UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Exhibit Index Page 31
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 March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from 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 May 10, 1996, there were 24,196,005 outstanding shares of
Registrant's $4.00 par value common capital stock which is the only class of
securities issued by the Registrant.
Page 1 of 53 pages
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Balance Sheets
March 31, December 31,
1995 199
------------ --------------
(In thousands)
Assets:
Cash and due from banks - noninterest-bearing $ 178,313 $ 179,679
Federal funds sold and other short-term
investments 138,609 45,413
Securities available for sale (amortized
costs of $773,062,000 in 1996 and
$764,923,000 in 1995) 773,833 769,956
Investment securities (approximate
market values of $59,025,000 in 1996
and $99,270,000 in 1995) 57,437 97,354
Loans, net of unearned income 2,881,844 2,826,987
Less reserve for credit losses (44,382) (43,464)
----------- -----------
Net loans 2,837,462 2,783,523
----------- -----------
Premises and equipment 57,295 58,002
Other assets 116,578 103,591
----------- -----------
Total assets $ 4,159,527 $ 4,037,518
=========== ===========
Liabilities and stockholders' equity:
Deposits:
Noninterest-bearing demand deposits $ 613,707 $ 578,864
Interest-bearing deposits:
NOW, savings, and money market deposits 1,340,586 1,354,193
Certificates of deposit of
$100,000 or more 230,810 206,235
Other time deposits 1,526,382 1,498,359
-----------
Total deposits 3,711,485 3,637,651
Short-term borrowings 67,632 30,439
Mortgages and other notes payable 2,829 2,975
Other liabilities 50,169 43,305
----------- -----------
Total liabilities 3,832,115 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
24,166,878 shares in 1996 and
24,137,791 shares in 1995 96,667 96,551
Surplus 50,492 50,183
Retained earnings 180,028 173,491
Unrealized gains on securities
available for sale, net of
deferred income taxes 225 2,923
----------- -----------
Total stockholders' equity 327,412 323,148
----------- -----------
Total liabilities and
stockholders' equity $ 4,159,527 $ 4,037,518
=========== ===========
See accompanying Notes to Consolidated Financial Statements
2
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Income
Three Months Ended
March 31,
---------------------------
1996 1995
------------ ------------
(Dollars in thousands
except per share amounts)
Interest income:
Interest on loans $ 65,169 $ 59,704
Interest and dividends on:
Taxable securities 11,227 7,388
Tax-exempt securities 851 1,034
Interest on federal funds sold and
other short-term investments 1,269 574
------------ -----------
Total interest income 78,516 68,700
------------ -----------
Interest expense:
Interest on deposits 35,270 26,884
Interest on short-term borrowings 408 940
Interest on long-term borrowings 44 39
------------ -----------
Total interest expense 35,722 27,863
------------ -----------
Net interest income 42,794 40,837
Provision for credit losses 2,200 2,279
------------ -----------
Net interest income after provision
for credit losses 40,594 38,558
Noninterest income:
Service charges on deposit accounts 6,154 5,696
Trust income 1,594 1,237
Insurance commissions 1,533 1,224
Mortgage banking fees 1,133 848
Brokerage and annuity commissions 566 601
Other service charges, commissions, and fees 1,436 1,087
Gains on mortgages originated for resale 217 41
Gains on trading account securities -- 1
Gains (losses) on dispositions of securities (193) 3
Gains (losses) on dispositions of
fixed assets (539) 9
Other operating income 266 245
------------ -----------
Total noninterest income 12,167 10,992
------------ -----------
Noninterest expenses:
Personnel expense 21,751 19,340
Occupancy expense 2,536 2,424
Equipment expense 1,805 1,785
Other operating expenses 10,113 9,628
------------ -----------
Total noninterest expenses 36,205 33,177
------------ -----------
Income before income taxes 16,556 16,373
Income tax provision 6,003 5,848
------------ -----------
Net income $ 10,553 $ 10,525
============ ===========
Per share data:
Net income $ .44 $ .44
============ ===========
Cash dividends declared $ .18 $ .147
============ ===========
Book value at end of period $ 13.55 $ 12.20
============ ===========
Average number of shares outstanding 24,140,761 24,038,698
============ ===========
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three Months Ended March 31, 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,
as previously reported 22,153,110 $ 88,612 $ 42,441 $ 167,826 $ 2,898 $ 301,777
Merger with of Seaboard Savings
Bank and Triad Bank 1,984,681 7,939 7,742 5,665 25 21,371
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 1996,
as restated 24,137,791 96,551 50,183 173,491 2,923 323,148
Net income -- -- -- 10,553 -- 10,553
Cash dividends declared,
$.18 per share -- -- -- (4,063) -- (4,063)
Issuance of common stock
by pooled institution prior
to merger 29,949 120 327 45 -- 492
Retirement of common stock (862) (4) (18) 2 -- (20)
Unrealized losses on securities
available for sale, net of
applicable deferred income
taxes -- -- -- -- (2,698) (2,698)
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 24,166,878 $ 96,667 $ 50,492 $ 180,028 $ 225 $ 327,412
=========== =========== =========== =========== =========== ===========
Balance, January 1, 1995,
as previously reported 22,050,099 $ 88,200 $ 42,505 $ 138,077 $ (5,293) $ 263,489
Merger with Seaboard Savings
Bank and Triad Bank 1,967,626 7,871 7,629 3,876 (267) 19,109
----------- ----------- ----------- ----------- ----------- -----------
Balance, January 1, 1995,
as restated 24,017,725 96,071 50,134 141,953 (5,560) 282,598
Net income -- -- -- 10,525 -- 10,525
Cash dividends declared:
$.147 per share -- -- -- (3,238) -- (3,238)
By pooled institution prior
to merger -- -- -- (31) -- (31)
Issuance of common stock:
Under stock option plan 24,855 99 102 (32) -- 169
By pooled institution prior
to merger 1,818 7 8 8 -- 23
Unrealized gains on securities
available for sale, net of
applicable deferred income
taxes -- -- -- -- 3,385 3,385
----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 1995 24,044,398 $ 96,177 $ 50,244 $ 149,185 $ (2,175) $ 293,431
=========== =========== =========== =========== =========== ===========
</TABLE>
See acompanying Notes to Consolidated Financial Statements
4
<PAGE>
United Carolina Bancshares Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
(In thousands)
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 10,553 $ 10,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization,
net of accretion 2,476 2,146
Provision for credit losses 2,200 2,279
Net increase in loans originated for resale (1,842) (6,988)
Provision for deferred taxes and
increase in taxes payable 5,059 5,773
Increase in accrued interest receivable 343 418
Increase in prepaid expenses (1,728) (732)
Decrease in other accounts receivable 3,256 2,459
Increase (decrease) in accrued
interest payable (371) 421
Increase (decrease) in accrued expenses 1,451 (1,218)
Increase (decrease) in deferred loan
fees, net of deferred costs (189) 222
Other, net 838 116
--------- ---------
Total adjustments 11,493 4,896
--------- ---------
Net cash provided by operating
activities 22,046 15,421
--------- ---------
Cash flows from investing activities:
Proceeds from maturities and issuer calls
of securities available for sale 236,585 54,049
Proceeds from maturities and issuer calls
of investment securities 3,523 7,444
Proceeds from sales of investment securities -- 3,810
Purchases of securities available for sale (208,487) (45,974)
Purchases of investment securities -- (1,009)
Net increase in loans outstanding (54,717) (81,580)
Purchases of premises and equipment (1,377) (1,476)
Proceeds from sales of premises and equipment 100 259
Purchases of mortgage loan servicing rights (624) (319)
Sales of foreclosed assets 189 1,354
Other, net (12,697) 1,730
--------- ---------
Net cash used by investing activities (37,505) (61,712)
--------- ---------
Cash flows from financing activities:
Net increase in deposit accounts 73,833 82,191
Net increase in federal funds
purchased 3,375 2,385
Net increase (decrease) in securities
sold under agreement to repurchase 33,104 (28,190)
Net increase (decrease) in other
short-term borrowings 714 (368)
Repayments of mortgages and other
notes payable (146) (17)
Issuance of common stock, net 472 192
Dividends paid (4,063) (3,269)
--------- ---------
Net cash provided by financing
activities 107,289 52,924
--------- ---------
Net increase in cash and cash equivalents 91,830 6,633
Cash and cash equivalents at beginning of period 225,092 244,660
--------- ---------
Cash and cash equivalents at end of period $ 316,922 $ 251,293
========= =========
Statement Continued on Next Page
5
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 36,093 $ 28,284
======== ========
Income taxes $ 944 $ 90
======== ========
Significant noncash transactions:
Loans transferred to real estate acquired
in settlement of debt $ 602 $ 1,237
======== ========
Loans originated to facilitate the sale
of foreclosed assets $ 45 $ 251
======== ========
Unrealized gains (losses) on securities
available for sale $ (4,256) $ 7,185
======== ========
Investment securities transferred
to available for sale portfolio
in connection with business combination $ 36,646 $ --
======== ========
Available for sale securities transferred
to investment portfolio in connection
with business combination $ 240 $ --
======== ========
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 March 31, 1996, and December 31,
1995, and operating results of United Carolina Bancshares Corporation and its
subsidiaries for the three-month periods ended March 31, 1996 and 1995. All
adjustments made to the unaudited financial statements were of a normal
recurring nature. The results of operations for the first three months of 1996
are not necessarily indicative of the results of operations for the entire year.
