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 March 31, 2000
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
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(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 398, 63 Highway 515
Blairsville, Georgia 30512
------------------------------------------------------------------
Address of Principal Executiveoffices (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: 8,035,868 shares
outstanding as of April 30, 2000
INDEX
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) At March 31, 2000 and
December 31, 1999
Consolidated Statements of Income (Unaudited) for the Three
Months Ended March 31, 2000 and 1999
Consolidated Statements of Comprehensive Income (Unaudited)
for the Three Months Ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantative and Qualitative Disclosures About Market Risk
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
PART I ITEM I - STATEMENTS
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------
March 31, December 31,
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 82,294 89,231
Federal funds sold 170 23,380
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 82,464 112,611
- ---------------------------------------------------------------------------------------------------------------------
Securities available for sale 548,670 534,503
Mortgage loans held for sale 4,588 6,326
Loans, net of unearned income 1,459,469 1,400,360
Less: Allowance for loan losses (18,922) (17,722)
- ---------------------------------------------------------------------------------------------------------------------
Loans, net 1,440,547 1,382,638
- ---------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 47,644 47,365
Accrued interest receivable 19,406 17,861
Other assets 31,302 30,136
- ---------------------------------------------------------------------------------------------------------------------
Total assets $ 2,174,621 2,131,440
=====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 210,248 192,006
Interest bearing demand 352,448 328,815
Savings 78,147 73,953
Time 1,027,642 1,054,618
- ---------------------------------------------------------------------------------------------------------------------
Total deposits 1,668,485 1,649,392
- ---------------------------------------------------------------------------------------------------------------------
Accrued expenses and other liabilities 20,149 24,378
Federal funds purchased and repurchase agreements 33,760 31,812
Federal Home Loan Bank advances 309,940 287,572
Long-term debt and other borrowings 19,331 17,516
Convertible subordinated debentures 3,500 3,500
Trust Preferred Securities 21,000 21,000
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities 2,076,165 2,035,170
- ---------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred Stock - -
Common stock, $1 par value; 10,000,000 shares authorized;
8,034,268 shares issued and outstanding 8,034 8,034
Capital surplus 30,310 30,310
Retained earnings 69,807 66,606
Accumulated other comprehensive income (loss) (9,695) (8,680)
- ---------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 98,456 96,270
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,174,621 2,131,440
=====================================================================================================================
See notes to unaudted consolidated financial statements.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For the Three Months Ended
March 31,
(IN THOUSANDS , EXCEPT PER SHARE DATA) 2000 1999
- ----------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 34,484 26,541
Interest on federal funds sold 202 170
Interest on investment securities:
Taxable 7,849 5,201
Tax exempt 896 917
- --------------------------------------------------------------------------------------------
Total interest income 43,431 32,829
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand 3,350 2,667
Savings 545 626
Time 15,290 10,312
Notes payable, subordinated debentures, federal
funds purchased and FHLB advances 4,950 3,360
Trust Preferred Securities 430 430
- --------------------------------------------------------------------------------------------
Total interest expense 24,565 17,395
- --------------------------------------------------------------------------------------------
Net interest income 18,866 15,434
Provision for loan losses 1,546 980
- --------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 17,320 14,454
- --------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges and fees 1,473 1,164
Securities gains, net 5 5
Mortgage loan and related fees 220 448
Other non-interest income 992 862
- --------------------------------------------------------------------------------------------
Total noninterest income 2,690 2,479
- --------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 8,044 6,745
Occupancy 2,566 2,086
Other noninterest expense 3,787 3,169
- --------------------------------------------------------------------------------------------
Total noninterest expense 14,397 12,000
- --------------------------------------------------------------------------------------------
Income before income taxes 5,613 4,933
Income taxes 1,789 1,640
- --------------------------------------------------------------------------------------------
NET INCOME $ 3,824 3,293
============================================================================================
Basic earnings per share $ 0.48 0.41
Diluted earnings per share $ 0.47 0.40
Average shares outstanding 8,034 8,004
Diluted average shares outstanding 8,317 8,293
See notes to unaudited consolidated financial statements.
