FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended: September 30, 1997
Commission File Number: 333-15067
UNITED COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1380239
(state or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
2600 Eagan Woods Drive, Suite 155
Eagan, Minnesota 55121
(Address of principal executive offices)(zip code)
(612) 905-3100
Registrant's telephone number, including area code:
--------------
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
As of November 5, 1997, the Registrant had 604,479 shares of Common Stock, $.01
par value, outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page
Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three Months Ended September 30, 1997 and 1996 4
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flow -
Nine Months Ended September 30, 1997 and 1996 6
Consolidated Statements of Stockholders' Equity -
Year Ended December 31, 1996 and Nine Months
Ended September 30, 1997 7
Notes to Unaudited Consolidated Financial Statements 8
The financial information for the interim periods is unaudited. In the opinion
of management, all adjustments necessary (which are of a normal recurring
nature) have been included for a fair presentation of the results of operations.
The results of operations for an interim period are not necessarily indicative
of the results that may be expected for a full year or any other interim period.
2
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- --------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 32,855,956 $ 27,542,088
Interest-bearing deposits with banks 1,672,486 231,972
Federal funds sold 8,800,000 15,725,000
Investment securities available for sale
(amortized cost of $146,503,288 147,887,105 102,360,467
and $101,694,831)
Loans and leases 437,493,670 286,204,870
Allowance for loan losses (5,261,297) (3,168,098)
------------- -------------
Net loans and leases 432,232,373 283,036,772
------------- -------------
Property and equipment, net 13,994,760 11,630,681
Accrued interest receivable 5,518,945 3,369,793
Cash surrender value of life insurance 9,881,280 9,577,434
Intangible assets, net 25,822,758 3,516,113
Other assets 1,296,342 2,147,453
------------- -------------
Total assets $ 679,962,005 $ 459,137,773
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 538,372,306 $ 372,792,254
Securities sold under repurchase agreements 39,212,684 21,797,343
Accrued expenses and other liabilities 7,748,437 6,165,548
Notes payable and other borrowings 32,517,270 17,516,476
------------- -------------
Total liabilities 617,850,697 418,271,621
------------- -------------
Company-obligated mandatorily redeemable
preferred securities of United Capital Trust I 11,000,000 --
Common stock owned by employee stock
ownership plan participants -- 7,360,127
Stockholders' equity:
Common stock, par value $.01 per share;
5,000,000 shares authorized; 604,479 and 476,271
shares issued and outstanding 6,045 4,763
Additional paid-in capital 27,113,836 17,525,797
Retained earnings 23,362,706 15,579,526
Unrealized gain on securities available for sale,net 628,721 395,939
------------- -------------
Total stockholders' equity 51,111,308 33,506,025
------------- -------------
Total liabilities and stockholders' equity $ 679,962,005 $ 459,137,773
============= =============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
(3)
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------------------------
<S> <C> <C>
Interest income on:
Loans and leases $10,845,642 $ 6,871,068
Investment securities 2,362,493 1,582,141
Federal funds sold and other 198,793 96,061
----------- -----------
Total interest income 13,406,928 8,549,270
----------- -----------
Interest expense on:
Deposits 4,622,611 2,986,409
Federal funds purchased and securities sold
under repurchase agreements 440,556 321,791
Notes payable and other borrowings 575,115 261,912
----------- -----------
Total interest expense 5,638,282 3,570,112
----------- -----------
Net interest income 7,768,646 4,979,158
Provision for loan and lease losses 181,075 51,175
----------- -----------
Net interest income after provision for
loan and lease losses 7,587,571 4,927,983
Noninterest income:
Service charges and other fees 1,339,037 842,198
Net investment securities gains 24,645 --
Other 271,651 215,709
----------- -----------
Total noninterest income 1,635,333 1,057,907
----------- -----------
Noninterest expenses:
Salaries and employee benefits 4,048,595 2,383,669
Occupancy 347,238 256,633
Depreciation 509,589 386,540
Amortization of intangibles 478,734 198,413
Other 2,069,521 993,604
----------- -----------
Total noninterest expenses 7,453,677 4,218,859
----------- -----------
Income before income taxes 1,769,227 1,767,031
Income tax expense 653,069 643,576
----------- -----------
Net income $ 1,116,158 $ 1,123,455
=========== ===========
Average shares outstanding 604,495 546,686
Earnings per share $ 1.85 $ 2.06
Dividends per share $ - $ -
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
(4)
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
-------------------------
<S> <C> <C>
Interest income on:
Loans and leases $30,418,879 $20,061,287
Investment securities 7,049,971 4,549,378
Federal funds sold and other 621,386 389,775
----------- -----------
Total interest income 38,090,236 25,000,440
----------- -----------
Interest expense on:
Deposits 13,022,101 8,721,275
Federal funds purchased and securities sold
under repurchase agreements 1,359,893 956,487
Notes payable and other borrowings 1,787,415 767,214
----------- -----------
Total interest expense 16,169,409 10,444,976
----------- -----------
Net interest income 21,920,827 14,555,464
Provision for loan and lease losses 654,625 145,823
----------- -----------
Net interest income after provision for
loan and lease losses 21,266,202 14,409,641
Noninterest income:
Service charges and other fees 3,983,142 2,442,366
Net investment securities gains 23,652 --
Other 1,059,458 1,005,623
----------- -----------
Total noninterest income 5,066,252 3,447,989
----------- -----------
Noninterest expenses:
Salaries and employee benefits 10,943,953 7,323,248
Occupancy 1,052,544 645,535
Depreciation 1,504,868 1,141,406