As discussed in Note 13, during the three months ended March 31, 1996, the
corporation consummated mergers with Triad Bank and Seaboard Savings Bank, both
of which were accounted for as poolings-of-interests. Accordingly, the
accompanying 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>
March 31, 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 $667,036 $ 3,244 $ 1,686 $ 668,594
Obligations of United States government
agencies and corporations (1) 59,185 19 99 59,105
Mortgage-backed securities (2) 32,966 60 770 32,256
Obligations of states and political subdivisions 1,100 3 -- 1103
Federal Home Loan Bank stock 12,200 -- -- 12,200
Other securities 575 -- -- 575
-------- ---------- ---------- -----------
Total securities available for sale $773,062 $ 3,326 $ 2,555 $ 773,833
======== ========== ========== ===========
Investment securities:
Obligations of states and political subdivisions $ 57,437 $ 1,643 $ 55 59,025
-------- ---------- ---------- -----------
Total investment securities $ 57,437 $ 1,643 $ 55 $ 59,025
======== ========== ========== ===========
<FN>
(1) At March 31, 1996, UCB owned securities issued by United States
government agencies with an amortized cost of $7,646,000 and a market value
of $7,667,000 that were considered structured notes and therefore met the
regulatory definition of high-risk securities.
(2) At March 31, 1996, UCB owned collateralized mortgage obligations issued
by the Federal Home Loan Mortgage Corporation (FHLMC) which had an
amortized cost of $11,749,000 and a market value of $11,534,000; and
collateralized mortgage obligations issued by the Federal National Mortgage
Association (FNMA) which had an amortized cost of $13,767,000 and a market
value of $13,366,000. In addition, UCB owned mortgage-backed pass-through
securities guaranteed by the Government National Mortgage Association
(GNMA) which had an amortized cost of $1,145,000 and a market value of
$1,165,000; mortgage-backed pass-through securities guaranteed by FNMA with
an amortized cost of $2,326,000 and a market value of $2,275,000; and
mortgage-backed pass-through securities guaranteed by FHLMC with an
amortized cost of $3,595,000 and a market value of $3,511,000. 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 $384,000 and a market value of $405,000.
</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
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
(In thousands)
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:
March 31, December 31,
1996 1995
----------- ------------
(In thousands)
Loans secured by real estate:
Construction and land acquisition and
development $ 231,187 $ 226,326
Secured by nonfarm, nonresidential properties 623,054 620,367
Secured by farmland 93,686 90,658
Secured by multifamily residences 71,936 65,097
----------- -----------
Total loans secured by real estate, excluding
loans secured by 1-4 family residences 1,019,863 1,002,448
----------- -----------
Revolving credit secured by 1-4 family
residences 142,452 140,032
Other loans secured by 1-4 family residences 625,036 613,846
----------- -----------
Total loans secured by 1-4 family residences 767,488 753,878
----------- -----------
Total loans secured by real estate 1,787,351 1,756,326
Commercial, financial, and agricultural loans,
excluding loans secured by real estate 311,992 296,778
Loans to individuals for household, family, and
other personal expenditures, excluding loans
secured by real estate 691,882 691,193
All other loans 91,247 83,507
----------- -----------
Total loans 2,882,472 2,827,804
Unearned income (628) (817)
----------- -----------
Loans, net of unearned income $ 2,881,844 $ 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:
March 31, December 31,
1996 1995
--------- ------------
(In thousands)
Foreclosed assets $ 5,500 $ 5,234
Nonaccrual loans 6,800 6,403
--------- ------------
Total nonperforming assets 12,300 11,637
Loans 90 days or more past due,
excluding nonaccrual loans 6,884 5,554
--------- ------------
Total problem assets $ 19,184 $ 17,191
========= ============
Note 5.
Reserve for Credit Losses:
The following table sets forth the analysis of the consolidated reserve
for credit losses:
Three Months Ended
March 31,
---------------------
1996 1995
--------- ---------
(In thousands)
Balance, beginning of period $ 43,464 $ 41,341
Provision for credit losses 2,200 2,279
Recovery of losses previously charged off 788 963
Losses charged to reserve (2,070) (1,307)
-------- --------
Balance, end of period $ 44,382 $ 43,276
======== ========
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>
March 31, 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 $ 20,195 $ 44,040 $ 3,397 $ -- $ 16,820 $ 10,936 $ 2,683 $ --
Maximum amount outstanding
at any month-end during
the period 20,315 44,040 3,894 -- 22,610 28,216 4,250 25,000
Average balance outstanding
during the period 20,524 9,354 2,812 -- 17,227 11,636 3,098 13,412
Average interest rate paid
during the period 5.22% 4.81% 4.41% -- % 5.79% 5.25% 5.62% 6.48%
Average interest rate payable
at end of period 5.44% 4.92% 5.10% -- % 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 $105,000 at March 31, 1996, and $121,000 at
December 31, 1995. The mortgages bear interest at annual rates ranging from
8.75% to 10% and are collateralized by premises with book values of
approximately $468,000 at March 31, 1996, and $470,000 at December 31, 1995. The
mortgages are payable primarily in monthly installments totaling approximately
$3,000, including interest.
Other notes payable totaled $125,000 at December 31, 1995, and consisted
of an unsecured note payable which 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 $2,724,000 at March 31, 1996, and
$2,729,000 at December 31, 1995. The advances are collateralized by a blanket
lien on qualifying loans secured by first mortgages on 1-4 family residences and
bear interest at rates ranging from 3.50% to 8.30%, 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:
Three Months Ended
March 31,
------------------
1996 1995
------- -------
(In thousands)
Other operating expenses:
Data processing fees and software expense $ 1,472 $ 1,159
Marketing and business development 1,140 1,077
Postage and delivery 1,038 953
Professional services 1,013 768
Printing, stationery, and supplies 926 782
Telephone expense 888 664
Travel expense 451 427
Insurance and taxes, other than taxes on income 385 397
Noncredit losses 231 228
Amortization of goodwill and other intangible assets 639 233
Amortization of capitalized mortgage servicing rights 218 137
Donations 105 76
FDIC deposit insurance premiums 67 1,732
Other expenses 1,540 995
------- -------
Total other operating expenses $10,113 $ 9,628
======= =======
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 acquisition, the acquired branches
had $26.8 million in loans and $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 for the
assumed deposit base of the branches retained.
Effective January 25, 1996, UCB consummated a merger with Seaboard Savings
Bank, Inc., 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)
The consolidated statement of income for the three months ended March 31,
1996, includes $3,969,000 of total income, $2,345,000 of net interest income,
and $1,748,000 of net losses related to the operations of the two pooled
financial institutions prior to their respective merger dates. The following
presents on a pro forma basis the contributions of Seaboard Savings Bank and
Triad Bank to the restated results of UCB for the three months ended March 31,
1995, as previously reported.
UCB as Seaboard
Previously Savings Triad UCB as
Reported Bank Bank Restated
---------- -------- ----- --------
Three Months Ended March 31, 1995:
Total income 74,916 1,006 3,770 79,692
Net interest income 38,213 389 2,235 40,837
Net income 10,120 96 309 10,525
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 44,290 shares of common stock for the
net business assets of Tomlinson Insurors, Inc. 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 - Three Months Ended March 31, 1996, Compared to 1995
Summary
Net income totaled $10,553,000, or $.44 per share, for the three months
ended March 31, 1996. For the comparable quarter of 1995, net income amounted to
$10,525,000, or $.44 per share. All per share data has been restated to reflect
the 3-for-2 stock split effected in the form of a stock dividend declared
January 17, 1996.
The 1996 results included the effect of nonrecurring charges and
expenses totaling $1,554,000, net of applicable income tax benefits, incurred in
connection with the completion of the mergers with Seaboard Savings Bank and
Triad Bank during the quarter. Excluding the effects of the items related to the
mergers, on a pro forma basis, earnings for the first quarter of 1996 amounted
to $12,107,000, or $.50 per share. Both the mergers 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.
Net Interest Income
Net interest income increased $1,957,000, or 4.8%, for the three months
ended March 31, 1996, compared to the first quarter of 1995. This was the result
of an increase of $495,863,000, or 15.1%, in the level of average earning assets
with a decrease of .16% in the overall tax-equivalent yield, combined with an
increase of $442,194,000, or 16.5%, in the average balance of interest-bearing
liabilities with an increase of .38% in the average rate paid. In May 1995, UCB
purchased twelve branch offices from another financial institution, including
the
15
<PAGE>
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 $131,215,000 in average earning assets and $129,007,000 in
average interest-bearing liabilities for the three months ended March 31, 1996,
compared to the first quarter of 1995.
The net tax-equivalent yield on earning assets decreased to 4.62% in
the first quarter of 1996 from 5.13% 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 rate paid on interest-bearing deposits increasing by .42% in the first
three months of 1996 compared to 1995 while the yield on average earning assets
decreased by .16% in the same measurement period. In addition, an increase in
the percentage of average earning assets funded by interest-bearing liabilities
from the prior year and a change in the mix of average earning assets both had
adverse effects on the net tax-equivalent yield on earning assets in 1996 as
compared to 1995. The percentage of average earning assets funded by
interest-bearing liabilities increased to 82.75% in the first quarter of 1996
from 81.78% in the comparable period of 1995 while the percentage of average
earning assets comprised of loans declined to 75.61% for the three months ended
March 31, 1996, compared to 79.63% the prior year.
