UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO ___________
COMMISSION FILE NUMBER 0-21656
UNITED COMMUNITY BANKS, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-180-7304
--------------------------------------------------------------------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
P.O. BOX 398, 59 HIGHWAY 515
BLAIRSVILLE, GEORGIA 30512
- -----------------------------------------------------------------------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (ZIP CODE)
(706) 745-2151
-----------------
(TELEPHONE NUMBER)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
COMMON STOCK, PAR VALUE $1 PER SHARE: 7,396,605 SHARES
OUTSTANDING AS OF AUGUST 6, 1999
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (UNAUDITED) AT JUNE 30, 1999 AND
DECEMBER 31, 1998
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND 1998
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) FOR THE
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 2. CHANGES IN SECURITIES
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<PAGE>
PART I ITEM I - STATEMENTS
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------
June 30, December 31,
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 78,762 48,510
Federal funds sold 19,480 7,190
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 98,242 55,700
- -----------------------------------------------------------------------------------------------------------------
Securities held to maturity (estimated fair value of
$59,106 at December 31, 1998) - 57,393
Securities available for sale 469,867 314,394
Mortgage loans held for sale 5,061 8,129
Loans, net of unearned income 1,166,496 999,871
Less: Allowance for loan losses (15,212) (11,929)
- -----------------------------------------------------------------------------------------------------------------
Loans, net 1,151,284 987,942
- -----------------------------------------------------------------------------------------------------------------
Premises and equipment, net 43,105 38,538
Accrued interest receivable 14,652 13,332
Other assets 26,503 23,171
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 1,808,714 1,498,599
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 182,871 143,152
Interest bearing demand 319,332 270,532
Savings 71,407 59,340
Time 774,801 690,100
- -----------------------------------------------------------------------------------------------------------------
Total deposits 1,348,411 1,163,124
- -----------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 9,461 19,574
Federal funds purchased and repurchase agreements 88,810 26,520
Federal Home Loan Bank advances 235,426 176,854
Long-term debt and other borrowings 14,226 1,277
Convertible subordinated debentures 3,500 3,500
Guaranteed preferred beneficial interests in
company's junior subordinated debentures (Trust Preferred Securities) 21,000 21,000
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,720,834 1,411,849
- -----------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred Stock - -
Common stock, $1 par value; 10,000,000 shares authorized;
7,396,605 and 7,393,605 shares issued and outstanding 7,397 7,394
Capital surplus 24,850 24,808
Retained earnings 58,880 53,240
Accumulated other comprehensive income (3,247) 1,308
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 87,880 86,750
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,808,714 1,498,599
=================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 26,965 22,632 51,885 44,095
Interest on federal funds sold 437 358 576 695
Interest on investment securities:
Taxable 5,811 2,718 10,775 5,215
Tax exempt 935 773 1,824 1,491
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income 34,148 26,481 65,060 51,496
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand 2,886 2,265 5,520 4,361
Savings 489 353 920 682
Time 10,170 9,704 19,995 19,328
Notes payable, subordinated debentures, federal
funds purchased and FHLB advances 4,335 1,195 7,561 2,274
Interest on guaranteed preferred beneficial interests in
company's junior subordinated debentures 421 - 851 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense 18,301 13,517 34,847 26,645
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income 15,847 12,964 30,213 24,851
Provision for loan losses 908 540 1,798 1,038
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 14,939 12,424 28,415 23,813
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges and fees 1,164 992 2,238 1,904
Securities gains, net 6 68 8 171
Mortgage loan and related fees 422 444 870 880
Other non-interest income 837 563 1,640 966
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest income 2,429 2,067 4,756 3,921
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 6,978 5,735 13,250 10,995
Occupancy 2,053 1,574 4,006 2,992
Other noninterest expense 3,397 2,843 6,368 5,377
- ------------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 12,428 10,152 23,624 19,364
- ------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,940 4,339 9,547 8,370
Income taxes 1,655 1,457 3,169 2,828
====================================================================================================================================
NET INCOME $ 3,285 2,882 6,378 5,542
====================================================================================================================================
Basic earnings per share $ 0.44 0.39 0.86 0.75
Diluted earnings per share $ 0.44 0.38 0.85 0.74
Average shares outstanding 7,395 7,394 7,394 7,389
Diluted average shares outstanding 7,651 7,627 7,645 7,610
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
1999 1998
-----------------------------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,378 5,542
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation, amortization and accretion 1,631 1,186
Provision for loan losses 1,798 1,038
Loss (gain) on sale of investment securities (8) (171)
Change in assets and liabilities, net of purchase acquisitions:
Interest receivable (1,034) (1,565)
Other assets (2,205) 988
Accrued expenses and other liabilities 2,297 184
Change in mortgage loans held for sale 3,068 (1,749)
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,925 5,453
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF PURCHASE ACQUISITIONS:
Proceeds from maturities and calls of securities held to maturity - 14,334
Purchases of securities held to maturity - (11,512)
Proceeds from sales of securities available for sale 448 9,277
Proceeds from maturities and calls of securities available for sale 45,475 17,788
Purchases of securities available for sale (139,899) (44,560)
Purchase of life insurance contracts (8,100) -
Net increase in loans (151,407) (73,471)
Net cash inflow (outflow) for branch and bank acquisitions (2,248) 20,282
Proceeds from sale of other real estate 391 113
Purchase of bank premises and equipment (947) (5,480)
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES (256,287) (73,229)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES, NET OF PURCHASE ACQUISITIONS:
Net change in demand and savings deposits 83,883 63,423
Net change in time deposits 69,812 1,708
Net change in federal funds purchased and
repurchase agreements 62,290 (33,011)
Net change in FHLB advances 58,572 46,919
Net change in long-term debt and other borrowings 12,949 (643)
Proceeds from exercise of stock options 45 119
Dividends paid (647) (461)
-----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 286,904 78,054
-----------------------------
Net change in cash and cash equivalents 42,542 10,278
Cash and cash equivalents at beginning of period 55,700 68,834
-----------------------------
Cash and cash equivalents at end of period $ 98,242 79,112
=============================
-
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period
for:
Interest $ 33,768 26,734
Income Taxes $ 2,155 2,915
</TABLE>
<PAGE>
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -------------------------
1999 1998 1999 1998
------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 3,285 2,882 6,378 5,542
Other comprehensive income, before tax:
Unrealized holding gains (losses) on investment securities (8,052) (82) (7,892) 102
Unrealized gains (losses) on cash-flow hedge derivatives 193 -- 520 --
Less reclassification adjustment for gains (losses) on
securities available for sale 6 68 8 171
------- ------- ------- -------
Total other comprehensive income (loss), before tax (7,865) (150) (7,380) (69)
------- ------- ------- -------
INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER
COMPREHENSIVE INCOME
Unrealized holding gains (losses) on investment securities (3,061) (31) (2,999) 39
Unrealized gains (losses) on cash-flow hedge derivatives 66 -- 177 --
Less reclassification adjustment for gains (losses) on
securities available for sale 2 26 3 65
------- ------- ------- -------
Total income tax expense (benefit) related to other
comprehensive income (loss) (2,997) (57) (2,825) (26)
------- ------- ------- -------
Total other comprehensive income (loss), net of tax (4,868) (93) (4,555) (43)
======= ======= ======= =======
Total comprehensive income (loss) $(1,583) 2,789 1,823 5,499
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accounting and financial reporting policies of United Community Banks, Inc.
("United") and its subsidiaries conform to generally accepted accounting
principles and general banking industry practices. The following consolidated
financial statements have not been audited and all material intercompany
balances and transactions have been eliminated. A more detailed description of
United's accounting policies is included in the 1998 annual report filed on Form
10-K.
In management's opinion, all accounting adjustments necessary to accurately
reflect the financial position and results of operations on the accompanying
financial statements have been made. These adjustments are considered normal and
recurring accruals considered necessary for a fair and accurate presentation.
The results for interim periods are not necessarily indicative of results for
the full year or any other interim periods.
