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 March 31, 1997
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)
(706) 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 /x/ NO / /
Common stock, par value $1 per share: 6,438,848 shares
outstanding as of April 30, 1997
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 3
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
-2-<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
ASSETS (In Thousands)
<S> <C> <C>
Cash and due from banks $ 27,562 26,377
Federal funds sold 17,170 24,215
--------- --------
Cash and cash equivalents 44,732 50,592
--------- --------
Securities held to maturity (estimated fair value
of $67,259 and $71,334) 67,159 72,022
Securities available for sale 99,198 74,864
Mortgage loans held for sale 5,523 6,727
Loans
644,290 592,351
Less: Allowance for loan losses (8,833) (7,680)
--------- --------
Loans, net 635,457 584,671
--------- --------
Premises and equipment 19,297 18,650
Accrued interest receivable 8,609 7,780
Other assets 11,541 12,724
--------- --------
$ 891,516 828,030
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 80,736 77,908
Interest-bearing demand 167,664 158,124
Savings 39,666 39,001
Time 490,832 445,693
--------- --------
Total deposits 778,898 720,726
Accrued expenses and other liabilities 5,112 5,876
Borrowed Funds 43,424 38,574
Long-term debt 10,170 10,453
--------- --------
Total liabilities 837,604 775,629
--------- --------
Stockholders' equity:
Common stock, $1 par value; 10,000,000 shares authorized;
6,438,848 and 6,260,280 shares issued and outstanding 6,439 6,439
Capital surplus 15,341 15,341
Net unrealized loss on investment securities available
for sale, net of tax (502) (75)
Retained earnings 32,634 30,696
--------- --------
Total stockholders' equity 53,912 52,401
--------- --------
$ 891,516 828,030
========= ========
</TABLE>
-3-<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1997 1996
----------- -----------
(In Thousands Except Per Share Data)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 15,729 $ 12,057
Interest on deposits with other banks - 22
Interest on federal funds sold 348 223
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 1,862 1,613
State, county and municipal 510 464
--------- -----------
Total interest income 18,449 14,379
--------- -----------
INTEREST EXPENSE:
Interest on deposits:
Demand 1,516 1,004
Savings 261 258
Time 6,925 5,862
--------- -----------
8,702 7,124
--------- -----------
Borrowed Funds 793 362
--------- -----------
Total interest expense 9,495 7,486
--------- -----------
Net interest income 8,954 6,893
Provision for loan losses 564 279
--------- -----------
Net interest income after provision for loan losses 8,390 6,614
--------- -----------
NONINTEREST INCOME:
Service charges and fees 930 609
Securities gains, net (7) 31
Mortgage loan and related fees 276 467
Other noninterest income 263 212
--------- -----------
Total noninterest income 1,462 1,319
--------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 3,703 2,935
Occupancy 998 792
Other noninterest expense 2,036 1,624
--------- -----------
Total noninterest expense 6,737 5,351
--------- -----------
Earnings before income taxes 3,115 2,582
Income taxes 1,015 909
--------- -----------
Net earnings $ 2,100 1,673
========= ==========
Net earnings per common share $ 0.33 0.27
Weighted average shares outstanding 6,438,848 6,260,280
</TABLE>
-4-<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
1997 1996
--------- ---------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,100 $ 1,673
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation, amortization and accretion 491 517
Provision for loan losses 564 279
Gain on sale of investment securities 7 (31)
Change in assets and liabilities:
Interest receivable (829) (523)
Interest payable 311 (352)
Other assets 1,165 (766)
Accrued expenses and other liabilities (1,071) 1,355
Change in mortgage loans held for sale 1,203 2,246
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 3,941 4,398
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities held to maturity 5,007 4,512
Purchases of securities held to maturity (1,676) (6,436)
Proceeds from sales of securities available for sale 3,266 2,507
Proceeds from maturities and calls of securities available for sale 4,730 12,740
Purchases of securities available for sale (31,571) (14,420)
Net increase in loans (51,188) (20,815)
Proceeds from sale of other real estate 7 --
Purchase of bank premises and equipment (953) (176)
--------- ---------
Net cash used in investing activities (72,378) (22,088)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 13,034 12,476
Net increase in time deposits 45,138 8,358
Proceeds from long-term debt 750 -
Proceeds from Other Borrowings 4,500 -
Repayments of long-term debt (283) (283)
Repayments of Other Borrowings (400) (54)
Cash paid for dividends (161) -
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 62,578 20,497
--------- ---------
Net increase (decrease) in cash and cash equivalents (5,859) 2,807
Cash and cash equivalents at beginning of period 50,592 31,988
--------- ---------
Cash and cash equivalents at end of period $ 44,733 $ 34,795
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 9,833 $ 7,839<PAGE>
Income Taxes $ 929 $ 605
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Change in dividends payable $ (161) $ -
Transfer of loans to other real estate owned $ 274 $ 263
Change in unrealized gain / (loss) on securities available for sale $ (669) $ (595)
</TABLE>
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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, 1996.
