UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT UNDER SECTION 13 0R 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 1996
------------------
OR
( ) TRANSITION REPORT PURSANT TO SECTIONS 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-3296
UNITED COMMUNITY BANKSHARES, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1801876
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(757) 562-5184
(Registrant's telephone number, including area code)
100 East Fourth Avenue, Franklin, Virginia 23851
(Address of principal executive offices) (Zip Code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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
Number of shares of common stock of registrant outstanding at September 30,
1996: 1,829,209
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet
(In thousands)
(Unaudited) (Audited)
September 30, December 31,
1996 1995
--------------- ----------------
Assets:
Cash and due from banks $ 5,419 $ 6,322
Federal funds sold 1,474 7,740
Securities available for sale 45,333 47,420
Securities held to maturity 10,346 10,698
Loans, net 78,169 66,182
Interest receivable 1,914 1,618
Property and equipment, net 1,994 2,055
Intangibles, net 732 770
Other assets 592 486
--------------- ----------------
Total assets $ 145,973 $ 143,291
=============== ================
Liabilities:
Deposits:
Noninterest-bearing $ 17,627 $ 16,728
Interest-bearing 106,436 107,227
--------------- ----------------
124,063 123,955
Federal funds purchased and securities
sold under agreement to repurchase 2,546 336
Accrued interest 500 383
Deferred compensation 146 146
Other liabilities 559 708
--------------- ----------------
Total liabilities 127,814 125,528
Stockholders' Equity:
Common stock 1,829 1,829
Additional paid-in capital 3,063 3,063
Retained earnings 13,234 12,398
Net unrealized gain on securities
available for sale (net of income taxes) 33 473
--------------- ----------------
Total stockholders' equity 18,159 17,763
--------------- ----------------
Total liabilities & stockholders' equity $ 145,973 $ 143,291
=============== ================
<PAGE>
Item 1. Financial Statements (continued)
UNITED COMMUNITY BANKSHARES, INC.
Consolidated Statement of Income
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended September 30, 9 Months Ended September 30,
---------------------------- -----------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C>
Interest income:
Interest and fees on loans $ 1,812 $ 1,723 $ 5,087 $ 4,675
Interest on investment securities:
Taxable 574 495 1,781 1,505
Nontaxable 238 176 722 497
Interest on federal funds sold 16 91 140 257
------------- ------------- ------------- -------------
Total interest income 2,640 2,485 7,730 6,934
Interest expense:
Interest on deposits 1,186 1,089 3,532 2,990
Interest on federal funds purchased 14 - 23 -
------------- ------------- ------------- -------------
Total interest expense 1,200 1,089 3,555 2,990
------------- ------------- ------------- -------------
Net interest income 1,440 1,396 4,175 3,944
Provision for loan losses 30 59 54 81
------------- ------------- ------------- -------------
Net interest income after provision
for loan losses 1,410 1,337 4,121 3,863
Noninterest income:
Gain (loss) on sale of securities (3) - 10 (2)
Service charges 164 146 512 415
Other 54 39 121 142
------------- ------------- ------------- -------------
Total other income 215 185 643 555
Noninterest expenses:
Salaries and employee benefits 509 488 1,547 1,473
Equipment 55 62 164 164
FDIC insurance (net of refunds) 1 (20) 3 94
Occupancy 63 72 194 202
Professional fees 17 23 68 82
Postage 30 24 73 71
Merger Related 170 - 170 -
Other 221 206 680 596
------------- ------------- ------------- -------------
Total other expenses 1,066 855 2,899 2,682
------------- ------------- ------------- -------------
Income before income taxes 559 667 1,865 1,736
Provision for income taxes 153 186 455 474
------------- ------------- ------------- -------------
Net income $ 406 $ 481 $ 1,410 $ 1,262
============= ============= ============= =============
Net income per common share $ 0.22 $ 0.26 $ 0.77 $ 0.69
============= ============= ============= =============
</TABLE>
<PAGE>
Item 1. Financial Statements (continued)
UNITED COMMUNITY BANKSHARES, INC.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
9 Months Ended September 30,
----------------------------
1996 1995
---------- ----------
Operating activities:
Net income $ 1,410 $ 1,262
Adjustments to reconcile to net cash
provided by operating activities:
Provision for loan losses 54 -
Depreciation and amortization 178 164
Amortization of investment security premiums,
net of discounts (6) (36)
Changes in:
Interest receivable (296) (355)
Interest payable 117 103
Other assets (23) 118
Other liabilities (160) 56
---------- ----------