NOTE 2 - ACQUISITIONS
On June 3, 1999, United entered into a definitive agreement to merge with 1st
Floyd Bankshares, Inc. ("Floyd") in Rome, Georgia, in a tax-free stock exchange.
This merger is expected to close during the third quarter of 1999, subject to
the approval of regulatory authorities and the Floyd shareholders. Under the
terms of the merger agreement, each share of Floyd common stock will be
exchanged for 0.8477 shares of United stock, with all fractional shares paid in
cash based on a price of $37.75 for United stock. As of June 30, 1999, Floyd had
745,500 shares outstanding that would convert to approximately 631,875 shares of
United stock.
As of June 30, 1999 Floyd had total assets of $98.7 million, total deposits of
$79.3 million and total stockholders' equity of $7.1 million. United expects to
account for this merger as a pooling of interests.
On January 21, 1999, United entered into a definitive agreement to acquire the
stock of Adairsville Bancshares, Inc. ("Adairsville") in Bartow County, Georgia,
for cash consideration. This acquisition was closed during March 1999. Effective
April 1, 1999, Adairsville's results of operations were included in United's
consolidated statements of income.
The Adairsville acquisition was accounted for as a purchase. United recorded a
goodwill asset in conjunction with this acquisition of approximately $3.2
million that will be recognized through charges to expense over a term of 15
years beginning in April, 1999.
NOTE 3 - RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for hedging activities and for
derivative instruments including derivative instruments embedded in other
contracts. It requires the fair value recognition of derivatives as assets or
liabilities in the financial statements. The accounting for the changes in the
fair value of a derivative depends on the intended use of the derivative
instrument at inception. Instruments used as fair value hedges account for the
change in fair value in the income of the period simultaneous with accounting
for the fair value change of the item being hedged. Cash flow hedges account for
the change in fair value of the effective portion in comprehensive income rather
than income, and foreign currency hedges are accounted for in comprehensive
income as part of the translation adjustment. Derivative instruments that are
not intended as a hedge account for the change in fair value in the income of
the period of the change. SFAS No. 133 is effective for all fiscal quarters of
all fiscal years beginning after June 15, 1999, but initial application of the
statement must be made as of the beginning of the quarter. At June 30, 1999,
United's derivative financial instruments had a positive fair market value of
$520 thousand. This market valuation was recorded, net of tax, as a component of
other comprehensive income on the balance sheet in the amount of $343 thousand.
At the date of initial application, an entity may transfer any held to maturity
security into the available for sale or trading categories without calling into
question the entity's intent to hold other securities to maturity in the future.
United adopted SFAS No. 133 as of January 1, 1999, and transferred all held to
maturity securities to available for sale which increased stockholders' equity
by $1.1 million for the net of tax effect for the unrealized gains.
On June 30, 1999 the FASB issued SFAS No. 137, an amendment to SFAS No. 133,
that delayed the effective date of the pronouncement to all fiscal quarters of
all fiscal years beginning after June 15, 2000. Any entity that has already
applied the provisions of SFAS No. 133 and issued interim financial statements,
such as United, may not revert to previous methods of accounting for derivative
instruments under the provisions SFAS No. 137.
<PAGE>
NOTE 4 - EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(In thousands, except per share data) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings per share:
Weighted average shares outstanding 7,395 7,394 7,394 7,389
Net income $ 3,285 2,882 6,378 5,542
Basic earnings per share $ 0.44 0.39 0.86 0.75
Diluted earnings per share:
Weighted average shares outstanding 7,395 7,394 7,394 7,389
Net effect of the assumed exercise of
stock options based on the treasury
stock method using average market
price for the period 116 93 111 81
Effect of conversion of subordinated debt 140 140 140 140
---------------------------------------------------------
Total weighted average shares and common
stock equivalents outstanding 7,651 7,627 7,645 7,610
Net income, as reported $ 3,285 2,882 6,378 5,542
Income effect of conversion of subordinated
debt, net of tax $ 43 47 86 94
---------------------------------------------------------
Net income, adjusted for effect of conversion
of subordinated debt, net of tax $ 3,328 2,929 6,464 5,636
=========================================================
Diluted earnings per share 0.44 0.38 0.85 0.74
</TABLE>
<PAGE>
PART I ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although United believes that the assumptions underlying the forward-looking
statements contained in the discussion are reasonable, any of the assumptions
could be inaccurate, and therefore, no assurance can be made that any of the
forward-looking statements included in this discussion will be accurate. Factors
that could cause actual results to differ from results discussed in
forward-looking statements include, but are not limited to: economic conditions
(both generally and in the markets where United operates); competition from
other providers of financial services offered by United; government regulation
and legislation; changes in interest rates; material unforeseen changes in the
financial stability and liquidity of United's credit customers; material
unforeseen complications related to the Year 2000 issues for United, its
suppliers, customers and governmental agencies; and other risks detailed in
United's filings with the Securities and Exchange Commission, all of which are
difficult to predict and which may be beyond the control of United. United
undertakes no obligation to revise forward-looking statements to reflect events
or changes after the date of this discussion or to reflect the occurrence of
unanticipated events.
OVERVIEW
United Community Banks, Inc. ("United") is a bank holding company
registered under the Bank Holding Company Act of 1956. United has seven
commercial bank subsidiaries that operate primarily in North Georgia and Western
North Carolina (the "Banks"). As of June 30, 1999 United had 29 bank branches in
operation. Total assets at June 30, 1999 were $1.81 billion, compared with $1.50
billion at December 31, 1998. The increase in total assets of approximately $310
million represents an annualized growth rate of 42% and includes $35.6 million
of assets related to the acquisition of Adairsville Bancshares ("Adairsville")
described in the RECENT DEVELOPMENTS section below. Excluding the Adairsville
acquisition, the annualized asset growth rate for the six months of 1999 was
37%.
RECENT DEVELOPMENTS
On June 3, 1999, United entered into a definitive agreement to merge
with 1st Floyd Bankshares, Inc. ("Floyd") in Rome, Georgia, in a tax-free stock
exchange. This merger is expected to close during the third quarter of 1999,
subject to the approval of regulatory authorities and the Floyd shareholders.
Under the terms of the merger agreement, each share of Floyd common stock will
be exchanged for 0.8477 shares of United stock, with all fractional shares paid
in cash based on a price of $37.75 for United stock. As of June 30, 1999, Floyd
had 745,500 shares outstanding that would convert to approximately 632,000
shares of United stock.
As of June 30, 1999 Floyd had total assets of $98.7 million, total
deposits of $79.3 million and total stockholders' equity of $7.1 million. United
expects to account for this merger as a pooling of interests.
On January 21, 1999, United entered into a definitive agreement to
acquire the stock of Adairsville Bancshares, Inc. in Bartow County, Georgia.
This acquisition was closed on March 15, 1999 and was accounted for as a
purchase transaction. As of March 31, 1999 Adairsville had $35.6 million of
total assets and $3.9 million of total equity. United recorded a goodwill asset
in conjunction with this acquisition of $3.2 million that will be recognized
through charges to expense over a term of 15 years.
<PAGE>
INCOME SUMMARY
For the six months ended June 30, 1999, United reported net income of
$6.4 million, or $.85 per diluted share, compared to $5.5 million, or $.74 per
diluted share, for the same period in 1998. The first six months results for
1999 provided an annualized return on assets and equity of .78% and 14.6%,
respectively, compared to .94% and 14.4%, respectively, for the same period in
1998. Net income for the six months ended June 30, 1999 increased 15.1% compared
to the same period in 1998. Diluted earnings per share for the quarter ended
June 30, 1999 were $.44, an increase of 15.8% over the same period in 1998.
The following table summarizes the components of income and expense for
the second quarter and first six months of 1999 and 1998 and the changes in
those components for the periods presented.
