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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Commission file number
to 0-5583
UNITED CAROLINA BANCSHARES CORPORATION
(Exact name of Registrant as specified in its Charter)
North Carolina 56-0954530
(State of Incorporation) (I.R.S. Employer Identification No.)
127 West Webster Street
Whiteville, North Carolina 28472
(Address of principal executive offices) (Zip Code)
(910) 642-5131
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
As of August 6, 1996, there were 24,226,965 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 33 pages
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
June 30, December 31,
1996 1995
----------- ------------
(In thousands)
Assets:
Cash and due from banks - noninterest-bearing $ 154,372 $ 179,679
Federal funds sold and other short-term
investments 17,320 45,413
Securities available for sale (amortized
costs of $841,455,000 in 1996
and $764,923,000 in 1995) 836,164 769,956
Investment securities (approximate market
values of $54,483,000 in 1996
and $99,270,000 in 1995) 53,434 97,354
Loans, net of unearned income 2,986,541 2,826,987
Less reserve for credit losses (45,212) (43,464)
----------- -----------
Net loans 2,941,329 2,783,523
----------- -----------
Premises and equipment 55,756 58,002
Other assets 113,985 103,591
----------- -----------
Total assets $ 4,172,360 $ 4,037,518
=========== ===========
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing demand deposits $ 608,170 $ 578,864
Interest-bearing deposits:
NOW, savings, and money market deposits . 1,341,782 1,354,193
Certificates of deposit of
$100,000 or more 225,469 206,235
Other time deposits 1,552,772 1,498,359
----------- -----------
Total deposits 3,728,193 3,637,651
Short-term borrowings 67,678 30,439
Mortgages and other notes payable 2,822 2,975
Other liabilities 41,235 43,305
----------- -----------
Total liabilities 3,839,928 3,714,370
----------- -----------
Stockholders' equity:
Preferred stock, par value $10 per share:
Authorized 2,000,000 shares; none issued
Common stock, par value $4 per share:
Authorized 40,000,000 shares; issued
24,217,238 shares in 1996 and
24,123,907 shares in 1995 96,869 96,551
Surplus 50,784 50,183
Retained earnings 188,300 173,491
Unrealized gains (losses) on
Securities available for sale,
net of deferred income taxes (3,521) 2,923
----------- -----------
Total stockholders' equity 332,432 323,148
----------- -----------
Total liabilities and
stockholders' equity $ 4,172,360 $ 4,037,518
=========== ===========
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ -------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $ 66,458 $ 63,959 $ 131,627 $ 123,663
Interest and dividends on:
Taxable securities 11,908 8,876 23,135 16,264
Tax-exempt securities 843 959 1,694 1,993
Interest on federal funds sold and
other short-term investments 965 2,500 2,234 3,074
------------ ------------ ------------ ------------
Total interest income 80,174 76,294 158,690 144,994
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits 36,156 33,842 71,426 60,726
Interest on short-term borrowings 354 831 762 1,771
Interest on mortgages and other
notes payable 41 41 85 80
------------ ------------ ------------ ------------
Total interest expense 36,551 34,714 72,273 62,577
------------ ------------ ------------ ------------
Net interest income 43,623 41,580 86,417 82,417
Provision for credit losses 1,900 1,202 4,100 3,481
------------ ------------ ------------ ------------
Net interest income after provision
for credit losses 41,723 40,378 82,317 78,936
------------ ------------ ------------ ------------
Noninterest income:
Service charges on deposit accounts 6,404 5,962 12,558 11,658
Trust income 1,342 1,439 2,936 2,676
Insurance commissions 1,235 1,130 2,768 2,354
Mortgage banking fees 1,266 929 2,399 1,777
Brokerage and annuity commissions 589 483 1,155 1,084
Other service charges, commissions, and fees 1,735 1,199 3,171 2,286
Gains on mortgages originated for resale 125 168 342 209
Gains on trading account securities 1 1 1 2
Gains (losses) on dispositions of securities 59 -- (134) 3
Other operating income 295 96 22 350
------------ ------------ ------------ ------------
Total noninterest income 13,051 11,407 25,218 22,399
------------ ------------ ------------ ------------
Noninterest expenses:
Personnel expense 20,863 19,390 42,614 38,730
Occupancy expense 2,537 2,524 5,073 4,948
Equipment expense 1,644 1,763 3,449 3,548
Other operating expenses 10,381 10,784 20,494 20,412
------------ ------------ ------------ ------------
Total noninterest expenses 35,425 34,461 71,630 67,638
------------ ------------ ------------ ------------
Income before income taxes 19,349 17,324 35,905 33,697
Income tax provision 6,722 6,113 12,725 11,961
------------ ------------ ------------ ------------
Net income $ 12,627 $ 11,211 $ 23,180 $ 21,736
============ ============ ============ ============
Per share data:
Net income $ .52 $ .46 $ .96 $ .90
============ ============ ============ ============
Cash dividends declared $ .18 $ .166 $ .36 $ .313
============ ============ ============ ============
Book value at end of period $ 13.73 $ 12.60 $ 13.73 $ 12.60
============ ============ ============ ============
Average number of shares outstanding 24,195,499 24,099,494 24,168,130 24,069,264
============ ============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Common Stock Gains
-------------------------- (Losses) on
Number of Aggregate Securities Total
Shares Par Retained Available Stockholders'
Outstanding Value Surplus Earnings For Sale, Net Equity
----------- ----------- ---------- ---------- ------------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 24,137,791 $ 96,551 $ 50,183 $ 173,491 $ 2,923 $ 323,148
Net income -- -- -- 23,180 -- 23,180
Cash dividends declared,
$.36 per share -- -- -- (8,418) -- (8,418)
Issuance of common stock:
By pooled institution prior
to acquisition 29,949 120 327 45 -- 492
Under stock option plans 50,360 202 292 -- -- 494
Retirement of common stock (862) (4) (18) 2 -- (20)
Unrealized losses on securities
available for sale, net of
applicable deferred income
taxes -- -- -- -- (6,444) (6,444)
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1996 24,217,238 $ 96,869 $ 50,784 $ 188,300 $ (3,521) $ 332,432
=========== =========== =========== =========== =========== ===========
Balance, January 1, 1995 24,017,725 96,071 50,134 141,953 (5,560) 282,598
Net income -- -- -- 21,736 -- 21,736
Cash dividends declared:
$.313 per share -- -- -- (6,928) -- (6,928)
By pooled institution prior
to merger -- -- -- (31) -- (31)
Issuance of common stock:
