As filed with the Securities and Exchange Commission on June 2, 2000
File No. 333-______________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________________
UNITED COMMUNITY BANKS, INC.
(Exact name of issuer as specified in its charter)
GEORGIA 6712 58-1827304
(State or other jurisdiction of (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
incorporation or organization) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
POST OFFICE BOX 398, 63 HIGHWAY 515, BLAIRSVILLE, GEORGIA 30512
(706) 745-2151
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JIMMY C. TALLENT
PRESIDENT
UNITED COMMUNITY BANKS, INC.
POST OFFICE BOX 398, 63 HIGHWAY 515, BLAIRSVILLE, GEORGIA 30512
(706) 745-2151
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
RICHARD R. CHEATHAM WALTER G. MOELING, IV
KILPATRICK STOCKTON LLP POWELL, GOLDSTEIN, FRAZER & MURPHY, LLP
1100 PEACHTREE STREET, SUITE 2800 191 PEACHTREE STREET, SIXTEENTH FLOOR
ATLANTA, GEORGIA 30309-4530 ATLANTA, GEORGIA 30303-1764
(404) 815-6500 ______________________ (404) 572-6629
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: The exchange of the Registrant's shares for shares of common stock of
North Point Bancshares, Inc. will take place upon consummation of the merger of
North Point Bancshares, Inc. into the Registrant.
_____________________
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _____
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| ____________________
CALCULATION OF REGISTRATION FEE
============================= ====================== ========================== =========================== =======================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Share Aggregate Offering Price Registration Fee
___________________________________________________________________________________________________________________________________
Common Stock, par value 958,211 $2,481.28
$1.00 per share
============================= ====================== ========================== =========================== =======================
[FN]
The number of shares of United Community Banks, Inc. common stock being
registered hereunder is based upon the anticipated maximum number of such shares
required to consummate the proposed merger of North Point Bancshares, Inc. into
the Registrant. The Registrant will remove from registration by means of a
post-effective amendment any shares being registered that are not issued in
connection with the merger.
In accordance with Rule 457(f)(2), the registration fee is based upon the
maximum number of shares of common stock of North Point Bancshares, Inc. that
may be received by the Registrant pursuant to the merger (428,385 shares)
multiplied by the book value per share of North Point Bancshares, Inc. as of
March 31, 2000 ($21.94).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A)
MAY DETERMINE.
________________________________________________________________________________
NORTH POINT BANCSHARES, INC.
109 HIGHWAY 53 WEST
DAWSONVILLE, GEORGIA 30534-3414
Dear Shareholder of North Point Bancshares, Inc.:
It is my pleasure to invite you to attend the special meeting of
shareholders of North Point Bancshares, Inc. to be held at ___ .m. on July __,
2000, at 109 Highway 53 West, Dawsonville, Georgia.
At the special meeting, you will be asked to consider and vote on a
proposal to approve the Agreement and Plan of Merger dated as of March 3, 2000
between United Community Banks, Inc. and North Point whereby North Point will
merge with United, United will remain as the surviving company, and Dawson
County Bank will become a subsidiary of United. The boards of directors of
United and North Point have agreed to the merger. If North Point shareholders
approve the merger, North Point shareholders will receive 2.2368 shares of
United common stock for each share of North Point common stock they own. Based
upon 428,385 shares of North Point currently outstanding, United expects to
issue 958,211 shares of its common stock in connection with the merger.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF NORTH POINT HAS
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF NORTH POINT'S
SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS VOTING FOR APPROVAL OF THE AGREEMENT AND
PLAN OF MERGER AND THE TRANSACTIONS RELATED TO THE MERGER. Each member of the
North Point board of directors has agreed to vote all shares of North Point
common stock owned by such member in favor of the proposal.
Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. If you
sign, date, and mail your proxy card without indicating how you want to vote,
your proxy will be counted as a vote in favor of the transaction. If you do not
return your card and do not vote at the shareholders meeting, the effect will be
a vote against the merger. If your shares are held by a broker in "street name,"
you must instruct your broker to vote.
The proxy statement/prospectus accompanying this letter contains
additional information regarding the proposed merger and the two companies. WE
ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY.
The North Point board of directors strongly supports this strategic
combination between United and North Point and appreciates your prompt attention
to this very important matter.
Sincerely,
______________________________________
Don D. Gordon
President and Chief Executive Officer
June _____, 2000.
NORTH POINT BANCSHARES, INC.
109 HIGHWAY 53 WEST
DAWSONVILLE, GEORGIA 30534-3414
---------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF NORTH POINT BANCSHARES, INC.
---------------------------------------------------
TO BE HELD ON JULY __, 2000
A special meeting of shareholders of North Point Bancshares, Inc. will
be held on June __, 2000, at ______.m., at 109 Highway 53 West, Dawsonville,
Georgia 30534, for the following purposes:
1. To vote on an Agreement and Plan of Merger and related
matters, pursuant to which North Point Bancshares, Inc., a
Georgia corporation, will merge with and into United Community
Banks, Inc., a Georgia corporation, as more particularly
described in the enclosed proxy statement/prospectus; and
2. To transact other business as may properly come before the
special meeting or any adjournments of the meeting.
In connection with the merger, North Point shareholders will be
entitled to receive 2.2368 shares of United common stock for each share of North
Point common stock outstanding on the effective date of the merger and will
receive a cash payment for any fractional shares in an amount equal to the
fraction multiplied by $38.00.
If the merger is completed, North Point shareholders who dissent will
be entitled to be paid the "fair value" of their shares in cash, if they follow
certain statutory provisions regarding the rights of dissenting shareholders,
all as more fully explained under "The Proposed Merger -- Rights of Dissenting
Shareholders" and in Appendix B to the attached proxy statement/prospectus. Only
shareholders of record of North Point common stock at the close of business on
May 15, 2000 will be entitled to notice of and to vote at the special meeting.
A form of proxy and a proxy statement/prospectus are enclosed. The
approval of the merger requires the approval of the holders of at least a
majority of the North Point stock entitled to vote at the special meeting. To
assure representation of your shares at the special meeting, please sign, date,
and return the proxy promptly in the enclosed, stamped envelope. If you attend
the special meeting, you may revoke your proxy at that time simply by requesting
the right to vote in person. You may also withdraw a previously submitted proxy
by notifying Jimmy C. Bruce in writing or by submitting an executed, later-dated
proxy to North Point: 109 Highway 53 West, Dawsonville, Georgia 30534,
Attention: Jimmy C. Bruce, Secretary, prior to the special meeting. If you
properly sign and return the proxy and do not revoke it, it will be voted at the
special meeting in the manner that you specify in the proxy.
By Order of the Board of Directors,
-------------------------------------
Jimmy C. Bruce
Secretary
June __, 2000
Dawsonville, Georgia
_____________________________________________________________________
| |
| PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT |
| YOUR VOTE MAY BE RECORDED AT THE MEETING IF YOU DO NOT ATTEND. |
|_____________________________________________________________________|
TABLE OF CONTENTS
Section PAGE NO.
- ------- --------
Where You Can Find More Information.........................................ii
A Warning about Forward Looking Statements..................................ii
Incorporation of Certain Documents by Reference.............................ii
Questions and Answers About the Meetings...................................iii
Summary......................................................................1
Comparative Share Data.......................................................5
Summary Consolidated Financial Information...................................6
Selected Pro Forma Financial Data............................................8
The Special Meeting..........................................................9
The Proposed Merger.........................................................10
Information about North Point Bancshares, Inc...............................19
North Point's Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................21
Pro Forma Consolidated Financial Information................................34
Information about United Community Banks, Inc...............................43
United's Management's Discussion and Analysis of
Financial Condition and Results of Operations..........................54
Legal Opinions..............................................................81
Experts for United and North Point..........................................81
Other Matters that May Come Before the North Point Meeting..................81
Index to Financial Data....................................................F-1
Appendix A: Agreement and Plan of Merger between United
and North Point.......................................................A-1
Appendix B: Georgia Dissenter's Rights Statutes...........................B-1
WHERE YOU CAN FIND MORE INFORMATION
United is subject to the information requirements of the Securities
Exchange Act of 1934, which means that United is required to file reports, proxy
statements, and other information which you can read and copy at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, NW, Washington, D.C. 20549. You may also obtain copies of the
reports, proxy statements, and other information from the Public Reference
Section of the SEC, at prescribed rates, by calling 1-800-SEC-0330 or by
visiting the SEC's Website at http://www.sec.gov.
United filed a registration statement on Form S-4 to register with the
SEC the United common stock to be issued to North Point shareholders in the
merger. This proxy statement/prospectus is a part of that registration statement
and constitutes a prospectus of United in addition to being a proxy statement of
North Point for the special meeting of North Point shareholders to be held on
July __, 2000. As allowed by the SEC rules, this proxy statement/prospectus does
not contain all of the information you can find in the registration statement or
the exhibits to the registration statement. This proxy statement/prospectus
summarizes some of the documents that are exhibits to the registration
statement, and you should refer to the exhibits for a more complete description
of the matters covered by those documents.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This document incorporates important business and financial information
about United that is not included in or delivered with this proxy
statement/prospectus. You can obtain a copy of any of the documents incorporated
by reference, other than attached exhibits, by writing United Community Banks,
Inc., Post Office Box 398, 63 Highway 515, Blairsville, Georgia 30512,
Attention: Pat Rusnak. You may also request a copy by telephone at (706)
745-2151. To assure timely delivery, you must make a request by July __, 2000.
A WARNING ABOUT FORWARD LOOKING STATEMENTS
We have made forward-looking statements in this proxy
statement/prospectus (and in other documents to which we refer in this proxy
statement/prospectus) that are subject to risks and uncertainties. These
statements are based on the beliefs and assumptions of United's and North
Point's managements and on information currently available to members of
management. Forward-looking statements include information concerning possible
or assumed future results of operations of United after the proposed merger.
Factors that could cause actual results to differ from results discussed in
forward-looking statements include:
1. economic conditions (both generally and in the markets where United
and North Point operate);
2. competition from other companies that provide financial services
similar to those offered by United and North Point;
3. government regulation and legislation;
4. changes in interest rates; and
5. unexpected changes in the financial stability and liquidity of
United's and North Point's credit customers.
Although we believe these forward-looking statements are reasonable,
you should not place undue reliance on them because they are based on current
expectations. Forward-looking statements are not guarantees of performance;
rather, they involve risks, uncertainties, and assumptions. The future results
and shareholder values of United following completion of the merger may differ
materially from those expressed in these forward-looking statements. Many of the
factors that will determine these results and values are beyond United's ability
to control or predict. For those statements, United claims the protection of the
safe harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
ii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive 2.2368 shares of United common stock in exchange for each
share of North Point common stock that you hold.
United will not issue fractional shares in the merger. Instead, North
Point shareholders will receive a cash payment, without interest, for the value
of any fraction of a share of United common stock that they would otherwise be
entitled to receive based upon $38.00 a share of United common stock.
FOR EXAMPLE, IF YOU OWN 100 SHARES OF NORTH POINT COMMON STOCK, THEN
AFTER THE MERGER YOU WILL RECEIVE 223 SHARES OF UNITED COMMON STOCK AND A CHECK
FOR 0.68 X $38.00, OR $25.84.
Q: WHAT AM I BEING ASKED TO APPROVE?
A: You are being asked to approve the Agreement and Plan of Merger which
provides for the merger of North Point into United. Approval of the proposal
requires the affirmative vote of more than 50% of the outstanding shares of
North Point common stock.
The North Point board of directors has unanimously approved and adopted
the merger agreement and recommends voting FOR approval of the merger agreement.
Q: WHAT SHOULD I DO NOW?
A: Indicate on your proxy card how you want to vote, and sign and mail it in
the enclosed envelope as soon as possible so that your shares will be
represented at the meeting. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be voted in favor of the
proposals presented for voting.
Q: WHEN IS THE SHAREHOLDERS MEETING?
A: The special meeting will take place at _____.m. on July ___, 2000, at 109
Highway 53 West, Dawsonville, Georgia 30534. You may attend the meeting and vote
your shares in person, rather than voting by proxy. In addition, you may
withdraw your proxy up to and including the day of the shareholders' meeting by
notifying North Point's secretary, Jimmy Bruce, in writing or by submitting an
executed later-dated proxy to North Point at 109 Highway 53 West, Dawsonville,
Georgia 30534, Attention Jimmy Bruce, Secretary, prior to the special meeting.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review the factors considered by each company's board of
directors beginning on page ___.
Q: WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A: We are working to complete the merger during the third quarter of 2000.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will vote your shares only if you instruct him to do so,
following the directions your broker provides. If you do not provide
instructions to your broker, your shares will not be voted, and this will have
the effect of voting against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES OF NORTH POINT NOW?
A: No. After the merger is completed, we will send you written instructions
for exchanging your North Point stock certificates for United stock
certificates.
iv
SUMMARY
This summary highlights information from this document, and it may not
contain all of the information that is important to you as you consider the
proposed merger and other matters. For a more complete description of the terms
of the proposed merger, you should carefully read this entire document and the
documents to which we have referred you. The Agreement and Plan of Merger, which
is the legal document that governs the proposed merger, is attached as Appendix
A to this proxy statement/prospectus and is incorporated into this document.
THE COMPANIES
UNITED COMMUNITY BANKS, INC.
63 HIGHWAY 515
BLAIRSVILLE, GEORGIA 30512
(706) 745-2151
United is a registered bank holding company based in Blairsville,
Georgia. All of United's activities are conducted through its wholly-owned
subsidiaries, which are listed below:
o United Community Bank, Blairsville, Georgia
o Carolina Community Bank, Murphy, North Carolina, acquired in
1990
o Towns County Bank, Hiawassee, Georgia, acquired in 1992
o Peoples Bank of Fannin County, Blue Ridge, Georgia, acquired
in 1992
o White County Bank, Cleveland, Georgia, acquired in 1995
o First Clayton Bank & Trust, Clayton, Georgia, acquired in 1997
o Bank of Adairsville, Adairsville, Georgia, acquired in 1999
o 1st Floyd Bank, Rome, Georgia, acquired in 1999
United also operates two finance companies, United Family Finance Co.,
with offices in Blue Ridge and Hiawassee, Georgia, and United Family Finance Co.
of North Carolina, with offices in Franklin and Murphy, North Carolina.
At March 31, 2000, United had total consolidated assets of $2.2
billion, total loans of approximately $1.5 billion, total deposits of
approximately $1.7 billion, and shareholders' equity of approximately $98.4
million.
1
NORTH POINT BANCSHARES, INC.
109 HIGHWAY 53 WEST,
DAWSONVILLE, GEORGIA 30534
(706) 265-3232
North Point is a one-bank holding company based in Dawsonville,
Georgia. North Point's subsidiary, Dawson County Bank, is a full-service
commercial bank with its main office and a branch located in Dawsonville,
Georgia, and a branch located in Cumming, Georgia, which is operated under the
tradename "North Point Bank." Dawson County Bank provides customary types of
banking services such as checking accounts, savings accounts, and time deposits.
It also engages in commercial and consumer lending, makes secured and unsecured
loans, and provides other financial services.
At March 31, 2000, North Point had total consolidated assets of
approximately $115.1 million, total deposits of approximately $103.6 million,
and total shareholders' equity of approximately $9.4 million.
THE MAIN TERMS OF THE MERGER
If the merger is approved, North Point will be merged with United,
United will remain as the surviving company, and Dawson County Bank will become
a subsidiary of United. As a result of the merger, North Point shareholders will
receive 2.2368 shares of United common stock for each share of North Point
common stock that they own on the effective date of the merger. North Point
shareholders will also receive a cash payment for any fractional shares in an
amount equal to the fraction multiplied by $38.00.
THE SPECIAL MEETING
The special meeting will be held on ____________, July __, 2000, at
________ ___.m., at 109 Highway 53 West, Dawsonville, Georgia 30534, for the
purpose of voting on the merger. At the meeting, North Point shareholders will
be asked to consider and vote on a proposal to approve and adopt the merger
agreement. You are entitled to vote at the shareholders meeting if you owned
shares of North Point common stock on May 15, 2000.
Approval by holders of a majority of the North Point common stock
outstanding on May 15, 2000, is required for the merger to be completed.
Directors and executive officers of North Point who have agreed to vote their
shares of North Point common stock in favor of the merger own or control 142,097
shares, or approximately 33.08%, of the outstanding shares of North Point common
stock (based on 428,385 shares outstanding on May 15, 2000).
CONDITIONS, TERMINATION, AND EFFECTIVE DATE OF THE MERGER
The merger will not occur unless certain conditions are met, and United
or North Point can terminate the merger if specified events occur or fail to
occur. The merger must be approved by North Point shareholders, the Board of
Governors of the Federal Reserve System, and the Department of Banking and
Finance of the State of Georgia. Under the North Point merger agreement, United
may terminate the merger if the holders of more than 32,128 shares of North
Point's outstanding common stock choose to exercise their dissenter's rights.
The merger will close after the merger agreement is approved by North Point's
shareholders and after a certificate of merger is filed as required under
Georgia law. A condition to the closing of the merger is the approval by United
shareholders of the increase in United's authorized common stock from 10,000,000
to 50,000,000 shares.
2
RIGHTS OF DISSENTING SHAREHOLDERS OF NORTH POINT
If the merger is completed, North Point shareholders who dissent will
be entitled to be paid the "fair value" of their shares in cash if they follow
certain statutory provisions regarding the rights of dissenting shareholders.
The rights of dissenting shareholders under Georgia law are discussed under
"Rights of Dissenting Shareholders" at page ____ and in Appendix B.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
North Point has received an opinion from Kilpatrick Stockton LLP
stating that, assuming that the merger is completed as currently anticipated,
neither North Point nor their respective shareholders who receive United stock
in connection with the merger will recognize any gain or loss for federal
income tax purposes. We have not requested a ruling to that effect from the
Internal Revenue Service. Any cash that North Point shareholders receive as
payment for any fractional interests or as payment after exercising their right
to dissent will be treated as amounts distributed in redemption of North Point
common stock, and will be taxable under the Internal Revenue Code as either
ordinary income or capital gain or loss, depending upon each shareholder's
particular circumstances. There will be no tax effect for the holders of United
common stock.
ACCOUNTING TREATMENT OF THE MERGER
We expect the merger to be accounted for as a pooling of interests,
which means that we will treat North Point and United as if they had always been
combined for accounting and financial reporting purposes.
MARKETS FOR CAPITAL STOCK
UNITED. United's common stock is not currently traded on an established
public market. Management of United is aware of approximately 118 trades between
January 1, 2000 and May 1, 2000 aggregating approximately 22,282 shares of
United common stock ranging from one share to a block of 1,000 shares, at prices
ranging from $38.00 to $50.00 per share. Management of United is aware of
approximately 551 trades in 1999 aggregating approximately 168,000 shares of
United common stock ranging from one share to a block of 4,136 shares, at prices
ranging from $35.00 to $55.00 per share. Management of United is aware of
approximately 435 trades of United common stock during 1998, aggregating
approximately 170,000 shares in blocks ranging from one share to a block of
4,000 shares, at prices ranging from $25.00 to $50.00. On May 9, 2000, United
commenced a sale of between 350,000 and 450,000 shares of United common stock at
a price of $38.00 per share. On February 8, 2000, the day prior to the
announcement of United's merger with North Point, there were 15 sales of United
common stock known to United's management, aggregating 1,537 shares ranging from
one share to a block of 783 shares at a price of $40.00 per share and blocks of
20 to 71 shares at a price of $45.00 per share.