Interest income from loans increased $5,465,000, or 9.2%, over the
first three months of 1995 due to an increase of $243,009,000, or 9.3%, in
average loans outstanding as the tax-equivalent yield on average loans
outstanding declined to 9.20% from 9.29% in 1995. The decrease in the yield on
the loan portfolio for 1996 was primarily the result of a lower prevailing
16
<PAGE>
prime
lending rate which averaged 8.34% during the first quarter of 1996 compared to
8.83% in the first three months of 1995. Approximately 40% of UCB's loans
outstanding at March 31, 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 three months of 1996 increased $3,656,000, or 43.4%, from the
first three months of 1995. This was due to an increase in the tax-equivalent
yield on the aggregate portfolio to 6.09% from 5.79% 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 $198,215,000, or 31.5%, from the corresponding period of 1995.
Interest income from federal funds sold and other short-term
investments totaled $1,269,000 in the first quarter of 1996, an increase of
$695,000 over the same period of 1995. This was the result of an increase of
$54,639,000 in the average balances invested as the average yield declined to
5.48% for the first three months of 1996 from 6.04% in 1995.
Interest expense on deposits increased $8,386,000, or 31.2% in the
three months ended March 31, 1996, compared to 1995. The average balance of
total interest-bearing deposits increased $474,951,000, or 18.2%, in the first
quarter of 1996 compared to 1995 (as noted earlier, $129,007,000 of the increase
was the result of the branch offices purchased during 1995). This was the result
of an increase of $302,241,000, or 28.2%, in the average balances of
certificates of deposit less than $100,000 and an increase of $172,595,000, or
13.1%, 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 $115,000, or .1%, compared to the prior year. Certificates
of deposit less than $100,000 as a percentage of total
17
<PAGE>
interest-bearing deposits
increased to 44.5% during the first quarter of 1996 from 41.0% in the first
three months of 1995. The change in the mix of deposits coupled with active
competition for deposits combined to increase the average rate paid on average
interest-bearing deposits to 4.59% for the first quarter of 1996 from 4.17% in
the same period of 1995.
The average interest rate paid on short- and long-term borrowings
during the first three months of 1996 decreased to 5.11% from 5.81% in 1995,
principally due to a decrease in rates on Federal Funds purchased and securities
sold under agreement to repurchase. The average balances of borrowed funds
decreased by $32,756,000 in the first quarter of 1996 from the corresponding
period of 1995.
Provision and Reserve for Credit Losses
The provision for credit losses amounted to $2,200,000 for the three
months ended March 31, 1996, compared to $2,279,000 in 1995. Net credit losses
amounted to $1,279,000, or .18% of average loans outstanding, on an annualized
basis, during the first three months of 1996 compared to $344,000, or .05% 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 $12,300,000, or .43% of loans and foreclosed assets,
at March 31, 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 $6,884,000 at March 31, 1996, compared to $5,554,000 at
December 31, 1995.
18
<PAGE>
At March 31, 1996, the recorded investment in loans that are considered
impaired under FAS 114 was $6,294,000, all of which were on a nonaccrual basis.
Included in this amount was $1,474,000 of impaired loans for which $350,000 of
the reserve for credit losses was assigned. The average recorded investment
during the first three months of 1996 in loans classified as impaired at March
31, 1996, was approximately $6,983,000. For the three months ended March 31,
1996, UCB recognized interest income on these impaired loans of $8,000 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 $9,876,000 at March 31, 1996, for which
management has serious concerns regarding the ability of the borrowers to
continue to comply with present loan repayment terms which could result in some
or all of these loans becoming classified as problem assets. These concerns
resulted from various credit considerations, including the financial position,
operating results and cash flow of the borrowers, and the current estimated fair
value of the underlying collateral.
The reserve for credit losses amounted to $44,382,000, or 1.54% of
loans outstanding, at March 31, 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
19
<PAGE>
loan portfolio at March 31, 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 $1,175,000, or 10.7%, in the first
three months of 1996 over the same period of 1995. Service charges on deposit
accounts increased $458,000, or 8.0%, principally due to increased business
volume and price increases for certain services. Other service charges,
commissions, and fees increased $1,265,000 to $6,262,000 during the first
quarter of 1996 primarily due to increases in trust revenues, insurance
commissions, fees for the use of automated teller machines, and mortgage banking
fees. Trust revenues increased $357,000, or 28.9%, 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 $384,000, or 49.0%, 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 $54,000, or 19.2%, due to increased transaction volume.
The implementation of a consumer debit card program in November 1995 produced
$128,000 in merchant fee income during the first quarter of 1996. Mortgage
banking fees increased $285,000, or 33.6%, due to an increase in loan
originations.
20
<PAGE>
These increases in fees were partially offset by decreases in
brokerage and annuity commissions which declined $35,000, or 5.8%, due to lower
trading volume.
Gains on sales of mortgage loans into the secondary market amounted to
$217,000 in the three-month period of 1996 compared to gains of $41,000 a year
ago. The gains in 1996 include $232,000 recorded pursuant to the April 1995
adoption of the provisions of Financial Accounting Standards No. 122 (FAS 122).
Losses on the sale of investment securities totaled $193,000 in the
three months ended March 31, 1996, compared to gains of $3,000 in the same
period of 1995. The 1996 amount includes $257,000 in losses recorded to
write-down the value of certain securities obtained in the previously mentioned
merger with Triad Bank to their current estimated realizable value of
$10,676,000. 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 at the merger date from investment
securities to available for sale securities. They were then disposed of during
the second quarter of 1996. Losses on the disposition of fixed assets totaled
$539,000 during the first quarter of 1996 compared to gains of $9,000 in the
similar period of 1995. The 1996 loss included $568,000 in write-downs on fixed
assets related to the mergers completed during the first quarter.
Total noninterest expenses increased $3,028,000, or 9.1%, in the three
months ended March 31, 1996, compared to the same period of 1995. Total
personnel expense increased $2,411,000 in the three-month period of 1996
compared to 1995. Regular and part-time salaries increased by $676,000, or 4.8%,
in the first three months of 1996 due to increases in base compensation and an
increase of 76, or 4.2%, in the average number of full-time equivalent
21
<PAGE>
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 $1,348,000, or 142.0%, primarily due to nonrecurring merger
charges totaling $945,000.
Occupancy expense increased $112,000, or 4.6%, during the first three
months of 1996 as compared to 1995. Depreciation expense increased $12,000, or
2.5%, while rental expense increased $102,000, or 13.2%, due to the increase in
branch locations and insurance agency offices from the prior year.
Equipment expense increased $20,000, or 1.1%, for the first quarter of
1996 as compared to the same period of 1995. Repairs and maintenance expense
increased $59,000, or 9.4% and purchases of noncapitalized furniture and
equipment increased $18,000, or 28.2%, 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.
Other operating expenses increased $485,000, or 5.0%, during the first
three months of 1996 as compared to 1995. The most significant factor affecting
other operating expenses was a reduction in deposit insurance premiums which
decreased $1,665,000, or 96.1%, from the three-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
$63,000, or 5.8%, primarily due to increased advertising related to campaigns
designed to increase installment loan volume and deposit balances. Professional
services expense for the first quarter of 1996 increased $246,000, or 32.0%. The
current year's professional services included expenses applicable to
22
<PAGE>
UCB's
acquisitions by merger of Seaboard and Triad totaling $146,000, while the 1995
expenses were reduced by legal fees refunded in a bankruptcy proceeding
involving a current customer.
Outside data processing fees increased $313,000, or 27.0%, compared to
1995 primarily due to increased software amortization expense ($62,000, or 22.2%
increase) and increased software maintenance costs ($123,000, or 71.0 %), and
expenses for the consumer debit card transaction program previously mentioned
($73,000 increase). The increases in software amortization and software
maintenance costs reflect the purchase of computer software related to the
automation of certain labor-intensive tasks and the replacement of existing
applications software.
The amortization of capitalized mortgage loan servicing rights
increased $80,000, or 59.1%, from the prior year due to the capitalization of
originated servicing rights beginning April 1, 1995, as previously discussed.
Telephone expense increased $224,000, or 33.7%, as a result of increased use of
an automated response telephone system and the introduction in 1995 of a staffed
bank-by-phone customer service department, both of which are accessible by
toll-free numbers. Amortization of deposit base premiums increased $440,000 from
$24,000 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 $155,000 in the three months
ended March 31, 1996, compared to the corresponding period of 1995. The increase
in the income tax provision
23
<PAGE>
was principally the net result of an increase of
$183,000 in pre-tax income and an increase of $157,000 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.
Financial Condition
The financial condition of the Corporation, with respect to liquidity
and dividends at March 31, 1996, has not changed significantly since December
31, 1995. At March 31, 1996, stockholders' equity amounted to 7.87% of total
assets compared to 8.00% at December 31, 1995. At March 31, 1996, UCB had a
ratio of core capital to weighted risk assets of approximately 11.28% and a
ratio of total capital to weighted risk assets of approximately 12.53%, 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 March 31, 1996, of 7.79%.
On an annualized basis, net income as a percentage of average
stockholders' equity amounted to 13.04% for the first three months of 1996
compared to 14.91% for the same period of 1995. Cash dividends declared
represented 38.50% of net income in the first quarter of 1996 compared to 31.05%
for the three months ended March 31, 1995.
At March 31, 1996, UCB owned securities which met the regulatory
definition of structured notes which were acquired in the mergers completed
during the quarter. These
24
<PAGE>
securities were written down to their market value of
$7,646,000, and as previously mentioned, were disposed of subsequent to the end
of the first quarter.