Under stock option plan 36,691 147 149 (49) -- 247
By pooled institution prior
to merger 3,171 13 12 16 -- 41
Insurance agency merger 66,320 265 (213) (88) -- (36)
Unrealized gains on securities
available for sale, net of
applicable deferred income
taxes -- -- -- -- 6,384 6,384
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1995 24,123,907 $ 96,496 $ 50,082 $ 156,609 $ 824 $ 304,011
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 23,180 $ 21,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net of accretion 6,326 4,458
Provision for credit losses 4,100 3,481
Net (increase) decrease in loans originated for resale 4,864 (1,041)
Provision for deferred taxes and decrease in taxes payable (1,363) (297)
Decrease in accrued interest receivable (1,371) (1,524)
(Increase) decrease in prepaid expenses (3,661) 2,542
Decrease in other accounts receivable (3,623) (1,915)
Increase (decrease) in accrued interest payable (1,440) 2,432
Increase (decrease) in accrued expenses (484) 534
Decrease in deferred loan fees, net of deferred costs (983) (37)
Other, net 571 21
--------- ---------
Total adjustments 2,936 8,654
--------- ---------
Net cash provided by operating activities 26,116 30,390
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and issuer calls of securities
available for sale 329,417 163,681
Proceeds from sales of securities available for sale 10,539 --
Proceeds from maturities and issuer calls of investment
securities 7,516 11,348
Proceeds from sales of investment securities -- 3,810
Purchases of securities available for sale (380,066) (315,797)
Purchases of investment securities -- (1,513)
Net increase in loans outstanding (161,247) (208,123)
Purchases of premises and equipment (2,354) (5,582)
Proceeds from sales of premises and equipment 922 145
Purchases of mortgage loan servicing rights (1,290) (540)
Sales of foreclosed assets 324 1,332
Other, net (3,451) (16,552)
--------- ---------
Net cash used by investing activities (199,690) (367,791)
--------- ---------
Cash flows from financing activities:
Net increase in deposit accounts 90,541 454,508
Net increase in federal funds purchased 4,545 5,225
Net increase (decrease) in securities sold under agreement
to repurchase 28,400 (35,817)
Net increase (decrease) in other short-term borrowings 4,293 (24,116)
Repayments of mortgages and other notes payable (153) (19)
Issuance of common stock, net 966 288
Dividends paid (8,418) (6,992)
--------- ---------
Net cash provided by financing activities 120,174 393,077
--------- ---------
Net increase (decrease) in cash and cash equivalents (53,400) 55,676
Cash and cash equivalents at beginning of period 225,092 244,660
--------- ---------
Cash and cash equivalents at end of period $ 171,692 $ 300,336
========= =========
Statement Continued on Next Page
5
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Continued
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 73,713 $ 60,145
========= =========
Income taxes $ 14,088 $ 12,289
========= =========
Significant noncash transactions:
Loans transferred to real estate acquired in settlement of debt $ 925 $ 1,215
========= =========
Loans originated to facilitate the sale of foreclosed assets $ 471 $ 341
========= =========
Unrealized gains (losses) on securities available for sale $ (10,324) $ 9,157
========= =========
Investment securities transferred to available for sale
portfolio in connection with business combinations $ 36,646 $ --
========= =========
Available for sale securities transferred to investment
portfolio in connection with business combinations $ 240 $ --
========= =========
Issuance of common stock in merger acquisitions $ -- $ 36
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
6
<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, 1996, and December 31,
1995, and operating results of United Carolina Bancshares Corporation and its
subsidiaries for the three- and six-month periods ended June 30, 1996 and 1995.
All adjustments made to the unaudited financial statements were of a normal
recurring nature. The results of operations for the first six months of 1996 are
not necessarily indicative of the results of operations for the entire year. As
discussed in Note 13, during 1996, UCB consummated mergers with Triad Bank and
Seaboard Savings Bank, both of which were accounted for as
poolings-of-interests. Accordingly, the consolidated financial statements have
been restated to include the accounts of Triad Bank and Seaboard Savings Bank
for all periods presented.
Note 2.
Securities:
The following is a summary of the securities portfolios by major
classification:
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Securities available for sale:
United States government securities $748,372 $ 1,196 $ 5,159 $ 744,409
Obligations of United States government
agencies and corporations 50,478 60 310 50,228
Mortgage-backed securities 28,852(1) 25 1,099 27,778(1)
Obligations of states and political subdivisions 1,100 -- 4 1,096
Federal Home Loan Bank stock 12,200 -- -- 12,200
Other securities 453 -- -- 453
-------- -------- -------- -----------
Total securities available for sale $841,455 $ 1,281 $ 6,572 $ 836,164
======== ======== ======== ===========
Investment securities:
Obligations of states and political subdivisions $ 53,434 $ 1,194 $ 145 $ 54,483
-------- -------- -------- -----------
Total investment securities $ 53,434 $ 1,194 $ 145 $ 54,483
======== ======== ======== ===========
<FN>
(1) At June 30, 1996, UCB owned collateralized mortgage obligations issued
by the Federal Home Loan Mortgage Corporation (FHLMC) which had an amortized
cost of $10,425,000 and a market value of $10,136,000; and collateralized
mortgage obligations issued by the Federal National Mortgage Association (FNMA)
which had an amortized cost of $12,258,000 and a market value of $11,703,000. In
addition, UCB also owned mortgage-backed pass-through securities guaranteed by
the Government National Mortgage Association (GNMA) which had an amortized cost
of $235,000 and a market value of $237,000; mortgage-backed pass-through
securities issued by FNMA with an amortized cost of $2,195,000 and market value
of $2,097,000; and mortgage-backed pass-through securities guaranteed by FHLMC
with an amortized cost of $3,380,000 and a market value of $3,233,000. UCB also
owned collateralized mortgage obligations issued by a private issuer and
guaranteed by the Government National Mortgage Association (GNMA) which had an
amortized cost of $359,000 and a market value of $372,000. At June 30, 1996,
none of the collateralized mortgage obligations owned by UCB were considered
high-risk mortgage securities under current regulatory guidelines.