NORTH POINT. North Point's common stock is not traded on an established
public trading market. Management of North Point is not aware of any trades of
North Point common stock in 2000. North Point management is aware of three
trades in 1999 totaling 2,317 shares of North Point common stock, in blocks
ranging from 39 shares to 1,500 shares, at prices ranging from $45.00 to $50.00
per share. Management of North Point is aware of one trade of North Point common
stock during 1998, at a price of $50.00 per share.
DIVIDENDS
UNITED. United paid a cash dividend of $0.075 on April 4, 2000 and
aggregate cash dividends of $0.20 per share in 1999 and $0.15 per share in 1998.
For information with respect to cash dividends paid in each of the last five
years, see "Summary Consolidated Financial Information" at page _____. Although
United intends to continue paying cash dividends, the amount and frequency of
cash dividends will be determined by United's board of directors after
consideration of earnings, capital requirements, and the financial condition of
United. Cash dividends may not be declared in the future. Additionally, United's
ability to pay cash dividends will depend on cash dividends paid to it by its
subsidiary banks. The ability of those subsidiaries to pay dividends to United
is restricted by certain regulatory requirements.
3
NORTH POINT. North Point paid a per share cash dividend of $1.20 in
1999, $0.96 in 1998, and $0.88 in 1997. North Point paid a dividend for the
first quarter of 2000 in the amount of $0.30 per share. Except for quarterly
dividends paid in accordance with previous practices, North Point is prohibited
under the merger agreement from paying dividends prior to the closing of the
transaction.
Whether North Point shareholders approve the merger agreement and
regardless of whether the merger is completed, the future dividend policy of
United and North Point will depend upon each company's earnings, financial
condition, appropriate legal restrictions, and other factors relevant at the
time the boards of directors considers whether to declare dividends.
INTERESTS OF DIRECTORS AND OFFICERS OF NORTH POINT IN THE MERGER
Two officers of North Point have interests in the North Point merger as
employees that are different from, or in addition to, yours as a North Point
shareholder. The North Point board of directors recognized these interests and
determined that they did not adversely affect the benefits of the merger to the
North Point shareholders. United has agreed to enter into employment agreements
with Don D. Gordon, currently the President and Chief Executive Officer of North
Point, and with Greg Gordon, currently the Vice President of North Point and the
son of Don D. Gordon.
RECENT DEVELOPMENTS OF UNITED
United is currently conducting a public offering of between 350,000 and
450,000 shares of United common stock, pursuant to which United plans to raise
from between $13.3 and $17.1 million in additional capital to provide capital
for its subsidiary banks and for general corporate purposes.
On March 3, 2000, United entered into an agreement to acquire
Independent Bancshares, Inc., Powder Springs, Georgia, in exchange for 870,595
shares of United's common stock. As of March 31, 2000, Independent had $161.1
million in total assets, $141.4 million of total deposits, and $13.0 million of
total shareholders' equity.
4
COMPARATIVE SHARE DATA
The following table shows selected comparative unaudited per share data
for United and North Point on a pro forma basis assuming the merger had been
effective for the periods indicated, and on a pro forma equivalent basis. The
table also shows selected comparative unaudited per share data for United,
Independent, and North Point on a pro forma basis assuming that both mergers
have been effective for the periods indicated. The mergers will be accounted for
as pooling of interests transactions in accordance with generally accepted
accounting principles.
Equivalent earnings per share amounts for North Point have been
calculated by multiplying the pro forma combined earnings per share by the
exchange ratio (2.2368 shares of the United common stock for each share of North
Point common stock). The North Point pro forma equivalent cash dividends per
common share represent historical dividends declared by United multiplied by the
applicable exchange ratio. The purpose of the pro forma equivalent per share
amounts is for informational purposes only to show the pro forma net earnings
that would have been earned for each share of North Point had the merger been
completed for the periods indicated. This data should be read together with the
historical financial statements of United and North Point including the related
notes included elsewhere in this proxy statement/prospectus.
AS OF AND FOR
THE THREE MONTHS AS OF AND FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
2000 1999 1998 1997
NET INCOME PER COMMON SHARE (BASIC)
United historical $ 0.48 1.70 1.60 1.42
North Point historical 0.92 2.35 3.82 3.13
United and North Point Pro Forma Combined 0.47 1.63 1.61 1.41
North Point Pro Forma Equivalent 1.05 3.65 3.61 3.16
United, North Point, and Independent Pro Forma Combined $ 0.48 1.66 1.59 1.41
CASH DIVIDENDS PER COMMON SHARE
United historical $ 0.075 0.200 0.150 0.100
North Point historical 0.300 1.200 0.960 0.880
United and North Point Pro Forma Combined 0.075 0.200 0.150 0.100
North Point Pro Forma Equivalent 0.170 0.450 0.340 0.220
United, North Point, and Independent Pro Forma $ 0.075 0.200 0.150 0.100
Combined
BOOK VALUE PER COMMON SHARE (PERIOD END)
United historical $ 12.25 11.98 11.72 10.15
North Point historical 21.94 21.43 21.88 18.84
United and North Point Pro Forma Combined 11.99 11.73 11.52 10.96
North Point Pro Forma Equivalent 26.83 26.23 25.76 24.52
United, North Point, and Independent Pro Forma Combined $ 12.31 12.08 11.80 11.24
Computed giving effect to the merger
Computed based on the North Point per share exchange ratio of 2.2368
shares of United stock for each share of North Point stock
Represents historical dividends paid by United as it is assumed that
United will not change its dividend policy as a result of the merger
Represents historical dividends paid per share by United multiplied by
the exchange ratio of 2.2368 shares of United for each share of North
Point stock.
Computed giving effect to the mergers of both North Point and
Independent
5
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following tables present certain selected historical financial
information for United and North Point. The data should be read in conjunction
with the historical financial statements, including the related notes, and other
financial information concerning United and North Point incorporated by
reference in or accompanying this proxy statement/prospectus.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE THREE MONTHS ENDED
AMOUNTS) MARCH 31, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1999 1998 1997 1996 1995
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UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES |
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INCOME STATEMENT
Net interest income $ 18,866 15,434 67,974 56,210 45,718 35,461 26,076
Provision for loan losses 1,546 980 5,104 2,612 2,814 1,751 1,128
Non-interest income 2,690 2,479 10,836 9,129 7,200 5,866 4,698
Non-interest expense 14,397 12,000 54,165 43,964 34,063 26,341 20,165
Income taxes 1,789 1,640 5,893 5,990 4,987 4,180 2,634
Net income $ 3,824 3,293 13,648 12,773 11,054 9,055 6,847
PER COMMON SHARE
Net income - basic $ 0.48 0.41 1.70 1.60 1.42 1.22 0.99
Net income - diluted 0.47 0.40 1.66 1.57 1.40 1.20 0.97
Cash dividends declared 0.075 0.05 0.20 0.15 0.10 0.10 0.08
Book value $ 12.25 12.12 11.98 11.72 10.15 8.21 7.13
Basic average shares outstanding 8,034 8,004 8,020 7,973 7,810 7,399 6,919
Diluted average shares outstanding 8,317 8,293 8,316 8,246 8,031 7,590 7,105
AT PERIOD END
Loans $ 1,459,469 1,142,102 1,400,360 1,061,165 872,499 662,245 489,260
Earning assets 2,012,897 1,629,736 1,964,569 1,474,398 1,108,362 861,360 683,782
Assets 2,174,621 1,771,645 2,131,440 1,591,399 1,216,693 926,844 738,651
Deposits 1,668,485 1,318,544 1,649,392 1,238,323 1,033,756 809,149 660,146
Shareholders' equity $ 98,456 97,005 96,270 93,836 80,086 62,357 53,126
Common shares outstanding 8,034 8,004 8,034 8,004 7,894 7,594 7,454
AVERAGE BALANCES
Loans $ 1,441,126 1,093,080 1,237,892 956,452 773,245 567,456 434,682
Earning assets 2,021,074 1,537,503 1,760,738 1,257,559 1,009,770 755,201 586,997
Assets 2,155,171 1,653,091 1,896,189 1,355,303 1,077,978 817,682 631,247
Deposits $ 1,671,675 1,266,680 1,447,861 1,145,425 939,642 724,845 558,423
Shareholders' equity $ 96,698 95,375 95,253 86,082 71,121 57,886 45,478
Weighted average shares outstanding 8,034 8,004 8,020 7,973 7,810 7,399 6,919
PERFORMANCE RATIOS
Return on average assets 0.71% 0.81% 0.72% 0.94% 1.03% 1.11% 1.08%
Return on average shareholders' equity 15.91% 14.0% 14.33% 14.84% 15.54% 15.64% 15.06%
Average equity to average assets 4.49% 5.77% 5.02% 6.35% 6.60% 7.08% 7.20%
Average loans to average deposits 86.21% 86.29% 85.50% 83.50% 82.29% 78.29% 77.84%
EXCLUDING MERGER-RELATED CHARGES*
Net income $ 3,824 3,293 14,803 12,773 11,054 9,055 6,847
Basic earnings per share $ 0.48 0.41 1.85 1.60 1.42 1.22 0.99
Diluted earnings per share $ 0.47 0.40 1.80 1.57 1.40 1.20 0.97
Return on average assets 0.71% 0.81% 0.78% 0.94% 1.03% 1.11% 1.08%
Return on average shareholders' equity 15.91% 14.00% 15.54% 14.84% 15.54% 15.64% 15.06%
(*) Amounts and ratios exclude merger-related charges recorded in 1999 in connection with the merger of United Community Banks,
Inc. and 1st Floyd Bankshares, Inc.
6
THREE MONTHS ENDED AS OF AND FOR THE YEARS ENDED DECEMBER 31,
MARCH 31,
2000 1999 1999 1998 1997 1996 1995
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NORTH POINT BANCSHARES, INC. AND SUBSIDIARY |
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INCOME STATEMENT
Net interest income $ 1,195 1,064 4,527 4,690 4,040 3,457 2,877
Provision for loan losses 20 30 620 200 175 160 70
Non-interest income 182 162 625 653 626 580 406
Non-interest expense 814 676 3,070 2,692 2,490 2,316 2,085
Income taxes 151 160 453 814 662 487 328
Net income $ 392 360 1,009 1,637 1,339 1,074 800
PER COMMON SHARE
Basic earnings $ 0.92 0.84 2.35 3.82 3.13 2.51 1.87
Diluted earnings 0.92 0.84 2.35 3.82 3.13 2.51 1.87
Cash dividends declared 0.30 0.30 1.20 0.96 0.88 0.80 0.73
Book value 21.94 21.91 21.43 21.88 18.84 16.49 14.74
Basic average shares outstanding(2) 428 428 428 428 428 428 428
Diluted average shares outstanding(2) 428 428 428 428 428 428 428
AT PERIOD END
Loans $ 75,336 56,295 62,212 54,547 48,111 40,716 32,958
Earning assets 160,576 95,947 98,507 87,912 80,294 70,891 59,040
Assets 115,096 102,185 106,478 93,880 85,299 77,361 63,801
Deposits 103,638 92,174 96,565 84,115 76,804 69,753 57,231
Shareholders' equity 9,389 9,378 9,180 9,372 8,071 7,064 6,315
Common shares outstanding 428 428 428 428 428 428 428
AVERAGE BALANCES
Loans 64,305 55,855 57,961 55,554 45,137 37,443 31,583
Earning assets 101,728 92,230 96,435 84,280 74,637 66,663 55,656
Assets 109,594 98,316 102,774 89,725 80,597 71,416 61,148
Deposits 97,093 86,323 92,980 80,472 74,048 65,704 55,233
Shareholders' equity 9,333 9,050 9,276 8,722 7,568 6,690 6,009
Weighted average shares outstanding 428 428 428 428 428 428 428
PERFORMANCE RATIOS
Return on average assets 1.44% 1.47% 0.98% 1.82% 1.66% 1.50% 1.31%
Return on average shareholders' equity 16.89% 16.00% 10.88% 18.77% 17.69% 16.06% 13.31%
Average equity to average assets 8.52% 9.20% 9.03% 9.72% 9.39% 9.37% 9.83%
Average loans to average deposits 66.23% 64.70% 64.01% 69.04% 60.96% 56.99% 57.18%
(2) Retroactively adjusted for stock dividends.
7
SELECTED PRO FORMA FINANCIAL DATA
The following unaudited selected financial data presents selected pro
forma financial information for United and North Point. The selected pro forma
financial information gives effect to the acquisition of North Point as of the
date or at the beginning of the period indicated, assuming the acquisition is
accounted for as a pooling of interests. The pro forma balance sheet information
has been prepared as if the acquisition had been completed on March 31, 2000.
The pro forma operating data has been prepared as if the acquisition had been
completed on January 1, 1997. The unaudited pro forma financial data is
presented for informational purposes only and is not necessarily indicative of
the combined financial position or results of operation which actually would
have occurred if the transaction had been completed at the date and for the
periods indicated or which may be obtained in the future. See "Pro Forma
Consolidated Financial Information."
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNITED AND NORTH POINT
FOR THE THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, DECEMBER 31,
2000 1999 1999 1998 1997
------------- ---------------- ----------------- --------------- -------------
BALANCE SHEET DATA
Total assets $ 2,289,731
Federal funds sold 170
Investment securities 577,325
Loans held for sale 4,588
Loans, net of allowance for loan 1,514,673
losses
Deposits 1,772,123
Trust preferred securities 21,000
Long-Term debt 368,019
Shareholders' equity 107,845
EARNINGS DATA
Interest income $ 45,686 34,762 $ 157,896 $ 123,907 $ 101,031
Interest expense 25,625 18,264 85,395 63,007 51,272
Net interest income 20,061 16,498 72,501 60,900 49,759
Provision for loan losses 1,566 1,010 5,724 2,812 2,989
Non-interest income 2,872 2,641 11,461 9,782 7,826
Non-interest expense 15,211 12,676 57,235 46,656 36,553
Income taxes 1,940 1,800 6,346 6,804 5,649
Net income 4,216 3,653 14,657 14,410 12,394
Basic earnings per share 0.47 0.41 1.63 1.61 1.41
Diluted earnings per share 0.46 0.40 1.60 1.59 1.40
Cash dividends per share $ 0.0813 0.0590 $ 0.246 $ 0.185 $ 0.133
8
THE SPECIAL MEETING
This proxy statement/prospectus is being furnished to the holders of
North Point common stock in connection with the solicitation by North Point's
board of directors of proxies for use at the special meeting of North Point
shareholders for the purpose of voting upon a proposal to approve the Agreement
and Plan of Merger and the related transactions between United and North Point.
The special meeting of North Point shareholders will be held at _____________m.
on July __, 2000, at the main office of North Point located at 109 Highway 53
West, Dawsonville, Georgia 30534.
North Point shareholders are requested to promptly sign, date, and
return the accompanying proxy card to North Point in the enclosed postage-paid
envelope. Any North Point shareholder who has delivered a proxy may revoke it at
any time before it is voted by giving notice of revocation in writing or
submitting to North Point a signed proxy bearing a later date, provided that
such notice or proxy is actually received by North Point prior to the taking of
the shareholder vote, or by electing to vote in person at the special meeting.
Any notice of revocation should be sent to North Point Bancshares, Inc., 109
Highway 53 West, Dawsonville, Georgia 30534, Attention: Jimmy C. Bruce,
Corporate Secretary. The shares represented by properly executed proxies
received at or prior to the North Point special meeting and not subsequently
revoked will be voted as directed in such proxies. If instructions are not
given, shares represented by proxies received will be voted for approval of the
agreement and in the discretion of the proxy holder as to any other matters that
properly may come before the North Point special meeting. As of the date of this
proxy statement/prospectus, North Point is unaware of any other matter to be
presented at the special meeting.
Solicitation of proxies will be made by mail, but also may be made by
telephone or in person by the directors, officers, and employees of North Point,
who will receive no additional compensation for such solicitation but may be
reimbursed for out-of-pocket expenses. Brokerage houses, nominees, fiduciaries,
and other custodians will be requested to forward solicitation materials to
beneficial owners and will be reimbursed for their reasonable out-of-pocket
expenses.
North Point shareholders should NOT forward any stock certificates with
their proxy cards.
9
THE PROPOSED MERGER
BACKGROUND OF AND REASONS FOR THE MERGER
In a strategic planning session in 1999, the board of directors and
senior management of North Point considered a variety of possible alternatives
for North Point to pursue. In mid-December 1999, Don Gordon, the Chief Executive
Officer of North Point, approached Jimmy Tallent, President and Chief Executive
Officer of United, to determine if there might be some interest in considering a
merger of the institutions. On December 23, 1999, Don Gordon, Clayton Bartlett,
Chairman of the Board of North Point, and Greg Gordon, the Vice President of
North Point, met with Mr. Tallent and other members of United's senior
management in Blairsville to discuss the proposal in greater detail.
On January 28, 2000, United's board of directors approved the Agreement
and Plan of Reorganization and the Agreement and Plan of Merger between North
Point and United. This decision was based on the consideration by United's board
of directors of the business and operations and asset quality of North Point as
well as the attractiveness of the North Point franchise and its management team
and the compatibility of that franchise with the operations of United.
On February 1, 2000, at a special called meeting of the North Point
board of directors, Don Gordon reported to the board of directors about their
meetings with United's senior management and reviewed financial information on
United and North Point related to the valuation, and the terms and conditions of
the United proposal. This financial information included the pro forma financial
impact of the merger at a range of prices. The board of directors authorized Mr.
Gordon to proceed with negotiations.
On February 7, 2000, Mr. Tallent made a presentation concerning
United's business and operation to the North Point board of directors at a
special called meeting. On that date, the parties entered into a letter of
intent outlining terms and conditions of a proposed merger.
At a meeting held on February 28, 2000, the North Point board of
directors approved the Agreement and Plan of Reorganization and the Agreement
and Plan of Merger between North Point and United. In deciding to enter into the
agreements, the board of directors of North Point considered a number of factors
in evaluating the merger, including:
(a) The value of the consideration to be received by Company
shareholders relative to the book value and earnings per share of North
Point Common Stock;
(b) Certain information concerning the financial condition, results of
operations and business prospects of United;
(c) The financial terms of recent business combinations in the
financial services industry and a comparison of the multiples of
selected combinations with the terms of the proposed transaction with
United;
(d) The alternatives to the merger, including remaining an independent
institution;
(e) The competitive and regulatory environment for financial
institutions generally; and
(f) The fact that the merger will enable North Point shareholders to
exchange their shares of Company Common Stock, in a tax-free
transaction, for shares of common stock of a larger company, the stock
of which is more widely held and more liquid than that of the North
Point.
On February 9, 2000, United and North Point issued a joint press
release describing the transaction, and on March 3, 2000, the parties executed
the Agreement and Plan of Reorganization.
