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: March 31, 1997
--------------------------------------------------
OR
( ) TRANSITION REPORT PURSANT TO SECTIONS 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-3296
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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 March 31, 1997:
1,829,209
- ---------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED COMMUNITY BANKSHARES, INC.
Consolidated Balance Sheet
(In thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
March 31, December 31,
1997 1996
---------- ---------
<S> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks $ 6,510 $ 7,262
Federal funds sold 4,216 3,890
--------- --------
10,726 11,152
Investment securities:
Securities available for sale 46,792 46,064
Securities held to maturity 10,055 10,326
--------- --------
56,847 56,390
Loans, net 76,459 76,954
Interest receivable 1,564 1,699
Property and equipment, net 1,959 1,975
Intangibles, net 706 719
Other assets 1,056 989
--------- --------
Total assets $149,317 $149,878
========= ========
LIABILITIES:
Deposits:
Noninterest-bearing $ 18,788 $ 20,292
Interest-bearing 110,330 109,534
--------- --------
129,118 129,826
Federal funds purchased and securities sold
under agreement to repurchase 206 229
Accrued interest 518 400
Deferred compensation 189 189
Other liabilities 389 254
--------- --------
Total liabilities 130,420 130,898
STOCKHOLDERS' EQUITY:
Common stock 1,829 1,829
Additional paid-in capital 3,059 3,059
Retained earnings 13,979 13,750
Net unrealized gains on securities available for
sale (net of income taxes) 30 342
--------- --------
Total stockholders' equity 18,897 18,980
--------- --------
Total liabilities & stockholder's equity $149,317 $149,878
========= ========
</TABLE>
2
<PAGE>
Item 1. Financial Statements (Continued)
UNITED COMMUNITY BANKSHARES, INC.
Consolidated Statement of Income
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
-----------------------------------------
1997 1996
----------------- ------------------
<S> <C>
Interest income:
Interest and fees on loans $ 1,742 $ 1,578
Interest on investment securities:
Taxable 569 606
Nontaxable 232 238
Interest on federal funds sold 71 90
----------------- ------------------
Total interest income 2,614 2,512
Interest expense:
Interest on deposits 1,157 1,181
Interest on federal funds
purchased and repos 4 4
----------------- ------------------
Total interest expense 1,161 1,185
----------------- ------------------
Net interest income 1,453 1,327
Provision for loan losses 25 10
----------------- ------------------
Net interest income after provision
for loan losses 1,428 1,317
Noninterest income:
Gain (loss) on sale of securities (6) 12
Service charges 180 173
Other 8 15
----------------- ------------------
Total other income 182 200
Noninterest expenses:
Salaries and employee benefits 548 532
Equipment 57 56
FDIC insurance 3 -
Occupancy 64 67
Professional fees 31 37
Postage 31 26
Other 202 204
----------------- ------------------
Total other expenses 936 922
----------------- ------------------
Income before income taxes 674 595
Provision for income taxes 171 134
----------------- ------------------
Net income $ 503 $ 461
================= ==================
Net income per common share $ 0.27 $ 0.25
================= ==================
</TABLE>
3
<PAGE>
Item 1. Financial Statements (Continued)
UNITED COMMUNITY BANKSHARES, INC.
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31,
---------------------------
1997 1996
------------ -----------
<S> <C>
Operating activities:
Net income $ 503 $ 461
Adjustments to reconcile to net cash provided by
operating activities:
Provision for loan losses 25 10
(Gain)/loss on sale of investment securities 6 (12)
Depreciation and amortization 60 57
Amortization of investment securities premiums, net of discounts - 2
Changes in:
Interest receivable 135 155
Interest payable 118 (19)
Other assets (67) (95)
Other liabilities 295 (71)
------------ ------------
Net cash provided by operating activities 1,075 488
Investing activities:
Proceeds from maturities and sales of available-for-sale securities 1,753 4,657
Purchases of available-for-sale securities (2,963) (6,444)
Maturities of held-to-maturity securities 600 1,237
Purchases of held-to-maturity securities (325) (2,143)
Loan originations, net of principal repayments 472 (2,046)
Purchases of premises and equipment (33) (36)
------------ ------------
Net cash used by investing activities (496) (4,775)
Financing activities:
Net increase (decrease) in short-term borrowings (23) 201
Cash dividends paid (274) (209)
Net increase (decrease) in noninterest bearing deposits (1,504) 38
Net increase in interest bearing deposits 796 363
------------ ------------
Net cash provided/(used) by financing activities (1,005) 393
DECREASE IN CASH AND CASH EQUIVALENTS (426) (3,894)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,152 14,062
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,726 $ 10,168
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest on deposits and other borrowings $ 1,043 $ 1,204
Income taxes $ 223 $ 414
</TABLE>
4
<PAGE>
Item 1. Financial Statements (Continued)
UNITED COMMUNITY BANKSHARES, INC.
