<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ___________
Commission file number 0-21656
UNITED COMMUNITY BANKS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-180-7304
- ------------------------ -------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
P.O. Box 398, 59 Highway 515
Blairsville, Georgia 30512
- ------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
(404) 745-2151
------------------
(Telephone number)
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 XX NO
----
Common stock, par value $1 per share: 6,260,280 shares
outstanding as of July 31, 1996
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1996
and December 31, 1995 3
Consolidated Statements of Earnings for the Three Months and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
-2-
<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
ASSETS (In Thousands)
<S> <C> <C>
Cash and due from banks $ 22,176 20,758
Federal funds sold 10,720 11,230
--------- --------
Cash and cash equivalents 32,896 31,988
--------- --------
Securities held to maturity (estimated fair value of $75,493 and $79,650) 76,097 78,821
Securities available for sale 52,786 65,046
Mortgage loans held for sale 7,604 12,048
Loans 502,465 444,092
Less: Allowance for loan losses (7,153) (6,545)
--------- --------
Loans, net 495,312 437,547
--------- --------
Premises and equipment 16,035 15,997
Accrued interest receivable 7,034 6,462
Other assets 12,468 11,760
--------- --------
$ 700,232 659,669
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 68,372 62,753
Interest-bearing demand 125,707 114,825
Savings 40,222 38,947
Time 387,851 374,131
--------- --------
Total deposits 622,152 590,656
Accrued expenses and other liabilities 4,577 3,676
Federal Home Loan Bank advances 14,860 9,001
Long-term debt 10,744 11,309
Convertible subordinated debentures 1,000 1,000
--------- --------
Total liabilities 653,333 615,642
--------- --------
Stockholders' equity:
Preferred Stock -- --
Common Stock, $1 par value; 10,000,000 shares authorized;
6,260,280 shares issued and outstanding 6,260 6,260
Capital surplus 14,520 14,520
Net unrealized gain (loss) on investment securities available
for sale, net of tax (447) 251
Retained earnings 26,566 22,996
--------- --------
Total stockholders' equity 46,899 44,027
--------- --------
$700,232 659,669
========= ========
</TABLE>
<PAGE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30
1996 1995 1996 1995
--------- --------- --------- ---------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 12,872 10,528 24,930 18,995
Interest on deposits with other banks 12 20 34 23
Interest on federal funds sold 194 379 417 497
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 1,476 1,271 3,089 1,970
State, county and municipal 469 391 933 917
--------- --------- --------- ---------
Total interest income 15,023 12,589 29,403 22,402
--------- --------- --------- ---------
Interest expense:
Interest on deposits:
Demand 1,014 913 2,018 1,728
Savings 262 270 520 499
Time 5,705 5,095 11,567 8,613
--------- --------- --------- ---------
6,981 6,278 14,105 10,840
Long-term debt, subordinated debentures,
FHLB advances, and federal funds purchased 363 508 725 993
--------- --------- --------- ---------
Total interest expense 7,344 6,786 14,830 11,833
--------- --------- --------- ---------
Net interest income 7,679 5,803 14,573 10,569
Provision for loan losses 288 214 567 420
--------- --------- --------- ---------
Net interest income after provision for
loan losses 7,391 5,589 14,006 10,149
--------- --------- --------- ---------
Noninterest income:
Service charges and fees 664 518 1,273 900
Securities gains, net (16) 14 15 3
Mortgage loan and related fees 390 338 857 629
Other noninterest income 137 73 350 399
--------- --------- --------- ---------
Total noninterest income 1,175 943 2,495 1,931
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits 3,166 2,525 6,101 4,608
Occupancy 835 682 1,627 1,279
Deposit insurance premiums 6 268 17 489
Other noninterest expense 1,656 1,089 3,269 1,916
--------- --------- --------- ---------
Total noninterest expense 5,663 4,564 11,014 8,292
--------- --------- --------- ---------
Earnings before income taxes 2,903 1,968 5,487 3,788
Income taxes 1,008 590 1,917 1,153
--------- --------- --------- ---------
Net earnings $ 1,895 1,378 3,570 2,635
========= ========= ========= =========
Net earnings per common share $ 0.30 0.25 0.57 0.47
Weighted average shares outstanding 6,260,280 5,589,365 6,260,280 5,589,365
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,570 2,635
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 1,201 832
Provision for loan losses 567 422
Gain on sale of investment securities (15) (2)
Change in assets and liabilities:
Interest receivable (572) (744)
Interest payable (490) 470
Other assets (563) (1,158)
Accrued expenses and other liabilities 1,022 43
Change in mortgage loans held for sale 4,444 (207)
-------- --------
Net cash provided by operating activities 9,164 2,291
-------- --------
Cash flows from investing activities:
Cash acquired in consolidation of White County Bank - 8,508
Proceeds from maturities and calls of securities held to maturity 8,911 4,447
