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: March 31, 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) 552-2828
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 May 9, 1997, the Registrant had 601,610 shares of Common Stock, $.01 par
value, outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS. Page
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flow -
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Stockholders' Equity -
Year Ended December 31, 1996 and Three Months
Ended March 31, 1997 6
Notes to Unaudited Consolidated Financial Statements 7
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
MARCH 31, 1997 AND DECEMBER 31, 1996
UNAUDITED
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 29,759,978 $ 27,542,088
Interest-bearing deposits with banks 4,533,469 231,972
Federal funds sold 5,800,000 15,725,000
Investment securities available for sale 154,887,738 102,360,467
Loans and leases 415,205,767 286,204,870
Allowance for loan losses (5,297,279) (3,168,098)
------------- -------------
Net loans and leases 409,908,488 283,036,772
------------- -------------
Property and equipment, net 13,986,661 11,630,681
Accrued interest receivable 5,189,632 3,369,793
Cash surrender value of life insurance 9,674,535 9,577,434
Intangible assets, net 26,780,227 3,516,113
Other assets 2,054,636 2,147,453
------------- -------------
Total assets $ 662,575,364 $ 459,137,773
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 514,203,643 $ 372,792,254
Securities sold under repurchase agreements 42,165,051 21,797,343
Accrued expenses and other liabilities 7,302,236 6,165,548
Notes payable and other borrowings 39,352,957 17,516,476
------------- -------------
Total liabilities 603,023,887 418,271,621
------------- -------------
Company-obligated mandatorily redeemable
preferred securities of United Capital Trust I 11,000,000 --
Common stock owned by employee stock
ownership plan participants 7,555,103 7,360,127
Stockholders' equity:
Common stock, par value $.01 per share;
5,000,000 shares authorized; 542,200 and 476,271
shares issued 5,422 4,763
Additional paid-in capital 24,506,048 17,525,797
Retained earnings 16,782,856 15,579,526
Unrealized gain/(loss) on securities available for
sale (297,952) 395,939
------------- -------------
Total stockholders' equity 40,996,374 33,506,025
------------- -------------
Total liabilities and stockholders' equity $ 662,575,364 $ 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 MARCH 31, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------------------------
<S> <C> <C>
Interest income on:
Loans and leases $ 9,313,131 $ 6,543,291
Investment securities 2,318,284 1,469,178
Federal funds sold 137,836 157,284
------------ ------------
Total interest income 11,769,251 8,169,753
------------ ------------
Interest expense on:
Deposits 4,018,323 2,862,145
Federal funds purchased and securities sold
under repurchase agreements 406,089 324,030
Notes payable and other borrowings 582,401 252,388
------------ ------------
Total interest expense 5,006,813 3,438,563
------------ ------------
Net interest income 6,762,438 4,731,190
Provision for loan and lease losses 213,225 44,233
------------ ------------
Net interest income after provision for
loan and lease losses 6,549,213 4,686,957
Noninterest income:
Service charges and other fees 1,276,409 790,530
Net investment securities losses (900) --
Other 313,125 155,635
------------ ------------
Total noninterest income 1,588,634 946,165
------------ ------------
Noninterest expenses:
Salaries and employee benefits 3,338,139 2,409,932
Occupancy 344,776 168,837
Depreciation 501,270 378,317
Amortization of intangibles 446,764 189,023
Other 1,618,316 942,254
------------ ------------
Total noninterest expenses 6,249,265 4,088,363
------------ ------------
Income before income taxes 1,888,582 1,544,759
Income tax expense 685,252 549,744
------------ ------------
Net income $ 1,203,330 $ 995,015
============ ============
Average shares outstanding 596,955 545,054
Earnings per share $ 2.02 $ 1.83
Dividends per share -- --
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
4
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1996
----------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 1,203,330 $ 995,015
Adjustments to reconcile net income to net
cash flows from operating activities:
Net investment securities losses 900 --
Net amortization and accretion of bond
premiums and discounts (60,492) (47,183)
Provision for loan and lease losses 213,225 44,233
Depreciation 501,270 378,317
Amortization 446,764 189,023
Earnings on cash surrender value of life insurance (97,101) (98,993)
Net gain on sale of loans (191,729) (17,978)
Net gain on sale of other real estate -- (11,358)
Net gain on sale of property and equipment (16,130) (9,056)
Provision for deferred income taxes (15,600) (100,000)
Other, net (547,301) 199,697
------------ ------------
Net cash flows from operating activities 1,437,136 1,521,717
------------ ------------
Cash Flows Used for Investing Activities
Net increase in interest-bearing deposits with banks (2,955,497) --