Notes to Consolidated Financial Statements
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB 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 month
periods ended March 31, 1997 and 1996 are not necessarily indicative of the
results that may be expected for the entire year or any interim periods.
The accompanying unaudited consolidated financial statements include the
accounts of United Community Bankshares, Inc. ("UCB" or "the Company") and its
wholly-owned subsidiaries, The Bank of Franklin ("BOF"), The Bank of Sussex and
Surry ("BSS"), and their wholly-owned subsidiaries, The Bank of Franklin Service
Corporation and BSS Service Corporation, respectively. All significant
intercompany accounts and transactions have been eliminated.
BOF and BSS commenced operations in 1971 and 1902, respectively. The Bank of
Franklin Service Corporation and BSS Service Corporation were organized in 1996
and 1994, respectively, to facilitate investment in financial related services.
The consolidation has been prepared using the pooling of interests method of
accounting. All information included in the unaudited financial statements has
been combined as if the merger (discussed in Note C below) occurred at the
earliest date presented.
NOTE B - EARNINGS PER SHARE
Earnings per common share, for the periods ended March 31, 1997 and 1996, 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 affiliated pursuant to an Agreement and
Plan of Reorganization (the "Agreement") dated January 25, 1996. The
transaction contemplated by the Agreement created a holding company, United
Community Bankshares, Inc., which facilitated a share exchange transaction
between UCB and each of the respective banks. The Agreement was approved by the
stockholders of BOF and BSS at annual meetings held on June 27, 1996. After the
share exchange, BOF and BSS became wholly-owned subsidiaries of UCB, and each
shareholder of BOF and BSS became a shareholder of UCB. Under the terms of the
Agreement, BOF and BSS shareholders received 4.806 and 3.0 shares, respectively,
of UCB common stock for each share previously held. This resulted in the
issuance of 1,829,209 shares of UCB common stock. This combination was accounted
for as a pooling of interests. In connection with this transaction, merger
expenses totaling $189,758 were recognized in 1996. On July 31, 1996, BOF and
BSS reported unaudited total assets of $84.5 million and $62.5 million,
respectively, and unaudited stockholders' equity of $8.2 million and $9.8
million, respectively.
The banks retained their respective names, banking offices, executive officers
and board of directors. BOF has five banking offices, two in the City of
Franklin, and one each in the Towns of Courtland and Newsoms and the City of
Suffolk. BSS has three banking offices in the Towns of Wakefield, Ivor and
Surry.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Earnings Summary
UCB reported net income of $503,000 for the three month period ending March 31,
1997, compared to $461,000 for the same period in 1996, which represents a
$42,000 increase or 9.1%. This increase is primarily attributable to an
increase of $126,000 in net interest income which was partially offset by a
$37,000 increase in income taxes, a $14,000 increase in noninterest expenses, a
$15,000 increase in provisions for loan losses, and a $18,000 decrease in
noninterest income.
UCB's total assets as of March 31, 1997 were $149.3 million, down $561,000 or
0.4% from $149.9 million at year end 1996. Net loans as of March 31, 1997 were
$76.5 million, a decrease of $495,000 or 0.6% from $77.0 million at year end
1996. Investment securities increased $457,000 or 0.8% to $56.8 million from
$56.4 million as of March 31, 1997 and December 31, 1996, respectively. Cash
and cash equivalents totaled $10.7 million at March 31, 1997 and $11.2 million
at December 31, 1996, a decrease of $426,000 or 3.8%.
The annualized return on average equity (ROE) increased to 10.49% for the three
month period ended March 31, 1997, up from 10.33% for the same period in 1996.
The annualized return on average assets (ROA) was 1.35% for the first three
months of 1997, compared to 1.29% for the same period in 1996.
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 Company. UCB is not aware of any such changes.
Net Interest Income
Net interest income for the first three months of 1997 was $1,453 thousand, up
from $1,327 thousand for the same period in 1996, increasing by $126,000 or
9.5%. This increase is attributable to the transition of assets from nonearning
cash to federal funds sold and investment securities, combined with higher
yields in the loan portfolio.