At March 31, 1996, UCB owned debt securities that had not been rated by
a rating agency with a book value of $1,752,000. In addition, debt securities
with a book value of $166,000 were owned at March 31, 1996, that had less than
investment grade ratings. Included in the unrated securities were bonds with a
book value of $1,170,000 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
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.
25
<PAGE>
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 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.
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 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
26
<PAGE>
uncertain. At March 31, 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.
27
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of Registrant was held April 17,
1996.
(c) The following matters were submitted to a vote of the Registrant's
shareholders at the Annual Meeting:
(1) Election of thirteen (13) directors (constituting the entire
Board of Directors) for the ensuing year 1996-1997.
The number of share votes cast "For" and "Withheld" with respect
to the election of each director nominee was as follows:
For Withheld
---------- --------
J. W. Adams 16,904,589 77,325
John V. Andrews 16,903,907 78,007
Russell M. Carter 16,901,403 80,511
W. E. Carter 16,904,846 77,068
Alfred E. Cleveland 16,906,293 75,621
James L. Cresimore 16,850,425 131,489
Thomas P. Dillon 16,898,036 83,878
C. Frank Griffin 16,903,308 78,606
James C. High 16,900,173 81,742
E. Rhone Sasser 16,876,807 105,107
Jack E. Shaw 16,905,329 76,585
Harold B. Wells 16,904,990 76,924
Charles M. Winston 16,905,640 76,274
(2) Approval of the Registrant's 1995 Stock Option and Incentive
Award Plan under which stock options, stock appreciation rights,
stock awards and/or performance units may be made from time to time
to selected key employees of Registrant and its subsidiaries
as approved by the Personnel Committee of the Board of Directors as
Plan Administrator.
For Against Abstain
---------- --------- --------
15,602,581 1,070,860 344,832
28
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibit is furnished as a part of this report as
required by Item 601 of Regulation S-K: Exhibit Number (10) (g):
Registrant's 1995 Stock Option and Incentive Award Plan, dated July 21,
1995, as approved by Registrant's shareholders at its Annual Meeting on
April 17, 1996.
(b) The following report on Form 8-K was filed by Registrant with
the Commission during the first quarter of 1996: Report on Form 8-K
(Item 5. Other Events), dated February 9, 1996, for event occurring
on January 25, 1996, relating to the consummation of Registrant's
acquisition by merger of Seaboard Savings Bank, Inc. SSB.
29
<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
May 13, 1996 By /s/ John F. Watson
--------------------------
Controller
May 13, 1996 By /s/ Ronald C. Monger
--------------------------
Executive Vice President &
Chief Financial Officer
30
<PAGE>
EXHIBIT INDEX
Exhibit Number
per Item 601 of
Regulation S-K Description of Exhibit Sequential Page Number
- ---------------- ---------------------- ----------------------
(10)(g) UCB's 1995 Stock Option Pages 32-52
and Incentive Award Plan
(27) Financial Data Schedule Page 53
31
<PAGE>
Exhibit (10)(g)
UNITED CAROLINA BANCSHARES CORPORATION
STOCK OPTION AND INCENTIVE
AWARD PLAN
July 21, 1995
32
<PAGE>
UNITED CAROLINA BANCSHARES CORPORATION
STOCK OPTION AND INCENTIVE AWARD PLAN
TABLE OF CONTENTS
ARTICLE 1. Establishment, Purpose, and Duration 1
1.1 Establishment of the Plan 1
1.2 Purposes of the Plan 1
1.3 Duration of the Plan 1
ARTICLE 2. Definitions 1
ARTICLE 3. Administration 4
3.1 The Committee 4
3.2 Authority of the Committee 5
3.3 Committee Decisions Binding 5
ARTICLE 4. Shares Subject to the Plan 5
4.1 Number of Shares 5
4.2 Lapsed Grants or Awards 5
4.3 Adjustments in Number of Plan Shares 5
ARTICLE 5. Eligibility and Participation 6
ARTICLE 6. Stock Options 6
6.1 Grant of Options 6
6.2 Option Agreement 7
6.3 Option Price 7
6.4 Duration of Options 7
6.5 Exercise of Options 7
6.6 Payment 7
6.7 Termination of Employment Due to Death, Disability
or Retirement 7
6.8 Termination of Employment for Other Reasons 8
6.9 Nontransferability of Options 8
ARTICLE 7. Stock Appreciation Rights9
7.1 Grant of SAR 9
7.2 Award Agreement 9
7.3 Exercise of SARs 9
ARTICLE 8. Stock Awards - Restricted and Unrestricted 10
8.1 Award 10
8.2 Restricted Period; Lapse of Restrictions 10
8.3 Rights of Restricted Stock Holder; Limitations Thereon 11
8.4 Delivery of Unrestricted Share 11
8.5 Nonassignability of Restricted Stock 12
33
<PAGE>
ARTICLE 9. Performance Shares 12
9.1 Grant of Performance Shares 12
9.2 Value of Performance Shares 12
9.3 Earning of Performance Shares 12
9.4 Form and Timing of Payment of Performance Shares 13
9.5 Termination of Employment Due to Death, Disability
or Retirement or by the Company Without Cause 13
9.6 Termination of Employment for Other Reasons 13
9.7 Nontransferability 13
ARTICLE 10. Beneficiary Designation 13
ARTICLE 11. Deferrals 14
ARTICLE 12. Rights of Participants 14
12.1 Employment 14
12.2 Participation 14
ARTICLE 13. Change in Control 14
13.1 Occurrence 14
13.2 Definition 15
13.3 Pooling of Interests Accounting 16
ARTICLE 14. Amendment, Modification and Termination 16
14.1 Amendment, Modification and Termination 16
14.2 Grants or Awards Previously Granted 16
14.3 Compliance With Code Section 162(m) 16
ARTICLE 15. Withholding 17
15.1 Tax Withholding17
15.2 Share Withholding 17
ARTICLE 16. Successors 17
ARTICLE 17. Legal Construction 17
17.1 Gender and Number 17
17.2 Severability 17
17.3 Requirements of Law 17
17.4 Regulatory Approvals and Listing 17
17.5 Securities Law Compliance 18
17.6 Governing Law 18
17.7 Disputes and Expenses 18
34
<PAGE>
UNITED CAROLINA BANCSHARES CORPORATION
Stock Option and Incentive Award Plan
ARTICLE 1. Establishment, Purpose, and Duration
1.1 Establishment of the Plan. United Carolina Bancshares Corporation,
a North Carolina corporation (hereinafter referred to as the "Company"), hereby
establishes a stock option and incentive award plan known as the "United
Carolina Bancshares Corporation Stock Option and Incentive Award Plan" (the
"Plan"), as set forth in this document. The Plan permits the grant of
Non-qualified Stock Options and Incentive Stock Options, and the award of Stock
Appreciation Rights, Stock Awards (restricted or unrestricted), and Performance
Shares.
Subject to the approval of the Plan by the Company's stockholders, the
Plan shall become effective on July 21, 1995, (the "Effective Date") and shall
remain in effect as provided in Section 1.3. Any Award or Grant made under this
Plan prior to stockholder approval of the Plan shall be void unless the Plan is
approved by shareholders at the next meeting of shareholders of the Company.
1.2 Purposes of the Plan. The purposes of the Plan are to promote
greater stock ownership in the Company by those employees who are principally
responsible for its future growth and continued success; to more closely link
the personal interests of Participants to those of the Company's stockholders;
and to provide flexibility to the Company in its ability to motivate, attract
and retain the services of Participants upon whose judgment, initiative and
special effort the continued success of the Company depends.
1.3 Duration of the Plan. The Plan shall commence on the Effective
Date, and shall remain in effect, subject to the right of the Board of Directors
to amend or terminate the Plan at any time pursuant to Article 14, until the day
prior to the tenth (10th) anniversary of the Effective Date.
ARTICLE 2. Definitions
Whenever used in the Plan the following terms shall have the meanings
set forth below and, when the meaning is intended, the initial letter of the
word is capitalized:
(a) "Award" means, individually or collectively, any award under this
Plan of Stock Appreciation Rights, Stock Awards, or Performance Shares.
(b) "Award Agreement" or "Option Agreement" means an agreement entered
into by each Participant and the Company, setting forth, as applicable,
the terms and provisions applicable to Grants or Awards made to
Participants under this Plan.
(c) "Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
35
<PAGE>
(d) "Board" or "Board of Directors" means the Board of Directors of the
Company.
(e) "Cause" means: (i) with respect to the Company or any Subsidiary
which employs the Participant or for which the Participant primarily
performs services, the commission by the Participant of an act of
fraud, embezzlement, theft or proven dishonesty, or any other illegal
act or practice (whether or not resulting in criminal prosecution or
conviction), or any act or practice which the Committee shall, in good
faith, deem to have resulted in the Participant's becoming unbondable
under the Company's or the Subsidiary's fidelity bond; (ii) the willful
engaging by the Participant in misconduct which is deemed by the
Committee, in good faith, to be materially injurious to the Company or
any Subsidiary, monetarily or otherwise; or (iii) the willful and
continued failure or habitual neglect by the Participant to perform his
duties with the Company or the Subsidiary substantially in accordance
with the operating and personnel policies and procedures of the Company
or the Subsidiary generally applicable to all their employees. For
purposes of this Plan, no act or failure to act by the Participant
shall be deemed to be "willful" unless done or omitted to be done by
the Participant not in good faith and without reasonable belief that
the Participant's action or omission was in the best interest of the
Company and/or the Subsidiary. Notwithstanding the foregoing, if the
Participant has entered into an employment agreement that is binding as
of the date of employment termination, and if such employment agreement
defines "Cause," then the definition of "Cause" in such agreement shall
apply to the Participant in this Plan. "Cause" under either (i), (ii)
or (iii) shall be determined by the Committee.