Purchases of securities held to maturity (7,476) (4,675)
Proceeds from sales of securities available for sale 11,949 7,979
Proceeds from maturities and calls of securities available for sale 20,171 3,826
Purchases of securities available for sale (19,787) (30,526)
Net increase in loans (58,349) (33,205)
Proceeds from sales of other real estate 35 -
Purchase of bank premises and equipment (616) (1,255)
-------- --------
Net cash used in investing activities (45,162) (44,901)
-------- --------
Cash flows from financing activities:
Net change in demand and savings deposits 17,892 13,214
Net change in time deposits 13,721 63,704
Net increase in federal funds purchased - (8,300)
Proceeds from long-term debt - 258
Repayments of long-term debt (565) (630)
Proceeds from FHLB advances 6,000 7,346
Repayments of FHLB advances (141) (2,389)
Dividends paid - -
-------- --------
Net cash provided by financing activities 36,907 73,203
Net increase in cash and cash equivalents 909 30,593
Cash and cash equivalents at beginning of period 31,988 14,570
Cash and cash equivalents at end of period $ 32,897 45,163
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,320 11,363
Income taxes $ 1,800 1,075
Schedule of noncash investing and financing activities:
Change in dividends payable $ - -
Transfers of loans to other real estate owned $ 444 5
Change in unrealized gain (loss) on securities available for sale $ (698) 430
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements have not
been audited. The results of operations are not necessarily
indicative of the results of operations for the full year or any
other interim periods.
The accounting principals followed by United Community Banks,
Inc. ("United") and its bank subsidiaries and the methods of
applying these principals conform with generally accepted
accounting principals and with general practices within the
banking industry. Certain principals which significantly affect
the determination of financial position, results of operation and
cash flows are summarized below and in United's annual report on
Form 10-K for the year ended
December 31, 1995.
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
United and its wholly-owned subsidiaries, Union County Bank
(UCB), Citizens Bank (Citizens), Peoples Bank (Peoples), Towns
County Bank (Towns) and White County Bank (White) . All
significant intercompany accounts and transactions have been
eliminated in consolidation. Certain items in prior period's
financial statements have been reclassified to conform with the
current financial statement presentation.
The consolidated financial information furnished herein
reflects all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results of
operations and financial position for the periods covered herein
and are normal and recurring in nature. For further information,
refer to the consolidated financial statements and footnotes
included in United's annual report on Form 10-K for the year
ended December 31, 1995.
(2) Earnings Per Share
------------------
Earnings per share amounts are based on the weighted average
number of shares outstanding. Fully diluted earnings per share
are not presented because the assumed conversion of the
subordinated debentures do not result in material dilution.
(3) Acquisition of Branch Offices
-----------------------------
On May 25, 1995, United executed a Purchase and Assumption
Agreement to acquire certain assets and deposit liabilities of
the Franklin and Waynesville, North Carolina branch offices of
Nations Bank, N.A. These branch offices had total assets of $14.8
million, total loans of $11.1 million and total deposits of $26.1
million as of October 19, 1995, the date of closing.
-6-
<PAGE>
On June 6, 1996, United executed a Purchase and Assumption
Agreement to acquire certain assets and deposit liabilities of
the Cornelia, Georgia branch office of the First National Bank of
Commerce. This branch office had total assets of $29 million,
total loans of $28 million and total deposits of $21 million as
of June 30, 1996. This acquisition is expected to close during
the third quarter.
(4) Recently Issued Accounting Standards
------------------------------------
During 1995, the Financial Accounting Standards Board (FASB)
issued SFAS No. 123, Accounting for Stock-Based Compensation.
This new standard became effective January 1, 1996, and will
require United to disclose the fair value of employee stock
options granted in 1995 and subsequent years. Since United will
not be required to record the options at fair market value,
management does not expect this new standard to have a material
impact on the consolidated financial statements.
(5) Net Earnings Per Common Share
-----------------------------
Net earnings per common share are based on the weighted average
number of common shares outstanding during each period. The
assumed conversion of the convertible subordinated debentures and
exercise of stock options do not result in material dilution.
All share and per share data have been adjusted to reflect the
October 1995, five-for-one split, effected in the form of a stock
dividend, paid on November 6, 1995.
