SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
/ / 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 or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
59 Highway 515, P.O. Box 398,
Blairsville, Georgia 30512
-------------------------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (706) 745-2151
Securities registered pursuant to Section 12(b) of the Act: None
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
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 / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Aggregate market value of the voting stock held by non-
affiliates (which for purposes hereof are all holders other than
executive officers and directors) of the Registrant as of March
17, 1998: $153,602,490 (based on 5,120,083 shares at $30 per
share, the last sale price known to the Registrant for the Common
Stock, for which there is no established public trading market.
As of March 17, 1998, 7,646,209 shares of Common Stock were
issued and outstanding, par value $1.00 per share, including
140,000 shares deemed outstanding pursuant to 2006 Debentures and
presently exercisable options to acquire 121,604 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's annual report to shareholders for
the fiscal year ended December 31, 1997, contained in Appendix A
to the Registrant's definitive Proxy Statement for the 1998
Annual Meeting of Shareholders, to be filed with the Commission,
are incorporated by reference into Parts I and II. Portions of
the Registrant's definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders, to be filed with the Commission, are
incorporated into Part III.
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
United Community Banks, Inc. ("United") was incorporated
under the laws of Georgia in 1987 and commenced operations in
1988 by acquiring 100% of the outstanding shares of Union County
Bank, now known as United Community Bank ("UCB"). United is a
registered bank holding company. All of United's activities are
currently conducted by its wholly-owned subsidiaries, UCB, which
was organized as a Georgia banking corporation in 1950, Carolina
Community Bank, Murphy, North Carolina ("Carolina"), which United
acquired in 1990, Peoples Bank, Blue Ridge, Georgia ("Peoples"),
which United acquired in 1992, Towns County Bank, Hiawassee,
Georgia ("Towns"), which United also acquired in 1992, White
County Bank, Cleveland, Georgia ("White"), which United acquired
in 1995, and First Clayton Bancshares, Inc. ("First Clayton"),
which United acquired in 1997. (UCB, Carolina, Peoples, Towns,
White and First Clayton are collectively referred to as "Banks").
United also operates a finance company United Family Finance Co.
("UFFC").
RECENT DEVELOPMENTS
On January 30, 1998, United acquired certain assets and
deposit liabilities of the Ellijay office of The Bank of North
Georgia, which had total loans of $3 million, and total deposits
of $23 million.
On September 12, 1997, United completed the acquisition of
First Clayton, Rabun County, Georgia with the issuance of 646,247
shares of United Common Stock and approximately $7,000 paid for
fractional shares. At the date of closing, First Clayton had
assets of $74 million and equity of $6 million. First Clayton is
a full-service commercial bank located in Clayton, Georgia.
First Clayton provides customary types of banking services such
as checking accounts, savings accounts and time deposits. It
also engages in commercial and consumer lending, makes secured
and unsecured loans and provides other financial services.
In May 1997, United completed a public offering of 300,000
shares of United Common Stock, pursuant to which $6.5 million in
additional capital was raised. United used the net proceeds of
that offering to invest additional capital in UCB, Carolina and
Towns and for general corporate purposes.
FORWARD LOOKING STATEMENTS
Certain statements included or incorporated by reference in
this Form 10-K are forward-looking (as such term is defined in
the Securities Exchange Act of 1934, as amended). Such
statements may relate to United's operations, performance and
financial condition. These statements are based upon a number of
assumptions and estimates that are inherently subject to
significant uncertainties, many of which are beyond the control
of United. Actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors
that could cause actual results to differ materially include, but
are not limited to, those set forth below.
2
<PAGE>
YEAR 2000 COMPLIANCE. The "year 2000 issue" arises from the
widespread use of computer programs that rely on two-digit codes
to perform computations or decision-making functions. Many of
these programs may fail due to an inability to properly interpret
date codes beginning January 1, 2000. For example, such programs
may misinterpret "00" as the year 1900 rather than 2000. In
addition, some equipment, being controlled by microprocessor
chips, may not deal appropriately with the year "00". United and
the Banks are evaluating their computer systems to determine
which modifications and expenditures will be necessary to make
their systems compatible with year 2000 requirements. United and
the Banks believe that their systems will be year 2000-compliant
upon implementation of such modifications.
Although United and the Banks have not yet completed a
review of their systems to determine modifications necessary to
make them year 2000 compliant, United currently estimates that the
total cost of such modifications will not be material to its
consolidated results of operations. However, there can be no
assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not
arise. In addition, there can be no assurance that the systems
of other companies on which United and the Banks depend will be
modified on a timely basis, or that the failure by another
company to properly modify its systems will not negatively impact
the systems or operations of United and the Banks.
DEPENDENCE ON KEY PERSONNEL. The success of United is
dependent upon the continued services of its key personnel
including Mr. Jimmy C. Tallent, who is United's President and
Chief Executive Officer. Although United employs many skilled
executives and employees, the loss of Mr. Tallent's services
could have a material adverse effect on the business of United.
MONETARY POLICY AND ECONOMIC CONDITIONS. The operating
income and net income of the Banks depend to a substantial extent
on the difference between income the Banks receive from their
loans, investments and other earning assets, and the interest the
Banks pay on their deposits and other liabilities. These rates
are highly sensitive to many factors which are beyond the control
of the Banks, including national and international economic
conditions and the monetary policies of various governmental and
regulatory authorities.
SERVICES
The Banks are community-oriented, with an emphasis on retail
banking, and offer such customary banking services as customer
and commercial checking accounts, NOW accounts, savings accounts,
certificates of deposit, lines of credit, Mastercard and VISA
accounts, money transfers and trust services. The Banks finance
commercial and consumer transactions, make secured and unsecured
loans, including residential mortgage loans, and provide a
variety of other banking services. UCB also offers travel agency
services for the Banks' customers.
The Mortgage People Company ("MPC"), a division of UCB, is a
full-service mortgage lending operation approved as a
seller/servicer for Federal National Mortgage Association and
Federal Home Mortgage Corporation. MPC was organized to provide
fixed and adjustable-rate mortgages. UFFC is a traditional
consumer finance company which is based in Blue Ridge, Georgia
and also has been granted a license to conduct business in
Hiawassee, Georgia and Murphy, North Carolina.
3<PAGE>
MARKETS
United conducts banking activities primarily through UCB,
Towns, White and First Clayton in northern Georgia, Peoples in
Northern Georgia and Polk County, Tennessee and surrounding
counties, and through Carolina in western North Carolina. MPC
primarily makes mortgage loans inside the Banks' market areas and
outside this market areas through affiliations with UCB,
Carolina, Peoples, Towns, White and First Clayton. Customers of
the Banks are primarily consumers and small businesses.
DEPOSITS
The Banks offer a full range of depository accounts and
services to both consumers and businesses. At December 31, 1997,
United's deposit base, totaling approximately $977,079,000,
consisted of approximately $109,210,000 in non-interest-bearing
demand deposits (11% of total deposits), approximately
$189,280,000 in interest-bearing demand deposits (including money
market accounts) (19% of total deposits), approximately
$45,280,000 in savings deposits (5% of total deposits),
approximately $476,506,000 in time deposits in amounts less than
$100,000 (49% of total deposits), and approximately $156,803,000
in time deposits of $100,000 or more (16% of total deposits).
Certificates of deposit in excess of $100,000 may be more
volatile than other deposits since those deposits, to the extent
that they exceed $100,000, are not insured by the FDIC.
Management of United is of the opinion that its time deposits of
$100,000 or more are customer-relationship oriented and represent
a reasonably stable source of funds.
LOANS
The Banks make both secured and unsecured loans to
individuals, firms and corporations. Secured loans include first
and second real estate mortgage loans. The Banks also make
direct installment loans to consumers on both a secured and
unsecured basis. At December 31, 1997, consumer, real estate
construction, real estate mortgage and commercial loans
represented approximately 13%, 10%, 63% and 13%, respectively, of
United's total loan portfolio.
Specific risk elements associated with each of the Banks'
lending categories are as follows:
Commercial, financial and Industry concentrations,
agricultural inability to monitor the
condition of collateral
(inventory, accounts
receivable and vehicles), lack
of borrower management
expertise, increased
competition, and specialized
or obsolete equipment as
collateral
4<PAGE>
Real estate - construction Inadequate collateral and
long-term financing agreements
Real estate - mortgage Changes in local economy and
rate limits on variable rate
loans
Installment loans to Loss of borrower's employment,
individuals changes in local economy, the
inability to monitor
collateral (vehicle, boats and
mobile homes)
Effective March 19, 1993, inter-agency guidelines adopted by
federal bank regulators mandated that financial institutions
establish real estate lending policies with maximum allowable
real estate loan-to-value guidelines, subject to an allowable
amount of non-conforming loans. The Banks had similar guidelines
in place and adopted the federal guidelines as their maximum
allowable limits, but had in the past and now have in place loan
policies that are, in some cases, more conservative than the
federal guidelines. The federal guidelines establish maximum
allowable loan-to-value ratios for various types of real estate
loans as set forth below:
Maximum Allowable
Loan Category Loan-To-Value Percent
------------- ---------------------
Land 65%
Land development 75
Construction:
Commercial, multi-family<F1> and other 80
nonresidential
One-to-four family residential 85
Improved property 85
Owner-occupied one-to-four family and home equity <F2>
___________________________________
[FN]
<F1> Multi-family construction includes condominiums and cooperatives.
<F2> A loan-to-value limit has not been established for permanent
mortgage or home equity loans on owner-occupied, one-to-four
family residential property. However, for any such loan with a
loan-to-value ratio that equals or exceeds 90% at origination,
appropriate credit enhancement in the form of either mortgage
insurance or readily marketable collateral is required.
</FN>
LENDING POLICY
The current lending strategy of the Banks is to make loans
primarily to persons who reside, work or own property in their
primary trade areas, except that United makes mortgage loans in
the trade areas of the community banks in which United has
affiliations or in the areas in which United has a loan
origination office. See "Markets." Unsecured loans normally
are made only to persons who maintain depository relationships
with the Banks. Secured loans are made to persons who are well
established and have net worth, collateral and cash flow to
support the loan.
5<PAGE>
The Banks provide each lending officer with written
guidelines for lending activities. Lending authority is
delegated by the Boards of Directors of the Banks to loan
officers, each of whom is limited in the amount of secured and
unsecured loans which he or she can make to a single borrower or
related group of borrowers. All unsecured loans in excess of
$50,000 must have the approval of the President or a Senior Vice
President of the appropriate Bank prior to being committed.
Generally, secured loans above $400,000 and unsecured loans over
$50,000 require Board approval.
LOAN REVIEW AND NONPERFORMING ASSETS
The loan review officer of United reviews each of the Banks'
loan portfolios to determine any deficiencies and corrective
action to be taken. The results of the reviews by the loan
review officers are presented to the Presidents of each of the
Banks, the President and the Chief Credit Officer of United and
the Boards of Directors of each of the Banks and United. On at
least a semi-annual basis, reviews are conducted at Towns and
White for all loans over $350,000; at Carolina and First Clayton
for all loans over $200,000; at Peoples for all loans over
$400,000; and at UCB for all loans over $500,000. Past due loans
are reviewed at least weekly by lending officers of the Bank
involved and by the Chief Credit Officer of United, and a summary
report is reviewed monthly by the Boards of Directors of each
Bank. The Boards of Directors of the relevant Bank review all
loans over $50,000, whether current or past due, at least once
annually.
ASSET/LIABILITY MANAGEMENT
Committees composed of officers of each of the Banks and the
Chief Financial Officer and Controller of United are charged with
managing the assets and liabilities of the Banks. The committees
attempt to manage asset growth, liquidity and capital in order to
maximize income and reduce interest rate risk. The committees
direct each Bank's overall acquisition and allocation of funds.
At monthly meetings, the committees review the monthly asset and
liability funds budget in relation to the actual flow of funds,
as well as peer group comparisons; the ratio of the amount of
rate sensitive assets to the amount of rate sensitive
liabilities; the ratio of allowance for loan losses to
outstanding and non-performing loans; and other variables, such
as expected loan demand, investment opportunities, core deposit
growth within specified categories, regulatory changes, monetary
policy adjustments and the overall state of the economy.
INVESTMENT POLICY
The Banks' investment portfolio policy is to maximize income
consistent with liquidity, asset quality and regulatory
constraints. The policy is reviewed from time to time by the
Boards of Directors. Individual transactions, portfolio
composition and performance are reviewed and approved monthly by
the Boards of Directors or a committee thereof. The Chief
Financial Officer of United and the President of each of the
Banks implement the policy and report information to the full
Board of Directors of each of the Banks on a monthly basis
concerning sales, purchases, maturities and calls, resultant
gains or losses, average maturity, federal taxable equivalent
yields and appreciation or depreciation by investment categories.
6<PAGE>
EMPLOYEES
As of December 31, 1997, the Banks had an aggregate of 553
full-time equivalent employees, and United had 16 employees.
Neither United nor any of the Banks is a party to any collective
bargaining agreement, and the Banks believe that their employee
relations are good. None of the Banks' executive officers is
employed pursuant to an employment contract.
COMPETITION
The banking business is highly competitive. UCB competes
with one other depository institution in Union County, Georgia,
and three other depository institutions in each of Lumpkin and
Habersham Counties. Carolina competes with six other depository
institutions in Graham, Cherokee, Macon, Haywood and Clay
Counties, North Carolina, the majority of which are branches of
regional or North Carolina state-wide institutions. Peoples
competes with two other depository institutions in Fannin County,
Georgia. Towns competes with one depository institution in Towns
County, Georgia. White competes with two other depository
institutions in White County, Georgia. First Clayton competes
with two other depository institutions in Rabun County. The
Banks also compete with other financial service organizations,
including savings and loan associations, finance companies,
credit unions and certain governmental agencies. To the extent
that banks must maintain non-interest-earning reserves against
deposits, they may be at a competitive disadvantage when compared
with other financial service organizations that are not required
to maintain reserves against substantially equivalent sources of
funds.
SUPERVISION AND REGULATION
GENERAL. United is a registered bank holding company
subject to regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "Act"). United is required
to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the
Federal Reserve.
The Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before (i) it may acquire
direct or indirect ownership or control of more than 5% of the
voting shares of any bank that it does not already control; (ii)
it or any of its subsidiaries, other than a bank, may acquire all
or substantially all of the assets of a bank; and (iii) it may
merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from
engaging in, or acquiring, direct or indirect control of the
voting shares of any company engaged in non-banking activities.
This prohibition does not apply to activities found by the
Federal Reserve, by order or regulation, to be so closely related
to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal
Reserve has determined by regulation or order to be closely
related to banking are: making or servicing loans and certain
types of leases; performing certain data processing services;
acting as fiduciary or investment or financial advisor; providing
discount brokerage services; underwriting bank eligible
securities; underwriting debt and equity securities on a limited
7<PAGE>
basis through separately capitalized subsidiaries; and making
investments in corporations or projects designed primarily to
promote community welfare.
United must also register with the DBF and file periodic
information with the DBF. As part of such registration, the DBF
requires information with respect to the financial condition,
operations, management and intercompany relationships of United
and the Banks and related matters. The DBF may also require such
other information as is necessary to keep itself informed as to
whether the provisions of Georgia law and the regulations and
orders issued thereunder by the DBF have been complied with, and
the DBF may examine United and each of the Banks.
The North Carolina Banking Commission ("NCBC"), which has
the statutory authority to regulate non-banking affiliates of
North Carolina banks, in 1992 began using this authority to
examine and regulate the activities of North Carolina-based
holding companies owning North Carolina-based banks. Although
the NCBC has not exercised its authority to date to examine and
regulate holding companies outside of North Carolina that own
North Carolina banks, it is likely the NCBC may do so in the
future.
United is an "affiliate" of the Banks under the Federal
Reserve Act, which imposes certain restrictions on (i) loans by
the Banks to United, (ii) investments in the stock or securities
of United by the Banks, (iii) the Banks' taking the stock or
securities of an "affiliate" as collateral for loans by the Bank
to a borrower, and (iv) the purchase of assets from United by the
Banks. Further, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of
property or furnishing of services.
Each of United's subsidiaries is regularly examined by the
Federal Deposit Insurance Corporation (the "FDIC"). UCB,
Peoples, White, Towns and First Clayton, as state banking
associations organized under Georgia law, are subject to the
supervision of, and are regularly examined by, the DBF. Carolina
is subject to the supervision of, and is regularly examined by,
the NCBC and the FDIC. Both the FDIC and the DBF must grant
prior approval of any merger, consolidation or other corporation
reorganization involving UCB, Peoples, White, Towns or First
Clayton, and the FDIC and the NCBC must grant prior approval of
any merger, consolidation or other corporate reorganization of
Carolina. A bank can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection
with the default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. United is a legal entity separate and
distinct from the Banks. Most of the revenues of United result
from dividends paid to it by the Banks. There are statutory and
regulatory requirements applicable to the payment of dividends by
the Banks, as well as by United to its shareholders.
UCB, Peoples, Towns, White and First Clayton are each state
chartered banks regulated by the DBF and the FDIC. Under the
regulations of the DBF, dividends may not be declared out of the
retained earnings of a state bank without first obtaining the
written permission of the DBF unless such bank meets all the
following requirements:
8<PAGE>
(a) total classified assets as of the most recent
examination of the bank do not exceed 80% of equity
capital (as defined by regulation);
(b) the aggregate amount of dividends declared or
anticipated to be declared in the calendar year does
not exceed 50% of the net profits after taxes but
before dividends for the previous calendar year; and
(c) the ratio of equity capital to adjusted assets is not
less than 6%.
Under North Carolina law, the Board of Directors of Carolina
may declare a dividend for as much of the undivided profits of
Carolina as it deems appropriate, so long as Carolina's surplus
is greater than 50% of its capital.
The payment of dividends by United and the Banks may also be
affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines. In
addition, if, in the opinion of the applicable regulatory
authority, a bank under its jurisdiction is engaged in or is
about to engage in an unsafe or unsound practice (which,
depending upon the financial condition of the bank, could include
the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such
practice. The FDIC has issued a policy statement providing that
insured banks should generally only pay dividends out of current
operating earnings. In addition to the formal statutes and
regulations, regulatory authorities consider the adequacy of each
of the Bank's total capital in relation to its assets, deposits
and other such items. Capital adequacy considerations could
further limit the availability of dividends to the Banks. At
December 31, 1997, net assets available from the Banks to pay
dividends without prior approval from regulatory authorities
totaled approximately $13 million. For 1997, United's cash
dividend payout to stockholders was 6.5% of net income.
MONETARY POLICY. The results of operations of the Banks are
affected by credit policies of monetary authorities, particularly
the Federal Reserve. The instruments of monetary policy employed
by the Federal Reserve include open market operations in U.S.
government securities, changes in the discount rate on bank
borrowings and changes in reserve requirements against bank
deposits. In view of changing conditions in the national economy
and in the money markets, as well as the effect of actions by
monetary and fiscal authorities, including the Federal Reserve,
no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and
earnings of the Banks.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have
implemented substantially identical risk-based rules for
assessing bank and bank holding company capital adequacy. These
regulations establish minimum capital standards in relation to
assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1)
a minimum level of total capital (as defined) to risk-weighted
assets of eight percent (8%); (2) a minimum Tier One Capital (as
defined) to risk-weighted assets of four percent (4%); and (3) a
minimum stockholders' equity to risk-weighted assets of four
percent (4%). In addition, the Federal Reserve and the FDIC have
9<PAGE>
established a minimum three percent (3%) leverage ratio of Tier
One Capital to total assets for the most highly-rated banks and
bank holding companies. "Tier One Capital" generally consists of
common equity not including unrecognized gains and losses on
securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain
intangibles. The Federal Reserve and the FDIC will require a
bank holding company and a bank, respectively, to maintain a
leverage ratio greater than three percent (3%) if either is
experiencing or anticipating significant growth or is operating
with less than well-diversified risks in the opinion of the
Federal Reserve. The Federal Reserve and the FDIC use the
leverage ratio in tandem with the risk-based ratio to assess the
capital adequacy of banks and bank holding companies. The FDIC,
the Office of the Comptroller of the Currency (the "OCC") and the
Federal Reserve have amended, effective January 1, 1997, the
capital adequacy standards to provide for the consideration of
interest rate risk in the overall determination of a bank's
capital ratio, requiring banks with greater interest rate risk to
maintain adequate capital for the risk. The revised standards
have not had a significant effect on United's capital
requirements.
In addition, effective December 19, 1992, a new Section 38
to the Federal Deposit Insurance Act implemented the prompt
corrective action provisions that Congress enacted as a part of
the Federal Deposit Insurance Corporation Improvement Act of 1991
(the "1991 Act"). The "prompt corrective action" provisions set
forth five regulatory zones in which all banks are placed largely
based on their capital positions. Regulators are permitted to
take increasingly harsh action as a bank's financial condition
declines. Regulators are also empowered to place in receivership
or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches 2%. Better
capitalized institutions are generally subject to less onerous
regulation and supervision than banks with lesser amounts of
capital.
The FDIC has adopted regulations implementing the prompt
corrective action provisions of the 1991 Act, which place
financial institutions in the following five categories based
upon capitalization ratios: (1) a "well capitalized" institution
has a total risk-based capital ratio of at least 10%, a Tier One
risk-based ratio of at least 6% and a leverage ratio of at least
5%; (2) an "adequately capitalized" institution has a total risk-
based capital ratio of at least 8%, a Tier One risk-based ratio
of at least 4% and a leverage ratio of at least 4%; (3) an
"undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier One risk-based ratio of under 4% or a
leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a total risk-based capital
ratio of under 6%, a Tier One risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a "critically
undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital
distributions. The FDIC regulations also establish procedures
for "downgrading" an institution to a lower capital category
based on supervisory factors other than capital. Under the
FDIC's regulations, all of the Banks were "well capitalized"
institutions at December 31, 1996 and December 31, 1997.
10<PAGE>
Set forth below are pertinent capital ratios for each of the
Banks as of December 31, 1997:
<TABLE>
<CAPTION>
Minimum Capital Requirement UCB Carolina Peoples Towns White First Clayton
- --------------------------- --- -------- ------- ----- ----- -------------
<S> <C> <C> <C> <C>
Tier One Capital to 9.75% 9.56% 9.86% 10.67% 10.83% 12.27%
Risk Based
Assets: 4% <F1>
Total Capital to 10.92% 10.81% 11.11% 11.92% 12.09% 13.53%
Risk Based
Assets: 8% <F2>
Leverage Ratio (Tier One 7.67% 6.34% 6.96% 7.25% 7.93% 7.43%
Capital to Average Total
Assets): 3% <F3>
__________________________
<FN>
<F1> Minimum required ratio for "well capitalized" banks is 6%
<F2> Minimum required ratio for "well capitalized" banks is 10%
<F3> Minimum required ratio for "well capitalized" banks is 5%
</FN>
</TABLE>
Recent Legislative and Regulatory Action. On April 19,
1995, the four federal bank regulatory agencies adopted revisions
to the regulations promulgated pursuant to the Community
Reinvestment Act (the "CRA"), which are intended to set distinct
assessment standards for financial institutions. The revised
regulation contains three evaluation tests: (i) a lending test,
which will compare an institution's market share of loans in low-
and moderate-income areas to its market share of loans in its
entire service area and the percentage of a bank's outstanding
loans to low and moderate-income areas or individuals, (ii) a
services test, which will evaluate the provisions of services
that promote the availability of credit to low- and moderate-
income areas, and (iii) an investment test, which will evaluate
an institution's record of investments in organizations designed
to foster community development, small and minority-owned
businesses and affordable housing lending, including state and
local government housing or revenue bonds. The regulations are
designed to reduce some paperwork requirements of the current
regulations and provide regulators, institutions and community
groups with a more objective and predictable manner with which to
evaluate the CRA performance of financial institutions. The rule
became effective on January 1, 1996, at which time evaluation
under streamlined procedures began for institutions with assets
of less than $250 million that are owned by a holding company
with total assets of less than $1 billion. It is not expected
that these regulations will have any appreciable impact upon
United and the Banks.
Congress and various federal agencies (including, in
addition to the bank regulatory agencies, the Department of
Housing and Urban Development, the Federal Trade Commission and
the Department of Justice) (collectively the "Federal Agencies")
responsible for implementing the nation's fair lending laws have
been increasingly concerned that prospective home buyers and
other borrowers are experiencing discrimination in their efforts
to obtain loans. In recent years, the Department of Justice has
filed suit against financial institutions, which it determined
11<PAGE>
had discriminated, seeking fines and restitution for borrowers
who allegedly suffered from discriminatory practices. Most, if
not all, of these suits have been settled (some for substantial
sums) without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and specify the
factors the agencies will consider in determining if lending
discrimination exists, announced a joint policy statement
detailing specific discriminatory practices prohibited under the
Equal Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were
identified: (1) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, (2) evidence of
disparate treatment, when a lender treats applicants differently
based on a prohibited factor even where there is no showing that
the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (3) evidence of disparate
impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect, even
where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the
"Regulatory Improvement Act"). The Regulatory Improvement Act
contains funding for community development projects through banks
and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate
certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the Reigle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Federal Interstate Bill") which amends federal law to permit
bank holding companies to acquire existing banks in any state
effective September 29, 1995. Further, any interstate bank
holding company is permitted to merge its various bank
subsidiaries into a single bank with interstate branches after
May 31, 1997. States have the authority to authorize interstate
branching before June 1, 1997, or, alternatively, to opt out of
interstate branching prior to that date. The Georgia Financial
Institutions Code was amended in 1994 to permit the acquisition
of a Georgia bank or bank holding company by out-of-state bank
holding companies beginning July 1, 1995. On September 29, 1995,
the interstate banking provisions of the Georgia Financial
Institutions Code were superseded by the Federal Interstate Bill.
On January 26, 1996, the Georgia legislature adopted a bill
(the "Georgia Intrastate Bill") to permit, effective July 1,
1996, any Georgia bank or group of affiliated banks under one
holding company to establish up to an aggregate of three new or
additional branch banks anywhere within the State of Georgia,
excluding any branches established by a bank in a county in which
it is already located. After July 1, 1998, all restrictions on
state-wide branching are removed. Before adoption of the Georgia
Intrastate Bill, Georgia only permitted branching via merger or
consolidation with an existing bank or in certain other limited
circumstances.