For the three months ended March 31, 1997, total interest and fees on loans
increased by $164,000 or 10.4%, from the three month period ended March 31,
1996. A decrease in interest on investments of $43,000 or 5.1% and interest on
federal funds sold of $19,000 or 21.1% partially offset the increase in interest
and fees on loans. Interest expense decreased by $24,000 or 2.0% for the same
period.
Allowance for Loan Losses
The allowance for loan losses provides for potential losses inherent in the loan
portfolio. Among other factors, management considers the Company's historical
loss experience, the size and composition of the loan portfolio, the value and
adequacy of collateral and guarantors, nonperforming credits and current and
anticipated economic conditions. There are additional risks of future loan
losses which cannot be precisely quantified or attributed to particular loans or
classes of loans. Since those risks include general economic trends, as well as
conditions affecting individual borrowers, the allowance for loan losses is an
estimate. The allowance is also subject to regulatory examinations and
determination as to adequacy, which may take into account such factors as the
methodology used to calculate the allowance, and the size of the allowance in
comparison to peer banks identified by regulatory agencies.
During the first three months of 1997, the Company had $25,000 in provision
expense compared to $10,000 in the first quarter of 1996. Loans charged off,
which are charged directly to the allowance when they occur, during the first
three months of 1997 amounted to $77,000 compared to $36,000 for the same period
in 1996. Recoveries during the first quarters of 1997 and 1996 amounted to
$18,000 and $18,000, respectively. The ratio of net charge-offs to average
outstanding loans was 0.08% in 1997 and 0.03% in 1996. Management feels that
the reserve is adequate to absorb any losses on existing loans which may become
uncollectible. The following table presents the Company's loan loss and
recovery experience for the first quarters of the past two years.
6
<PAGE>
ALLOWANCE FOR LOAN LOSSES
(IN THOUSANDS)
3 MONTHS ENDED MARCH 31,
----------------------------
1997 1996
------------ ------------
Balance, beginning of period $ 1,209 $ 1,250
Charge-offs:
Residential real-estate - -
Commercial real-estate - -
Commercial 2 -
Consumer 75 36
------------ ------------
Total charge-offs 77 36
------------ ------------
Recoveries:
Residential real-estate 1 1
Commercial real-estate - -
Commercial 1 5
Consumer 16 12
------------ ------------
Total recoveries 18 18
------------ ------------
Net recoveries (charge-offs) (59) (18)
Provisions for losses 25 10
------------ ------------
Balance, end of period $ 1,175 $ 1,242
============ ============
Net charge-offs to average loans 0.08% 0.03%
Allowance for possible loan losses to total loans 1.51% 1.79%
Noninterest Income
Total noninterest income decreased by $18,000, or 9.0%, from a level of $200,000
in the first three months of 1996 to $182,000 for the same period of 1997.
Substantially all of this $18,000 decrease is attributable to a change from a
$12,000 gain on sales of investment securities in 1996 to a $6,000 loss on
sales of investment securities in 1997. During the three month period ended
March 31, 1997, a $7,000 increase in service charges offset a $7,000 decrease in
other income, compared to the same period in 1996.
Noninterest Expense
Total noninterest expenses for the first three months of 1997 were $936,000, an
increase of $14,000 or 1.5% compared to $922,000 for the same period last year.
Almost all of this increase is attributable to an increase in salaries and
employee benefits of $16,000, or 3.0%, to $548,000 in 1997 from $532,000 in
1996, arising from general pay increases and increased staffing levels due to
the continued growth of the Company.
Nonperforming Assets
Total nonperforming assets remained unchanged at $347,000 from year end 1996 to
March 31, 1997. Loans past due 90 days or more and still accruing interest
declined $26,000 or 5.1% to $483,000 as of March 31, 1997 from $509,000 at
December 31, 1996. The following table summarizes nonperforming assets for the
past quarter and year end 1996.