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
IN THOUSANDS
FOR THE THREE MONTHS ENDED
March 31
2000 1999
---------------------------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,824 3,293
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation, amortization and accretion 1,061 1,212
Provision for loan losses 1,546 980
Loss (gain) on sale of investment securities (5) (5)
Change in assets and liabilities:
Interest receivable (1,545) (524)
Other assets (1,166) (4,205)
Accrued expenses and other liabilities (4,229) 3,465
Change in mortgage loans held for sale 1,738 2,649
-----------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,224 6,865
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF PURCHASE ACQUISITIONS:
Proceeds from sales of securities available for sale 250 38
Proceeds from maturities and calls of securities available for sale 10,848 26,404
Purchases of securities available for sale (24,411) (105,289)
Purchase of life insurance contracts (2,650) --
Net increase in loans (59,109) (65,751)
Net cash inflow (outflow) for branch and bank acquisitions -- (2,248)
Proceeds from sale of other real estate 65 20
Purchase of bank premises and equipment (1,186) (1,154)
-----------------------------
NET CASH USED IN INVESTING ACTIVITIES (76,193) (147,980)
-----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES, NET OF PURCHASE ACQUISITIONS:
Net change in demand and savings deposits 46,069 40,685
Net change in time deposits (26,976) 7,944
Net change in federal funds purchased and
repurchase agreements 1,948 52,239
Net change in FHLB advances 22,368 42,769
Net change in long-term debt and other borrowings 1,815 10,960
Dividends paid (402) (276)
-----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 44,822 154,321
-----------------------------
Net change in cash and cash equivalents (30,147) 13,206
Cash and cash equivalents at beginning of period 112,611 64,112
-----------------------------
Cash and cash equivalents at end of period $ 82,464 77,318
=============================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 24,653 17,235
Income Taxes $ 2,330 448
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
FOR THE THREE MONTHS
ENDED MARCH 31
--------------------------
2000 1999
------- -------
Net income $ 3,824 3,293
Other comprehensive income (loss), before tax:
Unrealized holding gains (losses) on investment
securities available for sale (1,533) 373
Less reclassification adjustment for gains on investment
securities available for sale 5 5
------- -------
Total other comprehensive income (loss), before tax (1,528) 378
------- -------
INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER
COMPREHENSIVE INCOME
Unrealized holding gains (losses) on investment securities (515) 133
Less reclassification adjustment for gains on investment
securities available for sale 2 2
------- -------
Total income tax expense (benefit) related to other
comprehensive income (loss) (513) 135
------- -------
Total other comprehensive income (loss), net of tax (1,015) 243
------- -------
Total comprehensive income $ 2,809 3,536
======= =======
See notes to unaudited consolidated financial statements.
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 1999 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 - RECENT DEVELOPMENTS
On May 8, 2000, United commenced the process of conducting a public
offering of between 350,000 and 450,000 shares of common stock at a price of
$38.00 per share. United plans to use the net proceeds, which will range from
approximately $13.2 to $17.0 million, to provide capital for its subsidiary
banks and for general corporate purposes, including the reduction of parent
company debt. Management expects the public offering will be completed during
the second quarter of 2000.
On March 3, 2000, United entered into an agreement to acquire North
Point Bancshares, Inc. ("North Point"), a single-bank holding company based in
Dawsonville, Georgia, in exchange for 958,211 shares of United common stock.
This merger is expected to be completed during the second quarter of 2000 and
will be accounted for as a pooling of interests. At March 31, 2000, North Point
had $115.0 million of total assets, $105.6 million of total liabilities and $9.4
million of total stockholders' equity.
On March 3, 2000, United entered into an agreement to acquire
Independent Bancshares, Inc. ("Independent"), a single-bank holding company
based in Powder Springs, Georgia, in exchange for 870,598 shares of United
common stock. This merger is expected to be completed during the second quarter
of 2000 and will be accounted for as a pooling of interests. At March 31, 2000,
Independent had $161.1 million of total assets, $147.5 million of total
liabilities and $13.5 million of total stockholders' equity.