Table 1 - Condensed Consolidated Statements of Income
Unaudited
(In thousands)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Change Ended June 30, Change
1999 1998 Amount Percent 1999 1998 Amount Percent
------------------------------------------ ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 34,148 26,481 7,667 29.0% $ 65,060 51,496 13,564 26.3%
Interest expense 18,301 13,517 4,784 35.4% 34,847 26,645 8,202 30.8%
-------------------------------- -------------------------------
Net interest income 15,847 12,964 2,883 22.2% 30,213 24,851 5,362 21.6%
Provision for loan losses 908 540 368 68.1% 1,798 1,038 760 73.2%
-------------------------------- -------------------------------
Net interest income after
provision for loan losses 14,939 12,424 2,515 20.2% 28,415 23,813 4,602 19.3%
Non-interest income 2,429 2,067 362 17.5% 4,756 3,921 835 21.3%
Non-interest expense 12,428 10,152 2,276 22.4% 23,624 19,364 4,260 22.0%
-------------------------------- -------------------------------
Income before taxes 4,940 4,339 601 13.9% 9,547 8,370 1,177 14.1%
Income tax expense 1,655 1,457 198 13.6% 3,169 2,828 341 12.1%
-------------------------------- -------------------------------
Net income $ 3,285 2,882 403 14.0% $ 6,378 5,542 836 15.1%
================================ ===============================
</TABLE>
NET INTEREST INCOME
Net interest income is the largest source of United's operating
income. Net interest income on a tax-equivalent basis was $31.3 million for the
six months ended June 30, 1999, an increase of 22% over the comparable period in
1998. For the quarter ended June 30, 1999, net interest income was $16.4
million, an increase of 22% over the same period in 1998. The increases in net
interest income for both the three and six month periods in 1999 are primarily
attributable to increases in outstanding average interest bearing assets (loans
and securities) over the comparable prior year periods.
The increase in average outstanding securities is primarily the result
of United's leverage program that was initiated during the fourth quarter of
1998. The leverage program was designed to make optimal utilization of United's
capital by using borrowed funds to purchase additional securities. The leverage
borrowings are principally advances from the Federal Home Loan Bank (FHLB) that
are secured by mortgage loans and other investment securities. The securities
purchased under the leverage program are primarily mortgage-backed pass-through
and other mortgage backed securities, including collateralized mortgage
obligations. At June 30, 1999 United had approximately $152 million of earning
assets and corresponding borrowings in the leverage program.
<PAGE>
For the six months ended June 30, 1999, the net interest margin (net
interest income as a percentage of average interest earning assets) on a
tax-equivalent basis was 4.12%, 56 basis points less than the comparable prior
year period. For the three months ended June 30, 1999, the net interest margin
on a tax-equivalent basis was 4.09%, 69 basis points lower than the same period
in 1998. The compression of the margin, for both the three and six month
periods, is primarily due to continued competitive pressures on loan pricing and
the leverage program described above. The leverage program assets and related
borrowings have an average interest rate spread of approximately 1.15%, which
reduced United's overall margin by approximately 30 basis points for the first
six months of 1999.
The following two tables show the relative impact of changes in average
balances of interest earning assets and interest bearing liabilities, and
interest rates earned (on a fully-tax equivalent basis) and paid by United on
those assets and liabilities for the three and six month periods ended June 30,
1999.
<PAGE>
Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis
For the Six Months Ended June 30
Unaudited
Fully tax-equivalent basis
(in thousands)
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
Average Interest Avg. Average Interest Avg.
Balance <F1> Rate Balance <F1> Rate
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans, net of unearned income <F2> $ 1,078,496 52,034 9.73% 857,060 44,140 10.39%
Taxable investments 356,219 10,775 6.10% 162,230 5,215 6.48%
Tax-exempt investments 76,370 2,736 7.22% 60,416 2,237 7.47%
Federal funds sold
and other interest income 18,978 576 6.12% 24,523 695 5.72%
-------------------- -------------------
Total interest-earning assets /
interest income 1,530,063 66,121 8.71% 1,104,229 52,287 9.55%
-------------------- -------------------
Non-interest-earning assets:
Allowance for loan losses (13,206) (10,694)
Cash and due from banks 53,534 37,468
Premises and equipment 41,087 30,809
Goodwill and deposit intangibles 8,511 5,872
Other assets 29,692 22,790
=========== ==========
Total assets $ 1,649,681 1,190,474
=========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $ 294,720 5,520 3.78% 216,499 4,361 4.06%
Savings deposits 64,870 920 2.86% 49,423 682 2.78%
Certificates of deposit 725,593 19,995 5.56% 649,845 19,328 6.00%
-------------------- -------------------
Total interest-bearing deposits 1,085,183 26,435 4.91% 915,767 24,371 5.37%
-------------------- -------------------
Federal Home Loan Bank advances 217,628 5,520 5.11% 52,936 1,481 5.64%
Federal funds purchased and
repurchase agreements 66,016 1,611 4.92% 3,716 98 5.32%
Long-term debt and other borrowings<F3> 31,424 1,281 8.22% 15,746 695 8.90%
-------------------- -------------------
Total borrowed funds 315,068 8,412 5.38% 72,398 2,274 6.33%
-------------------- -------------------
Total interest-bearing liabilities /
interest expense 1,400,251 34,847 5.02% 988,165 26,645 5.44%
Non-interest-bearing liabilities:
Non-interest-bearing deposits 154,518 117,026
Other liabilities 6,713 7,796
----------- ----------
Total liabilities 1,561,482 1,112,987
----------- ----------
Stockholders' equity 88,199 77,487
----------- ----------
Total liabilities
and stockholders' equity $ 1,649,681 1,190,474
=========== ==========
Net interest-rate spread 3.69% 4.11%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.43% 0.57%
-------- ---------
Net interest income /
margin on interest-earning assets <F4> 31,274 4.12% 25,642 4.68%
===================== ==================
<FN>
<F1> Interest income on tax-exempt securities and loans has been increased by
50% to reflect comparable interest on taxable securities.
<F2> For computational purposes, includes non-accrual loans and mortgage loans
held for sale.
<F3> Includes Trust Preferred Securities.
<F4> Tax equivalent net interest income as a percentage of average earning assets
</FN>
</TABLE>
<PAGE>
TABLE 3 - AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
FOR THE THREE MONTHS ENDED JUNE 30
Unaudited
FULLY TAX-EQUIVALENT BASIS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------------
AVERAGE INTEREST AVG. AVERAGE INTEREST AVG.
BALANCE <F1> RATE BALANCE <F1> RATE
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans, net of unearned income <F2> $ 1,121,703 27,015 9.66% 873,228 22,677 10.42%
Taxable investments 377,978 5,811 6.17% 164,812 2,718 6.61%
Tax-exempt investments 78,010 1,403 7.21% 62,285 1,160 7.47%
Federal funds sold -
and other interest income 28,247 437 6.21% 24,318 358 5.90%
-------------------- -------------------
TOTAL INTEREST-EARNING ASSETS /
INTEREST INCOME 1,605,938 34,666 8.66% 1,124,643 26,913 9.60%
-------------------- -------------------
NON-INTEREST-EARNING ASSETS:
Allowance for loan losses (14,076) (10,907)
Cash and due from banks 62,813 39,117
Premises and equipment 42,608 30,954
Goodwill and deposit intangibles 9,930 5,759
Other assets 30,522 20,236
=========== ==========
TOTAL ASSETS $ 1,737,735 1,209,803
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $ 308,727 2,886 3.75% 223,581 2,265 4.06%
Savings deposits 68,347 489 2.87% 50,323 353 2.81%
Certificates of deposit 744,854 10,170 5.48% 650,796 9,704 5.98%
-------------------- -------------------
Total interest-bearing deposits 1,121,928 13,545 4.84% 924,701 12,322 5.34%
-------------------- -------------------
Federal Home Loan Bank advances 235,442 2,988 5.09% 63,018 899 5.72%
Federal funds purchased and
repurchase agreements 84,307 1,050 5.00% - - 0.00%
Long-term debt and other borrowings <F3> 35,519 718 8.11% 15,237 296 7.79%
-------------------- -------------------
Total borrowed funds 355,268 4,756 5.37% 78,255 1,195 6.13%
-------------------- -------------------
TOTAL INTEREST-BEARING LIABILITIES /
INTEREST EXPENSE 1,477,196 18,301 4.97% 1,002,956 13,517 5.41%
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits 163,784 120,276
Other liabilities 8,818 7,990
----------- ----------
Total liabilities 1,649,798 1,131,221
----------- ----------
Stockholders' equity 87,936 78,582
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 1,737,734 1,209,803
=========== ==========
Net interest-rate spread 3.69% 4.19%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.40% 0.59%
-------- ---------
NET INTEREST INCOME /
margin on interest-earning assets <F4> 16,365 4.09% 13,396 4.78%
================ =================
<FN>
<F1> Interest income on tax-exempt securities and loans has been increased by
50% to reflect comparable interest on taxable securities.