FDIC INSURANCE AND FICO ASSESSMENTS FOR THE BANKS. The
Banks are subject to FDIC deposit insurance assessments for the
12<PAGE>
Bank Insurance Fund (the "BIF"). In the first six months of
1995, the Banks were assessed $.23 per $100 of deposits based
upon a risk-based system whereby banks are assessed on a sliding
scale depending upon their placement in nine separate supervisory
categories, from $.23 per $100 of deposits for the healthiest
banks (those with the highest capital, best management and best
overall condition) to as much as $.31 per $100 of deposits for
the less-healthy institutions, for an average $.259 per $100 of
deposits.
On August 8, 1995, the FDIC lowered the BIF premium for
healthy banks 83% from $.23 per $100 in deposits to $.04 per $100
in deposits, while retaining the $.31 level for the riskiest
banks. The average assessment rate was therefore reduced from
$.232 to $.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On September 15, 1995, the FDIC refunded
$564,000 to the Banks for premium overpayments in the second and
third quarter of 1995. On November 14, 1995, the FDIC again
lowered the BIF premium for healthy banks from $.04 per $100 of
deposits to zero for the highest rated institutions (94% of the
industry). As a result, the Banks paid no premium for deposit
insurance in 1997 and FICO bond assessments of $100,000. It is
not estimated that the Banks will pay any premium for deposit
insurance in 1998 and will pay FICO bond assessments of
$120,000.
EXECUTIVE OFFICERS OF UNITED
Executive officers of United are elected by the Board of
Directors annually in January and hold office until the following
January unless they sooner resign or are removed from office by
the Board of Directors.
The executive officers of United, and their ages,
positions with United and the Banks and terms of office as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Name (age) Principal Position Officer of United Since
- ---------------- ------------------------- -----------------------
<S> <S> <C>
Jimmy C. Tallent President and Director of 1984
(45) UCB and United; Director
of Carolina, White,
Peoples, First Clayton and
UFFC; Chairman of the Board
of Towns and White.
Billy M. Decker Senior Vice President of 1988
(54) United; President and
Director of Carolina;
Director of Carolina,
United and UCB; Secretary
of United.
Stephen L. Cockerham Senior Vice President and 1990
(36) Chief Credit Officer of
UCB and United. From 1985
through 1990, Mr. Cockerham
was a Bank Liquidation Specialist
with the Federal Deposit
Insurance Corporation.
13<PAGE>
Name (age) Principal Position Officer of United Since
- ---------------- ------------------------- -----------------------
Guy Freeman Senior Vice President of 1995
(62) United since March, 1995,
Executive Vice President
of Carolina since July
1996; President and CEO of
Carolina since 1997; and
Director of Carolina since
December 1996. Mr. Freeman
served as President and Chief
Executive Officer of White
from 1993 until February
1995. Since February
1995, Mr. Freeman has been
Chairman of the Board of
White, of which he has
been a member since
January 1993. Mr. Freeman
also served as Chairman of
the Board of WC Holding
Company from February 1995
until its acquisition by
United. From 1992 until
1993, Mr. Freeman served
as President and Chief
Executive Officer of East
Side Bank, Snellville,
Georgia, and from 1987 to
1992, he served in the
same capacity at First
American Bank, Atlanta,
Georgia.
Thomas C. Gilliland President and Chief 1993
(49) Executive Officer of
Peoples; Vice Chairman of
the Peoples Board;
Executive Vice President
and Director of United;
Executive Vice President
of United since April
1994. Chairman of the
Board of UFFC since 1997.
Eugene B. White President and Director of 1995
(53) White and Vice President
of United since March,
1995. Mr. White served as
Executive Vice President
of First National Bank of
Habersham, Cornelia,
Georgia from 1982 to 1995.
14<PAGE>
Name (age) Principal Position Officer of United Since
- ---------------- ------------------------- -----------------------
Richard E. Martin, Jr. Vice President of United 1992
(49) since 1993; President and
Director of Towns. From
1989 through 1992, Mr.
Martin was Senior Vice
President of First Colony
Bank, Alpharetta, Georgia.
L. Gene Sprayberry Executive Vice President 1973
(52) of UCB; Assistant
Secretary of United.
Christopher J. Bledsoe Senior Vice President and 1993
Chief Financial Officer of
UCB and United; Director of
UFFC since 1997. A certified
public accountant, from 1988
through 1993, Mr. Bledsoe
was a Supervisor at Evans,
Porter, Bryan & Co., an
accounting firm in
Atlanta, Georgia.
Robert L. Cochran Assistant Vice President 1995
(33) and Controller of UCB;
Controller of United since
1996. A certified public
accountant, from 1989
through 1995, Mr. Cochran
was an accounting manager
with PNC Bank in
Cincinnati, Ohio.
</TABLE>
ITEM 2. PROPERTIES.
The executive offices of United and the main banking office
of UCB are located in adjacent buildings, the former a 17,000
square-foot facility at 59 Highway 515, Blairsville, Georgia and
the latter a 19,000 square-foot operations center located
adjacent to its executive offices and main banking office. Both
the building and the land, which includes parking and four drive-
in teller stations, are owned by UCB. UCB also has a branch at
an Ingles supermarket in Blairsville. The Ingles branch
property, consisting of 350 square feet, is leased. UCB's branch
office in Cornelia, which it owns, is 5,000 square feet. UCB
also maintains a branch office in Dahlonega, which consists of
9,500-square feet and two drive-in teller stations, which are
owned by UCB and a 1,020-square foot building leased by UCB.
The main banking office of Carolina is located at 300
Peachtree Street, Murphy, North Carolina, and contains 12,000
square feet. Both the building and the land, which includes
parking and drive-in teller stations, are owned by Carolina.
Carolina has 10 North Carolina branches: Hayesville (one full
service branch and one supermarket branch); Robbinsville;
Andrews; Waynesville; Franklin; Sylva; Asheville; Bryson City;
and Cashiers. Over half of Carolina's branches are in locations
where both the land and the building is owned by United.
Carolina's branches aggregate approximately 20,000 square feet.
15<PAGE>
Peoples owns its main banking office located at 4000
Appalachian Highway, Blue Ridge, Georgia. The office contains
19,000 square feet and four drive-in teller stations. Peoples
owns a branch at West Tennessee Avenue and Blue Ridge Drive in
McCaysville, Georgia, which contains 2,800 square feet and has
three drive-in teller stations. Peoples also leases a 335 square
foot branch at an Ingles supermarket on Appalachian Highway in
Blue Ridge, Georgia.
Towns owns its banking facility, containing 3,594 square
feet and two drive-in teller stations. The facility is located
at 214 North Main Street, Hiawassee, Georgia.
The main banking office of White is located at 153 East
Kytle Street, Cleveland, Georgia and contains approximately
14,000 square feet and four drive-in teller stations. White also
has a branch office located on Highway 75 North in Helen, Georgia
which contains approximately 2,200 square feet. White owns both
its main and branch office.
First Clayton owns its banking facilities, containing 11,500
square feet and four drive-in teller stations. The facility is
located at U.S. 441 and Duval in the Village Center, Clayton,
Georgia.
UFFC leases property in Hiawassee and Blue Ridge, Georgia
and Murphy, North Carolina. The Hiawassee, Blue Ridge and Murphy
properties consist of 1,800, 2,800 and 1,000 square feet,
respectively.
None of the properties owned by United or the Banks is
subject to encumbrances.
ITEM 3. LEGAL PROCEEDINGS.
United is not aware of any material pending legal
proceedings to which United or any of its subsidiaries is a party
or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders
of United during the fourth quarter of its fiscal year.
ITEM 5. MARKET FOR UNITED'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
STOCK. There is no established public trading market for
United's Common Stock. At December 31, 1997, there were 2,534
holders of record of Common Stock.
DIVIDENDS. United paid cash dividends of $.10 per share of
Common Stock to shareholders of record in 1997 and 1996. United
intends to pay cash dividends on a quarterly basis. However, the
amount and frequency of dividends will be determined by United's
Board of Directors in light of the earnings, capital requirements
and the financial condition of United, and no assurance can be
given that dividends will be paid in the future.
16<PAGE>
PUBLIC OFFERING. United completed a public offering of
300,000 shares of Common Stock of United to Georgia and North
Carolina residents at an aggregate offering price of $6,600,000
pursuant to a Registration Statement on Form S-1, effective March
7, 1997, Registration Number 333-20887 and 24085. The offering
commenced on March 7, 1998 and was terminated after all of the
shares offered had been sold.
From the effective date of the registration statement to its
termination, the amount of expenses incurred by United in
connection with the issuance and distribution of the securities
registered was approximately $123,000. The net proceeds
received by United from the sale of the shares of Common Stock
were approximately $6.5 million, after deduction of the offering
expenses payable by United. In the State of Georgia, the Common
Stock was sold by certain executive officers of United, and no
commissions were paid on such sales. In order to comply with the
securities requirements of North Carolina, United engaged The
Carson Medlin Company ("Carson Medlin") to act as a broker-dealer
for the account of United in effecting offers and sales of the
Common Stock to investors in North Carolina. Carson Medlin
received a fee of $30,000 for these services. United used the
proceeds of the offering to invest additional capital in UCB,
Carolina and Towns, and for working capital because of asset
growth that these banks are experiencing.
RECENT SALES OF UNREGISTERED SECURITIES. On December 31,
1996, debentures due December 31, 2006, in the aggregate amount
of $3,500,000 were sold to 26 accredited investors in the States
of Georgia and North Carolina for cash in a transaction not
involving a public offering within the meaning of Section 4(2) of
the Securities Act of 1933 and in compliance with exemptions
contained in Rule 506 of Regulation D promulgated thereunder.
All of the purchasers were either existing shareholders, current
officers or directors of United.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the five years ended
December 31, 1997 appears under the caption "Selected Financial
Data" on page A-3 of United's Annual Report to Shareholders
which is included as the appendix to the Proxy Statement used in
connection with the solicitation of proxies for United's Annual
Meeting of Shareholders to be held on April 16, 1998, to be filed
with the SEC (the "Proxy Statement") and is incorporated herein
by reference.
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Management's discussion and analysis of financial condition
and results of operation appears under the caption "Management's
Discussion and Analysis of Financial Condition and Results of
Operation" on pages A-4 through A-19 of United's Annual Report
to Shareholders, which is included as the appendix to the Proxy
Statement, is incorporated herein by reference.
17<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Information concerning quantitative and qualitative
disclosures about market risk appears under the caption
"Quantitative and Qualitative Disclosures about Market Risk" on
page A-20 of United's Annual Report to Shareholders, which is
included as the appendix to the Proxy Statement, is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Report of Independent Certified Public Accountants, the
Consolidated Financial Statements and Notes to the Consolidated
Financial Statements appear on pages A-22 through A-47 of
United's Annual Report to Shareholders, which is included as the
appendix to the Proxy Statement, is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
During United's two most recent fiscal years, United did not
change accountants and had no disagreement with its accountants
on any matters of accounting principles or practices or financial
statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF UNITED.
The information contained under the heading "Information
About Nominees for Director" in the Proxy Statement is
incorporated herein by reference. Pursuant to instruction 3 to
paragraph (b) of Item 401 of Regulation S-K, information relating
to the executive officers of United is included in Item 1 of this
Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive
Compensation" in the Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained under the heading "Voting
Securities and Principal Holders," share ownership information of
nominees for directors contained under the heading "Information
about Nominees for Director" and share ownership of Mr. Freeman
and Mr. Bledsoe contained in the footnotes (4) and (5) to the first
chart under "Executive Compensation" in the Proxy Statement is
incorporated herein by reference. For purposes of determining the
aggregate market value of United's voting stock held by nonaffiliates,
shares held by all directors and executive officers of United have
been excluded. The exclusion of such shares is not intended to,
and shall not, constitute a determination as to which persons
or entities may be "Affiliates" of United as defined by the
Commission.
18<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Compensation
Committee Interlocks and Insider Participation" in the Proxy
Statement is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. Financial Statements.
--------------------
The following financial statements and notes thereto of
United are incorporated herein by reference:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Earnings for the Years ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity
for the Years ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
-----------------------------
No financial statement schedules are required to be filed as
part of this Report on Form 10-K.
3. Exhibits.
--------
The following exhibits are required to be filed with this
Report on Form 10-K by Item 601 of Regulation S-K:
3.1 - Amended and Restated Bylaws of United, dated
September 12, 1997.
3.2. - Articles of Incorporation of United, as amended
(included as Exhibit 3.1 to United's Registration
Statement on Form S-4, Commission File No. 33-93286,
previously filed with the Commission and incorporated
herein by reference.)
4.1(a) - Form of Floating Rate Convertible
Subordinated Payable In Kind Debenture due December
31, 2006 (included as Exhibit 4.2 to United's
Registration Statement on Form S-1, Commission File
Number 33-93278, previously filed with the Commission
and incorporated herein by reference).
4.1(b) - Form of Subscription Agreement (included as
Exhibit A to United's Form S-1, Commission File
Number 333-20887, previously filed with the
Commission and incorporated by reference).
19<PAGE>
4.2 - See exhibits 3.1 and 3.2 for provisions of
Articles of Incorporation and By-laws, as amended,
which define the rights of the holders of Common
Stock of United.
10.1 - Agreement, dated May 3, 1984, by and between
Cornelia Bank and Union County Bank (included as
Exhibit 10.8 to United's Registration Statement on
Form S-18, Commission File No. 33-32205-A, previously
filed with the Commission and incorporated herein by
reference).
10.2 - United Community Banks, Inc. Key Employee Stock
Option Plan (included as Exhibit 10.3 to United's
Annual Report on Form 10-K for the year ended
December 31, 1994, previously filed with the
Commission and incorporated herein by reference).*
10.3 - Loan Agreement dated April 26, 1995 by and between
the Bankers Bank and United, together with the
related Promissory Note in the principal amount of
$12,000,000 and Stock Pledge Agreement (included as
Exhibit 10.17 to United's Registration Statement on
Form S-1, Commission File Number 33-93278, previously
filed with the Commission and incorporated herein by
reference.)
10.4 - Split-Dollar Agreement between United and Jimmy C.
Tallent dated June 1, 1994 (included as Exhibit
10.11 to United's Annual Report on Form 10-K for the
year ended December 31, 1994, previously filed with
the Commission and incorporated herein by
reference).*
10.5 - Agreement and Plan of Reorganization by and among
White County Bancshares, Inc., White County Bank and
United, dated as of April 11, 1995 (included as
Exhibit 2.1 to United's Registration Statement on
Form S-4, Commission File Number 33-93286, previously
filed with the Commission and incorporated herein by
reference).
10.6 - Agreement and Plan of Merger by and between
Registrant and White County Bancshares, Inc., dated
as of April 11, 1995 (included as Exhibit 2.2 to
United's Registration Statement on Form S-4,
Commission File Number 33-93286, previously filed
with the Commission and incorporated herein by
reference).
10.7 - Agreement and Plan of Merger by and between White
County Bank and White Interim Bank, dated as of June
12, 1995 (included as Exhibit 2.3 to United's
Registration Statement on Form S-4, Commission File
No. 33-93286, previously filed with the Commission
and incorporated herein by reference).
20<PAGE>
10.8 - Purchase and Assumption Agreement by and between
Carolina Bank and NationsBank, N.A. (Carolinas) dated
May 25, 1995 (included as Exhibit 10.16 to United's
Registration Statement on Form S-1, Commission File
Number 33-93278, previously filed with the Commission
and incorporated herein by reference).
10.9 - Broker Dealer Agreement between the Registrant and
The Carson Medlin Company dated January 28, 1997
(included as Exhibit 10.10 to United's Registration
Statement on Form S-1, Commission File Number 333-
20887, previously filed with the Commission and
incorporated herein by reference).
10.10 - Amendment to Broker Dealer Agreement between the
Registrant and The Carson Medlin Company dated March 3,
1997 (included as Exhibit 10.11 to United's
Registration Statement on Form S-1, Commission File
Number 333-20887, previously filed with the
Commission and incorporated herein by reference).
10.11 - Agreement and Plan of Merger, dated June 12, 1997,
by and between United and First Clayton Bancshares,
Inc. (included as Appendix A to United's Registration
Statement on Form S-4, Commission File Number 333-
31997, previously filed with the Commission and
incorporated herein by reference).
21 - Subsidiaries of United.
23 - Consent of Porter Keadle Moore, LLP.
27 - Financial Data Schedule.
99 - Notice of Annual Meeting and Proxy Statement of
United, including the Annual Report to Shareholders
attached as Appendix A.
________________________
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit to this Annual Report
on Form 10-K pursuant to Item 14(c) of Form 10-K.
(b) United did not file any reports on Form 8-K during the
fourth quarter of 1997.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, United has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Blairsville, State of Georgia, on the
24th of March, 1998.
UNITED COMMUNITY BANKS, INC.
(Registrant)
By: /s/ Jimmy C. Tallent
Title: President
POWER OF ATTORNEY AND SIGNATURES
Know all men by these presents, that each person whose
signature appears below constitutes and appoints Jimmy C. Tallent
or Robert L. Head, or either of them, as attorney-in-fact, with
each having the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K
and to file the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed below by the following
persons on behalf of United in the capacities set forth and on
the 24th of March, 1998.
Signature Title
/s/ Jimmy C. Tallent
Jimmy C. Tallent President and Director
(Principal Executive Officer)
/s/ Robert L. Head, Jr.
Robert L. Head, Jr. Chairman of the Board of
Directors
/s/ Billy M. Decker
Billy M. Decker Director
/s/ Thomas C. Gilliland
Thomas C. Gilliland Director
/s/ Charles Hill
Charles Hill Director
/s/ Hoyt O. Holloway
Hoyt O. Holloway Director
/s/ P. Deral Horne
P. Deral Horne Director
/s/ John R. Martin Director
John R. Martin
/s/ Clarence William Mason, Sr. Director
Clarence William Mason, Sr.
/s/ W. C. Nelson, Jr.
W. C. Nelson, Jr. Director
/s/ Charles E. Parks
Charles E. Parks Director
/s/ Christopher J. Bledsoe
Christopher J. Bledsoe Chief Financial Officer
(Principal Accounting and
Financial Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3 Amended and Restated Bylaws, dated September 12, 1997.
21 Subsidiaries of United.
23 Consent of Porter Keadle Moore, LLP.
27 Financial Data Schedule (for SEC use only)
99 Notice of Annual Meeting and Proxy Statement of United,
including the Annual Report to Shareholders as Appendix
A.
AMENDED AND RESTATED BYLAWS
OF
UNITED COMMUNITY BANKS, INC.
(A Georgia Corporation)
AS OF SEPTEMBER 12, 1997
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
UNITED COMMUNITY BANKS, INC.
(A GEORGIA CORPORATION)
TABLE OF CONTENTS
Page
ARTICLE ONE OFFICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office and Agent . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO STOCKHOLDERS' MEETING . . . . . . . . . . . . . . . . . . . . . 1
2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Quorum; Vote Required to Act. . . . . . . . . . . . . . . . . . . . . 2
2.7 Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Presiding Officer . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.11 Conduct of the Meeting . . . . . . . . . . . . . . . . . . . . . . . 3
2.12 Action of Stockholders Without a Meeting . . . . . . . . . . . . . . 3
2.13 Matters Considered at Annual Meetings. . . . . . . . . . . . . . . . 4
ARTICLE THREE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . 4
3.1 General Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Number, Election and Term of Office . . . . . . . . . . . . . . . . . 4
3.3 Removal of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Committees of the Board of Directors. . . . . . . . . . . . . . . . . 5
3.7 Qualification of Directors. . . . . . . . . . . . . . . . . . . . . . 5
i
<PAGE>
ARTICLE FOUR MEETING OF THE BOARD OF DIRECTORS. . . . . . . . . . . . . . . 5
4.1 Regular Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . 5
4.3 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.4 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.5 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.7 Vote Required for Action. . . . . . . . . . . . . . . . . . . . . . . 6
4.8 Participation by Conference Telephone . . . . . . . . . . . . . . . . 6
4.9 Action by Directors Without a Meeting . . . . . . . . . . . . . . . . 6
4.10 Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.11 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE FIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.1 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Chief Financial Officer . . . . . . . . . . . . . . . . . . . . . . . 8
5.9 Vice President. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.11 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS . . . . . . . . . . . . . . . . . . 9
ARTICLE SEVEN SHARES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Share Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Rights of Corporation with Respect to Registered Owners . . . . . . 10
7.3 Transfers of Shares . . . . . . . . . . . . . . . . . . . . . . . . 10
7.4 Duty of Corporation to Register Transfer . . . . . . . . . . . . . . 10
7.5 Lost, Stolen, or Destroyed Certificates . . . . . . . . . . . . . . 10
7.6 Fixing of Record Date . . . . . . . . . . . . . . . . . . . . . . . 11
7.7 Record Date if None Fixed. . . . . . . . . . . . . . . . . . . . . . 11
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ARTICLE EIGHT INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Action by Persons other than the Corporation . . . . . . . . . . . . 11
8.2 Actions By or in the Name of the Corporation . . . . . . . . . . . . 11
8.3 Successful Defense . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.4 Authorization of Indemnification . . . . . . . . . . . . . . . . . . 12
8.5 Prepayment of Expenses . . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Non-Exclusive Right . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.8 Constituent Corporations to Merger . . . . . . . . . . . . . . . . . 13
8.9 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.10 Continuation of Indemnification . . . . . . . . . . . . . . . . . . 13
8.11 Changes in Law . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.12 Other Permitted Indemnification . . . . . . . . . . . . . . . . . . 13
8.13 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE NINE MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 15
9.1 Inspection of Books and Records. . . . . . . . . . . . . . . . . . . 15
9.2 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.3 Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE TEN AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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AMENDED AND RESTATED BYLAWS
OF
UNITED COMMUNITY BANKS, INC.
_______________________________________________________________________________
References in these Amended and Restated Bylaws to "Articles of
Incorporation" are to the Articles of Incorporation of United Community Banks,
Inc., a Georgia corporation (the "Corporation"), as amended and restated from
time to time.
All of these Amended and Restated Bylaws are subject to contrary
provisions, if any, of the Articles of Incorporation (including provisions
designating the preferences, limitations, and relative rights of any class or
series of shares), the Georgia Business Corporation Code (the "Code"), and
other applicable law, as in effect on and after the effective date of these
Bylaws. References in these Bylaws to "Sections" shall refer to sections of
the Bylaws, unless otherwise indicated.
_______________________________________________________________________________
ARTICLE ONE
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
registered office in the State of Georgia and shall have a registered agent
whose business office is the same as the registered office.
1.2 OTHER OFFICES. The Corporation may also have other offices at
such other place or places, both within or without the State of Georgia, as
the Board of Directors may from time to time designate or the business of the
Corporation requires.
ARTICLE TWO
STOCKHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's stockholders may
be held at any location inside or outside the State of Georgia designated by
the Board of Directors or any other person or persons who properly call the
meeting, or if the Board of Directors or such other person or persons do not
specify a location, at the Corporation's principal office.
2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of
stockholders, at a time determined by the Board of Directors, to elect
directors and to transact any business that properly may come before the
meeting. The annual meeting may be combined with any other meeting of
stockholders, whether annual or special.
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2.3 SPECIAL MEETINGS. Special meetings of stockholders may be called
at any time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, the President, or the Chief Financial Officer, and shall be
called by the Corporation upon the written request (in compliance with
applicable requirements of the Code) of the holders of shares representing
twenty-five percent (25%) or more of the votes entitled to be cast on each
issue proposed to be considered at the special meeting. The business that may
be transacted at any special meeting of stockholders shall be limited to that
proposed in the notice of the special meeting given in accordance with Section
2.4 (including related or incidental matters that may be necessary or
appropriate to effectuate the proposed business).
2.4 NOTICE OF MEETINGS. In accordance with Section 9.4 and subject to
waiver by a stockholder pursuant to Section 2.5, the Corporation shall give
written notice of the date, time, and place of each annual and special
stockholders' meeting no fewer than 10 days nor more than 60 days before the
meeting date to each stockholder of record entitled to vote at the meeting.
The notice of an annual meeting need not state the purpose of the meeting
unless these Bylaws require otherwise. The notice of a special meeting shall
state the purpose for which the meeting is called. If an annual or special
stockholders' meeting is adjourned to a different date, time, or location, the
Corporation shall give stockholders notice of the new date, time, or location
of the adjourned meeting, unless a quorum of stockholders was present at the
meeting and information regarding the adjournment was announced before the
meeting was adjourned; provided, however, that if (i) the adjournment is for
more than 30 days, or (ii) a new record date is or must be fixed in accordance
with Section 7.6, the Corporation must give notice of the adjourned meeting to
all stockholders of record as of the new record date who are entitled to vote
at the adjourned meeting.
2.5 WAIVER OF NOTICE. A stockholder may waive any notice required by
the Code, the Articles of Incorporation, or these Bylaws, before or after the
date and time of the matter to which the notice relates, by delivering to the
Corporation a written waiver of notice signed by the stockholder entitled to
the notice. In addition, a stockholder's attendance at a meeting shall be
(a) a waiver of objection to lack of notice or defective notice of the meeting
unless the stockholder attends the meeting for the express purpose of
objecting at the beginning of the meeting, and (b) a waiver of objection to
consideration of a particular matter at the meeting that is not within the
purpose stated in the meeting notice, unless the stockholder objects to
considering the matter when it is presented. Except as otherwise required by
the Code, neither the purpose of nor the business transacted at the meeting
need be specified in any waiver.
2.6 QUOROM; VOTE REQUIRED TO ACT. (a) At all meetings of
stockholders, stockholders entitled to vote on a matter may take action on the
matter only if a quorum exists at the meeting. A quorum at all meetings of
stockholders shall consist of the holders of record of a majority of the
shares of the capital stock of the Corporation, issued and outstanding,
entitled to vote at the meeting, present in person or by proxy, except as
otherwise provided by law or the Articles of Incorporation. Once a share is
present at any meeting other than for the express purpose of objecting at the
beginning of the meeting, the share shall be deemed present for quorum
purposes for the remainder of the meeting and for any adjournments of that
meeting, unless a new record date for the adjourned meeting is or must be set
pursuant to Section 7.6 of these Bylaws.