</FN>
</TABLE>
7
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 2. Securities - Continued
<TABLE>
<CAPTION>
December 31, 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 $585,795 $ 5,521 $ 127 $ 591,189
Obligations of United States government
agencies and corporations 136,590 4 74 136,520
Mortgage-backed securities 29,628 53 346 29,335
Obligations of states and political subdivisions 1,340 2 -- 1,342
Federal Home Loan Bank stock 10,941 -- -- 10,941
Other securities 629 -- -- 629
-------- -------- -------- ---------
Total securities available for sale $764,923 $ 5,580 $ 547 $ 769,956
======== ======== ======== =========
Investment securities:
United States government securities $ 10,396 $ 141 $ 168 $ 10,369
Obligations of United States government
agencies and corporations 21,713 -- -- 21,713
Mortgage-backed securities 4,508 16 44 4,480
Obligations of states and political subdivisions 60,660 2,011 40 62,631
Other securities 77 -- -- 77
-------- -------- -------- ---------
Total investment securities $ 97,354 $ 2,168 $ 252 $ 99,270
======== ======== ======== =========
</TABLE>
Note 3.
Loans:
The consolidated loan portfolio is summarized by major classification as
follows:
June 30, December 31,
1996 1995
----------- ------------
(In thousands)
Loans secured by real estate:
Construction and land acquisition
and development $ 240,241 $ 226,326
Secured by nonfarm, nonresidential
properties 649,403 620,367
Secured by farmland 91,029 90,658
Secured by multifamily residences 69,796 65,097
----------- -----------
Total loans secured by real estate,
excluding loans secured by
1-4 family residences 1,050,469 1,002,448
----------- -----------
Revolving credit secured by
1-4 family residences 144,025 140,032
Other loans secured by
1-4 family residences 657,037 613,846
----------- -----------
Total loans secured by
1-4 family residences 801,062 753,878
----------- -----------
Total loans secured by real estate 1,851,531 1,756,326
Commercial, financial, and agricultural
loans, excluding loans secured
by real estate 325,389 296,778
Loans to individuals for household,
family, and other personal
expenditures, excluding loans
secured by real estate 701,921 691,193
All other loans 107,534 83,507
----------- -----------
Total loans 2,986,375 2,827,804
Net (unearned income) deferred
origination costs 166 (817)
----------- -----------
Loans, net of unearned income $ 2,986,541 $ 2,826,987
=========== ===========
8
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 4.
Nonperforming and Problem Assets:
The following is a summary of nonperforming and problem assets:
June 30, December 31,
1996 1995
------------ ------------
(In thousands)
Foreclosed assets $ 7,112 $ 5,234
Nonaccrual loans 4,079 6,403
------------ ------------
Total nonperforming assets 11,191 11,637
Loans 90 days or more past due,
excluding nonaccrual loans 9,080 5,554
------------ ------------
Total problem assets $ 20,271 $ 17,191
============ ============
At June 30, 1996, the recorded investment in loans that are considered
impaired under Financial Accounting Statement No. 114 was $4,079,000, all of
which were on a nonaccrual basis. Included in this amount was $2,242,000 of
impaired loans for which $550,000 of the reserve for credit losses was assigned.
The average recorded investment during the first six months of 1996 in loans
classified as impaired at June 30, 1996, was approximately $4,324,000. For the
six months ended June 30, 1996, UCB recognized interest income on these impaired
loans of $23,000 using the cash basis of accounting.
Note 5.
Reserve for Credit Losses:
The following table sets forth the analysis of the consolidated reserve
for credit losses:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
1996 1995 1996 1995
-------- -------- --------- ---------
(In thousands)
Balance, beginning of period $ 44,382 $ 43,276 $ 43,464 $ 41,341
Provision for credit losses 1,900 1,202 4,100 3,481
Recovery of losses previously
charged off 1,069 1,134 1,857 2,097
Losses charged to reserve (2,139) (2,219) (4,209) (3,526)
-------- -------- -------- --------
Balance, end of period $ 45,212 $ 43,393 $ 45,212 $ 43,393
======== ======== ======== ========
9
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 6.
Short-Term Borrowings
The following table sets forth certain data with respect to UCB's
short-term borrowings:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
--------------------------------------- -------------------------------------------
Securities Federal Securities Federal
Sold Under Treasury Home Sold Under Treasury Home
Federal Agreement Tax and Loan Federal Agreement Tax and Loan
Funds to Loan Bank Funds to Loan Bank
Purchased Repurchase Notes Advances Purchased Repurchase Notes Advances
--------- ---------- ------- -------- --------- ---------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance outstanding at end
of period $21,365 $ 39,336 $ 6,977 $ - $ 16,820 $ 10,936 $ 2,683 $ -
Maximum amount outstanding
at any month-end during
the period 29,250 40,040 6,977 - 22,610 28,216 4,250 25,000
Average balance outstanding
during the period 19,691 8,334 3,323 - 17,227 11,636 3,098 13,412
Average interest rate paid
during the period 5.09% 4.54% 4.60% -% 5.79% 5.25% 5.62% 6.48%
Average interest rate
payable at end of period 5.44% 5.19% 5.36% -% 5.50% 4.70% 5.15% - %
</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.
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.
10
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 7.
Mortgages and Other Notes Payable:
Mortgages payable totaled $102,000 at June 30, 1996, and $121,000 at
December 31, 1995. The mortgages bear interest at annual rates ranging from
8.75% to 10% and are collateralized by premises with book values of
approximately $543,000 at June 30, 1996, and $470,000 at December 31, 1995. The
mortgages are payable primarily in monthly installments totaling approximately
$3,000, including interest.
Other notes payable totaled $125,000 at December 31, 1995, and consisted of
an unsecured note payable which bore interest at an annual rate of 12%, payable
monthly, with the principal paid on March 1, 1996.