NOTE 3 - EARNINGS PER SHARE
For the Three Months
Ended March 31,
(In thousands, except per share data) 2000 1999
- --------------------------------------------------------------------------------------
Basic earnings per share:
Weighted average shares outstanding 8,034 8,004
Net income $ 3,824 3,293
Basic earnings per share $ 0.48 0.41
Diluted earnings per share:
Weighted average shares outstanding 8,034 8,004
Net effect of the assumed exercise of
stock options based on the treasury
stock method using average market
price for the period 143 149
Effect of conversion of subordinated debt 140 140
-------------------------
Total weighted average shares and common
stock equivalents outstanding 8,317 8,293
Net income, as reported $ 3,824 3,293
Income effect of conversion of subordinated
debt, net of tax $ 47 43
-------------------------
Net income, adjusted for effect of conversion
of subordinated debt, net of tax $ 3,871 3,336
=========================
Diluted earnings per share 0.47 0.40
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; 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 eight
commercial bank subsidiaries that operate primarily in North Georgia and Western
North Carolina (the "Banks"). As of March 31, 2000 United had 34 bank branches
in operation. Total assets at March 31, were $2.2 billion, compared with $2.1
billion at December 31, 1999, an increase of 8% on an annualized basis.
Recent Developments
- -------------------
On May 8, 2000, United commenced the process of conducting a public
offering of between 350,000 and 450,000 shares of common stock at a price of
$38.00 per share. United plans to use the net proceeds, which will range from
approximately $13.2 to $17.0 million, to provide capital for its subsidiary
banks and for general corporate purposes, including the reduction of parent
company debt. Management expects the public offering will be completed during
the second quarter of 2000.
On March 3, 2000, United entered into an agreement to acquire North
Point Bancshares, Inc. ("North Point"), a single-bank holding company based in
Dawsonville, Georgia, in exchange for 958,211 shares of United common stock.
This merger is expected to be completed during the second quarter of 2000 and
will be accounted for as a pooling of interests. At March 31, 2000, North Point
had $115.0 million of total assets, $105.6 million of total liabilities and $9.4
million of total stockholders' equity.
On March 3, 2000, United entered into an agreement to acquire
Independent Bancshares, Inc. ("Independent"), a single-bank holding company
based in Powder Springs, Georgia, in exchange for 870,598 shares of United
common stock. This merger is expected to be completed during the second quarter
of 2000 and will be accounted for as a pooling of interests. At March 31, 2000,
Independent had $161.1 million of total assets, $147.5 million of total
liabilities and $13.5 million of total stockholders' equity.
Income Summary
- --------------
For the three months ended March 31, 2000 United reported net income of
$3.8 million, or $.47 per diluted share, compared to $3.3 million, or $.40 per
diluted share, for the same period in 1999. The first three months' results for
2000 provided an annualized return on average assets and average stockholders'
equity of .71% and 15.9%, respectively, compared to .81% and 14.0%,
respectively, for the same period in 1999. Net income for the three months ended
March 31, 2000 increased 16.1% compared to the same period in 1999.
The following table summarizes the components of income and expense for
the first three months of 2000 and 1999 and the changes in those components for
the periods presented.
Table 1 - Condensed Consolidated Statements of Income
Unaudited
in Thousands)
For the Three Months
Ended March 31, Change
2000 1999 Amount Percent
--------------------------------------------
Interest income $ 43,431 32,829 10,602 32.3%
Interest expense 24,565 17,395 7,170 41.2%
-----------------------------------
Net interest income 18,866 15,434 3,432 22.2%
Provision for loan losses 1,546 980 566 57.8%
-----------------------------------
Net interest income after
provision for loan losses 17,320 14,454 2,866 19.8%
Non-interest income 2,690 2,479 211 8.5%
Non-interest expense 14,397 12,000 2,397 20.0%
-----------------------------------
Income before taxes 5,613 4,933 680 13.8%
Income tax expense 1,789 1,640 149 9.1%
-----------------------------------
Net income $ 3,824 3,293 531 16.1%
===================================
Net Interest Income
- -------------------
Net interest income is the largest source of United's operating
income. Net interest income was $18.9 million for the three months ended March
31, 2000, an increase of 22% over the comparable period in 1999. The increase in
net interest income for the first quarter of 2000 is primarily attributable to
increases in outstanding average interest bearing assets (both loans and
securities) over the comparable prior year period.