(b) Except as provided in Section 3.2, if a quorum exists, action on a
matter by the stockholders is approved by the stockholders if the votes cast
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favoring the action exceed the votes cast opposing the action, unless the
Articles of Incorporation or the Code requires a greater number of affirmative
votes.
2.7 VOTING OF SHARES. Unless otherwise required by the Code or the
Articles of Incorporation, each outstanding share of any class or series
having voting rights shall be entitled to one vote on each matter that is
submitted to a vote of stockholders.
2.8 PROXIES. A stockholder entitled to vote on a matter may vote in
person or by proxy pursuant to an appointment executed in writing by the
stockholder or by his or her attorney-in-fact. An appointment of a proxy
shall be valid for three years from the date of its execution, unless a longer
or shorter period is expressly stated in the proxy.
2.9 PRESIDING OFFICER. Except as otherwise provided in this Section
2.9, the Chairman of the Board, if there be one, and in his or her absence or
disability the Chief Executive Officer, if there be one, and in his or her
absence or disability the President, and in his or her absence or disability
the Chief Financial Officer, if there be one, shall preside at every
stockholders' meeting (and any adjournment thereof) as its chairman. If
neither the Chairman of the Board, the Chief Executive Officer, the President
nor the Chief Financial Officer is present and willing to serve as chairman of
the meeting, and if the Chairman of the Board has not designated another
person who is present and willing to serve, then a majority of the
Corporation's directors present at the meeting shall be entitled to designate
a person to serve as chairman. If no director of the Corporation is present
at the meeting, or if a majority of the directors who are present cannot be
established, then a chairman of the meeting shall be selected by a majority
vote of the shares present at the meeting entitled to vote at the meeting.
The chairman of the meeting may designate other persons to assist with the
meeting.
2.10 ADJOURNMENTS. At any meeting of stockholders (including an
adjourned meeting), a majority of shares present and entitled to vote at the
meeting (whether or not those shares constitute a quorum) may adjourn the
meeting. The only business that may be transacted at any reconvened meeting
is business that could have been transacted at the meeting that was adjourned,
unless further notice of the adjourned meeting has been given in compliance
with the requirements for a special meeting that specifies the additional
purpose or purposes for which the meeting is called. Nothing contained in
this Section 2.10 shall be deemed or otherwise construed to limit any lawful
authority of the chairman of a meeting to adjourn the meeting.
2.11 CONDUCT OF THE MEETING. At any meeting of stockholders, the
chairman of the meeting shall be entitled to establish the rules of order
governing the conduct of business at the meeting.
2.12 ACTION OF STOCKHOLDERS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the stockholders may be taken without
a meeting, without prior notice and without a vote, if a consent or consents
in writing, setting forth the actions so taken, shall be signed by the holders
of outstanding stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted, and delivered to the
Corporation. Every written consent shall bear the date of signature of each
stockholder who signs the consent. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing. Such
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consent shall have the same force and effect as a majority vote of
stockholders.
2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything
to the contrary in these Bylaws, the only business that may be conducted at an
annual meeting of stockholders shall be business brought before the meeting
(a) by or at the direction of the Board of Directors prior to the meeting, (b)
by or at the direction of the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, or (c) by a stockholder
of the Corporation who is entitled to vote with respect to the business and
who complies with the notice procedures set forth in this Section 2.13. For
business to be brought properly before an annual meeting by a stockholder, the
stockholder must have given timely notice of the business in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered or mailed to and received at the principal offices of the
Corporation on or before the later to occur of (i) 14 days prior to the annual
meeting or (ii) 5 days after notice of the meeting is provided to the
stockholders pursuant to Section 2.4 hereof. A stockholder's notice to the
Secretary shall set forth a brief description of each matter of business the
stockholder proposes to bring before the meeting and the reasons for
conducting that business at the meeting; the name, as it appears on the
Corporation's books, and address of the stockholder proposing the business;
the series or class and number of shares of the Corporation's capital stock
that are beneficially owned by the stockholder; and any material interest of
the stockholder in the proposed business. The chairman of the meeting shall
have the discretion to declare to the meeting that any business proposed by a
stockholder to be considered at the meeting is out of order and that such
business shall not be transacted at the meeting if (i) the chairman concludes
that the matter has been proposed in a manner inconsistent with this Section
2.13 or (ii) the chairman concludes that the subject matter of the proposed
business is inappropriate for consideration by the stockholders at the
meeting.
ARTICLE THREE
BOARD OF DIRECTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall
be managed by, the Board of Directors, subject to any limitation set forth in
the Articles of Incorporation, in bylaws approved by the stockholders, or in
agreements among all the stockholders that are otherwise lawful.
3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors of
the Corporation shall consist of eight to fourteen persons, until otherwise
determined by resolution of the Board of Directors or of the stockholders from
time to time; provided that no decrease in the number of directors shall have
the effect of shortening the term of an incumbent director. Except as
provided elsewhere in this Section 3.2 and in Section 3.4, the directors
shall be elected at each annual meeting of stockholders, or at a special
meeting of stockholders called for purposes that include the election of
directors, by a plurality of the votes cast by the shares entitled to vote and
present at the meeting. Except in case of death, resignation,
disqualification, or removal, the term of each director shall expire at the
next succeeding annual meeting of stockholders. Despite the expiration of a
director's term, he or she shall continue to serve until his or her successor,
if there is to be any, has been elected and has qualified.
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3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed, with or without cause, by the affirmative
vote of the holders of a majority of all the shares of stock outstanding and
entitled to vote for the election of directors. Removal action may be taken
only at a stockholders' meeting for which notice of the removal action has
been given. A removed director's successor, if any, may be elected at the
same meeting to serve the unexpired term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may be
filled for the unexpired term, unless the stockholders have elected a
successor, by the affirmative vote of a majority of the remaining directors,
whether or not the remaining directors constitute a quorum. A vacancy or
vacancies in the Board of Directors may result from the death, resignation,
disqualification, or removal of any director, or from an increase in the
number of directors.
3.5 COMPENSATION. Directors may receive such compensation for their
services as directors as may be fixed by the Board of Directors from time to
time. A director may also serve the Corporation in one or more capacities
other than that of director and receive compensation for services rendered in
those other capacities.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
designate from among its members an executive committee or one or more other
standing or ad hoc committees, each consisting of one or more directors, who
serve at the pleasure of the Board of Directors. Subject to the limitations
imposed by the Code, each committee shall have the authority set forth in the
resolution establishing the committee or in any other resolution of the Board
of Directors specifying, enlarging, or limiting the authority of the
committee.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a
director of the Corporation shall assume office and begin serving unless and
until duly qualified to serve, as determined by reference to the Code, the
Articles of Incorporation, and any further eligibility requirements
established in these Bylaws.
ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held in conjunction with each annual meeting of stockholders. In
addition, the Board of Directors may, by prior resolution, hold regular
meetings at other times.
4.2 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be
one) shall preside at and serve as chairman of meetings of the stockholders
and of the Board of Directors (unless another person is selected under Section
2.9 to act as chairman). The Chairman of the Board shall perform other duties
and have other authority as may from time to time be delegated by the Board of
Directors.
4.3 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the Chief
Executive Officer, the President, the Chief Financial Officer or any two
directors in office at that time.
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4.4 PLACE OF MEETINGS. Directors may hold their meetings at any place
in or outside the State of Georgia that the Board of Directors may establish
from time to time.
4.5 NOTICE OF MEETINGS. Directors need not be provided with notice of
any regular meeting of the Board of Directors. Unless waived in accordance
with Section 4.11, the Corporation shall otherwise give at least three days'
notice to each director of the date, time, and place of each special meeting.
Notice of a meeting shall be deemed to have been given to any director in
attendance at any prior meeting at which the date, time, and place of the
subsequent meeting was announced.
4.6 QUOROM. At meetings of the Board of Directors, the greater of (a)
a majority of the directors then in office, or (b) one-third of the number of
directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business.
4.7 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is
taken, the vote of a majority of the directors present at the time of the vote
will be the act of the Board of Directors, unless the vote of a greater number
is required by the Code, the Articles of Incorporation, or these Bylaws. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (a) he
or she objects at the beginning of the meeting (or promptly upon his or her
arrival) to holding the meeting or transacting business at it; (b) his or her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) he or she delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. The right of
dissent or abstention is not available to a director who votes in favor of the
action taken.
4.8 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment through which all persons
participating may hear and speak to each other. Participation in a meeting
pursuant to this Section 4.8 shall constitute presence in person at the
meeting.
4.9 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent, describing the action taken, is signed
by each director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. The consent may be executed in
counterparts, and shall have the same force and effect as a unanimous vote of
the Board of Directors at a duly convened meeting.
4.10 ADJOURNMENTS. A meeting of the Board of Directors, whether or not
a quorum is present, may be adjourned by a majority of the directors present
to reconvene at a specific time and place. It shall not be necessary to give
notice to the directors of the reconvened meeting or of the business to be
transacted, other than by announcement at the meeting that was adjourned,
unless a quorum was not present at the meeting that was adjourned, in which
case notice shall be given to directors in the same manner as for a special
meeting. At any such reconvened meeting at which a quorum is present, any
business may be transacted that could have been transacted at the meeting that
was adjourned.
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4.11 WAIVER OF NOTICE. A director may waive any notice required by the
Code, the Articles of Incorporation, or these Bylaws before or after the date
and time of the matter to which the notice relates, by a written waiver signed
by the director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. Attendance by a director at a meeting
shall constitute waiver of notice of the meeting, except where a director at
the beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or to transacting business at the meeting, and does not
thereafter vote for or assent to action taken at the meeting.
ARTICLE FIVE
OFFICERS
5.1 OFFICERS. The Board of Directors, as soon as may be possible
after the election thereof held each year, shall elect or appoint a President,
a Secretary and a Treasurer, and may also elect or appoint a Chief Executive
Officer and a Chief Financial Officer. The Board of Directors may also elect
a Chairman of the Board from among its members. The Board of Directors from
time to time may create and establish the duties of other officers and may
elect or appoint, or authorize specific senior officers to appoint, the person
who shall hold other offices, including one or more Vice Presidents (including
Executive Vice Presidents, Senior Vice Presidents, Assistant Vice Presidents,
and the like), one or more Assistant Secretaries, and one or more Assistant
Treasurers. Whether or not so provided by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President or the Chief
Financial Officer may appoint one or more Assistant Secretaries and one or
more Assistant Treasurers. Any two or more offices may be held by the same
person except that no person may hold both the offices of President and
Secretary.
5.2 TERM. Each officer shall serve at the pleasure of the Board of
Directors (or, if appointed by the Chief Executive Officer, President, Chief
Financial Officer or a senior officer pursuant to this Article Five, at the
pleasure of the Board of Directors, the Chief Executive Officer, President,
Chief Financial Officer, or the senior officer authorized to have appointed
the officer) until his death, resignation, or removal, or until his
replacement is elected or appointed in accordance with this Article Five.
5.3 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by the Board of Directors or by a committee or officer
appointed by the Board of Directors. Officers may serve without compensation.
5.4 REMOVAL. All officers (regardless of how elected or appointed)
may be removed, with or without cause, by the Board of Directors, and any
officer appointed by the Chief Executive Officer, President, Chief Financial
Officer or another senior officer may also be removed, with or without cause,
by the Chief Executive Officer, President, Chief Financial Officer or by any
senior officer authorized to have appointed the officer to be removed.
Removal will be without prejudice to the contract rights, if any, of the
person removed, but shall be effective notwithstanding any damage claim that
may result from infringement of such contract rights.
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5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be
one) shall preside at and serve as chairman of meetings of the stockholders
and of the Board of Directors (unless another person is selected under Section
2.9 to act as Chairman). The Chairman of the Board shall perform other duties
and have other authority as may from time to time be delegated by the Board of
Directors.
5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer (if there be
one) shall be charged with the general and active management of the
Corporation, shall see that all orders and resolutions of the Board of
Directors are carried into effect, shall have the authority to select and
appoint employees and agents of the Corporation, and shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board. The Chief Executive Officer shall also
be responsible for the development, establishment, and implementation of the
policy and strategic initiatives for the Corporation. The Chief Executive
Officer shall perform any other duties and have any other authority as may be
delegated from time to time by the Board of Directors, and shall be subject to
the limitations fixed from time to time by the Board of Directors.
5.7 PRESIDENT. If there shall be no separate Chief Executive Officer
of the Corporation, then the President shall be the chief executive officer of
the Corporation, with the duties and authority provided in Section 5.6. The
President shall perform such other duties and have such other authority as may
from time to time be delegated by the Board of Directors. In the absence or
disability of the Chief Executive Officer, the President shall perform the
duties and exercise the powers of the Chief Executive Officer.
5.8 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall have
the legal custody of the corporate funds and securities and shall keep or
cause to be kept full and accurate accounts of receipts and disbursements and
other appropriate accounting records in books belonging to the Corporation and
shall deposit all funds and other valuable items in the name and to the credit
of the Corporation in such depositories as may be designated by the Board of
Directors. He shall render to the Chairman of the Board and the Board of
Directors, at its regular meetings, or when the Chairman of the Board or the
Board of Directors so requires, an account of all his transactions as Chief
Financial Officer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond in
such sum, or such conditions, and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office.
5.9 VICE PRESIDENT. The Vice President (if there be one) shall, in
the absence or disability of the President, perform the duties and exercise
the powers of the President, whether the duties and powers are specified in
these Bylaws or otherwise. If the Corporation has more than one Vice
President, the one designated by the Board of Directors shall act in the event
of the absence or disability of the President. Vice Presidents shall perform
any other duties and have any other authority as from time to time may be
delegated by the Board of Directors, the Chief Executive Officer, the
President, or the Chief Financial Officer.
5.10 SECRETARY. The Secretary shall be responsible for preparing
minutes of the meetings of stockholders, directors, and committees of
directors, and for authenticating records of the Corporation. The Secretary
or any Assistant Secretary shall have authority to give all notices required
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by law or these Bylaws. The Secretary shall be responsible for the custody of
the corporate books, records, contracts, and other documents. The Secretary
or any Assistant Secretary may affix the corporate seal to any lawfully
executed documents requiring it, may attest to the signature of any officer of
the Corporation, and shall sign any instrument that requires the Secretary's
signature. The Secretary or any Assistant Secretary shall perform any other
duties and have any other authority as from time to time may be delegated by
the Board of Directors, the Chief Executive Officer, the President, or the
Chief Financial Officer.
5.11 TREASURER. Unless otherwise provided by the Board of Directors,
the Treasurer shall be responsible for the custody of all funds and securities
belonging to the Corporation and for the receipt, deposit, or disbursement of
these funds and securities under the direction of the Board of Directors. The
Treasurer shall cause full and true accounts of all receipts and disbursements
to be maintained, and shall make reports of these receipts and disbursements
to the Board of Directors, the Chief Executive Officer, the President, and the
Chief Financial Officer upon request. The Treasurer or Assistant Treasurer
shall perform any other duties and have any other authority as from time to
time may be delegated by the Board of Directors, the Chief Executive Officer,
the President, or the Chief Financial Officer.
ARTICLE SIX
DISTRIBUTIONS AND DIVIDENDS
Unless the Articles of Incorporation provides otherwise, the Board of
Directors, from time to time in its discretion, may authorize or declare
distributions or share dividends in accordance with the Code.
ARTICLE SEVEN
SHARES
7.1 SHARE CERTIFICATES. The interest of each stockholder in the
Corporation shall be evidenced by a certificate or certificates representing
shares of the Corporation, which shall be in such form as the Board of
Directors from time to time may adopt in accordance with the Code. Share
certificates shall be in registered form and shall indicate the date of issue,
the name of the Corporation, the name of the stockholder, and the number and
class of shares and designation of the series, if any, represented by the
certificate. Each certificate shall be signed by the President or a Vice
President (or in lieu thereof, by the Chairman of the Board, Chief Executive
Officer or the Chief Financial Officer, if there be any) and may be signed by
the Secretary or an Assistant Secretary.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to
due presentation for transfer of registration of its shares, the Corporation
may treat the registered owner of the shares (or the beneficial owner of the
shares to the extent of any rights granted by a nominee certificate on file
with the Corporation pursuant to any procedure that may be established by the
Corporation in accordance with the Code) as the person exclusively entitled to
vote the shares, to receive any dividend or other distribution with respect to
the shares, and for all other purposes; and the Corporation shall not be bound
9
<PAGE>
to recognize any equitable or other claim to or interest in the shares on the
part of any other person, whether or not it has express or other notice of
such a claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the
books of the Corporation kept by the Corporation or by the transfer agent
designated to transfer the shares, only upon direction of the person named in
the certificate or by an attorney lawfully constituted in writing. Before a
new certificate is issued, the old certificate shall be surrendered for
cancellation or, in the case of a certificate alleged to have been lost,
stolen, or destroyed, the provisions of Section 7.5 of these Bylaws shall have
been complied with.
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of
the provisions of Section 7.3 of these Bylaws, the Corporation is under a duty
to register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is
given that each required endorsement is genuine and effective; (c) the
Corporation has no duty to inquire into adverse claims or has discharged any
such duty; (d) any applicable law relating to the collection of taxes has been
complied with; (e) the transfer is in fact rightful or is to a bona fide
purchaser; and (f) the transfer is in compliance with applicable provisions of
any transfer restrictions of which the Corporation shall have notice.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a
share certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity
in form and amount, and with one or more sureties satisfactory to the
Corporation, as the Corporation may require, whereupon an appropriate new
certificate may be issued in lieu of the one alleged to have been lost,
stolen, or destroyed.
7.6 Fixing of Record Date. For the purpose of determining
stockholders (a) entitled to notice of or to vote at any meeting of
stockholders or, if necessary, any adjournment thereof, (b) entitled to
receive payment of any distribution or dividend, or (c) for any other proper
purpose, the Board of Directors may fix in advance a date as the record date.
The record date may not be more than 60 days (and, in the case of a notice to
stockholders of a stockholders' meeting, not less than 10 days) prior to the
date on which the particular action, requiring the determination of
stockholders, is to be taken. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting, unless the Board of Directors shall fix a new
record date for the reconvened meeting, which it must do if the meeting is
adjourned to a date more than 30 days after the date fixed for the original
meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided
in Section 7.6, then the record date for any determination of stockholders
that may be proper or required by law shall be, as appropriate, the date on
which notice of a stockholders' meeting is mailed, the date on which the Board
of Directors adopts a resolution declaring a dividend or authorizing a
distribution, or the date on which any other action is taken that requires a
determination of stockholders.
10
<PAGE>
ARTICLE EIGHT
INDEMNIFICATION
8.1 ACTION BY PERSONS OTHER THAN THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative (other than an
action by or in the right of the Corporation) by reason of the fact that he is
or was a director, officer, employee, or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee, or
agent of another Corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit, or proceeding, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that the person had reasonable cause to believe that his conduct
was unlawful.
8.2 ACTIONS BY OR IN THE NAME OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending, or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Georgia or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery of Georgia or such
other court shall deem proper.
8.3 SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee, or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit, or proceeding referred to in
Sections 8.1 and 8.2, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
8.4 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Sections 8.1 and 8.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
11
<PAGE>
in Sections 8.1 and 8.2. Such determination shall be made: (1) by the Board
of Directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit, or proceeding; (2) if such quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion; or (3) by the
stockholders.
8.5 PREPAYMENT OF EXPENSES. Expenses incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the Corporation in advance
of the final disposition of such action, suit, or proceeding upon receipt of
an undertaking by or on behalf of the director, officer, employee, or agent to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the Corporation as authorized in this Article Eight.
8.6 NON-EXCLUSIVE RIGHT. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
8.7 INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article.
8.8 CONSTITUENT CORPORATIONS TO MERGER. For purposes of this Article,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, or agents, so that any person who is or was a
director, officer, employee, or agent of such constituent corporation or a
director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
8.9 DEFINITIONS. For purposes of this Article, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee, or agent of the
Corporation which imposes duties on, or involves services by, such its
director, officer, employee, or agent with respect to an employee benefit
plan, its participants, or its beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article.
8.10 CONTINUATION OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by, or granted pursuant to, this Article
11
<PAGE>
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such a
person.
8.11 CHANGES IN LAW. In the event the Code is amended following the
date of the latest modification, amendment, or revision of this Article so as
to permit indemnification by the Corporation of any person to a greater extent
(either as to matters or persons which may be the subject of indemnity) than
permitted in this Article, then the Board of Directors shall have the power to
authorize such greater indemnification in accordance with the amended
provisions of the Code.
8.12 OTHER PERMITTED INDEMNIFICATION. Whether or not required or
permitted by the foregoing provisions of this Article, the Corporation shall
indemnify any person against any other losses, damages, expenses (including
attorneys' fees and other costs of defense), judgments, fines, and amounts
paid in settlement which result from the fact that such person is or was a
director, officer, employee, or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, or agent
of another Corporation, partnership, joint venture, trust, or other
enterprise, if the Board of Directors finds, in its sole discretion, that such
indemnity is appropriate in view of all of the facts and circumstances
involved, unless such indemnity, in the opinion of counsel, is prohibited by
law.
8.13 AMENDMENT. Any amendment to this Article Eight that limits or
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any person indemnified hereunder (an "Indemnified
Person") shall, as to such Indemnified Person, apply only to proceedings based
12
<PAGE>
on actions, events, or omissions (collectively, "Post Amendment Events")
occurring after such amendment and after delivery of notice of such amendment
to the Indemnified Person so affected. Any Indemnified Person shall, as to
any proceeding based on actions, events, or omissions occurring prior to the
date of receipt of such notice, be entitled to the right of indemnification,
advancement of expenses, and other rights under this Article Eight to the same
extent as if such provisions had continued as part of the Bylaws of the
Corporation without such amendment. This Section 8.13 cannot be altered,
amended, or repealed in a manner effective as to any Indemnified Person
(except as to Post Amendment Events) without the prior written consent of such
Indemnified Person.
8.14 SEVERABILITY. Each of the Sections of this Article Eight, and
each of the clauses set forth herein, shall be deemed separate and
independent, and should any part of any such Section or clause be declared
invalid or unenforceable by any court of competent jurisdiction, such
invalidity or unenforceability shall in no way render invalid or unenforceable
any other part thereof or any separate Section or clause of this Article Eight
that is not declared invalid or unenforceable.
13
<PAGE>
ARTICLE NINE
MISCELLANEOUS
9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall
have the power to determine which accounts, books, and records of the
Corporation shall be available for stockholders to inspect or copy, except for
those books and records required by the Code to be made available upon
compliance by a stockholder with applicable requirements, and shall have the
power to fix reasonable rules and regulations (including confidentiality
restrictions and procedures) not in conflict with applicable law for the
inspection and copying of accounts, books, and records that by law or by
determination of the Board of Directors are made available.
9.2 FISCAL YEAR. The Board of Directors is authorized to fix the
fiscal year of the Corporation and to change the fiscal year from time to time
as it deems appropriate.
9.3 CORPORATE SEAL. The corporate seal will be in such form as the
Board of Directors may from time to time determine. The Board of Directors may
authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Articles of Incorporation.
9.4 NOTICE. (a) Whenever these Bylaws require notice to be given to
any stockholder or to any director, the notice may be given by mail, in
person, by courier delivery, by telephone, or by telecopier, telegraph, or
similar electronic means. Whenever notice is given to a stockholder or
director by mail, the notice shall be sent by depositing the notice in a post
office or letter box in a postage-prepaid, sealed envelope addressed to the
stockholder or director at his or her address as it appears on the books of
the Corporation. Any such written notice given by mail shall be effective:
(i) if given to stockholders, as such, at the time the same is deposited in
the United States mail; and (ii) in all other cases, at the earliest of (x)
when delivered, properly addressed, to the addressee's last known principal
place of business or residence, (y) three days after its deposit in the mail,
as evidenced by the postmark, if mailed with first-class postage prepaid and
correctly addressed, or (z) on the date shown on the return receipt, if sent
by registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee. Whenever notice is given to a
stockholder or director by any means other than mail, the notice shall be
deemed given when received.
(b) In calculating time periods for notice, when a period of time
measured in days, weeks, months, years, or other measurement of time is
prescribed for the exercise of any privilege or the discharge of any duty, the
first day shall not be counted but the last day shall be counted.
14
<PAGE>
ARTICLE TEN
AMENDMENTS
Except as otherwise provided under the Code or the Articles of
Incorporation, the Board of Directors shall have the power to alter, amend, or
repeal these Bylaws or adopt new Bylaws. Any Bylaws adopted by the Board of
Directors may be altered, amended, or repealed, and new Bylaws adopted, by the
stockholders. The stockholders may prescribe in adopting any Bylaw or Bylaws
that the Bylaw or Bylaws so adopted shall not be altered, amended, or repealed
by the Board of Directors.
Dated: September 12, 1997
15
Exhibit 21
Subsidiaries of United Community Banks, Inc.
Subsidiary State of Organization
---------- ---------------------
United Community Bank, Georgia
Blairsville, Georgia (d/b/a Union
County Bank in Union County,
Georgia; d/b/a First Bank of
Habersham in Habersham County,
Georgia; d/b/a United Community
Bank of Lumpkin County, Georgia)
Carolina Community Bank, Murphy, North Carolina
North Carolina
Peoples Bank, Blue Ridge, Georgia Georgia
Towns County Bank, Hiawassee, Georgia
Georgia
White County Bank, Cleveland, Georgia
Georgia
First Clayton Bancshares, Inc., Georgia
Clayton, Georgia
United Family Finance Co. Georgia
(formerly Mountain Mortgage and
Loan Company), Hiawassee,
Georgia, Blue Ridge, Georgia and
Murphy, North Carolina
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 6, 1998, accompanying the
consolidated financial statements incorporated by reference in
the Annual Report of United Community Banks, Inc. on Form 10-K
for the year ended December 31, 1997. We hereby consent to the
incorporation by reference of said report in the Registration
Statement of United Community Banks, Inc. on Form S-8 (File No.
33-80885, effective December 27, 1995).