Amortization of intangibles 1,404,233 576,460
Other 5,557,873 3,088,068
----------- -----------
Total noninterest expenses 20,463,471 12,774,717
----------- -----------
Income before income taxes 5,868,983 5,082,913
Income tax expense 2,215,986 1,677,987
----------- -----------
Net income $ 3,652,997 $ 3,404,926
=========== ===========
Average shares outstanding 601,673 546,138
Earnings per share $ 6.07 $ 6.23
Dividends per share $ - $ -
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
(5)
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 3,652,997 $ 3,404,926
Adjustments to reconcile net income to net
cash flows from operating activities:
Net investment securities gains (23,652) --
Net amortization and accretion of bond
premiums and discounts (125,063) (168,125)
Provision for loan and lease losses 654,625 145,823
Depreciation 1,504,868 1,141,406
Amortization 1,404,233 576,460
Earnings on cash surrender value of life insurance (294,359) (297,168)
Net gain on sale of loans (667,586) (326,651)
Net (gain) loss on sale of other real estate 82,652 (49,657)
Net (gain) loss on sale of property and equipment (66,051) 25,424
Provision for deferred income taxes (82,340) (272,000)
Other, net (658,976) 57,486
----------- -----------
Net cash flows from operating activities 5,381,348 4,237,924
----------- -----------
Cash Flows Used for Investing Activities
Net increase in interest-bearing deposits with banks (94,514) --
Net decrease in federal funds sold 10,925,000 850,000
Net cash flows from investment securities 19,291,647 (2,579,317)
Net increase in loans and leases (32,048,048) (14,253,158)
Purchases of property and equipment (1,732,929) (1,463,038)
Proceeds from sales of property and equipment 169,873 29,900
Proceeds from sales of other real estate 347,033 49,657
Purchase of cash surrender value of life insurance (9,487) (7,265)
Cash paid, net of cash acquired, upon purchase of
subsidiary (40,275,107) --
----------- -----------
Net cash flows used for investing activities (43,426,532) (17,373,221)
----------- -----------
Cash Flows From Financing Activities
Net increase in deposits 2,401,545 11,116,159
Net increase in securities sold under
repurchase agreements 8,597,336 4,383,106
Proceeds from notes payable and other borrowings 28,127,794 1,948,035
Payments made on notes payable and other borrowings (13,127,000) (1,000,000)
Proceeds from issuance of Company-obligated
mandatorily redeemable preferred securities of
United Capital Trust I 11,000,000 --
Proceeds from issuance of common stock 7,917,041 176,784
Repurchase of common stock (1,557,664) --
----------- -----------
Net cash flows from financing activities 43,359,052 16,624,084
----------- -----------
Net increase in cash and cash
equivalents 5,313,868 3,488,787
Cash and Cash Equivalents
Beginning 27,542,088 20,513,154
----------- -----------
Ending $ 32,855,956 $ 24,001,941
=========== ===========
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
(6)
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1997
UNAUDITED
<TABLE>
<CAPTION>
Unrealized gain
on securities
Common Stock Additional Retained available for sale,
Shares Par value paid-in capital earnings net Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 478,952 $ 4,790 $ 17,808,360 $ 12,419,736 $ 612,546 $ 30,845,432
Net income -- -- -- 4,196,676 -- 4,196,676
Common stock issued 2,467 25 226,418 -- -- 226,443
Common stock repurchased (2,998) (30) (310,193) -- -- (310,223)
Increase in stock owned by ESOP
participants (2,150) (22) (200,057) -- -- (200,079)
Net change in fair value of stock
owned by ESOP participants -- -- -- (1,036,886) -- (1,036,886)
Net change in unrealized gain on
securities available for sale -- -- -- -- (216,607) (216,607)
Tax effect of stock options exercised -- -- 1,269 -- -- 1,269
---------------------------------------------------------------------------------------
Balance, December 31, 1996 476,271 4,763 17,525,797 15,579,526 395,939 33,506,025
Net income -- -- -- 3,652,997 -- 3,652,997
Common stock issued 74,713 747 7,916,294 -- -- 7,917,041
Common stock repurchased (14,453) (144) (1,557,520) -- -- (1,557,664)
Transfer of stock owned by ESOP
participants 67,948 679 3,229,265 4,130,183 -- 7,360,127
Net change in unrealized gain on
securities available for sale -- -- -- -- 232,782 232,782
---------------------------------------------------------------------------------------
Balance, September 30, 1997 604,479 $ 6,045 $ 27,113,836 $ 23,362,706 $ 628,721 $ 51,111,308
=======================================================================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
(7)
<PAGE>
Notes to Unaudited Consolidated Financial Statements
Note 1. Acquisition
On January 16, 1997, United Community Bancshares, Inc. (United) acquired Park
Financial Corporation (PFC), a bank holding company headquartered in St. Louis
Park, Minnesota, which owns one hundred percent of Park National Bank. A summary
of the assets acquired, liabilities assumed and purchase price paid in
connection with the acquisition is as follows:
Assets acquired:
Cash and cash equivalents $ 7,613,238
Interest-bearing deposits with banks 1,346,000
Federal funds sold 4,000,000
Investment securities 64,279,368
Loans, net of allowance for loan losses of $2,255,336 117,134,592
Property and equipment 2,239,840
Other assets 2,968,438
Deposit base premium 4,528,715
Cost in excess of net assets acquired 19,182,163
------------
Total assets $223,292,354
=============
Liabilities assumed:
Deposits $163,178,507
Securities sold under repurchase agreements 8,818,005
Other liabilities 3,407,497
-------------
Total liabilities 175,404,009
Cash paid by United 47,888,345
$223,292,354
The acquisition was accounted for as a purchase and, accordingly, the results of
PFC from January 16, 1997 through September 30, 1997 are included in the
accompanying unaudited consolidated financial statements. To facilitate this
transaction, and provide operating funds, United issued 70,989 additional shares
of its common stock for cash proceeds totaling $7,529,010, received $11,000,000
from the proceeds of the sale of United's junior subordinated deferrable
interest debentures, and incurred acquisition indebtedness totaling $22,000,000.