The board of directors of North Point believes the merger is in the
best interest of its shareholders because the merger will permit them to
exchange their ownership interest in North Point for an equity interest in
10
United, which has greater financial resources than North Point. The board of
directors of North Point also believes that the terms of the merger, including
the basis of exchange, 2.2368 shares of United common stock for each share of
North Point common stock, which was determined through arms-length negotiations
between United and North Point, are fair and equitable and take into account the
relative earning power of United and North Point, historic and anticipated
operations, the economies of scale to be achieved through the merger, the
trading prices of the stocks of the respective companies and other pertinent
factors. The exchange ratio of 2.2368 shares of United's common stock for each
share of North Point common stock represents a multiple of 3.9 times North
Point's book value as of March 31, 2000, and 35.0 times trailing 12 months
earnings per share if United common stock is valued at $38.00 a share.
The board of directors of North Point believes that the size of the
combined organization, approximately $2.3 billion in assets as of March 31,
2000, is sufficiently large to take advantage over time of significant economies
of scale, but is still small enough to maintain the competitive advantages
management believes are afforded community-oriented banks over the larger
regional and super-regional banks. It has become increasingly apparent to the
management of North Point that, in the current regulatory and competitive
environment, larger organizations with greater economies of scale, including the
ability to spread largely fixed costs over a larger gross income base and the
ability to attract management talent able to compete in a more sophisticated
financial-services environment, will be more successful than smaller
organizations such as North Point separately. Management of United and North
Point believe that there is a future for community banks in the banking
industry, but that community banks will be required to achieve a critical size
to maintain above-average economic performance.
THE MERGER BETWEEN UNITED AND NORTH POINT
The material features of the merger are summarized below.
EFFECTIVE DATE. The merger will be effective upon the approval of the
Agreement and Plan of Merger by the North Point shareholders and the filing of a
certificate of merger with the Georgia Secretary of State. The merger also is
subject to approval by the Board of Governors of the Federal Reserve System and
the Department of Banking and Finance of the State of Georgia. Management of
United and North Point anticipate that the merger will become effective in the
third quarter of 2000.
TERMS OF THE MERGER. On the effective date of the merger, each
outstanding share of North Point common stock will be converted into and
exchanged for 2.2368 shares of United common stock. If, prior to the effective
date, the outstanding shares of United common stock are increased through a
stock dividend, stock split, subdivision, recapitalization, or reclassification
of shares, or are combined into a lesser number of shares by reclassification,
recapitalization, or reduction of capital, the number of shares of United common
stock to be delivered pursuant to the merger in exchange for a share of North
Point common stock will be proportionately adjusted.
United will not issue fractional share certificates of common stock in
connection with the merger, and an outstanding fractional share interest will
not entitle the owner to vote, to receive dividends, or to any rights of a
shareholder of United with respect to that fractional interest. Instead of
issuing any fractional shares of common stock, United will pay in cash an amount
(computed to the nearest cent) equal to the fraction of the share multiplied by
$38.00 per share.
If the merger is completed, shareholders of North Point will become
shareholders of United, North Point will be merged with United, and North Point
will cease to exist as a separate entity. Following the merger, the Restated
Articles of Incorporation, Bylaws, corporate identity, and existence of United
will not be changed.
11
TERMINATION AND CONDITIONS OF CLOSING. The merger may be abandoned at
any time either before or after approval of the Agreement and Plan of Merger by
the shareholders of North Point, but not later than the effective date:
o by either party, if the other party has a material adverse
change in its financial condition or business;
o by either party, if the other party materially breaches any of
the representations or warranties or any covenant or agreement
it made under the merger agreement;
o by either party, if it learns of undisclosed information which
the other party was required to disclose pursuant to the
merger agreement, which materially and adversely affects the
business, properties, assets, or earnings of the other party;
o by either party, if a lawsuit is filed or threatened which
could prohibit or otherwise materially affect the merger or
the completion of the merger and which either party believes,
in good faith, would make completion of the merger
inadvisable;
o by either party, if the merger is not completed by August 31,
2000;
o by United, if the holders of 32,128 or more of the outstanding
shares of North Point common stock choose to dissent from the
merger and demand payment in cash;
o by either party, if the North Point shareholders do not
approve the Agreement and Plan of Merger; or
o by either party, if it learns of any potential liability of
the other party which results from the other party's
non-compliance with any environmental law or from the
environmental condition of the properties or assets of the
other party.
The following are some of the required conditions of closing:
o the accuracy of the representations and warranties of all
parties contained in the merger agreement and related
documents as of the date when made and the effective date;
o the performance of all agreements and conditions required by
the merger agreement;
o the delivery of officers certificates, resolutions, and legal
opinions to North Point and United;
o approval of the Agreement and Plan of Merger by the North
Point shareholders;
o receipt of all necessary authorizations of governmental
authorities and the expiration of any regulatory waiting
periods;
o effectiveness of the registration statement of United relating
to the shares of United common stock to be issued to North
Point shareholders in the merger, of which this document forms
a part;
o the receipt by North Point of the opinion of Kilpatrick
Stockton LLP as to the tax consequences to North
Point shareholders;
o the receipt by United of an opinion of Porter Keadle Moore LLP
that the merger will be accounted for as a pooling of
interests; and
o the issuance of a certificate of merger by the Secretary of
State of Georgia.
12
SURRENDER OF CERTIFICATES. Shortly after the effective date of the
merger, each holder of North Point common stock will be required to deliver his
or her shares of North Point common stock to United's transfer agent, SunTrust
Bank. After delivering those shares, the holder will receive a stock certificate
for the number shares of United common stock that the holder is entitled to
receive under the merger agreement and a cash payment for any fractional
interest in United common stock. Until a holder delivers his or her shares of
North Point common stock to SunTrust, he or she will not receive payment of any
dividends or other distributions on shares of United common stock into which his
shares of North Point common stock have been converted and will not receive any
notices sent by United to its shareholders with respect to, or to vote, those
shares. After delivering the shares to SunTrust, the holder will then be
entitled to receive any dividends or other distributions (without interest)
which became payable after the merger but prior to the holder's delivery of the
certificates to SunTrust.
REQUIRED SHAREHOLDER APPROVAL
The holders of a majority of the outstanding shares of North Point
common stock entitled to vote at the special meeting must approve the Agreement
and Plan of Merger for the merger to be completed. Abstentions from voting and
broker non-votes will be included in determining whether a quorum is present and
will have the effect of a vote against the Agreement and Plan of Merger.
On May 15, 2000, the record date for determining the shareholders
entitled to notice of, and to vote at, the special meeting, the outstanding
voting securities of North Point consisted of 428,385 shares of common stock,
with registered holders thereof being entitled to one vote per share. Certain
executive officers and members of North Point's board of directors, who have
entered into agreements with United to vote their shares of North Point common
stock in favor of the merger, own or control 142,097 shares, or approximately
33.08%, of the outstanding shares of North Point common stock, based on 428,385
shares outstanding as of May 1, 2000.
EXPENSES
United will pay all of its expenses incurred in connection with the
authorization, preparation, execution, and performance of the merger agreement,
including all fees and expenses of its agents, representatives, counsel, and
accountants and the fees and expenses related to filing regulatory applications
with state and federal authorities in connection with the transactions
contemplated thereby. North Point will pay all of its expenses incurred in
connection with the authorization, preparation, execution, and performance of
the merger agreement, including all fees and expenses of agents,
representatives, counsel, and accountants for North Point.
CONDUCT OF BUSINESS OF NORTH POINT PENDING CLOSING
The merger agreement provides that, pending consummation of the merger,
North Point will, except with the written consent of United:
o conduct its business only in the ordinary course, without
creating any indebtedness for borrowed money (other than
deposit and similar accounts and customary credit arrangements
between banks in the ordinary course of business);
o not engage in or undertake any action that would lead to the
disqualification of the pooling of interests method of
accounting;
o maintain its properties and assets in good operating
condition, ordinary wear and tear excepted;
o maintain and keep in effect all of its current insurance
policies;
13
o not make any change in the authorized or issued capital stock
or other securities of North Point, and will not issue or
grant any right or option to purchase or otherwise acquire any
of the capital stock or other securities of North Point other
than pursuant to existing stock option grants;
o not declare or make any dividend, distribution, or payment on
the capital stock of North Point or, directly or indirectly,
redeem, purchase, or otherwise acquire any of its capital
stock;
o not amend its Articles of Incorporation or Bylaws;
o maintain its corporate existence and powers;
o not acquire any other entity or otherwise acquire or agree to
acquire any assets which are material, individually or in the
aggregate, to it;
o not acquire or dispose of any real property or interest on any
real property (except for sales in the ordinary course of
business) or, except in the ordinary course of business, sell
or otherwise transfer or encumber any other tangible or
intangible asset;
o not change any of its banking arrangements;
o not enter into any new material contracts;
o maintain its books and records in the ordinary course of
business;
o advise United of any material adverse change in North Point's
business; and
o file all reports required to be filed with any regulatory or
governmental agencies.
INTEREST OF MANAGEMENT IN THE TRANSACTION; CONDUCT OF BUSINESS AFTER THE MERGER
Except as set forth below, no director or officer of North Point or any
of their associates has any direct or indirect material interest in the merger,
except that those persons may own shares of North Point common stock which will
be converted in the merger into United common stock. Other than as described
below, United and North Point do not anticipate that the merger will result in
any material change in compensation to employees of North Point.
Effective upon completion of the merger, United will enter into an
employment agreement with Don D. Gordon, employing Mr. Gordon as President and
Chief Executive Officer of Dawson County Bank, which will be a subsidiary of
United, for an annually renewable term of three years. Mr. Gordon will receive a
salary of $163,000 per year, and he will be entitled to receive options for
10,000 shares of United's common stock (at an exercise price of $38.00 per
share). On February 7, 2000, Mr. Gordon received a one-time pre-tax cash bonus
of $100,000 from United, and he will receive an additional payment of $150,000
upon the closing of the merger. United will be able to terminate Mr. Gordon's
employment agreement for cause (as defined in the agreement) or upon Mr.
Gordon's death, disability, or inability to effectively carry out his duties.
Mr. Gordon will be able to terminate the agreement upon specified actions or
inactions of United. If Mr. Gordon is terminated due to a change of control of
United (as defined in the agreement), he will receive a payment equal to his
then-current annual salary for a period of two years from his date of
termination. Mr. Gordon's employment agreement also provides, unless he is
terminated under specified circumstances, that Mr. Gordon will not compete with
United in Dawson County, Georgia for a period of one year after his employment
with United is terminated.
In addition, effective upon completion of the merger, United will enter
into an employment agreement with Greg Gordon, the son of Don D. Gordon,
employing Mr. Gordon as Vice President of Dawson County Bank for a term of one
14
year on terms comparable to those in Don Gordon's employment agreement except
that Greg Gordon will receive a salary of $54,000 per year, and he will not
receive a cash bonus or stock options.
In the merger agreement, United has agreed to continue employee
benefits for North Point employees that are substantially similar to those
United currently provides to its employees, and to indemnify each person
entitled to indemnification by North Point or Dawson County Bank for liabilities
arising from acts or omissions arising prior to the effective date.
COMPARISON OF THE RIGHTS OF NORTH POINT AND UNITED SHAREHOLDERS
Upon completion of the merger, holders of North Point common stock
(other than dissenting shareholders) will become shareholders of United. The
following is a summary of material differences between the rights of holders of
United common stock and holders of North Point common stock. Because United and
North Point are both organized under the laws of Georgia, any differences arise
from differing provisions of the corporations' respective articles of
incorporation and bylaws.
DIRECTORS
UNITED. The United Bylaws provide for a board of directors consisting
of from eight to 14 members.
NORTH POINT. The North Point Bylaws provide for a board of directors
consisting of from three to ten directors.
MATTERS CONSIDERED AT ANNUAL MEETINGS
UNITED. The United Bylaws limit the business that may be conducted at
an annual meeting of shareholders to business brought before the meeting by or
at the direction of the board of directors prior to the meeting, by or at the
direction of the Chairman of the Board, Chief Executive Officer, President, or
by a United shareholder who delivers notice of the business in writing to the
Secretary of United by the later of (a) 14 days prior to the meeting or (b) five
days after notice of the meeting is provided to United shareholders. The
chairman of an annual meeting has the right to declare that any proposed
business that does not comply with these provisions is out of order and will not
be considered at the meeting.
NORTH POINT. The North Point Bylaws do not restrict matters which may
be considered at an annual meeting of shareholders.
ACCOUNTING TREATMENT
United will account for the merger as a pooling of interests
transaction in accordance with generally accepted accounting principles. Under
this accounting method, holders of North Point common stock will be deemed to
have combined their existing voting common stock interests with the holders of
United common stock by exchanging their shares for shares of United common
stock, and as a result, the assets and liabilities of North Point will be added
to those of United at their recorded book value, and the shareholders' equity
accounts of North Point and United would be combined on United's consolidated
balance sheet. The unaudited pro forma financial information contained in this
proxy statement/prospectus has been prepared using the pooling of interests
accounting method to account for the merger.
RESALES OF UNITED STOCK BY DIRECTORS AND OFFICERS OF NORTH POINT
Although United has registered the United common stock to be issued
upon completion of the merger under the Securities Act of 1933, the directors,
officers, and shareholders of North Point who are deemed to be affiliates of
North Point may not resell the United common stock received by them unless those
sales are made pursuant to an effective registration statement under the
Securities Act, Rules 144 and 145 under the Securities Act, or another exemption
15
from registration under the Securities Act. Rules 144 and 145 place limitations
on the amount of and manner that securities can be sold by affiliates. Because
the United common stock is not publicly traded and is not listed on a stock
exchange or quoted in the over-the-counter market, affiliates will not be able
to sell their United common stock pursuant to Rules 144 and 145.
REGULATORY APPROVALS
The Board of Governors of the Federal Reserve System and the Department
of Banking and Finance of the State of Georgia have approved the merger. In
determining whether to grant that approval, the Federal Reserve and the
Department of Banking and Finance considered the effect of the merger on the
financial and managerial resources and future prospects of the companies and
banks concerned and the convenience and needs of the communities served.
THE DEPARTMENT OF BANKING AND FINANCE'S REVIEW OF THE APPLICATION DID
NOT INCLUDE AN EVALUATION OF THE PROPOSED TRANSACTION FROM THE FINANCIAL
PERSPECTIVE OF THE INDIVIDUAL SHAREHOLDERS OF NORTH POINT. FURTHER, NO
SHAREHOLDER SHOULD CONSTRUE AN APPROVAL OF THE APPLICATION BY THE DEPARTMENT OF
BANKING AND FINANCE TO BE A RECOMMENDATION THAT THE SHAREHOLDERS VOTE TO APPROVE
THE PROPOSAL. EACH SHAREHOLDER ENTITLED TO VOTE SHOULD EVALUATE THE PROPOSAL TO
DETERMINE THE PERSONAL FINANCIAL IMPACT OF THE COMPLETION OF THE PROPOSED
TRANSACTION. SHAREHOLDERS NOT FULLY KNOWLEDGEABLE IN SUCH MATTERS ARE ADVISED TO
OBTAIN THE ASSISTANCE OF COMPETENT PROFESSIONALS IN EVALUATING ALL ASPECTS OF
THE PROPOSAL INCLUDING ANY DETERMINATION THAT THE COMPLETION OF THE PROPOSED
TRANSACTION IS IN THE BEST FINANCIAL INTEREST OF THE SHAREHOLDER.
RIGHTS OF DISSENTING SHAREHOLDERS
Any shareholder of record of North Point common stock who objects to
the merger and who complies with Section 14-2-1301 et seq. of the Georgia
Business Corporation Code will be entitled to demand and receive payment in cash
of an amount equal to the fair value of all, but not less than all, of his or
her shares of North Point common stock if the merger is completed. A shareholder
of record may assert dissenters' rights as to fewer than the shares registered
in that shareholder's name only if he or she dissents with respect to all shares
beneficially owned by any one beneficial owner and notifies North Point in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. For the purpose of determining the amount to be received in
connection with the exercise of statutory dissenters' rights under the Georgia
Business Corporation Code, the fair value of a dissenting shareholder's North
Point common stock equals the value of the shares immediately before the
effective date of the merger, excluding any appreciation or depreciation in
anticipation of the merger.
Any North Point shareholder desiring to receive payment of the fair
value of his or her shares of North Point common stock in accordance with the
requirements of the Georgia Business Corporation Code:
(a) must deliver to North Point, prior to the time the shareholder
vote on the merger agreement is taken, a written notice of his
or her intent to demand payment for his or her shares if the
merger is completed;
(b) must not vote his or her shares in favor of the merger
agreement; and
(c) must demand payment and deposit stock certificates
representing his or her North Point common stock in accordance
with the terms of a notice which will be sent to the
shareholder by North Point no later than ten days after the
merger is completed.
A filing of the written notice of intent to dissent with respect to the
merger agreement should be sent to: Jimmy C. Bruce, Secretary, North Point
Bancshares, Inc., 109 Highway 53 West, Dawsonville, Georgia 30534-3414. A VOTE
AGAINST THE MERGER AGREEMENT ALONE WILL NOT SATISFY THE REQUIREMENTS FOR THE
SEPARATE WRITTEN NOTICE OF INTENT TO DISSENT TO THE MERGER, THE SEPARATE WRITTEN
DEMAND FOR PAYMENT OF THE FAIR VALUE OF SHARES OF NORTH POINT COMMON STOCK AND
THE DEPOSIT OF THE STOCK CERTIFICATES, WHICH ARE REFERRED TO IN CONDITIONS (A)
AND (C) ABOVE. RATHER, A DISSENTING SHAREHOLDER MUST SEPARATELY COMPLY WITH ALL
OF THOSE CONDITIONS.
16
Within ten days of the later of the effective date or receipt of a
payment demand by a shareholder who deposits his or her stock certificates in
accordance with North Point's dissenter's notice sent to those shareholders who
notified North Point of their intent to dissent, described in (c) above, United
must offer to pay to each dissenting shareholder the amount United estimates to
be the fair value of the dissenting shareholder's shares, plus accrued interest.
That notice and offer must be accompanied by:
(a) North Point's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of making an
offer, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(b) an explanation of how the interest was calculated;
(c) a statement of the dissenting shareholder's right to demand
payment of a different amount under Section 14-2-1327 of the
Georgia Business Corporation Code; and
(d) a copy of the dissenters' rights provisions of the Georgia
Business Corporation Code.
If the dissenting shareholder accepts North Point's offer by written
notice to North Point within 30 days after United's offer, or is deemed to have
accepted the offer by not responding to that offer within that 30-day period,
United must make payment for his or her shares within 60 days after the making
of the offer or the effective date, whichever is later. Upon payment of the
agreed value, the dissenting shareholder will cease to have any interest in his
or her shares of North Point common stock.
If within 30 days after United offers payment for the shares of a
dissenting shareholder, the dissenting shareholder does not accept the estimate
of fair value of his or her shares and interest due thereon and demands payment
of his or her own estimate of the fair value of the shares and interest due
thereon, then United, within 60 days after receiving the payment demand of a
different amount from a dissenting shareholder, must file an action in the
superior court in Dawson County, Georgia, requesting that the fair value of
those shares be determined. United must make all dissenting shareholders whose
demands remain unsettled parties to the proceeding. If United does not commence
the proceeding within that 60-day period, it will be required to pay each
dissenting shareholder whose demand remains unsettled the amount demanded by the
dissenting shareholder.