Advances from the Federal Home Loan Bank of Atlanta with initial
maturities of more than one year totaled $2,720,000 at June 30, 1996, and
$2,729,000 at December 31, 1995. The advances are collateralized by a blanket
lien on qualifying loans secured by first mortgages on 1-4 family residences and
bear interest at rates ranging from 3.50% to 8.30%, payable monthly, with
principal due in various maturities beginning November 24, 1996.
Note 8.
Income Taxes:
The effective tax rate on income before income taxes is lower than the
combined statutory federal and state rates primarily because interest earned on
investments in debt instruments of state, county, and municipalities is exempt
from federal income tax and partially exempt from state income tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.
11
<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" on the consolidated statements of income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Other operating expenses:
Data processing fees and software expense $ 2,085 $ 1,280 $ 3,557 $ 2,439
Marketing and business development 1,177 1,161 2,317 2,238
Professional services 1,091 909 2,104 1,677
Postage and delivery 1,000 970 2,038 1,923
Printing, stationery, and supplies 940 1,261 1,866 2,043
Telephone expense 899 717 1,787 1,381
Amortization of goodwill and other intangible assets 641 359 1,280 592
Travel expense 536 505 987 932
Insurance and taxes, other than taxes on income 301 384 686 781
Amortization of capitalized mortgage servicing rights 241 160 459 297
Noncredit losses 232 276 463 504
FDIC deposit insurance premiums 144 1,794 211 3,526
Donations 107 87 212 163
Other expenses 987 921 2,527 1,916
------- ------- ------- -------
Total other operating expenses $10,381 $10,784 $20,494 $20,412
======= ======= ======= =======
</TABLE>
Note 10.
Per Share Data:
Earnings per share are computed based on the weighted average number of
shares outstanding during each period, adjusted retroactively for the
pooling-of-interests mergers with Seaboard Savings Bank and Triad Bank, and the
3-for-2 stock split effected in the form of a stock dividend declared January
17, 1996. Cash dividends per share are computed based on the historical number
of shares outstanding at date of declaration adjusted retroactively for the
3-for-2 stock split. Book values per share are computed based on the number of
shares outstanding at the end of each period, adjusted retroactively for the
mergers with Seaboard Savings Bank and Triad Bank and the 3-for-2 stock split.
Dilution of earnings per share that would result from the exercise of all
outstanding stock options was immaterial.
12
<PAGE>
Notes to Consolidated Financial Statements (Continued)
Note 11.
Statements of Cash Flows:
For purposes of the statements of cash flows, UCB considers cash and cash
equivalents to include cash and due from banks, federal funds sold, and other
short-term investments.
Note 12.
Legal Proceedings:
Various legal proceedings are pending or threatened against UCB and its
subsidiaries. All the foregoing are routine proceedings, pending or threatened,
which are incidental to the ordinary course of UCB's and its subsidiaries'
business. In the judgment of management and its counsel, none of such pending or
threatened legal proceedings will have a material adverse effect on the
consolidated financial position of UCB and its subsidiaries.
Note 13.
Mergers and Acquisitions:
On April 28, 1995, UCB issued 66,320 shares of common stock to consummate
the merger with United Agencies, Inc., a general insurance agency located in
Wilmington, North Carolina. Total assets of $252,000 were acquired in the
transaction. The merger was accounted for as a pooling-of-interests; however,
due to the immateriality of the transaction in relation to UCB's consolidated
financial position and operating results, prior period financial statements have
not been restated.
On May 19, 1995, UCB's North Carolina subsidiary bank acquired the
deposits and certain other assets of twelve North Carolina bank branches from
another financial institution. At the date of the acquisition, the acquired
branches had $26.8 million in loans and assumed $178.7 million in deposits.
Subsequent to the acquisition, two of the branches not located in existing UCB
markets were sold to two commercial banks. These branches had $4.8 million in
loans and $32.6 million in deposits when sold. A premium of $10.1 million was
paid on the assumed deposit base of the branches retained.
Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank, Inc., headquartered in Plymouth, North Carolina. Under terms of the
agreement, UCB exchanged 418,641 shares of common stock for all of the
outstanding shares of Seaboard common stock. The merger was accounted for as a
pooling-of-interests, and accordingly, the accompanying consolidated financial
statements have been restated to include the accounts of Seaboard Savings Bank
for all periods presented.
Effective March 29, 1996, UCB consummated a merger with Triad Bank
headquartered in Greensboro, North Carolina. Under terms of the agreement, UCB
exchanged 1,551,874 shares of common stock for all of the outstanding shares of
Triad common stock. The merger was accounted for as a pooling-of-interests, and
accordingly, the accompanying consolidated financial statements have been
restated to include the accounts of Triad Bank for all periods presented.
13
<PAGE>
Notes to Consolidated Financial Statements (Continued)
On March 26, 1996, UCB reached an agreement in principal to enter into a
merger transaction with Tomlinson Insurors, Inc. (Tomlinson), a general
insurance agency in Fayetteville, North Carolina which will result in Tomlinson
becoming a part of UCB's North Carolina subsidiary bank. Under terms of the
agreement, UCB will exchange a maximum of 41,975 shares of common stock for the
net business assets of Tomlinson. It is anticipated that the transaction will be
completed in the third quarter of 1996, subject to regulatory approvals.
14
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations - Six Months Ended June 30, 1996, Compared to 1995
Summary
Net income totaled $23,180,000, or $.96 per share, for the six months
ended June 30, 1996, an increase of 6.6% over the $21,736,000, or $.90 per share
earned in 1995. The increased earnings resulted from increased net interest
income and growth in noninterest income. The increase in net interest income
resulted from growth in average earning assets of 11.5% over the corresponding
period of 1995. The majority of the increase in noninterest income resulted from
increased service charges on deposits as well as increases in fees and
commissions from nondeposit services including trust, mortgage banking, credit
cards, insurance, and brokerage and annuity sales.
The 1996 results included the effects of nonrecurring charges and expenses
totaling $1,573,000, net of applicable income tax benefits, incurred in
connection with completing the mergers with Seaboard Savings Bank and Triad Bank
which were completed during the first quarter of the year. Excluding the effects
of the nonrecurring charges related to the mergers, on a pro forma basis,
earnings for the first six months of 1996 amounted to $24,753,000, or $1.02 per
share, an increase of 13.3% over the earnings per share for the first half of
1995. Both mergers referred to above were accounted for as
poolings-of-interests, and, accordingly, all financial data has been restated to
include the accounts of Seaboard Savings Bank and Triad Bank for all periods
presented.