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 March 31, 2000 United had approximately $162 million of earning
assets and corresponding borrowings in the leverage program.
For the three months ended March 31, 2000, the net interest margin (net
interest income as a percentage of average interest earning assets) on a
tax-equivalent basis was 3.85%, 31 basis points less than the comparable prior
year period. The compression of the margin is primarily due to continued general
competitive pressures on loan and deposit pricing and the leverage program
described above. Although the average prime rate for the first quarter of 2000
was 95 basis points higher than the same period in 2000, the average loan yield
decreased by 12 basis points.
In January 2000, United implemented a strategic initiative designed to
improve key financial performance as measured by earnings per share growth,
return on average assets and return on average stockholders' equity. A key
component of this plan was to address the compression of the net interest
margin, which declined by 62 basis points during 1999 as compared with the prior
year. Excluding the impact of additional cash reserves held during the fourth
quarter of 1999 as a contingency for Y2K, the tax-equivalent net interest margin
for the first quarter of 2000 was flat compared to the prior quarter.
The following table shows 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 month periods ended March 31, 2000
and 1999.
Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis
for the Three Months Ended March 31
Fully Tax-equivalent Basis
(In Thousands)
2000 1999
------------------------------ ---------------------------------
AVERAGE INTEREST AVG. AVERAGE INTEREST AVG.
BALANCE RATE BALANCE RATE
------------------------------ ------------ --------------------
Assets:
Interest-earning assets:
Loans, net of unearned income $ 1,444,760 34,538 9.61% 1,098,323 26,565 9.73%
Taxable investments 484,182 7,849 6.52% 352,126 5,201 5.94%
Tax-exempt investments 77,245 1,344 7.00% 77,256 1,376 7.16%
Federal funds sold
and other interest income 14,887 201 5.43% 9,798 139 5.71%
--------------------- ----------- -----------
TOTAL INTEREST-EARNING ASSETS /
INTEREST INCOME 2,021,074 43,932 8.74% 1,537,503 33,281 8.71%
--------------------- ----------- -----------
NON-INTEREST-EARNING ASSETS:
Allowance for loan losses (17,849) (13,090)
Cash and due from banks 55,932 49,640
Premises and equipment 47,740 41,946
Goodwill and deposit intangibles 9,474 7,600
Other assets 38,800 29,492
---------- -----------
TOTAL ASSETS $ 2,155,171 1,653,091
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $ 342,490 3,350 3.93% 305,187 2,667 3.51%
Savings deposits 75,355 545 2.91% 63,186 626 3.98%
Certificates of deposit 1,063,407 15,290 5.78% 742,878 10,312 5.58%
--------------------- ----------- -----------
Total interest-bearing deposits 1,481,252 19,185 5.21% 1,111,251 13,605 4.92%
--------------------- ------------------------
Federal Home Loan Bank advances 289,777 4,094 5.68% 209,866 2,665 5.11%
Federal funds purchased and
repurchase agreements 31,404 440 5.64% 48,656 563 4.65%
Long-term debt and other borrowings 40,451 846 8.41% 27,283 562 8.28%
--------------------- ----------- -----------
Total borrowed funds 361,632 5,380 5.98% 285,805 3,790 5.33%
--------------------- ----------- -----------
TOTAL INTEREST-BEARING LIABILITIES /
INTEREST EXPENSE 1,842,884 24,565 5.36% 1,397,056 17,395 5.01%
NON-INTEREST-BEARING LIABILITIES:
Non-interest-bearing deposits 190,423 155,429
Other liabilities 25,166 5,231
---------- -----------
Total liabilities 2,058,473 1,557,716
---------- -----------
Stockholders' equity 96,698 95,375
---------- -----------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 2,155,171 1,653,091
========== ===========
Net interest-rate spread 3.38% 3.70%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.47% 0.46%
------ ------
NET INTEREST INCOME /
MARGIN ON INTEREST-EARNING ASSETS 19,367 3.85% 15,886 4.16%
============= =============
Interest income on tax-exempt securities and loans has been increased
by 50% to reflect comparable interest on taxable securities.