<F2> For computational purposes, includes non-accrual loans and mortgage loans
held for sale.
<F3> Includes Trust Preferred Securities.
<F4> Tax equivalent net interest income as a percentage of average earning
assets
</FN>
</TABLE>
<PAGE>
The following table shows the relative impact on net interest income of
changes in the average outstanding balances (volume) of earning assets and
interest bearing liabilities and the rates earned and paid by United on such
assets and liabilities. Variances resulting from a combination of changes in
rate AND volume are allocated in proportion to the absolute dollar amounts of
the change in each category.
Table 4 - Change in Interest Income and Expense on a Tax Equivalent Basis
Unaudited
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
1999 Compared to 1998 1999 Compared to 1998
Increase (decrease) Increase (decrease)
in interest income and expense in interest income and expense
due to changes in: due to changes in:
Volume Rate Total Volume Rate Total
---------- ---------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 10,825 (2,932) 7,893 6,452 (2,114) 4,338
Taxable investments 5,885 (325) 5,560 3,515 (422) 3,093
Tax-exempt investments 574 (75) 499 293 (50) 243
Federal funds sold
and other interest income (166) 47 (119) 58 21 79
---------- ---------- --------- --------- --------- ----------
Total interest-earning assets 17,118 (3,285) 13,833 10,318 (2,565) 7,753
Interest-bearing liabilities:
Transaction accounts 1,483 (324) 1,159 863 (242) 621
Savings deposits 219 19 238 126 10 136
Certificates of deposit 2,151 (1,484) 667 1,402 (936) 466
---------- ---------- --------- --------- --------- ----------
Total interest-bearing deposits 3,853 (1,789) 2,064 2,391 (1,168) 1,223
FHLB advances 4,190 (151) 4,039 2,460 (371) 2,089
Federal funds purchased and
repurchase agreements 1,521 (8) 1,513 1,050 - 1,050
Long-term debt and other borrowings 643 (57) 586 394 28 422
---------- ---------- --------- --------- --------- ----------
Total borrowed funds 6,354 (216) 6,138 3,904 (343) 3,561
---------- ---------- --------- --------- --------- ----------
Total interest-bearing liabilities 10,207 (2,005) 8,202 6,295 (1,511) 4,784
---------- ---------- --------- --------- --------- ----------
Increase (decrease)
in net interest income $ 6,911 (1,280) 5,631 4,023 (1,054) 2,969
========== ========== ========= ========= ========= ==========
</TABLE>
<PAGE>
PROVISION FOR LOAN LOSS
The provision for loan losses was $1.80 million, or 0.34% of average
loans on an annualized basis, for the six months ended June 30, 1999, compared
with $1.04 million, or 0.25% of average loans, for the same period in 1998. Net
loan charge-offs for the first six months of 1999 were $337 thousand, or 0.06%
of average loans on an annualized basis, compared to $332 thousand, or 0.08% of
average loans on an annualized basis, for the same period in 1998. The provision
for loan losses and allowance for loan losses reflect management's consideration
of the various risks in the loan portfolio. Additional discussion of loan
quality and the allowance for loan losses in provided in the ASSET QUALITY
discussion section of this report.
NON-INTEREST INCOME
Non-interest income for the six months ended June 30, 1999 was $4.8
million, an increase of $835 thousand, or 21%, over the comparable 1998 period.
Excluding net gains on the sale of securities, non-interest income for the six
months ended June 30, 1999 increased by $998 thousand, or 27%, compared to the
same period in 1998. For the three months ended June 30, 1999 total non-interest
was $2.4 million, an increase of $362 thousand over the comparable 1998 period.
Excluding net gains on the sale of securities, total non-interest income for the
second quarter of 1999 increased by 21% over comparable 1998 period.
Service charges on deposit accounts totaled $2.2 million for the first
six months of 1999, an increase of $334 thousand, or 18%, compared to the same
period in 1998. This increase is primarily attributed to an increase in the
number and volume of transaction deposit accounts. Mortgage banking revenue for
the first three months of 1999 totaled $870 thousand, compared to $880 thousand
for the same period in 1998.
Excluding the recognition of an additional $158 thousand of mortgage
servicing rights amortization during the six months of 1999, mortgage banking
revenue increased by 17% compared to the same period in 1998. The increased
amortization of mortgage servicing rights was necessary because of a continued
high level of prepayments within the serviced loan portfolio. United has not
recorded any mortgage servicing assets on the balance sheet since year-end 1998
(loans are sold with the servicing rights released to the purchaser). Management
expects the amortization of mortgage servicing rights to decline during the
second half of 1999 due to recent increases in mortgage interest rates and
resulting decreases in prepayment activity.
Other non-interest income totaled $1.6 million for the six months ended
June 30,1999, an increase of $674 thousand, or 70%, compared to the same period
in 1998. Excluding a gain on the sale of loans of $45 thousand recognized during
the first quarter of 1999, other non-interest income increased by 65% for the
first six months of 1999. The increase in other non-interest income, exclusive
of the gain on the sale of loans, is attributed to revenue increases in several
areas. Trust and brokerage revenue increased by $126 thousand, or 86%, compared
with the same period in 1998. This increase is attributed to the increase in
trust assets under management resulting from management's strategic focus on
trust sales opportunities to current United customers and prospective customers
in United's market areas. Credit insurance revenue for the first six months of
1999 totaled $466 thousand, an increase of 134% compared to the same period in
1998. This improvement is primarily attributed to continued loan growth at
United's consumer finance company subsidiary, United Family Finance Company,
which opened its fourth branch office in December, 1998 and introduced an
employee performance incentive plan for credit insurance sales in January 1999.
ATM related revenues increased by $89 thousand, or 67%, compared to the same
period in 1998, primarily the result of increases in the number of off-site ATMs
deployed and the surcharge for foreign withdrawal transactions. The improvement
in other non-interest income also reflects earnings of approximately $236
thousand on life insurance contracts purchased by United in December 1998.
<PAGE>
NON-INTEREST EXPENSE
For the six months ended June 30, 1999, non-interest expense totaled
$23.6 million, an increase of $4.3 million, or 22%, from the same period in
1998. The efficiency ratio, which is a measure of operating expenses as a
percentage of operating revenues excluding one-time gains, was 68.2% for the six
months ended June 30,1999, compared to 68.3% for the same period in 1998. Total
non-interest expense for the quarter ended June 30, 1999 was $12.4 million, an
increase of 22% over the same period in 1998.
The increase in non-interest expense is primarily attributed to
United's recent internal growth, which includes: the opening or acquisition of
four new branch offices; acquisition of Adairsville; the addition of several new
senior management positions; and, the purchase of new computer equipment that is
utilized throughout the entire company since June, 1998. Comparing the six month
period ended June 30, 1999 with the same period in 1998, compensation and
benefit expense increased $2.3 million, or 21%; total occupancy expense (which
includes equipment expense) increased $1.0 million, or 34%; and, total other
operating expense increased $991 thousand, or 18%.
INCOME TAXES
Income tax expense increased by $341 thousand, or 12.1%, during the
first six months of 1999 as compared to the same period in 1998. The effective
tax rate for the six months ended June 30, 1999 was 33.2%, compared to 33.8% for
comparable 1998 period. The decrease in the effective tax rate is primarily
attributed to an increase in the relationship of tax-exempt interest income to
total pre-tax income for the first six months of 1999 as compared to the same
period in 1998.