North Point urges its shareholders to read all of the dissenter's
rights provisions of the Georgia Business Corporation Code, which are reproduced
in full in Appendix C to this proxy statement/prospectus and which are
incorporated by reference into this proxy statement/prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND OPINION OF TAX
COUNSEL
North Point has received an opinion from Kilpatrick Stockton LLP, to
the effect that, assuming the merger is completed in accordance with the terms
of the merger agreement:
(a) The merger of North Point into United and the issuance of
shares of United common stock, as described in the merger
agreement, will constitute a tax-free reorganization under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended.
(b) Holders of North Point common stock will not recognize any
gain or loss upon the exchange of that stock for United common
stock as a result of the merger.
(c) Holders of North Point common stock will recognize gain or
loss pursuant to Section 302 of the Internal Revenue Code upon
their receipt of cash instead of fractional shares of United
common stock and upon their receipt of cash pursuant to their
exercise of dissenter's rights.
17
(d) North Point will not recognize any gain or loss as a result of
the merger.
(e) The aggregate tax basis of the United common stock received by
shareholders of North Point pursuant to the merger will be the
same as the tax basis of the shares of North Point common
stock exchanged therefor, decreased by any portion of that tax
basis allocated to fractional shares of United common stock
that are treated as redeemed by United.
(f) The holding period of the shares of United common stock
received by the shareholders of North Point will include the
holding period of the shares of North Point common stock
exchanged therefor, provided that the North Point common stock
is held as a capital asset on the date of completion of the
merger.
No ruling will be requested from the Internal Revenue Service with
respect to any Federal income tax consequences of the merger.
THE FOREGOING TAX OPINION AND THE PRECEDING DISCUSSION RELATE TO THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO NORTH POINT
SHAREHOLDERS. NORTH POINT SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS AS TO ANY STATE, LOCAL, OR OTHER TAX CONSEQUENCES OF THE MERGER.
18
INFORMATION ABOUT NORTH POINT BANCSHARES, INC.
DESCRIPTION OF BUSINESS
North Point is a one-bank holding company which, through its
subsidiary, Dawson County Bank, provides banking services through its two
full-service banking offices in Dawsonville, Georgia, and one full-service
banking office in Cumming, Georgia. The Company's executive office is located at
109 Highway 53 West, Dawsonville, Georgia 30534, and its telephone number is
(706) 265-3232. Dawson County Bank offers a broad range of customary banking
services including commercial, mortgage, and consumer loans; checking, savings,
and time deposit accounts; wire transfers; and rental of safety deposit boxes.
As of March 31, 2000, North Point had total consolidated assets of
approximately $115.1 million, total deposits of approximately $103.6 million,
and total shareholders' equity of approximately $9.4 million. At March 31, 2000,
North Point had 36 full-time employees.
North Point was incorporated on October 10, 1984, as a Georgia business
corporation. On January 11, 1985, North Point acquired control of Dawson County
Bank, which was organized as a Georgia banking corporation in 1953, and acquired
100% of the outstanding shares of North Point common stock on October 7, 1993.
COMPETITION
Dawson County Bank competes in the Dawson County, Georgia market with
three commercial banks and in the Forsyth County, Georgia market with eight
commercial banks and two savings institutions. In addition, Dawson County Bank
competes with insurance companies and brokerage firms. As of June 30, 1999, in
terms of deposits, North Point ranked first out of four depository institutions
in Dawson County, with 46.7% of total county deposits. The office of Dawson Bank
in Forsyth County, Georgia was opened during 1999 and did not have a material
market share at June 30, 1999.
19
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
The following lists each shareholder of record that directly or
indirectly owned, controlled, or held with power to vote five percent or more of
the 428,385 outstanding shares of North Point common stock as of May 1, 2000,
and the amount of North Point common stock held by each executive officer and
director of North Point. Unless otherwise indicated, each person has sole voting
and investment powers over the indicated shares. Information relating to
beneficial ownership of the North Point common stock is based upon "beneficial
ownership" concepts set forth in rules issued under the Securities Exchange Act
of 1934. Under those rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes the power
to vote or to direct the voting of that security, or "investment power," which
includes the power to dispose or to direct the disposition of that security.
Under the rules, more than one person may be deemed to be a beneficial owner of
the same securities. Unless otherwise indicated, the address of each beneficial
owner of more than five percent of North Point common stock is 109 Highway 53
West, Dawsonville, Georgia 30534.
NAME AND ADDRESS NUMBER OF SHARES BENEFICIALLY OWNED PERCENTAGE OF CLASS
- ---------------- ----------------------------------- -------------------
Don D. Gordon 64,977 15.17%
Raymond R. Gilleland 45,575 10.64%
Taft Fouts 28,690 6.70%
Dwight Gilleland 23,781 5.55%
Ben Overstreet 13,680 3.19%
Robert Polatty 4,002 0.93%
Jimmy C. Bruce 3,072 0.62%
Deborah Pelfrey 2,200 0.51%
Judy Abercrombie 815 0.19%
Clayton Bartlett 900 0.21%
ALL DIRECTORS AND OFFICERS AS A GROUP 142,097 33.08%
- -------------------------------------------
Includes 17,418 shares owned by Mr. Gordon's wife.
Mr. Raymond Gilleland's address is 4226 Smithfield Road, Tucker,
Georgia 30084.
Includes 395 shares owned by Mr. Bruce's wife.
20
NORTH POINT'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
NET INCOME
Net income for the three months ended March 31, 2000 was $392,000,
compared with $360,000 for the same period in 1999. Diluted earnings per share
for the first quarter of 2000 were $0.92, an increase of $0.08, or 10%, compared
with the same period in 1999. The return on average shareholders' equity and
return on average assets for the first quarter of 2000 were 16.9% and 1.44%,
respectively, compared with 16.0% and 1.47%, respectively, for the same period
in 1999.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 2000 totaled
$1.2 million, an increase of $131,000, or 12%, over the same period in 1999.
This increase was primarily due to the increase in average interest-earning
assets of $9.5 million, or 10%, compared with the first quarter of 1999. The net
interest margin for the first three months of 2000 was 4.72%, an increase of
four basis points over the same period in 1999.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 2000
totaled $20,000, a decrease of $10,000 compared with the same period in 1999. As
a percentage of average loans on an annualized basis, the provision for loan
losses for the first quarter of 2000 was 0.12%. The ratio of allowance for loan
losses to outstanding loans at March 31, 2000 was 1.61%, compared with 1.92% at
December 31, 1999.
NON-INTEREST INCOME
Non-interest income for the first three months of 2000 totaled
$182,000, an increase of $20,000, or 12%, from the same period in 1999. Service
charges on deposit accounts totaled $116,000 for the first quarter of 2000, an
increase of $17,000 over the comparable 1999 period. This increase was primarily
attributed to an increase in the volume and number of deposit accounts.
Other non-interest income for the first quarter of 2000 was $66,000, an
increase of $3,000, or 5%, over the same period in 1999.
NON-INTEREST EXPENSE
Total non-interest expense for the three months ended March 31, 2000
was $814,000, an increase of $138,000 thousand, or 20% over the same period last
year. Employee salary and benefit expense increased by $62,000, or 16% during
the first quarter of 2000 compared with the same period in 1999. This increase
in primarily attributable to staffing additions made during the second and third
quarters of 1999 for the new banking office opened in Cumming, Georgia. This
banking office operates under the trade name of "North Point Bank."
Occupancy expense for the first quarter of 2000 was $102,000, an
increase of $21,000, or 26%, over the first quarter of 1999. This increase is
primarily attributed to building, furniture and equipment expense associated
with the new banking office in Cumming, Georgia, which was opened in September
1999.
Other non-interest expense for the first quarter of 2000 was $260,000,
an increase of $55,000, or 27%, over the same period in 1999. Data processing
expense for the first quarter of 2000 increased by $9,000 over the prior year
due the increased number of accounts and transactions related to the new banking
office in Cumming, Georgia. Advertising and public relations expense for the
first three months of 2000 increased by $9,000 over the 1999 level due to
21
promotions associated with the new banking office in Cumming, Georgia. Other
non-interest expense for the first quarter of 2000 also included a non-credit
related operating loss of approximately $24,000 associated with a customer
checking account.
North Point's efficiency ratio, which measures a bank's total operating
expenses as a percentage of net interest income (before provision for loan
losses) plus non-interest income was 59.1%, compared with 56.5% for the same
period in 1999.
INCOME TAXES
Income taxes for the first three months of 2000 were $151,000, compared
with $160,000 for the same period in 1999. The effective tax rate (income tax as
a percentage of pre-tax income) for the first three months of 2000 was 27.8%,
compared with 30.1% for the same period in 1999.
BALANCE SHEET OVERVIEW
Total assets at March 31, 2000 were $115.1 million, an increase of $8.8
million from year-end 1999. Average assets for the first quarter of 2000 were
$109.6 million, compared with $98.3 million for the same period in 1999.
Total loans at March 31, 2000 were $75.3 million, an increase of $13.1
million from year-end 1999. The growth of the loan portfolio during the first
quarter of 2000 is primarily attributed to the purchase of approximately $7
million of commercial and commercial real estate loan participations from
United's affiliate banks and the direct origination of loans in North Point's
primary market area, which continues to experience strong economic conditions.
Average loans for the first quarter of 2000 were $64.3 million, compared with
$55.9 million for the same period in 1999.
At March 31, 2000, investment securities available for sale were $25.1
million, compared with $25.4 million at year-end 1999. Total investment
securities held to maturity at March 31, 2000 were $3.5 million, compared with
$3.8 million at December 31, 1999. The estimated fair value of securities held
to maturity at March 31, 2000 was $3.5 million.
Total deposits at March 31, 2000 were $103.6 million, compared with
$96.6 million at December 31, 1999. The most significant deposit growth during
the first quarter of 2000 was in the category of interest bearing demand
accounts, which increased by $4.2 million, or 16%, for the quarter. This
increase is primarily attributed to an increase in the deposit balances of a
local governmental authority related to annual tax collections. Average deposits
for the first quarter of 2000 were $97.1 million, compared with $86.3 million
for the same period in 1999.
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
$1.02 million, compared with $1.26 million at December 31, 1999. Total other
real estate owned at March 31, 2000 was $247,000, unchanged from December 31,
1999, and consisted of two properties: a single-family residence and a parcel of
unimproved real estate.
Approximately $624,000 of the total non-performing loans at March 31,
2000, represents loans to a single borrower. These loans were partially
charged-off and placed on non-accrual status during the fourth quarter of 1999.
Subsequent to March 31, 2000, North Point completed foreclosure on the real
estate that secured two loans totaling approximately $540,000 of this
relationship. Upon receipt of title to the property, the balance of these two
loans was transferred to other real estate owned.
The allowance for loan losses at March 31, 2000 totaled $1.21 million
compared with $1.11 million at December 31, 1999. The ratio of allowance for
loan losses to outstanding loans at March 31, 2000 was 1.61%, compared to 1.92%
22
at year-end 1999. Net charge-offs for the three months ended March 31, 2000 were
$6,000, or 0.04% of average loans on an annualized basis.
Management believes the allowance for loan losses at March 31, 2000 is
sufficient to absorb credit losses inherent in the loan portfolio. This judgment
is based on the best available information and involves a significant degree of
uncertainty.
CAPITAL AND DIVIDENDS
The leverage, tier I risk-based and total risk-based capital ratios
were 9.08%, 12.53% and 13.78%, respectively, as of March 31, 2000. These three
capital ratios were all in excess of the regulatory requirement for "well
capitalized" status.
A quarterly cash dividend of $0.30 per common share was paid during the
first quarter of 2000, the same amount as paid in the first quarter of 1999.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999 AND 1998
INCOME STATEMENT REVIEW
Net income was $1.09 million in 1999, a decrease of 38.4% from the
$1.64 million earned in 1998. Diluted earnings per share were $2.35 for 1999,
compared with $3.82 reported for 1998, a decrease of 38.5%. Return on average
assets and return on average shareholders' equity for 1999 were 0.98% and
10.88%, respectively, compared with 1.82% and 18.77%, respectively, for 1998 and
1.66% and 17.69%, respectively, for 1997.
NET INTEREST INCOME
Net interest income, which represents the difference between interest
earned on assets and interest paid on deposits and other borrowings, is the
single largest component of North Point's operating income. Net interest income
totaled $4.53 million in 1999, compared with $4.69 million in 1998 and $4.04
million in 1997. The decrease in net interest income during 1999 is primarily
attributed increased competitive pressure on both loan and deposit rates and the
placement on one large loan relationship on non-accrual status, offset by an
increase in average earning assets. The net interest margin, on a tax-equivalent
basis, was 4.84% in 1999, compared with 5.71% in 1998 and 5.57% in 1997. The
compression of the net interest margin of 87 basis points from 1998 to 1999 is
primarily attributable to increased competitive pricing pressure on both loans
and deposits, and the placement of one large loan relationship on non-accrual
status. The competitive pricing pressure on deposits was principally due to a
single interest-bearing transaction account relationship for a municipal
government authority that was awarded on a bid basis for a two-year period that
commenced on January 1, 1999.
23
The following table shows, for the past three years, the relationship
between interest income and interest expense and the average balances of
interest earning assets and interest bearing liabilities.
TABLE 1 - AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
(DOLLAR AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
1999 1998 1997
---------- ------------ ------- ----------- ---------- -------- ---------- ----------- --------
AVG. INTEREST AVG. AVG. INTEREST AVG. AVG. INTEREST AVG.
BALANCE RATE BALANCE RATE BALANCE RATE
---------- ------------ ------- ----------- ----------- ------- ---------- ------------ -------
ASSETS:
Interest-earning assets:
Loans, net of unearned
income $57,961 $5,973 10.31% $ 55,554 $ 5,965 10.74% $45,137 $ 5,032 11.15%
Taxable investments 24,538 1,499 6.11% 19,630 1,261 6.42% 21,363 1,392 6.52%
Tax-exempt investments 6,087 431 7.08% 4,808 356 7.40% 4,684 348 7.43%
Federal funds sold and
other interest income 7,849 397 5.06% 4,288 231 5.39% 3,453 186 5.39%
---------- --------- ---------- -------- ---------- --------
TOTAL INTEREST-EARNING ASSETS/
INTEREST INCOME 96,435 8,300 8.61% 84,280 7,813 9.27% 74,637 6,958 9.32%
---------- --------- ---------- -------- ---------- --------
NON-INTEREST-EARNING ASSETS:
Allowance for loan losses (870) (777) (657)
Cash and due from banks 3,979 3,244 3,498
Premises and equipment 2,342 1,792 1,656
Other assets 888 1,186 1,463
---------- ---------- ----------
TOTAL ASSETS $102,774 $ 89,725 $ 80,597
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $24,964 $1,108 4.44% $ 20,947 $ 685 3.27% $15,950 $ 570 3.57%
Savings and money market
deposits 5,907 176 2.98% 5,666 168 2.97% 5,504 157 2.85%
Certificates of deposit 43,846 2,337 5.33% 37,941 2,140 5.64% 36,497 2,066 5.66%
---------- ----------- ----------- ---------- ---------- --------
Total interest-bearing
deposits 74,717 3,621 4.85% 64,554 2,993 4.64% 57,951 2,793 4.82%
---------- ----------- ----------- ---------- ---------- --------
Long-term debt and other
borrowings 150 8 5.33% 175 10 5.71% 155 9 5.81%
---------- ----------- ----------- ---------- ---------- -----------
Total borrowed funds 150 8 5.33% 175 10 5.71% 155 9 5.81%
---------- ----------- ----------- ---------- ---------- -----------
TOTAL INTEREST-BEARING
LIABILITIES/INTEREST EXPENSE 74,867 3,629 4.85% 64,729 3,003 4.64% 58,106 2,802 4.82%
NON-INTEREST-BEARING
LIABILITIES:
Non-interest-bearing deposits 18,263 15,918 14,439
Other liabilities 368 356 484
---------- ----------- ----------
Total liabilities 93,468 81,004 73,029
---------- ----------- ----------
Shareholders' equity 9,276 8,722 7,568
---------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $102,774 $89,725 $80,597
========== ========== ==========
Net interest-rate spread 3.76% 4.63% 4.50%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 1.08% 1.08% 1.07%
--------- -------- --------
NET INTEREST INCOME/MARGIN ON
INTEREST-EARNING ASSETS $4,671 4.84% $4,810 5.71% $4,156 5.57%
=========== ========= ========== ======== =========== ========
_________________________________
Interest income on tax-exempt securities and loans is adjusted to reflect comparable interest on taxable securities.
For computational purposes, includes non-accrual loans.
Tax equivalent net interest income as a percentage of average earning assets.
24
The following table shows the relative impact on net interest income of changes
in the average outstanding balances (volume) of interest earning assets and
interest bearing liabilities and the rates earned and paid by North Point on
such assets and liabilities from 1997 to 1998 and 1998 to 1999. 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 2 - CHANGE IN INTEREST INCOME AND EXPENSE ON A TAX EQUIVALENT BASIS
(DOLLAR AMOUNTS IN THOUSANDS)
1999 COMPARED TO 1998 INCREASE 1998 COMPARED TO 1997 INCREASE
(DECREASE) IN INTEREST INCOME AND (DECREASE) IN INTEREST INCOME AND
EXPENSE DUE TO CHANGES IN: EXPENSE DUE TO CHANGES IN:
VOLUME RATE TOTAL VOLUME RATE TOTAL
------------ ------------ ------------ ------------- ------------ ------------
INTEREST-EARNING ASSETS
Loans $ 253 $ (245) $ 8 $ 1,161 $ (228) $ 933
Taxable Investments 302 (64) 238 (113) (18) (131)
Tax-exempt investments 91 (16) 75 9 (1) 8
Federal funds sold and other
interest income 181 (15) 166 45 - 45
------------ ------------ ------------ ------------- ------------ ------------
TOTAL INTEREST-EARNING ASSETS $ 827 $ (340) $ 487 $ 1,102 $ (247) $ 855
INTEREST-BEARING LIABILITIES:
Transaction accounts $ 148 $ 275 $ 423 $ 179 $ (64) $ 115
Savings deposits 7 1 8 5 6 11
Certificates of deposit 320 (123) 197 82 (8) 74
------------ ------------ ------------ ------------- ------------ ------------
Total interest-bearing deposits 475 153 628 266 (66) 200
Long-term debt and other borrowings (1) (1) (2) 1 - 1
------------ ------------ ------------ ------------- ------------ ------------
Total borrowed funds (1) (1) (2) 1 - 1
------------ ------------ ------------ ------------- ------------ ------------
TOTAL INTEREST-BEARING LIABILITIES $ 474 $ 152 $ 626 $ 267 $ (66) $ 201
------------ ------------ ------------ ------------- ------------ ------------
INCREASE (DECREASE) IN NET INTEREST INCOME
$ 353 $(492) $ (139) $ 835 $(181) $ 654
============ ============ ============ ============= ============ ============
PROVISION FOR LOAN LOSS
The provision for loan losses in 1999 was $620,000, compared with
$200,000 in 1998 and $175,000 in 1997. As a percentage of average outstanding
loans, the provisions recorded in 1999, 1998, and 1997 were 1.07%, 0.36% and
0.39%, respectively. Net loan charge-offs as a percentage of average outstanding
loans for 1999 were 0.46 %, compared with 0.12% in 1998 and 0.09% in 1997. The
increase in provision and net charge-offs in 1999 is the result of an increase
in non-performing loans and growth in the loan portfolio. Further discussion on
loan quality and the allowance for loan losses is included later in this
discussion in the Asset Quality section.