Net (increase)decrease in federal funds sold 13,925,000 (5,125,000)
Net cash flows from investment securities 10,651,306 2,447,008
Net (increase)decrease in loans and leases (9,758,620) 974,825
Purchases of property and equipment (617,410) (255,219)
Proceeds from sales of property and equipment 16,130 17,000
Proceeds from sales of other real estate -- 11,358
Cash paid, net of cash acquired, upon purchase of
subsidiary (40,275,107) --
------------ ------------
Net cash flows used for investing activities (29,014,198) (1,930,028)
------------ ------------
Cash Flows (Used for)From Financing Activities
Net decrease in deposits (21,767,118) (1,213,203)
Net increase(decrease) in securities sold under
repurchase agreements 11,549,703 (354,095)
Proceeds from notes payable and other borrowings 27,063,481 1,076,635
Payments made on notes payable and other borrowings (5,227,000) (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 7,529,010 216,486
Repurchase of common stock (353,124) (41,971)
------------ ------------
Net cash flows (used for)from financing
activities 29,794,952 (1,316,148)
------------ ------------
Net increase(decrease) in cash and cash
equivalents 2,217,890 (1,724,459)
Cash and Cash Equivalents
Beginning 27,542,088 20,513,154
------------ ------------
Ending $ 29,759,978 $ 18,788,695
============ ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
5
<PAGE>
UNITED COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND THREE MONTHS ENDED MARCH 31, 1997
UNAUDITED
<TABLE>
<CAPTION>
Unrealized gain/
Common Stock Additional Retained (loss) on securities
Shares Par value paid-in capital earnings available for sale 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 -- -- -- 1,203,330 -- 1,203,330
Common stock issued 70,989 710 7,528,300 -- -- 7,529,010
Common stock repurchased (3,260) (33) (353,091) -- -- (353,124)
Increase in stock owned by ESOP
participants (1,800) (18) (194,958) -- -- (194,976)
Net change in unrealized loss on
securities available for sale -- -- -- -- (693,891) (693,891)
-------------------------------------------------------------------------------------
Balance, March 31, 1997 542,200 $ 5,422 $ 24,506,048 $ 16,782,856 ($ 297,952) $ 40,996,374
=====================================================================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
6
<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 March 31, 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 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 March 31, 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.
7
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF INCOME OF UNITED AND PFC
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
STATEMENT OF
UNITED PFC ADJUSTMENTS INCOME
----------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income on:
Loans and leases $ 6,543,291 $ 2,772,022 $ 23,631 $ 9,289,933
(49,011)
Investment securities 1,469,178 993,935 (37,777) 2,425,336
Federal funds sold 157,284 131,342 288,626
------------ ------------ ------------ ------------
Total interest income 8,169,753 3,897,299 (63,157) 12,003,895
------------ ------------ ------------ ------------
Interest expense on:
Deposits 2,862,145 1,373,800 26,389 4,262,334
Federal funds purchased and securities sold
under repurchase agreements 324,030 148,060 472,090
Notes payable and other borrowings 252,388 -- 340,147 592,535
------------ ------------ ------------ ------------
Total interest expense 3,438,563 1,521,860 366,536 5,326,959
------------ ------------ ------------ ------------
Net interest income 4,731,190 2,375,439 (429,693) 6,676,936
Provision for loan and lease losses 44,233 120,000 164,233
------------ ------------ ------------ ------------
Net interest income after provision for
loan and lease losses 4,686,957 2,255,439 (429,693) 6,512,703
Noninterest income:
Service charges and other fees 790,530 408,177 1,198,707
Net investment securities losses -- -- --
Other 155,635 -- 155,635
------------ ------------ ------------ ------------
Total noninterest income 946,165 408,177 -- 1,354,342
------------ ------------ ------------ ------------
Noninterest expenses:
Salaries and employee benefits 2,409,932 822,941 3,232,873
Occupancy 168,837 153,159 321,996
Depreciation 378,317 136,060 (2,576) 513,964
2,163
Amortization of intangibles 189,023 -- 322,342 511,365
Other 942,254 365,213 223,438 1,530,905
------------ ------------ ------------ ------------
Total noninterest expenses 4,088,363 1,477,373 545,367 6,111,103
------------ ------------ ------------ ------------
Income before income taxes 1,544,759 1,186,243 (975,060) 1,755,942
Income tax expense 549,744 458,137 (328,835) 679,046
------------ ------------ ------------ ------------
Net income $ 995,015 $ 728,106 ($ 646,225) $ 1,076,896
============ ============ ============ ============
Average shares outstanding 545,054 472,710 616,043
Earnings per share $ 1.83 $ 1.54 $ 1.75
</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 March 31, 1997
are not materially different from what they would have been on a pro forma basis
for the period January 1, 1997 through March 31, 1997.
