from Commission file number
to 0-5583
UNITED CAROLINA BANCSHARES CORPORATION
(Exact name of Registrant as specified in its Charter)
North Carolina 56-0954530
(State of Incorporation) (I.R.S. Employer Identification No.)
127 West Webster Street
Whiteville, North Carolina 28472
(Address of principal executive offices) (Zip Code)
(910) 642-5131
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
As of August 7, 1995, there were 14,768,740 outstanding shares of Registrant's
$4.00 par value common capital stock which is the only class of securities
issued by the Registrant.
Total of 31 pages
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1995 1994
------------ ------------
(In thousands)
Assets:
Cash and due from banks - noninterest-bearing $ 149,776 $ 147,450
Federal funds sold and other short-term
investments 131,578 82,250
Securities available for sale (amortized
costs of $536,321,000 in 1995 and
$383,913,000 in 1994) 538,251 376,913
Investment securities (approximate
market values of $195,639,000 in
1995 and $202,372,000 in 1994) 194,356 208,249
Loans, net of unearned income 2,615,080 2,418,158
Less reserve for credit losses (40,856) (38,681)
------------ ------------
Net loans 2,574,224 2,379,477
------------ ------------
Premises and equipment 54,675 52,585
Other assets 99,920 84,714
------------ ------------
Total assets $ 3,742,780 $ 3,331,638
============ ============
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing demand deposits $ 549,510 $ 515,403
Interest-bearing deposits:
NOW, savings, and money market deposits 1,205,268 1,145,717
Certificates of deposit of
$100,000 or more 199,691 186,448
Other time deposits 1,428,534 1,093,031
------------ ------------
Total deposits 3,383,003 2,940,599
Short-term borrowings 31,802 86,228
Mortgages and other notes payable 2,988 2,305
Other liabilities 41,312 39,017
------------ ------------
Total liabilities 3,459,105 3,068,149
------------ ------------
Stockholders' equity:
Preferred stock, par value $10 per share:
Authorized 2,000,000 shares; none issued
Common stock, par value $4 per share:
Authorized 40,000,000 shares; issued
14,768,740 shares in 1995 and
14,700,066 shares in 1994 59,075 58,800
Surplus 42,441 42,505
Retained earnings 181,283 167,477
Unrealized gains (losses) on securities
available for sale, net of deferred
income taxes 876 (5,293)
------------ ------------
Total stockholders' equity 283,675 263,489
------------ ------------
Total liabilities and
stockholders' equity $ 3,742,780 $ 3,331,638
============ ============
See accompanying Notes to Consolidated Financial Statements
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
1995 1994 1995 1994
----------- ---------- ---------- ----------
(Dollars in thousands except
per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 60,152 $ 48,950 $ 116,282 $ 95,499
Interest and dividends on:
Taxable securities 8,177 6,180 14,880 12,149
Tax-exempt securities 938 1,278 1,950 2,581
Interest on federal funds sold and
other short-term investments 2,430 176 2,968 326
---------- ---------- ---------- ----------
Total interest income 71,697 56,584 136,080 110,555
---------- ---------- ---------- ----------
Interest expense:
Interest on deposits 31,944 19,807 57,208 38,979
Interest on short-term borrowings 785 685 1,652 1,251
Interest on long-term borrowings 41 41 80 86
---------- ---------- ---------- ----------
Total interest expense 32,770 20,533 58,940 40,316
---------- ---------- ---------- ----------
Net interest income 38,927 36,051 77,140 70,239
Provision for credit losses 1,150 1,039 3,400 1,962
---------- ---------- ---------- ----------
Net interest income after
provision for credit losses 37,777 35,012 73,740 68,277
---------- ---------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 5,634 5,809 11,024 11,319
Trust income 1,439 1,368 2,676 2,572
Insurance commissions 1,050 897 2,170 1,668
Mortgage banking fees 917 921 1,760 1,930
Brokerage and annuity commissions 472 575 1,070 1,242
Other service charges, commissions,
and fees 1,167 1,167 2,247 2,300
Gains on mortgages originated
for resale 154 76 184 255
Gains on trading account securities -- 2 1 5
Gains on dispositions of investment
securities -- -- 3 5
Other operating income 87 242 318 451
---------- ---------- ---------- ----------
Total noninterest income 10,920 11,057 21,453 21,747
---------- ---------- ---------- ----------
Noninterest expenses:
Personnel expense 18,103 18,359 36,124 36,190
Occupancy expense 2,227 2,194 4,348 4,434
Equipment expense 1,533 1,510 3,106 3,078
Other operating expenses,
excluding restructuring charges 10,203 9,311 19,142 17,732
Restructuring charges -- 600 -- 1,000
---------- ---------- ---------- ----------
Total noninterest expenses 32,066 31,974 62,720 62,434
---------- ---------- ---------- ----------
Income before income taxes 16,631 14,095 32,473 27,590
Income tax provision 6,017 5,083 11,739 9,873
---------- ---------- ---------- ----------
Income before the cumulative effect of
a change in accounting method 10,614 9,012 20,734 17,717
Cumulative effect of a change in
accounting method -- -- -- (316)
---------- ---------- ---------- ----------
Net income $ 10,614 $ 9,012 $ 20,734 $ 17,401
========== ========== ========== ==========
Per share data:
Income before cumulative effect of
a change in accounting method $ .72 $ .61 $ 1.41 $ 1.21
========== ========== ========== ==========
Net income $ .72 $ .61 $ 1.41 $ 1.19
========== ========== ========== ==========
Cash dividends declared $ .25 $ .20 $ .47 $ .40
========== ========== ========== ==========
Book value at end of period $ 19.21 $ 17.71 $ 19.21 $ 17.71
========== ========== ========== ==========
Average number of shares outstanding 14,749,379 14,653,383 14,731,358 14,639,742
========== ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 1995 and 1994
<TABLE>
<CAPTION>
Unrealized
Common Stock Gains
---------------------- (Losses) on
Number of Aggregate Securities Total
Shares Par Retained Available Stockholders'
Outstanding Value Surplus Earnings For Sale Equity
----------- --------- -------- --------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 14,700,066 $ 58,800 $42,505 $167,477 $ (5,293) $ 263,489
Net income -- -- -- 20,734 -- 20,734
Cash dividends declared,
$.47 per share -- -- -- (6,928) -- (6,928)
Issuance of common stock:
Stock option plan 24,461 98 149 -- -- 247
Insurance agency merger 44,213 177 (213) -- -- (36)
Unrealized gains on
securities available
for sale, net of
applicable deferred
income taxes -- -- -- -- 6,169 6,169
----------- --------- ------- -------- ---------- ------------
Balance, June 30, 1995 14,768,740 $ 59,075 $42,441 $181,283 $ 876 $ 283,675