7
<PAGE>
Nonperforming Assets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ---------
<S> <C>
Nonaccrual loans $ 182 $ 182
Restructured loans - -
Other real estate owned 165 165
---------- ---------
Total nonperforming assets $ 347 $ 347
========== =========
Loans past due 90 days or more and still accruing $ 483 $ 509
Allowance for loan losses $ 1,246 $ 1,250
Allowance for possible loan loss to nonperforming loans 684.62% 686.81%
Allowance for possible loan loss to nonperforming assets 359.08% 360.23%
</TABLE>
Liquidity and Short-Term Borrowings
Liquidity represents an institution's ability to meet present and future
financial obligations through either the sale of existing assets or the
acquisition of additional funds through short-term borrowings. Liquid assets
include cash, interest-bearing deposits with banks, federal funds sold and
investments and loans maturing within one year. As a result of the Company's
management of liquid assets, and the ability to generate liquidity through
liability fundings, management believes that the Company maintains overall
liquidity which is sufficient to satisfy its depositors' requirements and to
meet customers' credit needs. The Company has no long-term debt and no material
commitments for capital expenditures.
Cash and cash equivalents totaled $10.7 million at March 31, 1997 and $11.2
million at December 31, 1996. At March 31, 1997, cash and due from banks,
securities classified as available for sale and federal funds sold were $57.5
million, 38.5% of total earning assets, compared to $57.2 million, 41.7% of
total earning assets at December 31, 1996. Asset liquidity is also provided by
managing both loan and securities maturities.
Additional sources of liquidity available to the Company include its subsidiary
Banks' capacity to borrow additional funds through several established federal
funds arrangements and the Federal Home Loan Bank (the "FHLB"). As of March 31,
1997, UCB had no outstanding borrowings from the FHLB. UCB could borrow
approximately $6.5 million from the FHLB, if collateral acceptable to the FHLB
was provided. In addition, federal funds arrangements with other institutions
provide an additional $14.0 million of short-term borrowing capacity. At March
31, 1997, the Company did not have an outstanding balance on these lines of
credit. Also, the Company offers overnight repurchase agreements to a
commercial customer, which amounted to $206,000 at March 31, 1997.
Effects of Changing Prices and Seasonality
Because of the seasonality of the agricultural industry, the volume of loans and
deposits typically fluctuate during the year. Loans are typically heaviest from
April to December and deposits are typically their lowest during the same
period. At the end of the year and the beginning of the following year, loans
decrease as they are repaid and deposits increase as a result of the sale of the
fall harvest.
8
<PAGE>
Capital Adequacy
Management reviews the adequacy of the Banks' capital on an ongoing basis with
reference to the size, composition, and quality of the Banks' resources and
compliance 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 March 31, 1997
and December 31, 1996, the required minimum ratio of qualifying total capital to
risk-weighted assets was 8.0%, of which 4.0% 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, as illustrated below.
Capital Ratios
Regulatory March 31, 1997 December 31, 1996
----------------------- ----------------------
Minimum BOF BSS UCB BOF BSS UCB
------- --- --- --- --- --- ---
Risk-based capital
Tier 1 4.00% 14.49% 24.32% 18.55% 14.40% 23.58% 18.27%
Total 8.00% 15.61% 25.57% 19.72% 15.58% 24.83% 19.48%
Leverage 4.00% 9.88% 15.41% 12.26% 9.58% 15.45% 12.08%
9
<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 March 31,
1997, 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
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
None.
b. Form 8-K.
None.
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: May 8, 1997
- -----------------------------------
W.O. Pearce
President & Chief Executive Officer
/s/ Wayne C. Carruthers Date: May 8, 1997
- ------------------------
Wayne C. Carruthers, CPA
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,510
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,216
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 46,792
<INVESTMENTS-CARRYING> 10,055
<INVESTMENTS-MARKET> 0
<LOANS> 77,634
<ALLOWANCE> 1,175
<TOTAL-ASSETS> 149,317
<DEPOSITS> 129,118
<SHORT-TERM> 206
<LIABILITIES-OTHER> 1,096
<LONG-TERM> 0
0
0
<COMMON> 1,829
<OTHER-SE> 17,068
<TOTAL-LIABILITIES-AND-EQUITY> 149,317
<INTEREST-LOAN> 1,742
<INTEREST-INVEST> 801
<INTEREST-OTHER> 71
<INTEREST-TOTAL> 2,614
<INTEREST-DEPOSIT> 1,157
<INTEREST-EXPENSE> 1,161
<INTEREST-INCOME-NET> 1,453
<LOAN-LOSSES> 25
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 936
<INCOME-PRETAX> 674
<INCOME-PRE-EXTRAORDINARY> 503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
<YIELD-ACTUAL> 0
<LOANS-NON> 182
<LOANS-PAST> 483
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,209
<CHARGE-OFFS> 77
<RECOVERIES> 18
<ALLOWANCE-CLOSE> 1,175
<ALLOWANCE-DOMESTIC> 1,175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