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
March 23, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000857855
<NAME> UNITED COMMUNITY BANKS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 60,414
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,420
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 143,894
<INVESTMENTS-CARRYING> 69,559
<INVESTMENTS-MARKET> 70,845
<LOANS> 823,324
<ALLOWANCE> 10,352
<TOTAL-ASSETS> 1,153
<DEPOSITS> 977,079
<SHORT-TERM> 33,011
<LIABILITIES-OTHER> 7,274
<LONG-TERM> 60,890
0
0
<COMMON> 7,385
<OTHER-SE> 67,728
<TOTAL-LIABILITIES-AND-EQUITY> 1,153
<INTEREST-LOAN> 76,722
<INTEREST-INVEST> 11,416
<INTEREST-OTHER> 1,642
<INTEREST-TOTAL> 89,780
<INTEREST-DEPOSIT> 42,868
<INTEREST-EXPENSE> 46,548
<INTEREST-INCOME-NET> 43,232
<LOAN-LOSSES> 2,634
<SECURITIES-GAINS> 426
<EXPENSE-OTHER> 32,077
<INCOME-PRETAX> 15,501
<INCOME-PRE-EXTRAORDINARY> 15,501
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,735
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.46
<YIELD-ACTUAL> 4.64
<LOANS-NON> 515
<LOANS-PAST> 536
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,125
<CHARGE-OFFS> 797
<RECOVERIES> 390
<ALLOWANCE-CLOSE> 10,352
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,352
</TABLE>
[UNITED COMMUNITY BANKS, INC. LOGO]
Notice of 1998 Annual Meeting
_________________
Proxy Statement
_________________
Annual Financial Statements
and Review of Operations
<PAGE>
Table of Contents
Page
Notice of Annual Meeting of Shareholders i
Proxy Statement 1
Voting Securities and Principal Holders 2
Nomination and Election of Directors 2
Information About Nominees for Director 3
Executive Compensation 5
Section 16(a) Beneficial Ownership Reporting Compliance 7
Compensation Committee Interlocks and Insider Participation 7
Joint Report on Executive Compensation 8
Shareholder Return Performance Graph 9
Meetings and Committees of the Board of Directors 10
Information Concerning United's Accountants 10
Shareholder Proposals 10
Other Matters that May Come Before the Meeting 10
Appendix: Annual Report to Shareholders A-1
General Description of the Business A-2
Selected Financial Data A-3
Management's Discussion and Analysis of Financial
Condition and Results of Operations A-4
Quantitative and Qualitative Disclosures
About Market Risk A-20
Market and Dividend Data A-21
Report of Independent Certified Public Accountants A-22
Consolidated Balance Sheets - December 31, 1997 and 1996 A-23
Consolidated Statements of Earnings -
For the Years Ended December 31, 1997 and 1996 A-24
Consolidated Statements of Changes in Stockholders'
Equity - For the Years Ended December 31, 1997,
1996 and 1995 A-25
Consolidated Statements of Cash Flows -
For the Years Ended December 31, 1997, 1996 and 1995 A-26
Notes to Consolidated Financial Statements A-27
<PAGE>
March 24, 1998
Dear Shareholder:
It is my pleasure to invite you to attend the 1998 Annual
Meeting of Shareholders of United Community Banks, Inc. which
will be held April 16, 1998 at The Brasstown Valley Resort,
Trackrock Amphitheater, Highway 515, Young Harris, Georgia at
2:30 p.m. The accompanying Notice of Annual Meeting of
Shareholders and Proxy Statement describe the items of business
which will be discussed during the meeting. A report to
shareholders, containing certain financial information, is
included as an appendix to the Proxy Statement.
To be sure that your vote is counted, we urge you to
carefully review the Proxy Statement and vote your choices on the
enclosed proxy card as soon as possible. If you wish to attend
the meeting, any ballot that you submit at the meeting will
supersede your proxy.
On behalf of the management, employees and directors of
United Community Banks, Inc., I want to thank you for your
continued support.
Sincerely,
Jimmy C. Tallent,
President and Chief Executive Officer
<PAGE>
UNITED COMMUNITY BANKS, INC.
59 Highway 515
P.O. Box 398
Blairsville, Georgia 30512
___________________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
___________________________________________________
To be Held on April 16, 1998
The annual meeting of shareholders of United Community
Banks, Inc. ("United") will be held on April 16, 1998 at 2:30
p.m. at The Brasstown Valley Resort, Trackrock Amphitheater,
Highway 515, Young Harris, Georgia, for the purposes of
considering and voting upon:
1. The election of eleven directors to constitute the
Board of Directors to serve until the next annual meeting and
until their successors are elected and qualified; and
2. Such other matters as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on
March 18, 1998 will be entitled to notice of and to vote at the
meeting or any adjournment thereof.
A Proxy Statement and a Proxy solicited by the Board of
Directors are enclosed herewith. Please sign, date and return
the Proxy promptly in the enclosed business reply envelope. If
you attend the meeting you may, if you wish, withdraw your Proxy
and vote in person.
Also enclosed as an appendix to the Proxy Statement is a
report to shareholders, including United's audited annual
financial statements, management's discussion and analysis of
financial condition and results of operations, selected financial
data, market and dividend data and certain other matters.
By Order of the Board of Directors,
Jimmy C. Tallent,
President and Chief Executive Officer
March 24, 1998
[BOXED ITEM]
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT
YOUR VOTE MAY BE RECORDED AT THE MEETING IF YOU DO NOT ATTEND
PERSONALLY.
<PAGE>
UNITED COMMUNITY BANKS, INC.
59 Highway 515
P.O. Box 398
Blairsville, Georgia 30512
_____________________
PROXY STATEMENT
_____________________
This Proxy Statement is furnished in connection with the
solicitation of Proxies by the Board of Directors of United
Community Banks, Inc. ("United" or the "Company") for use at the
Annual Meeting of Shareholders of United to be held on April 16,
1998, and any adjournment thereof, for the purposes set forth in
the accompanying notice of the meeting. The expenses of this
solicitation, including the cost of preparing and mailing this
Proxy Statement, will be paid by United. Copies of solicitation
materials may be furnished to banks, brokerage houses and other
custodians, nominees and fiduciaries for forwarding to beneficial
owners of shares of United's common stock, and normal handling
charges may be paid for such forwarding services. In addition to
solicitations by mail, directors and regular employees of United
may solicit Proxies in person or by telephone. It is anticipated
that this Proxy Statement and the accompanying Proxy will first
be mailed to shareholders on approximately March 25, 1998.
The record of shareholders entitled to vote at the Annual
Meeting was taken as of the close of business on March 18, 1998.
On that date, United had outstanding and entitled to vote
7,385,105 shares of common stock, par value $1.00 per share (the
"Common Stock").
Any Proxy given pursuant to this solicitation may be revoked
by any shareholder who attends the meeting and gives oral notice
of his or her election to vote in person, without compliance with
any other formalities. In addition, any Proxy given pursuant to
this solicitation may be revoked before the meeting by delivering
an instrument revoking it or a duly executed Proxy bearing a
later date to the Secretary of United. If the Proxy is properly
completed and returned by the shareholder and is not revoked, it
will be voted at the meeting in the manner specified thereon. If
the Proxy is returned but no choice is specified thereon, it will
be voted for all the persons named below under the caption
"Information About Nominees For Director".
The percentages outstanding of Common Stock are based on
7,646,209 shares of Common Stock, including 140,000 shares deemed
outstanding pursuant to United's prime plus 1/4% Convertible
Subordinated Payable-in-Kind Debentures due December 31, 2006
("2006 Debentures") and presently exercisable options to acquire
121,604 shares.
United will furnish without charge a copy of its Annual
Report on Form 10-K filed with the Securities and Exchange
Commission (the "SEC") for the fiscal year ended December 31,
1997, including financial statements and schedules, to any shareholder
of record or any beneficial owner of its Common Stock as of March 18, 1998
who requests a copy of such report. Any request for the Form
10-K should be in writing and addressed to:
Lois Jones
59 Highway 515
P.O. Box 398
Blairsville, Georgia 30512
If the person requesting the report was not a shareholder of
record on March 18, 1998, the request must include a
representation that the person was a beneficial owner of United's
Common Stock on that date. Copies of any exhibits to the Form
10-K will also be furnished on request and upon the payment of
United's expense in furnishing the exhibits.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth as of December 31, 1997,
beneficial ownership of United's Common Stock by each "person"
(as that term is defined by the SEC) known by United to be the
beneficial owner of more than 5% of United's voting securities
and all directors and executive officers of United as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
of Beneficial Owner Owned Beneficially of Class
- ------------------- ------------------ --------
<S> <C> <C>
Robert L. Head, Jr.
Blairsville Highway
Blairsville, Georgia 30512 725,000 (1) 9.5%
W. C. Nelson, Jr.
P.O. Box 127
Blairsville, Georgia 30512 689,783 (2) 9.0%
All directors and executive
officers as a group (19 persons) 2,507,126 (3) 32.9%
</TABLE>
____________________
(1) Includes 50,758 shares beneficially owned by Mr. Head as
custodian for his children and 10,000 shares owned pursuant to
the 2006 Debentures. Does not include 16,965 shares owned by Mr.
Head's wife, for which he disclaims beneficial ownership.
(2) Includes 11,250 shares beneficially owned by a trust over which
Mr. Nelson has voting power and 10,000 shares owned pursuant to
the 2006 Debentures. Does not include 10,150 shares owned by Mr.
Nelson's wife, for which he disclaims beneficial ownership.
(3) Includes presently exerciseable options to acquire 81,802 shares
and 132,000 shares beneficially owned pursuant to the 2006
Debentures.
NOMINATION AND ELECTION OF DIRECTORS
(Proposal 1)
The Bylaws of United provide that the number of directors
may range from eight to fourteen directors. The board of
Directors of United has set the number of directors at eleven.
The number of directors may be increased or decreased from the
foregoing from time to time by the Board of Directors by
amendment of the Bylaws, but no decrease shall have the effect of
shortening the term of an incumbent director. The terms of
office for directors continue until the next annual meeting and
until their successors are elected and qualified.
Each Proxy executed and returned by a shareholder will be
voted as specified thereon by the shareholder. If no
specification is made, the Proxy will be voted for the election
of the nominees named below to constitute the entire Board of
Directors. In the event that any nominee withdraws or for any
reason is not able to serve as a director, the Proxy will be
voted for such other person as may be designated by the Board of
Directors as a substitute nominee, but in no event will the Proxy
be voted for more than eleven nominees. Management of United has
no reason to believe that any nominee will not serve if elected.
All of the nominees are currently directors of United.
Directors are elected by a plurality of the votes cast by
the holders of the shares entitled to vote in an election at a
meeting at which a quorum is present. A quorum is present when
the holders of a majority of the shares outstanding on the record
date are present at a meeting in person or by proxy. An
abstention and a broker non-vote would be included in determining
whether a quorum is present at a meeting, but would not have an
effect on the outcome of a vote.
<PAGE>
INFORMATION ABOUT NOMINEES FOR DIRECTOR
The following information as of December 31, 1997 has been
furnished by the respective nominees for director. Except as
otherwise indicated, each nominee has been or was engaged in his
present or last principal employment, in the same or a similar
position, for more than five years.
<TABLE>
<CAPTION>
Number of Shares
Information Owned Beneficially
Name (Age) About Nominee (Percent of Class)
- ---------- ------------- ------------------
<S> <C> <C>
Jimmy C. Tallent President, Chief Executive Officer and Director of 148,672 (1.9%) (1)
(45) Union County Bank ("UCB") since 1984 and of United since 1987.
Director of Carolina Community Bank, Murphy, North Carolina
("Carolina") since 1990, of Peoples Bank of Fannin County
("Peoples") since 1992, of White County Bank ("White") since
1995, and of First Clayton Bank and Trust ("Clayton") since 1997.
Chairman of the Board of Towns County Bank ("Towns") since 1992
and Chairman of the Board of White since 1995. Director of
United Family Finance Co. ("Finance") since 1997.
Billy M. Decker Senior Vice President and Cashier of UCB from 134,767 (1.8%) (2)
(54) 1986 to 1990, Mr. Decker became President, Chief Executive
Officer and a Director of Carolina in 1990. He has been a
Director of United since 1988, a Vice President of United since
1992 and a Director of UCB since 1980. He has been Secretary of
United since 1988.
Thomas C. Gilliland A Director of United since 1992 and Vice Chairman 177,650 (2.3%) (3)
(49) of the Peoples' Board since 1986, Mr. Gilliland became President
and Chief Executive Officer of Peoples and Vice President of
United in 1993 and was named Executive Vice President of United
in 1994. Chairman of the Board of Finance since 1997.
Robert L. Head, Jr. Chairman of the Board of Directors of United since 725,000 (9.5%) (4)
(58) 1988, Mr. Head has served as a Director of UCB since 1973. Mr.
Head operates Head Construction Company, a general construction
firm, and Head-Westgate Corp., a construction and real estate
development firm in Blairsville, Georgia. He also owns Mountain
Building Supply in Blairsville, Georgia.
<PAGE>
Charles E. Hill A Director of United since 1988 and of UCB since 1972, 170,977 (2.2%) (5)
(60) Mr. Hill is the Director of Pharmacy at Union General Hospital in
Blairsville, Georgia.
Hoyt O. Holloway A Director of United since 1993 and of Peoples since 48,085* (6)
(58) 1986, Mr. Holloway owns H&H Farms, a poultry farm in Blue Ridge,
Georgia.
P. Deral Horne A Director of Carolina since 1988 and of United since 30,000* (7)
(71) 1992, Mr. Horne owns Mountain and Valley Properties, a land
development and sales business in Murphy, North Carolina.
John R. Martin A Director of United since 1997, a Director of Clayton since 48,378*
(48) 1990, and Chairman of the Board of Directors of Clayton since
1996, Mr. Martin is also the owner of John Martin Construction
and of several mini-warehouse facilities in northeast Georgia and
western South Carolina, as well as being a registered pharmacist.
Clarence W. Mason, Sr. Chairman of the Board of Directors of Peoples since 82,340 (1.1%) (8)
(61) 1986 and a Director of United since 1992, Mr. Mason owns Mason
Tractor, a retail equipment sales operation in Blue Ridge,
Georgia.
W. C. Nelson, Jr. A Director of United since 1988 and of UCB since 1975, 689,763 (9.0%) (9)
(54) Mr. Nelson is Vice Chairman of the United Board of Directors and
owns Nelson Tractor Company, a retail equipment sales firm in
Blairsville, Georgia.
Charles E. Parks A retired businessman, Mr. Parks is the former owner of
(68) Parks Lumber Co., a retail building supply firm located in
Murrayville, Georgia. 102,109 (1.3%) (10)
</TABLE>
________________
* Less than one percent.
(1) Includes 10,000 shares beneficially owned by Mr. Tallent pursuant
to the 2006 Debentures and 17,750 shares beneficially owned by
Mr. Tallent pursuant to currently-exercisable options.
(2) Includes 10,000 shares beneficially owned by Mr. Decker pursuant
to the 2006 Debentures and 7,100 shares beneficially owned by Mr.
Decker pursuant to currently-exercisable options. Does not
include 9,613 shares owned by Mr. Decker's wife, for which he
disclaims beneficial ownership.
(3) Includes 6,270 shares beneficially owned by Mr. Gilliland as
custodian for his children, 10,000 shares beneficially owned
pursuant to the 2006 Debentures and 12,750 shares beneficially
owned pursuant to currently exercisable stock options.
(4) Includes 50,758 shares beneficially owned by Mr. Head as
custodian for his children and 10,000 shares owned pursuant to
the 2006 Debentures. Does not include 16,965 shares owned by Mr.
Head's wife, for which he disclaims beneficial ownership.
(5) Includes 10,000 shares beneficially owned by Mr. Hill pursuant to
the 2006 Debentures. Does not include 88,932 shares owned by Mr.
Hill's wife, for which he disclaims beneficial ownership.
<PAGE>
(6) Includes 10,000 shares beneficially owned pursuant to the 2006
Debentures and 35,565 beneficially owned by Holloway Motors,
Inc., a company 100% owned by Mr. Holloway. Does not include 485
shares owned by Mr. Holloway's wife, for which he disclaims
beneficial ownership.
(7) Includes 10,000 shares beneficially owned pursuant to the 2006
Debentures.
(8) Includes 10,000 shares beneficially owned pursuant to the 2006
Debentures.
(9) Includes 11,250 shares beneficially owned by a trust over which
Mr. Nelson has voting power and 10,000 shares owned pursuant to
the 2006 Debentures; does not include 10,150 shares owned by Mr.
Nelson's wife, for which he disclaims beneficial ownership.
(10) Includes 10,000 shares beneficially owned pursuant to the 2006
Debentures.
There are no family relationships between any director,
executive officer or nominee for director of United or any of its
subsidiaries.
EXECUTIVE COMPENSATION
The table below sets forth the annual and other compensation
paid by United and its bank subsidiaries to the following persons
who served in the designated offices during 1997: Jimmy C.
Tallent, President and Chief Executive Officer of United and UCB,
Billy M. Decker, Senior Vice President of United, Guy Freeman,
President and Chief Executive Officer of Carolina and Senior Vice
President of United, Thomas C. Gilliland, President and Chief
Executive Officer of Peoples and Executive Vice President of
United, Christopher J. Bledsoe, Senior Vice President and Chief
Financial Officer of United and UCB (individually a "Named
Executive Officer, collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------------------- Securities All
Name and Principal Offices Underlying Other
Held During 1997 Year Salary Bonus Other Options Compensation
- --------------------------- ---- ------ ----- ----- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jimmy C. Tallent 1997 $215,000 $90,000 $32,875(1) 8,750 $27,058(2)
President and Chief Executive 1996 $188,650 $65,000 $10,000(1) 8,750 $23,781
Officer of United and UCB 1995 $167,200 $57,000 $ 9,000(1) 12,500 $21,085
Thomas C. Gilliland 1997 $157,500 $42,500 $ 5,400(1) 5,250 $13,388(3)
President and Chief Executive 1996 $142,188 $35,000 $ 6,400(1) 5,250 $12,086
Office of Peoples; Executive 1995 $132,563 $30,000 $ 5,400(1) 7,500 $ 6,628
Vice President of United
Billy M. Decker 1997 $117,700 $30,000 $18,600(1) 3,500 $14,359(3)
Senior Vice and Secretary of United 1996 $107,500 $35,500 $10,000(1) 3,500 $13,115
1995 $ 98,010 $30,000 $ 8,100(1) 5,000 11,957
Guy W. Freeman
President and Chief Executive 1997 $139,200 $40,000 7,000(1) 10,000 $16,982(3)
Officer of Carolina; Senior 1996 $117,500 $20,000 3,850(1) 3,500 $14,335
Vice President of United 1995 $ 87,929(4) $10,000 1,400(1) 5,000 --
Christopher J. Bledsoe(5) 1997 $102,500 $25,000 -- 3,500 $12,505(3)
Senior Vice President and Chief 1996 $ 91,500 $20,500 -- 3,500 $11,163
Financial Officer of United and UCB 1995 $ 80,000 $17,000 -- 5,000 $ 9,760
</TABLE>
___________________________
(1) Directors' fees for service on United's bank subsidiaries' boards
of directors. Other perquisites do not meet the Securities and
Exchange Commission threshold for disclosure.
(2) Represents a contribution by United of $26,230 on behalf of Mr.
Tallent to United's Profit Sharing Plan and insurance premiums of
$828 paid by UCB on behalf of Mr. Tallent on a life insurance
policy.
(3) Represents United's contribution on behalf of the named
individual to United's Profit Sharing Plan.
<PAGE>
(4) Mr. Freeman commenced employment with United and its subsidiaries
in March 1995. Mr. Freeman beneficially owns 26,618 shares of
Common Stock.
(5) Mr. Bledsoe beneficially owns 18,886 shares of Common Stock.
United has never granted restricted stock, stock appreciation
rights or similar awards to any of its present or past executive
officers, other than awards of stock options under the United
Community Banks Key Employee Stock Option Plan.
Directors of United, other than a President or Vice
President of a bank subsidiary who serves on United's Board of
Directors, received $1,000 per board meeting attended during
1997. Certain members of United's Board of Directors also serve
as members of one or more of the Boards of Directors of United's
bank subsidiaries, for which they are compensated by the bank
subsidiaries.
Option Grants In Last Fiscal Year
The following table sets forth information concerning stock
options granted to the Named Executive Officers under the Plan
during fiscal year 1997 and the projected value of those options
at assumed annual rates of appreciation.
<TABLE>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term(2)
Securities Percent of Total ------------------
Underlying Options Granted
Options to Employees in Expiration
Name Granted(1) Fiscal Year Date 0% 5% 10%
---- ------------ ---------------- ----------- -- --- ---
<S> <C> <C> <C> <C> <C> <C>
Jimmy C. Tallent 8,750 16% 1/1/07 $0 $121,100 $306,775
Thomas C. Gilliland 5,250 9% 1/1/07 $0 $ 72,660 $184,065
Billy M. Decker 3,500 6% 1/1/07 $0 $ 48,440 $122,710
Guy W. Freeman 10,000 18% 1/1/07 $0 $138,400 $350,600
Christopher J. Bledsoe 3,500 6% 1/1/07 $0 $ 48,440 $122,710
</TABLE>
__________________________
(1) 20% of the options were vested at the date of grant and an
additional 20% vest at each of the first four anniversaries of
the date of grant. Exercise price of the options is $22.00 per
share, the fair market value on the date of grant of the options.
(2) "Potential Realizable Value" is disclosed in response to SEC
regulations that require such disclosure for illustration only.
The values disclosed are not intended to be, and should not be
interpreted as, representations or projections of the future
value of United's Common Stock or of the stock price. Amounts
are calculated at 0%, 5% and 10% assumed appreciation of the
value of the Common Stock (compounded annually over the option
term) and are not intended to forecast actual expected future
appreciation, if any, of the Common Stock. The potential
realizable value to the optionee is the difference between the
exercise price and the appreciated stock price at the assumed
annual rates of appreciation multiplied by the number of shares
underlying the options.
<PAGE>
Option Fiscal Year-End Values
Shown below is information with respect to unexercised
options to purchase the Common Stock granted under the Plan to
the Named Executive Officers and held by them at December 31,
1997. No options were exercised during 1997 by a Named Executive
Officer.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Unexercised
Options at Fiscal Year End Value of Unexercised in the Money
Name Exercisable/Unexercisable (#) Options at Fiscal Year End ($)(1)
---- --------------------------- ----------------------------------
<S> <C> <C>
Jimmy C. Tallent 17,750/12,250 $306,000
Thomas C. Gilliland 10,650/7,350 $183,600
Billy M. Decker 7,100/4,900 $122,400
Guy W. Freeman 8,400/10,100 $132,800
Christopher J. Bledsoe 7,100/4,900 $122,400
</TABLE>
____________________
(1) Based on $30.00 per share, the last sale price known to United
during 1997. United's Common Stock is not publicly traded.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Stephen L. Cockerham, Senior Vice President and Chief Credit
Officer of the Company and United, inadvertently failed to file
on a timely basis a Form 4 reporting the purchase of Company
Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of United reviewed the compensation
of Messrs. Tallent, Gilliland, Freeman, Decker and Bledsoe and of
United's other executive officers for the 1997 fiscal year.
Although all members of the Board of Directors participated in
deliberations regarding the salaries of executive officers, none
of such officers participated in any decisions regarding his own
compensation as an executive officer.
UCB and Carolina have retained the services of a
construction company operated by Robert L. Head, Jr., who is
Chairman of the Board of Directors of United and a director of
UCB. During 1997, UCB and Carolina made payments of
approximately $1.2 million to such construction company
The Banks have had, and expect to have in the future,
banking transactions in the ordinary course of business with
directors and officers of United and their associates, including
corporations in which such officers or directors are
shareholders, directors and/or officers, on the same terms
(including interest rates and collateral) as those prevailing at
the time for comparable transactions with unaffiliated third
parties. Such transactions have not involved more than the
normal risk of collectability or presented other unfavorable
features.
<PAGE>
JOINT REPORT ON EXECUTIVE COMPENSATION
General
Under rules established by the SEC, United is required to
provide certain information with respect to compensation provided
to United's President and Chief Executive Officer and to United's
other executive officers. The SEC regulations require a report
setting forth a description of United's executive compensation
policy in general and the considerations that led to the
compensation decisions affecting Mr. Tallent, Mr. Gilliland, Mr.
Decker, Mr. Freeman and Mr. Bledsoe. In fulfillment of this
requirement, the Board of Directors and Compensation Committee
has prepared the following report for inclusion in this Proxy
Statement.
The fundamental policy of United's compensation program is
to offer competitive compensation and benefits for all employees,
including the President and Chief Executive Officer and the other
officers of United, in order to compete for and retain talented
personnel who will lead United in achieving levels of financial
performance which enhance shareholder value. United's executive
compensation package historically has consisted of salary, annual
incentive compensation, matching profit sharing contributions and
other customary fringe benefits. The grant of stock options
under the Plan is also a part of United's compensation package
for certain executive officers, including the Named Executive
Officers.
Salary
All members of the Board of Directors of United participated
in deliberation regarding salaries of executive officers.
Although subjective in nature, factors considered by the Board in
setting the salaries of executive officers (other than Mr.
Tallent) were Mr. Tallent's recommendations, compensation paid by
comparable banks to their executive officers (although such
information was obtained informally and United did not attempt to
pay any certain percentage of salary for comparable positions
with other banks), each executive officer's performance,
contribution to United, tenure in his or her position, and
internal comparability considerations. The Board of Directors
set the salary of Mr. Tallent based on Mr. Tallent's salary
during the preceding fiscal year, his tenure, the salaries of
chief executive officers of comparable banks (although such
information was obtained informally and United did not attempt to
pay any certain percentage of salary for a comparable position
with other banks) and the increase in earnings of United in
recent years. The Board did not assign relative weights to the
factors considered in setting salaries of executive officers,
including Mr. Tallent.
Annual Incentive Compensation
Annual incentive compensation for 1997, paid in the form of
a cash bonus during the fourth quarter of the fiscal year, was
based on annual financial results of United's bank subsidiaries,
including general targets with respect to net earnings and return
on average assets. Cash bonuses were granted by the Board to Mr.