=========== ========= ======= ======== ========== ============
Balance, January 1, 1994 14,625,641 $ 58,503 $42,901 $149,666 $ 845 $ 251,915
Net income -- -- -- 17,401 -- 17,401
Cash dividends declared,
$.40 per share -- -- -- (5,615) -- (5,615)
Issuance of common stock in
insurance agency merger 27,743 111 (346) -- -- (235)
Unrealized losses on
securities available
for sale, net of
applicable deferred
income taxes -- -- -- -- (3,929) (3,929)
----------- --------- ------- -------- ---------- ------------
Balance, June 30, 1994 14,653,384 $ 58,614 $42,555 $161,452 $ (3,084) $ 259,537
=========== ========= ======= ======== ========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six Months Ended
June 30,
---------------------
1995 1994
-------- --------
(In thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 20,734 $ 17,401
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization,
net of accretion 4,090 3,939
Provision for credit losses 3,400 1,962
Net (increase) decrease in loans
originated for resale (1,041) 23,621
Provision for deferred taxes and
decrease in taxes payable (297) (1,421)
Increase in accrued interest receivable (1,905) (1,908)
(Increase) decrease in prepaid expenses 2,589 (1,311)
Increase (decrease) in other accounts
receivable (1,703) 17,723
Increase (decrease) in accrued interest
payable 1,813 (346)
Increase (decrease) in accrued expenses (250) 4,189
Increase (decrease) in deferred loan
fees, net of deferred costs (36) 421
Decrease in unearned income on loans (1) (13)
Other, net 122 173
-------- --------
Total adjustments 6,781 47,029
-------- --------
Net cash provided by operating
activities 27,515 64,430
-------- --------
Cash flows from investing activities:
Proceeds from maturities and issuer calls
of securities available for sale 163,132 88,711
Proceeds from maturities and issuer calls
of investment securities 9,822 4,816
Proceeds from sales of investment securities 3,810 --
Purchases of securities available for sale (315,561) (90,823)
Net increase in loans outstanding (170,994) (130,422)
Purchases of premises and equipment (1,505) (1,934)
Proceeds from sales of premises and equipment 145 303
Purchases of mortgage loan servicing rights (540) (114)
Sales of foreclosed assets 787 1,728
Purchase of branches, net of cash received 136,569 --
Other, net (4,834) 8,514
-------- --------
Net cash used by investing activities (179,169) (119,221)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts 263,732 2,234
Net increase (decrease) in federal funds
purchased 5,225 (1,650)
Net increase (decrease) in securities
sold under agreement to repurchase (35,817) 1,402
Net increase (decrease) in other short-term
borrowings (23,834) 24,864
Proceeds from issuance of long-term debt 702 --
Repayments of mortgages and other notes
payable (19) (115)
Issuance of common stock 247 --
Dividends paid (6,928) (5,615)
-------- --------
Net cash provided by financing activities 203,308 21,120
-------- --------
Net increase (decrease) in cash and
cash equivalents 51,654 (33,671)
Cash and cash equivalents at beginning of period 229,700 171,238
-------- --------
Cash and cash equivalents at end of period $281,354 $137,567
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 57,127 $ 40,662
======== ========
Income taxes $ 12,036 $ 8,618
======== ========
Significant noncash transactions:
Loans transferred to real estate acquired in
settlement of debt $ 1,055 $ 1,121
======== ========
Loans originated to facilitate the sale of
foreclosed assets $ 341 $ --
======== ========
Issuance of common stock in merger acquisitions $ 36 $ 235
======== ========
Unrealized gains (losses) on securities
available for sale $ 8,930 $ (6,249)
======== ========
See accompanying Notes to Consolidated Financial Statements
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.
Basis of Presentation:
The accompanying consolidated financial statements, which are unaudited,
reflect all adjustments which are, in the opinion of management, necessary for a
fair presentation of the financial position at June 30, 1995, and December 31,
1994, and operating results of United Carolina Bancshares Corporation and its
subsidiaries for the three- and six-month periods ended June 30, 1995 and 1994.
All adjustments made to the unaudited financial statements were of a normal
recurring nature. The results of operations for the first six months of 1995 are
not necessarily indicative of the results of operations for the entire year.
Note 2.
Securities:
The following is a summary of the securities portfolios by major
classification:
<TABLE>
<CAPTION>
June 30, 1995
-------------------------------------------------
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
United States government securities $ 317,517 $ 3,177 $ 455 $ 320,239
Obligations of United States government
agencies and corporations 179,080 -- 22 179,058
Mortgage-backed securities 29,481(1) 38 810 28,709(1)
Federal Home Loan Bank stock 10,144 -- -- 10,144
Other securities 99 2 -- 101
--------- ---------- ---------- -----------
Total securities available for sale $ 536,321 $ 3,217 $ 1,287 $ 538,251
========= ========== ========== ===========
Investment securities:
United States government securities $ 129,637 $ 256 $ 596 $ 129,297
Obligations of United States government
agencies and corporations 1,995 3 46 1,952
Obligations of states and political subdivisions 62,219 1,828 162 63,885
Other securities 505 -- -- 505
--------- ---------- ---------- -----------
Total investment securities $ 194,356 $ 2,087 $ 804 $ 195,639
========= ========== ========== ===========
<FN>
(1) At June 30, 1995, UCB owned collateralized mortgage obligations issued
by the Federal Home Loan Mortgage corporation (FHLMC) which had an
amortized cost of $13,014,000 and a market value of $12,648,000. In
addition, UCB owned collateralized mortgage obligations issued by the
Federal National Mortgage Association (FNMA) which had an amortized cost of
$13,816,000 and a market value of $13,440,000. UCB also owned
collateralized mortgage obligations issued by a private issuer secured by
mortgage-backed securities guaranteed by the Government National Mortgage
Association (GNMA). These securities had an amortized cost of $453,000 and
a market value of $487,000. Other mortgage-backed pass-through securities
issued by various United States government agencies and corporations
totaling $2,198,000 were also held at June 30, 1995. These securities had a
market value of $2,134,000. At June 30, 1995, none of the collateralized
mortgage obligations owned by UCB were considered high-risk mortgage
securities under current regulatory guidelines.