8
<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.
9
<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 three months ended March 31, 1997 and
1996 and financial condition as of March 31, 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.
Overview
United's net income for the three months ended March 31, 1997 increased $208,315
or 20.9% to $1,203,330 from $995,015 for the three months ended March 31, 1996.
Total assets at March 31, 1997 increased $203,437,591 or 44.3% to $662,575,364
from $459,137,773 at December 31, 1996.
Results of Operations
Net Interest Income
Net interest income for the three months ended March 31, 1997 increased
$2,031,248 or 42.9% to $6,762,438 from $4,731,190 for the three months ended
March 31, 1996. PFC contributed $2,006,873 to net interest income for the period
from January 16, 1997 through March 31, 1997. Interest expense on notes payable
increased $330,013 from $252,388 for the three months ended March 31, 1996 to
$582,401 for the three months ended March 31, 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 $172.0 million or
45.5% in average interest-earning assets to $550.4 million for the three months
ended March 31, 1997 from $378.4 million for the three months ended March 31,
1996, offset by a decrease of .01% in average yields on average interest-earning
assets to 8.67% for the three months ended March 31, 1997 from 8.68% for the
three months ended March 31, 1996. The positive impact to net interest income
was partially offset by the increase of $141.9 million or 45.1% in average
interest-bearing liabilities to $456.7 million for the three months ended March
31, 1997 from $314.8 million for the three months ended March 31, 1996 and an
increase in the rate paid on average interest-bearing liabilities of .06% to
4.45% for the three months ended March 31, 1997 from 4.39% for the three months
ended March 31, 1996. Average interest-earning assets and average
interest-bearing liabilities increased due to the acquisition of PFC. The net
interest spread declined .07% to 4.22% for the three months ended March 31, 1997
from 4.29% for the three months ended March 31, 1996 while net interest margin
declined to 4.98% from 5.03%. This increase in United's overall cost of funds is
due primarily to the additional interest expense incurred on long term debt
associated with the acquisition of PFC.
10
<PAGE>
The following table presents the changes in net interest income by volume and
rate and the total thereof for the three months ended March 31, 1997 and 1996.
Changes in net interest income due to both volume and rate have been included in
changes due to rate.
Three Months Ended
March 31,
1997 vs. 1996
-------------------
Increase (Decrease)
Due to Change in
-------------------
Volume Rate Total
------ ---- -----
(in thousands)
Interest-earning assets:
Interest-bearing deposits with banks $ -- $ 49 $ 49
Federal funds sold (69) 1 (68)
Taxable investment securities 531 93 624
Non-taxable investment securities 188 37 225
Loans and leases 3,027 (257) 2,770
------- ------- -------
Total interest-earning assets $ 3,677 $ (77) $ 3,600
======= ======= =======
Interest-bearing liabilities
Deposits - interest-bearing:
Interest-bearing demand deposits $ 36 $ 31 $ 67
Savings 36 (2) 34
Money market 549 (28) 521
Time 587 (52) 535
------- ------- -------
Total interest-bearing deposits 1,208 (51) 1,157
Federal funds purchased and
securities sold under
repurchase agreements 89 (7) 82
FHLB advances -- (2) (2)
Notes payable 357 (25) 332
------- ------- -------
Total interest-bearing liabilities $ 1,654 $ (85) $ 1,569
======= ======= =======
Change in net interest income $ 2,023 $ 8 $ 2,031
======= ======= =======
11
<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 three months ended
March 31, 1997 and 1996. Non-accrual loans are included in the average balances
for loans and leases, net, for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------- -------- ------- ------- -------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits $ 4,137 $ 49 4.80% $ 41 $ -- 0.00%