15
<PAGE>
Net Interest Income
Net interest income increased $4,000,000, or 4.9%, for the six months
ended June 30, 1996, compared to the first half of 1995. This was the result of
an increase of $393,072,000, or 11.5%, in the level of average earning assets
with a decrease of .20% in the overall tax-equivalent yield, combined with an
increase of $344,823,000, or 12.2%, in the average balance of interest-bearing
liabilities with an increase of .12% in the average rate paid. In May 1995, UCB
purchased twelve branch offices from another North Carolina-based financial
institution, including the purchase of certain loans and the assumption of
applicable deposit liabilities. Two of the branch offices acquired in the
transaction were sold to third-party banks during the fourth quarter of 1995.
These transactions resulted in a net increase of $97,436,000 in average earning
assets and $91,680,000 in average interest-bearing liabilities for the six
months ended June 30, 1996, compared to the first half of 1995.
The net tax-equivalent yield on earning assets decreased to 4.60% on an
annualized basis in the first six months of 1996 from 4.93% in the same period
of 1995. The continued competition for core deposits and changes in the mix of
interest-bearing deposits to a higher percentage of consumer certificates of
deposit and a lower percentage of NOW, savings, and money market deposits have
resulted in the average annualized rate paid on total interest-bearing deposits
increasing by .14% in the first half of 1996 compared to 1995. Reductions in the
prime lending rate and a highly competitive lending market have resulted in the
annualized yield on average earning assets decreasing by .20% in the first half
of 1996 compared to the 1995 measurement period. In addition, an increase in the
percentage of earning assets funded by interest-bearing liabilities from the
prior year and a change in the mix of earning assets both had
16
<PAGE>
adverse effects on the net tax-equivalent yield on earning assets in 1996 as
compared to 1995. The percentage of average earning assets funded by
interest-bearing liabilities increased to 82.73% in the first half of 1996 from
82.15% in the comparable period of 1995 while the percentage of average earning
assets comprised of loans declined to 75.73% for the six months ended June 30,
1996, compared to 77.77% the prior year.
Interest income from loans increased $7,964,000, or 6.4%, over the
first six months of 1995 due to an increase of $227,860,000, or 8.5%, in average
loans outstanding as the annualized tax-equivalent yield on average loans
outstanding declined to 9.16% from 9.37% in 1995. The decrease in the yield on
the loan portfolio for 1996 was primarily the result of a lower prevailing prime
lending rate which averaged 8.29% during the first half of 1996 compared to
8.91% in the first six months of 1995. Approximately 38% of UCB's loans
outstanding at June 30, 1996, 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 half of 1996 increased $6,572,000, or 36.0%, from the first
six months of 1995. This was due to an increase in the annualized tax-equivalent
yield on the aggregate portfolio to 6.14% from 5.89% a year earlier, primarily
due to higher rates earned on U.S. government securities, and an increase in the
aggregate average balance of investment securities and securities available for
sale of $181,290,000, or 27.4%, from the corresponding period of 1995.
Interest income from federal funds sold and other short-term
investments totaled $2,234,000 in the first six months of 1996, a decrease of
$840,000 from the same period of 1995. This was the result of a decrease of
$16,078,000 in the average balances invested and a decline in the average yield
to 5.33% for the first six months of 1996 from 6.17% in 1995.
17
<PAGE>
Interest expense on deposits increased $10,700,000, or 17.6% in the six
months ended June 30, 1996, compared to 1995. The average balance of total
interest-bearing deposits increased $373,361,000, or 13.6%, in the first half of
1996 compared to 1995 (as noted earlier, $91,680,000 of the increase was the net
result of the branch offices purchased during 1995). This was the result of an
increase of $217,520,000, or 18.3%, in the average balances of certificates of
deposit less than $100,000 and an increase of $155,045,000, or 11.6%, in the
average balances of NOW, savings, money market accounts, and other time
deposits. Certificates of deposit of $100,000 or more were relatively unchanged,
increasing $796,000, or .4%, compared to the prior year. Certificates of deposit
less than $100,000 as a percentage of total interest-bearing deposits increased
to 45.0% during the six months ended June 30, 1996, from 43.2% in the first half
of 1995. The change in the mix of deposits coupled with active competition for
deposits combined to increase the average annualized rate paid on total
interest-bearing deposits to 4.59% for the first half of 1996 from 4.45% in the
same period of 1995.
The average annualized interest rate paid on borrowings during the
first six months of 1996 decreased to 4.98% from 5.95% in 1995, principally due
to a decrease in rates paid on Federal Funds purchased and securities sold under
agreement to repurchase. The average balances of borrowed funds decreased by
$28,538,000 in the first half of 1996 from the corresponding period of 1995.
Provision and Reserve for Credit Losses
The provision for credit losses amounted to $4,100,000 for the six
months ended June 30, 1996, compared to $3,481,000 in 1995. Net credit losses
amounted to $2,352,000, or .16% of
18
<PAGE>
average loans outstanding, on an annualized basis, in the first six months of
1996 compared to $1,429,000, or .11% of average loans outstanding, on an
annualized basis, for the comparable period of 1995. The increase in net credit
losses resulted primarily from an increase in losses on consumer loans.
Nonperforming assets (foreclosed assets, nonaccrual loans, and
restructured loans) totaled $11,191,000, or .37% of loans and foreclosed assets,
at June 30, 1996, compared to $11,637,000, or .41% of loans and foreclosed
assets, at December 31, 1995. Loans 90 days or more past due that continue to
accrue interest totaled $9,080,000 at June 30, 1996, compared to $5,554,000 at
December 31, 1995. The majority of the increase in loans 90 days or more past
due related to loans to one borrower which, in management's opinion, are well
secured and are currently in the process of collection.
At June 30, 1996, the recorded investment in loans that are considered
impaired under FAS 114 was $4,079,000, all of which were on a nonaccrual basis.