For computational purposes, includes non-accrual loans and mortgage
loans held for sale.
Includes Trust Preferred Securities.
Tax equivalent net interest income as a percentage of average earning
assets
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 3 - Change in Interest Income and Expense On a Tax Equivalent Basis
Unaudited
(In Thousands)
Three Months Ended March 31
2000 Compared to 1999
Increase (Decrease)
in Interest Income and Expense
Due to Changes In:
Volume Rate Total
--------- ---------- -------------
Interest-earning assets:
Loans $ 8,285 (312) 7,973
Taxable investments 2,101 547 2,648
Tax-exempt investments - (32) (32)
Federal funds sold
and other interest income 69 (7) 62
-------- --------- ------------
TOTAL INTEREST-EARNING ASSETS 10,455 196 10,651
INTEREST-BEARING LIABILITIES:
Transaction accounts 346 337 683
Savings deposits 107 (188) (81)
Certificates of deposit 4,596 382 4,978
-------- --------- ------------
Total interest-bearing deposits 5,049 531 5,580
FHLB advances 1,103 326 1,429
Federal funds purchased and
repurchase agreements (226) 103 (123)
Long-term debt and other borrowings 275 9 284
-------- --------- ------------
Total borrowed funds 1,152 438 1,590
-------- --------- ------------
TOTAL INTEREST-BEARING LIABILITIES 6,201 969 7,170
-------- --------- ------------
INCREASE (DECREASE)
IN NET INTEREST INCOME $ 4,254 (773) 3,481
======== ========= ============
Provision for Loan Loss
- -----------------------
The provision for loan losses was $1.5 million, or 0.43% of average
loans on an annualized basis, for the three months ended March 31, 2000,
compared with $980 thousand, or 0.36% of average loans, for the same period in
1999. Net loan charge-offs for the first three months of 2000 were $346
thousand, or 0.10% of average loans on an annualized basis, compared to $85
thousand, or 0.03% of average loans on an annualized basis, for the same period
in 1999. 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 three months ended March 31, 2000 was $2.7
million, an increase of $193 thousand, or 8%, over the comparable 1999 period.
Service charges on deposit accounts, which represent the largest component of
non-interest income, totaled $1.5 million for the first three months of 2000, an
increase of $309 thousand, or 27%, compared to the same period in 1999. 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 2000 decreased
by $228 thousand, or 51%, compared with the same period in 1999. This decrease
is primarily attributable to increased mortgage loan interest rates and the
corresponding decline in demand for mortgage refinance loans.
Other non-interest income totaled $974 thousand for the three months
ended March 31, 2000, an increase of $112 thousand million, or 13%, compared to
the same period in 1999. The following table summarizes the components of other
non-interest income for the first three months of 2000 and 1999 and the changes
in those components for the periods presented:
Table 4 -Other Non-interest Income
(In Thousands)
For the Three Months Ended
March 31, Change
2000 1999 Amount Percent
------------------------------------------------
Trust and brokerage fees 209 169 40 24%
ATM fees 134 105 29 28%
Bank-owned life insurance 139 96 43 45%
Insurance commissions 38 - 38 n/m
Credit insurance 179 223 (44) -20%
Safe deposit box fees 78 57 21 37%
Gain on sale of loans 9 40 (31) -78%
Other 188 172 16 9%
------------------------------------
Total other non-interest income 974 862 112 13%
====================================
n/m - not meaningful
The growth in trust and brokerage revenue is primarily attributable to
an increase in the number of retail brokerage sale representatives and an
increase in the amount of trust assets under management. The improvement in ATM
fees is attributable to an increase in the number of ATM machines in service and
an increase in the surcharge fee charged to non-customers implemented in
February 1999. The increase in bank-owned life insurance revenue is a result of
the growth of the underlying insurance policies' cash value since the first
quarter of 1999 and corresponding increase in policy appreciation earnings. The
increase in insurance commission revenue of $38 thousand reflects commissions
earned by United on sales of insurance products through its wholly-owned
subsidiary, United Agencies, Inc., which actively commenced operations during
the second quarter of 1999.