The remaining balance of $7,359,335 was obtained from cash on hand. The deposit
base premium will be amortized on an accelerated basis over a ten year period
and the cost in excess of net assets acquired will be amortized over a
twenty-five year period.
Note 2. Pro Forma Results of Operations
The unaudited summarized pro forma consolidated statement of income for the
three months ended and nine months ended September 30, 1996 is as follows and
assumes that the transaction was consummated on January 1, 1996. This unaudited
pro forma consolidated statement of income does not purport to represent what
United's results of operations would actually have been if the transaction had
occurred on January 1, 1996.
8
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME OF UNITED AND PFC
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT
OF INCOME
NINE MONTHS THREE MONTHS
ENDED ENDED
UNITED PFC ADJUSTMENTS SEPT. 30, 1996 SEPT. 30, 1996
---------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Interest income on:
Loans and leases $ 20,061,287 $ 8,382,177 $ 80,345 $ 28,382,377 $ 9,725,646
(141,432)
Investment securities 4,549,378 3,300,503 (120,828) 7,729,053 2,667,492
Federal funds sold 389,775 174,252 564,027 108,736
---------------------------------------------------------- ------------
Total interest income 25,000,440 11,856,932 (181,915) 36,675,457 12,501,874
---------------------------------------------------------- ------------
Interest expense on:
Deposits 8,721,275 4,007,924 89,722 12,818,921 4,313,675
Federal funds purchased and securities sold
under repurchase agreements 956,487 511,106 1,467,593 509,116
Notes payable and other borrowings 767,214 -- 1,170,872 1,938,086 649,513
---------------------------------------------------------- ------------
Total interest expense 10,444,976 4,519,030 1,260,594 16,224,600 5,472,304
---------------------------------------------------------- ------------
Net interest income 14,555,464 7,337,902 (1,442,509) 20,450,857 7,029,570
Provision for loan and lease losses 145,823 329,274 475,097 140,449
---------------------------------------------------------- ------------
Net interest income after provision for
loan and lease losses 14,409,641 7,008,628 (1,442,509) 19,975,760 6,889,121
Noninterest income:
Service charges and other fees 2,442,366 1,179,247 3,621,613 1,227,712
Net investment securities gains -- 1,000 1,000 --
Other 1,005,623 58,076 1,063,699 245,371
---------------------------------------------------------- ------------
Total noninterest income 3,447,989 1,238,323 -- 4,686,312 1,473,083
---------------------------------------------------------- ------------
Noninterest expenses:
Salaries and employee benefits 7,323,248 2,438,069 9,761,317 3,169,639
Occupancy 645,535 460,763 1,106,298 353,888
Depreciation 1,141,406 444,948 (8,573) 1,584,269 557,324
6,488
Amortization of intangibles 576,460 -- 1,030,967 1,607,427 552,727
Other 3,088,068 1,262,452 759,687 5,110,207 1,822,593
---------------------------------------------------------- ------------
Total noninterest expenses 12,774,717 4,606,232 1,788,569 19,169,518 6,456,171
---------------------------------------------------------- ------------
Income before income taxes 5,082,913 3,640,719 (3,231,078) 5,492,554 1,906,033
Income tax expense 1,677,987 1,402,063 (890,341) 2,189,709 818,990
---------------------------------------------------------- ------------
Net income $ 3,404,926 $ 2,238,656 ($ 2,340,737) $ 3,302,845 $ 1,087,043
========================================================== ============
Average shares outstanding 546,138 472,710 617,127 617,675
Earnings per share $ 6.23 $ 4.74 $ 5.35 $ 1.76
</TABLE>
The adjustments recorded reflect the effects of push-down accounting allocating
the purchase price paid to the assets and liabilities acquired, the effect of
additional borrowings resulting in increased interest expense, the dividend paid
on the preferred securities and the related tax effects of the adjustments.
The results of operations for the period January 16, 1997 through September 30,
1997 are not materially different from what they would have been on a pro forma
basis for the period January 1, 1997 through September 30, 1997.
(9)
<PAGE>
Note 3. Company-obligated Mandatorily Redeemable Preferred Securities of United
Capital Trust
On January 16, 1997, United Capital Trust I (the Trust), a Delaware business
trust wholly-owned by United, completed the sale of $11,000,000 of 9.75 percent
preferred securities (the Preferred Securities). The Trust used the proceeds
from the offering to purchase a like amount of 9.75 percent Junior Subordinated
Deferrable Interest Debentures (the Debentures) of United. The Debentures are
the sole assets of the Trust and are eliminated, along with the related income
statement effects, in the consolidated financial statements. United used the
proceeds from the sale of the Debentures to provide a portion of the financing
for the acquisition of PFC.