Included in this amount was $2,242,000 of impaired loans for which $550,000 of
the reserve for credit losses was assigned. The average recorded investment
during the first six months of 1996 in loans classified as impaired at June 30,
1996, was approximately $4,324,000. For the six months ended June 30, 1996, UCB
recognized interest income on these impaired loans of $23,000 using the cash
basis of accounting.
In addition to the nonperforming and problem assets described above,
which included loans considered impaired under FAS 114, UCB had loans to various
borrowers totaling approximately $8,883,000 at June 30, 1996, for which
management has serious concerns regarding the ability of the borrowers to
continue to comply with present loan repayment terms
19
<PAGE>
which could result in some or all of these loans becoming classified as problem
assets. These concerns resulted from various credit considerations, including
the financial position, operating results and cash flow of the borrowers, and
the current estimated fair value of the underlying collateral.
The reserve for credit losses amounted to $45,212,000, or 1.51% of
loans outstanding, at June 30, 1996, compared to $43,464,000, or 1.54% of loans
outstanding, at December 31, 1995. In determining the level of the reserve for
credit losses, management takes into consideration loan volumes and
outstandings, loan loss experience, delinquency trends, risk ratings assigned to
nonconsumer loans, identified problem loans, the present and expected economic
conditions in general, and, in particular, how such conditions relate to UCB. In
management's opinion, UCB's reserve for credit losses was adequate to absorb
losses from the loan portfolio at June 30, 1996; however, adverse changes in the
economic conditions in UCB's market area could lead to a decline in the overall
quality of the loan portfolio and necessitate future additions to the reserve
for credit losses. Also, examiners from bank regulatory agencies periodically
review UCB's loan portfolio and may require the corporation to charge off loans
and/or increase the reserve for credit losses to reflect their assessment of the
collectibility of loans in the portfolio based on information available to them
at the time of their examination.
Noninterest Income and Expense
Total noninterest income increased $2,819,000, or 12.6%, in the first
six months of 1996 over the same period of 1995. Service charges on deposit
accounts increased $900,000, or 7.7%, principally due to increased business
volume and price increases for certain deposit services.
20
<PAGE>
Other service charges, commissions, and fees increased $2,252,000 to $12,429,000
during the first half of 1996 primarily due to increases in trust revenues,
insurance commissions, fees for the use of automated teller machines, fees from
issuance and usage of credit and debit cards, and mortgage banking fees. Trust
revenues increased $260,000, or 9.7%, primarily due to growth in the number of
managed trust accounts as well as increases in pricing on certain trust
services. Commissions from the general insurance agency operations increased
$480,000, or 30.2%, primarily as the result of the merger with 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
$74,000, or 12.3%, due to increased transaction volume. Bankcard merchant
discount and fees increased $360,000, or 30.0%, due to higher volumes of credit
cards issued and merchant transactions processed. The implementation of a
consumer debit card program in November 1995 produced $287,000 in merchant
discounts and $73,000 in fees from cardholders during the first six months of
1996. Mortgage banking fees increased $622,000, or 35.0%, due to an increase in
loan originations. Brokerage and annuity commissions grew $71,000, or 6.6%, from
the prior year due to higher trading volume.
Net gains on sales of mortgage loans into the secondary market amounted
to $342,000 in the six-month period of 1996 compared to $209,000 a year ago.
Included in these amounts were gains recorded as a result of the April 1995
adoption of the provisions of Financial Accounting Standards No. 122 (FAS 122)
totaling $548,000 in 1996 and $79,000 in 1995.
Losses on the sale of securities totaled $134,000 in the six months
ended June 30, 1996, compared to gains of $3,000 in the same period of 1995. The
1996 amount includes $198,000 in losses recorded to dispose of certain
securities obtained in the previously mentioned merger with
21
<PAGE>
Triad Bank. These securities, which consisted of structured notes and other
investments with derivative features, did not comply with UCB's investment
policy and were therefore reclassified from investment securities to available
for sale securities and written down to the then current market value at the
merger date. These securities were actually sold during the second quarter of
1996. Losses on the disposition of fixed assets totaled $446,000 during the
first half of 1996 compared to losses of $81,000 in the similar period of 1995.
The 1996 loss included $568,000 in write-downs on fixed assets rendered obsolete
or redundant as a result of the two mergers completed during the first quarter.
Total noninterest expenses increased $3,992,000, or 5.9%, in the six
months ended June 30, 1996, compared to the same period of 1995. Total personnel
expense increased $3,884,000 in the six-month period of 1996 compared to 1995.
Regular and part-time salaries increased by $1,543,000, or 5.4%, in the first
six months of 1996 due to increases in base compensation and an increase of 32,
or 1.7%, in the average number of full-time equivalent employees. The increase
in the average number of full-time equivalent employees was principally due to
the previously mentioned branch acquisitions and the acquisition of the
Wilmington insurance agency in April 1995. Other compensation expense increased
$1,597,000, or 85.2%, due in large measure to nonrecurring charges totaling
$945,000 incurred in connection with completing the two mergers during the first
quarter of 1996.
Occupancy expense increased $125,000, or 2.5%, during the first six
months of 1996 as compared to 1995. Depreciation expense increased $12,000, or
1.3%, while rental expense increased $74,000, or 4.7%, and repairs and
maintenance expense increased $68,000, or 6.9%.
22
<PAGE>
These cost increases were principally due to the increase in branch locations
and insurance agency offices from the prior year.
Equipment expense decreased $99,000, or 2.8%, for the first half of
1996 as compared to the same period of 1995. Repairs and maintenance expense
increased $53,000, or 4.5%, primarily due to increased costs associated with the
branches acquired during 1995 and the expenses associated with modifications
made to the branches acquired in the 1996 mergers. Depreciation expense declined
$107,000, or 5.9%, primarily due to a merchandising display system utilized in
the branch offices becoming fully depreciated during the second half of 1995 and
the elimination of computer equipment previously utilized by Seaboard Savings
Bank. Equipment rental expense decreased $25,000, or 10.7%, due to the purchase
during 1996 of computer equipment which had previously been leased.
