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, 1998
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 /XX/ NO / /
Common stock, par value $1 per share: 7,393,605 shares
outstanding as of August 13, 1998
<PAGE>
INDEX
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<CAPTION>
Page
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PART I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 3
Consolidated Statements of Earnings and Comprehensive
Income for the Three and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997 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 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
</TABLE>
<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-----------------------------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 51,962 60,414
Federal funds sold 27,150 8,420
----------- ---------
Cash and cash equivalents 79,112 68,834
----------- ---------
Securities held to maturity (estimated fair value of $65,808 and $70,846) 64,734 69,559
Securities available for sale 163,397 143,894
Mortgage loans held for sale 5,711 3,962
Loans 899,819 823,324
Less: Allowance for loan losses (11,068) (10,352)
----------- ---------
Loans, net 888,751 812,972
----------- ---------
Premises and equipment 31,893 27,737
Accrued interest receivable 12,550 10,985
Other assets 14,399 15,424
----------- ---------
$ 1,260,548 1,153,367
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 128,420 109,210
Interest-bearing demand 234,091 189,280
Savings 52,425 45,280
Time 650,747 633,309
----------- ---------
Total deposits 1,065,683 977,079
Accrued expenses and other liabilities 7,524 7,274
Borrowed Funds 95,086 81,179
Long-term debt 12,079 12,722
----------- ---------
Total liabilities 1,180,372 1,078,254
----------- ---------
Stockholders' equity:
Preferred Stock
Common stock, $1 par value; 10,000,000 shares authorized; - -
7,393,605 and 7,385,105 shares issued and outstanding 7,394 7,385
Capital surplus 24,808 24,699
Retained earnings 47,186 42,198
Accumulated other comprehensive income 788 831
----------- ---------
Total stockholders' equity 80,176 75,113
----------- ---------
$ 1,260,548 1,153,367
=========== ==========
</TABLE>
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,
1998 1997 1998 1997
----- ---- ---- ----
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 22,632 18,690 44,094 35,594
Interest on federal funds sold 358 427 695 784
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 2,718 2,380 5,215 4,395
State, county and municipal 773 548 1,491 1,083
---------- ---------- --------- ----------
Total interest income 26,481 22,045 51,496 41,856
---------- ---------- --------- ----------
INTEREST EXPENSE:
Interest on deposits:
Demand 2,265 2,257 4,361 3,199
Savings 353 268 682 578
Time 9,704 7,970 19,328 16,085
---------- ---------- --------- ----------
12,322 10,495 24,371 19,862
---------- ---------- --------- ----------
Long-term debt, subordinated debentures and
federal funds purchased 1,195 946 2,274 1,739
---------- ---------- --------- ----------
Total interest expense 13,517 11,441 26,645 21,601
---------- ---------- --------- ----------
Net interest income 12,964 10,604 24,851 20,255
Provision for loan losses 540 701 1,038 1,298
---------- ---------- --------- ----------
Net interest income after provision
for loan losses 12,424 9,903 23,813 18,957
---------- ---------- --------- ----------
NONINTEREST INCOME:
Service charges and fees 1,294 1,108 2,477 2,032
Securities gains, net 68 (1) 171 (8)
Mortgage loan and related fees 444 275 880 551
Other noninterest income 261 350 393 692
---------- ---------- --------- ----------
Total noninterest income 2,067 1,732 3,921 3,267
---------- ---------- --------- ----------
Noninterest expense:
Salaries and employee benefits 5,735 4,384 10,995 8,304
Occupancy 1,574 1,179 2,992 2,249
Other noninterest expense 2,843 2,308 5,377 4,500
---------- ---------- --------- ----------
Total noninterest expense 10,152 7,871 19,364 15,053
---------- ---------- --------- ----------
Earnings before income taxes 4,339 3,764 8,370 7,171
Income taxes 1,457 1,172 2,828 2,289
---------- ---------- --------- ----------
Net earnings $ 2,882 2,592 5,542 4,882
========== ========== ========= ==========
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on investment
securities available for sale arising during
the period, net of tax of ($31), $422, $39 and
$144 (51) 689 63 235
Less reclassification adjustment for gains
(losses) included in net earnings, net of
tax of $26, $1, $(65) and $3 (42) 1 (106) 5
---------- ---------- --------- ----------
Total other comprehensive income (loss) (93) 690 (43) 240
---------- ---------- --------- ----------
COMPREHENSIVE INCOME $ 2,789 3,299 5,499 5,122
========== ========== ========= ==========
Per share:
Net earnings $ 0.39 0.35 0.74 0.71
Net earnings - assuming dilution $ 0.38 0.35 0.74 0.67
Dividends declared $ 0.075 0.025 0.075 0.050
Average shares outstanding 7,393,605 7,342,184 7,389,378 7,213,553