Tallent, and the Board set a range of bonuses (based on a
percentage of salary) for all employees other than Mr. Tallent,
within which range Mr. Tallent determined each officer's bonus,
based on individual performance.
Key Employee Stock Option Plan
Options to acquire 79,704 shares of Common Stock were
awarded under the Plan in fiscal 1997, including options to
acquire 31,000 shares of Common Stock awarded to the Named
Executive Officers by the Compensation Committee.
United Community Banks, Inc. Board of Directors
Jimmy C. Tallent Hoyt O. Holloway
Billy M. Decker P. Deral Horne
Thomas C. Gilliland John R. Martin
Robert L. Head, Jr. Clarence W. Mason, Sr.
Charles E. Hill W. C. Nelson, Jr.
Charles E. Parks
Compensation Committee of the Board of Directors
Robert L. Head, Jr. John R. Martin
Charles E. Hill Clarence W. Mason, Sr.
Hoyt O. Holloway W. C. Nelson, Jr.
P. Deral Horne Charles E. Parks
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return on
United's Common Stock against the cumulative total return on The
Nasdaq Stock Market (U.S. Companies) Index and The Nasdaq Bank
Stocks Index for the period commenced on June 28, 1993, the date
on which United's Common Stock was registered under the
Securities Exchange Act of 1934, as amended, and ended on
December 31, 1997. United's Common Stock is not publicly traded;
therefore, the total shareholder return is based on stock trades
known to United during the period presented.
[PERFORMANCE GRAPH GOES HERE]
<TABLE>
<CAPTION>
Cumulative Total Return
-------------------------------------------------------------
6/93 12/93 12/94 12/95 12/96 12/97
---- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
UNITED COMMUNITY BANKS INC. 100.00 118.96 186.79 300.79 396.57 569.36
NASDAQ STOCK MARKET (U.S.) 100.00 110.56 108.07 152.84 187.99 230.69
NASDAQ BANK 100.00 106.65 106.26 158.25 208.93 352.97
</TABLE>
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The United Board of Directors held four meetings during
1997. All of the directors attended at least seventy-five
percent (75%) of the meetings of the Board and meetings of the
committees of the Board on which they sat that were held during
their tenure as directors.
The Board of Directors does not have a standing audit or
nominating committee. The compensation committee of the Board of
Directors is comprised of all members of the Board who are not
employees of the bank subsidiaries of United. The compensation
committee makes compensation decisions for executive officers and
key employees and administers the Plan.
INFORMATION CONCERNING UNITED'S ACCOUNTANTS
Porter Keadle Moore, LLP ("Porter Keadle") was the principal
independent public accountant for United during the year ended
December 31, 1997. Representatives of Porter Keadle are expected
to be present at the annual meeting and will have the opportunity
to make a statement if they desire to do so and to respond to
appropriate questions. United anticipates that Porter Keadle
will be United's accountants for the current fiscal year.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at
United's 1999 annual meeting must be received by December 12,
1998, in order to be eligible for inclusion in United's Proxy
Statement and Proxy for that meeting.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
Management of United knows of no matters other than those
stated above that are to be brought before the meeting. If any
other matters should be presented for consideration and voting,
however, it is the intention of the persons named as proxies in
the enclosed Proxy to vote in accordance with their judgment as
to what is in the best interest of United.
By Order of the Board of Directors,
Jimmy C. Tallent
President and Chief Executive Officer
<PAGE>
APPENDIX A
<PAGE>
GENERAL DESCRIPTION OF THE BUSINESS
United Community Banks, Inc. ("United") was incorporated
under the laws of Georgia in 1987 and commenced operations in
1988 by acquiring 100% of the outstanding shares of Union County
Bank ("UCB"). United is a registered bank holding company. All
of United's activities are currently conducted by its
wholly-owned subsidiaries, UCB, which was organized as a Georgia
banking corporation in 1950, Carolina Community Bank, Murphy,
North Carolina ("Carolina"), which United acquired in 1990,
Peoples Bank, Blue Ridge, Georgia ("Peoples"), which United
acquired in 1992, Towns County Bank, Hiawassee, Georgia
("Towns"), which United also acquired in 1992, White County Bank,
Cleveland, Georgia ("White"), which United acquired in 1995, and
First Clayton Bancshares, Inc. ("First Clayton"), which United
acquired in 1997.
UCB, Carolina, Peoples, Towns, White and First Clayton
(collectively, the "Banks") are community-oriented, with an
emphasis on retail banking, and offer such customary banking
services as customer and commercial checking accounts, NOW
accounts, savings accounts, certificates of deposit, lines of
credit, Mastercard and VISA accounts, money transfers and trust
services. The Banks finance commercial and consumer
transactions, make secured and unsecured loans, including
residential mortgage loans, and provide a variety of other
banking services. UCB also offers travel agency services for the
Banks' customers.
The Mortgage People Company ("MPC"), a division of UCB, is a
full-service mortgage lending operation approved as a
seller/servicer for Federal National Mortgage Association and
Federal Home Mortgage Corporation. MPC was organized to provide
fixed and adjustable-rate mortgages. United Family Finance
Company is a traditional consumer finance company which is based
in Blue Ridge, Georgia and also has been granted a license to
conduct business in Hiawassee, Georgia and Murphy, North
Carolina.
<PAGE>
UNITED COMMMUNITY BANKS, INC.
<TABLE>
SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR
Net interest income $ 43,232 33,815 25,015 20,067 16,024
Provision for loan losses 2,634 1,597 1,116 998 931
Noninterest income 6,980 5,666 4,523 3,962 3,918
Noninterest expense 32,077 24,843 19,204 15,125 12,810
Income taxes 4,766 4,114 2,549 2,205 1,592
Net earnings 10,735 8,927 6,669 5,701 4,609
PER COMMON SHARE
Net earnings 1.47 1.29 1.03 0.91 0.74
Net earnings - assuming dilution 1.46 1.26 1.01 0.89 0.72
Cash dividends declared 0.10 0.10 0.08 0.09 0.06
Book value 10.17 8.14 7.09 5.56 4.76
AT YEAR END
Loans 816,934 633,176 480,360 366,916 305,398
Earning assets 1,049,159 824,476 659,548 458,446 399,674
Assets 1,153,367 886,103 712,298 496,527 427,483
Deposits 977,079 773,300 637,832 427,998 378,920
Stockholders' equity 75,113 57,675 49,207 34,871 29,876
Common shares outstanding 7,385,105 7,084,621 6,945,081 6,274,903 6,278,900
AVERAGE BALANCES
Loans 737,889 551,043 423,953 332,793 270,199
Earning assets 960,346 723,994 565,523 429,152 365,711
Assets 1,024,730 783,509 607,877 464,767 393,541
Deposits 894,200 695,391 538,518 408,645 351,526
Stockholders' equity 66,333 53,472 42,110 32,463 27,539
Weighted average shares
outstanding 7,300,874 6,919,437 6,499,264 6,275,014 6,235,452
KEY PERFORMANCE RATIOS
Return on average assets 1.05% 1.14% 1.10% 1.23% 1.17%
Return on average stockholders'
equity 16.18% 16.69% 15.84% 17.56% 16.74%
Net interest margin, taxable
equivalent 4.64% 4.85% 4.64% 4.93% 4.63%
Efficiency ratio 64.43% 62.93% 65.01% 62.92% 64.24%
Dividend payout ratio 6.51% 7.58% 8.82% 9.89% 8.11%
Average equity to average assets 6.47% 6.82% 6.93% 6.98% 7.00%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
United was incorporated under the laws of Georgia in 1987
and commenced operations in 1988 by acquiring 100% of the
outstanding shares of UCB. United is a registered bank holding
company. All of United's activities are currently conducted by
its wholly-owned subsidiaries, UCB, which was organized as a
Georgia banking corporation in 1950, Carolina, which United
acquired in 1990, Peoples, which United acquired in 1992, Towns,
which United also acquired in 1992, White which United acquired
in 1995 and First Clayton, which United acquired in 1997.
The following discussion focuses on significant changes in
the financial condition and results of operations of United and
the Banks during the three years ended December 31, 1997. The
discussion and analysis is intended to supplement and highlight
and should be read in conjunction with information contained in
the accompanying consolidated financial statements.
Year 2000 Considerations
The Company is aware of the issues associated with the
programming code in existing computer systems as the millennium
(year 2000) approaches. The "year 2000" (Y2K) issue is pervasive
and complex as virtually every computer operation will be
affected in some way by the rollover of the two-digit value to
00. The issue is whether computer systems will properly
recognize date-sensitive information when the year changes to
2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail.
The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test the systems
for Y2K compliance. It is anticipated that all mainframe systems
will be Y2K certified no later than the third quarter of 1998,
allowing adequate time for testing during 1999. To date,
confirmation has been received from the Company's primary
processing vendors that plans are being developed to address
processing of transactions in the year 2000.
Management has not yet fully determined the Y2K compliance
expense and related potential effect on the Company's earnings;
however, direct costs are not expected to be material to the
consolidated results of operations and will be expensed as
incurred. Expenses in 1997 related to the Y2K issue were not
material to the financial results of operations.
Restatement of Financial Statements and Management's Discussion
and Analysis
Effective September 12, 1997, United completed the
acquisition of First Clayton Bancshares, Inc., the parent company
of the $73 million First Clayton Bank and Trust in Clayton,
Georgia. United issued 646,257 shares of its common stock and
paid approximately $7,000 for fractional shares in connection
with this acquisition. The acquisition was accounted for as a
pooling of interests and accordingly, the consolidated financial
statements and management's discussion and analysis for all
periods have been restated to include the financial position and
results of operations as if the combination had occurred at the
beginning of the earliest period presented.
Financial Highlights
Year Ended December 31, 1997. Net earnings totaled over
$10.7 million for the year ended December 31, 1997, an increase
of 20% from the $8.9 million earned in 1996. Net earnings per
common share were $1.47 for 1997 compared to $1.29 reported
for 1996, an increase of 14%. Return on average assets and
return on average equity for the year ended December 31, 1997,
were 1.05% and 16.18%, respectively. The 1996 return on average
assets and return on average equity were 1.14% and 16.69%,
respectively.
United's balance sheet grew 30% during the year as assets
ended the year at $1.2 billion. Net loans increased 30% during
the year and deposits grew over 26%. The increases in both loans
and deposits reflect a strong economic environment as well as
market share gains from competition. Stockholders' equity
increased to $75.1 million and represented 7% of year end assets.
Capital Issues
In March 1997, United completed an offering to the public of
300,000 shares of United common stock registered under the
Securities Act of 1933, pursuant to which $6.5 million in
additional capital was raised after deducting certain issuance
costs. United used the proceeds of the offering primarily to
invest additional capital in UCB, Carolina and Towns to support
the asset growth that the banks are experiencing.
On December 31, 1996, United completed a private placement
of convertible subordinated payable-in-kind debentures due
December 31, 2006 (the "2006 Debentures"). The 2006 Debentures
bear interest at the rate of one quarter of one percentage point
over the prime rate per annum as quoted in the Wall Street
Journal, payable on April 1, July 1, October 1 and January 1 of
each year commencing on April 1, 1997, to holders of record at
the close of business on the 15th day of the month immediately
preceding the interest payment date. Interest is computed on the
basis of the actual number of days elapsed in a year of 365 or
366 days, as applicable.
The 2006 Debentures may be redeemed, in whole or in part
from time to time on or after January 1, 1998, at the option of
United upon at least 20 days and not more than 60 days notice, at
a redemption price equal to 100% of the principal amount of the
Debentures to be redeemed plus interest accrued and unpaid as of
the date of redemption. The holders of the 2006 Debentures not
redeemed will have the right, excercisable at any time up to
December 31, 2006, to convert such debenture at the principal
amount thereof into shares of Common Stock of United at the
conversion price of $25 per share, subject to adjustment for
stock splits and stock dividends.
In August 1995, United completed an offering to the public
of 215,515 shares of United Common Stock registered under the
Securities Act of 1933 pursuant to which $2,434,000 in additional
capital was raised. United used the proceeds of the offering
primarily to invest additional capital in Carolina and Towns.
The additional capital for Towns was used to support the asset
growth experienced by Towns. The additional capital for Carolina
was necessitated by Carolina's asset growth and the acquisition
of the Franklin and Waynesville branch banking offices.
<PAGE>
Expansions during 1997
In addition to the purchase of First Clayton, other United
subsidiaries expanded in their respective surrounding areas.
Carolina created de novo branch offices in the Western North
Carolina cities of Bryson City, Brevard and Cashiers. Subsequent
to December 31, 1997, Carolina has applied for and has received
approval to open a branch in Etowah, North Carolina. Peoples
entered into a purchase and assumption agreement to acquire
certain assets and assume certain liabilities of a branch of
another bank located in Ellijay (Gilmer County), Georgia. The
Ellijay branch purchase was consummated in January of 1998.
Effective January 30, 1998, United's subsidiary, Peoples,
assumed deposits totaling $23 million and purchased certain
assets totaling $4 million of a branch in Ellijay, Georgia.
Expansions prior to 1997
Effective July 1, 1996, the Georgia bank branching laws were
amended to permit subsidiary banks of Georgia bank holding
companies to branch in an aggregate of three additional locations
prior to July 1, 1998, after which time statewide branching will
be permitted. On July 1, 1996, UCB changed its name from Union
County Bank to United Community Bank and established a branch
office in Dahlonega, Lumpkin County, Georgia. UCB simultaneously
filed a tradename filing to permit it to conduct its operations
in Union County, Georgia under the tradename Union County Bank.
On September 28, 1996, UCB assumed deposits of $23.7 million and
purchased assets of $33.2 million in Cornelia, Habersham County,
Georgia, from a banking institution which sold off its operations
in the county. In Habersham County, UCB operates under the trade
name of First Bank of Habersham, and in Lumpkin County, UCB does
business as United Community Bank. On July 1, 1996, Carolina
opened a loan production office in Sylva, North Carolina.
In 1995, United's subsidiary, Carolina, assumed deposits
totaling $32 million and purchased certain assets totaling $12
million of three branch banks in the Western North Carolina
cities of Andrews, Franklin and Waynesville.
Effective August 31, 1995, United completed the acquisition
of White County Bancshares, Inc., the parent company of the $71
million asset, White County Bank in Cleveland, Georgia. United
issued 455,400 shares of its common stock in addition to a
previously issued exchangeable payable in kind debenture for all
of the issued and outstanding shares of White. This transaction
was accounted for as a purchase.
Net Interest Income
Net interest income (the difference between the interest
earned on assets and the interest paid on deposits and
liabilities) is the single largest component of United's
operating income. United actively manages this income source to
provide the largest possible amount of income while balancing
interest rate, credit, and liquidity risks.
Net interest income, on a taxable equivalent basis, was
$44.6 million in 1997, compared to $35.1 million in 1996 and
$26.2 million in 1995. The 27% increase in 1997 was primarily
the result of increased volume of net earning assets.
Interest income increased over 32% in 1997 and 27% in 1996.
The increase in 1997 was again primarily a result of an increase
in interest and fees on loans of over $18.6 million. Interest on
investment securities and other earning assets increased $3.3
million or 29%.
Average earning assets in 1997 increased 33% when compared
to 1996 due to increases in average loans of $186.8 million and
average investment securities of $41.0 million. An increase in
average earning assets of 28% was experienced in 1996 over 1995
primarily due to increases in average loans of $127.1 million.
Table 1 represents net interest income, yields and rates on a
taxable-equivalent basis and average balances for the years 1997,
1996 and 1995.
<PAGE>
Table 1 - Consolidated Average Balances, Interest and Rates
Taxable Equivalent Basis
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1997 1996 1995
----------------------------- --------------------------- -------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold $ 29,741 1,642 5.52% 20,303 1,096 5.40% 20,903 1,315 6.29%
Interest bearing
deposits with
other banks -- -- -- 918 102 11.11% 286 4 1.40%
Investment securities:
Taxable 148,390 9,097 6.13% 115,480 6,735 5.83% 87,378 5,354 6.13%
Tax-exempt 44,326 3,514 7.93% 36,250 3,022 8.34% 33,003 2,894 8.77%
---------- ------ ------- ------ ------- ------
Total investment
securities 192,716 12,611 6.54% 151,730 9,757 6.43% 120,381 8,248 6.85%
---------- ------ ------- ------ ------- -----
Loans:
Taxable 733,655 76,452 10.42% 544,247 57,495 10.56% 418,015 44,196 10.57%
Tax-exempt 4,234 408 9.64% 6,796 732 10.77% 5,938 653 11.00%
---------- ------ ------- ------ ------- ------
Total loans 737,889 76,860 10.42% 551,043 58,227 10.57% 423,953 44,849 10.58%
---------- ------ ------- ------ ------- ------
Total interest earning
assets 960,346 91,113 9.49% 723,994 69,182 9.56% 565,523 54,416 9.62%
Allowance for loan losses (9,304) (7,530) (5,678)
Cash and due from banks 28,542 21,396 17,374
Premises and equipment 23,194 18,097 15,032
Other assets 21,952 27,552 15,626
---------- ------- -------
Total assets $1,024,730 783,509 607,877
========== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Deposits:
Demand $ 176,054 6,712 3.81% 169,811 5,445 3.21% 104,403 3,833 3.67%
Savings 43,286 1,190 2.75% 41,834 1,147 2.74% 35,236 1,100 3.12%
Time 579,398 34,966 6.03% 410,656 25,569 6.23% 345,144 21,396 6.20%
Federal funds purchased 3,229 184 5.70% 947 51 5.39% 975 56 5.74%
FHLB advances 39,615 2,382 6.01% 17,237 981 5.69% 11,889 899 7.56%
Notes payable 10,803 810 7.50% 10,291 808 7.85% 9,537 820 8.60%
Convertible subordinated
debentures 3,500 304 8.69% 1,000 90 9.00% 1,000 90 9.00%
---------- ------ ------- ------ ------- ------
Total interest bearing
liabilities 855,885 46,548 5.44% 651,776 34,091 5.23% 508,184 28,194 5.55%
---------- ------ ------- ------ ------- ------
Noninterest bearing demand
deposits 95,462 73,090 53,735
Other liabilities 7,050 5,171 3,848
Stockholders' equity 66,333 53,472 42,110
---------- ------- -------
Total liabilities and
stockholders' equity $1,024,730 783,509 607,877
========== ======= =======
Net interest income 44,565 35,091 26,222
------ ------ ------
Net interest spread 4.05% 4.33% 4.07%
==== ==== ====
Net interest margin 4.64% 4.85% 4.64%
==== ==== ====
Taxable equivalent
adjustments:
Loans 138 249 223
Investment securities 1,195 1,027 984
------ ------ ------
Total taxable
equivalent
adjustments 1,333 1,276 1,207
------ ------ ------
Net interest income $43,232 33,815 25,015
======= ====== ======
</TABLE>
Consolidated Average Balances, Interest and Rates
The banking industry uses two key ratios to measure relative
profitability of net interest income. The net interest rate
spread measures the difference between the average yield on
earning assets and the average rate paid on interest bearing
sources of funds. The interest rate spread eliminates the impact
of non-interest bearing deposits and gives a direct perspective
on the effect of market interest rate movements. The net
interest margin is defined as net interest income as a percent of
average total earning assets and takes into account the positive
impact of investing non-interest bearing deposits.
The net interest spread was 4.05% in 1997, 4.33% in 1996 and
4.07% in 1995, while the net interest margin was 4.64% in 1997,
4.85% in 1996 and 4.64% in 1995. The decrease in the margin and
spread are primarily due to a decrease in core deposits relative
to total funding sources. Core deposits represent approximately
33% of total deposits in 1997, a decrease from 39% in 1996. Table
2 shows the change in net interest income for the past two years
due to changes in volumes and rate.
<PAGE>
Table 2 - Rate/Volume Variance Analysis
Taxable Equivalent Basis
(dollars in thousands)
<TABLE>
1997 Compared to 1996 1996 Compared to 1995
Increase (decrease) due to changes in Increase (decrease) due to changes in
------------------------------------- -------------------------------------
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Federal funds sold $ 511 35 546 $ (32) (186) (218)
Interest bearing deposits
with other banks (101) -- (101) 70 28 98
Investment securities:
Taxable 1,935 427 2,362 1,639 (257) 1,382
Tax-exempt 687 (195) 492 271 (143) 128
Loans:
Taxable 19,998 (1,041) 18,957 13,335 (36) 13,299
Tax-exempt (272) (52) (324) 92 (13) 79
------- ------ ------ ------ ---- ------
Total interest income 22,758 (826) 21,932 15,375 (607) 14,768
------- ------ ------ ------ ---- ------
Interest paid on:
Deposits:
Demand 275 992 1,267 2,097 (485) 1,612
Savings 39 4 43 181 (134) 47
Time 10,605 (1,208) 9,397 4,079 94 4,173
Federal funds purchased 123 10 133 (2) (3) (5)
FHLB advances 1,280 121 1,401 304 (222) 82
Notes payable 130 (128) 2 59 (71) (12)
Convertible subordinated debentures 225 (11) 214 -- -- --
------- ------ ------ ------- ---- ------
Total interest expense 12,677 (220) 12,457 6,718 (821) 5,897
------- ------ ------ ------- ---- ------
Net interest income $10,081 (606) 9,475 8,657 214 8,871
======= ====== ====== ======= ==== ======
</TABLE>
<PAGE>
Noninterest Income
Noninterest income consists primarily of revenues generated
from service charges and fees on deposit accounts, mortgage loan
and related fees and profits earned through sales of credit life
insurance. In addition, gains or losses realized from the sale
of investment portfolio securities are included in noninterest
income. Total noninterest income for 1997 increased 23% or $1.3
million, with $439 thousand of the increase due to an increase in
gains recognized on sales of investment securities during 1997
and a $515 thousand increase in service charges on demand
deposits. Noninterest income for 1996 increased 25% or $1.1
million, more than $823 thousand of which was contributed as a
result of an increase in service charges on demand deposits.
The growth in non-interest income was the result of United's
continuing efforts to build stable sources of fee income, which
includes services charges on deposits and mortgage loan and
related fees. This growth is being accomplished through the
building of customer market share and expansion of United's
locations.
The primary contributor to non-interest income growth in
both 1997 and 1996 was the continued growth in service charges on
deposits. Fee income from service charges on deposit accounts
increased over 17% in 1997 following a 38% increase in 1996. The
growth in the number of accounts due to the branch expansions
into new markets was the primary contributor to the increased
levels of income for both years.
Net gains on sales of investment securities in 1997
increased $439 thousand from 1996 levels as management liquidated
more investment securities to meet loan demand.
Mortgage loan and related fee income decreased 26% or $409
thousand during 1997 as compared to 1996 as the volume of loans
originated and serviced decreased significantly from prior years.
Noninterest Expense
Noninterest expenses for 1997 increased 29% following an
increase of 29% in 1996. The increase was primarily due to the
start up costs in new markets. Salaries and employee benefits
increased 32% in 1997 compared to 1996 due to employee additions
resulting from the branch expansions together with the increases
required to maintain continued growth.
Occupancy expense increased over $1.2 million or 32% in 1997
following a 21% increase in 1996. The increase for both years is
due to the new physical locations associated with the new
branches.
Other non-interest expenses, including advertising and
stationery and supplies, increased $1.8 million or 22% compared
to a 37% increase in 1996. Increases in both years are generally
associated with expansion into new markets by branching.
Management continues to emphasize the importance of expense
management and productivity throughout United in order to further
decrease the cost of providing expanded banking services to a
growing market base.
<PAGE>
Investment Securities
The composition of the investment securities portfolio
reflects United's investment strategy of maintaining an
appropriate level of liquidity while providing a relatively
stable source of income. The investment portfolio also provides
a balance to interest rate risk and credit risk in other
categories of the balance sheet while providing a vehicle for the
investment of available funds, furnishing liquidity, and
supplying securities to pledge as required collateral for certain
deposits.
During 1997, gross investment securities sales were $32.1
million as compared to $18.1 million during 1996. Maturities and
paydowns were $40.5 and $54.6 million, representing 21% and 36%,
respectively, of the average total portfolio for the year. Net
gains associated with the sales were approximately $426 thousand
during 1997 with net losses of $13 thousand during 1996,
accounting for less than 10% of non-interest income. Gross
unrealized gains in the total portfolio amounted to approximately
$2.8 million at December 31, 1997, and gross unrealized losses
amounted to approximately $189 thousand.
Total average investment securities, including those
available for sale, increased 27% during 1997.
Average investment securities during 1996 increased 26% from
the 1995 average levels.
Table 3 reflects the carrying amount of the investment
securities portfolio for the past three years.
Table 3 - Carrying Value of Investments
(dollars in thousands)
<TABLE>
December 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Securities held to maturity:
U.S. Treasuries $ 500 2,368 7,124
U.S. Government agencies 22,361 34,804 42,488
State and political subdivisions 42,330 33,036 28,055
Mortgage backed securities 4,368 7,118 7,937
-------- ------- -------
69,559 77,326 85,604
-------- ------- -------
Securities available for sale:
U.S. Treasuries 46,945 12,841 25,776
U.S. Government agencies 45,552 38,953 30,634
State and political subdivisions 11,860 6,833 6,595
Mortgage backed securities 33,347 18,635 4,290
Other 6,190 4,002 2,855
-------- ------- -------
143,894 81,264 70,150
-------- ------- -------
Total $213,453 158,590 155,754
======== ======= =======
</TABLE>
<PAGE>
Carrying Value of Investments
The December 31, 1997, market value of securities held to
maturity, as a percentage of amortized cost was 102%, up from
100% at December 31, 1996. The market value of the portfolio of
securities held to maturity will change as interest rates change
and such unrealized gains or losses will not flow through the
financial statements unless the related securities are called at
prices which differ from the carrying value at the time of call.
United utilizes its investment portfolio to offset some of
the natural mismatch of interest rate risk inherent in the loan
and deposit portfolios. United experienced strong loan demand at
all the Banks so there was little need for investments solely to
augment income or utilize uninvested deposits.