The decrease in credit life insurance is primarily attributable to
slower loan growth during the first quarter of 2000 at United's consumer finance
company subsidiaries. During the first quarter of 2000 such outstanding loans
declined by $996 thousand, compared with an increase of $1.8 million during the
same period in 1999.
Gains on the sale of loans recorded during the first quarter of 2000
were 78% lower than the same period in 1999. The first quarter 1999 results for
this income category reflect a one-time gain of approximately $40 thousand on
the sale of SBA loans.
Non-interest Expense
- --------------------
For the three months ended March 31, 2000, non-interest expense
totaled $14.4 million, an increase of $2.4 million, or 20%, from the same period
in 1999.
Salary and employee benefit expense, which represents the single
largest component of non-interest expense, increased by $1.3 million, or 19%,
compared with the same period in 1999. This increase is primarily attributable
staff additions made to accommodate the growth of United's customer base,
including staff obtained with the acquisition of Adairsville Bancshares, Inc.
("Adairsville") effective April 1, 1999; general merit increases awarded
annually in April each year; and, an increase in the cost of group health
insurance coverage.
Occupancy and equipment expense for the first three months of 2000
totaled $2.6 million, an increase of $480 thousand, or 23%, over the same period
in 1999. This increase is primarily attributable to the opening of new bank
offices in three markets and the acquisition of Adairsville.
Other non-interest expense for the three months ended March 31, 2000
was $3.7 million, an increase of 19% over the same period in 1999. This increase
in primarily attributable to increases in stationery and supply expense and
communications expense due to the increase in the number of bank offices and the
growth of existing offices. Amortization expense for intangible assets, which is
included in other non-interest expense, increase by $50 thousand during the
first three months of 2000 compared with the same period in 1999 as a result of
purchase acquisition of Adairsville.
The efficiency ratio, which is a measure of operating expenses
excluding one-time expenses as a percentage of operating revenues excluding
one-time gains, was 66.8% for the three months ended March 31, 2000, a three
basis point improvement compared with the same period in 1999.
Income Taxes
- ------------
Income tax expense increased by $149 thousand, or 9%, during the first
three months of 2000 as compared to the same period in 1999. The effective tax
rate (as a percentage of pre-tax net income) for the three months ended March
31, 2000 was 31.9%, compared to 33.2% for comparable 1999 period.
Investment Securities
- ---------------------
Average securities for the first three months of 2000 were $561
million, an increase of $132 million, or 31%, over the comparable 1999 period.
As of March 31, 2000, United had $162 million of securities and borrowings
related to the leverage program, compared with $164 million at year-end 1999 and
$148 million at March 31, 1999. Management does not expect to increase the level
of securities and related borrowings in the leverage program during the
remainder of 2000.
Loans
- -----
United experienced annualized loan growth of 17% for the three-month
period ended March 31, 2000. Total loans, net of unearned income, totaled $1.5
billion at March 31, 2000, compared to $1.4 billion at December 31, 1999. The
loan growth experienced during the first three months of 2000 is attributed to
continued robust economic conditions in United's market areas and corresponding
strong demand for loans. Average loans for the three months ended March 31, 2000
were $1.4 billion compared to $1.1 billion for the comparable 1999 period,
representing an increase of $346 million, or 32%. The average tax-equivalent
yield on loans (including mortgage loans held for sale) for the three months
ended March 31, 2000 was 9.61%, compared to 9.73% for the same period in 1999.
This decrease is attributed to continued competitive pricing pressures for loans
in the market areas where United operates.
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
$2.9 million at March 31, 2000, compared to $2.4 million at December 31, 1999.
Total non-performing loans at March 31, 2000 increased by $373 thousand over the
year-end 1999 level. Non-performing loans at March 31, 2000 consist primarily of
loans secured by real estate that are generally well secured and in the process
of collection. Other real estate owned at March 31, 2000 totaled $752 thousand,
compared to $541 thousand at December 31, 1999, and comprised six 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)
March 31, December 31, March 31,
2000 1999 1999
-------------------------------------------------------
Non-accrual loans $ 1,946 1,370 1,346
Loans past due 90 days or more and
still accruing 247 450 413
----------------------------------------------------
Total non-performing loans 2,193 1,820 1,759
Other real estate owned 752 541 809
----------------------------------------------------
Total non-performing assets $ 2,945 2,361 2,568
====================================================
Total non-performing loans as a percentage
of total loans 0.15% 0.13% 0.15%
Total non-performing assets as a percentage
of total assets 0.14% 0.11% 0.14%
At March 31, 2000 United had approximately $5.5 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.