The provision for loan losses is based on management's evaluation of
inherent risks in the loan portfolio as of the balance sheet date and
conjunction with an analysis of the adequacy of the allowance for loan losses.
Management believes that the allowance for loan losses is adequate as of the
balance sheet date.
25
NON-INTEREST INCOME
Total non-interest income for 1999 was $625,000, compared with $654,000
in 1998 and $656,000 in 1997. The primary source of non-interest income for
North Point is service charges and fees on deposit accounts. Total service
charges on deposit accounts for 1999 were $451,000, compared with $484,000 in
1998 and $475,000 in 1997. The decline in service fees on deposits from 1998 to
1999 of $33,000 is primarily attributable to lower returned check/non-sufficient
funds charges resulting from wider customer use of overdraft protection services
Other services charges and fees for 1999 totaled $70,000, compared with
$56,000 in 1998 and $54,000 in 1997. The increase in this income category from
1998 to 1999 is primarily attributable to increased fees for issuance of letters
of credit and increased fees associated with general bank services such as wire
transfers.
Other non-interest income for 1999 was $104,000, compared with $113,000
in 1998 and $99,000 in 1997. The two main components of this revenue category
are ATM fees and safe deposit rental fees, which collectively increased by
$5,000 in 1999. This income category also includes net gains or losses on the
sale of foreclosed property. During 1999, total net losses of $5,000 were
recorded, compared with net gains of $7,000 in 1998.
NON-INTEREST EXPENSE
Total non-interest expense for 1999 was $3.07 million, compared with
$2.69 million in 1998 and $2.49 million in 1997. The single largest component of
non-interest expense is employee salary and benefits, which totaled $1.64
million in 1999, compared with $1.43 million in 1998 and $1.32 million in 1997.
The increase in salary and benefit expense during 1999 is related to general
increases and to the hiring of two managers for the new branch office located in
Cumming, Georgia. Although this office was not opened until the fourth quarter,
the new managers were hired during the second quarter in order to allow for
sufficient time to become familiar with the Bank and its systems, policies and
procedures.
Occupancy and equipment expense for 1999 was $349,000, compared with
$348,000 in 1998 and $348,000 in 1997. Other operating expense for 1999 was
$1.08 million, compared with $914,000 in 1998 and $826,000 in 1997. The increase
in other operating expense of $165,000, or 18%, from 1998 to 1999 in primarily
attributed to an increase in advertising, contributions and stationery/supply
expense associated with the opening of the new office in Cumming, Georgia; an
increase in data processing costs associated with an upgrade of the branch
automation system; and, expenses associated with the write-down of foreclosed
real estate.
The efficiency ratio, which measures a bank's total operating expenses
as a percentage of net interest income (before provision for loan losses) plus
non-interest income, was 59.6% for 1999, compared with 50.4% and 53.4% for 1998
and 1997, respectively.
INCOME TAXES
North Point had income tax expense of $453,000 in 1999, compared with
$814,000 in 1998 and $662,000 in 1997. North Point's effective tax rate
(expressed as a percentage of pre-tax income) for 1999, 1998, and 1997 was
31.0%, 33.2% and 33.1%, respectively. The effective tax rates are lower than the
statutory federal tax rate primarily because of interest income on certain
investment securities that is exempt from income taxes.
BALANCE SHEET OVERVIEW
Total assets at December 31, 1999 were $106.5 million, compared with
$93.9 million and $85.3 million at year-end 1998 and 1997, respectively. Average
assets for 1999, 1998, and 1997 were $102.8 million, $89.7 million, and $80.6
million, respectively. The asset growth experienced by North Point during the
past three years is attributed to the strong economic conditions in the local
market area in which North Point operates.
26
LOANS
Total loans at December 31, 1999 were $62.2 million, compared with
$54.6 million at December 31, 1998 and $48.1 million at December 31, 1997.
Average loans for 1999, 1998, and 1997 were $58.0 million, $55.6 million, and
$45.1 million, respectively. Loan growth has been particularly strong in the
commercial and real estate - construction loan categories during the past three
years. The decline in consumer loans from 1998 to 1999 is attributed to a
reclassification of certain consumer loans to the real estate - mortgage
category.
The following table presents a summary of the loan portfolio by loan
type as of December 31 for the years 1995 through 1999.
TABLE 3 - LOAN PORTFOLIO
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31,
1999 1998 1997 1996 1995
----------------- ---------------- ---------------- ----------------- ----------------
Commercial 10,064 6,677 4,327 6,450 7,566
Real estate - construction 12,556 8,299 6,354 4,821 2,733
Real estate - mortgage 33,378 27,059 27,153 22,773 17,542
Consumer 6,214 12,512 10,277 6,672 5,117
----------------- ---------------- ---------------- ----------------- ----------------
Total loans 62,212 54,547 48,111 40,716 32,958
================= ================ ================ ================= ================
----------------- ---------------- ---------------- ----------------- ----------------
As a percentage of total loans:
Commercial 16.2% 12.2% 9.0% 15.8% 22.9%
Real estate - construction 20.2% 15.2% 13.2% 11.8% 8.3%
Real estate - mortgage 53.6% 49.7% 56.4% 56.0% 53.3%
Consumer 10.0% 22.9% 21.4% 16.4% 15.5%
----------------- ---------------- ---------------- ----------------- ----------------
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
================= ================ ================ ================= ================
Substantially all of North Point's loans are to customers located in
its immediate market area of Dawson and Forsyth Counties, located in north
Georgia. A significant decline in the value of real estate in North Point's
primary market or a downturn in the local economy could result in an increase in
the provision for loan losses and charge-offs.
The following table sets forth the maturity distribution of real estate
construction and commercial loans, including the interest sensitivity for loans
maturing in more than one year, as of December 31, 1999.
TABLE 4 - LOAN PORTFOLIO MATURITY
(DOLLAR AMOUNTS IN THOUSANDS)
Rate Structure for Loans
Maturity Maturing Over One Year
----------------------------------------------------------- ---------------------------
One Year One through Over Five Fixed Rate Floating
or less Five Years Years Total Rate
- -------------------------------------- --------------- ----------------- ------------- ----------- ------------ --------------
Commercial 5,208 4,763 93 10,064 2,995 1,861
Real estate - construction 12,556 - - 12,556 - -
--------------- ----------------- ------------- ----------- ------------ --------------
Total 17,764 4,763 93 22,620 2,995 1,861
=============== ================= ============= =========== ============ ==============
27
ASSET QUALITY
Non-performing loans, which include non-accrual loans and loans past
due over 90 days and still on accrual status, totaled $1.01 million at December
31, 1999, compared with $552,000 at December 31, 1998 and $116,000 at December
31, 1997. The increase in non-performing loans at year-end 1999 is primarily
attributable to loans made to one borrower that are principally secured by
unimproved real estate. All loans in this relationship were placed on
non-accrual status during the fourth quarter of 1999. Based upon management's
evaluation of the collateral value, these loans were also partially charged-off
during 1999 and no material additional loss on this loan relationship is
expected. The increase in non-performing loans at year-end 1998 is primarily
attributable to three residential construction loans that were place on
non-accrual status. Subsequently to December 31, 1999, two of the three loans
were paid in full and one loan was transferred to foreclosed real estate,
resulting in the increase in other real estate owned from 1998 to 1999. At
December 31, 1999, the ratio of non-performing loans to total loans was 1.63%,
compared with 1.01% and .24% at year-end 1998 and 1997, respectively.
Non-performing assets, which included non-performing loans and foreclosed real
estate, totaled $1.26 million at December 31, 1999, compared with $552,000 at
December 31, 1998 and $175,000 at December 31, 1997. Foreclosed real estate at
December 31, 1999, consisted of two properties - one single-family residence,
which at year-end 1998 was classified as a non-accrual loan, and one parcel of
unimproved real estate. The carrying value of the single family residence was
reduced by $50,000 (charged to current period expense) during the fourth quarter
of 1999 to reflect management's estimate of current fair market value.
It is North Point's general policy to place a loan on non-accrual
status when, in the opinion of management, the principal and interest on a loan
is not likely to be repaid in accordance with the loan terms. When a loan is
placed on non-accrual, all accrued but unpaid interest is reversed against
current interest income. Depending on management's evaluation of the borrowers
financial condition and the loan collateral, interest on a non-accrual loan may
be recognized on a cash basis as payments are received.
The table below presents North Point's non-performing loans and assets
at December 31 for each of the past five years.
TABLE 5 - NON-PERFORMING ASSETS
(DOLLAR AMOUNTS IN THOUSANDS)
DECEMBER 31,
1999 1998 1997 1996 1995
- ----------------------------------------------- ---------------- --------------- --------------- -------------- ---------------
Non-accrual loans $ 706 $ 473 $ 72 $ 59 $ 65
Loans past due 90 days or more and still
accruing 308 79 44 57 84
---------------- --------------- --------------- -------------- ---------------
Total non-performing loans 1,014 552 116 116 149
Other real estate owned 247 - 59 - 48
---------------- --------------- --------------- -------------- ---------------
Total non-performing assets $ 1,261 $ 552 $ 175 $ 116 $ 197
================ =============== =============== ============== ===============
Total non-performing loans as a percentage of 1.63% 1.01% 0.24% 0.28% 0.45%
total loans
Total non-performing assets as a percentage
of total assets 1.18% 0.59% 0.21% 0.15% 0.31%
At December 31, 1999, there were loans within North Point's portfolio
that were not classified as non-performing but for which known information about
the borrower's financial condition caused management to have concerns about the
28
ability of the borrowers to comply with the repayment terms of the loans. These
loans are identified and monitored through a routine loan review process and are
considered in the determination of the allowance for loan losses. Based on
management's evaluation of current market conditions, loan collateral and
secondary sources of repayment, no significant losses are anticipated in
connection with these loans.
The table below summarizes changes in the allowance for loan losses for
each of the past five years.
TABLE 6 - ALLOWANCE FOR LOAN LOSSES
(DOLLAR AMOUNTS IN THOUSANDS)
YEARS ENDED DECEMBER 31,
1999 1998 1997 1996 1995
- ------------------------------------------- ---------------- ------------------ --------------- --------------- ---------------
Balance beginning of period $ 844 $ 710 $ 574 $ 396 $ 429
Provision for loan losses 620 200 175 160 70
Amounts charged-off:
Commercial 5 9 7 69 130
Real estate - construction - - -
Real estate - mortgage 226 16 29
Consumer 69 62 50
---------------- ------------------ --------------- --------------- ---------------
Total loans charged-off $ 300 $ 87 $ 86 $ 69 $ 130
Recoveries of charged-off loans:
Commercial - - 4 87 27
Real estate - construction - - -
Real estate - mortgage 8 4 20
Consumer 24 17 23
---------------- ------------------ --------------- --------------- ---------------
Total recoveries 32 21 47 87 27
---------------- ------------------ --------------- --------------- ---------------
Net charge-offs 268 66 39 (18) 103
---------------- ------------------ --------------- --------------- ---------------
Balance end of period $1,196 $ 844 $ 710 $ 574 $ 396
================ ================== =============== =============== ===============
Total loans:
At year-end $62,212 $ 54,547 $ 48,111 $ 40,716 $ 32,958
Average 57,961 55,554 45,137 37,443 31,583
As a percentage of average loans:
Net charge-offs 0.46% 0.12% 0.09% (0.05%) 0.33%
Provision for loan losses 1.07% 0.36% 0.39% 0.43% 0.22%
Allowance as a percentage of year-
end loans 1.92% 1.55% 1.48% 1.41% 1.20%
SECURITIES
Total securities at December 31, 1999 were $29.1 million, compared with
$25.0 million and $26.9 million at year-end 1998 and 1997, respectively. Total
securities at December 31, 1999 included $3.76 million of securities classified
as held to maturity, which had an estimated fair value of $3.78 million. Average
securities for 1999 and 1998 were $30.6 million and $24.4 million, respectively.
The composition and growth of the securities portfolio is reflective of
management's desire to provide balance sheet liquidity while providing a stable
source of interest income that has virtually no credit risk. The securities
portfolio at year-end 1999 primarily consists of U.S. Government agency, state,
and municipal securities, and mortgage-backed securities.
29
The following table shows the carrying value of securities, by security
type, as of December 31, 1999, 1998, and 1997.
TABLE 7 - SECURITIES PORTFOLIO
(DOLLAR AMOUNTS IN THOUSANDS)
CARRYING VALUE OF SECURITIES
AVAILABLE FOR SALE December 31,
1999 1998 1997
- --------------------------------------- ------------------------ --------------------------- ---------------------------
U.S. Treasury $ 251 $ 761 $ 1,001
U.S. Government agencies 19,931 15,183 10,844
State and political subdivisions 2,956 2,565 946
Mortgage-backed securities 2,142 1,733 1.393
Other securities 92 92 92
------------------------ --------------------------- ---------------------------
Total $ 25,372 $ 20,334 $ 14,276
======================== =========================== ===========================
HELD TO MATURITY December 31,
1999 1998 1997
- --------------------------------------- ------------------------ --------------------------- ---------------------------
U.S. Treasury $ - $ - $ 497
U.S. Government agencies 247 743 7,081
State and political subdivisions 3,111 3,452 3,626
Mortgage-backed securities 404 506 1,450
======================== =========================== ===========================
Total $ 3,762 $ 4,701 $ 12,654
------------------------ --------------------------- ---------------------------
------------------------ --------------------------- ---------------------------
TOTAL SECURITIES $ 29,134 $ 25,035 $ 26,930
======================== =========================== ===========================
The following table shows the expected maturity of the securities
portfolio by maturity date and the average yield based on amortized cost as of
December 31, 1999.
TABLE 8 - MATURITIES AND YIELDS OF SECURITIES AS OF DECEMBER 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS)
Over One Over Five
Year Years
One Year Through Through Over
or Less Five years Ten Years Ten Years Total
----------------- ---------------- ---------------- ----------------- ----------------
U.S. Treasury $ 251 $ - $ - $ - $ 251
U.S. Government agencies 996 16,348 2,834 - 20,178
State and political subdivisions 765 3,254 1,579 469 6,067
Mortgage-backed securities 253 596 452 1,245 2,546
Other securities - - - 92 92
----------------- ---------------- ---------------- ----------------- ----------------
Total $ 2,265 $ 20,198 $ 4,865 $ 1,806 $ 29,134
================= ================ ================ ================= ================
Weighted average yield 5.99% 6.31% 6.54% 6.33% 6.32%
Percent of total 7.8% 69.3% 16.7% 6.2% 100.0%
30
INTEREST RATE SENSITIVITY MANAGEMENT
North Point actively manages interest rate sensitivity through its
Asset/Liability Management Committee. The primary objectives of asset/liability
management are to ensure that North Point can meet the investment return
expectations of its shareholders in the event that interest rates change and to
provide adequate liquidity to meet the needs of customers. Effective interest
rate risk management seeks to ensure that both interest sensitive assets and
liabilities respond to changes in market rates in a manner that provides for a
minimal fluctuation of net interest income, which is the primary source of
operating revenue.
North Point's Asset/Liability Management Committee utilizes a gap
analysis to determine the overall sensitivity of the balance sheet to changes in
market interest rates. A negative gap (more liabilities than assets repricing
within one year) indicates that the bank's net interest income will fall in a
rising rate environment. A positive gap (more assets repricing than liabilities
within one year) indicates the bank's net interest income will decline in a
falling rate environment.
The following table summarizes the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1999 and the
amounts that are expected to mature or reprice in each of the five time periods
shown. The amounts of assets and liabilities shown are based on contractual
terms and maturities.
TABLE 9 - INTEREST RATE GAP SENSITIVITY
(DOLLAR AMOUNTS IN THOUSANDS)
One Four One Over Five
Through Through Through Years and
Three Twelve Five Non-rate
Immediate Months Months Years Sensitive Total
- ---------------------------------------------- -------------- -------------- ------------- ------------ ------------- ------------
Interest earning assets:
Federal funds sold $ 4,180 $ - $ - $ - $ - $ 4,180
Interest bearing deposits in banks 2,981 - - - - 2,981
Securities 92 215 2,248 18,732 7,847 29,134
Loans 2,262 12,723 23,118 22,483 1,626 62,212
-------------- -------------- ------------- ------------ ------------- ------------
Total interest earning assets $ 6,534 $ 12,938 $ 25,366 $ 41,215 $ 9,473 $ 95,526
-------------- -------------- ------------- ------------ ------------- ------------
Interest bearing liabilities:
Transaction accounts $ - $ 26,991 $ - $ - $ - $ 26,991
Savings deposits - 5,350 - - - 5,350
Time deposits - 12,262 26,891 7,333 - 46,486
Other borrowings - 389 - - - 389
-------------- -------------- ------------- ------------ ------------- ------------
Total interest bearing liabilities - 44,992 26,891 7,333 - 79,216
-------------- -------------- ------------- ------------ ------------- ------------
Non-interest bearing sources of funds - - - - 17,738 17,738
-------------- -------------- ------------- ------------ ------------- ------------
Interest sensitivity gap 6,534 (32,054) (1,525) 33,882 (8,265) 1,553
-------------- -------------- ------------- ------------ ------------- ------------
Cumulative sensitivity gap $ 6,534 $(25,520) $(27,045) $ 6,837 $ (1,428) $ -
============== ============== ============= ============ ============= ============
Percentage of assets repricing 6.84% 13.54% 26.55% 43.15% 9.92% 100.0%
At December 31, 1999, the one-year gap was a negative $27.0 million.
This indicates that North Point's net interest income will decrease in a rising
rate environment and increase in a declining rate environment. This is commonly
referred to as being "liability sensitive." There are significant limitations of
gap analysis for determining the impact of rate changes on a bank's net interest
income. For example, although certain assets and liabilities may have similar
maturity or repricing characteristics, they may react differently to changes in
market rates. In addition, some assets that have adjustable rates may have
contractual terms that limit the frequency and amount of rate increases.
31
DEPOSITS AND OTHER BORROWINGS
Total deposits at December 31, 1999 were $96.6 million, compared with
$84.1 million and $76.8 million at year-end 1999 and 1998, respectively. Average
deposits for 1999, 1998, and 1997 were $92.8 million, $80.4 million, and $72.4
million, respectively. As a community-oriented bank, North Point views core
deposits as the primary source of funding growth in interest earning assets.
Time deposits of $100,000 or more totaled $16.3 million at December 31,
1999, compared with $12.3 million and $10.9 million at year-end 1998 and 1997,
respectively. North Point had no brokered deposits at year-end 1999 or 1998.
The following table sets forth the maturities of time deposits of
$100,000 and greater as of December 31, 1999.