Diluted average shares outstanding 7,626,222 7,517,906 7,614,782 7,388,358
</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,
1998 1997
----------- ----------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 5,542 4,882
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation, amortization and accretion 1,186 1,091
Provision for loan losses 1,038 1,298
Loss (gain) on sale of investment securities (171) (1)
Change in assets and liabilities:
Interest receivable (1,565) (1,965)
Interest payable (89) 829
Other assets 988 639
Accrued expenses and other liabilities 274 (1,062)
Change in mortgage loans held for sale (1,750) 3,882
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,445 9,593
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities held to maturity 14,334 8,443
Purchases of securities held to maturity (11,512) (3,270)
Proceeds from sales of securities available for sale 9,277 5,273
Proceeds from maturities and calls of securities available for sale 17,788 8,719
Purchases of securities available for sale (44,560) (60,115)
Net increase in loans (77,110) (101,087)
Proceeds from sale of other real estate 113 -
Purchase of bank premises and equipment (5,034) (3,764)
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (96,704) (145,801)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 71,166 32,239
Net increase in time deposits 17,438 110,945
Net change in federal funds purchased (33,011) 750
Proceeds from notes payable - 1,090
Repayments of notes payable 56,000 (565)
Proceeds from FHLB advances (643) 12,810
Repayments of FHLB advances (9,081) (1,602)
Proceeds from the sale of common stock 119 6,476
Proceeds from resale of treasury stock of pooled entity - 6
Cash paid for dividends (461) (329)
----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 101,527 161,820
----------- ----------
Net increase (decrease) in cash and cash equivalents 10,278 25,612
Cash and cash equivalents at beginning of period 68,834 52,626
----------- ----------
Cash and cash equivalents at end of period $ 79,112 78,238
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 26,234 20,771
Income Taxes $ 2,915 2,778
Schedule of noncash investing and financing activities:
Change in dividends payable $ 93 -
Transfer of loans to other real estate owned $ 1,228 693
Financed sales of other real estate $ 936 -
Change in unrealized gain / (loss) on securities available for sale $ (43) 245
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
UNITED COMMUNITY BANKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
June 30, 1998 and 1997
Basis of Presentation
- ---------------------
The accounting and reporting policies of United Community
Banks, Inc. ("United"), and its banking (the "Banks") and
non-bank subsidiaries, are in conformity with generally accepted
accounting principles and prevailing practices within the
financial services industry. The preparation of financial
statements in conformity with generally accepted accounting
principles requires that management make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of income and expenses during the reporting period. Such
estimates are subject to change in the future as additional
information becomes available or previously existing
circumstances are modified. Actual results could differ from
those estimates.
These statements should be read in conjunction with United's
summary of significant accounting policies which are incorporated
herein by reference in its 1997 Annual Report on Form 10-K.
Results of operations for the three and six months ended June 30,
1998 are not necessarily indicative of the results of operations
which may be expected for the full year 1998 or any other interim
periods.
Issuance of Trust Preferred Securities
- --------------------------------------
In June, 1998, a statutory business trust ("United Community
Capital Trust ") was created by United which in July, 1998,
issued guaranteed preferred beneficial interests in the Company's
junior subordinated preferrable interest debentures ("Capital
Securities") to institutional investors in the amount of $20.9
million representing guaranteed preferred beneficial interests in
$21million in junior subordinated deferrable interest debentures
("Subordinated Debentures") issued by United to United Community
Capital Trust. The Capital Securities bear an interest rate of
8.125 percent and are mandatorily redeemable by United Community
Capital Trust upon the repayment of the Subordinated Debentures
by United. For regulatory purposes, the Capital Securities will
be treated as Tier I capital of United. The Subordinated
Debentures are the sole assets of United Community Capital Trust
and bear an interest rate of 8.125 percent with a maturity date
of July 15, 2028, which may be shortened to a date not earlier
than January 15, 2008. If the Subordinated Debentures are
redeemed in whole or in part prior to January 15, 2008, the
redemption price of the Subordinated Debentures and the Capital
Securities will include a premium ranging from 4.06 percent in
2008 to 0.41 percent in 2017.