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the committee appointed by the Board to
administer the Plan with respect to Grants or Awards, as specified in
Article 3.
(h) "Company" means United Carolina Bancshares Corporation, a North
Carolina corporation, or any successor thereto, as provided in Article
16.
(i) "Director" means any individual who is a member of the Board of
Directors of the Company.
(j) "Disability" shall have the meaning ascribed to such term in the
Company's long-term disability plan covering the Participant, or in the
absence of such plan, a meaning consistent with Section 22(e) (3) of
the Code.
(k) "Employee" means any full-time, salaried employee of the Company,
or of any of the Company's Subsidiaries. Directors who are not
otherwise employed by the Company or the Company's Subsidiaries shall
not be considered Employees eligible to receive Awards or Grants under
this Plan.
(l) "Effective Date" shall have the meaning ascribed to such term in
Section 1.1.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
(n) "Fair Market Value" shall be determined as follows:
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(i) If, on the relevant date, the Shares are traded on a
national or regional securities exchange or on The NASDAQ National
Market System and closing sale prices for the Shares are customarily
quoted, on the basis of the quoted closing sale price or, if there is
no such sale on the relevant date, then on the last previous day on
which a sale was reported;
(ii) If, on the relevant date, the Shares are not listed on
any securities exchange or traded on the NASDAQ National Market System,
but the Shares otherwise are publicly traded and reported by NASDAQ
(but closing sale prices for the Shares are not customarily quoted), on
the basis of the mean between the closing bid and asked quotations in
such other over-the-counter market as reported by NASDAQ; but, if there
are no bid and asked quotations in the over-the-counter market as
reported by NASDAQ on that date, then the mean between the closing bid
and asked quotations in the over-the-counter market as reported by
NASDAQ on the last previous day such bid and asked prices were quoted;
and
(iii) If, on the relevant date, the Shares are not publicly
traded as described in (i) or (ii), on the basis of the good faith
determination of the Committee.
(o) "Grant" means, individually or collectively, any grant under this
Plan of Non-qualified Stock Options or Incentive Stock Options.
(p "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 which is designated as an Incentive Stock
Option and is intended to meet the requirements of Section 422 of the
Code.
(q) "Insider" shall mean an Employee who is, on the relevant date, an
officer or a director, or a ten percent (10%) beneficial owner of any
class of the Company's equity securities that is registered pursuant to
Section 12 of the Exchange Act, all as defined under Section 16 of the
Exchange Act.
(r) "Named Executive Officer" means a Participant who, as of the date
of vesting and/or payout of an Award or Grant is one of the group of
"covered employees," as defined in the regulations promulgated under
Code Section 162(m), or any successor statute.
(s) "Non-qualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6, and which is not intended to meet the
requirements of Code Section 422.
(t) "Option" means an Incentive Stock Option or a Non-qualified Stock
Option.
(u) "Option Price" means the price at which a Share may be purchased by
a Participant pursuant to an Option, as determined by the Committee.
(v) "Participant" means an Employee who has an outstanding Grant or
Award made under the Plan.
(w) "Performance Share" means an Award granted to an Employee, as
described in
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Article 9 hereof.
(x) "Retirement" shall have the meaning ascribed to such term in the
Pension Plan for the Employees of United Carolina Bancshares
Corporation and affiliated Companies, as amended.
(y) "Restricted Stock" means restricted Shares awarded in accordance
with the terms of Article 8 and the other provisions of the Plan.
(z) "SAR Award Value" means, as applied to an SAR granted independent
of an Option, such amount, which may be greater than 100% but not less
than 100% of the Fair Market Value of a Share on the date the SAR is
granted, as shall be fixed by the Committee.
(aa) "Shares" means the shares of Common Stock of the Company.
(ab) "Stock Award" means Shares (whether restricted or unrestricted)
awarded under the provisions of Article 8 of the Plan.
(ac) "Stock Appreciation Rights" or "SAR" means an Award of the right
to receive an amount based upon an increase in the Fair Market Value of
the Share.
(ad) "Subsidiary" means any corporation, partnership, joint venture or
other entity in which the Company has a majority voting interest,
either direct or indirect. With respect to a Participant, the term
shall refer to the Subsidiary for which the Participant primarily
performs services.
(ae) "Threatened Change in Control" means any pending tender offer for
the Company's outstanding Shares of Common Stock, or any pending bona
fide offer to acquire the Company by merger or consolidation, or any
other pending action or plan to effect a Change in Control of the
Company.
ARTICLE 3. Administration
3.1 The Committee. The Plan shall be administered by the Personnel
Committee of the Board, or by any substitute Committee appointed by the Board
that is granted authority to administer the Plan, said Committee or substitute
Committee consisting of three (3) or more Directors. All members of the
Committee must meet the "disinterested administration" requirements of Rule
16b-3 under the Exchange Act and the "outside director" requirements of Code
Section 162(m). Qualifiedmembers of the Committee shall be appointed from time
to time by, and shall serve at the discretion of, the Board of Directors.
3.2 Authority of the Committee. Subject to the provisions of the Plan,
the Committee shall have full and exclusive power to select Employees who shall
participate in the Plan (who may change from year to year); determine the size
and types of Awards or Grants; determine the terms and conditions of Awards or
Grants in a manner consistent with the Plan (including vesting provisions and
the duration of the Awards or Grants); construe and interpret the Plan and any
agreement or instrument entered into under the Plan; establish, amend or waive
rules and regulations
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for the Plan's administration; and (subject to the
provisions of Article 14) amend the terms and conditions of any outstanding
Award or Grant to the extent such terms and conditions are within the discretion
of the Committee as provided in the Plan. Further, the Committee shall make all
other determinations which may be necessary or advisable in the Committee's
opinion for the administration of the Plan.
3.3 Committee Decisions Binding. All determinations and decisions made
by the Committee pursuant to Paragraph 3.2 above shall be final, conclusive and
binding on the Company and the Participants, their estates and beneficiaries.
ARTICLE 4. Shares Subject to the Plan
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3,
the gross number of Shares available for Awards or Grants under the plan shall
be six hundred thousand (600,000) Shares. These Shares may, in the discretion of
the Company, be either authorized but unissued Shares or Shares purchased by the
Company on the open market.
The following rules shall apply for purposes of the determination of
the number of Shares available for Grant or Award under the Plan:
(a) The number of Shares underlying any outstanding Stock
Option, SAR, or Stock Award shall be counted against the gross number
of Plan shares authorized to be issued under the Plan regardless of its
vested status.
(b) The Committee shall determine the appropriate number of
Shares to deduct against the gross number of authorized shares in
connection with the award of Performance Shares.
4.2 Lapsed Grants or Awards. If any Award or Grant made under this Plan
is canceled, terminates, expires or lapses for any reason, any Shares subject to
such Award or Grant shall again be available for issue under the Plan. However,
in the event that prior to the Award's or Grant's cancellation, termination,
expiration or lapse, the holder of the Award or Grant at any time received one
or more "benefits of ownership" pursuant to such Award (as defined by the
Securities and Exchange Commission, pursuant to any rule or interpretation
promulgated under Section 16 of the Exchange Act), the Shares subject to such
Award or Grant shall not be made available for issue under the Plan.
4.3 Adjustments in Number of Plan Shares. In the event of any change in
corporatecapitalization (such as a stock split, or a corporate transaction, such
as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization [whether or
not such reorganization comes within the definition of such term in Code Section
368] or any partial or complete liquidation of the Company) and to prevent
dilution or enlargement of rights under this Plan, an adjustment, as the
Committee shall in its sole discretion determine to be appropriate and
equitable, shall be made in the number and class of Shares which may be
delivered under the Plan, and in the number and class of and/or price of Shares
subject to outstanding Awards or Grants made under the Plan; provided, however,
that the number of Plan Shares subject to any Award or Grant shall always be a
whole number and the Committee
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shall make such adjustments as are necessary to
insure Awards or Grants of whole Shares.
ARTICLE 5. Eligibility and Participation
Any key Employee of the Company, or of any Subsidiary, whose judgment,
initiative and efforts contribute or may be expected to contribute materially to
the successful performance of the Company and its Subsidiaries shall be eligible
to receive an Award or Grant under the Plan. In determining the Employees to
whom such an Award or Grant will be made, the Committee shall take into account
the duties and responsibilities of the respective Employees, their present and
potential contributions to the success of the Company and its Subsidiaries, and
such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan.
No person who is a member of the Committee shall be eligible to receive
an Award or Grant under the Plan while so serving. Any person who is a Director
of the Company, but who is not an Employee of the Company or a Subsidiary of the
Company, shall not be eligible to receive an Award or Grant under the Plan.
ARTICLE 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Employees from time to time, as determined by the
Committee. The Committee shall have sole discretion in determining the number of
Shares underlying each Option granted to a Participant; provided, however, that
in the case of any ISO granted under the Plan, the aggregate Fair Market Value
(determined at the time such Option is granted) of the Shares to which ISOs are
exercisable for the first time by the Participant during any calendar year
(under the Plan and all other incentive stock option plans of the Company and
any Subsidiary) shall not exceed $100,000.