TABLE 10 - MATURITIES OF TIME DEPOSITS OF $100,000 AND GREATER
(DOLLAR AMOUNTS IN THOUSANDS)
Three months or less $ 4,091
Over three months through six months 3,825
Over six months through twelve months 6,006
Over one year 2,403
--------------------------
Total $ 16,325
==========================
CAPITAL, LIQUIDITY AND DIVIDENDS
Total shareholders' equity at December 31, 1999 was $9.2 million,
compared with $9.4 million and $8.1 million at year-end 1998 and 1997,
respectively. Total cash dividends of $1.20 per share were paid in 1999,
compared with $0.96 and $0.88 in 1998 and 1997, respectively. The dividend
payout ratios, as a percentage of net income, were approximately 51%, 25%, and
28% for 1999, 1998, and 1997, respectively.
During the first quarter of 1997 and 1999, North Point's board of
directors declared the following common stock dividends:
YEAR DIVIDEND % NEW SHARES
1997 20% 57,118
1998 - -
1999 25% 85,677
The common stock dividends resulted in a reduction of retained earnings
and offsetting increase in common stock for the number of new shares issued, at
a par value of $5.00. All per-share amounts presented in this discussion are
calculated based on the retroactive adjustment of outstanding common shares for
the stock dividends for all periods presented.
North Point is subject to various regulatory capital requirements
administered by banking regulatory agencies. The minimum ratios to be considered
"well capitalized" as defined by banking regulations are five percent for
leverage ratio, six percent for Tier I capital ratio, and ten percent for total
risk-based capital ratio. The table below shows North Point's bank subsidiary
capital ratios as of December 31, 1999 and 1998 and the amounts required for
minimum capital adequacy purposes.
32
TABLE 11 - REGULATORY CAPITAL (1)
(DOLLAR AMOUNTS IN THOUSANDS)
LEVERAGE TIER I RISK-BASED TOTAL RISK-BASED
----------------------------- -------------------------------- ----------------------------
1999 ACTUAL ACTUAL ACTUAL
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- -------------- ------------------- ------------ --------------- ------------
Actual $ 9,712 9.09% $ 9,712 14.25% $ 10,568 15.50%
Regulatory minimum 3,206 3.00% 2,045 4.00% 5,453 8.00%
-------------- -------------- ------------------- ------------ --------------- ------------
Excess $ 6,506 6.09% $ 7,667 10.25% $ 5,115 7.50%
1998
Actual $ 9,140 9.80% $ 9,140 16.09% $ 9,852 17.34%
Regulatory minimum 2,798 3.00% 1,704 4.00% 4,545 8.00%
-------------- -------------- ------------------- ------------ --------------- ------------
Excess $ 6,342 6.80% $ 7,436 12.09% $ 5,307 9.34%
(1) As of December 31, 1999 and 1998, the most recent notification from the
Federal Deposit Insurance Corporation categorized Dawson County Bank as
"well capitalized" under the current regulatory framework for prompt
corrective action. Prompt corrective action guidelines do not apply to
bank holding companies.
North Point's liquidity management policy is designed to ensure that
the daily cash flow needs of Dawson County Bank and its customers (both
depositors and borrowers) are met in a cost-effective manner. Liquidity
represents the ability of a bank to convert assets into cash or to obtain
additional funds through borrowings. In the opinion of management, North Point's
liquidity position at December 31, 1999 is sufficient to meet expected cash flow
requirements
Reference should be made to the statements of cash flows appearing in
the consolidated financial statements for a three-year analysis of the changes
in cash (and equivalents) attributed to operating, investing, and financing
activities.
IMPACT OF INFLATION AND PRICE CHANGES
North Point's asset and liabilities, like most financial services
companies, are mostly financial in nature. Unlike industrial firms, relatively
little investment is held in fixed assets or inventory. Inflation can have a
significant impact on asset growth and the resulting need to increase equity
capital at higher than expected rates in order to maintain required capital
ratios.
Management believes the potential impact of inflation on the North
Point's financial performance is dependent upon how well North Point reacts to
inflationary pressures. North Point's asset/liability management policy and the
periodic review of the pricing of North Point's banking products and services
are both designed to manage the risk of inflation.
YEAR 2000
North Point complied with all aspects of the Federal Financial
Institutions Examination Council's directive regarding Year 2000 testing and
remediation. None of North Point's systems sustained a failure related to Year
2000. North Point established a budget of $85,000 for Year 2000 testing and
remediation and, as of December 31, 1999, approximately $85,000 was actually
spent and no additional expenditures are expected. In accordance with recently
issued accounting guidelines on how Year 2000 costs should be recognized for
financial statement purposes, North Point recognized as current period expense
all costs associated with the consulting, inventory, testing and resources
components of the Year 2000 budget. North Point funded the Year 2000 costs out
of its normal operating cash flows.
33
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial
statements have been prepared from the historical results of operations of
United and to give effect to the pending acquisition of North Point. These
statements should be read in conjunction with the historical consolidated
financial statements of United, including the notes thereto, included elsewhere
in this proxy statement/prospectus. The pro forma combined results are not
necessarily indicative of the combined results of future operations.
In the North Point merger, United will exchange 2.2368 shares of United
common stock for each share of North Point common stock. North Point had 428,385
shares of common stock outstanding at May 1, 2000, which will be exchanged for
approximately 958,211 shares of United common stock.
In connection with the North Point merger, United and North Point
expect to incur pre-tax merger related charges of approximately $1.3 million.
These charges are expected to include approximately $250,000 of severance and
change in control related payments, $880,000 of occupancy related charges
(equipment write-offs and contract terminations), $135,000 of merger-related
professional fees (accounting and legal), and $35,000 in other merger costs.
These amounts and the related tax effects have not been reflected in
the unaudited pro forma consolidated financial information because they will not
have a material impact on the shareholders' equity of the combined company and
are not expected to have a continuing impact on the operations of the combined
company.
34
United Community Banks, Inc
United Community Banks, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2000
(dollar amounts in thousands)
Historical Pro Forma Pro Forma
United As North Adjust- Consoli- Historical Consoli-
Reported Point ments dated Independent Adjustments dated
-------- ----- ----- ----- ----------- ----------- -----
ASSETS
Cash and due from banks $ 82,294 7,295 89,589 5,168 94,757
Federal funds sold 170 -- 170 16,676 16,846
------------ ----------- --------- ----------- ---------- ------------- ----------
Cash and cash equivalents 82,464 7,295 89,759 21,844 -- 111,603
Securities held to maturity -- 3,544 3,544 6,704 10,248
Securities available for sale 548,670 25,111 573,781 23,394 597,175
Mortgage loans held for sale 4,588 -- 4,588 - 4,588
Loans, net of unearned income 1,459,469 75,336 1,534,805 101,294 1,636,099
Less: Allowance for loan losses (18,922) (1,210) (20,132) (1,166) (21,298)
------------ ----------- --------- ----------- ---------- ------------- ----------
Loans, net 1,440,547 74,126 1,514,673 100,128 -- 1,614,801
Premises and equipment, net 47,644 2,796 50,440 5,486 55,926
Other assets 50,708 2,238 52,946 3,528 56,474
------------ ----------- --------- ----------- ---------- ------------- ----------
Total assets $ 2,174,621 115,110 2,289,731 161,084 -- 2,450,815
============ =========== ========= =========== ========== ============= ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Deposits:
Demand $ 210,248 18,536 228,784 20,160 248,944
Interest bearing demand 352,448 31,175 383,623 51,783 435,406
Savings 78,147 5,643 83,790 5,381 89,171
Time 1,027,642 48,284 1,075,926 64,117 1,140,043
------------ ----------- --------- ----------- ---------- ------------- ----------
Total deposits 1,668,485 103,638 1,772,123 141,441 -- 1,913,564
Accrued expenses and other liabilities 20,149 595 20,744 1,630 22,374
Federal funds purchased and repurchase 33,760 1,488 35,248 - 35,248
agreements
Federal Home Loan Bank advances 309,940 -- 309,940 4,471 314,411
Long-term debt and other borrowings 19,331 -- 19,331 - 19,331
Convertible subordinated debentures 3,500 -- 3,500 - 3,500
Guaranteed preferred beneficial interests in
company's junior subordinated debentures
(Trust Preferred Securities) 21,000 -- 21,000 - 21,000
------------ ----------- --------- ----------- ---------- ------------- ----------
Total liabilities 2,076,165 105,721 2,181,886 147,542 -- 2,329,428
Commitments and contingent liabilities:
Redeemable
common stock held by KSOP (44,432 shares
outstanding) 577 577
Shareholders' Equity:
Preferred stock -- -- - -- --
Common stock 8,034 2,142 (2,142) 8,991 1,948 (1,948) 9,811
957 820
Capital surplus 30,310 1,985 (1,985) 33,480 8,615 (8,615) 43,223
3,170 9,743
Retained earnings 69,807 5,861 75,668 2,888 78,556
Accumulated other comprehensive income (9,695) (599) (10,294) (486) -- (10,780)
(loss)
------------ ----------- --------- ----------- ---------- ------------- ----------
Total shareholders' equity 98,456 9,389 107,845 12,965 -- 120,810
Total liabilities and shareholders' equity $ 2,174,621 115,110 2,289,731 161,084 -- 2,450,815
============ =========== ========= =========== ========== ============= ==========
Outstanding common shares 8,034 8,991 9,811
Book value per common share $ 12.25 11.99 12.31
See notes to pro forma condensed consolidated financial statements.
35
United Community Banks, Inc
United Community Banks, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 2000
(dollar amounts in thousands)
Pro Forma Pro Forma
Historical Consoli- Consoli-
United As North Point dated Historical dated
Reported Adjustments Independent Adjustments
----------- ------------ --------------- ---------- -------------- -------------- -----------
Interest income $ 43,431 2,255 45,686 3,104 48,790
Interest expense 24,565 1,060 25,625 1,391 27,016
----------- ------------ --------------- ---------- -------------- -------------- -----------
Net interest income 18,866 1,195 20,061 1,713 - 21,774
Provision for loan losses 1,546 20 1,566 45 1,611
----------- ------------ --------------- ---------- -------------- -------------- -----------
Net interest income after 17,320 1,175 18,495 1,668 - 20,163
provision for loan losses
Non-interest income 2,672 182 2,854 223 3,077
Non-interest expense 14,379 814 15,193 1,190 16,383
----------- ------------ --------------- ---------- -------------- -------------- -----------
Income before income taxes 5,613 543 6,156 701 - 6,857
----------- ------------ --------------- ---------- -------------- -------------- -----------
Income taxes 1,789 151 1,940 246 2,186
----------- ------------ --------------- ---------- -------------- -------------- -----------
Net income $ 3,824 392 4,216 455 - 4,671
=========== ============ =============== ========== ============== ============== ===========
Basic earnings per share $ 0.48 0.48
Diluted earnings per share $ 0.47 0.47
Basic average shares outstanding 8,034 9,812
Diluted average shares outstanding 8,317 10,126
See notes to pro forma condensed consolidated financial statements.
36
United Community Banks, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Three Months Ended March 31, 1999
(dollar amounts in thousands)
Pro Forma
Historical Pro Forma Consoli-
United As North Consoli-dated Historical dated
Reported Point Adjustments Independent Adjustments
----------- ----------- -------------- ------------- -------------- -------------- ----------
Interest income $ 32,829 1,933 34,762 2,610 37,372
Interest expense 17,395 869 18,264 1,155 19,419
----------- ----------- -------------- ------------- -------------- -------------- ----------
Net interest income 15,434 1,064 16,498 1,455 - 17,953
Provision for loan losses 980 30 1,010 76 1,086
----------- ----------- -------------- ------------- -------------- -------------- ----------
Net interest income after 14,454 1,034 15,488 1,379 - 16,867
provision for loan losses
Non-interest income 2,479 162 2,641 259 2,900
Non-interest expense 12,000 676 12,676 1,153 13,829
----------- ----------- -------------- ------------- -------------- -------------- ----------
Income before income taxes 4,933 520 5,453 485 - 5,938
----------- ----------- -------------- ------------- -------------- -------------- ----------
Income taxes 1,640 160 1,800 175 1,975
----------- ----------- -------------- ------------- -------------- -------------- ----------
Net income $ 3,293 360 3,653 310 - 3,963
=========== =========== ============== ============= ============== ============== ==========
Basic earnings per share $ 0.41 0.41
Diluted earnings per share $ 0.40 0.40
Basic average shares outstanding 8,004 9,780
Diluted average shares outstanding 8,269 10,062
See notes to pro forma condensed consolidated financial statements.
37
United Community Banks, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Year Ended December 31, 1999
(dollar amounts in thousands)
Historical Pro Forma Pro Forma
As North Consoli- Historical Consoli-
Reported Point Adjustments dated Independent Adjustments dated
----------- ----------- ------------- ------------ --------------- ------------ ------------
Interest income $ 149,740 8,156 157,896 11,096 168,992
Interest expense 81,766 3,629 85,395 4,805 90,200
----------- ----------- ------------- ------------ --------------- ------------ ------------
Net interest income 67,974 4,527 72,501 6,291 - 78,792
Provision for loan losses 5,104 620 5,724 242 5,966
----------- ----------- ------------- ------------ --------------- ------------ ------------
Net interest income after 62,870 3,907 66,777 6,049 - 72,826
provision
for loan losses
Non-interest income 10,836 625 11,461 1,103 12,564
Non-interest expense 54,165 3,070 57,235 4,746 61,981
----------- ----------- ------------- ------------ --------------- ------------ ------------
Income before income taxes 19,541 1,462 21,003 2,406 - 23,409
----------- ----------- ------------- ------------ --------------- ------------ ------------
Income taxes 5,893 453 6,346 785 7,131
----------- ----------- ------------- ------------ --------------- ------------ ------------
Net income $ 13,648 1,009 14,657 1,621 - 16,278
=========== =========== ============= ============ =============== ============ ============
Basic earnings per share $ 1.70 1.66
Diluted earnings per share $ 1.66 1.63
Basic average shares outstanding 8,020 9,796
Diluted average shares outstanding 8,316 10,110
See notes to pro forma condensed consolidated financial statements.
38
United Community Banks, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Year Ended December 31, 1998
(dollar amounts in thousands)
Historical Pro Forma Pro Forma
As North Consoli- Historical Consolidated
Reported Point Adjustments dated Independent Adjustments
------------ ----------- -------------- ------------- -------------- -------------- ------------
Interest income $ 116,214 7,693 123,907 9,978 133,885
Interest expense 60,004 3,003 63,007 4,623 67,630
------------ ----------- -------------- ------------- -------------- -------------- ------------
Net interest income 56,210 4,690 60,900 5,355 - 66,255
Provision for loan losses 2,612 200 2,812 202 3,014
------------ ----------- -------------- ------------- -------------- -------------- ------------
Net interest income after 53,598 4,490 58,088 5,153 - 63,241
provision
for loan losses
Non-interest income 9,129 653 9,782 938 10,720
Non-interest expense 43,964 2,692 46,656 4,442 51,098
------------ ----------- -------------- ------------- -------------- -------------- ------------
Income before income taxes 18,763 2,451 21,214 1,649 - 22,863
------------ ----------- -------------- ------------- -------------- -------------- ------------
Income taxes 5,990 814 6,804 549 7,353
------------ ----------- -------------- ------------- -------------- -------------- ------------
Net income $ 12,773 1,637 14,410 1,100 - 15,510
============ =========== ============== ============= ============== ============== ============
Basic earnings per share $ 1.60 1.59
Diluted earnings per share $ 1.57 1.56
Basic average shares outstanding 7,973 9,751
Diluted average shares outstanding 8,246 10,043
See notes to pro forma condensed consolidated financial statements.
39
United Community Banks, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Statements of Income
For the Year Ended December 31, 1997
(dollar amounts in thousands)
Historical Pro Forma
As North Consoli- Historical Pro Forma
Reported Point Adjustments dated Independent Adjustments Consolidated
----------- ----------- -------------- ------------ --------------- -------------- ------------
Interest income $ 94,188 6,843 101,031 8,333 109,364
Interest expense 48,470 2,802 51,272 4,049 55,321
----------- ----------- -------------- ------------ --------------- -------------- ------------
Net interest income 45,718 4,041 49,759 4,284 54,043
Provision for loan losses 2,814 175 2,989 262 3,251
----------- ----------- -------------- ------------ --------------- -------------- ------------
Net interest income after 42,904 3,866 46,770 4,022 50,792
provision for loan losses
Non-interest income 7,200 626 7,826 671 8,497
Non-interest expense 34,063 2,490 36,553 3,543 40,096
----------- ----------- -------------- ------------ --------------- -------------- ------------
Income before income taxes 16,041 2,002 18,043 1,150 19,193
----------- ----------- -------------- ------------ --------------- -------------- ------------
Income taxes 4,987 662 5,649 346 5,995
----------- ----------- -------------- ------------ --------------- -------------- ------------
Net income $ 11,054 1,340 12,394 804 13,198
=========== =========== ============== ============ =============== ============== ============
Basic earnings per share $ 1.42 1.41
Diluted earnings per share $ 1.40 1.40
Basic average shares outstanding 7,810 9,336
Diluted average shares outstanding 8,031 9,565
See notes to pro forma condensed consolidated financial statements.
40
INFORMATION ABOUT UNITED COMMUNITY BANKS, INC.
DESCRIPTION OF BUSINESS
United was incorporated under the laws of the state of Georgia in 1987.
All of United's activities are currently conducted through its wholly-owned
subsidiaries: United Community Bank, organized as a Georgia banking corporation
in 1950; Carolina Community Bank, acquired in 1990; Peoples Bank of Fannin
County, acquired in 1992; Towns County Bank, also acquired in 1992; White County
Bank, acquired in 1995; First Clayton Bank & Trust, acquired in 1998; Bank of
Adairsville, acquired in 1999; and 1st Floyd Bank, also acquired in 1999. In
addition, United owns two consumer finance companies: United Family Finance Co.
and United Family Finance Co. of North Carolina.
United's executive office is located at 63 Highway 515, Blairsville,
Georgia 30512, and its telephone number is (706) 745-2151. United has not been
convicted in a criminal proceeding during the past five years, nor has it been a
party to any judicial or administrative proceeding that resulted in a judgment,
decree, or final order enjoining the person from future violations of, or
prohibiting activities subject to, federal or state securities laws, or a
finding of any violation of federal or state securities laws.
At March 31, 2000, United had total consolidated assets of
approximately $2.2 billion, total loans of approximately $1.5 billion, total
deposits of approximately 1.7 billion, and shareholders' equity of approximately
$98.5 million.
United's banks are community-oriented and offer a full range of retail
and corporate banking services, including checking, savings, and time deposit
accounts, secured and unsecured loans, wire transfers, trust services, and
rental of safe deposit boxes. As of December 31, 1999, United's banks operated a
total of 34 locations. To emphasize the commitment to community banking, both
United Community Bank and Peoples Bank of Fannin County operate offices under
trade names that are closely identified with the communities in which they are
located. United Community Bank operates two offices in Union County under the
trade name "Union County Bank," two offices in Lumpkin County, Georgia, under
the trade name "United Community Bank of Lumpkin County," two offices in
Habersham County, Georgia, under the trade name "First Bank of Habersham," and
one office in Hall County, Georgia, under the trade name "United Community Bank
of Hall County." Peoples Bank of Fannin County operates one office in Gilmer
County, Georgia, under the trade name of "United Community Bank of Gilmer
County." The operation of bank offices under trade names is permissible under
current state and federal banking regulations and requires certain customer
disclosures, which both United Community Bank and Peoples Bank of Fannin County
provide.