</FN>
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 2. Securities - Continued
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------------------
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
United States government securities $ 324,640 $ -- $ 4,013 $ 320,627
Obligations of United States government
agencies and corporations 18,140 -- 73 18,067
Mortgage-backed securities 30,966 -- 2,913 28,053
Federal Home Loan Bank stock 10,113 -- -- 10,113
Other securities 54 -- 1 53
--------- ---------- ---------- -----------
Total securities available for sale $ 383,913 $ -- $ 7,000 $ 376,913
========= ========== ========== ===========
Investment securities:
United States government securities $ 129,765 $ -- $ 5,630 $ 124,135
Obligations of United States government
agencies and corporations 1,995 -- 194 1,801
Obligations of states and political subdivisions 75,734 984 1,037 75,681
Other securities 755 1 1 755
--------- ---------- ---------- -----------
Total investment securities $ 208,249 $ 985 $ 6,862 $ 202,372
========= ========== ========== ===========
</TABLE>
During the six months ended June 30, 1995, investment securities with a
book value of $3,807,000 were put back to the issuer. The decision to exercise
the put option contained in the original bond purchase agreement was the result
of the lowering of the debt ratings on these securities to a level below the
minimum standards specified by UCB's investment policy. Gains of $3,000 were
realized on this transaction.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 3.
Loans:
The consolidated loan portfolio is summarized by major classification as
follows:
June 30, December 31,
1995 1994
------------ ------------
(In thousands)
Loans secured by real estate:
Construction and land acquisition
and development $ 245,401 $ 209,792
Secured by nonfarm, nonresidential
properties 550,982 515,281
Secured by farmland 83,832 74,143
Secured by multifamily residences 62,222 60,923
------------ ------------
Total loans secured by real estate,
excluding loans secured by
1-4 family residences 942,437 860,139
------------ ------------
Revolving credit secured by
1-4 family residences 129,679 116,672
Other loans secured by 1-4 family
residences 551,594 530,912
------------ ------------
Total loans secured by
1-4 family residences 681,273 647,584
------------ ------------
Total loans secured by real estate 1,623,710 1,507,723
Commercial, financial, and
agricultural loans, excluding
loans secured by real estate 270,887 236,244
Loans to individuals for household,
family, and other personal
expenditures, excluding loans
secured by real estate 658,682 607,606
All other loans 62,753 67,573
------------ ------------
Total loans 2,616,032 2,419,146
Unearned income (952) (988)
------------ ------------
Loans, net of unearned income $ 2,615,080 $ 2,418,158
============ ============
Note 4.
Nonperforming and Problem Assets:
The following is a summary of nonperforming and problem assets:
June 30, December 31,
1995 1994
------------ ------------
(In thousands)
Foreclosed assets $ 5,328 $ 5,296
Nonaccrual loans 4,521 5,200
------------ ------------
Total foreclosed assets
and nonaccrual loans 9,849 10,496
Restructured loans (1) 8,713 8,823
------------ ------------
Total nonperforming assets 18,562 19,319
Loans 90 days or more past due,
excluding nonaccrual loans 5,030 4,634
------------ ------------
Total problem assets $ 23,592 $ 23,953
============ ============
(1) Represents a reduced rate loan performing in accordance with
restructured terms.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 5.
Reserve for Credit Losses:
The following table sets forth the analysis of the consolidated reserve
for credit losses:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands)
Balance, beginning of period $ 40,696 $ 39,439 $ 38,681 $ 39,098
Provision for credit losses 1,150 1,039 3,400 1,962
Recovery of losses previously
charged off 1,045 420 1,977 893
Losses charged to reserve (2,035) (1,145) (3,202) (2,200)
--------- --------- --------- ---------
Balance, end of period $ 40,856 $ 39,753 $ 40,856 $ 39,753
========= ========= ========= =========
Note 6.
Short-Term Borrowings
The following table sets forth certain data with respect to UCB's
short-term borrowings:
<TABLE>
<CAPTION>
June 30, 1995 December 31, 1994
----------------------------------------- ------------------------------------------
Securities Federal Securities Federal
Sold Under Treasury Home Sold Under Treasury Home
Federal Agreement Tax and Loan Federal Agreement Tax and Loan
Funds to Loan Bank Funds to Loan Bank
Purchased Repurchase Notes Advances Purchased Repurchase Notes Advances
--------- ---------- -------- -------- --------- ---------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance outstanding at end
of period $ 15,965 $ 11,795 $ 4,042 $ -- $ 10,740 $ 47,612 $ 2,876 $ 25,000
Maximum amount outstanding
at any month-end during
the period 18,845 28,216 4,124 25,000 52,095 47,612 4,115 25,000
Average balance outstanding
during the period 13,574 15,640 3,051 23,481 19,626 22,486 2,169 22,068
Average interest rate paid
during the period 5.78% 5.57% 5.32% 6.44% 3.84% 4.02% 5.78% 4.54%
Average interest rate payable
at end of period 6.10% 5.10% 5.80% - % 5.30% 5.39% 5.25% 6.43%
</TABLE>
Federal funds purchased represent unsecured borrowings from other
financial institutions by UCB's subsidiary banks for their own temporary funding
requirements.
Securities sold under agreement to repurchase represent short-term
borrowings by UCB's subsidiary banks with maturities ranging from 1 to 89 days
collateralized by securities of the United States government or its agencies.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Treasury Tax and Loan Notes consist of the balances outstanding in UCB's
subsidiary banks' treasury tax and loan depository note accounts that are
payable on demand to the United States Treasury and collateralized by qualified
debt securities. Interest on borrowings under these arrangements is payable
monthly at 1/4% below the average federal fund rate as quoted by the Federal
Reserve Board.
Federal Home Loan Bank advances represent borrowings from the Federal Home
Loan Bank of Atlanta by UCB's North Carolina subsidiary bank pursuant to lines
of credit collateralized by a blanket lien on qualifying loans secured by first
mortgages on 1-4 family residences. These advances have an initial maturity of
less than one year with interest payable monthly.
Note 7.
Mortgages and Other Notes Payable:
Mortgages payable totaled $126,000 at June 30, 1995, and $145,000 at
December 31, 1994. The mortgages bear interest at annuals rates ranging from
8.75% to 10% and are collateralized by premises with book values of
approximately $473,000 at June 30, 1995, and $476,000 at December 31, 1994. The
mortgages are payable primarily in monthly installments totaling approximately
$3,000, including interest.