The Preferred Securities accrue and pay dividends quarterly at an annual rate of
9.75 percent of the stated liquidation amount of $25 per Preferred Security.
United has fully and unconditionally guaranteed all of the obligations of the
Trust. The guarantee covers the quarterly distributions and payments on
liquidation or redemption of the Preferred Securities, but only to the extent of
funds held by the Trust.
The Preferred Securities are mandatorily redeemable upon the maturity of the
Debentures, on January 15, 2027 or upon earlier redemption as provided in the
Indenture. United has the right to redeem the Debentures on or after January 15,
2002.
Note 4. Common Stock Owned by Employee Stock Ownership Plan Participants
Under the terms of the Employee Stock Ownership Plan (ESOP), participants who
have been terminated may elect to have their distributions made in cash, United
common stock, or both. If stock distributed under the plan to a participant is
not readily tradable on an established market, the participant has the option to
require United to purchase the stock distributed.
The Securities and Exchange Commission's Accounting Series Release No. 268
required that to the extent there are conditions (regardless of their
probability of occurrence) whereby holders of equity securities may demand cash
in exchange for their securities, United must reflect the maximum possible cash
requirements related to those securities outside of stockholders' equity.
Accordingly, the common stock owned by the ESOP participants was reflected on
the accompanying balance sheet at its fair value at December 31, 1996.
As of April 1, 1997, the ESOP was amended to allow it to assume the put option
of United. As a result of this amendment, ASR 268 no longer applies to United.
Accordingly, United reclassified shares of common stock owned by the ESOP
participants to stockholders' equity at its historical cost.
10
<PAGE>
Note 5. Earnings Per Share
Earnings per share is computed using net income applicable to common stock and
the weighted average number of common and common stock equivalent shares
outstanding. The common stock equivalent shares outstanding were calculated
using the treasury stock method and are excluded because the aggregate dilution
from the common stock equivalents is less than three percent of earnings per
share outstanding. In addition, common equivalent shares outstanding were
calculated assuming that certain options were converted into shares of United's
common stock at the beginning of the first period shown.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("FAS 128"), "Earnings Per Share." This
Statement is effective for financial statements issued for periods ending after
December 15, 1997 and supersedes APB Opinion No. 15, "Earnings Per Share." The
Statement replaces the presentation of primary EPS with a presentation of basic
EPS. It also requires dual presentation of basic and diluted EPS on the face of
the income statement. United is determining the impact FAS 128 will have on
current earnings per share.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Basis of Presentation
The following discussion and analysis provides information regarding United's
unaudited results of operations for the quarter and nine months ended September
30, 1997 and 1996 and financial condition as of September 30, 1997 and December
31, 1996. This discussion and analysis should be read in conjunction with
United's Unaudited Consolidated Financial Statements submitted under Item 1 of
Part I and United's 1996 Annual Report on Form 10-K.
The comparison of 1997 data to 1996 data is substantially affected by the
acquisition of PFC on January 16, 1997.
In recent years, significant new federal legislation has imposed numerous new
legal and regulatory requirements on financial institutions. In addition to the
uncertainties posed by possible legislative change, there are many other
uncertainties that may make United's historical performance an unreliable
indicator of its future performance, and forward-looking information, including
projections of future performance, is subject to numerous possible adverse
developments, including but not limited to the possibility of adverse economic
developments which may increase default and delinquency risks in United's loan
portfolio; shifts in interest rates which may result in shrinking interest
margins; deposit outflows; interest rates on competing investments; demand for
financial services and loan products; increases generally in competitive
pressure in the banking and financial services industry; changes in accounting
policies or guidelines, or monetary and fiscal policies of the Federal
government; changes in the quality or composition of United's loan and
investment portfolios; or other significant uncertainties.
Overview
United's net income for the quarter ended September 30, 1997 decreased $7,297 or
0.6% to $1,116,158 from $1,123,455 for the quarter ended September 30, 1996.
United's net income for the nine months ended September 30, 1997 increased
$248,071 or 7.3% to $3,652,997 from $3,404,926 for the nine months ended
September 30, 1996. Total assets at September 30, 1997 increased $220,824,232 or
48.1% to $679,962,005 from $459,137,773 at December 31, 1996.
Results of Operations
Net Interest Income
Net interest income for the quarter ended September 30, 1997 increased
$2,789,488 or 56.0% to $7,768,646 from $4,979,158 for the quarter ended
September 30, 1996. PFC contributed $2,459,254 to net interest income for the
quarter ended September 30, 1997.
12
<PAGE>
Net interest income for the nine months ended September 30, 1997 increased
$7,365,363 or 50.6% to $21,920,827 from $14,555,464 for the nine months ended
September 30, 1996. PFC contributed $6,948,199 to net interest income for the
period from January 16, 1997 through September 30, 1997. Interest expense on
notes payable increased $1,020,201 from $767,214 for the nine months ended
September 30, 1996 to $1,787,415 for the nine months ended September 30, 1997.
This increase is due to the additional borrowing incurred to finance the
acquisition of PFC.