Federal funds sold 6,955 89 5.19 12,447 157 5.07
Taxable investments 130,164 2,004 6.24 93,997 1,380 5.90
Nontaxable investments 21,547 314 5.91 6,922 89 5.17
Loans and leases 387,633 9,313 9.74 265,028 6,543 9.93
---------------------------------------------------------------
Total interest-earning assets 550,436 11,769 8.67 378,435 8,169 8.68
Noninterest-earning assets 65,158 41,808
-------- -------
Total assets $615,594 $420,243
======== =======
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Deposits - interest-bearing:
Interest-bearing demand $ 49,018 $ 140 1.16% $ 32,740 $ 73 0.90%
Savings 37,684 192 2.07 30,707 158 2.07
Money market 149,324 1,614 4.38 99,369 1,093 4.42
Time 152,074 2,073 5.53 110,067 1,538 5.62
---------------------------------------------------------------
Total interest-bearing dep 388,100 4,019 4.20 272,883 2,862 4.22
Federal funds purchased and
securities sold under
repurchase agreements 33,136 406 4.97 25,986 324 5.01
FHLB advances 12,000 179 6.05 12,000 181 6.07
Notes payable 23,443 403 6.97 3,892 71 7.34
---------------------------------------------------------------
Total interest-bearing liab 456,679 5,007 4.45 314,761 3,438 4.39
Noninterest-bearing demand 104,856 63,121
Accrued expenses 8,671 5,805
-------- -------
Total liabilities 570,206 383,687
Stockholders' equity 45,388 36,556
-------- -------
Total liabilities and equity $615,594 $420,243
======== =======
Net interest income $ 6,762 $ 4,731
Net interest spread 4.22% 4.29%
Net interest margin 4.98% 5.03%
</TABLE>
12
<PAGE>
Provision for Loan and Lease Losses
The provision for loan and lease losses was $213,225 for the three months ended
March 31, 1997, an increase of $168,992 over the provision for loan and lease
losses of $44,233 for the three months ended March 31, 1996. PFC contributed
$75,000 to the consolidated provision for the period from January 16, 1997
through March 31, 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.
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 $1,588,634 for the three months ended
March 31, 1997, an increase of $642,469 or 67.9% over noninterest income of
$946,165 for the three months ended March 31, 1996. PFC contributed $394,414 of
noninterest income for the period from January 16, 1997 through March 31, 1997.
The remaining increase of $248,055 is primarily due to an increase of $91,464 in
service charges, an increase of $161,697 in gain on sale of loans and a decrease
of $5,106 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
$6,249,265 for the three months ended March 31, 1997, an increase of $2,160,902
or 52.9% over noninterest expenses of $4,088,363 for the three months ended
March 31, 1996. PFC contributed $1,641,482 in noninterest expenses for the
period from January 16, 1997 through March 31, 1997. The remaining increase of
$519,420 is primarily due to an increase in salaries and employee benefits of
$200,185; an increase of $65,284 in occupancy expenses; an increase of $30,359
in depreciation expense; a decrease of $64,601 in amortization of intangibles;
an increase of $223,438 in minority interest expense of United Capital Trust I
and an increase of $64,755 in other miscellaneous expenses. The increase in
salaries and employee benefits is primarily due to salary adjustments and
staffing increases. The increase in occupancy and depreciation expenses 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 $685,252 for the three months ended March 31, 1997, an
increase of $135,508 or 24.6% over income tax expense of $549,744 for the three
months ended March 31, 1996. The effective tax rate increased from 35.6% for the
nine months ended March 31, 1996 to 36.3% for the three months ended March 31,
1997. This increase is due to the additional goodwill resulting from the
acquisition of PFC and the nondeductibility of the related amortization.