The allowance for loan losses ("ALL") at March 31, 2000 totaled $18.9
million, an increase of $1.2 million, or 7%, from December 31, 1999. The ratio
of ALL to total loans at March 31, 2000 was 1.30%, compared with 1.35% at March
31, 1999 and 1.27% at December 31, 1999. At March 31, 2000 and December 31, 1999
the ratio of ALL to total non-performing loans was 863% and 974%, respectively.
The following table provides an analysis of the changes in the ALL for
the three months ended March 31, 2000 and 1999.
Table 6 - Summary of Loan Loss Experience
(In Thousands)
Three Months Ended
March 31
2000 1999
--------------------------------------
Balance beginning of period $ 17,722 12,680
Provision for loan losses 1,546 980
Balance acquired from subsidary at acquisition - 1,822
Loans charged-off (533) (170)
Charge-off recoveries 187 85
--------------------------------------
Net charge-offs (346) (85)
--------------------------------------
Balance end of period $ 18,922 15,397
======================================
March 31, December 31,
Total loans: 2000 1999
--------------------------------------
At period end $ 1,459,469 1,400,360
Average (three months for 2000) $ 1,441,126 1,237,892
As a percentage of average loans:
Net charge-offs (annualized basis for 2000) 0.10% 0.15%
Provision for loan losses (annualized basis for 2000) 0.43% 0.41%
Allowance as a percentage of period end loans 1.30% 1.27%
Allowance as a percentage of non-performing loans 863% 974%
Management believes that the ALL at March 31, 2000 is sufficient to
absorb losses inherent in the loan portfolio. 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.
Deposits and Borrowed Funds
- ---------------------------
Total average non-interest bearing deposits for the three months
ended March 31, 2000 were $190 million, an increase of $35 million, or 23%, from
the same period in 1999. For the three months ended March 31, 2000, total
average interest bearing deposits were $1.7 billion, an increase of $405
million, or 32%, from the comparable 1999 period.
At March 31, 2000, United had $59 million of brokered certificates of
deposit issued compared with $70 million at year-end 1999. Average certificates
of deposit for the three months ended March 31, 2000 increased by $321million,
or 43%, over the same period in 1999; brokered deposits represented $63 million,
or 20%, of the total increase.
Total average borrowed funds for the three months ended March 31,
2000 were $362 million, an increase of $76 million, or 27%, from the comparable
1999 period. Most of this increase is attributed to increased net borrowings
from the FHLB and was utilized to fund growth of the loan portfolio. At March
31, 2000, United had aggregate FHLB borrowings of approximately $310 million.
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 by 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 of 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 March 31, 2000, United's simulation model indicated that net
interest income would increase by 3.24% if interest rates increased by 200 basis
points and would decrease by 4.80% 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. United
did not enter into any new derivative financial instrument contracts during the
first quarter of 2000.
The following table presents United's cap contracts at March 31, 2000.
At that date, the cap contracts had an aggregate book value of $316 thousand.
Table 7 - Cap Contracts as of March 31, 2000
(In Thousands)
NOTIONAL CONTRACT CONTRACT FAIR
Maturity Amount Index Rate Value
-----------------------------------------------------------------------------
August 31, 2001 5,000 Prime 10.00% 10
August 27, 2001 20,000 Prime 10.00% 49
September 18, 2003 10,000 3 Month LIBOR 5.50% 511
January 4, 2004 10,000 Prime 7.75% 543
----------- -------
Total 45,000 1,113
=========== =======
The following table presents United's swap contracts as of March 31,
2000.