Net interest income was positively impacted by an increase of $190.0 million or
49.1% in average interest-earning assets to $576.8 million for the nine months
ended September 30, 1997 from $386.8 million for the nine months ended September
30, 1996, and by an increase of .20% in average yields on average
interest-earning assets to 8.83% for the nine months ended September 30, 1997
from 8.63% for the nine months ended September 30, 1996. The positive impact to
net interest income was partially offset by the increase of $154.8 million or
47.9% in average interest-bearing liabilities to $477.7 million for the nine
months ended September 30, 1997 from $322.9 million for the nine months ended
September 30, 1996 and an increase in the rate paid on average interest-bearing
liabilities of .21% to 4.53% for the nine months ended September 30, 1997 from
4.32% for the nine months ended September 30, 1996. Average interest-earning
assets and average interest-bearing liabilities increased due to the acquisition
of PFC. The net interest spread declined .01% to 4.30% for the nine months ended
September 30, 1997 from 4.31% for the nine months ended September 30, 1996 while
net interest margin increased to 5.08% from 5.03%.
13
<PAGE>
The following table presents the changes in net interest income by volume and
rate and the total thereof for the nine months ended September 30, 1997 and
1996. Changes in net interest income due to both volume and rate have been
included in changes due to rate.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 vs. 1996
Increase (Decrease)
Due to Change in
Volume Rate Total
(in thousands)
Interest-earning assets:
<S> <C> <C> <C>
Interest-bearing deposits with banks $ 72 $ 52 $ 124
Federal funds sold 90 17 107
Taxable investment securities 1,601 348 1,949
Non-taxable investment securities 548 3 551
Loans and leases 9,876 482 10,358
-------- ------- -------
Total interest-earning assets $12,187 $ 902 $13,089
======== ======= =======
Interest-bearing liabilities
Deposits - interest-bearing:
Interest-bearing demand deposits $ 126 $ 91 $ 217
Savings 128 32 160
Money market 1,793 (24) 1,769
Time 2,074 81 2,155
----- ----- -----
Total interest-bearing deposits 4,121 180 4,301
Federal funds purchased and
securities sold under
repurchase agreements 422 (19) 403
FHLB advances (116) (19) (135)
Notes payable 459 696 1,155
------ ------ -------
Total interest-bearing liabilities $4,886 $ 838 $5,724
======= ======= =======
Change in net interest income $7,301 $ 64 $7,365
======= ======== =======
</TABLE>
14
<PAGE>
The following table presents, for the periods and as of the dates indicated,
information regarding United's average balance sheet. Ratio, yield and rate
information are based on average daily balances during the nine months ended
September 30, 1997 and 1996. Non-accrual loans are included in the average
balances for loans and leases, net, for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Assets: (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 2,845 $ 129 6.06% $ 185 $ 5 3.61%
Federal funds sold 12,230 492 5.38 9,917 385 5.19
Taxable investments 128,387 6,144 6.40 92,895 4,195 6.03
Nontaxable investments 23,516 906 5.15 9,245 355 5.13
Loans and leases 409,828 30,419 9.92 274,533 20,061 9.76
-------------------------------------------------------------------
Total interest-earning assets 576,806 38,090 8.83 386,775 25,001 8.63
Noninterest-earning assets 73,560 42,759
------- --------
Total assets $650,366 $429,534
========= =========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits - interest-bearing:
Interest-bearing demand $ 51,232 $ 463 1.21% $ 33,809 $ 246 0.97%
Savings 38,426 615 2.14 30,006 455 2.03
Money market 159,046 5,285 4.44 105,291 3,516 4.46
Time 158,002 6,659 5.63 108,133 4,504 5.56
-------------------------------------------------------------------
Total interest-bearing dep. 406,706 13,022 4.28 277,239 8,721 4.20
Federal funds purchased and
securities sold under
repurchase agreements 36,844 1,360 4.94 25,569 957 5.00
FHLB advances 9,546 411 5.76 12,112 546 6.02
Notes payable 24,575 1,376 7.49 7,977 221 3.70
-------------------------------------------------------------------
Total interest-bearing liab. 477,671 16,169 4.53 322,897 10,445 4.32
Noninterest-bearing demand 111,534 64,206
Accrued expenses 8,274 5,533
---------- ---------
Total liabilities 597,479 392,636
Stockholders' equity 52,887 36,898
---------- ---------
Total liabilities and equity $650,366 $429,534
======== =========
Net interest income $21,921 $14,556
Net interest spread 4.30% 4.31%
Net interest margin 5.08% 5.03%
</TABLE>
15
<PAGE>
Provision for Loan and Lease Losses
The provision for loan and lease losses was $181,075 for the quarter ended
September 30, 1997, an increase of $129,900 over the provision for loan and
lease losses of $51,175 for the quarter ended September 30, 1996. PFC
contributed $102,050 to the consolidated provision for the quarter ended
September 30, 1997. The provision for loan and lease losses was $654,625 for the
nine months ended September 30, 1997, an increase of $508,802 over the provision
for loan and lease losses of $145,823 for the nine months ended September 30,
1996. PFC contributed $261,650 to the consolidated provision for the period from
January 16, 1997 through September 30, 1997. Fluctuations in the provision for
loan and lease losses result from management's regular assessment of the
adequacy of the allowance for loan and lease losses. See Discussion on Allowance
for Loan and Lease Losses.