The Committee may grant a Participant ISOs, NQSOs or a combination
thereof, and may vary such Grants among Participants. In no event, however,
shall any Employee who owns (within the meaning of Section 424(d) of the Code),
at the time he would otherwise be granted an Option to purchase Shares, stock of
the Company possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company be eligible to receive an Incentive
Stock Option to purchase Shares hereunder.
The maximum number of Shares subject to Options which can be granted
under the Plan duringa 12-month period to any Participant including a Named
Executive Officer is 50,000 Shares; provided, however, that the maximum number
of Option Shares available for grant to a Participant during any 12-month period
shall be correspondingly reduced by the number of Shares underlying any SAR
Awards made under Article 7 hereof to the Participant during the same period.
6.2 Option Agreement. Each Option granted under the Plan shall be
evidenced by an Option Agreement that shall specify the Option Price, the
duration of the Option, the number of Shares to which the Option pertains and
such other provision as the Committee shall determine. The Option Agreement
shall further specify whether the Option is intended to be an ISO within the
meaning of Code Section 422, or an NQSO, which is not intended to fall under the
provisions of Code Section 422.
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6.3 Option Price. The Option Price for each ISO granted under this
Article 6 shall be not less than the Fair Market Value of a Share on the date
the ISO is granted. The Option Price of each Share underlying a NQSO shall be
established by the Committee, but in no event shall such price be less than
eighty-five percent (85%) of the Fair Market Value (or such higher percentage of
Fair Market Value as may be established by Internal Revenue Service rules or
regulations as the limit for granting discounted stock options without causing
immediate tax consequences to the Participant) of a Share on the date the Option
is granted.
6.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time of grant; provided, however, that no
Options shall be exercisable later than the tenth (10th) anniversary of its
grant.
6.5 Exercise of Options. Options granted under the Plan shall be
subject to such vesting schedules and exercise periods, and other restrictions
and conditions, as the Committee shall in each instance approve, which need not
be the same for each Grant or for each Participant. Except as the Committee may
otherwise provide, Options granted under this Plan shall not generally be
exercisable prior to six (6) months following the date of grant.
6.6 Payment. Options shall be exercised by the delivery of a written
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares. The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash, or (b) by tendering previously acquired
Shares having an aggregate Fair Market Value at the time of exercise equal to
the total Option Price (provided that the Shares which are tendered must have
been held by the Participant for the period required by law, if any, prior to
their tender to satisfy the Option Price), or (c) by a combination of (a) and
(b). The Committee also may allow cashless exercises, subject to applicable
securities law restrictions, or by any other means which the committee
determines to be consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Option(s).
6.7 Termination of Employment Due to Death, Disability or Retirement.
Unless otherwise provided by the Committee in the Option Agreement, the
following rules shall apply in the event of the Participant's termination of
employment due to death, Disability or Retirement:
(a) Termination by Death. In the event the Participant dies
while actively employed, all outstanding unvested Options granted to
that Participant shall immediately vest, and thereafter all vested
Options shall remain exercisable at any time prior to their expiration
date, or for one (1) year after the date of death, whichever period is
shorter, by (i) such person(s) as shall have been named as the
Participant's beneficiary, (ii) such person(s) that have acquired the
Participant's rights under such Options by will or by the laws of
descent and distribution, or (iii) the Participant's estate or
representative of the Participant's estate.
(b) Termination by Disability. In the event the employment of
the Participant is
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terminated by reason of Disability, all outstanding
unvested Options granted to the Participant shall immediately vest as
of the date the Committee determines the definition of Disability to
have been satisfied, and thereafter all vested Options shall remain
exercisable at any time prior to their expiration date, or for one (1)
year after the date that the Committee determines the definition of
Disability to have been satisfied, whichever period is shorter.
(c) Termination by Retirement. In the event the employment of
the Participant is terminated by reason of Retirement, the Participant
shall be entitled to prorata vesting of all outstanding unvested
Options. The prorata vesting shall be determined by the Committee, in
its sole discretion, and shall be based upon the length of time that
the Participant held the unvested Options relative to the vesting
period for each Grant of outstanding unvested Options. Upon retirement,
vested Options shall remain exercisable at any time prior to their
expiration date, or for six (6) months after the effective date of
Retirement, whichever period is shorter.
6.8 Termination of Employment for Other Reasons. If the employment of a
Participant shall terminate for any reason other than the reasons set forth in
Section 6.7, and subject to the provisions of Article 13 herein, all Options
held by the Participant which are not vested as of the effective date of his
employment termination shall be immediately forfeited to the Company. However,
the Committee, in its sole discretion, shall have the right to immediately vest
all or any portion of such Options, subject to such terms as the Committee, in
its sole discretion, deems appropriate; provided, however, that the foregoing
discretion shall not be applicable with regard to Grants to Named Executive
Officers except to the extent permitted under Code Section 162m.
In the event a Participant's employment is terminated by the Company or
Subsidiary for Cause, or such Participant voluntarily terminates his
employment(except for a Participant's voluntary termination that is not for
Cause after a Change in Control), the Participant's right to exercise any then
vested outstanding Options shall terminate immediately upon termination of
employment. If the Participant's employment is terminated by the Company or
Subsidiary without Cause, or the Participant voluntarily terminates other than
for Cause after a Change in Control, any Options vested as of his date of
termination shall remain exercisable at any time prior to their expiration date
or for six (6) months after his date of termination of employment, whichever
period is shorter.
6.9 Nontransferability of Options. Unless the Committee provides
otherwise in the OptionAgreement, no Option granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution, and any attempt to
sell, transfer, pledge, assign or otherwise alienate or hypothecate an Option
shall be null and void and of no force or effect, and all Options granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant.
ARTICLE 7. Stock Appreciation Rights
7.1 Grant of SAR. Stock Appreciation Rights or SARs may be awarded in
conjunction with, or in addition to, any Options granted under the Plan, or may
be awarded under the Plan independent of any Option. Nothing shall preclude the
award on the same day an Option is granted (with or without related SARs) of
SARs independent of an Option. SARs granted in conjunction with, or in addition
to, an Option may be granted either at the time of the Grant of the Option or
any
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time thereafter during the term of the Option. SARs awarded in conjunction
with an Option shall entitle the holder of the related Option, upon exercise, in
whole or in part, of the SARs, to surrender the Option, or any portion thereof,
to the extent unexercised, and to receive a number of Shares determined pursuant
to subsection 7.3 below. Such Option shall, to the extent so surrendered, cease
to be exercisable.
The maximum number of Shares underlying SARs which can be awarded under
the Plan during any 12-month period to any Participant including a Named
Executive Officer is 50,000 Shares; provided, however, that the maximum number
of Shares available for award to a Participant during any 12-month period shall
be correspondingly reduced by the number of Shares subject to Options granted to
the Participant during the same period.
7.2 Award Agreement. SARs shall be subject to such terms and conditions
not inconsistent with the Plan as shall from time to time be approved by the
Committee and to the following:
(a) SARs granted in conjunction with an Option shall be
exercisable at such time or times and to the extent, but only to the
extent, that the Option to which they relate shall be exercisable.
(b) SARs not granted in conjunction with an Option shall be
exercisable at such time or times as may be determined by the Committee
at the time of grant, but shall be subject to the same restrictions and
other rules as to duration, transferability, and exercisability that
are set out for Options in Article 6 above.
7.3 Exercise of SARs. (a) Upon exercise of SARs, the holder thereof
shall be entitled to receive a number of Shares which have an aggregate Fair
Market Value on the date of exercise equal to the amount by which the Fair
Market Value per share of one Share on the date of such exercise shall exceed
(i) in the case of SARs granted in conjunction with an Option or in addition to
an Option, the Option price per Share of the related Option, or (ii) in the case
of SARs unrelated to an Option, its SAR Grant Value, in each case multiplied by
the number of Shares in respect of which the SARs shall have been exercised.
(b) All or any part of the obligation arising out of an exercise of
SARs, whether or not suchrights are granted in conjunction with an Option, may
in the sole discretion of the Committee (and consistent with the requirements of
Rule 16b-3 of the Exchange Act) be settled by the payment of cash equal to the
aggregate Fair Market Value of the Shares that would otherwise have been
delivered under subsection (a) above.
(c) To the extent that SARs granted in conjunction with an Option shall
be exercisable and whether the obligation upon such exercise shall be discharged
by the delivery of Shares or the payment of cash, the Option in connection with
which such SAR shall have been granted shall be deemed to have been exercised
for the purpose of the maximum share limitation set forth in the Plan.
(d) To the extent that SARs granted in addition to, or independent of,
an Option shall be exercised and whether the obligation upon such exercise shall
be discharged by the delivery of Shares or the payment of cash, the number of
Shares in respect of which the SARs shall have been exercised shall be charged
against the maximum share limitation set forth in the Plan.
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ARTICLE 8. Stock Awards - Restricted and Unrestricted
8.1 Award. The Committee may from time to time in its discretion make
Stock Awards to Participants and may determine the number of Shares to be
awarded. The Committee shall determine the terms and conditions of, and the
amount of payment, if any, to be made by the Participant for such Stock Award.
An Award of Restricted Stock may require the Participant to pay for such Shares
of Restricted Stock, but the Committee may establish a price below Fair Market
Value at which the Participant can purchase the Shares of Restricted Stock. Each
Award of Restricted Stock will be evidenced by an Award Agreement containing
terms and conditions not inconsistent with the Plan as the Committee shall
determine to be appropriate in its sole discretion.