TABLE 8 - SWAP CONTRACTS AS OF MARCH 31, 2000
(IN THOUSANDS)
NOTIONAL RATE RATE FAIR
Maturity Amount Received Paid Value
-----------------------------------------------------------------------
April 2, 2001 15,000 8.41% 9.00% (197)
April 5, 2001 10,000 9.50% 9.00% (28)
May 8, 2001 10,000 8.26% 9.00% (155)
June 7, 2001 10,000 8.69% 9.00% (132)
July 27, 2001 10,000 8.85% 9.00% (80)
October 12, 2001 10,000 9.11% 9.00% (120)
June 7, 2002 10,000 9.05% 9.00% (119)
June 14, 2002 10,000 9.12% 9.00% (107)
June 24, 2002 20,000 8.80% 9.00% (442)
July 29, 2002 25,000 9.04% 9.00% (316)
August 10, 2002 10,000 9.60% 9.00% (104)
December 23, 2002 10,000 9.19% 9.00% (231)
-------------------------------------------------
Total/weighted average 150,000 8.95% 9.00% (2,031)
=================================================
Effective January 1, 1999, United adopted Statement of Financial
Accounting Standards No. 133 ("Accounting for Derivative Instruments and Hedging
Activities"), that requires that all derivative financial instruments be
included and recorded at fair value on the balance sheet. Currently, all of
United's derivative financial instruments are classified as highly effective
fair value hedges. Fair value hedges recognize currently in earnings both the
impact of the change in the fair value of the derivative financial instrument
and the offsetting impact of the change in fair value of the hedged asset or
liability. At March 31, 2000, United's derivative financial instruments had an
aggregate negative fair market value of $918 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 March 31, 2000 and December 31, 1999:
Table 9 - Capital Ratios
March 31, December 31,
2000 1999
------------------------------------
Leverage ratio 5.61% 5.52%
Regulatory minimum 3.00% 3.00%
Well-capitalized minimum 5.00% 5.00%
Tier I risk-based capital 8.54% 8.44%
Regulatory minimum 3.00% 3.00%
Well-capitalized minimum 6.00% 6.00%
Total risk-based capital 10.04% 9.95%
Regulatory minimum 8.00% 8.00%
Well-capitalized minimum 10.00% 10.00%
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. In
consideration of the asset growth experienced during the past year and expected
continued growth during the year 2000, management recommended to United's Board
of Directors in January 2000 that additional capital be raised through the sale
of common stock. The Board subsequently approved a public offering of between
350,000 and 450,000 shares at a price of $38.00 per share, which will provide
between $13.2 million and $17.0 million of additional capital, net of estimated
offering expenses. Management expects to use the net proceeds of the offering,
which is expected to be completed during the second quarter of 2000, to inject
additional capital into United's subsidiary banks and for other corporate
purposes.
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 quarter of 2000 and 1999 and the respective
payout ratios as a percentage of net income.
Table 10 - Dividend Payout Information
2000 1999
-------------------------- ------------------------
Dividend Payout % Dividend Payout %
-------------------------- -------------------------
First quarter $ 0.075 15.6% $ 0.05 12.2%
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.
PART I ITEM III
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in United's quantitative and
qualitative disclosures about market risk as of March 31, 2000 from that
presented in United's Annual Report on Form 10-K for the year ended December 31,
1999.
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 - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27 - Financial Data Schedule (for Commission Use Only)
There were no reports filed on Form 8-K during this reporting period.
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: May 12, 2000
By /s/ Christopher J. Bledsoe
------------------------------
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 2000
By /s/ Patrick J. Rusnak
-------------------------------
Patrick J. Rusnak
Controller
(Principal Accounting Officer)
Date: May 12, 2000
9
0000857855
United Community Banks, Inc.
1000
3-Mos
DEC-31-2000
JAN-01-2000
MAR-31-2000
82,294
0
170
0
548,670
0
0
1,459,469
18,922
2,174,621
1,668,485
166,710
20,149
199,821
21,000
0
8,034
90,422
2,174,621
34,484
8,745
202
43,431
19,185
24,565
18,866
1,546
5
14,397
5,613
3,824
0
0
3,824
0.48
0.47
3.85
1,946
247
0
5,529
17,722
533
187
18,922
18,922
0
18,922