Net cash provided by operating activities 1,274 1,312
Investing activities:
Proceeds from maturities and sales of
available-for-sale securities 9,481 2,940
Purchases of available-for-sale securities (7,948) (8,392)
Redemptions of held-to-maturity securities 2,513 2,958
Purchases of held-to-maturity securities (2,131) (1,718)
Loan originations, net of principal repayments (12,023) (8,751)
Net cash and cash equivalents received from
branch acquisition - 9,877
Purchases of premises and equipment (80) (205)
---------- ----------
Net cash used by investing activities (10,188) (3,291)
Financing activities:
Net increase in short-term borrowings 2,210 -
Cash dividends paid (575) (209)
Net increase in noninterest bearing deposits 901 (444)
Net increase in interest bearing deposits (791) 2,061
---------- ----------
Net cash provided by financing activities 1,745 1,408
Inrease (decrease) in cash and cash equivalents (7,169) (571)
Cash and cash equivalents at beginning of year 14,062 10,659
---------- ----------
Cash and cash equivalents at end of year $ 6,893 $ 10,088
========== ==========
Supplemental disclosures of cash flow information
Cash paid for:
Interest on deposits and other borrowings $ 3,438 $ 2,887
Income taxes $ 317 $ 332
<PAGE>
Item 1. Financial Statements (Continued)
Form 10-QSB
United Community Bankshares, Inc.
Notes to Consolidated Financial Statements
September 30, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all of the disclosures and notes required by generally accepted
accounting principles. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. The results of operations for the three and nine month periods
ended September 30, 1996 and 1995 are not necessarily indicative of the results
that may be expected for the entire year or any interim periods.
The unaudited consolidated financial statements include the accounts of United
Community Bankshares, Inc. (the "Holding Company") and its two wholly-owned
subsidiaries, The Bank of Franklin, (BOF) and The Bank of Sussex and Surry
(BSS). All material intercompany accounts and transactions have been eliminated
in consolidation. As discussed in NOTE C, on August 1, 1996, both banks became
wholly-owned subsidiaries of the Holding Company in a merger accounted for by
the pooling of interests method of accounting. Accordingly, the consolidated
financial statements of United Community Bankshares, Inc. (UCB) give effect to
this merger, and the accounts of BOF and BSS have been combined with those of
the Holding Company for all periods presented.
NOTE B - EARNINGS PER SHARE
Earnings per common share, for the periods ended September 30, 1996 and 1995,
are calculated by dividing net income by the average number of common shares
outstanding of 1,829,209 shares.
NOTE C - BUSINESS COMBINATION
On August 1, 1996, BOF and BSS became wholly-owned subsidiaries of the Holding
Company, United Community Bankshares, Inc. The consummation of the affiliation
of the two banks was the result of a definitive agreement entered into on
January 25, 1996. The banks have retained their respective names, banking
offices, executive officers and board of directors.
On the effective date, each of the common shares of both BOF and BSS were
exchanged for, 4.806 and 3.00 common shares of the Holding Company,
respectively. This resulted in the issuance of 1,829,209 common shares of
Holding Company stock. Former common shareholders of BOF received their
fractional shares in cash totaling $3,533. The Holding Company also paid a cash
dividend of $.14 per common share or a total of $256,089 on September 30, 1996.
The remaining dividends, approximating $315,000, were paid by BOF and BSS prior
to the merger.
At July 31, 1996, BOF and BSS had total assets of $84.5 million and $62.5
million, respectively, and total shareholders' equity of $8.175 million and
$9.757 million, respectively. BOF had five banking offices, two in the City of
Franklin, and one each in Courtland, Newsoms and Holland. BSS had three banking
offices in Wakefield, Ivor and Surry.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Earnings Summary
UCB reported net income of $1,410,000 for the nine month period ending September
30, 1996, compared to $1,262,000 for the same period in 1995, which represents a
$148,000 increase or 11.7%. Third quarter 1996 net income of $406,000 decreased
by $75,000, or 15.6%, from third quarter 1995 net income of $481,000. The
decrease in quarterly net income, from 1995 to 1996, is primarily attributable
to one-time merger expenses of $170,000 in 1996, which were partially offset by
a one-time FDIC insurance net rebate of $20,000 in 1995. Adjusting net income
for the one-time merger expenses, net income for the first nine months of 1996
would have increased by 25.2% from 1995 to 1996, or $318,000, to $1.580 million.