United's investment portfolio consists of U.S. Government
and agency securities, municipal securities, various equity
securities and Government agency sponsored mortgage-backed
securities. A mortgage-backed security relies on the underlying
mortgage pools of loans to provide a cash flow of principal and
interest. The actual maturities of these securities will differ
from the contractual maturities because these borrowers may have
the right to prepay obligations with or without prepayment
penalties. Decreases in interest rates will generally cause
prepayments to accelerate. In a declining interest rate
environment, United may not be able to reinvest the proceeds from
these prepayments in assets which have comparable yields.
However, because the majority of the mortgage-backed securities
have adjustable rates, the negative effects of changes in
interest rates on earnings and the carrying values of these
securities are mitigated. At December 31, 1997, United had 18%
of its total investment portfolio in mortgage-backed pass-through
securities, all of which are issued or backed by Federal
agencies. At December 31, 1997, United did not have securities
of any issuer in excess of 10% of equity.
Loans
During 1997, average net loans increased $186.8 million, or
34% and represented 77% of average interest earning assets and
72% of average total assets. This growth generally occurred
proportionally among the various loan categories and can be
attributed to additional products and services marketed to
existing customers and business development efforts which
resulted in market share gains from competitors.
The level of loans, when compared to the level of deposits,
has been relatively strong over the last three years. The
average loan to deposit ratio was 83%, 79% and 79% in 1997, 1996
and 1995, respectively.
Table 4 breaks down the composition of the loan portfolio
for each of the past five years while Table 5 shows the amount of
loans outstanding for selected categories as of December 31,
1997, with maturities based on the remaining scheduled repayments
of principal.
<PAGE>
Table 4 - Loan Portfolio
(dollars in thousands)
<TABLE>
December 31,
1997 1996 1995 1994 1993
------------------ ----------------- ----------------- ----------------- ------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial,
financial
and agri-
cultural $105,462 12.8% 100,538 15.8% 64,727 13.6% 65,521 18.5% 49,192 16.9%
Real estate -
construction 78,699 9.6% 51,425 8.1% 30,065 6.3% 20,274 5.7% 22,104 7.6%
Real estate -
mortgage 523,629 63.6% 380,681 60.0% 294,724 62.1% 203,270 57.3% 163,940 56.2%
Consumer 115,534 14.0% 101,930 16.1% 85,341 18.0% 65,456 18.5% 56,551 19.3%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total
loans 823,324 100.0% 634,574 100.0% 474,857 100.0% 354,521 100.0% 291,787 100.0%
Less: Allowance
for loan
losses 10,352 8,125 6,884 4,230 3,464
-------- ------- ------- ------- -------
$812,972 626,449 467,973 350,291 288,323
======== ======= ======= ======= =======
</TABLE>
Table 5 - Loan Portfolio Maturity
(dollars in thousands)
<TABLE>
<CAPTION>
Rate Structure for Loans
Maturity Maturing Over One Year
---------------------------------------------------- ------------------------------
Over One Year Floating or
One Year Through Over Five Predetermined Adjustable
or Less Five Years Years Total Interest Rate Rate
-------- ------------- --------- ----- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Commercial,
financial
and agri-
cultural $ 62,826 34,486 8,150 105,462 26,861 15,775
Real estate -
construction 70,226 3,773 4,700 78,699 494 7,979
-------- ------ ------ ------- ------ ------
$133,052 38,259 12,850 184,161 27,355 23,754
======== ====== ====== ======= ====== ======
</TABLE>
Provision and Allowance for Loan Losses
United manages asset quality and controls risk through
diversification of the loan portfolio and the application of
policies designed to foster sound underwriting and loan
monitoring practices. United's loan administration function is
charged with monitoring asset quality, establishing credit
policies and procedures, and enforcing the consistent application
of these policies and procedures across United.
<PAGE>
The provision for loan losses is the annual cost of
providing an adequate allowance for anticipated potential future
losses on loans. The amount each year is dependent upon many
factors including loan growth, net charge-offs, changes in the
composition of the loan portfolio, delinquencies, management's
assessment of loan portfolio quality, the value of collateral,
and economic factors and trends.
Reviews of non-performing, past due loans and larger
credits, designed to identify potential charges to the allowance
for loan losses, as well as determine the adequacy of the
allowance, are made on a regular basis during the year. These
reviews are made by the responsible lending officers, as well as
a separate credit administration department, and consider such
factors as the financial strength of borrowers, the value of the
applicable collateral, past loan loss experience, anticipated
loan losses, growth in the loan portfolio, and other factors,
including prevailing and anticipated economic conditions.
Whenever a loan, or portion thereof, is considered by
management to be uncollectible, it is charged against the
allowance for loan losses. Management believes that the
allowance for loan losses is adequate. While management uses
available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies,
as an integral part of their examination process, periodically
review the Banks' allowance for loan losses. Such agencies may
require the Banks to recognize additions to the allowances based
on their judgments about information available to them at the
time of their examination.
The provision for loan losses increased 65% in 1997
compared to 1996 and increased 43% in 1996 compared to 1995. The
allowance for loan losses as a percentage of total loans remained
stable at 1.26% at December 31, 1997 compared to 1.28% at
December 31, 1996. The increase in the provision for loan losses
is a result of the large increase in loans outstanding during
1997.
Net loan charge-offs for 1997 increased 14% compared to
1996, although the average balance of loans increased 34%.
United does not currently allocate the allowance for loan losses
to the various loan categories. Net charge-offs during 1998 are
expected to approximate those experienced during 1997.
Table 6 sets forth information with respect to United's
allowance for loan losses for each of the last five years.
<PAGE>
<TABLE>
<CAPTION>
Table 6 - Analysis of the Allowance for Loan Losses
(dollars in thousands)
Years Ended December 31,
------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Allowance for loan losses at beginning of year $ 8,125 6,884 4,231 3,465 2,776
Charge-offs:
Commercial, financial and agricultural 73 329 148 27 6
Real estate - construction -- -- 24 -- --
Real estate - mortgage 99 13 337 49 54
Consumer 625 353 192 262 286
------- ----- ----- ----- ------
Total charge-offs 797 695 701 338 346
------- ----- ----- ----- ------
Recoveries:
Commercial, financial and agricultural 22 251 157 6 1
Real estate - construction -- -- -- -- --
Real estate - mortgage 224 39 188 1 28
Consumer 144 49 80 99 75
------ ----- ----- ----- -----
Total recoveries 390 339 425 106 104
------ ----- ----- ----- -----
Net charge-offs 407 356 276 232 242
------ ----- ----- ----- -----
Provisions charged to earnings 2,634 1,597 1,116 998 931
Allowance for loan losses acquired from White -- -- 1,813 -- --
------ ----- ----- ----- -----
Balance at end of year $10,352 8,125 6,884 4,231 3,465
====== ===== ===== ===== =====
Ratio of net charge-offs to average loans
outstanding during the period 0.06% 0.06% 0.07% 0.07% 0.09%
</TABLE>
<PAGE>
Asset Quality
Non-performing assets, comprised of nonaccrual loans, other
real estate owned and loans for which payments are more than 90
days past due totaled $1.4 million compared to $1.7 million at
year end 1996.
It is the general policy of the Banks to stop accruing
interest income and place the recognition of interest on a cash
basis when a loan is placed on nonaccrual status and any interest
previously accrued but not collected is reversed against current
income unless the collateral for the loan is sufficient to cover
the accrued interest or a guarantor assures payment of interest.
Loans made by the Banks to facilitate the sale of other real
estate are made on terms comparable to loans of similar risk. An
adequate investment by the buyer is required prior to the removal
of other real estate from non-performing assets.
There were no commitments to lend additional funds on
nonaccrual loans at December 31, 1997. Table 7 summarizes
United's non-performing assets for each of the last five years.
<TABLE>
Table 7 - Risk Elements
(dollars in thousands)
December 31,
------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual $ 515 984 2,017 569 585
Loans 90 days past due 536 487 291 102 219
Other real estate 386 210 65 -- --
------ ----- ----- ----- -----
Total non-performing assets $1,437 1,681 2,373 671 804
====== ===== ===== ===== =====
Total non-performing loans as a
percentage of loans 0.13% 0.23% 0.49% 0.19% 0.28%
Loans 90 days past due as a
percentage of loans 0.07% 0.08% 0.06% 0.03% 0.08%
</TABLE>
Risk Elements
There may be additional loans within United's portfolio that
may become classified as conditions dictate; however, management
was not aware of any such loans that are material in amount at
December 31, 1997. At December 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.
Deposits
All major categories of average interest bearing deposits
increased during 1997. The largest dollar increase in average
interest bearing deposits was in the time deposit category,
rising over $168.7 million or 41% during 1997 as compared to 1996
followed by the increase in average interest bearing demand
deposits of $6.2 million or 4%. Average non-interest bearing
demand deposits increased $22.4 million or 31% after increasing
36% during 1996. The increases were primarily a result of
internally generated growth, as well as the previously discussed
expansions. Savings deposits, interest bearing demand deposits
and non-interest bearing demand deposits comprised 35% of total
average deposits during 1997. For 1996, these lower cost
deposits comprised 41% of total average deposits. The maturities
of time deposits of $100,000 or more issued by the Banks at
December 31, 1997, are summarized in the following table:
Table 8 - Maturities of Time Deposits Over $100,000
(dollars in thousands)
Three months or less $ 49,895
Over three months through six months 41,867
Over six months through twelve months 36,577
Over twelve months 28,464
--------
$156,803
========
<PAGE>
At December 31, 1997, five of the Banks were shareholders in
the Federal Home Loan Bank of Atlanta. Through this affiliation,
advances totaling $43.3 million were outstanding at rates
competitive with time deposits of like maturities. United
anticipates continued utilization of this short and long term
source of funds to minimize interest rate risk and provide
competitive, long-term fixed rate loans to its customers.
Interest Rate Sensitivity Management
The absolute level and volatility of interest rates can have
a significant impact on United's profitability. The objective of
interest rate risk management is to identify and manage the
sensitivity of net interest income to changing interest rates, in
order to achieve United's overall financial goals. Based on
economic conditions, asset quality and various other
considerations, management establishes tolerance ranges for
interest rate sensitivity and manages within these ranges.
During 1997 and 1996, United used derivative financial
instruments to a limited extent in its interest rate risk
management. Interest rate swap contracts with an aggregate
notional amount of $35 million extending through various dates in
1998 and 1999 were executed to effectively convert certain fixed
rate liabilities to variable rates. From October 1, 1996,
through December 1997, United converted the effective interest
rate of certain deposit liabilities from 7.25% to 6.46% with the
execution of the swap agreements. Additionally, United entered
into an interest rate floor contract for the notional amount of
$50 million extending through January 1998. For a one time
premium upon the execution of the contract, the floor agreement
reduces United's interest rate risk in the event of rate declines
below a predetermined level. Notional amounts of the swap and
floor contracts only represent the basis for exchange of the cash
flows and do not represent credit risk. Credit risk is limited
to the positive market value of the derivative at a given date.
United anticipates continued use of derivative interest rate
contracts when appropriate in its asset-liability rate
management.
United uses income simulation modeling as the primary tool
in measuring interest rate risk and managing interest rate
sensitivity. Simulation modeling considers not only the impact
of changing market rates of interest on future net interest
income, but also such other potential causes of variability as
earning asset volume, mix, yield curve relationships, customer
preferences and general market conditions.
Interest rate sensitivity is a function of the repricing
characteristics of United's portfolio of assets and liabilities.
These repricing characteristics are the time frames within which
the interest bearing assets and liabilities are subject to change
in interest rates either at replacement, repricing or maturity
during the life of the instruments. Interest rate sensitivity
management focuses on the maturity structure of assets and
liabilities and their repricing characteristics during periods of
changes in market interest rates. Effective interest rate
sensitivity management seeks to ensure that both assets and
liabilities respond to changes in interest rates within an
acceptable timeframe, thereby minimizing the effect of interest
rate movements on net interest income. Interest rate sensitivity
is measured as the difference between the volumes of assets and
liabilities in United's current portfolio that are subject to
repricing at various time horizons: immediate, one to three
months, four to twelve months, one to five years, over five
years, and on a cumulative basis. The differences are known as
interest sensitivity gaps. Table 9 shows interest sensitivity
gaps for these different intervals as of December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
Table 9 - Interest Rate Sensitivity Analysis
(dollars in thousands)
December 31, 1997
-----------------
One Four One Over Five
Through Through Through Years and
Three Twelve Five Non-Rate
Immediate Months Months Years Sensitive Total
--------- ------- ------- ------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Federal funds sold $ 8,420 -- -- -- -- 8,420
Investment securities -- 6,464 21,334 115,965 69,690 213,453
Mortgage loans held for sale -- 3,962 -- -- -- 3,962
Loans -- 355,427 309,540 135,157 23,200 823,324
-------- ------- ------- ------- ------- ---------
Total interest earning assets 8,420 365,853 330,874 251,122 92,890 1,049,159
-------- ------- ------- ------- ------- ---------
Interest bearing liabilities:
Deposits:
Demand -- 189,280 -- -- -- 189,280
Savings -- -- 45,280 -- -- 45,280
Time -- 191,524 321,404 120,381 -- 633,309
FHLB advances 31,736 72 2,386 7,855 1,272 43,321
Notes payable 12,722 352 995 -- -- 14,069
Convertible subordinate debentures -- -- -- -- 3,500 3,500
-------- ------- ------- ------- ------- ---------
Total interest bearing
liabilities 44,458 381,228 370,065 128,236 4,772 928,759
-------- ------- ------- ------- ------- ---------
Noninterest bearing sources of funds - net -- -- -- -- 109,210 109,210
-------- ------- ------- ------- ------- ---------
Interest sensitivity gap (36,038) (15,375) (39,191) 122,886 (21,092) 11,190
-------- ------- ------- ------- ------- ---------
Cumulative interest sensitivity gap $(36,038) (51,413) (90,604) 32,282 11,190 --
======== ======= ======= ======= ======= =========
</TABLE>
As seen in the preceding table, for the first 365 days 86%
of earning liabilities funding sources will reprice compared to
67% of all interest earning assets. Changes in the mix of
earning assets or supporting liabilities can either increase or
decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an
asset and its supporting liability can vary significantly while
the timing of repricing for both the asset and the liability
remains the same, thus impacting net interest income. This
characteristic is referred to as basis risk and generally relates
to the possibility that the repricing characteristics of
short-term assets tied to United's prime lending rate are
different from those of short-term funding sources such as
certificates of deposit.
Varying interest rate environments can create unexpected
changes in prepayment levels of assets and liabilities which are
not reflected in the interest rate sensitivity analysis report.
These prepayments may have significant effects on United's net
interest margin. Because of these factors an interest
sensitivity gap report may not provide a complete assessment of
United's exposure to changes in interest rates.
Table 9 indicates United is in a liability sensitive or
negative gap position at twelve months. This liability
sensitive position would generally indicate that United's net
interest income would decrease should interest rates rise and
would increase should interest rates fall. Due to the factors
cited previously, current simulation results indicate only
minimal sensitivity to parallel shifts in interest rates.
Management also evaluates the condition of the economy, the
pattern of market interest rates and other economic data to
determine the appropriate mix and repricing characteristics of
assets and liabilities required to produce an optimal net
interest margin. Also see "Quantitative and Qualitative
Disclosures about Market Risk" included elsewhere herein.
<PAGE>
Table 10 represents the expected maturity of the total
investment securities by maturity date and average yields based
on amortized cost (for all obligations on a fully taxable basis
assuming a 34% tax rate) at December 31, 1997. It should be
noted that the composition and maturity/repricing distribution of
the investment portfolio is subject to change depending on rate
sensitivity, capital needs, and liquidity needs.
Table 10 - Expected Maturity of Investment Securities
(dollars in thousands)
<TABLE>
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
---------------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Totals
------ ----- ------ ----- ------ ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity:
U.S. Treasury
securities $ 500 7.12% -- -- -- -- -- -- 500
U.S. Government
Agencies 17,817 5.57% 4,544 6.11% -- -- -- -- 22,361
State and political
subdivisions 1,739 8.20% 17,132 7.37% 18,819 7.56% 4,640 8.11% 42,330
Mortgage backed
securities 621 5.11% 1,721 6.65% 860 6.16% 1,166 7.89% 4,368
------- ---- ------ ---- ------ ---- ----- ---- ------
20,677 5.81% 23,397 7.07% 19,679 7.50% 5,806 8.07% 69,559
------- ---- ------ ---- ------ ---- ----- ---- ------
Securities available
for sale:
U.S. Treasury
securities 2,242 6.09% 42,573 6.20% 1,489 6.05% -- -- 46,304
U.S. Government
agencies 8,150 5.77% 33,269 6.31% 3,898 6.17% -- -- 45,317
State and political
subdivisions 2,569 9.03% 3,019 8.21% 4,103 7.02% 1,984 7.26% 11,675
Mortgage backed
securities 2,499 6.93% 15,062 6.46% 7,416 6.24% 7,993 6.48% 32,970
Other -- -- -- -- -- -- 6,256 5.18% 6,256
------- ---- ------ ---- ------ ---- ----- ---- ------
15,460 6.55% 93,923 6.35% 16,906 6.40% 16,233 6.07% 142,522
------- ---- ------ ---- ------ ---- ----- ---- ------
Total $36,137 6.13% 117,320 6.49% 36,585 6.99% 22,039 6.60% 212,081
======= ==== ======= ==== ====== ==== ====== ==== =======
</TABLE>
<PAGE>
Liquidity Management
The objective of liquidity management is to ensure that
sufficient funding is available, at reasonable cost, to meet the
ongoing operational cash needs of United and to take advantage of
income producing opportunities as they arise. While the desired
level of liquidity will vary depending upon a variety of factors,
it is the primary goal of United to maintain a high level of
liquidity in all economic environments. Liquidity is defined as
the ability of a company to convert assets into cash or cash
equivalents without significant loss and to raise additional
funds by increasing liabilities. Liquidity management involves
maintaining United's ability to meet the day to day cash flow
requirements of the Banks' customers, whether they are depositors
wishing to withdraw funds or borrowers requiring funds to meet
their credit needs. Without proper liquidity management, United
would not be able to perform the primary functions of a financial
intermediary and would, therefore, not be able to meet the needs
of the communities it serves.
The primary function of asset and liability management is
not only to assure adequate liquidity in order for United to meet
the needs of its customer base, but to maintain an appropriate
balance between interest-sensitive assets and interest-sensitive
liabilities so that the Company can also meet the investment
requirements of its shareholders. Daily monitoring of the
sources and use of funds is necessary to maintain an acceptable
cash position that meets both requirements. In a banking
environment, both assets and liabilities are considered sources
of liquidity funding and both are, therefore, monitored on a
daily basis.
The asset portion of the balance sheet provides liquidity
primarily through loan principal repayments, maturities of
investment securities and, to a lesser extent, sales of
securities. Installment loan payments are becoming an
increasingly important source of liquidity for United as this
portfolio continues to grow. Mortgage loans held for sale
totaled just over $3.9 million at December 31, 1997, and
typically turn over every 45 days. Real estate-construction and
commercial, financial and agricultural loans that mature in one
year or less amounted to $133 million or 16% of the total loan
portfolio at December 31, 1997. Investment securities maturing
in the same time frame totaled $36 million or 17% of the total
investment securities portfolio at year end 1997. Other
short-term investments such as federal funds sold and maturing
interest bearing deposits with other banks are additional sources
of liquidity funding.
The liability portion of the balance sheet provides
liquidity through various customers' interest bearing and
non-interest bearing deposit accounts. Federal funds purchased
and securities sold under agreements to repurchase are additional
sources of liquidity and basically represent United's incremental
borrowing capacity. These sources of liquidity are short-term in
nature and are used as necessary to fund asset growth and meet
short-term liquidity needs.
As disclosed in United's Consolidated Statements of Cash
Flows included elsewhere herein, net cash provided by operating
activities was approximately $14.0 million during 1997. The
major sources of cash provided by operating activities are net
income and changes in other assets and other liabilities. Net
cash used in investing activities of $252.2 million consisted
primarily of a net increase in loans of $189.1 million and
securities purchased of $125.9 million funded largely by sales,
maturities and paydowns of investment securities of $72.6
million. These changes resulted from management's continued
efforts to reinvest new funds in higher-yielding loans rather
than investment securities. Net cash provided by financing
activities provided the remainder of funding sources for 1997.
The $254.4 million of net cash provided by financing activities
consisted primarily of a $203.8 million net increase in deposits
coupled with a net increase in Federal Home Loan Bank advances of
$8.2 million and federal funds purchases of $33.0 million at year
end.
Management considers United's liquidity position at December
31, 1997, to be sufficient to meet its foreseeable cash flow
requirements. Reference should be made to the Consolidated
Statements of Cash Flows appearing in the Consolidated Financial
Statements for a three-year analysis of the changes in cash and
cash equivalents resulting from operating, investing and
financing activities.
Capital Resources and Dividends
Stockholders' equity at December 31, 1997, increased 30%
from December 31, 1996. Net earnings after dividends for 1997
provided $10.0 million of the increase in stockholders' equity
while an offering of 300,000 shares of common stock offering
added $6.5 million.
Dividends of $699 thousand or $.10 per share were declared
on the Common Stock in 1997 and 1996. United has historically
retained the majority of its earnings in order to keep pace with
the rate at which assets have grown.
Average stockholders' equity as a percentage of total
average assets is one measure used to determine capital strength.
The ratio of average stockholders' equity to average assets for
1997 and 1996 was 6.47% and 6.82%, respectively. United's asset
growth has continued to exceed the rate at which capital has been
retained. Table 11 summarizes these and other key ratios for
United for each of the last three years.
<TABLE>
Table 11 - Equity Ratios
Years Ended December 31,
------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Return on average assets 1.05% 1.14% 1.10%
Return on average equity 16.18% 16.69% 15.84%
Dividend payout ratio 6.51% 7.58% 8.82%
Average equity to average assets 6.47% 6.82% 6.93%
</TABLE>
The Board of Governors of the Federal Reserve System has
issued guidelines for the implementation of risk-based capital
requirements by U.S. banks and bank holding companies. These
risk-based capital guidelines take into consideration risk
factors, as defined by regulators, associated with various
categories of assets, both on and off balance sheet. Under the
guidelines, capital strength is measured in two tiers which are
used in conjunction with risk adjusted assets to determine the
risk based capital ratios. The guidelines require an 8% total
risk-based capital ratio, of which 4% must be Tier I capital.
United's Tier I capital, which consists of stockholders'
equity less goodwill and deposit-based intangibles, amounted to
$68.2 million at December 31, 1997. Tier II capital components
include supplemental capital components such as a qualifying
allowance for loan losses and qualifying subordinated debt. Tier
I capital plus Tier II capital components is referred to as Total
Risk-based Capital and was $81.6 million at December 31, 1997.
The percentage ratios, as calculated under the guidelines, were
8.59% and 10.28% for Tier I and Total Risk-based Capital,
respectively, at December 31, 1997.
A minimum leverage ratio is required in addition to the
risk-based capital standards and is defined as period end
stockholders' equity adjusted for goodwill and deposit-based
intangibles divided by average assets adjusted for goodwill and
deposit-based intangibles. Although a minimum leverage ratio of
4% is required for the highest-rated bank holding companies which
are not undertaking significant expansion programs, the Federal
Reserve Board requires a bank holding company to maintain a
leverage ratio greater than 4% if it is experiencing or
anticipating significant growth or is operating with less than
well-diversified risks in the opinion of the Federal Reserve
Board. The Federal Reserve Board uses the leverage ratio in
tandem with the risk-based capital ratios to assess capital
adequacy of banks and bank holding companies. United's leverage
ratios at December 31, 1997 and 1996 were 5.76% and 5.98%,
respectively.
Further analysis regarding the actual and required capital
ratios of United and the Banks is provided in note 12 to the
consolidated financial statements.
All three of the capital ratios of United and each bank
currently exceed the minimum ratios required in 1997 as defined
by federal regulators. United monitors these ratios to ensure
that the company and the bank subsidiaries remain within
regulatory guidelines. Increased regulatory activity in the
financial industry as a whole will continue to impact the
structure of the industry; however, management does not
anticipate any negative impact on the capital resources or
operations of United.
Income Tax Expense
Income tax expense increased 16% in 1997 as compared to 1996
and 61% in 1996 as compared to 1995. The effective tax rate as a
percentage of pretax income was 31% in 1997 and 32% in 1996.
These tax rates are lower than the statutory Federal tax rate of
34% primarily due to interest income on tax exempt loans and
securities. See United's consolidated financial statements for
an analysis of income taxes.
Impact of Inflation and Changing Prices. A bank's asset and
liability structure is substantially different from that of an
industrial company in that primarily all assets and liabilities
of a bank are monetary in nature and therefore differ greatly
from most commercial and industrial companies that have
significant investments in fixed assets or inventories.
Inflation does have an important impact on the growth of total
assets and the resulting need to increase equity capital at
higher than normal rates in order to maintain an appropriate
equity to assets ratio.
United's management believes the impact of inflation on
financial results depends on United's ability to react to changes
in interest rates and, by such reaction, reduce the inflationary
impact on performance. United has an asset/liability management
program which attempts to manage United's interest rate
sensitivity position. In addition, periodic reviews of banking
services and products are conducted to adjust pricing in view of
current and expected costs. Cost cutting and cost controlling
measures have been implemented, including the constant search for
technological advancements in order to improve efficiency and
productivity.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
United's net interest income, and the fair value of its
financial instruments, are primarily influenced by changes in the
level of interest rates. United manages its exposure to
fluctuations in interest rates through policies established by
its Asset/Liability Management Committee (the "ALCO"). The ALCO
meets regularly and has the responsibility for approving
asset/liability management policies, formulating and implementing
strategies to improve balance sheet positioning and/or earnings
and reviewing the interest rate sensitivity of United and the
Banks.
Management utilizes an interest rate simulation model to
estimate the sensitivity of United's net interest income to
changes in interest rates. Such estimates are based upon a
number of assumptions for each scenario, including the level of
balance sheet growth, interest-bearing accounts repricing
characteristics and the rate of prepayments.
The estimated impact on United's net interest income
sensitivity over a one-year time horizon is shown below. Such
analysis assumes an immediate and sustained parallel shift in
interest rates, no balance sheet growth and United's estimate of
how interest-bearing transaction accounts will reprice in each
scenario.