SECURITIES
Average securities for the first six months of 1999 were $433 million,
an increase of $210 million, or 94%, over the comparable 1998 period. This
significant increase is primarily attributed to United's leverage program which
was initiated during the fourth quarter of 1998 and designed to make optimal
utilization of United's assets and capital. This program provides for using
borrowed funds (principally FHLB advances) secured by mortgage loans and
securities to purchase additional securities. The securities purchased in
conjunction with the leverage program are primarily mortgage-backed securities,
including collateralized mortgage obligations. The leverage program generates
additional income for United by virtue of the positive spread between the
leverage assets and associated borrowings. As of June 30, 1999, United had $152
million of securities and related borrowings as a result of the leverage
program, compared with $75 million at year-end 1998. Management expects the
leverage program to represent between 8% and 12% of total consolidated assets
during the remainder of 1999.
Effective January 1, 1999, United adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 provides the adopting entity the option of
transferring any securities classified as held to maturity into the available
for sale or trading classifications (without calling into question the entity's
intent to hold the securities to maturity in the future) as of the date of
initial application. United transferred all held to maturity securities to
available for sale on January 1, 1999, which increased stockholders' equity by
$1.1 million for the net of tax effect for the unrealized gains.
LOANS
United experienced annualized loan growth of 34% for the six month
period ended June 30, 1999. Total loans, net of unearned income, totaled $1.17
billion at June 30, 1999, compared to $1.00 billion at December 31, 1998. The
loan growth experienced during the first six months of 1999 is attributed to
continued robust economic conditions in United's market areas and corresponding
strong demand for residential construction, residential mortgage and consumer
loans. Average loans (including mortgage loans held for sale) for the six months
ended June 30, 1999 were $1.08 billion compared to $857 million for the
comparable 1998 period, representing an increase of 26%. The average
tax-equivalent yield on loans for the six months ended June 30, 1999 was 9.73%,
compared to 10.39% for the same period in 1998. This decline is primarily
attributed a general decrease in market interest rates during the fourth quarter
of 1998, which included a reduction in the prime rate from 8.00% to 7.75%, in
addition to continued competitive pricing pressures.
<PAGE>
ASSET QUALITY
Non-performing assets, which include non-accrual loans, loans past-due
90 days or more and still accruing interest and other real estate owned totaled
$2.5 million at June 30, 1999, compared to $1.4 million at December 31, 1998.
Excluding assets acquired from Adairsville, total non-performing assets at June
30, 1999 were $1.7 million. Non-performing loans at June 30, 1999 consist
primarily of loans secured by real estate that are generally well secured and in
the process of collection. Other real estate owned at June 30, 1999 totaled $201
thousand, compared to $376 thousand at December 31, 1998, and comprised four
properties.
Management classifies loans as non-accrual when principal or interest
is 90 days or more past due and the loan is not sufficiently collateralized and
in the process of collection. Once a loan is classified as non-accrual, it
cannot be reclassified as an accruing loan until all principal and interest
payments are brought current and the prospects for future payments in accordance
with the loan agreement appear relatively certain. Foreclosed properties held as
other real estate owned are recorded at the lower of United's recorded
investment in the loan or market value of the property less expected selling
costs.
The following table presents information about United's non-performing
assets, including asset quality ratios.
TABLE 5 - NON-PERFORMING ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1999 1998 1998
-----------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $ 1,865 518 1,388
Loans past due 90 days or more and
still accruing 458 464 568
-----------------------------------------------
Total non-performing loans 2,323 982 1,956
Other real estate owned 201 376 567
===============================================
Total non-performing assets $ 2,524 1,358 2,523
===============================================
Total non-performing loans as a percentage
of total loans 0.20% 0.10% 0.22%
Total non-performing assets as a percentage
of total assets 0.14% 0.09% 0.20%
</TABLE>
As of June 30, 1999 United had approximately $4.8 million of
outstanding loans that were not included in the past-due or non-accrual
categories, but for which management had knowledge that the borrowers were
having financial difficulties. Although these difficulties are serious enough
for management to be uncertain of the borrowers' ability to comply with the
original repayment terms of the loans, no losses are anticipated at this time in
connection with them based on current market conditions, cash flow generation
and collateral values. These loans are subject to routine management review and
are considered in determining the adequacy of the allowance for loan losses.
<PAGE>
The allowance for loan losses ("ALL") at June 30, 1999 totaled $15.2
million, an increase of $3.3 million, or 28%, from December 31, 1998. The ALL
acquired from Adairsville represented $1.8 million of the total $3.3 million
increase. Although the level of non-performing loans within the Adairsville
portfolio was considerably higher than United (as a percentage of total loans),
a thorough due diligence review of the portfolio was conducted by United prior
to closing. Management believes that the ALL recorded on the balance sheet of
Adairsville as of the date of acquisition sufficient.
The ratio of ALL to total loans at June 30, 1999 was 1.30%, compared
with 1.36% at March 31, 1999 and 1.19% at December 31, 1998. Of the total 11
basis point increase since year-end 1998, substantially all is the result of
acquiring the $1.8 million of ALL of Adairsville discussed above. At June 30,
1999 and December 31, 1998 the ratio of ALL to total non-performing loans was
655% and 1215%, respectively.
The following table provides an analysis of the changes in the ALL for
the six months ended June 30, 1999 and 1998.
Table 6 - Summary of Loan Loss Experience
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1999 1998
-----------------------------
<S> <C> <C>
Balance beginning of period $ 11,929 10,352
Provision for loan losses 1,798 1,038
Balance acquired from subsidiary at acquisition 1,822 -
Loans charged-off (552) (622)
Charge-off recoveries 215 300
-----------------------------
Net charge-offs (337) (322)
-----------------------------
Balance end of period $ 15,212 11,068
=============================
June 30, December 31,
Total loans: 1999 1998
At period end $ 1,166,496 999,871
Average (six months for 1999) $ 1,073,313 899,957
As a percentage of average loans:
Net charge-offs (annualized basis for 1999) 0.06% 0.09%
Provision for loan losses (annualized basis for 1999) 0.34% 0.26%
Allowance as a percentage of period end loans 1.30% 1.19%
Allowance as a percentage of non-performing loans 655% 1215%
</TABLE>
Management believes that the ALL at June 30, 1999 is sufficient to
absorb losses inherent in the loan portfolio, including the loan portfolio
acquired from Adairsville. This assessment is based upon the best available
information and does involve a degree of uncertainty and matters of judgement.
Accordingly, the adequacy of the loan loss reserve cannot be determined with
precision and could be susceptible to significant change in future periods.
Further discussion of the allowance for loan losses is included in the YEAR 2000
section of this discussion.
DEPOSITS AND BORROWED FUNDS
Total average non-interest bearing deposits for the six months ended
June 30, 1999 were $155 million, an increase of $37 million, or 32%, from the
same period in 1998. For the six months ended June 30, 1999, total average
interest bearing deposits were $1.1 billion, an increase of $169 million, or
19%, from the comparable 1998 period. United acquired $31.6 million of total
deposits with the Adairsville transaction, of which $4.5 million were
non-interest bearing and $27.1 were interest bearing.
Total average borrowed funds for the six months ended June 30, 1999
were $315 million, an increase of $243 million, or 335%, from the comparable
1998 period. Most of this increase is attributed to increased net borrowings
from the FHLB. Approximately 62% of the increase in average borrowed funds is in
conjunction with United's leverage program and used to fund the purchase of
investment securities classified as available for sale. The remaining borrowings
were primarily used to fund loan growth. At June 30, 1999, United had aggregate
FHLB borrowings of approximately $235 million.
<PAGE>
ASSET/LIABILITY MANAGEMENT
United's financial performance is largely dependent upon its ability
to manage market interest rate risk, which can be further defined as the
exposure of United's net interest income to fluctuations in interest rates.
Since net interest income is the largest component of United's earnings,
management of interest rate risk is a top priority. United's risk management
program includes a coordinated approach to managing interest rate risk and is
governed by policies established the Asset/Liability Management Committee
("ALCO"), which is comprised of members of United's senior management team. The
ALCO meets regularly to evaluate the impact of market interest rates on the
assets, liabilities, net interest margin, capital and liquidity of United and to
determine the appropriate strategic plans to address the impact of these
factors.