UCB's total assets as of September 30, 1996 were $146.0 million, up from $143.3
million at year end 1995. Net loans as of September 30, 1996 were $78.2 million,
up from $66.2 million at year end 1995, posting a $12.0 million or 18.1%
increase.
Annualized return on average equity increased to 10.5% for the nine month period
ended September 30, 1996, up from 10.0% for the same period in 1995. Annualized
return on average assets is 1.31% for the first nine months of 1996, compared to
1.35% for the same period in 1995.
UCB is not aware of any trends, future events or uncertainties that will have a
material adverse effect on the consolidated entity. Obviously, unforeseeable
changes in the local economies where UCB subsidiaries operate, which UCB is
unable to predict, may impact the overall communities and ultimately the
performance of the consolidated holding company. UCB is not aware of any such
changes.
Net Interest Income
Net interest income for the first nine months of 1996 was $4.175 million, up
from $3.944 million for the same period in 1995, increasing by $231,000 or 5.9%.
This increase is attributable to the transition of lower-yielding cash and cash
equivalents to higher-yielding assets. The cash and cash equivalents were
acquired through the acquisition of branch deposits in the geographic area in
which UCB operates. The branch deposits were acquired in the third quarter of
1995 from a regional financial institution, which was exiting the UCB market
area. Since these funds were acquired in the third quarter of 1995, most of the
funds were employed in lower-yielding cash and cash equivalents for the same
period. This caused a modest increase of $44,000 or 3.2% from the third quarter
of 1995 to 1996.
For the nine months ended September 30, 1996, total interest and fees on loans
increased by $412,000 or 8.8%, and total interest on investments increased by
$501,000 or 33.3%, which was offset by a decrease in interest on federal funds
sold of $117,000 or 45.5%. Interest expense increased by $565,000, or 18.9%, for
the same period.
Provision For Loan Losses
The provision for loan losses for the first nine months of 1996 is $27,000 lower
than the provision for loan losses for the first nine months of 1995. In
addition, charge-offs exceeded recoveries by $58,000 for the first nine months
of 1996. However, even in view of the increase in net charge-offs and increase
in loan levels, management still believes the current level of allowance for
loan losses is adequate. As can be seen in the following schedule the allowance
for possible loan losses, as a percentage of total loans, is 1.57% at September
30, 1996.
<PAGE>
Allowance For Loan Losses
(In thousands)
9 Months Ended September 30,
----------------------------
1996 1995
---------- ----------
Balance, beginning of period $ 1,250 $ 1,169
Charge-offs:
Residential real-estate - 7
Commercial real-estate - -
Commercial 2 70
Consumer 140 43
---------- ----------
Total charge-offs 142 120
Recoveries:
Residential real-estate 5 47
Commercial real-estate - -
Commercial 19 11
Consumer 60 62
---------- ----------
Total recoveries 84 120
---------- ----------
Net recoveries (charge-offs) (58) -
Provisions for losses 54 81
---------- ----------
Balance, end of period $ 1,246 $ 1,250
========== ==========
Net recoveries (charge-offs)
to average loans -0.08% 0.00%
Allowance for possible loan losses
to total loans 1.57% 1.80%
<PAGE>
Noninterest Income
Total noninterest income increased by $88,000, or 15.9%, from a level of
$555,000 in the first nine months of 1995 to $643,000 for the same period of
1996. Substantially all of this increase is attributable to an increase in
service charges of $97,000 between the periods. The increase in noninterest
income between quarters is $30,000, which is also primarily attributable to
increases in service charge income.
Noninterest Expense
Total noninterest expenses for the first nine months of 1996 were $2,899,000, an
increase of $217,000 compared to the same period last year. Almost all of this
increase, as previously mentioned, is attributable to one-time merger related
expenses of $170,000 in 1996. These one-time merger expenses also explain most
of the increase of $211,000 between the third quarter of 1995 and 1996.
Nonperforming Assets
Total nonperforming assets have increased from a year end 1995 level of $625,000
to $739,000 as of September 30, 1996, up by $114,000 or 18.2%. Most of this
increase is due to loans past due 90 days or more increasing $133,000, which is
offset by a decrease in nonaccrual loans of $19,000 since December 31, 1995.