Other notes payable totaled $125,000 at June 30, 1995, and December 31,
1994, and consisted of an unsecured note payable which bears interest at an
annual rate of 12%, payable monthly, with the principal due March 1, 1996.
Advances from the Federal Home Loan Bank of Atlanta with initial
maturities of more than one year totaled $2,737,000 at June 30, 1995, and
$2,035,000 at December 31, 1994. The advances are collateralized by a blanket
lien on qualifying loans secured by first mortgages on 1-4 family residences and
bear interest at rates ranging from 3.50% to 8.30%, payable monthly, with
principal due in various maturities.
Note 8.
Income Taxes:
The effective tax rate on income before income taxes is lower than the
combined statutory federal and state rates primarily because interest earned on
investments in debt instruments of state, county, and municipalities is exempt
from federal income tax and partially exempt from state income tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 9.
Supplementary Income Statement Information:
The following is a breakdown of items included in "Other operating
expenses, excluding restructuring charges" on the consolidated statements of
income:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(In thousands)
Other operating expenses:
FDIC deposit insurance
premiums $ 1,684 $ 1,504 $ 3,305 $ 3,007
Professional services 831 974 1,503 1,705
Advertising and marketing 1,087 1,064 2,085 1,928
Postage and delivery 900 808 1,785 1,640
Data processing fees and
software expense 1,245 1,074 2,401 1,870
Printing, stationery, and
supplies 1,170 628 1,876 1,291
Telephone expense 676 557 1,298 1,002
Travel expense 461 537 841 959
Amortization of purchased
mortgage servicing rights 160 396 297 793
Insurance and taxes, other
than taxes on income 292 294 597 596
Noncredit losses 404 252 646 474
Amortization of goodwill 138 203 341 411
Contributions 79 118 152 215
Amortization of purchased
deposit-base premiums 223 31 247 63
Other expenses 853 871 1,768 1,778
--------- --------- --------- ---------
Total other operating expenses,
excluding restructuring
charges $ 10,203 $ 9,311 $ 19,142 $ 17,732
========= ========= ========= =========
Note 10.
Per Share Data:
Earnings per share are computed based on the weighted average number of
shares outstanding during each period. Cash dividends per share are computed
based on the historical number of shares outstanding at date of declaration.
Book values per share are computed based on the number of shares outstanding at
the end of each period. Dilution of earnings per share that would result from
the exercise of all outstanding stock options was immaterial.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 11.
Cumulative Effects of Changes in Accounting Methods:
UCB and its subsidiaries maintain a defined contribution postemployment
health care plan covering all employees who become disabled. Effective January
1, 1994, UCB adopted Financial Accounting Standards No. 112 (FAS 112),
"Employers' Accounting for Postemployment Benefits," which requires the accrual
of expenses for the estimated cost of benefits provided for employees after
employment but before retirement. The adoption of FAS 112 required immediate
recognition of the actuarially determined liability for postemployment benefits
which amounted to $529,000 at December 31, 1993. The recognition of the
liability, net of related deferred income taxes, resulted in a charge against
net income of $316,000 which was reported separately in the consolidated
statement of income during the first quarter of 1994, as a cumulative effect of
a change in accounting method. Prior to 1994, postemployment health care
expenses were charged to income as the expenses were incurred.
Note 12.
Adoption of New Accounting Method:
Effective April 1, 1995, UCB adopted the provisions of Financial
Accounting Standards No. 122 (FAS 122), "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." This statement amends certain
provisions of FAS 65 to eliminate the distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and rights to service mortgage loans for others that are acquired through
purchase transactions. Under FAS 65, the cost of originated mortgage service
rights was not recognized as an asset and was charged to earnings when the
related loan was sold. As a result of adopting FAS 122, beginning April 1995,
the estimated fair values of the rights to service mortgage loans for others
have been capitalized on loans originated by UCB. This resulted in an increase
in the gains on the sale of mortgage loans into the secondary market totaling
$79,000 through June 30, 1995.
FAS 122 has a different cost allocation methodology than FAS 65 for
purchased mortgage servicing rights. FAS 65 allocated such costs incurred in
excess of the market value of the loans without the servicing rights, whereas
FAS 122 allocates costs based on the relative market values of the purchased
servicing rights and the related loans. The application of the FAS 122 cost
allocation method to purchased mortgage servicing rights acquired during the
three months ended June 30, 1995, was not material.
FAS 122 also requires that all capitalized servicing rights be evaluated
for impairment based on the excess of the carrying amount of such rights over
their fair value. For purposes of measuring impairment, capitalized mortgage
servicing rights are stratified on the basis of one or more of the predominant
risk characteristics of the underlying loans. The adoption of FAS 122 resulted
in no impairment adjustments to capitalized mortgage servicing rights.
Note 13.
Statements of Cash Flows:
For purposes of the statements of cash flows, UCB considers cash and cash
equivalents to include cash and due from banks, federal funds sold, and other
short-term investments.
Note 14.
Legal Proceedings:
Various legal proceedings are pending or threatened against UCB and its
subsidiaries. All the foregoing are routine proceedings, pending or threatened,
which are incidental to the ordinary course of UCB's and its subsidiaries'
business. In the judgment of management and its counsel, none of such pending or
threatened legal proceedings will have a material adverse effect on the
consolidated financial position of UCB and its subsidiaries.
Note 15.
Mergers and Acquisitions:
On April 28,1995, UCB issued 44,213 shares of common stock to consummate
the acquisition by merger of United Agencies, Inc., a general insurance agency
located in Wilmington, North Carolina. The merger was accounted for as a
pooling-of-interests; however, due to the immateriality of the transaction in
relation to UCB's consolidated financial position and operating results, prior
period financial statements have not been restated.
On May 19, 1995, UCB's North Carolina subsidiary bank purchased twelve
branch offices from subsidiaries of Southern National Corporation. As a part of
the transaction, UCB purchased $26.8 million in loans and assumed $178.7 million
in deposits. A premium of $12.3 million was paid on the assumed deposit base.
On July 24, 1995, UCB's North Carolina subsidiary bank reached an
agreement in principle to acquire Seaboard Savings Bank, SSB, headquartered in
Plymouth, North Carolina in a merger transaction to be accounted for as a
pooling-of-interests. Seaboard Savings operates three branch offices: one each
in Plymouth, Williamston, and Columbia. As of June 30, 1995, Seaboard Savings
reported total assets of $47.1 million, total loans of $36.8 million, and total
deposits of $38.7 million. Under terms of the agreement, UCB will exchange .9104
shares of common stock for each of Seaboard Savings' shares of common stock. The
transaction is subject to a number of conditions, including the execution of a
definitive agreement, the affirmative vote of the shareholders of Seaboard
Savings, and approval by applicable regulatory authorities.