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of
United and its wholly-owned subsidiaries, Union County Bank
(UCB), Carolina Community Bank (Carolina), Peoples Bank (Peoples),
Towns County Bank (Towns) and White County Bank (White) (collectively,
the "Bank Subsidiaries" and United Family Finance Company, Inc.
(Finance), a finance company subsidiary . All significant intercompany
accounts and transactions have been eliminated in consolidation.
Certain items in prior period's financial statements have been reclassified
to conform to the current financial statement presentation.
The consolidated financial information furnished herein
reflects all adjustments that 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, 1996.
(2) EARNINGS PER 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 does not result in material
dilution.
(3) ACQUISITION OF BRANCH OFFICES
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 assets of $36 million, total
loans of $31million and total deposits of $24 million as of
September 30, 1996, the date of closing.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
<PAGE>
During February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (SFAS 128), SFAS 128 simplifies current
standards by eliminating the presentation of primary earnings per
share (EPS) and requiring the presentation of basic EPS, which
includes no potential common shares and thus no dilution. The
statement also requires entities with complex capital structures
to present basic and diluted EPS on the face of the income statement
and also eliminates the modified treasury stock method of computing
potential common shares. The Statement is effective for financial
statements issued for periods ending after December 15, 1997, including
interim periods. Early application is not permitted. Upon adoption,
restatement of all prior-period EPS data prescribed is required. Based
upon the current capital structure of the Company, this Statement will
have no effect on the EPS calculation.
-6-<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
OVERVIEW
Net Earnings for the quarter ended March 31, 1997 increased
to $2,100,000 or 26 percent over net earnings for the first
quarter of 1996. Net earnings per common share for the first
quarter also increased 22 percent from the same period in 1996 to
$.33. Net interest income increased 30 percent for the quarter
ended March 31, 1997 over the same period of 1996 to 9 million.
For the first quarter, the provision for loan losses increased
over 100 percent to $564 thousand for the three-month period.
Noninterest income and expense rose 11 percent and 26 percent
respectively for the first quarter of 1997.
NET INTEREST INCOME
Net interest income for the quarter ended March 31, 1997
increased $2.1 million over the first quarter of 1996. This
increase was the result of a $4.1 million, or 28 percent,
increase in interest income and a $2 million, or 27 percent
increase in interest expense. The increase in interest income
was due to an increase in earning assets of $167 million coupled
with an increase in the average yield on earning assets from 9.37
percent to 9.48 percent.
Interest expense for the three months ended March 31, 1997,
increased $2 million, or 27 percent from the prior year, due
primarily to a $151 million increase in interest bearing
liabilities.
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 three months of 1997
the net interest margin was 4.66 percent compared to 4.60 percent
for the same period in 1996. This 6 basis point increase was the
primary result of an increase in loan fees of approximately $400
thousand.
NONINTEREST INCOME AND EXPENSE
Noninterest income for the first three months of 1997
increased $142 thousand, or 11 percent over the same period in
1996. Service charges on deposits increased over $320 thousand,
or 53 percent. The increase in service charges resulted by the
increase in number of accounts and balances outstanding in
transaction deposit accounts. Mortgage loan and related fees
decreased $191 thousand, or 41% as a result of increased rates
for the first three months of 1997, as well as a 30% decrease in
volume. Gains on investment securities sold during the first quarter
of 1996 were not material.
Noninterest expenses increased $1.4 million, or 26 percent,
during the first three months of 1997 over the same period in
1996. Salaries and employee benefits increased $768 thousand, or
26 percent, for the first quarter. The increase in salaries and
benefits were the result of the addition of personnel in
connection with the First Bank of Habersham acquisition as well
as branch openings in Bryson City, Sylva, and Cashiers in the
western Carolina market as well as the opening of United
Community Banks of Lumpkin County. Net occupancy expense
increased 26 percent due primarily to the increase in facilities
as mentioned above. Other noninterest expense, including
stationary and supplies and advertising, increased $412 thousand
during the quarter, primarily the result of the name change from
Citizens Bank to Carolina Community Bank.