<TABLE>
Principal/Notional Percentage Increase (Decrease) in
Amounts of Earning Interest Income/Expense Given
Assets, Interest Bearing Immediate and Sustained
Liabilities Parallel Interest Rate Shifts
and Swaps at Down 100 Up 100
December 31, 1997 Basis Points Basis Points
----------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Assets which reprice in:
One year or less 705,147
Over one year 344,012
----------
$1,049,159 (4.79%) 4.72%
----------
Liabilities which reprice in:
One year or less 795,751
Over one year 133,008
----------
$ 928,759 (7.36%) 7.23%
----------
Non-trading swaps 35,000 102.42% (102.42%)
----------
Net interest income sensitivity (1.51%) 1.52%
</TABLE>
The ALCO policy, with which United complies, is based on the
same assumptions as the above table and provides that a 100 basis
point increase or decrease in interest rates should not reduce
net interest income by more than five percent (5%). Certain
financial instruments have been excluded from the above analysis
because of the no-growth assumption, including letters of credit
and the commitments to extend credit.
United enters into various interest rate contracts to manage
United's interest rate sensitivity. Such contracts generally
have a fixed notional principal amount and include interest rate
swaps where a company typically receives or pays a fixed rate and
a counterparty pays or receives a floating rate based on a
specific index, generally prime rate or London Interbank Offered
Rate ("LIBOR") and interest rate floors purchased where the
Company receives interest if the specific index falls below the
floor rate. The interest rate risk factor in these contracts is
considered in the overall interest management strategy of
United's interest risk management program. The income or expense
associated with these interest rate derivatives is ultimately
reflected as adjustments to interest income or expense. Changes
in the estimated fair value of interest rate protection contracts
are not reflected in the financial statements until realized.
<PAGE>
MARKET AND DIVIDEND DATA
Stock. There is no established public trading market for
United's Common Stock. At December 31, 1997, there were 2,534
holders of record of Common Stock.
Dividends. United paid cash dividends of $.10 per share of
Common Stock to shareholders of record in 1997 and 1996. United
intends to pay cash dividends on a quarterly basis. However, the
amount and frequency of dividends will be determined by United's
Board of Directors in light of the earnings, capital requirements
and the financial condition of United, and no assurance can be
given that dividends will be paid in the future.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(with Independent Accountants' Report thereon)
<PAGE>
[PORTER KEADLE MOORE, LLP LOGO]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
United Community Banks, Inc.
Blairsville, Georgia
We have audited the consolidated balance sheets of United
Community Banks, Inc. and subsidiaries as of December 31, 1997
and 1996 and the related statements of earnings, changes in
stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of United Community Banks, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted
accounting principles.
\s\ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 6, 1998
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $11,000 and $6,234 $ 60,414 28,085
Federal funds sold 8,420 24,585
---------- ------
Cash and cash equivalents 68,834 52,670
---------- ------
Securities held to maturity (estimated fair value of $70,845 and $77,625) 69,559 77,326
Securities available for sale 143,894 81,264
Mortgage loans held for sale 3,962 6,727
Loans 823,324 634,574
Less: Allowance for loan losses 10,352 8,125
---------- -------
Loans, net 812,972 626,449
---------- -------
Premises and equipment, net 27,737 20,108
Accrued interest receivable 10,985 8,559
Other assets 15,424 13,000
---------- -------
$1,153,367 886,103
Liabilities and Stockholders' Equity
Deposits:
Demand $ 109,210 82,138
Interest-bearing demand 189,280 167,372
Savings 45,280 41,963
Time 476,506 346,838
Time, in excess of $100,000 156,803 134,989
---------- -------
Total deposits 977,079 773,300
---------- -------
Accrued expenses and other liabilities 7,274 6,101
Federal funds purchased 33,011 --
FHLB advances 43,321 35,074
Notes payable 14,069 10,453
Convertible subordinated debentures 3,500 3,500
---------- -------
Total liabilities 1,078,254 828,428
---------- -------
Commitments
Stockholders' equity:
Preferred stock -- --
Common stock, $1 par value; 10,000,000 shares authorized;
7,385,105 and 7,084,621 shares issued and outstanding 7,385 7,085
Capital surplus 24,699 18,516
Retained earnings 42,198 32,162
Net unrealized gain (loss) on securities available for sale, net of tax 831 (88)
---------- -------
Total stockholders' equity 75,113 57,675
---------- -------
$1,153,367 886,103
========== =======
</TABLE
See accompanying notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $76,722 57,978 44,626
Interest on deposits with other banks -- 102 4
Interest on federal funds sold 1,642 1,096 1,315
Interest on investment securities:
U.S. Treasury & U.S. Government agencies 9,097 6,735 5,354
State and political subdivisions 2,319 1,995 1,910
------- ------ ------
Total interest income 89,780 67,906 53,209
------- ------ ------
Interest expense:
Interest on deposits:
Demand 6,712 5,445 3,833
Savings 1,190 1,147 1,100
Time 34,966 25,569 21,396
------- ------ ------
42,868 32,161 26,329
Notes payable, subordinated debentures,
federal funds purchased and FHLB advances 3,680 1,930 1,865
------- ------ ------
Total interest expense 46,548 34,091 28,194
------- ------ ------
Net interest income 43,232 33,815 25,015
Provision for loan losses 2,634 1,597 1,116
------- ------ ------
Net interest income after provision for loan losses 40,598 32,218 23,899
Noninterest income:
Service charges and fees 3,505 2,990 2,167
Gain (loss) on sales of investment securities 426 (13) 4
Mortgage loan and other related fees 1,157 1,566 1,582
Other noninterest income 1,892 1,123 770
------- ------ ------
Total noninterest income 6,980 5,666 4,523
------- ------ ------
Noninterest expense:
Salaries and employee benefits 17,695 13,373 10,504
Occupancy 4,726 3,570 2,948
Other noninterest expense 9,656 7,900 5,752
------- ------ ------
Total noninterest expense 32,077 24,843 19,204
------- ------ ------
Earnings before income taxes 15,501 13,041 9,218
Income taxes 4,766 4,114 2,549
------- ------ ------
Net earnings $10,735 8,927 6,669
======= ====== ======
Earnings per common share $ 1.47 1.29 1.03
======= ====== ======
Earnings per common share - assuming dilution $ 1.46 1.26 1.01
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1997, 1996 and 1995
Net Unrealized
Gain (Loss)
On Securities
Available
Common Stock Capital Retained for Sale
Shares Amount Surplus Earnings Net of Tax Total
------ ------ ------- -------- ---------- -----
(In Thousands Except Share and Per Share Data)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994, as previously reported 5,589,365 $5,589 7,474 17,363 (209) 30,217
Adjustment in connection with pooling of interests 685,240 686 3,550 468 (56) 4,648
--------- ------ ------ ------ ---- ------
Balance, December 31, 1994, as restated 6,274,605 6,275 11,024 17,831 (265) 34,865
Issuance of common shares for bank acquisition 455,400 455 4,828 -- -- 5,283
Proceeds from common stock offering,
net of offering cost 215,515 216 2,218 -- -- 2,434
Change in unrealized gain (loss) on securities
available for sale, net of tax -- -- -- -- 545 545
Cash dividends declared, ($.08 per share) -- -- -- (588) -- (588)
Purchase and retirement of treasury stock of
pooled entity (737) (1) (6) -- -- (7)
Net earnings -- -- -- 6,669 -- 6,669
--------- ------- ----- ------ ---- ------
Balance, December 31, 1995 6,944,783 6,945 18,064 23,912 280 49,201
Change in unrealized gain (loss) on securities
available for sale, net of tax -- -- -- -- (368) (368)
Cash dividends declared, ($.10 per share) -- -- -- (677) -- (677)
Common stock issued in conversion of debentures 178,568 179 821 -- -- 1,000
Purchase and retirement of treasury stock of
pooled entity (38,730) (39) (369) -- -- (408)
Net earnings -- -- -- 8,927 -- 8,927
--------- ------- ------ ------ ---- ------
Balance, December 31, 1996 7,084,621 7,085 18,516 32,162 (88) 57,675
Change in unrealized gain (loss) on securities
available for sale, net of tax -- -- -- -- 919 919
Cash dividends declared, ($.10 per share) -- -- -- (699) -- (699)
Net earnings -- -- -- 10,735 -- 10,735
Proceeds from common stock offering,
net of offering cost 300,000 300 6,177 -- -- 6,477
Proceeds from resale of treasury stock of
pooled entity 484 -- 6 -- -- 6
--------- ------ ----- ------ ---- ------
Balance, December, 31, 1997 7,385,105 $7,385 24,699 42,198 831 75,113
========= ====== ====== ====== ====
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 10,735 8,927 6,669
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, amortization and accretion 2,448 2,347 1,882
Provision for loan losses 2,634 1,597 1,116
Provision for deferred income tax expense (benefit) (404) 82 (95)
(Gain) loss on sale of securities available for sale (426) 13 (4)
Change in assets and liabilities, net of effects
of purchase acquisitions:
Interest receivable (2,426) (1,430) (1,831)
Interest payable 1,340 267 1,370
Other assets (2,020) (9) 1,003
Accrued expenses and other liabilities (659) 1,059 (1,335)
Change in mortgage loans held for sale 2,765 5,321 347
--------- ------- -------
Net cash provided by operating
activities 13,987 18,174 9,122
--------- ------- -------
Cash flows from investing activities, net of effects
of purchase acquisitions:
Cash acquired from acquisitions and branch purchases -- 2,650 25,867
Proceeds from maturities and calls of securities
held to maturity 18,009 21,920 14,317
Purchases of securities held to maturity (10,418) (13,762) (29,075)
Proceeds from sales of securities available for sale 32,105 18,065 17,520
Proceeds from maturities and calls of securities
available for sale 22,470 32,652 11,299
Purchases of securities available for sale (115,501) (62,631) (64,143)
Net increase in loans (189,157) (140,507) (68,874)
Purchases of premises and equipment (9,702) (3,143) (2,236)
--------- -------- -------
Net cash used in investing activities (252,194) (144,756) (95,325)
Cash flows from financing activities, net of effects
of purchase acquisitions:
Net change in demand and savings deposits 52,297 49,312 23,824
Net change in time deposits 151,482 62,394 92,333
Net change in federal funds purchased 33,011 -- (8,300)
Proceeds from convertible subordinated debentures -- 3,500 --
Proceeds from notes payable 4,747 -- 2,539
Proceeds from FHLB advances 15,636 29,375 8,596
Repayments of notes payable (1,131) (856) (630)
Repayments of FHLB advances (7,389) (3,302) (11,744)
Proceeds from sale of common stock 6,477 -- 2,434
Purchase of treasury stock of pooled entity -- (408) (7)
Proceeds from resale of treasury stock of pooled entity 6 -- --
Cash paid for dividends (765) (677) (588)
--------- ------- -------
Net cash provided by financing activities 254,371 139,338 108,457
--------- ------- -------
Net change in cash and cash equivalents 16,164 12,756 22,254
Cash and cash equivalents at beginning of period 52,670 39,914 17,660
--------- ------- -------
Cash and cash equivalents at end of period $ 68,834 52,670 39,914
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed by United Community
Banks, Inc. (United or the Company) and its subsidiaries and the
methods of applying these principles conform with generally
accepted accounting principles and with general practices within
the banking industry. The following is a description of the more
significant of those policies.
Organization and Basis of Presentation
United is a six bank holding company whose business is
conducted by its wholly-owned bank subsidiaries. United is
subject to regulation under the Bank Holding Company Act of 1956.
The consolidated financial statements include the accounts of
United Community Banks, Inc. and its wholly-owned commercial bank
subsidiaries, United Community Bank, Blairsville, Georgia (UCB),
Carolina Community Bank (Carolina), Peoples Bank, Blue Ridge,
Georgia (Peoples), Towns County Bank, Hiawassee, Georgia (Towns)
White County Bank, Cleveland, Georgia (White) and First Clayton
Bank and Trust Company, Clayton, Georgia (Clayton) (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 years' financial statements
have been reclassified to conform with the current financial
statement presentations.
The Bank Subsidiaries are commercial banks which serve
markets throughout North Georgia and Western North Carolina and
provide a full range of customary banking services. The Bank
Subsidiaries are insured and subject to the regulation of the
Federal Deposit Insurance Corporation.
In preparing the financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In
connection with these valuations, management obtains independent
appraisals for significant properties.
A substantial portion of United's loans are secured by real
estate located in North Georgia and Western North Carolina.
Accordingly, the ultimate collectibility of a substantial portion
of United's loan portfolio is susceptible to changes in the real
estate market conditions of this market area.
Investment Securities
United classifies its securities in one of three categories:
held to maturity, available for sale, or trading. Trading
securities are bought and held principally for the purpose of
selling them in the near term. United does not have investments
classified in the trading category. Held to maturity securities
are those securities for which United has the ability and intent
to hold until maturity. All other securities are classified as
available for sale.
Available for sale securities are recorded at fair value.
Held to maturity securities are recorded at cost, adjusted for
the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses, net of the related tax
effect, on securities available for sale are excluded from
earnings and are reported as a separate component of
stockholders' equity until realized. Transfers of securities
between categories are recorded at fair value at the date of
transfer. Unrealized holding gains or losses associated with
transfers of securities from held to maturity to available for
sale are recorded as a separate component of stockholders'
equity. The unrealized holding gains or losses included in the
separate component of stockholders' equity for securities
transferred from available for sale to held to maturity are
maintained and amortized into earnings over the remaining life of
the security as an adjustment to yield in a manner consistent
with the amortization or accretion of premium or discount on the
associated security.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Investment Securities, continued
A decline in the market value of any available for sale or
held to maturity investment below cost that is deemed other than
temporary is charged to earnings and establishes a new cost basis
for the security.
Premiums and discounts are amortized or accreted over the
life of the related security as an adjustment to the yield.
Realized gains and losses for securities classified as available
for sale and held to maturity are included in earnings and are
derived using the specific identification method for determining
the cost of securities sold.
Mortgage Loans Held for Sale
Mortgage loans held for sale are carried at the lower of
aggregate cost or market value. The amount by which cost exceeds
market value is accounted for as a valuation allowance. Changes
in the valuation allowance are included in the determination of
net earnings of the period in which the change occurs. No market
valuation allowances were required at December 31, 1997 or 1996.
Loans and Allowance for Loan Losses
All loans are stated at principal amount outstanding.
Interest on loans is primarily calculated by using the simple
interest method on daily balances of the principal amount
outstanding.
Accrual of interest is discontinued on a loan when
management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful. When a
loan is placed on nonaccrual status, previously accrued and
uncollected interest is charged to interest income on loans.
Generally, payments on nonaccrual loans are applied to principal.
A loan is impaired when, based on current information and events,
it is probable that all amounts due according to the contractual
terms of the loan will not be collected. Impaired loans are
measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate, or at
the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. Interest income
on impaired loans is recognized using the cash-basis method of
accounting during the time within the period in which the loans
were impaired. The Bank Subsidiaries had no material amounts of
impaired loans at December 31, 1997 or 1996.
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are charged
against the allowance for loan losses when management believes
that the collectibility of the principal is unlikely. The
allowance represents an amount which, in management's judgment,
will be adequate to absorb probable losses on existing loans that
may become uncollectible. Management's judgment in determining
the adequacy of the allowance is based on evaluations of the
collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect
the borrower's ability to pay, overall portfolio quality, and
review of specific problem loans.
Management believes that the allowance for loan losses is
adequate. While management uses available information to
recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review United's allowance
for loan losses. Such agencies may require United to recognize
additions to the allowance based on their judgments of
information available to them at the time of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using primarily the
straight-line method over the estimated useful lives of the
related assets. Costs incurred for maintenance and repairs are
expensed currently. The range of estimated useful lives for
buildings and improvements is 15 to 40 years, and for furniture
and equipment, 3 to 10 years.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Goodwill and Deposit-Based Intangibles
Goodwill , arising from the excess cost over the fair value
of net assets acquired of purchased bank subsidiaries, is
amortized on a straight-line basis over periods not exceeding 25
years. Deposit assumption premiums paid in connection with the
branch bank purchases are being amortized over 15 years, the
estimated life of the deposit base acquired. On an ongoing basis,
management reviews the valuation and amortization periods of
goodwill and the deposit assumption premiums to determine if
events and circumstances require the remaining lives to be
reduced.
Mortgage Servicing Rights
United's mortgage banking division accounts for mortgage
servicing rights as a separate asset regardless of whether the
servicing rights are acquired through purchase or origination.
United's mortgage servicing rights represent the unamortized cost
of purchased and originated contractual rights to service
mortgages for others in exchange for a servicing fee and
ancillary loan administration income. Mortgage servicing rights
are amortized over the period of estimated net servicing income
and are periodically adjusted for actual and anticipated
prepayments of the underlying mortgage loans. Impairment analysis
is performed quarterly after stratifying the rights by interest
rate. Impairment, defined as the excess of the asset's carrying
value over its current fair value, is recognized through a
valuation allowance. At December 31, 1997 and 1996, no valuation
allowances were required for United's mortgage servicing rights.
United recognized approximately $15,000, $137,000 and $790,000 in
servicing assets during 1997, 1996 and 1995, respectively, and
recognized amortization expense relating to servicing assets of
approximately $144,000, $267,000, and $283,000 during 1997, 1996
and 1995, respectively. During 1996, United sold mortgage loan
servicing rights with a net book value of approximately
$1,254,000. No such sales occurred during 1997 or 1995.
Income Taxes
Deferred tax assets and liabilities are recorded for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Future tax benefits,
such as net operating loss carryforwards, are recognized to the
extent that realization of such benefits is more likely than not.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which the assets and liabilities are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income tax expense in the
period that includes the enactment date.
In the event the future tax consequences of differences
between the financial reporting bases and the tax bases of
United's assets and liabilities results in deferred tax assets,
an evaluation of the probability of being able to realize the
future benefits indicated by such asset is required. A valuation
allowance is provided for the portion of the deferred tax asset
when it is more likely than not that some portion or all of the
deferred tax asset will not be realized. In assessing the
realizability of the deferred tax assets, management considers
the scheduled reversals of deferred tax liabilities, projected
future taxable income and tax planning strategies.
Interest Rate Risk Management
As part of United's overall interest rate risk management,
interest rate swaps and interest rate floors are utilized. These
contracts are designated by United as hedges of interest rate
exposures, and interest income or expense derived from these
contracts is recorded over the life of the contract as an
adjustment to interest income or expense of the instruments
hedged.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 127 "Deferral of
the Effective Date of Certain Provisions of SFAS No. 125" ("SFAS
127"), Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") and Statement of
Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131").
SFAS 127 simply defers, until January 1, 1998, the effective date
of selected provisions of a previously issued accounting and
disclosure standard. SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. SFAS 131
specifies the presentation and disclosure of operating segment
information reported in the annual report and interim reports
issued to stockholders. The provisions of SFAS 130 and 131 are
effective for fiscal years beginning after December 15, 1997. The
management of the Company believes that the adoption of these
statements will not have a material impact on the Company's
financial position, results of operations, or liquidity.
Earnings Per Common Share
SFAS No. 128 "Earnings Per Common Share" ("SFAS 128") became
effective for the Company for the year ended December 31, 1997.
This new standard specifies the computation, presentation and
disclosure requirements for earnings per common share and is
designed to simplify previous earnings per common share standards
and to make domestic and international practices more compatible.
Earnings per common share is based on the weighted average number
of common shares outstanding during the period while the effects
of potential common shares outstanding during the period are
included in earnings per common share-assuming dilution. All
earnings per common share amounts have been restated to conform
to the provisions of SFAS 128.
SFAS 128 requires earnings per common share with and without the
dilutive effects of potential common stock issuances from
instruments such as options, convertible securities and warrants
to be presented on the face of the statements of earnings.
Additionally, the new statement requires the reconciliation of
the amounts used in the computation of both earnings per common
share and earnings per common share-assuming dilution. Earnings
per common share amounts for the years ended December 31, 1997,
1996 and 1995 are as follows (dollars in thousands, except for
per share data):
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
Weighted
Average
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
<S> <C> <C> <C>
Earnings per common share $10,735 7,300,874 $1.47
=====
Effect of dilutive securities:
Stock options -- 46,680
Convertible debentures 189 140,000
------- ---------
Earnings per common share - assuming dilution $10,924 7,487,554 $1.46
======= ========= =====
</TABLE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Earnings Per Common Share, continued
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
Weighted
Average
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ----------
<S> <C> <C> <C>
Earnings per common share: $ 8,927 6,919,437 $1.29
=====
Effect of dilutive securities:
Stock options -- 30,098
Convertible debentures 56 161,311
------- ---------
Earnings per common share - assuming dilution $ 8,983 7,110,846 $1.26
======= ========= =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
Weighted
Average
Net Earnings Common Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
<S> <C> <C> <C>
Earnings per common share $ 6,669 6,499,264 $1.03
=====
Effect of dilutive securities:
Stock options -- 6,897
Convertible debentures 56 178,568
------- ---------
Earnings per common share - assuming dilution $ 6,725 6,684,729 $1.01
======= ========= =====
</TABLE>
(1) Mergers and Acquisitions
Effective September 12, 1997, the Company acquired, for 646,257
shares of its $1 par value common stock and approximately $7,000
paid for fractional shares, all of the outstanding common stock
of First Clayton Bancshares, Inc., a $73 million one bank holding
company, located in Clayton, Georgia. The acquisition was
accounted for as a pooling of interests and accordingly, the
consolidated financial statements for all periods presented have
been restated to include the financial position and results of
operations as if the combination had occurred on January 1, 1995.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Mergers and Acquisitions, continued
The following is a reconciliation of the amounts of net interest
income and net earnings previously reported with the restated
amounts (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net interest income:
The Company, as previously reported
in 1996 and 1995 $40,288 31,368 22,919
Clayton 2,944 2,447 2,096
------- ------ ------
As restated $43,232 33,815 25,015
======= ====== ======
Net earnings:
The Company, as previously reported
in 1996 and 1995 $ 9,974 8,201 6,051
Clayton 761 726 618
------- ------ ------
As restated $10,735 8,927 6,669
======= ====== ======
</TABLE>
On September 28, 1996, UCB assumed deposits of $23.7 million and
purchased certain assets totaling $33.2 million of a branch in
Cornelia, Georgia.
On August 31, 1995, United acquired all the outstanding common
stock of White County Bancshares, Inc., (White Bancshares) the
parent company of White County Bank, Cleveland, Georgia. United
issued 455,400 shares of its common stock and approximately
$10,000 in cash for fractional shares, in exchange for all the
outstanding common shares of White Bancshares. Additionally,
United exercised its option to convert the exchangeable payable
in kind debenture previously acquired during 1994, and the
related accrued interest into a majority interest in White County
Bank. At the date of acquisition, White County Bank had total
assets of $71 million and liabilities of $63 million. The
original purchase price was allocated to assets and liabilities
acquired based on their fair values at the date of acquisition.
This transaction was accounted for as a purchase and, therefore,
is not included in United's results of operations or statements
of financial position prior to the date of acquisition.
(2) Cash Flows
United paid approximately $45 million, $34 million and $27
million in interest on deposits and other liabilities during
1997, 1996 and 1995, respectively. In connection with United's
1995 acquisition of White, assets having a fair value of $71
million were acquired and liabilities totaling $63 million were
assumed.
<TABLE>
For the Years Ended December 31,
--------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Schedule of noncash investing and financing activities (in thousands):
Conversion of subordinated debentures into 178,568 shares
of common stock $ -- 1,000 --
Common stock issued and conversion of exchangeable payable
in kind debenture in connection with the acquisition of White $ -- -- 8,384
Change in unrealized gain (loss) on securities available for sale,
net of tax $ 919 (368) 545
(Decrease) increase in dividends payable $ (66) -- --
</TABLE>
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) Investment Securities
Investment securities at December 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasuries $ 46,304 642 1 46,945
U.S. Government agencies 45,317 268 33 45,552
State and political subdivisions 11,675 189 4 11,860
Mortgage-backed securities 32,970 387 10 33,347
Other 6,256 -- 66 6,190
-------- ----- --- -------
Total $142,522 1,486 114 143,894
======== ===== === =======
Securities Held to Maturity:
U.S. Treasuries $ 500 6 -- 506
U.S. Government agencies 22,361 35 57 22,339
State and political subdivisions 42,330 1,211 8 43,533
Mortgage-backed securities 4,368 109 10 4,467
-------- ----- --- -------
Total $ 69,559 1,361 75 70,845
======== ===== === =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Securities Available for Sale:
U.S. Treasuries $ 12,771 71 1 12,841
U.S. Government agencies 39,169 59 275 38,953
State and political subdivisions 6,685 162 14 6,833
Mortgage-backed securities 18,644 46 55 18,635
Other 4,104 -- 102 4,002
-------- ----- ---- ------
Total $ 81,373 338 447 81,264
======== ===== ==== ======
Securities Held to Maturity:
U.S. Treasuries $ 2,368 6 -- 2,374
U.S. Government agencies 34,804 42 301 34,545
State and political subdivisions 33,036 646 173 33,509
Mortgage-backed securities 7,118 103 24 7,197
-------- ----- ---- ------
Total $ 77,326 797 498 77,625
======== ===== ==== ======
</TABLE>
The amortized cost and estimated fair value of the securities
portfolio at December 31, 1997, by contractual maturity, is
presented in the following table. Expected maturities may differ
from contractual maturities because borrowers have the right to
call or prepay obligations with or without call or prepayment
penalties.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(3) Investment Securities, continued
<TABLE>
Securities Held Securities Available
to Maturity for Sale
December 31, 1997 December 31, 1997
------------------------ -------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries:
Within 1 year $ 500 506 2,242 2,247
1 to 5 years -- -- 42,573 43,184
5 to 10 years -- -- 1,489 1,514
------- ------ ------- -------
$ 500 506 46,304 46,945
======= ====== ======= =======
U.S. Government agencies:
Within 1 year $17,817 17,801 8,150 8,150
1 to 5 years 4,544 4,538 33,269 33,495
5 to 10 years -- -- 3,898 3,907
------- ------ ------- -------
$22,361 22,339 45,317 45,552
======= ====== ======= =======
State and political subdivisions:
Within 1 year $ 1,739 1,753 2,569 2,582
1 to 5 years 17,132 17,516 3,019 3,103
5 to 10 years 18,819 19,452 4,103 4,169
More than 10 years 4,640 4,812 1,984 2,006
------- ------ ------- -------
$42,330 43,533 11,675 11,860
======= ====== ======= =======
Other:
More than 10 years $ -- -- 6,256 6,190
======= ====== ======= =======
Total securities other than mortgage-backed
securities:
Within 1 year $20,056 20,060 12,961 12,979
1 to 5 years 21,676 22,054 78,861 79,782
5 to 10 years 18,819 19,452 9,490 9,590
More than 10 years 4,640 4,812 8,240 8,196
Mortgage-backed securities 4,368 4,467 32,970 33,347
------- ------ ------- -------
$69,559 70,845 142,522 143,894
======= ====== ======= =======
</TABLE>
There were no sales of securities held to maturity during 1997,
1996 and 1995. Proceeds from sales of securities available for
sale during 1997, 1996 and 1995 were $ 32 million, $18 million
and $18 million, respectively. Gross gains of $451,000, $53,000
and $113,000 for 1997, 1996 and 1995, respectively, along with
gross losses of $25,000, $66,000 and $109,000 for 1997, 1996 and
1995, respectively, were realized on those sales.