The maximum number of Shares that may be awarded under a Stock Award
(whether restricted or unrestricted) to a Named Executive Officer during any
12-month period is 20,000 Shares
8.2 Restricted Period; Lapse of Restrictions. At the time an Award of
Restricted Stock is made, the Committee shall establish a period or periods of
time (the "Restricted Period") applicable to such Award which, unless the
Committee otherwise provides, shall not be less than six (6) months. Subject to
the other provisions of this Section 8, at the end of the Restricted Period all
restrictions shall lapse and the Restricted Stock shall vest in the Participant.
At the time an Award is made, the Committee may, in its discretion, prescribe
conditions for the incremental lapse of restrictions during the Restricted
Period and for the lapse or termination of restrictions upon the occurrence of
other conditions in addition to or other than the expiration of the Restricted
Period with respect to all or any portion of the Restricted Stock. Such
conditions may, but need not, include without limitation:
(a) The death, Disability or Retirement of the Employee to whom
Restricted Stock is awarded, or
(b) The occurrence of a Change in Control of Threatened Change
in Control.
The Committee may also, in its discretion, shorten or terminate the Restricted
Period, or waive anyconditions for the lapse or termination of restrictions with
respect to all or any portion of the Restricted Stock at any time after the date
the Award is made.
8.3 Rights of Restricted Stock Holder; Limitations Thereon. Upon an
Award of Restricted Stock, a stock certificate (or certificates) representing
the number of Shares of Restricted Stock granted to the Participant shall be
registered in the Participant's name and shall be held in custody by the Company
or a bank selected by the Committee for the Participant's account. Following
such registration, the Participant shall have the rights and privileges of a
stockholder as to such Restricted Stock, including the right to receive
dividends and to vote such Restricted Stock, provided that, the right to receive
cash dividends shall be the right to receive such dividends either in cash
currently or by payment in Restricted Stock, as the Committee shall determine,
and provided further that the following restrictions shall apply:
(a) The Participant shall not be entitled to delivery of a
certificate until the
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expiration or termination of the Restricted
Period for the Shares represented by such certificate and the
satisfaction of any and all other conditions prescribed by the
Committee;
(b) None of the Shares of Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period and until the satisfaction of any and all
other conditions prescribed by the Committee; and
(c) All of the Shares of Restricted Stock that have not vested
shall be forfeited and all rights of the Participant to such Shares of
Restricted Stock shall terminate without further obligation on the part
of the Company, unless the Participant has remained a full-time
employee of the Company, or any of its Subsidiaries, until the
expiration or termination of the Restricted Period and the satisfaction
of any and all other conditions prescribed by the Committee applicable
to such Shares of Restricted Stock. Upon the forfeiture of any Shares
of Restricted Stock, such forfeited Shares shall be transferred to the
Company without further action by the Participant.
With respect to any Shares received as a result of adjustments under
Section 4.3 hereof and any Shares received with respect to cash dividends
declared on Restricted Stock, the Participant shall have the same rights and
privileges, and be subject to the same restrictions, as are set forth in this
Section 8.
8.4 Delivery of Unrestricted Shares. Upon the expiration or termination
of the Restricted Period for any Shares of Restricted Stock and the satisfaction
of any and all other conditions prescribed by the Committee, the restrictions
applicable to such Shares of Restricted Stock shall lapse and a stock
certificate for the number of Shares of Restricted Stock with respect to which
the restrictions have lapsed shall be delivered, free of all such restrictions
except any that may be imposed by law, to the holder of the Restricted Stock.
The Company shall not be required to deliver any fractional Share but will pay,
in lieu thereof, the Fair Market Value (determined as of the date the
restrictions lapse) of such fractional share to the holder thereof. Prior to or
concurrently with the delivery of a certificate for Restricted Stock, the holder
shall be required to pay an amount necessary to satisfy any applicablefederal,
state and local tax requirements as set out in Article 15 below.
8.5 Nonassignability of Restricted Stock. Unless the Committee provides
otherwise in the Award Agreement, no Award of, nor any right or interest of a
Participant in or to any Restricted Stock, or in any instrument evidencing any
Award of Restricted Stock under the Plan, may be assigned, encumbered or
transferred except, in the event of the death of a Participant, by will or the
laws of descent and distribution.
ARTICLE 9. Performance Shares
9.1 Grant of Performance Shares. Subject to the terms of the Plan,
Performance Shares may be granted to participants from time to time for no
payment. The Committee shall have complete discretion in determining the number
of Performance Shares granted to each Participant; provided, however, that
unless and until the Company's stockholders vote to change the maximum number of
Performance Shares that may be earned by any one Named Executive Officer
(subject to the terms of Article 14 hereof), none of the Named Executive
Officers may earn more than 20,000 Performance Shares with respect to any
performance period.
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9.2 Value of Performance Shares. Each Performance Share shall have a
value equal to the Fair Market Value of a Share on the date the Performance
Share is earned. The Committee shall set performance goals in its discretion
which, depending on the extent to which they are met, will determine the number
of Performance Shares that will be earned by the Participants. The time period
during which the performance goals must be met shall be called a "performance
period." Performance periods shall, in all cases, equal or exceed two (2) years
in length. The performance goals shall be established at the beginning of the
performance period (or within such time period as is permitted by Code Section
162(m) and the regulations thereunder).
The Committee will select one or more of the following performance
measures for purposes of Awards under the Plan to Named Executive Officers:
total shareholder return, average return on assets, average return on equity,
average growth in assets, increase in operating earnings per share, increase in
book value per share of Common Stock, and ratio of operating revenue to
operating overhead. The Committee, in its sole discretion, may assign the
relative weights to be given to each performance measure selected by it. For
Participants other than Named Executive Officers, the Committee may, in its sole
discretion, select such performance measures (from among those described above
or others) as it may deem appropriate, and may assign the relative weights to be
given to each performance measure selected by it. The Committee may, in its sole
discretion, reserve the right to exclude the effect of extraordinary and
non-recurring items from calculations involving any performance measure.
In the event that applicable tax and/or securities laws (including, but
not limited to, Code Section 162(m) and Section 16 of the Exchange Act) change
to permit Committee discretion to alter the governing performance measures
without obtaining stockholder approval of such changes, the Committee shall have
sole discretion to make such changes without obtaining stockholder approval.
9.3 Earning of Performance Shares. After the applicable performance
period has ended, the Committee shall certify the extent to which the
established performance goals have been achieved. TheCommittee may increase or
decrease the amount of any Performance Share Award otherwise payable to a
Participant under this Article 9 if, in the Committee's view, the Company's
financial performance during the relevant performance period justifies such
adjustment, whether or not any one or more of the established performance goals
has been achieved; provided, however, that the Committee shall have no
discretion to increase the amount of any Performance Share Award otherwise
payable to a Named Executive Officer under this Article 9.
9.4 Form and Timing of Payment of Performance Shares. Except as
otherwise provided in Article 13 hereof, payment of earned Performance Shares
shall be made in a single lump sum as soon as practical after the end of the
performance period to which the Award relates. The Committee, in its sole
discretion, may pay earned Performance Shares in the form of cash or in Shares
(or in a combination thereof) which have, as of the last day of the performance
period, an aggregate value equal to the Fair Market Value of the earned
Performance Shares.
9.5 Termination of Employment Due to Death, Disability or Retirement or
by the Company Without Cause. Unless the Award Agreement provides otherwise, in
the event the employment of a Participant is terminated by reason of death,
Disability or Retirement or by the Company without Cause during a performance
period, the Participant shall be entitled to a prorated payout with respect to
the unearned Performance Shares. The prorated payout shall be determined
46
<PAGE>
by the
Committee, in its sole discretion, and shall be based upon the length of time
that the Participant held the unearned Performance Shares during the performance
period relative to the performance period, and shall be the greater of the
target award prorated for the applicable time period, or the payout earned on
the basis of actual performance, measured by the achievement of the established
performance goals prorated to the time of his termination due to death,
Disability or Retirement or by the Company without Cause.
Payment of earned Performance Shares to Participants whose termination
is due to Retirement or by the Company without Cause shall be made at the same
time payments are made to Participants who did not terminate employment during
the applicable performance period. Payment of earned Performance Shares to
Participants whose termination is due to death or Disability shall be made as
soon as practical after the Participant's termination.
9.6 Termination of Employment for Other Reasons. Except as provided in
Article 13 and in the Award Agreement, in the event that a Participant's
employment terminates during a performance period for any reason other than
those reasons set forth in Section 9.5 hereof, all unearned Performance Shares
shall be forfeited by the Participant to the Company.
9.7 Nontransferability. Performance Shares may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, a
Participant's Performance Share rights under the Plan shall be exercisable
during the Participant's lifetime only by the Participant or the Participant's
legal representative.
ARTICLE 10. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid incase of his or her death before
he or she receives any or all of such benefit. Each such designation shall
revoke all prior designations by the same Participant, shall be in a form
prescribed by the Company and shall be effective only when filed by the
Participant, in writing, with the Company during the Participant's lifetime. In
the absence of any such designation, benefits remaining unpaid at the
Participant's death shall be paid to the Participant's estate.
ARTICLE 11. Deferrals
The Committee may permit a Participant to defer to another plan or
program such Participant's receipt of Shares or cash that would otherwise be due
to such Participant by virtue of the exercise of an Option or SAR, the vesting
of Restricted Stock or the earning of Performance Shares. If any such deferral
election is required or permitted, the Committee shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
ARTICLE 12. Rights of Participants
12.1 Employment. Nothing in the Plan shall interfere with or limit in
any way the right of the Company or a Subsidiary to terminate any Participant's
employment at any time, nor confer upon
47
<PAGE>
any Participant any right to continue in
the employ of the Company or a Subsidiary. For purpose of the Plan, transfer of
employment of a Participant between the Company and any one of its Subsidiaries
(or between Subsidiaries) shall not be deemed a termination of employment.