Year 2000 Compliance
- --------------------
The Federal Reserve has established a Year 2000 Supervision
Program and published guidelines for implementing procedures to
bring computer software programs and processing systems into Year
2000 compliance. United has established a Year 2000 task force
to address all Year 2000 compliance issues as well as
enhancements to computer and communications systems resulting
from upgrades initiated in response to Year 2000 issues. United
is in the process of implementing plans in accordance with
regulatory guidelines to bring all business critical computer
systems into Year 2000 compliant status. These guidelines include
requirements regarding project plans, testing plans and
contingency plans. United is in conformity with the current
requirements regarding completion and implementation of these
plans. All business critical systems have been scheduled for
implementation or upgrade and testing procedures established for
completion by year end 1998.
Year 2000 expenses of $100,000 were incurred through the six
months ended June 30, 1998. These expenses included training,
education and an assessment of the Company's systems estimation
of the costs associated with upgrading internal systems to Year
2000 compliance. United anticipates approximately $2.4 million of
additional investment, the majority of which will involve the
replacement of equipment and software which will be depreciated
over a period of 3 to 5 years.
The above reflects management's current assessment and
estimates. Various factors could cause actual results to differ
materially from those contemplated by such assessments, estimates
and forward looking statements. Some of these factors may be
beyond the control of United, including but not limited to,
vendor representations, technological advancements, economic
factors and competitive considerations. Management's evaluation
of Year 2000 compliance and technological upgrades is an ongoing
process involving continual evaluation. Unanticipated problems
could develop and alternative solutions may be available that
could cause current solutions to be more difficult or costly than
currently anticipated.
Recent Accounting Developments
- ------------------------------
United adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130") in January
1998. SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general-purpose financial
statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. SFAS
130 requires that all items that are required to be recognized
under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the
same prominence as other financial statements. SFAS 130 also
requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital
in the equity section of a statement of financial position.
Additionally, SFAS 130 allows an enterprise to present total
comprehensive income amount in the notes to the interim financial
statements rather than on the face of a statement, as required for
the display in the annual financial statements. For the six months
ended June 30, 1998, comprehensive income was $5.5 million,
reflecting a $43 thousand adjustment to net income for unrealized gains
on securities available-for-sale, net of income taxes. Comprehensive
income for the three months ended June 30, 1998 was $2.8 million,
reflecting a decrease of $93 thousand in the unrealized gain on
securities available-for-sale, net of income taxes.
<PAGE>
On June 15, 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which standardizes the accounting for
derivative instruments by requiring that all derivatives be
recognized as assets and liabilities and measured at fair value.
This statement is effective for fiscal years beginning after June
15, 1999.
RESULTS OF OPERATIONS
United recognized net income of $5.5 million, or $.74 per
fully diluted share, for the first six months of 1998, as
compared with net income of $4.9 million, or $.68 per diluted
share earned in 1997. Return on average total assets and return
on average stockholders' equity was 0.93% and 14.39%,
respectively, for the six months ended June 30, 1998 as compared
to 1.02% and 15.56%, respectively, for the comparable prior year
period.
Net income for the three months ended June 30, 1998 was $2.9
million, or $.38 per diluted share, as compared with net income
of $2.6 million, or $.35 per diluted share in 1997. Return on
average total assets and return on average stockholders' equity
was 0.95% and 14.79%, respectively, for the three months ended June 30,
1998 as compared to 1.05% and 16.39%, respectively, for the
comparable prior year period.