Securities with a carrying value of $65 million and $52 million
at December 31, 1997 and 1996, respectively, were pledged to
secure public deposits as required by law.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Loans and Allowance for Loan Losses
Major classifications of loans at December 31, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial, financial and agricultural $105,462 100,538
Real estate - construction 78,699 51,425
Real estate - mortgage 523,629 380,681
Consumer 115,534 101,930
-------- -------
Total loans 823,324 634,574
Less: Allowance for loan losses 10,352 8,125
-------- -------
Loans, net $812,972 626,449
======== =======
</TABLE>
The Bank Subsidiaries grant loans and extensions of credit to
individuals and a variety of firms and corporations located
primarily in counties in northern Georgia and western North
Carolina. Although the Bank Subsidiaries have diversified loan
portfolios, a substantial portion of the loan portfolios is
collateralized by improved and unimproved real estate and is
dependent upon the real estate market.
During 1997 and 1996, certain executive officers and directors of
United and its Bank Subsidiaries, including their immediate
families and companies with which they are associated, maintained
a variety of banking relationships with the Bank Subsidiaries.
Total loans outstanding to these persons at December 31, 1997 and
1996 amounted to $15,811,000 and $13,520,000, respectively. The
change from December 31, 1996 to December 31, 1997 reflects
payments amounting to $8,408,000 and advances of $10,699,000.
Such loans are made in the ordinary course of business at normal
credit terms, including interest rate and collateral
requirements, and do not represent more than normal credit risk.
Changes in the allowance for loan losses are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 8,125 6,884 4,231
Allowance for loan losses acquired from White -- -- 1,813
Provisions charged to earnings 2,634 1,597 1,116
Loans charged off (797) (695) (701)
Recoveries of loans previously charged off 390 339 425
------- ----- -----
Balance at end of year $10,352 8,125 6,884
======= ===== =====
</TABLE>
United serviced approximately $103.5 and $117.4 million of
mortgage loans for others at December 31, 1997 and 1996,
respectively.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(5) Premises and Equipment
Premises and equipment at December 31, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and land improvements $ 6,102 4,770
Building and improvements 14,001 12,667
Furniture and equipment 15,018 10,771
Construction in progress 2,919 167
------- ------
38,040 28,375
Less: Accumulated depreciation 10,303 8,267
------- ------
$27,737 20,108
======= ======
</TABLE>
Depreciation expense was approximately $2.1 million, $1.6 million
and $1.4 million in 1997, 1996 and 1995, respectively.
(6) Time Deposits
At December 31, 1997, contractual maturities of time deposits are
summarized as follows ( in thousands):
Maturing In:
1998 $509,837
1999 92,144
2000 15,482
2001 13,394
2002 and thereafter 2,452
--------
$633,309
========
(7) FHLB Advances
The Bank Subsidiaries have advances from the Federal Home Loan
Bank (FHLB) with monthly interest payments and principal payments
due at various maturity dates and interest rates ranging from
5.51% to 7.81% at December 31, 1997. The majority of the advances
represent draws to fund mortgage loans to customers over payment
terms longer than those normally given. The FHLB advances are
collateralized by first mortgage loans, FHLB stock and other U.S.
agency securities.
Advances from FHLB outstanding at December 31, 1997 mature as
follows ( in thousands):
Year
1998 $24,468
1999 15,033
2000 808
2001 307
2002 1,432
2003 and thereafter 1,273
-------
$43,321
=======
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Notes Payable
Notes payable at December 31, 1997 and 1996 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable, due in quarterly installments of $321,455, plus interest, through
January 2005, secured by common stock of the Bank Subsidiaries. Interest
is variable based on the prime rate less 1.25%. The loan agreement contains
covenants and restrictions pertaining to the maintenance of certain financial
ratios, limitations on the incurrence of additional debt, and the declaration of
dividends or other capital transactions. $12,722 10,453
Commercial paper of Finance, due at maturity during 1998 and unsecured.
Interest is from 7.15% to 7.25% and is payable monthly. 1,347 --
------- ------
$14,069 10,453
======= ======
</TABLE>
Aggregate maturities required on the notes payable at December
31, 1997 are as follows:
1998 $ 2,633
1999 1,286
2000 1,286
2001 1,286
2002 1,286
2003 and thereafter 6,292
-------
$14,069
=======
(9) Convertible Subordinated Debentures
On December 31, 1996, the holders of convertible debentures of
the Company due July 1, 2000 (the "2000 Debentures"), which bore
interest at a fixed rate of 9% per annum, converted the 2000
Debentures into an aggregate of 178,568 shares of common stock in
accordance with their terms and pursuant to an additional six
month period for conversion extended by the Company in order to
comply with certain obligations of the Company to provide the
holders with notice of the conversion termination date.
On December 31, 1996, United also completed a private placement
of convertible subordinated debentures due December 31, 2006 (the
"2006 Debentures"). The 2006 Debentures bear interest at the rate
of one quarter of one percentage point over the prime rate per
annum, payable in quarterly installments commencing on April 1,
1997. The 2006 Debentures may be redeemed, in whole or in part,
on or after January 1, 1998, at the option of United upon at
least 20 days and not more than 60 days notice, at a redemption
price equal to 100% of the principal amount of the Debentures to
be redeemed plus interest accrued and unpaid as of the date of
redemption. The holders of the 2006 Debentures not called for
redemption will have the right, exercisable at any time up to
December 31, 2006, to convert such Debenture at the principal
amount thereof into shares of common stock of United at the
conversion price of $25 per share, subject to adjustment for
stock splits and stock dividends.
Certain directors and executive officers of United held
convertible debentures totaling $3,025,000 at December 31, 1997
and 1996.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(10) Income Taxes
During 1997, 1996 and 1995, United made income tax payments of
approximately $5.5 million, $4.0 million and $2.7 million,
respectively.
The components of income tax expense for the years ended December
31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $5,170 4,032 2,644
Deferred (reduction) (404) 82 (95)
------ ----- -----
$4,766 4,114 2,549
====== ===== =====
</TABLE>
The differences between the provision for income taxes and the
amount computed by applying the statutory federal income tax rate
(34 percent) to earnings before income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $5,270 4,434 3,134
Add (deduct):
Tax-exempt interest income (878) (828) (789)
Nondeductible interest expense 147 127 130
Other 227 381 74
------ ----- -----
$4,766 4,114 2,549
====== ===== =====
</TABLE>
The following summarizes the sources and expected tax
consequences of future taxable deductions (income) which comprise
the net deferred tax asset at December 31, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $3,531 2,549
Net operating loss and credit carryforwards 42 349
Unrealized loss on securities available for sale -- 6
Other 32 172
------ -----
Gross deferred tax assets 3,605 3,076
------ -----
Deferred tax liabilities:
Premises and equipment (1,326) (1,159)
Unrealized gain on securities available for sale (541) --
Other (65) (101)
------ ------
Gross deferred tax liabilities (1,932) (1,260)
------ ------
Net deferred tax asset $1,673 1,816
====== ======
</TABLE>
At December 31, 1997, United has a loss carryforward of
approximately $1 million for state income taxes which will begin
to expire in 2008. The use of this carryforward is limited to
future taxable earnings of United and to annual limitations
imposed by the tax code.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(11) Employee Benefit Plans
United has contributory employee benefit plans covering
substantially all employees, subject to certain minimum service
requirements. United's contribution to the plans is determined
annually by the Board of Directors and amounted to approximately
$803,000, $583,000 and $566,000 in 1997, 1996, and 1995,
respectively.
(12) Regulatory Matters
The Bank Subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, action by
regulators that, if undertaken, could have a direct material
effect on the Bank Subsidiaries' financial statements. Under
capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank Subsidiaries must meet
specific capital guidelines that involve quantitative measures of
the Bank Subsidiaries' assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting
practices. The Bank Subsidiaries' capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank Subsidiaries to maintain minimum
amounts and ratios of total and Tier 1 capital (as defined) to
risk-weighted assets (as defined), and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as
of December 31, 1997, that the Bank Subsidiaries meet all
capital adequacy requirements to which they are subject.
Minimum ratios required by the Bank Subsidiaries to ensure
capital adequacy are 8% for total capital to risk weighted assets
and 4% each for Tier 1 capital to risk weighted assets and Tier 1
capital to average assets. Minimum ratios required by the Bank
Subsidiaries to be well capitalized under prompt corrective
action provisions are 10% for total capital to risk weighted
assets, 6% for Tier 1 capital to risk weighted assets and 5% for
Tier 1 capital to average assets. Minimum amounts required for
capital adequacy purposes and to be well capitalized under prompt
corrective action provisions are presented below for United and
its most significant subsidiaries (in thousands). Prompt
corrective action provisions do not apply to bank holding
companies.
<TABLE>
<CAPTION>
Minimum Minimum Minimum
Total Risk Based Tier 1 Risk Based Tier 1 Leverage
------------------ -------------------- ---------------------
Prompt Prompt Prompt
Capital Corrective Capital Corrective Capital Corrective
1997 Adequacy Action Adequacy Action Adequacy Action
---- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Consolidated $63,520 N/A 31,777 N/A 47,374 N/A
UCB 24,391 30,488 12,195 18,293 15,503 19,379
Carolina 17,213 21,516 8,606 12,910 12,980 16,226
1996
Consolidated $48,893 N/A 24,446 N/A 34,159 N/A
UCB 19,746 24,682 9,873 14,809 12,401 15,502
Carolina 11,736 14,670 5,868 8,802 8,870 11,807
</TABLE>
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Regulatory Matters, continued
Actual capital amounts and ratios for United and its most
significant subsidiaries as of December 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
Actual Actual Actual
Total Risk Based Tier 1 Risk Based Tier 1 Leverage
----------------- ------------------ -----------------
Actual Actual Actual
1997 Amount Ratio Amount Ratio Amount Ratio
---- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Consolidated $81,614 10.28% 68,184 8.59% 68,184 5.76%
UCB 33,303 10.92% 29,733 9.75% 29,733 7.67%
Carolina 23,260 10.81% 20,566 9.56% 20,566 6.34%
1996
----
Consolidated $62,241 10.18% 51,102 8.36% 51,102 5.98%
UCB 25,036 10.14% 22,518 9.12% 22,518 7.26%
Carolina 17,052 11.62% 15,259 10.40% 15,259 6.88%
</TABLE>
As of December 31, 1997 and 1996, the most recent notification
from the Federal Deposit Insurance Corporation categorized each
Bank subsidiary as well capitalized under the regulatory
framework for prompt corrective action.
(13) Commitments
The Bank Subsidiaries are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of their customers. These financial
instruments include commitments to extend credit, letters of
credit and financial guarantees. These instruments involve, to
varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets. The contract amounts of these
instruments reflect the extent of involvement the Bank
Subsidiaries have in particular classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend
credit and letters of credit and financial guarantees written is
represented by the contractual amount of these instruments. The
Bank Subsidiaries use the same credit policies in making
commitments and conditional obligations as for on-balance-sheet
instruments. In most cases collateral or other security is
required to support financial instruments with credit risk.
The following table summarizes, as of December 31, the contract
or notional amount of off-balance sheet instruments (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $106,040 64,091
Standby letters of credit $ 2,520 1,721
Interest rate contracts:
Swap agreements $ 35,000 35,000
Floors purchased $ 50,000 50,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
Since many of the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank Subsidiaries evaluate each
customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary, upon extension of
credit is based on management's credit evaluation. Collateral
held varies but may include unimproved and improved real estate,
certificates of deposit, personal property or other acceptable
collateral.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(13) Commitments, continued
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank Subsidiaries to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to local businesses. The credit
risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to customers.
The Bank Subsidiaries hold real estate, certificates of deposit,
equipment and automobiles as collateral supporting those
commitments for which collateral is deemed necessary. The extent
of collateral held for those commitments varies.
Derivative financial instruments include forwards, futures,
swaps, options, and other instruments with similar
characteristics. In general terms, derivative instruments are
contracts or agreements whose value can be derived from interest
rates, currency exchange rates and financial indices. The Bank
Subsidiaries use interest rate contracts in balance sheet
management activities, the objective of which is to minimize the
risk inherent in the asset and liability interest rate structure.
The Bank Subsidiaries do not use derivative financial instruments
for trading purposes. Interest rate contracts include an
agreement with a counterparty to exchange cash flow based on the
movement of an underlying interest rate included such as the
prime rate or the London International Borrowing Rate (LIBOR). A
swap agreement involves the exchanges of a series of interest
payments, either at a fixed or variable rate, based on a notional
amount without the exchange of the underlying principal. An
interest rate floor contract allows a party, for a purchase
premium, to receive income if a predetermined interest rate falls
below a predetermined level. Income or expense on interest rate
contracts used by the Bank Subsidiaries to manage interest rate
exposure is recorded on an accrual basis as an adjustment to the
yield of the related interest earning asset or interest bearing
liability over the period covered by the contracts. Amounts
accrued relating to such contracts are included in accrued
expenses and other liabilities as of the balance sheet date.
The Bank Subsidiaries' exposure from these interest rate
contracts results from the possibility that one party may default
on its contractual obligation (credit risk) or from the movement
of interest rates (market risk). Credit risk is limited to the
positive market value of the derivative, which is significantly
less than its notional value since the notional amount only
represents the basis for determining the exchange of the cash
flows. Credit risk is minimized by performing credit reviews of
the counterparties to the contract or by conducting activities
through organized exchanges.
(14) Preferred Stock
United may issue preferred stock in one or more series as
established by resolution of the Board of Directors, up to a
maximum of 10,000,000 shares. Each resolution shall include the
number of shares issued, preferences, special rights and
limitations as determined by the Board of Directors. At December
31, 1997 and 1996, there were no preferred shares issued or
outstanding.
(15) Stockholders' Equity
Dividends paid by the Bank Subsidiaries are the primary source of
funds available to United for payment of dividends to its
stockholders and other needs. Applicable federal and state
statutes and regulations impose restrictions on the amount of
dividends that may be declared by the Bank Subsidiaries. At
December 31, 1997, approximately $12.9 million of the Bank
Subsidiaries' net assets were available for payment of dividends
without prior approval from the regulatory authorities. In
addition to the formal statutes and regulations, regulatory
authorities also consider the adequacy of each Bank Subsidiary's
total capital in relation to its assets, deposits and other such
items. Capital adequacy considerations could further limit the
availability of dividends from the Bank Subsidiaries.
During 1997, United issued 300,000 shares of common stock for
approximately $6,477,000, net of offering costs. The proceeds
from this sale of stock were used to inject capital into the Bank
Subsidiaries and for general corporate purposes.
During 1995, the Board of Directors adopted the Key Employee
Stock Option Plan. Under this plan, options can be granted for up
to 300,000 shares of United's common stock at a price equal to
the fair market value at the date of grant. At December 31, 1997,
128,296 shares were available for grant under this plan. No
options were exercised in 1997, 1996 or 1995.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) Stockholder's Equity, continued
SFAS No. 123, "Accounting for Stock-Based Compensation," became
effective for the Company January 1, 1996. This statement
encourages, but does not require, entities to compute the fair
value of options at the date of grant and to recognize such costs
as compensation expense immediately if there is no vesting period
or ratably over the vesting period of the options. The Company
has chosen not to adopt the cost recognition principles of this
statement. No compensation expense has been recognized in 1997,
1996 or 1995 related to the stock option plan. Had compensation
cost been determined based upon the fair value of the options at
the grant dates consistent with the method of the new statement,
the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands,
except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C> <C>
Net earnings As reported $10,735 8,927 6,669
Pro forma $10,526 8,893 6,574
Earnings per common share As reported $ 1.47 1.29 1.03
Pro forma $ 1.44 1.29 1.01
Earnings per common share-assuming dilution As reported $ 1.46 1.26 1.01
Pro forma $ 1.43 1.25 .99
</TABLE>
The fair value of each option granted is estimated on the date of
grant using the minimum value method with the following weighted
average assumptions used for grants in 1997, 1996 and 1995,
respectively: dividend yield of 1%, risk free interest rates of
6%, 6% and 5%, and an expected life of 10 years.
A summary of activity in the Company's stock option plan is
presented below:
<TABLE>
<CAPTION>
Weighted
Average Range
Option Option Price of Price
Shares Per Share Per Share
------ ------------ ---------
<S> <C> <C> <C>
Options outstanding at December 31, 1995 50,000 $10.00 $10.00
Options granted in 1996 42,000 $18.00 $18.00
-------
Options outstanding at December 31, 1996 92,000 $13.65 $10.00 - 18.00
Options granted in 1997 79,704 $22.15 $22.00 - 22.51
-------
Options outstanding at December 31, 1997 171,704 $17.60 $10.00 - 22.51
=======
</TABLE>
Options on 102,104 and 58,400 shares were exercisable at December
31, 1997 and 1996, respectively. The weighted average grant-date
fair value of options granted in 1997 and 1996 was $7.93 and
$6.45, respectively. Such options have a weighted average
remaining contractual life of approximately 8 years as of
December 31, 1997.
(16) Supplemental Financial Data
Components of other operating expenses in excess of 1% of total
interest and other noninterest income for the years ended
December 31, 1997, 1996 and 1995 are as follows (in thousands):
1997 1996 1995
---- ---- ----
Stationery and supplies $ 831 1,152 512
Advertising 1,486 704 646
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(17) United Community Banks, Inc. (Parent Company Only) Financial
Information
<TABLE>
<CAPTION>
Balance Sheets
December 31, 1997 and 1996
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Assets
Cash $ 281 1,550
Investment in subsidiaries 82,902 65,559
Other assets 8,995 5,455
------- ------
$92,178 72,564
======= ======
Liabilities and Stockholders' Equity
Other liabilities $ 843 936
Notes payable 12,722 10,453
Convertible subordinated debentures 3,500 3,500
Stockholders' equity 75,113 57,675
------- ------
$92,178 72,564
======= ======
</TABLE>
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(17) United Community Banks, Inc. (Parent Company Only) Financial
Information, continued
Statements of Earnings
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Income:
Dividends from Bank Subsidiaries $ 1,150 5,361 1,680
Other 730 87 170
------- ----- -----
Total income 1,880 5,448 1,850
------- ----- -----
Expenses:
Interest on notes payable and subordinated debentures 1,045 882 910
Other 2,097 1,266 428
------- ----- -----
Total expense 3,142 2,148 1,338
------- ----- -----
Earnings (loss) before income tax benefit and equity in
undistributed earnings of subsidiaries (1,262) 3,300 512
Income tax benefit 823 739 350
------- ----- -----
Earnings (loss) before equity in undistributed earnings of subsidiaries (439) 4,039 862
Equity in undistributed earnings of subsidiaries 11,174 4,888 5,807
------- ----- -----
Net earnings $10,735 8,927 6,669
======= ===== =====
</TABLE>
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(17) United Community Banks, Inc. (Parent Company Only) Financial
Information, continued
Statements of Cash Flows
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $10,735 8,927 6,669
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Equity in undistributed earnings of Bank Subsidiaries (11,174) (4,888) (5,807)
Depreciation, amortization and accretion 300 203 185
Change in:
Other assets (2,567) (33) (205)
Accrued interest payable 27 (39) 39
Other liabilities (54) (263) (18)
------- ------ ------
Net cash provided by (used in) operating
activities (2,733) 3,907 863
------- ------ ------
Cash flows from investing activities:
Purchase of premises and equipment (1,273) -- --
Cash paid in lieu of fractional shares -- -- (10)
Capital contributions to Bank Subsidiaries (5,250) (4,275) (4,500)
------ ------ ------
Net cash used in investing activities (6,523) (4,275) (4,510)
------ ------ ------
Cash flows from financing activities:
Proceeds from convertible subordinated debentures -- 3,500 --
Proceeds from notes payable 3,400 -- 2,539
Repayments of notes payable (1,131) (856) (630)
Proceeds from sale of common stock 6,477 -- 2,434
Purchase and retirement of treasury stock of pooled entity -- (408) (7)
Proceeds from resale of treasury stock of pooled entity 6 -- --
Dividends paid (765) (677) (588)
------- ------ ------
Net cash provided by financing activities 7,987 1,559 3,748
------- ------ ------
Net change in cash (1,269) 1,191 101
Cash at beginning of year 1,550 359 258
------- ------ ------
Cash at end of year $ 281 1,550 359
======= ====== ======
</TABLE>
<PAGE>
(18) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments," requires disclosure of fair value information about
financial instruments, whether or not recognized on the face of
the balance sheet, for which it is practicable to estimate that
value. The assumptions used in the estimation of the fair value
of United's financial instruments are detailed below. Where
quoted prices are not available, fair values are based on
estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and
estimates of future cash flows. The following disclosures should
not be considered a surrogate of the liquidation value of United
or its Bank Subsidiaries, but rather a good-faith estimate of the
increase or decrease in value of financial instruments held by
United since purchase, origination, or issuance.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(18) Fair Value of Financial Instruments, continued
Cash and Cash Equivalents
For cash, due from banks and federal funds sold the carrying
amount is a reasonable estimate of fair value.
Securities Held to Maturity and Securities Available for Sale
Fair values for investment securities are based on quoted market
prices.
Loans and Mortgage Loans Held for Sale
The fair value of fixed rate loans is estimated by discounting
the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings. For
variable rate loans, the carrying amount is a reasonable estimate
of fair value.
Deposits
The fair value of demand deposits, savings accounts and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using
the rates currently offered for deposits of similar remaining
maturities.
Federal Funds Purchased
The carrying amount of federal funds purchased is a reasonable
estimate of fair value.
FHLB Advances
The fair value of United's fixed rate borrowings are estimated
using discounted cash flows, based on United's current
incremental borrowing rates for similar types of borrowing
arrangements. For variable rate borrowings the carrying amount is
a reasonable estimate of fair value.
Notes Payable and Convertible Subordinated Debentures
Notes payable and convertible subordinated debentures are made
using variable rates, thus, the carrying amount is a reasonable
estimate of fair value.
Interest Rate Swaps and Interest Rate Floors
The fair value of interest rate swaps and interest rate floors is
obtained from dealer quotes. These values represent the estimated
amount United would receive to terminate the contracts or
agreements, taking into account current interest rates and, when
appropriate, the current creditworthiness of the counterparties.
Commitments to Extend Credit, Standby Letters of Credit and
Financial Guarantees Written
Because commitments to extend credit and standby letters of
credit are made using variable rates, the contract value is a
reasonable estimate of fair value.
Limitations
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
United's entire holdings of a particular financial instrument.
Because no market exists for a significant portion of United's
financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off-balance
sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered
financial instruments include the mortgage banking operation,
brokerage network, deferred income taxes, premises and equipment
and goodwill. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been
considered in the estimates.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(18) Fair Value of Financial Instruments, continued
The carrying amount and estimated fair values of United's
financial instruments at December 31, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 68,834 68,834 52,670 52,670
Securities held to maturity 69,559 70,845 77,326 77,625
Securities available for sale 143,894 143,894 81,264 81,264
Mortgage loans held for sale 3,962 3,962 6,727 6,727
Loans, net 812,972 814,855 626,449 629,107
Liabilities:
Deposits 977,079 981,580 773,300 778,068
Federal funds purchased 33,011 33,011 -- --
FHLB advances 43,321 43,087 35,074 34,863
Notes payable 14,069 14,070 10,453 10,453
Convertible subordinated debentures 3,500 3,500 3,500 3,500
Unrecognized financial instruments:
Commitments to extend credit 106,040 106,040 64,091 64,091
Standby letters of credit 2,520 2,520 1,721 1,721
Swap agreements 12 156 17 97
Floors purchased 3 -- 33 21
</TABLE>
<PAGE>
[ATTACHMENT - PROXY CARD]
COMMON STOCK
OF UNITED COMMUNITY BANKS, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS.
This undersigned hereby appoints Jimmy C. Tallent or Robert L.
Head, Jr. the proxy of the undersigned to vote the Common Stock
of the undersigned at the Annual Meeting of Shareholders of
UNITED COMMUNITY BANKS, INC. to be held on April 16, 1998, and
any adjournment thereof.
1. [box] FOR all nominees for director listed below (except as
indicated to the contrary):
Jimmy C. Tallent; Billy M. Decker; Thomas C. Gilliland; Robert L.
Head, Jr.; Charles E. Hill; Hoyt O. Holloway; P. Deral Horne;
John R. Martin; Clarence W. Mason, Sr.; W. C. Nelson, Jr.;
Charles E. Parks
(Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below)
[box] WITHHOLD AUTHORITY to vote for all nominees listed
above.
2. In accordance with their best judgment with respect to any other
matters that may properly come before the meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ELECTION AS
DIRECTORS OF THE PERSONS NAMED IN THE PROXY AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED,
THIS PROXY WILL BE SO VOTED.
Please sign this Proxy exactly as name appears on the Proxy.
Note: When signing as an attorney, trustee, administrator or
guardian, please give your title as such. In the case of joint
tenants, each joint owner must sign.
Date: _________________________________