Nonperforming Assets
(In thousands)
September 30, December 31,
1996 1995
------------- ------------
Loans past due 90 days or
more and still accruing $ 316 $ 183
Nonaccrual loans 257 276
Other real estate owned 166 166
------------- ------------
Total nonperforming assets $ 739 $ 625
============= ============
Allowance for loan losses $ 1,246 $ 1,250
Allowance for possible loan
loss to nonperforming loans 217.45% 272.33%
Allowance for possible loan
loss to nonperformaing assets 168.61% 200.00%
<PAGE>
Liquidity and Short-Term Borrowings
UCB funding requirements are supplied from a range of traditional sources,
including various types of demand deposits, money market accounts, certificate
of deposit and short-term borrowings. Large certificate of deposit accounted for
9.1% of total deposits as of September 30, 1996. Federal Home Loan Bank (FHLB)
advances are also utilized as funding sources by UCB. As of September 30, 1996,
UCB had a FHLB short-term borrowing of $1.5 million. UCB could borrow
approximately $6.5 million from FHLB, if collateral acceptable to the FHLB was
provided. In addition, federal funds arrangements with other institutions
provide an additional $10.8 million of short-term borrowing capacity. As a
result of UCB's management of liquid assets and the ability to generate
liquidity through liability funding, management believes that UCB maintains
overall liquidity sufficient to satisfy its depositors' requirements and meet
its customers' credit needs.
Capital Adequacy
The adequacy of UCB's capital is reviewed by management on an ongoing basis with
reference to the size, composition, and quality of UCB's resources and
consistent with regulatory requirements and industry standards. Management seeks
to maintain a capital structure that will assure an adequate level of capital to
support anticipated asset growth and absorb potential losses.
The Federal Reserve, along with the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, have adopted new capital guidelines to supplement
the existing definitions of capital for regulatory purposes and to establish
minimum capital standards. Specifically, the guidelines categorize assets and
off-balance sheet items into four risk-weighted categories. At the end of
September 30, 1996 and December 31,1995, the required minimum ratio of
qualifying total capital to risk-weighted assets was 8%, of which 4% must be
tier-one capital. Tier-one capital generally includes stockholders' equity,
retained earnings and a limited amount of perpetual stock, less certain goodwill
items. UCB's ratios significantly exceed regulatory requirements adopted by the
Federal Reserve Bank regulatory agencies.
<PAGE>
<TABLE>
<CAPTION>
Capital Ratios
September 30, 1996 December 31, 1995
Regulatory ------------------------ ------------------------
Minimum BOF BSS UCB BOF BSS UCB
------- --- --- --- --- --- ---
<S> <C>
Risk-based capital
Tier 1 4.00% 13.57% 26.62% 18.54% 15.32% 26.65% 19.89%
Total 8.00% 14.67% 27.88% 19.70% 16.57% 28.15% 21.24%
Leverage 4.00% 9.56% 15.48% 12.09% 9.40% 15.38% 11.89%
</TABLE>
UNITED COMMUNITY BANKSHARES, INC.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In the course of its operations, United Community Bankshares, Inc.
and its subsidiaries are not aware of any material pending or
threatened litigation, unasserted claims and/or assessments through
September 30, 1996, or subsequent thereto. The only litigation in
which UCB and its subsidiaries are involved are collection suits
involving delinquent loan accounts in the normal course of business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submissions of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
None.
b. Form 8-K.
Form 8-K filed August 13, 1996 related to the
consummation of the formation of the Holding Company.
SIGNATURES
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 COMMUNITY BANKSHARES, INC.
/s/ W.O. Pearce Date: 11/19/96
- -----------------------------------
W.O. Pearce
President & Chief Executive Officer
/s/ Wayne C. Carruthers Date: 11/19/96
- -----------------------
Wayne C. Carruthers
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,419
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,474
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,333
<INVESTMENTS-CARRYING> 10,346
<INVESTMENTS-MARKET> 56,222
<LOANS> 78,169
<ALLOWANCE> 1,246
<TOTAL-ASSETS> 145,973
<DEPOSITS> 124,063
<SHORT-TERM> 2,546
<LIABILITIES-OTHER> 559
<LONG-TERM> 0
0
0
<COMMON> 1,829
<OTHER-SE> 3,063
<TOTAL-LIABILITIES-AND-EQUITY> 145,973
<INTEREST-LOAN> 5,087
<INTEREST-INVEST> 2,503
<INTEREST-OTHER> 140
<INTEREST-TOTAL> 7,730
<INTEREST-DEPOSIT> 3,532
<INTEREST-EXPENSE> 3,555
<INTEREST-INCOME-NET> 4,175
<LOAN-LOSSES> 54
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 2,899
<INCOME-PRETAX> 1,865
<INCOME-PRE-EXTRAORDINARY> 1,865
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,410
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