13
<PAGE>
Financial Condition
Loans and Leases
Total loans were $415,205,767 at March 31, 1997, an increase of $129,000,897 or
45.1% over the December 31, 1996 amount of $286,204,870. PFC contributed
$116,740,248 in loans at March 31, 1997. The remaining increase of $12,260,649
represents growth of 4.3%. The following table presents a summary of United's
loan portfolio as of March 31, 1997 and December 31, 1996:
March 31, 1997 December 31, 1996
Amount Percent Amount Percent
------ ------- ------ -------
(dollars in thousands)
Commercial and agricultural $271,719 65.4 % $175,339 61.3%
Residential real estate 87,231 21.0 67,569 23.6
Consumer 43,012 10.4 31,071 10.8
Leases 13,244 3.2 12,226 4.3
-------- ----- -------- -----
Total loans and leases $415,206 100.0% $286,205 100.0%
======== ===== ======== =====
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 three months ended March 31, 1997 and 1996:
Three Months Ended
March 31,
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 213 44
Loan and lease charge-offs (446) (70)
Recoveries 107 205
------ ------
Net (charge-offs) recoveries (339) 135
------ ------
Balance, end of period $5,297 $3,078
====== ======
14
<PAGE>
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 March 31, 1997 and December
31, 1996:
March 31, December 31,
1997 1996
------ ------
(in thousands)
Commercial and agricultural $2,129 $1,587
Residential real estate 156 10
Consumer 511 247
Leases 249 224
Unallocated 2,252 1,100
------ ------
Total $5,297 $3,168
====== ======
Nonperforming Assets
Total nonperforming loans and leases were $2,677,000 at March 31, 1997, an
increase of $1,489,000 or 125.3% over the December 31, 1996 amount of
$1,188,000. PFC contributed $847,000 in nonperforming loans and leases at March
31, 1997. Other real estate increased $477,000 over the December 31, 1996 amount
of none. PFC contributed $430,000 of this amount at March 31, 1997.
The following table presents the nonperforming assets as of March 31, 1997 and
1996 and December 31, 1996:
March 31, March 31, December 31,
1997 1996 1996
------ ------ ------
(in thousands)
Nonaccrual loans $1,515 $ 667 $ 913
Accrual loans which are past due 90
days or more as to principal or interest 1,092 800 275
Troubled debt restructurings 70 36 --
------ ------ ------
Total nonperforming loans and leases 2,677 1,503 1,188
Other real estate owned 477 -- --
------ ------ ------
Total nonperforming assets $3,154 $1,503 $1,188
====== ====== ======
Total nonperforming loans and leases/
total loans and leases 0.64% 0.57% 0.42%
Total nonperforming assets/total assets 0.48% 0.36% 0.26%
15
<PAGE>
Investment Securities
Total investment securities available for sale were $154,887,738 at March 31,
1997, an increase of $52,527,271 or 51.3% over the December 31, 1996 amount of
$102,360,467. PFC contributed $61,438,747 in investment securities available for
sale at March 31, 1997. The remaining decrease of $8,911,476 represents
maturities and paydowns on securities held for sale. The following table
presents a summary of United's investment portfolio as of March 31, 1997:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
(in thousands)
U.S. Treasury securities
and obligations of U.S.
government agencies $ 81,403 $ 274 $ (435) $ 81,242
Obligations of states and
political subdivisions 23,011 443 (203) 23,251
Mortgage-backed securities 31,880 105 (216) 31,769
Corporate equity securities 18,759 58 (191) 18,626
-------- -------- -------- --------
Total investment securities
available for sale $155,053 $ 880 $ (1,045) $154,888
======== ======== ======== ========
Deposits
Deposits were $514,203,643 at March 31, 1997, an increase of $141,411,389 or
37.9% over the December 31, 1996 amount of $372,792,254. PFC contributed
$163,054,009 in deposits at March 31, 1997. The remaining decrease of
$21,642,620 is due to a normal seasonal decrease in deposits, primarily
noninterest-bearing demand accounts.
Securities Sold Under Repurchase Agreements
Securities sold under repurchase agreements were $42,165,051 at March 31, 1997,
an increase of $20,367,708 or 93.4% over the December 31, 1996 amount of
$21,797,343. PFC contributed $14,461,861 in securities sold under repurchase
agreements at March 31, 1997.
Notes Payable and Other Borrowings
Notes payable and other borrowings were $39,352,957 at March 31, 1997, an
increase of $21,836,481 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%
(6.9625% at March 31, 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.
16
<PAGE>
Capital Management
Stockholders' equity was $40,996,374 at March 31, 1997, an increase of
$7,490,349 or 22.4% 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 and the net change in unrealized losses on securities available
for sale.