United's balance sheet structure is primarily short-term with most
assets and liabilities either repricing or maturing in five years or less.
Management monitors the sensitivity of net interest income to changes in market
interest rates by utilizing a dynamic simulation model. This model measures net
interest income sensitivity and volatility to interest rate changes based on
assumptions which management believes are reasonable. Factors considered in the
simulation model include actual maturities, estimated cash flows, repricing
characteristics, deposit growth and the relative sensitivity of assets and
liabilities to changes in market interest rates. The simulation model considers
other factors that can impact net interest income, including the mix or earning
assets and liabilities, yield curve relationships, customer preferences and
general market conditions. Utilizing the simulation model, management can
project the impact of changes in interest rates on net interest income.
At June 30, 1999, United's simulation model indicated that net interest
income would increase by 3.4% if interest rates increased by 200 basis points
and would decrease by 3.3% if interest rates fell by the same amount. Both of
the simulation results are within the limits of United's policy, which permits
an expected net interest income impact within a range of plus 10% and minus 10%
for any 200 basis point increase or decrease in rates.
In order to assist in achieving a desired level of interest rate
sensitivity, United has entered into off-balance sheet contracts that are
considered derivative financial instruments. Derivative financial instruments
can be a cost and capital effective means of modifying the repricing
characteristics of on-balance sheet assets and liabilities. United requires that
all contract counterparties have an investment grade or better credit rating.
These contracts include interest rate swap contracts in which United pays a
variable rate based on Prime Rate and receives a fixed rate on a notional
amount, and interest rate cap contracts for which United pays an up-front
premium in exchange for a variable cash flow if interest rates exceed the cap
rate. At June 30, 1999 United had two cap contracts each with a notional amount
of $10 million and maturity dates of September 2003 and January 2004,
respectively. The following table presents United's swap contracts as of
June 30, 1999.
<PAGE>
TABLE 7 - SWAP CONTRACTS AS OF JUNE 30, 1999
(IN THOUSANDS)
NOTIONAL RATE RATE FAIR
Maturity Amount Received Paid Value
April 2, 2001 15,000 8.41% 7.75% (72)
April 5, 2001 10,000 9.50% 7.75% 129
May 8, 2001 10,000 8.26% 7.75% (82)
June 7, 2001 10,000 8.69% 7.75% (4)
June 24, 2002 40,000 9.02% 7.75% 107
December 23, 2002 10,000 9.19% 7.75% 51
===================================================
Total/weighted average 95,000 8.88% 7.75% 129
===================================================
Effective January 1, 1999, United adopted SFAS No. 133, which requires
that all derivative financial instruments be included and recorded at fair value
on the balance sheet. Management expects all derivative financial instruments
utilized by United for interest rate risk management to qualify as effective
cash flow hedges under the provisions of SFAS No. 133. This provides for any
gain or loss (net of tax) to be recorded as a component of other comprehensive
income in the equity section of the balance sheet. At June 30, 1999, United's
derivative financial instruments had an aggregate positive fair market value of
$520 thousand. This market valuation is recorded, net of tax, as a component of
other comprehensive income on the balance sheet in the amount of $343 thousand.
United requires all derivative financial instruments be used only for
asset/liability management or hedging specific transactions or positions, and
not for trading or speculative purposes. Management believes that the risk
associated with using derivative financial instruments to mitigate interest rate
sensitivity is minimal and should not have any material unintended impact on
United's financial condition or results of operations.
CAPITAL RESOURCES AND LIQUIDITY
The following table shows United's capital ratios, as calculated under
regulatory guidelines, compared to the regulatory minimum capital ratio and the
regulatory minimum capital ratio needed to qualify as a "well-capitalized"
institution at June 30, 1999 and December 31, 1998:
<PAGE>
Table 8 - Capital Ratios
June 30, December 31,
1999 1998
Leverage Ratio 5.89% 7.06%
Regulatory minimum 3.00% 4.00%
Well-capitalized minimum 5.00% 5.00%
Tier I risk-based capital 8.65% 9.52%
Regulatory minimum 4.00% 4.00%
Well-capitalized minimum 6.00% 6.00%
Total risk-based capital 10.20% 11.00%
Regulatory minimum 8.00% 8.00%
Well-capitalized 10.00% 10.00%
The decline in the leverage and risk-based capital ratios during 1999
indicated in the table above are primarily due to the asset growth of $310
million, or 21%, experienced by United since December 31, 1998. United's
leverage program that was implemented during the fourth quarter of 1998 and is
discussed earlier in this report in the SECURITIES section resulted in the
addition of $77 million of the asset growth since year-end 1998. During this
period of time, the only significant change in equity capital, exclusive of
changes in accumulated other comprehensive income, was the retention of
approximately 88% of net income.
The accumulated other comprehensive income ("AOCI") component of
capital as of June 30, 1999 represented a reduction in capital of $3.2 million,
compared with an increase in capital of $1.3 million at year-end 1999. The
primary reason for the net decrease in AOCI was the increase in bond market
interest rates during the second quarter of 1999 that reduced the market value
of United's securities portfolio. United classifies all securities as "available
for sale," which requires that the difference between book value and market
value (net of tax) be recorded as a component of AOCI. A consolidated statement
of other comprehensive income is included in Part I Item I of this report.
Management believes that it is in the best interests of United's
shareholders to make optimal use of United's capital by maintaining capital
levels that meet the regulatory requirements for "well-capitalized"status but do
not result in a significant level of excess capital that is not utilized.
United is currently paying dividends on a quarterly basis and expects
to continue making such distributions in the future if results from operations
and capital levels are sufficient. The following table presents the cash
dividends declared in the first and second quarters of 1999 and 1998 and the
respective payout ratios as a percentage of net income.
<PAGE>
TABLE 9 - DIVIDEND PAYOUT INFORMATION
<TABLE>
<CAPTION>
1999 1998
DIVIDEND PAYOUT % DIVIDEND PAYOUT %
<S> <C> <C> <C> <C>
First quarter $ 0.05 11.9% $ 0.0375 10.4%
Second quarter $ 0.05 11.4% $ 0.0375 9.6%
</TABLE>
Liquidity measures the ability to meet current and future cash flow
needs as they become due. Maintaining an adequate level of liquid funds, at the
most economical cost, is an important component of United's asset and liability
management program. United has several sources of available funding to provide
the required level of liquidity. United, like most banking organizations, relies
primarily upon cash inflows from financing activities (deposit gathering,
short-term borrowing and issuance of long-term debt) in order to fund its
investing activities (loan origination and securities purchases). The financing
activity cash inflows such as loan payments and securities sales and prepayments
are also a significant component of liquidity.
YEAR 2000
OVERVIEW
The "Year 2000" issue refers to potential problems that may result from
the improper processing of dates and date-dependent calculations by computers
and other microchip-embedded technology (like an alarm or telephone system). In
simple terms, problems with Year 2000 can result from a computer's inability to
recognize a two-digit date field (00) as representing Year 2000 and,
incorrectly, recognize the year as 1900. Failure to identify and correct this
problem could result in system processing errors that would disrupt United's
normal business operations. In recognition of the seriousness of this issue, and
in accordance with directives on Year 2000 issued by banking regulatory
agencies, United established a Year 2000 Committee in January 1998. The
committee is chaired by United's Chief Information Officer and reports directly
to United's board of directors on a quarterly basis.
STATE OF READINESS
United has adopted a seven-phase action plan to address Year 2000
issues and expects to address all aspects of the action plan in a timely manner
and to be prepared for the impact Year 2000 will have on United, its systems,
vendors and customers. The seven phases are:
1. Awareness - The Year 2000 committee and committee chairman were
appointed and authorized to develop an overall strategy for
addressing the Year 2000 issue. An on-going awareness program has
been developed to keep directors, employees and customers informed
about the Year 2000 issue and apprised of United's progress in
addressing it.