The six months ending June 30, 1998 results, when compared with
the comparable prior year period, reflect a $4.9million increase in
net interest income, a $475 thousand increase in non-interest
income, exclusive of net securities gains, a $179 thousand
increase in net securities gains and a $260 thousand decrease in
the provision for loan losses. This activity was partially
offset by a $4.3 million increase in non-interest expense and a
$539 thousand increase in the provision for income taxes.
Net interest income, which represents the difference between
interest earned on interest earning assets and interest incurred
on interest bearing liabilities, is United's primary source of
earnings. Net interest income is affected by the level
and composition of assets, liabilities and equity, as well
as changes in market interest rates.
Net interest income increased $4.9 million, or 20%, to $23.8
million for the six months ending June 30, 1998, as compared to $19
million for the comparable prior year period. This growth was achieved
through a significant increase in the level of average interest
earning assets. The net interest margin on a taxable equivalent
basis declined to 4.64% during the most recent quarter when
compared to 4.69% during the 1997 comparable period. Factors
contributing to the decline in the net interest margin included:
(a) a change in the composition of average interest earning
assets; (b) higher levels of interest bearing customer deposit
liabilities.
Interest income increased 19% to $51.5 million for the
six months ending June 30, 1998 when compared to $41.9 million for
the comparable prior year period. This increase is attributable
to a $207 million or 19% increase in average interest earning
assets to $1.1 billion for the six months ending June 30, 1998,
as compared to $897 million during the comparable 1997 period,
offset somewhat by a decrease in the yield on average earning
assets to 8.93% as compared to 9.03%.
Average loans increased $166 million or 20% to $852
million for the six months ending June 30, 1998, representing 77%
of average interest earning assets, when compared to $686 million,
or 76% of average interest earning assets, for the comparable prior
year period. This level of growth was achieved through continued
strong demand in virtually all loan categories. The corresponding
yield on average loans declined modestly to 9.71% during the most
recent quarter when compared to 9.77% for the 1997 comparable period.
Average loans represented 94% of average deposits for the quarter
ended June 30, 1998.
Average securities increased $44 million or 20% to $223
million for the six months ending June 30, 1998 when compared to
$179 million for the comparable prior year period. The overall
yield on the securities portfolio decreased slightly to 6.75% during
the most recent quarter as compared to 6.75% during 1997, reflecting
a decrease in market interest rates.
Interest expense increased to $26.6 million in the second
quarter of 1998, reflecting a 4.87% cost of funds, as compared
with $19.9 million, and a 4.86% cost of funds in 1997. The
increase in interest expense resulted from the $207 million
increase in the level of average interest bearing liabilities,
primarily, and an increase in the level of average interest bearing
customer deposit liabilities.
Average total savings and time deposits increased $119
million or 17% to $699 million during 1998, when compared to
$581 million during 1997. The overall cost of funds on average
savings and time deposits declined to 5.77% during the most
recent quarter from 5.79% during the comparable 1997 period.
Interest bearing deposit levels declined principally as a result
of management implementing its pricing strategy on customer
deposit liabilities.
Average demand deposits increased $170 million or 21% to
$216 million during the second quarter of 1998 as compared to
$170 million for 1997. The growth in the level of demand
deposits has resulted from branching in new areas as well as
acquisitions. At June 30, 1998, demand deposits represented
20% of total deposits as compared to 19% at June 30, 1997.
Non-Interest Income
- -------------------
Non-interest income, exclusive of net securities gains, was
$3.75 million in the six months ending June 30, 1998, as compared with
$3.28 million in the comparable prior year period. Net securities gains
of $171 thousand recognized during the most recent quarter were
achieved principally through the sale of certain agency investments.
The modest increase in non interest income during the most
recent quarter resulted from a $445 thousand increase in fees and
service charges on deposit accounts to $2.5 million and a $329
thousand increase in mortgage loan and related fees to $880
thousand and, a $299 thousand decrease in other operating income
to $393 million.
<PAGE>
Non-Interest Expense
- --------------------
Non-interest expense increased $4.3 million, during the six
months ending June 30, 1998 to $19.3 million as compared with $15.1
million during the comparable prior year period. The increase in
non-interest expense during the six months ending June 30, 1998
principally reflects the construction of new facilities as well
as the staffing costs associated with these expansions.