The following table compares United's regulatory capital ratios as of March 31,
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:
Minimum Requirements
March 31, December 31, Well Adequately
Capital Category 1997 1996 Capitalized Capitalized
- ---------------- ---- ---- ----------- -----------
Tier 1 risk-based 7.56% 13.11% 6.0% 4.0%
Total risk-based 8.77 14.23 10.0 8.0
Leverage ratio 5.62 8.66 5.0 3.0
17
<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 SECURITY HOLDERS
On April 29, 1997, the Annual Meeting of the shareholders of United was held to
obtain the approval of shareholders of record as of March 30, 1997 in connection
with the two matters indicated below. Following is a brief description of each
matter voted on at the meeting, and the number of votes cast for, against, or
abstention, as to each matter:
Vote
For Against Abstain
1. Set the number of directors at nine 493,055 -- --
2. Election of Directors:
Arlin A. Albrecht 493,055 -- --
Larry C. Barenbaum 493,055 -- --
Spencer Broughton 493,055 -- --
James P. Fritz 493,055 -- --
John W. Johnson 493,055 -- --
Ora G. Jones 493,055 -- --
Louis J. Langer 493,055 -- --
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.
United filed a Form 8-K dated January 16, 1997 to report the acquisition of Park
Financial Corporation. United filed a Form 8-K dated April 1, 1997 to report the
change of accountants.
18
<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: May 9, 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)
19
<PAGE>
UNITED COMMUNITY BANCSHARES, INC.
EXHIBIT INDEX TO FORM 10-Q
FOR THE QUARTER ENDED
MARCH 31, 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)
20
Exhibit 11.
United Community Bancshares, Inc. and Subsidiaries
Computation of Earnings per Share
(Unaudited)
Three Months Ended
March 31,
1997 1996
Primary and fully diluted:
Weighted average number of common shares
outstanding 596,955 545,054
Net effect of assumed exercise of stock options
based on treasury stock method -- -- (1)
--------- ---------
596,955 545,054
========= =========
Net income $1,203,330 $995,015
Net income per common share $ 2.02 $ 1.83
(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.
Exhibit 12.
United Community Bancshares, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Income before income taxes $ 1,888,582 $ 1,544,759
Interest expense 5,006,813 3,438,563
1/3 rent expense 50,938 64,126
----------- -----------
Total earnings $ 6,946,333 $ 5,047,448
=========== ===========
Interest expense $ 5,006,813 $ 3,438,563
1/3 rent expense 50,938 64,126
----------- -----------
Total fixed charges $ 5,057,751 $ 3,502,689
=========== ===========
Ratio including interest on deposits 1.37x 1.44x
Income before income taxes $ 1,888,582 $ 1,544,759
Interest expense 5,006,813 3,438,563
Less interest on deposits (4,018,323) (2,862,145)
1/3 rent expense 50,938 64,126
----------- -----------
Total earnings $ 2,928,010 $ 2,185,303
=========== ===========
Interest expense $ 5,006,813 $ 3,438,563
Less interest on deposits (4,018,323) (2,862,145)
1/3 rent expense 50,938 64,126
----------- -----------
Total fixed charges $ 1,039,428 $ 640,544
=========== ===========
Ratio excluding interest on deposits 2.82x 3.41x
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from first
quarter financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 29,759,978
<INT-BEARING-DEPOSITS> 4,533,469
<FED-FUNDS-SOLD> 5,800,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 154,887,738
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 415,205,767
<ALLOWANCE> 5,297,279
<TOTAL-ASSETS> 662,575,364
<DEPOSITS> 514,203,643
<SHORT-TERM> 42,165,051
<LIABILITIES-OTHER> 7,302,236
<LONG-TERM> 39,352,957
11,000,000
0
<COMMON> 5,422
<OTHER-SE> 40,990,952
<TOTAL-LIABILITIES-AND-EQUITY> 662,575,364
<INTEREST-LOAN> 9,313,131
<INTEREST-INVEST> 2,318,284
<INTEREST-OTHER> 137,836
<INTEREST-TOTAL> 11,769,251
<INTEREST-DEPOSIT> 4,018,323
<INTEREST-EXPENSE> 5,006,813
<INTEREST-INCOME-NET> 6,762,438
<LOAN-LOSSES> 213,225
<SECURITIES-GAINS> (900)
<EXPENSE-OTHER> 6,249,265
<INCOME-PRETAX> 1,888,582
<INCOME-PRE-EXTRAORDINARY> 1,203,330
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,203,330
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
<YIELD-ACTUAL> 8.67
<LOANS-NON> 1,515,000
<LOANS-PAST> 1,092,000
<LOANS-TROUBLED> 70,000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,423,434
<CHARGE-OFFS> 445,263
<RECOVERIES> 105,883
<ALLOWANCE-CLOSE> 5,297,279
<ALLOWANCE-DOMESTIC> 3,044,922
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,252,357
</TABLE>