-7-<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
OVERVIEW
Net earnings for the six months ended June 30, 1996 increased to
$3.6 million or 35 percent over net earnings for the first six
months of 1995. Net earnings per common share for the first six
months also increased 21 percent from the same period in 1995 to
$.57. Net interest income increased 38 percent for the six
months ended June 30, 1996 over the same period of 1995 to 14.6
million. For the first half of 1996, the provision for loan
losses increased 35 percent to $567.000 for the six month period.
Noninterest income and expense rose 22 percent and 31 percent
respectively over the first half of 1995.
NET INTEREST INCOME
Net interest income for the six months ended June 30, 1996
increased $4 million over the first half of 1995. This increase
was the result of a $7 million, or 31 percent increase in
interest income, offest by a $3 million, or 25 percent increase
in interest expense. The increase in interest income was due to
an increase in average earning assets of $141 million coupled
with an increase in the average yield on earning assets from 8.73
percent to 8.89 percent.
Interest expense for the six months ended June 30, 1996,
increased $3 million , or 25 percent from the prior year, due
primarily to a 30% increase in average core deposits.
NET INTEREST MARGIN
The difference between the overall interest income on earning
assets and the interest expense paid on all funding sources,
including noninterest bearing deposits, is referred to as the net
interest margin. For the first six months of 1996 the net
interest margin was 4.63 percent compared to 4.36 percent for the
same period in 1995. This 27 basis point increase resulted from
a stable rate environment as well as a favorable change in the
core deposit mix.
NONINTEREST INCOME AND EXPENSE
Noninterest income for the first six months of 1996 increased
$451 thousand, or 22 percent over the same period in 1995.
Service charges on deposits increased over $372 thousand, or 41
percent during the first six months, principally as a result of
an increased number of depoist accounts being serviced. This
increase is a result of continued growth and the White County and
the Citizens branch banking acquisitions. Mortgage loan and
related fees increased $228 thousand, or 36% as a result of
declining rate environment for a majority of the first six months
of 1996. Gains on investment securities sold during the first
quarter of 1996 were not material.
-8-<PAGE>
Noninterest expenses increased $2.6 million, during the first
six months of 1996 over the same period in 1995. Salaries and
employee benefits increased $1.6 million, or 34 percent, for the
first half. The increase in salaries and benefits was the result
of an additional 57 employees compared to the same period in
1995. The number of employees increased primarily as a result of
the White County acquisition as well as the branch banking
facilities acquired by Citizens as discussed earlier. Net
occupancy expense increased $348 thousand due primarily to an
increase in the depreciation and other occupancy expenses
associated with the increased number of banking facilities. FDIC
deposit insurance premiums decreased $472 thousand as a result of
the recalculated FDIC assessment. Other noninterest expense,
including stationary and supplies and advertising , increased
$1.2 million during the first half of 1996.
INCOME TAXES
Income tax expense increased during the first half of 1996
compared to the same period in 1995 by $767 thousand. The
effective tax rates for the six months ended June 30, 1996 and
1995 were 35 percent and 30 percent, respectively. The increases
are due primarily to the combined efforts of increased levels of
pretax income, and a lower mix of tax-exempt securities held in
the investment portfolio. Management expects the trend of an
increasing effective tax rate to continue.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for loan losses for the six months ended June 30,
1996 increased 35 percent to $567 thousand from the $420
thousand reported for the same period in 1995. Management
considers the size and character of the loan portfolio, changes
in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations
of loans to specific borrowers and existing and prospective
economic conditions when determining the adequacy of the
allowance for loan losses. The allowance for loan losses at June
30, 1996 was $7.2 million compared to $6.5 million at December
31, 1995. The ratio of the allowance for loan losses to loans
outstanding at June 30, 1996 was 1.42 percent compared to 1.48
percent at December 31, 1995. The reduction in the ratio
reflects the improvement in the quality of United's loan
portfolio and a reduction in the net charge-offs. It is
management's belief that the allowance for loan losses is
adequate to absorb probable loss in the portfolio.
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets, comprised of nonaccrual loans, other real
estate owned and loans for which payments are more than 90 days
past due, decreased $900 thousand to $ 1.3 million at June 30,
1996 from $2.2 million at December 31, 1995. In addition,
Nonperforming assets as a percentage of total loans and other
real estate owned improved to .26 percent at March 31, 1996 from
.48 percent at December 31, 1995.
-9-<PAGE>
United regularly monitors selected accruing loans for which
general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. This
continuous monitoring of the loan portfolio and the related
identification of loans with a high degree of credit risk are
essential parts of United's credit management. Management
continues to emphasize maintaining a low level of nonperforming
assets and returning current nonperfroming assets to an earning
status.
At June 30, 1996, management was unaware of any known trends,
events or uncertainties that will have or that are reasonably
likely to have a material effect on United's liquidity, capital
resources or operations.