Income Taxes
- ------------
United's effective tax rate was 33.56% for the six months
ending June 30, 1998, as compared to 31.11% for the comparable
prior year period. United's effective tax rate was 33.18% for
the six months ended, June 30, 1998, as compared to 31.91% for
the comparable prior year period. These increases are primarily
a result of United moving from the 32% corporate tax bracket to
the 33% tax bracket.
Loan Portfolio
- --------------
The loan portfolio is concentrated primarily in loans
secured by real estate in the North Georgia mountains and Western
North Carolina. The risk inherent in this portfolio is dependent
not only upon regional and general economic stability which
affects property values, but also the financial well-being and
creditworthiness of the borrowers.
Total loans increased $77 million from $823 million at
December 31, 1997 to $900 million at June 30, 1998, representing
an annualized increase of 19%, due to continued strong demand
in virtually all loan categories.
<PAGE>
Asset Quality
- -------------
The components of non-performing assets are delineated
below (in thousands):
June 30, December 31, June 30,
1998 1997 1997
------- ----------- ----------
Loans ninety days past due
and still accruing $ 568 $ 536 $ 477
Non-accrual loans 1,388 515 1,401
------- ------- --------
Non-performing loans 1,956 1,051 1,878
Other real estate 567 386 567
Non-performing assets $ 2,523 $ 1,437 $ 2,445
======= ======= ========
At June 30, 1998, non-performing assets, which include loans
past due ninety days and still accruing interest, non-accrual
loans and other real estate, increased modestly to $2.5 million
when compared to $1.4 million at December 31, 1997. Non-
performing assets increased $78 thousand at June 30, 1998 when
compared to $2.4 million at June 30, 1997. Non-performing loans
at June 30, 1998 consisted of $6.9 million in commercial loans,
$6.7 million in commercial mortgages, $5.6 million in residential
mortgages, $2.0 million in construction and land loans, $.5
million in consumer loans and leases, and $.6 million in multi-
family mortgages.
Management determines what it deems to be the appropriate
level of the allowance for loan losses on an ongoing basis by
reviewing individual loans, as well as the composition of and
trends in the loan portfolio. Management considers, among other
items, concentrations within segments of the loan portfolio,
delinquency trends, as well as recent charge-off experience and
third party evidentiary matter (such as appraisals) when
assessing the degree of credit risk in the portfolio. Various
appraisals and estimates of current value influence the
estimation of the required allowance at any point in time.
The provision for loan losses declined to $540 thousand
during the current quarter, as compared to $700 thousand in the
1997 comparable period. While management uses available
information in estimating possible loan losses, future additions
to the allowance may be necessary based on future changes in
economic conditions. Based on current economic conditions,
management considers the allowance for loan losses at June 30,
1998 adequate to cover the possible credit losses inherent in the
loan portfolio.
<PAGE>
Securities Portfolio
- --------------------
Management's strategy for the securities portfolio is to
maintain a short-weighted average life to minimize the exposure
to future rises in interest rates and to provide cash flows that
may be reinvested at current market interest rates. The combined
weighted average lives of the held-to-maturity and
available-for-sale securities portfolios at June 30, 1998 was 4.63
years.
During the first six months of 1998, securities available-for-
sale increased $19.5 million to $163 million when compared to
$143.9 million at December 31, 1997. This increase resulted from
management's decision to leverage its capital principally through
the purchase of investment securities and the growth of loans funded
primarily with Federal Home Loan Bank advances of varied maturities.
At June 30, 1998, held-to-maturity and available-for-sale securities
carried at $141 million were pledged for various purposes as required by
law.
Borrowings
- ----------
Federal funds decreased $33 million from $33 million at
December 31, 1997 to zero at June 30, 1998. In addition, new advances
on Federal Home Loan Bank borrowings totalled $56 million during the
first six months of 1998. This increase brought total outstanding
borrowings from the FHLB to $90 million. These increased borrowing
arrangements were entered into to fund the purchases of investment
securities placed in the available-for-sale securities portfolio as
well as to fund growth.
Asset/Liability Management
- --------------------------
United's primary earnings source is the net interest income,
which is affected by changes in the level of interest rates, the
relationship between rates, the impact of interest rate
fluctuations on asset prepayments, the level and composition of
deposits, and the credit quality of the portfolio. Management's
asset/liability objectives are to maintain a strong, stable net
interest margin, to utilize its capital effectively without
taking undue risks and to maintain adequate liquidity.