Noninterest Income
Noninterest income consists mainly of service charges on deposit accounts and
other service fees, earnings on cash surrender value of life insurance and gain
on sale of assets. Noninterest income was $1,635,333 for the quarter ended
September 30, 1997, an increase of $577,426 or 54.6% over noninterest income of
$1,057,907 for the quarter ended September 30, 1996. PFC contributed $506,810 of
noninterest income for the quarter ended September 30, 1997. The remaining
increase of $70,616 includes a gain on sale of investment securities of $24,645.
Noninterest income was $5,066,252 for the nine months ended September 30, 1997,
an increase of $1,618,263 or 46.9% over noninterest income of $3,447,989 for the
nine months ended September 30, 1996. PFC contributed $1,399,811 of noninterest
income for the period from January 16, 1997 through September 30, 1997. The
remaining increase of $218,452 is primarily due to an increase of $189,892 in
service charges and an increase of $28,560 in other noninterest income.
Noninterest Expenses
Noninterest expenses consist of salaries and employee benefits, occupancy,
depreciation, amortization of intangibles, minority interest expense of United
Capital Trust I and other miscellaneous expenses. Noninterest expenses were
$7,453,677 for the quarter ended September 30, 1997, an increase of $3,234,818
or 76.7% over noninterest expenses of $4,218,859 for the quarter ended September
30, 1996. PFC contributed $2,390,112 in noninterest expenses for the quarter
ended September 30, 1997. The remaining increase of $844,706 is primarily
attributed to an increase of $610,219 in salaries and employee benefits, an
increase of $268,125 in minority interest expense of United Capital Trust I and
a decrease of $33,638 in other expenses. Noninterest expenses were $20,463,471
for the nine months ended September 30, 1997, an increase of $7,688,754 or 60.2%
over noninterest expenses of $12,774,717 for the nine months ended September 30,
1996. PFC contributed $5,958,897 in noninterest expenses for the period from
January 16, 1997 through September 30, 1997. The remaining increase of
$1,729,857 is primarily due to an increase in salaries and employee benefits of
$1,021,658; an increase of
16
<PAGE>
$35,750 in occupancy expenses; an increase of $70,975 in depreciation expense; a
decrease of $203,194 in amortization of intangibles; an increase of $759,688 in
minority interest expense of United Capital Trust I and an increase of $44,980
in other miscellaneous expenses. The increase in salaries and employee benefits
is primarily due to salary adjustments and staffing increases. The increase in
depreciation expense is primarily due to the additional space added to Signal
Bank in January, 1997. The decrease in amortization of intangibles is due to one
covenant not to compete being fully amortized as of December 31, 1996. The
increase in minority interest expense of United Capital Trust I is due to the
issuance of $11,000,000 of United Capital Trust's 9.75 percent Preferred
Securities on January 16, 1997.
Income Tax Expense
Income tax expense was $653,069 for the quarter ended September 30, 1997, an
increase of $9,493 or 1.5% over income tax expense of $643,576 for the quarter
ended September 30, 1996. The effective tax rate increased from 36.4% for the
quarter ended September 30, 1996 to 36.9% for the quarter ended September 30,
1997. Income tax expense was $2,215,986 for the nine months ended September 30,
1997, an increase of $537,999 or 32.1% over income tax expense of $1,677,987 for
the nine months ended September 30, 1996. The effective tax rate increased from
33.0% for the nine months ended September 30, 1996 to 37.8% for the nine months
ended September 30, 1997. This increase is due to the additional goodwill
resulting from the acquisition of PFC and the nondeductibility of the related
amortization for tax purposes.
Financial Condition
Loans and Leases
Total loans were $437,493,670 at September 30, 1997, an increase of $151,288,800
or 52.9% over the December 31, 1996 amount of $286,204,870. PFC contributed
$120,944,517 in loans at September 30, 1997. The remaining increase of
$30,344,283 represents growth of 10.6%. The following table presents a summary
of United's loan portfolio as of September 30, 1997 and December 31, 1996:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
Amount Percent Amount Percent
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $283,169 64.7% $175,339 61.3%
Residential real estate 86,457 19.8 67,569 23.6
Consumer 53,715 12.3 31,071 10.8
Leases 14,153 3.2 12,226 4.3
-----------------------------------------------------------
Total loans and leases $437,494 100.0% $286,205 100.0%
========= ====== ========= ======
</TABLE>
17
<PAGE>
Allowance for Loan and Lease Losses
The current level of the allowance for loan and lease losses is a result of
management's assessment of the risks within the portfolio based on the
information revealed in the credit review processes. United utilizes a
risk-rating system on all loans and a quarterly review and reporting process
which results in the calculation of the guideline reserves based on the risk
within the portfolio. This assessment of risk takes into account the composition
of the loan portfolio, previous loan loss experience, current economic
conditions and other factors that in management's opinion deserve special
recognition.