The Mortgage People Company, a division of United Community Bank, is a
full-service retail mortgage lending operation approved as a seller/servicer for
Federal National Mortgage Association and Federal Home Mortgage Corporation. The
Mortgage People Company was organized to provide fixed and adjustable-rate
mortgages. During 1999, it originated $129 million of residential mortgage loans
for the purchase of homes and to refinance existing mortgage debt, substantially
all of which were sold along with the servicing rights into the secondary market
with no recourse.
United operates two consumer finance companies - United Family Finance
Co., which operates two offices in Georgia, and United Family Finance Co. of
North Carolina, which operates two offices in North Carolina. In addition,
United owns an insurance agency, United Agencies, Inc.
RECENT DEVELOPMENTS
United is currently conducting a public offering of between 350,000 and
450,000 shares of United common stock at $38.00 per share, pursuant to which
United plans to raise between $13.3 and $17.1 million in additional capital for
its subsidiary banks and for general corporate purposes.
On March 3, United entered into separate agreements to acquire North
Point Bancshares, Inc., and Independent Bancshares, Inc., in exchange for
958,211 and 870,595 shares, respectively of United Stock.
41
SERVICES
United's banks are community-oriented, with an emphasis on retail
banking, and offer such customary banking services as customer and commercial
checking accounts, NOW accounts, savings accounts, certificates of deposit,
lines of credit, MasterCard and VISA accounts, money transfers, and trust
services. Our banks finance commercial and consumer transactions, make secured
and unsecured loans, including residential mortgage loans, and provide a variety
of other banking services.
The Mortgage People Company, a division of United Community Bank, is a
full-service mortgage lending operation approved as a seller/servicer for the
Federal National Mortgage Association and the Federal Home Mortgage Corporation
and offers fixed and adjustable-rate mortgages.
United Family Finance Company, is a traditional consumer finance
company. United Family Finance, formerly known as Mountain Mortgage and Loan
Company, is based in Hiawassee, Georgia, and also has been granted a license to
conduct business in Blue Ridge, Georgia. United Family Finance Co. of North
Carolina operates two offices in Murphy and Franklin, North Carolina.
MARKETS
United conducts banking activities primarily through United Community
Bank in Union, Lumpkin, and Habersham Counties; through Peoples Bank in Fannin
County, Georgia and Polk County, Tennessee; through Towns County Bank in Towns
County, Georgia; through Carolina Community Bank in Cherokee, Macon, Haywood,
Graham, and Clay Counties, North Carolina; through White County Bank in White
County, Georgia; through First Clayton Bank and Trust in Rabun County, Georgia;
through Bank of Adairsville in Adairsville, Georgia; and through 1st Floyd Bank
in Floyd County, Georgia. Mortgage People Company makes mortgage loans inside
the banks' market areas. Customers of United's subsidiary banks are primarily
consumers and small businesses.
DEPOSITS
United's banks offer a full range of depository accounts and services
to both consumers and businesses. At December 31, 1999, United's deposit base,
totaling approximately $1.6 billion, consisted of approximately $192 million in
non-interest-bearing demand deposits (12% of total deposits), approximately $329
million in interest-bearing demand and money market deposits (20% of total
deposits), approximately $74 million in savings deposits (4% of total deposits),
approximately $743 million in time deposits in amounts less than $100,000 (45%
of total deposits), and approximately $312 million in time deposits of $100,000
or more (19% of total deposits). Certificates of deposit in excess of $100,000
may be more volatile than other deposits because those deposits, to the extent
that they exceed $100,000, are not insured by the FDIC. Our management is of the
opinion that its time deposits of $100,000 or more are customer-relationship
oriented and represent a reasonably stable source of funds. Time deposits of
less than $100,000 include approximately $70 million of "brokered" deposits,
which have an average maturity of less than one year.
42
LOANS
Our banks make both secured and unsecured loans to individuals and
businesses. Secured loans include first and second real estate mortgage loans.
The banks also make direct installment loans to consumers on both a secured and
unsecured basis. At December 31, 1999, the break out of loans by collateral type
was:
(DOLLAR AMOUNTS IN THOUSANDS) Percent of
Amount Total Loans
---------- -----------
Secured by real estate:
Residential first liens $ 506,729 36.1%
Residential second liens 27,177 1.9%
Home equity lines of credit 53,191 3.8%
Construction and land development 161,774 11.6%
Non-farm, non-residential 355,269 25.4%
Farmland 16,173 1.2%
Multi-family residential 10,846 0.8%
---------- -------
Total real estate $1,131,159 80.8%
Other Loans:
Commercial and industrial $ 105,221 7.5%
Agricultural production 9,923 0.7%
States and municipalities 10,101 0.7%
Consumer installment loans 136,983 9.8%
Credit cards and other revolving credit 6,973 0.5%
---------- -------
Total other loans 269,201 19.2%
---------- -------
Total loans $1,400,360 100.0%
========== =======
Specific risk elements associated with each of the banks' lending
categories are as follows:
Commercial, financial, and Industry concentrations, inability to
agricultural monitor the condition of collateral
(inventory, accounts receivable, and
vehicles), lack of borrower management
expertise, increased competition, and
specialized or obsolete equipment as
collateral
Real estate - construction Inadequate collateral and long-term
financing agreements
Real estate - mortgage Changes in local economy and rate limits on
variable rate loans
Installment loans to individuals Loss of borrower's employment, changes in
local economy, and the inability to monitor
collateral (vehicles, boats, and mobile
homes)
COMPETITION
The market for banking and bank-related services is highly competitive.
Our banks actively compete in their respective market areas, which collectively
cover portions of north Georgia and western North Carolina, with other providers
of deposit and credit services. These competitors include other commercial
banks, thrift institutions, credit unions, mortgage companies, and brokerage
firms. The following table displays each of our banks and the respective
percentage of total deposits in each county where each bank has operations. The
darker shaded counties, Paulding, Cobb, Dawson, and Forsyth, represent the
markets of our pending acquisitions of North Point and Independent. The table
also indicates the ranking by deposit size in each of the local markets. All
information in the table was obtained from the Federal Deposit Insurance
Corporation Summary of Deposits as of June 30, 1999.
43
[GRAPHIC OMITTED but is represented by the list of counties on the next page.
The graphic on this page is a partial Map of the states of Georgia, North
Carolina and Tennessee and shades in counties where the Company is represented]
44
Share of Local Market (County)
Banks and Savings Institutions
Market Share Rank in Market
------------ --------------
UNITED COMMUNITY
Habersham 15% 4
Lumpkin 24% 2
Union 83% 1
CAROLINA
Cherokee 45% 1
Clay 64% 1
Graham 40% 1
Haywood 7% 6
Henderson 2% 13
Jackson 13% 3
Macon 7% 6
Swain 21% 2
Transylvania 6% 5
FANNIN
Fannin 59% 1
Gilmer 17% 3
WHITE
White 50% 1
TOWNS
Towns 36% 2
FIRST CLAYTON
Rabun 29% 3
ADAIRSVILLE
Bartow 7% 7
FLOYD
Floyd 8% 6
INDEPENDENT*
Cobb 2% 11
Paulding 2% 5
NORTH POINT*
Dawson 47% 1
*Pending acquisitions.
45
LENDING POLICY
The current lending policy of the banks is to make loans primarily to
persons who reside, work or own property in their primary market areas.
Unsecured loans are generally made only to persons who maintain depository
relationships with the banks. Secured loans are made to persons who are well
established and have net worth, collateral and cash flow to support the loan.
Exceptions to the policy are permitted on a case-by-case basis and require the
approving officer to document in writing the reason for the exception. Policy
exceptions made for borrowers whose total aggregate loans exceed the approving
officer's credit limit must be submitted to the bank's board of directors for
approval.
The banks provide each lending officer with written guidelines for
lending activities. Lending authority is delegated by the boards of directors of
the banks to loan officers, each of whom is limited in the amount of secured and
unsecured loans which he or she can make to a single borrower or related group
of borrowers. Loans in excess of individual officer credit authority must either
be approved by a senior officer with sufficient approval authority, or be
approved by the bank's board of directors.
LOAN REVIEW AND NON-PERFORMING ASSETS
The Loan Review Department of United reviews, or engages an independent
third party to review, the loan portfolio of each bank on an annual basis to
determine any weaknesses in the portfolio and to assess the general quality of
credit underwriting. The results of the reviews by the loan review officers are
presented to the Presidents of each of the banks, the President and the Chief
Credit Officer of United and the Boards of Directors of each of the banks. If an
individual loan or credit relationship has a weakness identified during the
review process the risk rating of the loan, or all loans comprising a credit
relationship, will be downgraded to a classification that most closely matches
the current risk level. The review process also provides for the upgrade of
loans that show improvement since the last review. Since each loan in a credit
relationship may have a different credit structure, collateral and other
secondary source of repayment, different loans in a relationship can be assigned
different risk ratings. During 1999, United revised its loan grading system,
expanding it from 8 to 10 grades. In the revised system, grades 1 through 6 are
considered "pass", or acceptable, credit risk and grades 7 through 10 are
"adversely classified" credits that require management's attention. The change
in the number of grades was implemented to provided a more accurate means of
detecting and monitoring the gradual deterioration or improvement in individual
loans. Both the pass and adversely classified ratings, and the entire 10-grade
rating scale, provide for a higher numeric rating for increased risk. For
example, a risk rating of 1 is the least risky of all credits and would be
typical of a loan that is 100% secured by a deposit at one of the banks. Risk
ratings of 2 through 6 in the pass category each have incrementally more risk.
The five adversely classified credit ratings and rating definitions are:
7 (Watch) - Weaknesses exist that could cause future
impairment, including the deterioration
of financial ratios, past-due status and
questionable management capabilities.
Collateral values generally afford
adequate coverage, but may not be
immediately marketable.
8 (Substandard) - Specific and well -defined weaknesses
that may include poor liquidity and
deterioration of financial ratios. Loan
may be past-due and related deposit
accounts experiencing overdrafts.
Immediate corrective action is
necessary.
9 (Doubtful) - Specific weaknesses characterized by
Substandard that are severe enough to
make collection in full unlikely. No
strong secondary source of repayment.
10 (Loss) - Same characteristics as Doubtful;
however, probability of loss is certain.
Loans classified as such are generally
recommended for charge-off at the next
board of directors meeting of the bank.
46
In addition, the Loan Review Department conducts a quarterly analysis
to determine the adequacy of the Allowance for Loan Losses for each of the
banks. The aggregation of the Allowance for Loan Losses analyses for the banks
provides the consolidated analysis for United. The Allowance for Loan Losses
analysis starts by taking total loans and deducting loans secured by deposit
accounts at the banks, which effectively have no risk of loss. Next, all loans
with an adversely classified rating are deducted. The remaining loan balance
is then multiplied by the average historical loss rate for the preceding five
year period (1995 through 1999), which provides required minimum Allowance for
Loan Losses for pass credits (component "A"). The remaining total loans in
each of the four adversely classified rating categories are then multiplied by
a projected loss factor to determine the Allowance for Loan Losses allocation
for adversely classified credits (component "B"). The loss factors currently
used are: Watch (5%); Substandard (15%); Doubtful (50%); and Loss (100%). The
sum of components A and B comprises the total allocated Allowance for Loan
Losses. There is no current process utilized to measure or adjust for
differences between the loss factors for adversely classified loans used in
the Allowance for Loan Losses analysis and actual losses charged to the
Allowance for Loan Losses .
The difference between the actual Allowance for Loan Losses (as
presented in the consolidated financial statements) and the allocated
Allowance for Loan Losses represents the unallocated Allowance for Loan Losses
. The unallocated Allowance for Loan Losses provides for coverage of credit
losses inherent in the loan portfolio but not provided for in the Allowance
for Loan Losses analysis. United and the banks determine the level of
unallocated Allowance for Loan Losses primarily by assessing the ratio of
Allowance for Loan Losses to total loans of peer bank holding companies and
peer banks, using the Federal Reserve Uniform Bank Performance Report and
other bank industry analytical publications.
ASSET/LIABILITY MANAGEMENT
Committees composed of officers of each of the banks and the Chief
Financial Officer and Treasurer of United are charged with managing the assets
and liabilities of the banks. The committees attempt to manage asset growth,
liquidity and capital to maximize income and reduce interest rate risk. The
committees direct each Bank's overall acquisition and allocation of funds. At
monthly meetings, the committees review the monthly asset and liability funds
budget in relation to the actual flow of funds and peer group comparisons; the
ratio of the amount of rate sensitive assets to the amount of rate sensitive
liabilities; the ratio of allowance for loan losses to outstanding and
non-performing loans; and other variables, such as expected loan demand,
investment opportunities, core deposit growth within specified categories,
regulatory changes, monetary policy adjustments and the overall state of the
economy. A more comprehensive discussion of United's Asset/Liability Management
and interest rate risk is contained in the UNITED'S MANAGEMENT'S DISCUSSION AND
ANALYSIS and QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK sections
of this proxy statement/prospectus.
INVESTMENT POLICY
The banks' investment portfolio policy is to maximize income consistent
with liquidity, asset quality and regulatory constraints. The policy is reviewed
from time to time by the banks' Boards of Directors. Individual transactions,
portfolio composition and performance are reviewed and approved monthly by the
Boards of Directors or a committee thereof. The Chief Financial Officer of
United and the President of each of the banks administer the policy and report
information to the full board of directors of each of the banks on a quarterly
basis concerning sales, purchases, maturities and calls, resultant gains or
losses, average maturity, federal taxable equivalent yields and appreciation or
depreciation by investment categories.
EMPLOYEES
As of December 31, 1999, United and its subsidiaries had an aggregate
of 778 full-time equivalent employees. Neither United nor any of the
subsidiaries is a party to any collective bargaining agreement, and United
believes that employee relations are good. None of United's or the banks'
executive officers is employed pursuant to an employment contract.
47
SUPERVISION AND REGULATION
GENERAL. United is a registered bank holding company subject to
regulation by the Board of Governors of the Federal Reserve System under the
Bank Holding Company Act of 1956, as amended. United is required to file
financial information with the Federal Reserve periodically and is subject to
periodic examination by the Federal Reserve.
The Bank Holding Company Act requires every bank holding company to
obtain the Federal Reserve's prior approval before (1) it may acquire direct or
indirect ownership or control of more than 5% of the voting shares of any bank
that it does not already control; (2) it or any of its non-bank subsidiaries may
acquire all or substantially all of the assets of a bank; and (3) it may merge
or consolidate with any other bank holding company. In addition, a bank holding
company is generally prohibited from engaging in, or acquiring, direct or
indirect control of the voting shares of any company engaged in non-banking
activities. This prohibition does not apply to activities listed in the Bank
Holding Company Act or found by the Federal Reserve, by order or regulation, to
be closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve has determined
by regulation or order to be closely related to banking are:
o making or servicing loans and certain types of leases;
o performing certain data processing services;
o acting as fiduciary or investment or financial advisor;
o providing brokerage services;
o underwriting bank eligible securities;
o underwriting debt and equity securities on a limited basis
through separately capitalized subsidiaries; and
o making investments in corporations or projects designed
primarily to promote community welfare.
In addition, effective March 11, 2000, bank holding companies whose
banking subsidiaries are all well-capitalized and well-managed may apply to
become a financial holding company. Financial holding companies have the
authority to engage in activities that are "financial in nature" that are not
permitted for other bank holding companies. Some of the activities that the Bank
Holding Company Act provides are financial in nature are:
o lending, exchanging, transferring, investing for others or
safeguarding money or securities;
o insuring, guaranteeing, or indemnifying against loss, harm,
damage, illness, disability, or death, or providing and
issuing annuities, and acting as principal, agent, or broker
with respect thereto;
o providing financial, investment, or economic advisory
services, including advising an investment company;
o issuing or selling instruments representing interests in
pools of assets permissible for a bank to hold directly; and
o underwriting, dealing in or making a market in securities.
We have no immediate plans to register as a financial holding company.
United must also register with the Georgia Department of Banking and
Finance ("DBF") and file periodic information with the DBF. As part of such
registration, the DBF requires information with respect to the financial
condition, operations, management and intercompany relationships of United and
the banks and related matters. The DBF may also require such other information
as is necessary to keep itself informed as to whether the provisions of Georgia
law and the regulations and orders issued thereunder by the DBF have been
complied with, and the DBF may examine United and each of the banks. The North
Carolina Banking Commission ("NCBC"), which has the statutory authority to
regulate non-banking affiliates of North Carolina banks, in 1992 began using
this authority to examine and regulate the activities of North Carolina-based
holding companies owning North Carolina-based banks. Although the NCBC has not
exercised its authority to date to examine and regulate holding companies
outside of North Carolina that own North Carolina banks, it is likely the NCBC
may do so in the future.
48
United is an "affiliate" of the banks under the Federal Reserve Act,
which imposes certain restrictions on (i) loans by the banks to United, (ii)
investments in the stock or securities of United by the banks, (iii) the banks'
taking the stock or securities of an "affiliate" as collateral for loans by the
Bank to a borrower, and (iv) the purchase of assets from United by the banks.
Further, a bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Each of United's
subsidiaries is regularly examined by the Federal Deposit Insurance Corporation
(the "FDIC"). United Community Bank, Peoples Bank of Fannin County, White County
Bank, Towns County Bank, First Clayton Bank and Trust, Bank of Adairsville and
1st Floyd Bank as state banking associations organized under Georgia law, are
subject to the supervision of, and are regularly examined by, the DBF. Carolina
Community Bank is subject to the supervision of, and is regularly examined by,
the NCBC and the FDIC. Both the FDIC and the DBF must grant prior approval of
any merger, consolidation or other corporation reorganization involving United
Community Bank, Peoples Bank of Fannin County, White County Bank, Towns County
Bank, First Clayton Bank and Trust, Bank of Adairsville or 1st Floyd Bank, and
the FDIC and the NCBC must grant prior approval of any merger, consolidation or
other corporate reorganization of Carolina Community Bank. A bank can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with the default of a commonly-controlled institution.
PAYMENT OF DIVIDENDS. United is a legal entity separate and distinct
from the banks. Most of the revenues of United result from dividends paid to it
by the banks. There are statutory and regulatory requirements applicable to the
payment of dividends by the banks, as well as by United to its shareholders.
United Community Bank, Peoples Bank of Fannin County, Towns County
Bank, White County Bank, First Clayton Bank and Trust, Bank of Adairsville and
1st Floyd Bank are each state chartered banks regulated by the DBF and the FDIC.
Under the regulations of the DBF, dividends may not be declared out of the
retained earnings of a state bank without first obtaining the written permission
of the DBF, unless such bank meets all the following requirements:
(a) total classified assets as of the most recent examination of the
bank do not exceed 80% of equity capital (as defined by regulation);
(b) the aggregate amount of dividends declared or anticipated to be
declared in the calendar year does not exceed 50% of the net profits after taxes
but before dividends for the previous calendar year; and
(c) the ratio of equity capital to adjusted assets is not less than 6%.