United's risk assessment program includes a coordinated
approach to the management of liquidity, capital and interest
rate risk. This risk assessment process is governed by policies
and limits established by senior management which are reviewed
and approved by the Asset/Liability Committee ("ALCO"). ALCO,
comprised of members of senior management, meets periodically to
evaluate the impact of changes in market interest rates on assets
and liabilities, net interest margin, capital and liquidity, and
to evaluate United's strategic plans and presents its findings to
the Board of United and its bank subsidiaries.
The balance sheet structure is primarily short-term with
most assets and liabilities repricing or maturing in less than
five years. Management monitors the sensitivity of net interest
income by utilizing a dynamic simulation model complemented by
traditional gap analysis. This model measures net interest
income sensitivity and volatility to interest rate changes; it
involves a degree of estimation based on certain assumptions that
management believes to be reasonable. Factors considered include
actual maturities, estimated cash flows, repricing
characteristics, deposit growth/retention and, primarily, the
relative sensitivity of assets and liabilities to changes in
market interest rates. Utilizing this process, management can
project the impact of changes in interest rates on net interest
income. This relative sensitivity is important to consider since
the Bank's core deposit base is not subject to the same degree of
interest rate sensitivity as its assets. Core deposit costs are
internally controlled and generally exhibit less sensitivity to
changes in interest rates than the adjustable rate assets whose
yields are based on external indices and
change in concert with market interest rates.
Liquidity
- ---------
The objective of liquidity management is to ensure the
availability of sufficient resources to meet all financial
commitments and to capitalize on opportunities for business
expansion. Liquidity management addresses the ability to meet
deposit withdrawals either on demand or contractual maturity, to
repay other borrowings as they mature and to make new loans and
investments as opportunities arise.
United's sources of liquidity include dividends from its
subsidiaries, borrowings, and funds available through the capital
markets. Dividends from the Banks are limited by Georgia and
North Carolina State Banking Department regulations. Pursuant to
this regulation, the Banks had $9.7 million of retained earnings
available dividends to United as of June 30, 1998.
The Bank has numerous sources of liquidity including loan
and security principal repayments and maturities, lines of credit
with other financial institutions, the ability to borrow under
repurchase agreements utilizing its unpledged securities
portfolio, the sale of securities from its available-for-sale
portfolio, the securitization of loans within the portfolio,
whole loan sales and growth in its core deposit base.
United, through its subsidiary banks, has the ability, as
members of the Federal Home Loan Bank ("FHLB") system, to borrow
$153 million on a secured basis, utilizing mortgage related loans
and securities as collateral, for a term ranging from one day to
ten years at both fixed and variable rates. As of June 30, 1998,
the Bank's had $91.6 million in such borrowings outstanding.
United's and the Bank's liquidity positions are monitored
daily to ensure the maintenance of an optimum level and efficient
use of available funds. Management believes that United and Banks
have sufficient liquidity to meet their operating requirements.
On June 15, 1998, the Board of Directors increased its
quarterly cash dividend by 50% from $0.025 cents per share to
$0.0375 cents per share. This dividend is payable July 1, 1998 to
shareholders of record at the close of business June 15, 1998.
Capital
- -------
United and its bank subsidiaries are subject to the risk
based capital guidelines administered by the banking regulatory
agencies. The risk based capital guidelines are designed to make
regulatory capital requirements more sensitive to differences in
risk profiles among banks and bank holding companies, to account
for off-balance sheet exposure and to minimize disincentives for
holding liquid assets. Under these guidelines, assets and off-
balance sheet items are assigned to broad risk categories, each
with appropriate weights. The resulting capital ratios represent
capital as a percentage of total risk weighted assets and off-
balance sheet items. The guidelines currently require all banks
and bank holding companies to maintain a minimum ratio of total
risk based capital to total risk weighted assets of 8%, including
a minimum ratio of Tier I capital to total risk weighted assets
of 4% and a Tier I capital to average assets of 4%. Failure to
meet minimum capital requirements can initiate certain mandatory,
and possibly additional discretionary actions by regulators,
that, if undertaken, could have a direct material effect on
United's financial statements. As of June 30, 1998, the most
recent notification from the various banking regulators
categorized United and its bank subsidiaries as well capitalized
under the regulatory framework for prompt corrective action.