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 16.
Restructuring Charges:
In October, 1994, the Boards of Directors of UCB and its bank
subsidiaries, United Carolina Bank and United Carolina Bank of South Carolina,
approved a plan to restructure the operations of the aforementioned bank
subsidiaries to streamline procedures in a manner that will enhance the quality
of financial services provided to customers and reduce future operating costs.
The major elements of the plan include staffing level changes at all branches to
better match customer arrival patterns, a reduction in full-time staff positions
as a result of the centralization of certain functions and automation of many
labor-intensive tasks, and the consolidation or divestiture of certain branch
offices. An estimated $8 million to $10 million increase in annual pre-tax
earnings is projected as a result of the restructuring, substantially all of
which is anticipated to be realized by 1996. The estimated increase in pre-tax
earnings from the restructuring is to be derived principally from cost savings
due to personnel reductions, most of which will be from the streamlining of
branch office staff. The following is a summary of the accrued restructuring
charges at June 30, 1995:
Accrued Accrued
Liability at Amounts Liability at
December 31, Paid June 30,
1994 During 1995 1995
------------ ----------- -------------
(In thousands)
Retirement benefits $ 177 $ 177 $ --
Severance benefits 315 262 53
------ ----- -----
Total personnel costs 492 439 53
Professional fees relating to
restructuring plan 20 13 7
Loss on divestiture or closing of
branch operations 801 (2) 803
------ ----- -----
Total restructuring charges $ 1,313 $ 450 $ 863
======= ===== =====
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Six Months Ended June 30, 1995, Compared to 1994
Summary
Income before the cumulative effect of a change in accounting method
totaled $20,734,000 for the six months ended June 30, 1995, compared to
$17,717,000 for the same period of 1994, an increase of 17.0%. On a per share
basis, income before the cumulative effect of a change in accounting method
amounted to $1.41 in the first six months of 1995, an increase of 16.5% over the
$1.21 per share earned in the first half of 1994. Net income for the six months
ended June 30, 1995, amounted to $20,734,000, or $1.41 per share, compared to
net income, including the cumulative effect of a required change in accounting
for postemployment benefits, of $17,401,000, or $1.19 per share, earned in the
first two quarters of 1994. The increase in income before the cumulative effect
of a change in accounting method realized in 1995 was primarily due to increased
tax-equivalent net interest income, as a result of growth in average earning
assets and a low rate of increase in noninterest expenses.
Net Interest Income
Net interest income increased $6,901,000, or 9.8%, for the six months
ended June 30, 1995, compared to the first two quarters of 1994. This was the
result of an increase of $300,140,000, or 10.3%, in the level of average earning
assets with an increase of .86% in the overall tax-equivalent yield, combined
with an increase of $263,740,000, or 11.1%, in the average balance of
interest-bearing liabilities with an increase of 1.08% in the average rate paid.
The net tax-equivalent yield on earning assets decreased to 4.91% in
the first half of 1995 from 4.96% in the same period of 1994. This was primarily
due to increased competition for core deposits which resulted in interest rates
paid on deposits, particularly consumer certificates of deposit, increasing more
than the yield on earning assets (a 1.08% increase in the average rate paid on
interest-bearing deposits versus a .86% increase in the yield on earning assets)
and changes in the mix of interest-bearing deposits to a higher concentration of
certificates of deposit from NOW, savings, and money market deposits.
Certificates of deposit comprised 50.24% of interest-bearing liabilities in the
first two quarters of 1995 compared to 42.39% in 1994. In addition, an increase
in the percentage of earning assets funded by interest-bearing liabilities from
81.74% in the first half of 1994 to 82.31% in 1995 had a negative impact on the
net tax-equivalent yield on earning assets in 1995 as compared to 1994.
Interest income from loans increased $20,783,000, or 21.8%, over the
first six months of 1994 due to an increase in the average portfolio balance of
$232,769,000, or 10.2%, and an increase in the tax-equivalent yield on average
loans outstanding to 9.35% from 8.46% in 1994. The increase in the yield on the
loan portfolio for 1995 was primarily the result of the increase in the average
of the prime rate. The prime rate averaged 8.91% during the first half of 1995
compared to 6.46% in the first six months of 1994. Approximately 40% of UCB's
loans outstanding at June 30, 1995, had floating interest rates, most of which
varied with the prime rate.
Interest income from investment securities and securities available for
sale for the first six months of 1995 increased $2,100,000, or 14.3%, from the
first six months of 1994. This was due to an increase in the tax-equivalent
yield on the aggregate portfolio to 5.91% from 5.23% a year earlier primarily
due to higher rates earned on U.S. government securities, as the average balance
of investment securities and securities available for sale decreased
$11,153,000, or 1.8%, from the corresponding period of 1994.
Interest income from federal funds sold and other short-term
investments totaled $2,968,000 in the first two quarters of 1995, an increase of
$2,643,000 over the same period of 1994. This was the result of an increase of
$78,524,000 in the average balances invested and an increase in the average
yield to 6.13% for the first six months of 1995 from 3.44% in 1994.
Interest expense on deposits increased $18,229,000, or 46.8% in the six
months ended June 30, 1995, compared to 1994. The average balance of
interest-bearing deposits increased $278,999,000, or 12.1%, in the first half of
1995 compared to 1994. This was the result of an increase of $273,752,000, or
31.7%, in the average balances of certificates of deposit less than $100,000 and
an increase of $46,058,000, or 30.9%, in certificates of deposit of $100,000 or
more. The average balances of NOW, savings, money market accounts, and other
time deposits declined $40,811,000, or 3.1%, compared to the prior year. The
change in the mix of deposits coupled with the previously mentioned increased
competition for deposits combined to increase the average rate paid on average
interest-bearing deposits to 4.45% for the first two quarters of 1995 from 3.40%
in the same period of 1994.
The average interest rate paid on short- and long-term borrowings
during the first six months of 1995 increased to 5.97% from 3.65% in 1994,
reflecting the rise in short-term market rates. The average balances of these
liabilities decreased by $15,259,000 in the first half of 1995 from 1994.