2. Inventory - Entails completion of a specific, detailed inventory
of all hardware, software and other microchip-embedded products
used by United. Procedures are established to ensure that any new
purchases are properly analyzed for Year 2000 compliance and then
inventoried. Vendors and suppliers are contacted to ascertain Year
2000 compliance status and efforts to remediate potential
problems.
<PAGE>
3. Assessment - Mission critical areas are identified and tested to
address potential problem areas. Budgets are developed for
expected expenses and other resources needed to adequately address
potential problems. The potential risk exposure posed by credit
customers and large depositors is also evaluated.
4. Renovation/Analysis - Vendors that supply system applications are
requested to provide certification that their product used by
United is Year 2000 compliant. Non-compliant systems are renovated
or replaced.
5. Testing - All replaced or upgraded systems are tested to ensure
full correction of any Year 2000 issues and then reviewed by a
third party for validation of corrective action. Contingency plans
are tested for effectiveness.
6. Implementation - A final review of all systems after the
renovation of problematic areas is completed. Management and
system users will carefully assess the status of corrective
action.
7. Post-Implementation - Utilizing the contingency plans, the Year
2000 committee will continue to refine backup processes and
procedures to be used in a worst-case scenario.
This seven-phase program applies to both information technology ("IT")
and non-information technology ("non-IT") systems that are affected by Year 2000
that have been designated by the Year 2000 Committee as "mission critical." For
purposes of the Year 2000 project, mission critical systems are defined as any
technology element that, if not able to function properly, could result in
financial liability, loss of revenue, significant customer service/support
problems and damage to United's reputation.
The following table identifies some, but not all, IT and non-IT mission critical
systems and elements:
IT Non-IT
-- ------
Mainframe hardware Security systems
Mainframe software HVAC systems
ATMs Vault doors
PC network hardware Printed forms
PC network software Phone systems
The Federal Financial Institutions Examination Council (FFIEC) issued a
statement entitled "Year 2000 Project Management Awareness" in May, 1997. This
statement established key milestones that banks and other financial institutions
must meet with regard to Year 2000 testing and remediation. The following table
sets forth each deadline contained in this statement and where United stands, as
of June 30, 1999, with respect to meeting each deadline.
<TABLE>
<CAPTION>
Date Task United's Status
---- ---- ---------------
<C> <S> <S>
June 30, 1998 Complete development of all Completed
written testing strategies,
plans and policies; due
diligence to determine
Year 2000 risk posed by
customers implemented.
September 1, 1998 Commence testing of internal Completed
mission-critical systems; assessment
of customers' Year 2000 preparedness
and potential impact on the institution
substantially complete.
<PAGE>
December 31, 1998 Testing of internal mission-critical Completed
Completed systems substantially
complete.
March 31, 1999 External testing with material third Completed
parties begins.
June 30, 1999 Testing of all mission-critical systems Completed
completed and corrective actions
substantively completed.
</TABLE>
The FFIEC has, under its bank supervisory authority, developed a
multi-phase examination process to determine if banks are complying with the
provisions of the awareness statement described above. United intends to comply
with all regulatory requirements established by banking regulatory agencies.
As is the case with many financial institutions, United is dependent on
third parties to provide systems used in daily operations. Examples include, but
are not limited to, firms that provided both mainframe and desktop computer
hardware, bank processing software that tracks loans and deposits,
telecommunications services, check clearing and electrical utilities. Even
though many providers of these products have advised that they are Year 2000
compliant, United has performed an independent testing and validation to confirm
that this is the case for each product as it is installed and used in United's
operations. Generally speaking. In addition, United has requested all providers
of hardware, software, processing services and other systems that are
date-sensitive to provide written certification of the Year 2000 status for
their product or service. The following table sets forth United's significant
material relationships with third parties that, in the opinion of management,
could potentially result in business interruption if the product or service
provided is not Year 2000 compliant. This table is not intended to itemize all
relationships with third-party service providers.
Product/Service Year 2000 Assessment Status
Bank processing system Certified compliant by
manufacturer; testing completed
Mainframe Testing completed
Telecommunications services Testing completed Wire transfers
Certified compliant by service provider
Check clearing Certified compliant by service provider
EXPECTED COSTS ASSOCIATED WITH ADDRESSING YEAR 2000
As part of United's initiative to assess its state of readiness with
regard to Year 2000, a budget was developed by the Year 2000 Committee. The
budget is divided into five distinct categories:
Consulting - costs incurred with the engagement of
third-party consultants and solution
providers assisting management with the
Year 2000 project, to review and
negotiate contracts and insurance
coverage and to perform audits of
United's state of readiness for the Year
2000.
<PAGE>
Inventory - costs associated with the initial
inventory and review of all of United's
systems, including hardware, software and
any other micro-chip embedded products.
Testing - costs associated with running tests on
United's systems, both individually and
collectively, to determine if processing
is affected by any of the potential
problem dates associated with the Year
2000 and documenting the results of the
tests. These costs may also include costs
to upgrade United's computer systems to
provide sufficient system resources to
perform the tests.
Remediation - costs incurred to repair, upgrade or
replace hardware, software or other
micro-chip embedded technology that is
not Year 2000 compliant.
Resources - costs associated with staff training and
customer awareness with regard to the
Year 2000 issue.
The following table sets forth United's budget for the Year 2000 issue
and actual amounts expended as of June 30, 1999. All amounts shown are pre-tax.
In addition, the table indicates the percentage of each budget line item (as
described above) that is expected to be recognized as current period expense and
the percentage that is expected to be recorded as a new asset with expense
recognized over the useful life of the asset through charges to depreciation
expense.
Table 10 - Year 2000 Budget
(in thousands)
<TABLE>
<CAPTION>
Actual Costs % of Budget
% of Total Incurred as of Expended as of % of Cost to Be
Budget Budget 30-Jun-99 30-Jun-99 Expensed Amortized
--------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Consulting $ 175 9% 34 19% 100% 0%
Inventory 70 4% 60 86% 100% 0%
Testing 82 4% 28 34% 100% 0%
Remediation 1,520 80% 1,344 88% 15% 85%
Resources 53 3% 18 34% 100% 0%
---------------------------------------------------------------- ---------------------------
Total $ 1,900 100% 1,484 78% 12% 88%
=============================================================== ============================
</TABLE>
In accordance with recently issued accounting guidelines on how Year
2000 costs should be recognized for financial statement purposes, United intends
to recognize as current period expense all costs associated with the consulting,
inventory, testing and resources components of the Year 2000 budget. The costs
associated with remediation, which comprise approximately 80% of the Year 2000
budget, are primarily related to the installation of a new wide-area desktop
computer network (WAN) that replaced virtually all of the desktop computers,
file servers and peripheral equipment currently in use. In addition to being
Year 2000 compliant, the new WAN will provides United with a uniform standard
desktop computer configuration, internal and external e-mail capability,
internet access and savings on telephone communication costs through utilization
of the WAN communications backbone for voice communication. United intends to
leverage this new WAN technology to increase the levels of employee productivity
and improve operating efficiency. The costs of the WAN component of the Year
2000 remediation budget will be recognized over a useful life of three years at
a cost of approximately $450 thousand per year starting in the first quarter of
1999. This annual cost does not include any of the anticipated annual savings of
approximately $180 thousand that the United expects to achieve through improved
operating efficiency and reduced telecommunications costs over the next three
years.
<PAGE>
United expects to fund the costs associated with preparing for Year
2000 out of its normal operating cash flows. No major information technology
initiatives have been postponed as a result of Year 2000 preparation that would
have a material impact on United's financial condition or results of operations.
MATERIAL RISKS ASSOCIATED WITH UNITED'S YEAR 2000 ISSUES
CREDIT RISK - United, in the conduct of its ordinary operations,
extends credit to individuals, partnerships and corporations. The extension of
credit to businesses is based upon an evaluation of the borrower's ability to
generate cash flows from operations sufficient to repay principal and interest,
in addition to meeting the operating needs of the business. Failure of one of
United's business borrowers to adequately prepare for the impact a Year 2000
failure could potentially impair its ability to repay the loan. An example of
this would be a loan to a building supply store that has computer accounting
systems that fail to recognize Year 2000 and, consequently, are unable to
calculate and bill accounts receivable in January 2000. This failure would most
likely have a negative impact on the customer's cash flow and, consequently,
their ability to repay the loan in accordance with its original terms. United's
exposure to Year 2000 credit risk is somewhat mitigated by the fact that only 9%
of the $1 billion in outstanding loans are to commercial enterprises.