12.2 Participation. No Employee shall have the right to be selected to
receive an Award or Grant under this Plan, or, having been so selected, to be
selected to receive a future Award or Grant.
ARTICLE 13. Change in Control
13.1 Occurrence. Upon the occurrence of a Change in Control, or upon
the termination of a Participant by the Company or Subsidiary other than for
Cause as a result of a Threatened Change in Control, and except as provided in
the Award Agreement, Option Agreement or Section 13.3, or as prohibited by the
terms of Article 17 hereof:
(a) All outstanding, unvested Options and SARs granted or
awarded to Participants hereunder (or, in the case of the termination
of a Participant by the Company or Subsidiary other than for Cause as a
result of a Threatened Change in Control, to the terminated
Participant) shall become fully vested and immediately exercisable;
(b) To the extent provided by the Committee in the Award
Agreement, the earning of unearned Performance Shares will be based
upon the target award levels or the actual performance compared with
goals prorated to the date of the Change in Control or to the date of
the Participant's termination by the Company or Subsidiary other than
for Cause as a result of a Threatened Change in Control,whichever
provides the greater amount. Unearned Performance Shares outstanding at
the time of a Change in Control or at the time of a Participant's
termination by the Company or Subsidiary other than for Cause as a
result of a Threatened Change in Control will be fully vested (subject
to the employment requirements in the next sentence) and will be
payable in Common Stock or cash, or a combination thereof, as
determined by the Committee. The Participant will be entitled to
payment of vested Performance Shares for a performance period only if
(i) he remains employed by the Company or Subsidiary (or their
respective successors) until the date that would have been the last day
of the performance period, at which time the payment of the Performance
Shares shall be made, or (ii) prior to the end of the performance
period, his employment is terminated by the Company or Subsidiary
without Cause, he terminates employment for a reason other than Cause
or he retires (whether early, normal or late) under the Retirement
Plan, dies or becomes Disabled. In any of these cases, payment of
vested Performance Shares shall be made as soon as possible after the
Participant ceases active employment.
(c) Unless otherwise provided in the Award Agreement, all
restrictions on an Award of Restricted Stock shall lapse and such
Restricted Stock shall be delivered to the Participant in accordance
with Section 8.4; and
(d) Subject to Article 14 hereof, the Committee shall have the
authority to make any modifications to the Awards or Grants as
determined by the Committee to be appropriate before the effective date
of the Change in Control or the date of the Participant's termination
48
<PAGE>
by the Company or Subsidiary other than for Cause as a result of a
Threatened Change in Control.
13.2 Definition. For purposes of the Plan, a "Change in Control" shall
be deemed to have occurred if:
(a) the Company or its subsidiary, United Carolina Bank,
consolidates or merges with or into another corporation, or is
otherwise reorganized, if the Company or United Carolina Bank is not
the surviving corporation in such transaction or if after such
transaction any other corporation, association or other person, entity
or group or the shareholders thereof own, direct and/or indirectly,
more than 50% of the then outstanding shares of Common Stock or more
than 50% of the assets of the Company or United Carolina Bank; or
(b) more than 35% of the then outstanding shares of Common
Stock of the Company or United Carolina Bank are, in a single
transaction or in a series of related transactions, sold or otherwise
transferred to or are acquired by (except as collateral security for a
loan) any other corporation, association or other person, entity or
group, whether or not any such shareholder or any shareholders included
in such group were shareholders of the Company or United Carolina Bank
prior to the Change in Control; or
(c) all or substantially all of the assets of the Company or
United Carolina Bank are sold or otherwise transferred to or otherwise
acquired by any other corporation, association or other person, entity
or group; or
(d) the occurrence of any other event or circumstance which is
not covered by (a) through (c) above which the Committee determines
affects control of the Company or United Carolina Bank and constitutes
a Change in Control for purpose of the Plan.
13.3 Pooling of Interests Accounting. No Award or Grant made under this
Plan shall have a scheduled vesting date which is earlier than the date two
years following the Effective Date. During the two-year period commencing on the
Effective Date, the acceleration of vesting provided for in Section 13.1 shall
not apply in a transaction involving a Change in Control if both of the
following circumstances exist:
(a) The provisions contained in Section 13.1 create conditions which
would preclude the use of pooling of interests accounting; and
(b) The completion of the transaction is subject to the use of pooling
of interests accounting.
ARTICLE 14. Amendment, Modification and Termination
14.1 Amendment, Modification and Termination. The Board may, at any
time and from time to time, alter, amend, suspend or terminate the Plan in whole
or in part; provided, that, unless approved by the holders of a majority of the
total number of Shares of the Company represented and entitled to vote at a
meeting at which a quorum is present, no amendment shall be made to the Plan if
such amendment would (a) materially modify the eligibility requirements provided
in Article 5; (b)
49
<PAGE>
increase the total number of Shares (except as provided in
Section 4.3) which may be granted or awarded under the Plan, as provided in
Section 4.1; (c) extend the term of the Plan; or (d) amend the Plan in any other
manner which the Board, in its discretion, determines should become effective
only if approved by the stockholders even though such stockholder approval is
not expressly required by the Plan or by law. No amendment which requires
stockholder approval in order for the Plan to continue to comply with Rule 16b-3
under the Exchange Act, including any successor to such Rule, shall be effective
unless such amendment shall be approved by the requisite vote of stockholders.
14.2 Grants or Awards Previously Granted. No termination, amendment or
modification of the Plan shall adversely affect in any material way any Award or
Grant previously made under the Plan, without the written consent of the
Participant holding such Award or Grant. The Committee shall, with the written
consent of the Participant holding such Award or Grant, have the authority to
cancel Awards or Grants outstanding and grant replacement Awards or Grants
therefor.
14.3 Compliance With Code Section 162(m). It is the intent of the Board
that all Awards or Grants made under this Plan shall comply with the
requirements of Code Section 162(m). In the event that changes are made to Code
Section 162(m) to permit greater flexibility with respect to any Award or Grant
under the Plan, the Committee may, subject to this Article 14, make any
adjustments it deemsappropriate in such Award or Grant.
ARTICLE 15. Withholding
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA obligation) required by law to be withheld with respect to
any taxable event arising in connection with an Award or Grant under this Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options, or upon any other taxable event arising as a result of
Awards or Grants made hereunder which are to be paid in the form of Shares,
Participants may request, subject to the approval of the Committee, to satisfy
the withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such requests shall be irrevocable, made in writing, and signed by the
Participant, and requests by Insiders shall additionally comply with all legal
requirements applicable to Share transactions by such Participants.
ARTICLE 16. Successors
All obligations of the Company under the Plan, with respect to Awards
or Grants made hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation or otherwise, of all or substantially all of the
business and/or assets of the Company.
ARTICLE 17. Legal Construction
50
<PAGE>
17.1 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
17.2 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
17.3 Requirements of Law. The making of Awards or Grants and the
issuance of Shares under the Plan shall be subject to all applicable laws, rules
and regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4 Regulatory Approvals and Listing. The Company shall not be
required to issue any certificate or certificates for Shares under the Plan
prior to (i) obtaining any approval from any governmental agency which the
Company shall, in its discretion, determine to be necessary or advisable, (ii)
the admission of such shares to listing on any national securities exchange on
which the Company'sShares may be listed, and (iii) the completion of any
registration or other qualification of such Shares under any state or federal
law or ruling or regulations of any governmental body which the Company shall,
in its sole discretion, determine to be necessary or advisable.
Notwithstanding any other provision set forth in the Plan, if required
by the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant to the Plan to any Insider may not be sold or
transferred for at least six (6) months after the date of grant of such Award.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then-current Rule 16(a) under the Exchange Act.
The Committee may impose such restrictions on any Shares acquired
pursuant to the Plan as it may deem advisable, including, without limitation,
restrictions under applicable Federal securities laws, under the requirements of
any stock exchange or market upon which such Shares are then listed and/or
traded and under any blue sky or state securities laws applicable to such
Shares.
17.5 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act. To the extent any provisions of
the Plan or action by the Committee fails to so comply, it shall be deemed null
and void, to the extent permitted by law and deemed advisable by the Committee.
17.6 Governing Law. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of North Carolina.
17.7 Disputes and Expenses. After a Change in Control or a
Participant's termination by the Company or Subsidiary other than for Cause as a
result of a Threatened Change in Control, if a Participant affected by such
Change in Control or termination incurs legal fees or other expenses in seeking
to obtain or enforce any rights to benefits under this Plan and is successful,
in whole or in part, in obtaining or enforcing any such rights through
settlement, litigation, arbitration or otherwise, the Company shall promptly pay
the affected Participant's reasonable legal fees and expenses incurred in
enforcing his rights under the Plan.
51
<PAGE>
AS APPROVED BY THE BOARD OF DIRECTORS OF UNITED CAROLINA BANCSHARES
CORPORATION ON JULY 21, 1995.
UNITED CAROLINA BANCSHARES CORPORATION
By: /s/ E. Rhone Sasser
-----------------------
Chief Executive Officer
ATTEST:
By: /s/ Howard V. Hudson
----------------
Secretary
52
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