Provision and Reserve for Credit Losses
The provision for credit losses amounted to $3,400,000 for the six
months ended June 30, 1995, compared to $1,962,000 in 1994. The increase in the
1995 provision was primarily due to the increase in loans outstanding. Net
credit losses amounted to $1,225,000, or .10% of average loans outstanding, on
an annualized basis, during the first six months of 1995 compared to $1,307,000,
or .12% of average loans outstanding, on an annualized basis, for the comparable
period of 1994.
Nonperforming assets (foreclosed assets, nonaccrual loans, and
restructured loans) amounted to $18,562,000, or .71% of loans and foreclosed
assets, at June 30, 1995, compared to $19,319,000, or .80% of loans and
foreclosed assets, at December 31, 1994. Loans 90 days or more past due that
continue to accrue interest increased to $5,030,000 at June 30, 1995, from
$4,634,000 at December 31, 1994.
Effective January 1, 1995, UCB adopted Financial Accounting Standards
No. 114 (FAS 114), "Accounting by Creditors for Impairment of a Loan" and
Financial Accounting Standards No. 118 (FAS 118), "Accounting by Creditors for
Impairment of a loan - Income Recognition and Disclosure." These statements
amended FAS 5, "Accounting for Contingencies," to clarify that a creditor should
evaluate the collectibility of both contractual interest and principal of a
receivable when assessing the need for a loss accrual; and FAS 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings," to require a
creditor to account for a troubled debt restructuring involving a modification
of terms at fair value as of the date of the restructuring. At June 30, 1995,
the recorded investment in loans that are considered impaired under FAS 114 was
$24,524,000 (of which $4,440,000 were on a nonaccrual basis). Included in this
amount was $18,462,000 of impaired loans for which $2,950,000 of the reserve for
credit losses was assigned. The average recorded investment during the first
half of 1995 in loans classified as impaired at June 30, 1995, was approximately
$24,687,000. For the six months ended June 30, 1995, UCB recognized interest
income on these impaired loans of $482,000 which included $429,000 of interest
income recognized using the cash basis of accounting. Prior to January 1, 1995,
UCB generally measured loan impairment pursuant to the methods prescribed in FAS
114 and, as a result, no additional reserves for credit losses were required as
a result of adoption of this accounting standard.
The reserve for credit losses amounted to $40,856,000, or 1.56% of
loans outstanding, at June 30, 1995, compared to $38,681,000, or 1.60% of loans
outstanding, at December 31, 1994. In determining the level of the reserve for
credit losses, management takes into consideration loan volumes and
outstandings, loan loss experience, risk ratings assigned to nonconsumer loans,
impaired loans, the present and expected economic conditions in general, and, in
particular, how such conditions relate to UCB. In management's opinion, UCB's
reserve for credit losses was adequate to absorb losses from the loan portfolio
at June 30, 1995; however, adverse changes in the economic conditions in UCB's
market area could lead to a decline in the overall quality of the loan portfolio
and necessitate future additions to the reserve for credit losses. Also,
examiners from bank regulatory agencies periodically review UCB's loan portfolio
and may require the corporation to charge off loans and/or increase the reserve
for credit losses to reflect their assessment of the collectibility of loans in
the portfolio based on information available to them at the time of their
examination.
Noninterest Income and Expense
Total noninterest income decreased $294,000, or 1.4%, in the first six
months of 1995 from the same period of 1994. Service charges on deposit accounts
decreased $295,000, or 2.6%, principally due to lower revenues on commercial
checking accounts as a result of higher earnings credit rates brought about by
higher yields available on short-term US treasury securities. Trust income
increased $104,000, or 4.0% due to an increase in trust assets under management.
Other service charges, commissions, and fees increased $107,000 to $7,247,000
during the first half of 1995 primarily due to increases in insurance
commissions and fees for the use of automated teller machines. Commissions from
the general insurance agency operations increased $540,000, or 61.8%, as the
result of increased sales to new and existing customers and mergers with an
insurance agency in Charlotte, North Carolina, in November 1994 and an insurance
agency in Wilmington, North Carolina, in April 1995. Fees collected for the use
of UCB's automated teller machines by depositors of other institutions increased
$80,000, or 15.3%, due to increased transaction volume. These increases in fees
were partially offset by decreases in discount brokerage fees and mortgage
banking fees. Discount brokerage fees decreased $168,000, or 20.7%, due to a
decrease in trading volume. Mortgage banking fees decreased $170,000, or 8.8%,
due to a decline in the volume of loans serviced for others compared to the
prior year. Gains of $184,000 were recognized during the period from the sale of
mortgage loans into the secondary market compared to gains of $255,000 a year
ago.
Effective April 1, 1995, UCB adopted the provisions of Financial
Accounting Standards No. 122 (FAS 122), "Accounting for Mortgage Servicing
Rights, an amendment of FASB Statement No. 65." This statement amends certain
provisions of FAS 65 to eliminate the distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and rights to service mortgage loans for others that are acquired through
purchase transactions. Under FAS 65, the cost of originated mortgage service
rights was not recognized as an asset and was charged to earnings when the
related loan was sold. As a result of adopting FAS 122, beginning April 1995,
the estimated fair values of the rights to service mortgage loans for others
have been capitalized on loans originated by UCB. This resulted in an increase
in the gains on the sale of mortgage loans into the secondary market totaling
$79,000 through June 30, 1995.
Noninterest expense, excluding restructuring charges, increased
$1,286,000, or 2.1%, in the six months ended June 30, 1995 compared to the same
period of 1994. Personnel expense declined $66,000, or .2%. Compensation
expense, the largest component of personnel expense, decreased $73,000, or .3%,
due to a decrease of 255, or 13.0%, in the average number of full-time
equivalent employees from 1994. The reduction in the average number of full-time
equivalent employees was the result of the restructuring plan announced in
October 1994 which included the consolidation of twelve branch offices, staffing
level changes at all branches, and the centralization of certain functions.
These reductions were partially offset by staff additions due to the acquisition
by merger of the general insurance agency in April 1995 and the purchase of
twelve branch offices from another bank holding company in May 1995.
Occupancy expense decreased $86,000, or 1.9%, during the first six
months of 1995 as compared to 1994. Depreciation expense decreased $54,000, or
5.9%, while repairs and maintenance decreased $59,000, or 6.0%, and utilities
expense declined $23,000, or 3.3%. These decreases were primarily due to the
elimination of branch locations as a part of implementing the restructuring plan
referred to above.