INCOME TAXES
Income tax expense increased during the first quarter of
1997 compared to the same period in 1995 by $106 thousand or 12
percent. The effective tax rates for the three months ended
March 31, 1997 and 1996 were 33 percent and 35 percent,
respectively. The decrease is primarily due to a higher mix of
loans and, tax-exempt securities held in portfolio.
-7-
<PAGE>
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for loan losses for the three months ended
March 31, 1997 increased $285 thousand to $564 thousand from the
$279 thousand reported for the same period in 1996. Management
considers the size and character of the loan portfolio, changes
in nonperforming and past due loans, historical loan loss
experience, and 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
March 31, 1997 was $8.2 million compared to $7.7 million at
December 31, 1996. The ratio of the allowance for loan losses to
loans outstanding at March 31, 1997 was 1.27 percent compared to
1.30 percent at December 31, 1996. 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, totaled $644 thousand at March 31, 1997 compared
to $1.45 million at March 31, 1996. Nonperforming assets as a
percentage of total loans and other real estate owned were .11
percent at March 31, 1997 and .31 percent at March 31, 1996.
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 March 31, 1997, 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 March 31, 1996 were $892 million
representing a $63.5 million or an 8 percent increase from
December 31, 1996 and a $209 million or a 31 percent increase
from March 31, 1996.
ASSETS AND FUNDING
At March 31, 1997, earning assets totaled $833 million, an
increase of $62 million from December 31, 1996. The mix of
earning assets remained relatively the same during the first
three months of 1997. Loans comprised 77 percent of total
earning assets; while the percentage of earning assets
represented by total investment securities was 20 percent at
March 31, 1997, compared to 19 percent at December 31, 1996.
Interest bearing deposits at March 31, 1997 increased $55
million from December 31, 1996, while non-interest bearing
deposits increased over $3 million since December 31, 1996. At
March 31, 1997, deposits accounted for 94 percent of United's
funding, unchanged from year-end.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $ 4 million
for the three months ended March 31, 1997. For the first quarters
of 1997, net cash used by investing activities of $ 72 million
consisted of proceeds from maturities of investment securities of
$ 5 million, proceeds from the sale of investment securities of $
3 million, offset by cash outflows of $ 32 million in investment
securities purchases, a $ 51 million increase in loans
outstanding and purchases of bank premises and equipment of $953
thousand. Net cash provided by financing activities consisted
largely of the $ 58 million increase in time and deposits
accounts, as well as an increase of $ 5 million in other
borrowings.
Total stockholders' equity at March 31, 1997, was 6.05 percent
of total assets compared to 6.33 percent at December 31, 1996.
The slight decrease is attributed to an increase in total assets
of $65 million in addition to the change in the unrealized gain /
(loss) on securities of $428 thousand.
-8-<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule (for SEC use only)
Form 8-K - None.
-9-<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: May 10, 1997
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: May 10, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000857855
<NAME> UNITED COMMUNITY BANKS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 27,562
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 17,170
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 99,198
<INVESTMENTS-CARRYING> 67,159
<INVESTMENTS-MARKET> 67,259
<LOANS> 643,613
<ALLOWANCE> (8,156)
<TOTAL-ASSETS> 891,516
<DEPOSITS> 778,898
<SHORT-TERM> 43,424
<LIABILITIES-OTHER> 5,112
<LONG-TERM> 10,170
0
0
<COMMON> 6,439
<OTHER-SE> 47,473
<TOTAL-LIABILITIES-AND-EQUITY> 891,516
<INTEREST-LOAN> 15,729
<INTEREST-INVEST> 2,720
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,449
<INTEREST-DEPOSIT> 8,702
<INTEREST-EXPENSE> 9,495
<INTEREST-INCOME-NET> 8,954
<LOAN-LOSSES> 564
<SECURITIES-GAINS> (7)
<EXPENSE-OTHER> 2,036
<INCOME-PRETAX> 3,115
<INCOME-PRE-EXTRAORDINARY> 3,115
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,100
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<YIELD-ACTUAL> 8.97
<LOANS-NON> 470
<LOANS-PAST> 182
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,681
<CHARGE-OFFS> 134
<RECOVERIES> 46
<ALLOWANCE-CLOSE> 8,156
<ALLOWANCE-DOMESTIC> 8,156
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 8,156
</TABLE>