Financial Condition
OVERVIEW
Total assets at June 30, 1996 were $700 million representing a
$40 million or a 6 percent increase from December 31, 1995 and a
$101 million or a 17 percent increase from June 30, 1995.
ASSETS AND FUNDING
At June 30, 1995, earning assets totaled $650 million, an
increase of $38 million from December 31, 1995. The earning
assets mix improved slightly in the first six months with loans
representing 77% of the total earning assets as compared to 73%
percent at December 31, 1995.
Interest bearing deposits at June 30, 1996 increased $26 million
from December 31, 1995, while non-interest bearing deposits
increased over $5.7 million since December 31, 1995. At June 30,
1996, deposits accounted for 89 percent of United's funding, from
90 percent at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $9.2 million
for the six months ended June 30, 1996. For the first half of
1996, net cash used from investing activities of $45.2 million
consisted of proceeds from maturities of investments securities
of $29.1 million, proceeds from sales of investment securities of
$12 million, and offset by cash outflows of $27.3 million in
investment securities purchases, a $58.3 million increase in
loans outstanding and purchase of bank premises and equipment of
$616 thousand. Net cash provided by financing activities
consisted largely of $31.6 million increase in deposit and time
accounts, $6 million from additional FHLB advances, and were
offset slightly by payments of $706 thousand on United's long-
term debt and FHLB repayments.
Total stockholders' equity at June 30, 1996, was 6.70 percent of
total assets compared to 6.67 percent at December 31, 1995. The
slight increase since year end 1995 reflects the asset growth of
$40 million and the change of $698 thousand in the unrealized
loss in United's available for sale investment portfolio offset
by retained earnings from the first six months of 1996.
-10-<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
-----------------
Item 2. Changes in Securities - On April 24, 1996 at the Annual Meeting
--------------------
of Shareholders, the United Shareholders voted to eliminate
the preemptive rights of the holders of Common Stock.
Item 3. Defaults Upon Senior Securities - None
------------------------------
Item 4. Submission of Matters to a Vote of Security Holders
--------------------------------------------------
a) United Community Banks, Inc. 1996 Annual
Meeting of Stockholders was held April 24, 1996
b) The following slate of directors was elected to
serve the current year term:
James A. Brackett, Jr. Hoyt O . Holloway
Billy M. Decker P. Deral Horne
Thomas C. Gilliland Clarence W. Mason, Jr.
Robert L. Head, Jr. W.C. Nelson, Jr.
Charles E. Hill Jimmy C. Tallent
c) The shareholders of United voted to eliminate the preemptive
rights of the holders of Common Stock. 5,161,802 (82.45%)
shares were voted for the proposal, no shares were voted
against the proposal, 22,860 (.37%) shares abstained
from the vote and 1,075,618 (17.1) shares did not vote.
No matters, other than the election of the above slate
of directors and the above referenced proposal to
elimination the preemptive rights, were voted on at
the annual meeting.
Item 5. Other Information - None
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits. Exhibit 27 -Financial Data Schedule
(b) Reports on Form 8-K. There were no reports on Form 8-K.
-11-
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
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 BANKS, INC.
By: /s/ Jimmy C. Tallent
Jimmy C. Tallent, President
(Principal Executive Officer)
Date: August 10, 1996
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: August 10, 1996
-12-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000857855
<NAME> UNITED COMMUNITY BANKS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,176
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,720
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 52,786
<INVESTMENTS-CARRYING> 76,097
<INVESTMENTS-MARKET> 75,493
<LOANS> 510,069
<ALLOWANCE> (7,153)
<TOTAL-ASSETS> 700,232
<DEPOSITS> 622,152
<SHORT-TERM> 14,860
<LIABILITIES-OTHER> 4,577
<LONG-TERM> 10,744
0
0
<COMMON> 6,260
<OTHER-SE> 40,639
<TOTAL-LIABILITIES-AND-EQUITY> 700,232
<INTEREST-LOAN> 24,930
<INTEREST-INVEST> 4,473
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 29,403
<INTEREST-DEPOSIT> 14,105
<INTEREST-EXPENSE> 14,830
<INTEREST-INCOME-NET> 14,573
<LOAN-LOSSES> 567
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 3,269
<INCOME-PRETAX> 5,487
<INCOME-PRE-EXTRAORDINARY> 5,487
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,570
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<YIELD-ACTUAL> 4.63
<LOANS-NON> 1,050
<LOANS-PAST> 171
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,545
<CHARGE-OFFS> 117
<RECOVERIES> 158
<ALLOWANCE-CLOSE> 7,153
<ALLOWANCE-DOMESTIC> 7,153
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,153
</TABLE>