Other operating expenses increased $82,000, or .4%, during the first
six months of 1996 as compared to 1995. The most significant factor affecting
other operating expenses was a reduction in deposit insurance premiums which
decreased $3,315,000, or 94.0%, from the six-month period of 1995. This was due
to a reduction in the assessment rate from $.23 to $.04 effective June 1, 1995,
and a subsequent reduction to virtually zero on nonthrift deposits effective
January 1, 1996. Marketing and business development expenses increased $79,000,
or 3.5%, primarily due to increased advertising related to campaigns designed to
increase installment loan volume and deposit balances. Professional services
expense for the first six months of 1996 increased $427,000, or 25.5%. The
current year's professional services included expenses applicable to UCB's
acquisitions by merger of Seaboard Savings Bank and Triad Bank
23
<PAGE>
totaling $213,000, while the 1995 expenses were reduced by legal fees refunded
in a bankruptcy proceeding involving a former customer.
Outside data processing fees increased $1,118,000, or 45.9%, compared
to 1995 primarily due to increased software amortization expense ($727,000, or
133.2% increase), increased software maintenance costs ($140,000, or 38.8%), and
processing expenses related to the consumer debit card transaction program
referred to previously ($177,000 increase). The increases in software
amortization and software maintenance costs principally relate to the
replacement of mainframe applications software.
The amortization of capitalized mortgage loan servicing rights
increased $162,000, or 54.5%, from the prior year due primarily to the
capitalization of originated servicing rights beginning April 1, 1995, as
previously discussed. Telephone expense increased $406,000, or 29.4%, as a
result of increased use of the automated voice response customer service system
and the introduction in 1995 of a staffed bank-by-phone customer service
department, both of which are accessed by customers utilizing toll-free
telephone numbers. Amortization of deposit base premiums increased to $930,000
from $247,000 in 1995 as the result of the May 1995 branch purchases referred to
previously. Increases in other categories of noninterest expenses were generally
the result of increases in the costs related to purchased services.
Income Tax Provision
The provision for income tax increased $764,000 in the six months ended
June 30, 1996, compared to the corresponding period of 1995. The increase in the
income tax provision was
24
<PAGE>
principally the net result of an increase of $2,208,000 in pre-tax income and an
increase of $203,000 in nondeductible merger related expenses.
The effective income tax rate on income before taxes is lower than the
combined statutory federal and state rates primarily because interest earned on
investments in debt instruments of states, counties, and municipalities is
exempt from federal income tax and may be exempt from state income tax.
Substantially all income earned on securities of the United States government or
its agencies is exempt from state income taxes.
Results of Operations - Three Months Ended June 30, 1996, Compared to 1995
Summary
Net income for the three months ended June 30, 1996, amounted to
$12,627,000, or $.52 per share, compared to $11,211,000, or $.46 per share, for
the second quarter of 1995. The 1996 operating results represent an increase of
$1,416,000, or 12.6%, over the second quarter of 1995 (13.0% 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 and growth in noninterest income, resulting from increases in
fees on deposit accounts and fees and commissions from nondeposit services.
Net Interest Income
Net interest income increased $2,043,000 (4.9%) in the second quarter
of 1996 compared to 1995. This was the net result of an increase of $291,921,000
(8.2%) in the average level of earning assets, a decrease of .24% in the
annualized tax-equivalent yield on earning assets,
25
<PAGE>
combined with an increase of $248,935,000 (8.4%) in the average balance of
interest-bearing liabilities, and a decrease of .12% in the average annualized
rate paid on interest-bearing liabilities. As previously discussed, in May 1995
UCB purchased twelve branch office operations from another North Carolina-based
financial institution. This transaction resulted in a net increase of
$64,073,000 in average earning assets and $54,796,000 in average
interest-bearing liabilities for the second quarter of 1996 compared to the same
period of 1995. The annualized tax-equivalent net interest yield on average
earning assets declined to 4.59% in the second quarter of 1996 from 4.74% in the
same period of 1995 due primarily to the relatively greater decrease in yields
on earning assets as compared to the decrease in rates paid on interest-bearing
liabilities as more fully discussed in the six month discussion of operations.
Provision for Credit Losses
The provision for credit losses increased $698,000 (58.1%) to
$1,900,000 in the second quarter of 1996 compared to 1995. The increase was
principally due to growth in loans outstanding compared to the prior year. Net
credit losses for the three months ended June 30, 1996, were $1,070,000, or .15%
of average loans on an annualized basis, compared to $1,085,000, or .16% of
average loans, on an annualized basis in 1995.
Noninterest Income and Expense
Noninterest income increased $1,644,000 (14.4%) during the second
quarter of 1996 compared to 1995. Service charges on deposit accounts increased
$442,000 (7.4%) over the prior year due to increased business volume and price
increases for certain services. Fees received
26
<PAGE>
on credit cards and discounts from clearing merchant's credit card receipts
increased $262,000, or 41.4%, as the result of higher volumes of credit cards
issued and merchant transactions processed. The new consumer debit card program
discussed previously added $209,000 in merchant discount and cardholder fees.
Discount brokerage fees increased $106,000, or 21.9%, due to an increase in
trading volume. Mortgage banking fees increased $337,000, or 36.3%, due to
increased loan origination activity during the quarter compared to the same
period of 1995. Gains on the origination of mortgage loans for sale in the
secondary market amounted to $125,000 in the second quarter of 1996, compared to
gains of $168,000 realized in the same period of 1995. The gains in 1996 include
$316,000 recorded as a result of the adoption of the provisions of FAS 122
compared to $79,000 in the second quarter of 1995.
Total noninterest expense increased $964,000 (2.8%) during the three
months ended June 30, 1996, compared to 1995. The expense for providing
personalized customer checks decreased $328,000, or 59.5%, from the prior year.
The 1995 expense included the cost of providing checks to the new customers
acquired through the previously referred to branch purchases. Deposit insurance
premiums amounted to $144,000 for the second quarter of 1996 compared to
$1,794,000 in 1995. This decrease of $1,650,000 in the current year cost was the
result of the previously mentioned reductions in the assessment rate adopted by
the FDIC in the second half of 1995. Changes in other categories of expenses
were mainly the result of those factors covered in the six-month discussion.