Other operating expenses increased $1,410,000, or 8.0%, during the
first six months of 1995 as compared to 1994. Marketing and business development
expenses increased $157,000, or 8.1%, primarily due to increased advertising
related to campaigns designed to increase commercial loan volume and deposit
balances. Professional services expense for the first two quarters decreased
$202,000, or 11.8%. The current year's expenses were reduced by legal fees
refunded in a bankruptcy proceeding involving a current customer, while 1994
professional services included expenses connected with UCB's acquisitions by
merger of Bank of Iredell and Sanford Real Estate, Loan & Insurance.
Outside data processing fees increased $531,000, or 28.4%, compared to
1994 due to increased software amortization expense ($447,000, or 237.2%
increase) and increased costs related to processing credit card transactions
($92,000, or 16.6 % increase). The increased software amortization expense
reflects the purchase of computer software related to the automation of certain
labor-intensive tasks as part of the previously discussed restructuring plan.
The credit card processing expense for 1994 reflects credits received from
vendors for the volume of transactions processed and for new contract
agreements. These increases were partially offset by a decrease of $126,000, or
21.1%, in other computer services expense.
FDIC insurance premiums increased $298,000, or 9.9%, reflecting the
increase in deposits from the prior year. The amortization of purchased mortgage
loan servicing rights decreased $496,000, or 62.5%, from the prior year due to
large packages of servicing rights purchased in prior years becoming fully
amortized at the end of 1994. Telephone expense increased $296,000, or 29.5%, as
a result of the installation of an automated response telephone system and the
introduction of a staffed bank-by-phone customer service department. In
addition, the 1994 expense was reduced by $130,000 in vendor credits which did
not recur in 1995. Increases in other categories of overhead expenses are
generally the result of increases in the costs related to purchased services.
Restructuring charges of $1,000,000 incurred in the first six months of
1994 were for consultant fees related to the restructuring plan previously
discussed.
Income Tax Provision
The provision for income tax increased $1,866,000 in the six months
ended June 30, 1995, compared to the corresponding period of 1994. The increase
in the income tax provision was principally the net result of an increase of
$4,883,000 in pre-tax income and a decrease of $463,000 in tax-exempt income.
The effective income tax rate on income before taxes is lower than the
combined statutory federal and state rates primarily because interest earned on
investments in debt instruments of states, counties, and municipalities is
exempt from federal income tax and may be exempt from state income tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.
Cumulative Effect of a Change in Accounting Method
Effective January 1, 1994, UCB adopted Financial Accounting Standards
No. 112 (FAS 112), "Employers' Accounting for Postemployment Benefits," which
requires the accrual of expenses for the estimated cost of benefits provided for
employees after employment but before retirement. The adoption of FAS 112
required immediate recognition of the actuarially determined liability for
postemployment benefits which amounted to $529,000 at December 31, 1993. The
mandatory adoption of FAS 112 resulted in a charge against net income of
$316,000, net of deferred income taxes, which was recorded as a cumulative
effect of a change in accounting method during the first quarter of 1994.
Results of Operations - Three Months Ended June 30, 1995, Compared to 1994
Summary
Net income for the three months ended June 30, 1995, amounted to
$10,614,000, or $.72 per share, compared to $9,012,000, or $.61 per share, for
the second quarter of 1994. The 1995 operating results represent an increase of
$1,602,000, or 17.8%, over the second quarter of 1994 (18.0% increase in
earnings per share). The increase in earnings was primarily the result of
increased tax-equivalent net interest income as a result of growth in average
earning assets.
Net Interest Income
Net interest income increased $2,876,000 (8.0%) in the second quarter
of 1995 compared to 1994. This was the net result of an increase of $416,965,000
(14.1%) in the average level of earning assets, an increase of .82% in the
overall tax-equivalent yield on earning assets, combined with an increase of
$382,702,000 (15.9%) in the average balance of interest-bearing liabilities, and
an increase of 1.29% in the average rate paid on interest-bearing liabilities.
The tax-equivalent net interest yield on average earning assets declined to
4.72% in the second quarter of 1995 from 5.01% in the same period of 1994 due
primarily to the increased cost of deposits relative to the increase in yields
on earning assets as more fully discussed in the six month discussion of
operations.
Provision for Credit Losses
The provision for credit losses increased $111,000 (10.7%) to
$1,150,000 in the second quarter of 1995 compared to 1994. The increase was due
to growth in loans during the 1995 quarter compared to the prior year. Net
credit losses for the three months ended June 30, 1995, were $990,000, or .15%
of average loans on an annualized basis, compared to $725,000, or .13% of
average loans, on an annualized basis in 1994.
Noninterest Income and Expense
Noninterest income decreased $137,000 (1.2%) during the second quarter
of 1995 compared to 1994. Service charges on deposit accounts decreased $175,000
(3.0%) from the prior year due to a decrease in revenues from commercial
accounts as discussed in connection with the six-month operating results.
Discount brokerage fees decreased $103,000, or 17.9%, due to a decrease in
trading volume. Commissions from the general insurance agency operations
increased $239,000, or 49.2% as a result of the insurance agency acquisitions
previously mentioned. Gains on the origination of mortgage loans for sale in the
secondary market amounted to $154,000 in the second quarter of 1995, compared to
gains of $76,000 realized in the same period of 1994.
Noninterest expense increased $92,000 (.3%) during the three months
ended June 30, 1995, compared to 1994. This was mainly the result of those
factors covered in the six-month discussion.
Financial Condition
The financial condition of the Corporation, with respect to liquidity
and dividends at June 30, 1995, has not changed significantly since December 31,
1994. At June 30, 1995, stockholders' equity amounted to 7.58% of total assets
compared to 7.91% at December 31, 1994. At June 30, 1995, UCB had a ratio of
core capital to weighted risk assets of approximately 10.04% and a ratio of
total capital to weighted risk assets of approximately 11.29%, computed using
the Federal Reserve guidelines for risk-based capital requirements, and a ratio
of quarter-end core capital to average total assets for the three months ended
June 30, 1995, of 7.36%.
On an annualized basis, net operating income as a percentage of average
stockholders' equity amounted to 15.40% for the first six months of 1995
compared to 14.02% for the same period of 1994. Cash dividends declared
represented 33.41% of net operating income in the first half of 1995 compared to
31.69% for the six months ended June 30, 1994.
At June 30, 1995, UCB did not own any securities which were considered
structured notes by regulatory authorities.