The following table presents a summary of United's allowance for loan and lease
losses for the nine months ended September 30, 1997 and 1996:
Nine Months Ended
September 30,
1997 1996
(in thousands)
Balance, beginning of period $3,168 $2,899
Allowance for loan losses acquired 2,255 -
Provision for loan and lease losses 655 146
Loan and lease charge-offs (1,125) (570)
Recoveries 308 393
----- ----
Net charge-offs (817) (177)
----- -------
Balance, end of period $5,261 $2,868
====== ======
While the allowance for loan and lease losses is available to absorb credit
losses in the entire portfolio, the table below presents an estimate of the
allowance for loan and lease losses allocated by loan type. The unallocated
portion of the allowance for loan and lease losses represents allowance
available for the entire portfolio as well as reserves identified for
qualitative factors, unfunded commitments, and letters of credit. A significant
portion of the allowance for loan and lease losses is allocated to the
commercial and agricultural loan portfolios due to their higher degree of risk
as well as their historical loan loss experience.
The following table presents the allocation of the allowance for loan and lease
losses to major categories of loans and leases at September 30, 1997 and
December 31, 1996:
September 30, December 31,
1997 1996
(in thousands)
Commercial and agricultural $3,375 $1,587
Residential real estate 23 10
Consumer 351 247
Leases 285 224
Unallocated 1,227 1,100
----- -------
Total $5,261 $3,168
====== ======
18
<PAGE>
Nonperforming Assets
Total nonperforming loans and leases were $4,157,000 at September 30, 1997, an
increase of $2,969,000 or 249.9% over the December 31, 1996 amount of
$1,188,000. PFC contributed $2,498,000 in nonperforming loans and leases at
September 30, 1997. Other real estate increased $174,000 over the December 31,
1996 amount of none.
The following table presents the nonperforming assets as of September 30, 1997
and 1996 and December 31, 1996:
<TABLE>
<CAPTION>
September 30, September 30, December 31,
1997 1996 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Nonaccrual loans $2,351 $722 $913
Accrual loans which are past due 90
days or more as to principal or interest 1,727 342 275
Troubled debt restructurings 79 132 -
------- ------ --------
Total nonperforming loans and leases 4,157 1,196 1,188
Other real estate owned 174 - -
------- --------- ---------
Total nonperforming assets $4,331 $1,196 $1,188
====== ====== =======
Total nonperforming loans and leases/
total loans and leases 0.95% 0.43% 0.42%
Total nonperforming assets/total assets 0.64% 0.27% 0.26%
</TABLE>
Investment Securities
Total investment securities available for sale were $147,887,105 at September
30, 1997, an increase of $45,526,638 or 44.5% over the December 31, 1996 amount
of $102,360,467. PFC contributed $60,313,960 in investment securities available
for sale at September 30, 1997. The remaining decrease of $14,787,322 represents
maturities and paydowns on securities available for sale. The following table
presents a summary of United's investment portfolio as of September 30, 1997:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government agencies $78,938 $432 $ (39) $79,331
Obligations of states and
political subdivisions 27,027 942 (81) 27,888
Mortgage-backed securities 24,538 134 (66) 24,606
Corporate and other equity
securities 16,000 111 (49) 16,062
-------- ------ ----- -------
Total investment securities
available for sale $146,503 $1,619 $(235) $147,887
======== ====== ====== ========
</TABLE>
19
<PAGE>
Deposits
Deposits were $538,372,306 at September 30, 1997, an increase of $165,580,052 or
44.4% over the December 31, 1996 amount of $372,792,254. PFC contributed
$169,898,586 in deposits at September 30, 1997. The remaining decrease of
$4,318,534 is due to a decrease in deposits, primarily noninterest-bearing
demand accounts.
Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements were $39,212,684 at September 30,
1997, an increase of $17,415,341 or 79.9% over the December 31, 1996 amount of
$21,797,343. PFC contributed $9,693,731 in securities sold under repurchase
agreements at September 30, 1997.
Notes Payable and Other Borrowings
Notes payable and other borrowings were $32,517,270 at September 30, 1997, an
increase of $15,000,794 over the December 31, 1996 amount of $17,516,476. This
increase is due to the additional borrowing needed to finance the acquisition of
PFC. The new term note payable to a bank bears interest at LIBOR plus 1.4%
(7.15% at September 30, 1997), is due January 16, 2002, with annual installments
of $3,000,000, secured by all the common stock of Signal Bank, Inc., Goodhue
County National Bank, Park Financial Corporation and United Credit Services,
Inc.
Capital Management
Stockholders' equity was $51,111,308 at September 30, 1997, an increase of
$17,605,283 or 52.5% over the December 31, 1996 amount of $33,506,025. This
increase is due to the retention of current period earnings, a $7.5 million
stock offering, the transfer of $7,360,127 of common stock owned by ESOP
participants and the net change in unrealized gains on securities available for
sale.
The following table compares United's regulatory capital ratios as of September
30, 1997 and December 31, 1996 with the minimum requirements for well
capitalized and adequately capitalized financial institutions as defined by the
federal regulatory agencies' Prompt Corrective Action Rules:
20
<PAGE>
<TABLE>
<CAPTION>
Minimum Requirements
Adequately Well
Actual Capitalized Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 1997:
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $40,921,126 8.42% $38,889,200 8.0% $48,611,500 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $35,659,829 7.34% $19,444,600 4.0% $29,166,900 6.0%
Tier 1 Capital
(to Average Assets) $35,659,829 5.68% $18,819,375 3.0% $31,365,624 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $40,122,198 14.23% $22,549,040 8.0% $28,186,300 10.0%
Tier 1 Capital
(to Risk Weighted Assets) $36,954,100 13.11% $11,274,520 4.0% $16,911,780 6.0%
Tier 1 Capital
(to Average Assets) $36,954,100 8.66% $12,803,790 3.0% $21,339,650 5.0%
</TABLE>
Liquidity
For the nine months ended September 30, 1997 the net cash provided from
operating activities was $5,381,348, net cash used for investing activities was
$43,426,532, and net cash provided by financing activities was $43,359,052.