27
<PAGE>
Financial Condition
The financial condition of the Corporation, with respect to liquidity
and dividends at June 30, 1996, has not changed significantly since December 31,
1995. At June 30, 1996, stockholders' equity amounted to 7.97% of total assets
compared to 8.00% at December 31, 1995. At June 30, 1996, UCB had a ratio of
core capital to weighted risk assets of approximately 11.34% and a ratio of
total capital to weighted risk assets of approximately 12.59%, 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, 1996, of 7.82%.
On an annualized basis, net income as a percentage of average
stockholders' equity amounted to 14.27% for the first half of 1996 compared to
15.06% for the same period of 1995. Cash dividends declared represented 36.32%
of net income in the first half of 1996 compared to 32.02% for the six months
ended June 30, 1995.
At June 30, 1996, UCB owned debt securities that had not been rated by
a rating agency with a book value of $1,127,000. In addition, debt securities
with a book value of $152,000 were owned at June 30, 1996, that had less than
investment grade ratings. Included in the unrated securities were bonds with a
book value of $968,000 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.
28
<PAGE>
Accounting and Regulatory Issues
In March 1995, the FASB issued Financial Accounting Standards No. 121
(FAS 121), "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for those to be disposed of.
This statement requires that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. An impairment loss should be
recognized if the sum of the undiscounted future cash flows is less than the
carrying amount of the asset. Those assets to be disposed of are to be reported
at the lower of the carrying amount or fair value less costs to sell. UCB
adopted FAS 121 on January 1, 1996, with no material effect on the consolidated
financial statements.
In October 1995, the FASB issued Financial Accounting Standards No. 123
(FAS 123), "Accounting for Stock-Based Compensation," which encourages companies
to account for stock compensation awards based on their fair value at the date
the awards are granted. The resulting compensation cost would be shown as an
expense on the income statement. Companies may choose to continue to measure
compensation for stock-based plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25 (APB 25), "Accounting for Stock
Issued to Employees." Entities electing to continue the accounting prescribed in
APB 25 will be required to disclose in the notes to the financial statements
what net income and earnings per share would have been if the fair value based
method of accounting defined in FAS 123 had been applied. UCB adopted FAS 123 on
January 1, 1996, and elected to continue to measure compensation cost using APB
25. UCB will make any appropriate disclosures in the consolidated
29
<PAGE>
financial statements for the year ending December 31, 1996, of net income and
earnings per share as if the fair value-based method of accounting defined in
FAS 123 had been applied. Management has not yet quantified these pro forma
disclosures.
In June 1996, the FASB issued Financial Accounting Standards No. 125 (FAS
125), "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," which establishes accounting standards for
determining when a liability should be considered extinguished through the
transfer of assets to a creditor or setting aside assets dedicated to eventually
settling a liability. The statement provides conditions for determining if a
transferor has surrendered control over transferred financial assets and
requirements for derecognizing a liability when it is extinguished. The
statement also requires the recognition of either a servicing asset or a
servicing liability when an entity undertakes an obligation to service financial
assets. Such servicing assets or liabilities shall be amortized in proportion to
and over the period of the estimated net servicing income or loss, as
appropriate. FAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, to
be only applied on a prospective basis. The application of FAS 125 is not
anticipated to have a material impact on UCB's financial condition or results of
operations.
Various proposals are currently being considered by committees of the
United States Congress concerning a possible merger of the Federal Deposit
Insurance Corporation's Savings Association Insurance Fund (SAIF) with the Bank
Insurance Fund (BIF). One of the principal issues under discussion is the amount
of additional funds needed to recapitalize the SAIF prior to such a merger. Many
of the proposals under consideration contemplate obtaining the additional funds
deemed necessary for the SAIF through a special assessment to be levied on
SAIF-insured
30
<PAGE>
deposits. The proposed merger of SAIF and BIF was not included in the 1996
Federal Budget legislation, and therefore, the timing and ultimate outcome of
any legislation continues to be uncertain. At June 30, 1996, UCB had
approximately $179 million of SAIF insured deposits which may be subject to a
special assessment if a proposal similar to those that have been publicized is
adopted.
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.
31
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) A report on Form 8-K was filed by registrant with the Commission on
April 16, 1996, reporting under Item 5. Other Events that registrant and its
wholly owned subsidiary, United Carolina Bank had on March 29, 1996, consummated
the merger of Triad Bank, headquartered in Greensboro, North Carolina, into
United Carolina Bank.
32
<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 7, 1996 By /s/John F. Watson
---------------------------
Controller
August 7, 1996 By /s/Ronald C. Monger
---------------------------
Executive Vice President &
Chief Financial Officer
33
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 154,372
<INT-BEARING-DEPOSITS> 377
<FED-FUNDS-SOLD> 16,943
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 836,164
<INVESTMENTS-CARRYING> 53,434
<INVESTMENTS-MARKET> 54,483
<LOANS> 2,986,541
<ALLOWANCE> 45,212
<TOTAL-ASSETS> 4,172,360
<DEPOSITS> 3,728,193
<SHORT-TERM> 67,678
<LIABILITIES-OTHER> 41,235
<LONG-TERM> 2,822
<COMMON> 96,869
0
0
<OTHER-SE> 235,563
<TOTAL-LIABILITIES-AND-EQUITY> 4,172,360
<INTEREST-LOAN> 131,627
<INTEREST-INVEST> 24,829
<INTEREST-OTHER> 2,234
<INTEREST-TOTAL> 158,690
<INTEREST-DEPOSIT> 71,426
<INTEREST-EXPENSE> 72,273
<INTEREST-INCOME-NET> 86,417
<LOAN-LOSSES> 4,100
<SECURITIES-GAINS> (134)
<EXPENSE-OTHER> 71,630
<INCOME-PRETAX> 35,905
<INCOME-PRE-EXTRAORDINARY> 35,905
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,180
<EPS-PRIMARY> 0.960
<EPS-DILUTED> 0.960
<YIELD-ACTUAL> 4.600
<LOANS-NON> 4,079
<LOANS-PAST> 9,080
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 13,159
<ALLOWANCE-OPEN> 43,464
<CHARGE-OFFS> 4,209
<RECOVERIES> 1,857
<ALLOWANCE-CLOSE> 45,212
<ALLOWANCE-DOMESTIC> 39,050
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,162
</TABLE>