At June 30, 1995, UCB owned debt securities that had not been rated by
a rating agency with a book value of $1,634,000. In addition, debt securities
with a book value of $267,000 were owned at June 30, 1995, that had less than
investment-grade ratings. Included in the unrated securities were bonds with a
book value of $1,283,000 that are collateralized by U.S. government securities.
Substantially all of these investments were securities issued by municipalities
located within UCB's market area. It is management's opinion that no more than a
normal risk of loss exists on these securities.
Accounting and Regulatory Issues
As previously reported, UCB was required to adopt the provisions of
Financial Accounting Standards No. 112 (FAS 112), "Employers' Accounting for
Postemployment Benefits," which requires the accrual of expenses for the
estimated cost of benefits provided for employees after employment but before
retirement. The adoption of FAS 112 required immediate recognition of the
actuarially determined liability for postemployment benefits which amounted to
$529,000 at December 31, 1993. The adoption of FAS 112 resulted in a charge
against net income of $316,000, net of deferred income taxes which was recorded
as a cumulative effect of a change in accounting method during the first quarter
of 1994.
As previously reported, UCB was required to adopt the provisions of
Financial Accounting Standards No. 114 (FAS 114), "Accounting by Creditors for
Impairment of a Loan," which was issued in May 1993. This statement amends FAS
5, "Accounting for Contingencies," to clarify that a creditor should evaluate
the collectibility of both contractual interest and principal of a receivable
when assessing the need for a loss accrual; and FAS 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructurings," to require a creditor to
account for a troubled debt restructuring involving a modification of terms at
fair value as of the date of the restructuring. In October 1994, the Financial
Accounting Standards Board issued Financial Accounting Standards No. 118 (FAS
118), "Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure." FAS 118 revises FAS 114 to permit companies to use their existing
income recognition policies with respect to impaired loans rather than those set
forth in FAS 114 and requires a creditor to disclose certain information
concerning income recognition on impaired loans. FAS 114 was also adopted
effective January 1, 1995. UCB had previously measured loan impairment generally
pursuant to the methods prescribed in FAS 114. As a result, no additional
reserves for credit losses were required as the result of adoption of FAS 114.
As previously noted, effective April 1, 1995, UCB adopted the provisions of
Financial Accounting Standards No. 122 (FAS 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." This statement amends
certain provisions of FAS 65 to eliminate the distinction between rights to
service mortgage loans for others that are acquired through loan origination
activities and rights to service mortgage loans for others that are acquired
through purchase transactions. Under FAS 65, the cost of originated mortgage
service rights was not recognized as an asset and was charged to earnings when
the related loan was sold. As a result of adopting FAS 122, beginning April
1995, the estimated fair values of the rights to service mortgage loans for
others have been capitalized on loans originated by UCB. This resulted in an
increase in the gains on the sale of mortgage loans into the secondary market
totaling $79,000 through June 30, 1995.
FAS 122 has a different cost allocation methodology than FAS 65 for
purchased mortgage servicing rights. FAS 65 allocated such costs incurred in
excess of the market value of the loans without the servicing rights, whereas
FAS 122 allocates costs based on the relative market values of the purchased
servicing rights and the related loans. The application of the FAS 122 cost
allocation method to purchased mortgage servicing rights acquired during the
three months ended June 30, 1995, was not material.
FAS 122 also requires that all capitalized mortgage servicing rights be
evaluated for impairment based on the excess of the carrying amount of such
rights over their fair value. For purposes of measuring impairment, capitalized
mortgage servicing rights are stratified on the basis of one or more of the
predominant risk characteristics of the underlying loans. The adoption of FAS
122 resulted in no impairment adjustments to capitalized mortgage servicing
rights.
In March 1995, the FASB issued Financial Accounting Standards No. 121
(FAS 121), "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for those to be disposed of.
This statement requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss should be
recognized if the sum of the undiscounted future cash flows is less than the
carrying amount of the asset. Those assets to be disposed of are to be reported
at the lower of the carrying amount or fair value less costs to sell. Adoption
of FAS 121 is required for fiscal years beginning after December 15, 1995. While
the effect has not yet been determined, adoption of this standard is not
expected to have a material impact on UCB's financial position or operating
results.
In addition to the accounting standards discussed above, the FASB has
issued an exposure draft entitled: "Accounting for Stock-based Compensation."
UCB has not determined what effect, if any, the proposed standard will have on
its consolidated financial position or operating results.
UCB and its subsidiaries are subject to regulation and examination by
state and federal bank regulatory agencies and are subject to the accounting and
disclosure requirements of the Securities and Exchange Commission. There are no
pending material regulatory recommendations or actions concerning UCB with which
management has not complied.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED CAROLINA BANCSHARES CORPORATION
August 8, 1995 By /s/ John F. Watson
--------------------------
Controller
August 8, 1995 By /s/ Ronald C. Monger
--------------------------
Executive Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUN-30-1995
<CASH> 149,776
<INT-BEARING-DEPOSITS> 95
<FED-FUNDS-SOLD> 131,483
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 538,251
<INVESTMENTS-CARRYING> 194,356
<INVESTMENTS-MARKET> 195,639
<LOANS> 2,615,080
<ALLOWANCE> 40,856
<TOTAL-ASSETS> 3,742,780
<DEPOSITS> 3,383,003
<SHORT-TERM> 31,802
<LIABILITIES-OTHER> 41,312
<LONG-TERM> 2,988
<COMMON> 59,075
0
0
<OTHER-SE> 224,600
<TOTAL-LIABILITIES-AND-EQUITY> 3,742,780
<INTEREST-LOAN> 116,282
<INTEREST-INVEST> 16,830
<INTEREST-OTHER> 2,968
<INTEREST-TOTAL> 136,080
<INTEREST-DEPOSIT> 57,208
<INTEREST-EXPENSE> 58,940
<INTEREST-INCOME-NET> 77,140
<LOAN-LOSSES> 3,400
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 62,720
<INCOME-PRETAX> 32,473
<INCOME-PRE-EXTRAORDINARY> 20,734
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,737
<EPS-PRIMARY> 1.410
<EPS-DILUTED> 1.410
<YIELD-ACTUAL> 4.910
<LOANS-NON> 4,521
<LOANS-PAST> 5,030
<LOANS-TROUBLED> 8,713
<LOANS-PROBLEM> 18,264
<ALLOWANCE-OPEN> 38,681
<CHARGE-OFFS> 3,202
<RECOVERIES> 1,977
<ALLOWANCE-CLOSE> 40,856
<ALLOWANCE-DOMESTIC> 35,139
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,717
</TABLE>