United used the proceeds from the financing activities to acquire PFC for
$40,275,107.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure," ("FAS 129") which codifies existing disclosure
requirements regarding capital structure. FAS 129 will be required to be adopted
at year-end 1997 and is not expected to have a material impact on United's
current capital structure disclosures.
In September 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income," ("FAS 130") which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. FAS 130 is effective for
fiscal years beginning after December 15, 1997. United is evaluating the effect
adoption of this statement will have on the reporting of its financial
information.
In September 1997, the FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information," ("FAS 131") which establishes standards for the way public
enterprises report information about operating segments in annual financial
statements and interim financial reports. FAS 131 is effective for fiscal years
beginning after December 15, 1997. United is evaluating the effect adoption of
this statement will have on the reporting of its financial information.
21
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January, 1997 United granted common stock options totaling 800 shares to a
certain key employee of United. The options become exercisable over a five-year
period beginning January 1, 1998 at an exercise price of $108.32.
In September, 1997 United issued 248 shares to an investor in exchange for an
aggregate purchase price of $24,988, in reliance upon an exemption under Section
4(2) of the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Exhibit Index immediately following the signature page.
(b) Reports on Form 8-K.
None filed during the quarter ended September 30, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirement 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 BANCSHARES, INC.
Dated: November 5, 1997 By: /s/ Galen T. Pate
Galen T. Pate, President
(principal executive officer)
By: /s/ Marcia L. O'Brien
Marcia L. O'Brien, Executive Vice President and
Chief Financial Officer (principal financial and
accounting officer)
23
<PAGE>
UNITED COMMUNITY BANCSHARES, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Exhibit
Number Item
11 Computation of Earnings per Share
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule (filed with electronic version only)
24
Exhibit 11.
United Community Bancshares, Inc. and Subsidiaries
Computation of Earnings per Share
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---- ----
<S> <C> <C>
Primary and fully diluted:
Weighted average number of common shares
outstanding 601,673 546,138
Net effect of assumed exercise of stock options
based on treasury stock method - - (1)
----------- -----------
601,673 546,138
=========== ===========
Net income $3,652,997 $3,404,926
Net income per common share $6.07 $6.23
</TABLE>
(1) Common stock equivalents are excluded because the aggregate dilution from
the common stock equivalents is less than three percent of earnings per share
outstanding.
25
Exhibit 12.
United Community Bancshares, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
(dollars in thousands)
<S> <C> <C>
Income before income taxes $ 5,869 $ 5,083
Interest expense 16,169 10,445
1/3 rent expense 177 73
---------- ----------
Total earnings $ 22,215 $ 15,601
============ ==========
Interest expense $ 16,169 $ 10,445
1/3 rent expense 177 73
---------- ----------
Total fixed charges $ 16,346 $ 10,518
============ ==========
Ratio including interest on deposits 1.36x 1.48x
Income before income taxes $ 5,869 $ 5,083
Interest expense 16,169 10,445
Less interest on deposits (13,022) (8,721)
1/3 Rent Expense 177 73
---------- ----------
Total earnings $ 9,193 $ 6,880
============ ===========
Interest Expense $ 16,169 $ 10,445
Less interest on deposits (13,022) (8,721)
1/3 rent expense 177 73
---------- ----------
Total fixed charges $ 3,324 $ 1,797
=========== ===========
Ratio excluding interest on deposits 2.77x 3.83x
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 32,855,956
<INT-BEARING-DEPOSITS> 1,672,486
<FED-FUNDS-SOLD> 8,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 147,887,105
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 437,493,670
<ALLOWANCE> 5,261,297
<TOTAL-ASSETS> 679,962,005
<DEPOSITS> 538,372,306
<SHORT-TERM> 39,212,684
<LIABILITIES-OTHER> 7,748,437
<LONG-TERM> 32,517,270
11,000,000
0
<COMMON> 6,045
<OTHER-SE> 51,105,263
<TOTAL-LIABILITIES-AND-EQUITY> 679,962,005
<INTEREST-LOAN> 30,418,879
<INTEREST-INVEST> 7,049,971
<INTEREST-OTHER> 621,386
<INTEREST-TOTAL> 38,090,236
<INTEREST-DEPOSIT> 13,022,101
<INTEREST-EXPENSE> 16,169,409
<INTEREST-INCOME-NET> 21,920,827
<LOAN-LOSSES> 654,625
<SECURITIES-GAINS> 23,652
<EXPENSE-OTHER> 20,463,471
<INCOME-PRETAX> 5,868,983
<INCOME-PRE-EXTRAORDINARY> 3,652,997
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,652,997
<EPS-PRIMARY> 6.07
<EPS-DILUTED> 6.07
<YIELD-ACTUAL> 0
<LOANS-NON> 2,351,000
<LOANS-PAST> 1,727,000
<LOANS-TROUBLED> 79,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,423,434
<CHARGE-OFFS> 1,125,210
<RECOVERIES> 308,448
<ALLOWANCE-CLOSE> 5,261,297
<ALLOWANCE-DOMESTIC> 4,034,439
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,226,858
</TABLE>