Under the capital adequacy guidelines, a well capitalized
institution must maintain a minimum total risk based capital to
total risk weighted assets ratio of at least 10%, a minimum Tier
I capital to total risk weighted assets ratio of at least 6%, a
minimum leverage ratio of at least 5% and not subject to any
written order, agreement or directive. There are no conditions or
events since such notification that management believes have
changed this classification.
<PAGE>
The following table sets forth United's regulatory capital
at June 30, 1998 and June 30, 1997, under the rules applicable at
such date. At such date, management believes that United
meets all capital adequacy requirements to which it is subject.
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
-----------------------------------------------
(dollars in thousands ) Amount Ratio Amount Ratio
-----------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital .....................................$ 71,779 8.40% $ 62,496 8.49%
Regulatory Requirement ............................. 34,173 4.00% 29,430 4.00%
-----------------------------------------------
Excess .............................................$ 37,606 4.40% $ 33,066 4.49%
-----------------------------------------------
Total Risk Adjusted Capital ........................$ 89,464 10.47% $ 75,087 10.21%
Regulatory Requirement ............................ 68,346 8.00% 58,860 8.00%
-----------------------------------------------
Excess ............................................ $ 21,118 2.47% $ 16,227 2.21%
-----------------------------------------------
Risk Weighted Assets .............................. $ 854,335 $ 735,745
------- -------
</TABLE>
United's capital ratios were favorably impacted by the
issuance of $21 million of 8.125% Capital Securities on July 15,
1998, which under regulatory guidelines, qualify as Tier 1 capital.<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
---------------------------------------------------
a.) United Community Banks, Inc. 1998 Annual Meeting
Meeting of Stockholders was held April 16, 1998
b.) The following slate of directors was elected to
Serve the current year term:
Billy M. Decker Hoyt O. Hollowary
P. Deral Horne Thomas C. Gilliland
Clarence W. Mason, Sr. Robert L. Head, Jr.
W.C. Nelson, Jr. Charles E. Hill
Jimmy C. Tallent Charles E. Parks
John R. Martin
5,288,216.25 shares were voted for the slate of
directors and zero sharers voted against the slate.
This represented 71.61% of total shareholders.
No matters, other than the election of the above slate of
directors, were voted on at the Annual meeting.
Item 5. Other Information - None
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 27 - Financial Data Schedule
There were no reports on Form 8-K.<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 13, 1998
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000857855
<NAME> UNITED COMMUNITY BANKS, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 51,962
<INT-BEARING-DEPOSITS> 937,263
<FED-FUNDS-SOLD> 27,150
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 163,397
<INVESTMENTS-CARRYING> 64,734
<INVESTMENTS-MARKET> 65,808
<LOANS> 899,819
<ALLOWANCE> 11,068
<TOTAL-ASSETS> 1,260,548
<DEPOSITS> 1,065,683
<SHORT-TERM> 95,086
<LIABILITIES-OTHER> 7,524
<LONG-TERM> 12,079
0
0
<COMMON> 7,394
<OTHER-SE> 72,782
<TOTAL-LIABILITIES-AND-EQUITY> 1,260,548
<INTEREST-LOAN> 44,094
<INTEREST-INVEST> 7,402
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 51,496
<INTEREST-DEPOSIT> 24,371
<INTEREST-EXPENSE> 26,645
<INTEREST-INCOME-NET> 24,851
<LOAN-LOSSES> 1,038
<SECURITIES-GAINS> 171
<EXPENSE-OTHER> 5,377
<INCOME-PRETAX> 8,370
<INCOME-PRE-EXTRAORDINARY> 8,370
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,542
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
<YIELD-ACTUAL> 4.68
<LOANS-NON> 1,388
<LOANS-PAST> 568
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,352
<CHARGE-OFFS> 622
<RECOVERIES> 300
<ALLOWANCE-CLOSE> 11,068
<ALLOWANCE-DOMESTIC> 11,068
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 11,068
</TABLE>