In order to assess the Year 2000 risk within the loan portfolio,
United's credit administration department developed a risk determination process
to determine if any borrower with total debt of $100 thousand or more is
dependent upon computer technology. Specifically, this process selectively
identified business borrowers (including self-employed individuals) that rely on
computer technology or use a supply chain that includes vendors that rely on
computer technology. After these borrowers were identified, the loan officer
responsible for each account completed a survey that includes 30 questions that
examine four key components of Year 2000 preparedness: Project Planning;
Staffing and Resources; Budget; and Contingency Planning. Based on the results
of the survey questions the account officer rated each borrower as a "low,"
"medium" or "high" risk for Year 2000. The completed surveys and ratings were
then independently reviewed by United's Loan Review Department, which had
authority to request additional information from the borrower and, if necessary,
change the Year 2000 risk rating. As of June 30, 1999 the survey, rating and
review process was substantially completed; however, individual credit
relationships will be reviewed throughout the remainder of 1999 as needed. The
survey results indicated that approximately 45%, 48% and 6% of the total
aggregate credit exposure for surveyed borrowers were rated low, medium and high
Year 2000 risks, respectively.
Management believes that the allowance for loan losses at June 30,
1999 is sufficient to absorb losses inherent in the loan portfolio, including
losses related to failure of borrowers to adequately prepare the direct and
indirect impact a Year 2000 computer failure may have on their business.
However, additional charges to the provision for loan loss will be made if, in
the estimation of management, the increased risk for loan loss related to Year
2000 is not adequately provided for in the allowance for loan losses as of any
balance sheet date.
LIQUIDITY RISK - is the risk to United's earnings and capital arising
from an inability to raise sufficient cash to meet obligations as they come due.
This risk is a very significant one for United since its primary business is
banking, which involves taking deposits that are generally due upon demand.
Since United uses these deposits to fund loans and purchase investment
securities, a dramatic increase in deposit withdrawals because of Year 2000
problems specific to United or of a more general nature could have an adverse
impact on United. Specifically, United could be forced to liquidate investments
under adverse market conditions (that is, to sell at a loss) in order to fund a
significantly higher level of deposit withdrawal activity. United is assessing
its liquidity risk by running various scenarios of deposit withdrawals
coincident with the turn of the century, ranging from normal activity to what
could be reasonably expected in a panic situation. Although estimates of deposit
withdrawals related to Year 2000 vary widely, management is currently performing
analyses to project cash requirements at individual branch locations under a
variety of scenarios.
<PAGE>
TRANSACTION RISK - is the risk to United's income and capital resulting
from failure to deliver one of its products or services in a acceptable manner.
An example of transaction risk related to Year 2000 is the ability of United's
computer system to properly bill customers for loan payments due and account for
the payments when received or the ability of a customer to perform a deposit or
withdrawal at an ATM. In both of these examples, the individual customer is
directly affected and United is impacted by the collective impact of all
incorrectly processed customer transactions. Since all of United's products and
services are processed in some manner by computer systems, all aspects of
product design, delivery and support are being carefully evaluated in order to
determine potential transaction risks.
United's Year 2000 policy also addresses other risks related to the
Year 2000 issue which include, but are not limited to, strategic risk (adverse
impact on business decisions or the implementation of business decisions, such
as acquisitions); reputational risk (impact of bad publicity on customers and
United's franchise value); and, legal risk (risk of litigation related to
adverse impact of Year 2000 issues resulting in a material adverse impact on
United's results of operations).
CONTINGENCY PLANNING FOR YEAR 2000
United's Year 2000 committee has presented the board of directors with
a written Business Remediation and Business Resumption Contingency Policy. The
purpose of this policy is to ensure that United is prepared to address any
crisis situation(s) that could result from failure of any of United's systems or
third-party vendors and suppliers to recognize Year 2000 critical dates.
United's Year 2000 contingency policy is modeled after the FFIEC Interagency
Statement on Contingency Planning in Connection with Year 2000 issued in May,
1997 and is comprised of four key phases:
1. Organizational Planning - identification of core
business processes and establishment of a timeline
for a Year 2000 contingency plan.
2. Business Impact Analysis - determination of Year
2000 failure risks for all core business processes
and identification of failure scenarios. The
minimal level of acceptable service in the event
of failure is also determined.
3. Development of Contingency Plans - identification
and selection of the most reasonable and
cost-effective contingency strategy for each core
business process in the event of failure.
4. Contingency Plan Validation - validation of each
plan by a qualified independent party and final
approval by senior management and the board of
directors.
A core business process is, for the purposes of United's Year 2000
contingency planning, defined as a group of interrelated tasks performed as a
basic and integral part of United's daily operation. Examples of core business
processes include posting of payments on loans and processing of checks, both
which require a complex infrastructure of hardware, software, communications and
power. Core business processes are further defined by potential impact on United
and its operations. "Mission Critical" core business processes are those which,
if not functioning properly because of failure to recognize Year 2000, will most
likely cause an immediate loss of revenue and crisis-level customer service
problems that could damage United's reputation. United's Year 2000 Committee has
developed specific contingency plans that detail precisely how the "most likely
worst-case scenarios" resulting from system failure will be handled. The
objective of contingency planning is not to duplicate the complete functionality
of failed systems, but, rather to identify the most economical means of resuming
a minimally acceptable level of service in as short a time as possible.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders
a. United Community Banks, Inc. 1999 Annual Meeting of Stockholders
was held on April 15, 1999.
b. The following directors were elected to serve a term until the next
annual meeting and election:
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.
Zell B. Miller
W. C. Nelson, Jr.
Charles E. Parks
Jimmy C. Tallent
A total of 5,650,013 shares were voted for and 15,185
shares voted to withhold authority for the election
of the above slate of directors. The affirmative
votes represented 76.42% of the total shares
outstanding and eligible to vote.
There were no other matters presented for a vote at
the 1999 Annual Meeting.
Item 5. Other Information - None
Item 6. Exhibits and Reports of Form 8-K
Exhibit 27 - Financial Data Schedule
There were no reports filed on Form 8-K for the period.
<PAGE>
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED COMMUNITY BANKS, INC.
By: /s/ Jimmy C. Tallent
Jimmy C. Tallent, President
(Principal Executive Officer)
Date: August 6, 1999
By /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: August 6, 1999
By /s/ Patrick J. Rusnak
Patrick J. Rusnak
Controller
(Principal Accounting Officer)
Date: August 6, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000857855
<NAME> UNITED COMMUNITY BANKS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 78,762
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 19,480
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 469,867
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,166,496
<ALLOWANCE> 15,212
<TOTAL-ASSETS> 1,808,714
<DEPOSITS> 1,348,411
<SHORT-TERM> 119,435
<LIABILITIES-OTHER> 9,461
<LONG-TERM> 222,527
21,000
0
<COMMON> 7,397
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,808,714
<INTEREST-LOAN> 51,885
<INTEREST-INVEST> 12,599
<INTEREST-OTHER> 576
<INTEREST-TOTAL> 65,060
<INTEREST-DEPOSIT> 26,435
<INTEREST-EXPENSE> 34,847
<INTEREST-INCOME-NET> 30,213
<LOAN-LOSSES> 1,798
<SECURITIES-GAINS> 8
<EXPENSE-OTHER> 23,624
<INCOME-PRETAX> 9,547
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,378
<EPS-BASIC> 0.44
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 4.12
<LOANS-NON> 1,865
<LOANS-PAST> 458
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,804
<ALLOWANCE-OPEN> 11,929
<CHARGE-OFFS> 552
<RECOVERIES> 215
<ALLOWANCE-CLOSE> 15,212
<ALLOWANCE-DOMESTIC> 15,212
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