Under North Carolina law, the board of directors of Carolina Community
Bank may declare a dividend for as much of the undivided profits of Carolina
Community Bank as it deems appropriate, so long as Carolina Community Bank's
surplus is greater than 50% of its capital.
The payment of dividends by United and the banks may also be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines. In addition, if, in the opinion of the
applicable regulatory authority, a bank under its jurisdiction is engaged in or
is about to engage in an unsafe or unsound practice (which, depending upon the
financial condition of the bank, could include the payment of dividends), such
authority may require, after notice and hearing, that such bank cease and desist
from such practice. The FDIC has issued a policy statement providing that
insured banks should generally only pay dividends out of current operating
earnings. In addition to the formal statutes and regulations, regulatory
authorities consider the adequacy of each of the Bank's total capital in
relation to its assets, deposits and other such items. Capital adequacy
considerations could further limit the availability of dividends to the banks.
At December 31, 1999, net assets available from the banks to pay dividends
without prior approval from regulatory authorities totaled approximately $23
million. For 1999, United's declared cash dividend payout to shareholders was
11.8% of net income.
MONETARY POLICY. The results of operations of the banks are affected by
credit policies of monetary authorities, particularly the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U.S. government securities, changes in the discount rate on
bank borrowings and changes in reserve requirements against bank deposits. In
view of changing conditions in the national economy and in the money markets, as
49
well as the effect of actions by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand or the business and income of the
banks.
CAPITAL ADEQUACY. The Federal Reserve and the FDIC have implemented
substantially identical risk-based rules for assessing bank and bank holding
company capital adequacy. These regulations establish minimum capital standards
in relation to assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1) a minimum level
of total capital (as defined) to risk-weighted assets of eight percent (8%); (2)
a minimum Tier One Capital (as defined) to risk-weighted assets of four percent
(4%); and (3) a minimum shareholders' equity to risk-weighted assets of four
percent (4%). In addition, the Federal Reserve and the FDIC have established a
minimum three percent (3%) leverage ratio of Tier One Capital to total assets
for the most highly-rated banks and bank holding companies. "Tier One Capital"
generally consists of common equity not including unrecognized gains and losses
on securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain intangibles. The
Federal Reserve and the FDIC will require a bank holding company and a bank,
respectively, to maintain a leverage ratio greater than three percent (3%) if
either is experiencing or anticipating significant growth or is operating with
less than well-diversified risks in the opinion of the Federal Reserve. The
Federal Reserve and the FDIC use the leverage ratio in tandem with the
risk-based ratio to assess the capital adequacy of banks and bank holding
companies. The FDIC, the Office of the Comptroller of the Currency (the "OCC")
and the Federal Reserve have amended, effective January 1, 1997, the capital
adequacy standards to provide for the consideration of interest rate risk in the
overall determination of a bank's capital ratio, requiring banks with greater
interest rate risk to maintain adequate capital for the risk. The revised
standards have not had a significant effect on United's capital requirements.
In addition, effective December 19, 1992, a new Section 38 to the
Federal Deposit Insurance Act implemented the prompt corrective action
provisions that Congress enacted as a part of the Federal Deposit Insurance
Corporation Improvement Act of 1991. The "prompt corrective action" provisions
set forth five regulatory zones in which all banks are placed largely based on
their capital positions. Regulators are permitted to take increasingly harsh
action as a bank's financial condition declines. Regulators are also empowered
to place in receivership or require the sale of a bank to another depository
institution when a bank's capital leverage ratio reaches 2%. Better capitalized
institutions are generally subject to less onerous regulation and supervision
than banks with lesser amounts of capital. The FDIC has adopted regulations
implementing the prompt corrective action provisions of the Federal Deposit
Insurance Act, which place financial institutions in the following five
categories based upon capitalization ratios: (1) a "well capitalized"
institution has a total risk-based capital ratio of at least 10%, a Tier One
risk-based ratio of at least 6% and a leverage ratio of at least 5%; (2) an
"adequately capitalized" institution has a total risk- based capital ratio of at
least 8%, a Tier One risk-based ratio of at least 4% and a leverage ratio of at
least 4%; (3) an "undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier One risk-based ratio of under 4% or a leverage ratio
of under 4%; (4) a "significantly undercapitalized" institution has a total
risk-based capital ratio of under 6%, a Tier One risk-based ratio of under 3% or
a leverage ratio of under 3%; and (5) a "critically undercapitalized"
institution has a leverage ratio of 2% or less. Institutions in any of the three
undercapitalized categories would be prohibited from declaring dividends or
making capital distributions. The FDIC regulations also establish procedures for
"downgrading" an institution to a lower capital category based on supervisory
factors other than capital. As of December 31, 1999 and 1998, the most recent
notifications from the FDIC categorized each of the banks as "well capitalized"
under current regulations.
RECENT DEVELOPMENTS. On November 12, 1999, President Clinton signed the
Gramm-Leach-Bliley Act, a very significant piece of legislation intended to
modernize the financial services industry. The bill repeals the anti-affiliation
provisions of the 1933 Glass-Steagall Act to allow for the merger of banking and
securities organizations and permits banking organizations to engage in
insurance activities including insurance underwriting. The bill also allows bank
holding companies to engage in financial activities that are "financial in
nature or complementary to a financial activity." The act lists the expanded
areas that are financial in nature and includes insurance and securities
underwriting and merchant banking among others. The bill also:
o prohibits non-financial entities from acquiring or
establishing a thrift while grandfathering existing thrifts
owned by non-financial entities.
50
o establishes state regulators as the appropriate functional
regulators for insurance activities but provides that state
regulators cannot "prevent or significantly interfere" with
affiliations between banks and insurance firms.
o contains provisions designed to protect consumer privacy. The
bill requires financial institutions to disclose their policy
for collecting and protecting confidential information and
allows consumers to "opt out" of information sharing except
with unaffiliated third parties who market the institutions'
own products and services or pursuant to joint agreements
between two or more financial institutions.
o provides for functional regulation of a bank's securities
activities by the Securities and Exchange Commission.
Various portions of the bill have different effective dates, ranging
from immediately to more than a year for implementation.
PROPERTIES
The executive offices of United are located at 63 Highway 515,
Blairsville, Georgia. United owns this property. The banks conduct business from
facilities primarily owned by the respective banks, all of which are in a good
state of repair and appropriately designed for use as banking facilities. The
banks provide services or perform operational functions at 36 locations, of
which 31 locations are owned and 5 are leased. United Family Finance Co. and
United Family Finance Co. of North Carolina conducts operations at four
locations, all of which are leased. Note 5 to United's Consolidated Financial
Statements includes additional information regarding amounts invested in
premises and equipment.
LEGAL PROCEEDINGS
In the ordinary course of operations, United and the banks are
defendants in various legal proceedings. In the opinion of management, there is
no pending or threatened proceeding in which an adverse decision could result in
a material adverse change in the consolidated financial condition or results of
operations of United.
51
UNITED'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999.
- -------------------------------------------------------------
INCOME SUMMARY
For the three months ended March 31, 2000 United reported net income of
$3.8 million, or $0.47 per diluted share, compared to $3.3 million, or $0.40 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 shareholders'
equity of 0.71% and 15.9%, respectively, compared to 0.81% 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 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.
52
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 shareholders' 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 the Year 2000, 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.
53
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
54
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 $346,000, 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 proxy statement/prospectus.
55
NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2000 was $2.7
million, an increase of $193,000, 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 $228,000, 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 $974,000 for the three months ended
March 31,2000, an increase of $112,000 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 $38,000 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 $996,000, 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.
56
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.
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 $480,000, 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 $50,000 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 $149,000, or 9%, during the first
three months of 2000 as compared to the same period in 1999. The effective tax
rate (income tax expense 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.
57
Total non-performing loans at March 31, 2000 increased by $373,000 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 $752,000,
compared to $541,000 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 at March 31, 2000 totaled $18.9
million, an increase of $1.2 million, or 7%, from December 31, 1999. The ratio
of allowance for loan losses 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 allowance for loan losses to total
non-performing loans was 863% and 974%, respectively.
The following table provides an analysis of the changes in the
allowance for loan losses for the three months ended March 31, 2000 and 1999.
58
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 allowance for loan losses 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 judgment. 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 Federal Home Loan Bank and was utilized to fund growth of the loan
portfolio. At March 31, 2000, United had aggregate Federal Home Loan Bank
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,
59
which is comprised of members of United's senior management team. The
Asset/Liability Management Committee 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
=========== =======
60
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 $918,000.
.
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:
61
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.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997.
EXPANSIONS AND MERGERS SINCE DECEMBER 31, 1998
On August 27, 1999 United completed its merger with 1st Floyd Bank of
Rome, Georgia, in a tax-free stock exchange. United issued 632,890 shares of
common stock in the transaction and recorded merger-related expenses totaling
$1.2 million, net of tax. This merger was accounted for as a pooling of
interests, and all of the financial statements and ratios contained in this
proxy statement/prospectus have been restated to include the results of 1st
Floyd Bank for all periods presented.
62
On March 31, 1999, United completed its acquisition of Bank of
Adairsville of Adairsville, Georgia. Effective April 1, 1999 the results of
operations for Bank of Adairsville were included in United's consolidated
statements of income. This acquisition was accounted for as a purchase, for
which United recorded a goodwill asset in the amount of approximately $3
million, which is being recognized through charges to expense over a term of 15
years beginning in April, 1999.
Two new branch offices of the banks were opened for business during
1999. United Community Bank opened a new office in Murrayville, Georgia, which
is operated under the trade name of United Community Bank of Hall County.
Carolina Community Bank opened a second office in Brevard, North Carolina.
EXPANSIONS PRIOR TO DECEMBER 31, 1998
Effective January 30, 1998, Peoples Bank of Fannin County assumed
deposits totaling $23.4 million and purchased certain assets totaling $3.7
million of a branch bank located in Ellijay, Georgia. This office is now
operated under the trade name of United Community Bank of Gilmer County.
Effective September 12, 1997, United completed the acquisition of First
Clayton Bank and Trust in Clayton, Georgia. United issued 646,257 shares of
common stock in connection with this merger, which was accounted for as a
pooling of interests.
United also expanded its market area during 1998 and 1997 through de
novo branching. Carolina Community Bank opened de novo branch offices in the
western North Carolina cities of Etowah and Cherokee during 1998 and Brevard
during 1997.
United Community Bank opened a de novo branch office in Clarkesville,
Georgia during 1998 that is operated under the trade name of First Bank of
Habersham.
INCOME STATEMENT REVIEW
Net income was $13.6 million in 1999, an increase of 6.9% from the
$12.8 million earned in 1998. Diluted earnings per common share were $1.66 for
1999, compared with $1.57 reported for 1998, an increase of 5.7%. Return on
average assets and return on average equity for 1999 were .72% and 14.33%,
respectively, compared with .94% and 14.84%, respectively, for 1998.
The reported net income for 1999 includes after-tax charges of $1.2
million related to the merger with 1st Floyd Bank. Excluding these non-recurring
items, net income for 1999 was $14.8 million, an increase of 15.9% over 1998.
Diluted earnings per share for 1999, excluding merger-related charges, were
$1.80, an increase of 14.5% over 1998. Return on average assets and return on
average equity for 1999, exclusive of merger-related charges, were .78% and
15.54%, respectively.
The following table summarizes the components of income and expense and
the changes in those components for the past three years.
63
Table 1 - Condensed Consolidated Statements of Income
For the years ended December 31
(In thousands)
Change Change
1999 Amount % 1998 Amount % 1997
Interest income $ 149,740 33,526 28.8% 116,214 22,026 23.4% 94,188
Interest expense 81,766 21,762 36.3% 60,004 11,534 23.8% 48,470
---------------------------- -------------------------- --------------
Net interest income 67,974 11,764 20.9% 56,210 10,492 22.9% 45,718
Provision for loan losses 5,104 2,492 95.4% 2,612 (202) -7.2% 2,814
---------------------------- -------------------------- --------------
Net interest income after
provision for loan losses 62,870 9,272 17.3% 53,598 10,694 24.9% 42,904
Non-interest income 10,836 1,707 18.7% 9,129 1,929 26.8% 7,200
Non-interest expense 54,165 10,201 23.2% 43,964 9,901 29.1% 34,063
---------------------------- -------------------------- --------------
Income before income taxes 19,541 778 4.1% 18,763 2,722 17.0% 16,041
Income tax expense 5,893 (97) -1.6% 5,990 1,003 20.1% 4,987
---------------------------- -------------------------- --------------
Net income $ 13,648 875 6.9% 12,773 1,719 15.6% 11,054
============================ ========================== ==============
The individual components of income and expense are discussed in further detail
below.
NET INTEREST INCOME
Net interest income (the difference between the interest earned on
assets and the interest paid on deposits and liabilities) is the single largest
component of United's operating income. United actively manages this income
source to provide an optimal level of income while balancing interest rate,
credit and liquidity risks. Net interest income totaled $68.0 million in 1999,
an increase of $11.8 million, or 21%, from the level recorded in 1998. Net
interest income for 1998 increased $10.5 million, or 23%, over the 1997 level.
On a fully tax-equivalent basis, net interest income was $70.0 million in 1999,
compared with $57.9 million in 1998 and $47.0 million in 1997.
In 1999, average interest earning assets increased $503 million, or
40%, over the 1998 amount. This increase was primarily due to the increased
volume of loans and to increased securities acquired as part of United's
leverage program. Average loans outstanding for 1999 were $1.2 billion, compared
with $956 million in 1998. Average interest bearing liabilities for 1999
increased $488 million, or 43%, over the 1998 average balance. This increase was
primarily due to an increase in the level of average interest bearing deposits
of $256 million, or 25%, and an increase in borrowed funds of $232 million, or
204%. Approximately $150 million of the increased in average borrowed funds were
in conjunction with United's leverage program, which is explained in detail in
the Investment Securities section of this discussion. The majority of new
borrowings were fixed and floating rate advances from the Federal Home Loan Bank
(FHLB) that were at a funding cost competitive with the banks' current
certificate of deposit rates. Additional information regarding the FHLB advances
is provided in note 7 of the consolidated financial statements.
The banking industry uses two key ratios to measure relative
profitability of net interest income. The net interest rate spread measures the
difference between the average yield on earning assets and the average rate paid
on interest bearing liabilities. The interest rate spread eliminates the impact
of non-interest bearing deposits and gives a direct perspective on the effect of
market interest rate movements. The net interest margin is defined as net
interest income as a percent of average total earning assets and takes into
account the positive impact of investing non-interest bearing deposits.
United's net interest spread was 3.55% in 1999, 4.04% in 1998 and 4.05%
in 1997, while the net interest margin (on a tax-equivalent basis) was 3.98% in
1999, 4.60% in 1998 and 4.66% in 1997. The 62 basis point decrease in the net
interest margin from 1998 to 1999 is primarily attributed to the following: the
narrower spread on the assets and associated liabilities in the leverage
program; the increased reliance on borrowed funds; increased competitive pricing
pressure on loans and deposits; increased cash balance held for Year 2000
contingency and the impact of bank-owned life insurance revenue recorded as
non-interest income.
64
The average cost of interest bearing liabilities for 1999 was 5.07%, a
decrease of 27 basis points from 1998. Core deposits, which include transaction
accounts, savings accounts and non-brokered certificates of deposit less than
$100,000, represented approximately 77% of total deposits in 1999, a decrease
from 82% in 1998.
The following table shows, for the past three years, the relationship
between interest income and expense and the average balances of interest earning
assets and interest bearing liabilities.
Table 2 - Average Consolidated Balance Sheets and Net Interest Analysis
For the Years Ended December 31
Fully tax-equivalent basis
(in thousands)
1999 1998 1997
------------------------- --------------------------- --------------------------
Average Interest Avg. Average Interest Avg. Average Interest Avg.
Balance Rate Balance Rate Balance Rate
------------------------- --------------------------- --------------------------
Assets:
Interest-earning assets:
Loans, net of unearned income $21,242,418 119,669 9.63% 961,763 99,126 10.31% 777,583 80,675 10.38%
Taxable investments 417,602 25,285 6.05% 200,457 12,264 6.12% 156,784 9,609 6.13%
Tax-exempt investments 80,949 5,795 7.16% 67,067 4,879 7.27% 44,326 3,514 7.93%
Federal funds sold
and other interest income 19,769 1,050 5.31% 28,272 1,644 5.81% 31,077 1,723 5.54%
------------------- -------------------- -------------------
Total interest-earning assets /
interest income 1,760,738 151,799 8.62% 1,257,559 117,913 9.38% 1,009,770 95,521 9.46%
------------------- -------------------- -------------------
Non-interest-earning assets:
Allowance for loan losses (15,341) (11,805) (9,854)
Cash and due from banks 63,452 45,176 30,662
Premises and equipment 45,382 35,331 24,832
Other assets 41,958 29,042 22,568
--------- ----------- ----------
Total assets $ 1,896,189 1,355,303 1,077,978
========= =========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $ 323,180 12,237 3.79% 254,016 10,200 4.02% 188,997 7,230 3.83%
Savings deposits 70,761 2,008 2.84% 54,248 1,520 2.80% 45,063 1,238 2.75%
Certificates of deposit 872,077 48,414 5.55% 701,722 41,423 5.90% 604,989 36,309 6.00%
-------------------- -------------------- -------------------
Total interest-bearing deposit 1,266,018 62,659 4.95% 1,009,986 53,143 5.26% 839,049 44,777 5.34%
-------------------- -------------------- -------------------
Federal Home Loan Bank advances 249,755 13,096 5.24% 90,834 5,010 5.52% 39,615 2,382 6.01%
Long-term debt and other borrowings 95,866 6,011 6.27% 22,922 1,851 8.08% 17,697 1,311 7.41%
-------------------- -------------------- -------------------
Total borrowed funds 345,621 19,107 5.53% 113,756 6,861 6.03% 57,312 3,693 6.44%
-------------------- -------------------- -------------------
Total interest-bearing liabilities /
interest expense 1,611,639 81,766 5.07% 1,123,742 60,004 5.34% 896,361 48,470 5.41%
Non-interest-bearing liabilities:
Non-interest-bearing deposits 181,843 135,439 100,593
Other liabilities 7,454 10,040 9,903
--------- ----------- ----------
Total liabilities 1,800,936 1,269,221 1,006,857
--------- ----------- ----------
Stockholders' equity 95,253 86,082 71,121
--------- ----------- ----------
Total liabilities
and stockholders' equity $ 1,896,189 1,355,303 1,077,978
========= =========== ==========
Net interest-rate spread 3.55% 4.04% 4.05%
Impact of non-interest bearing
sources and other changes in
balance sheet composition 0.43% 0.56% 0.61%
------ ------- -------
Net interest income /
margin on interest-earning assets 70,033 3.98% 57,909 4.60% 47,051 4.66%
================ ================ ================
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
65
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
(in thousands)
1999 Compared to 1998 1998 Compared to 1997
Increase (decrease) Increase (decrease)
in interest income and expense in interest income and expense
due to changes in: due to changes in:
Volume Rate Total Volume Rate Total
------------------------------------- -------------------------------------
Interest-earning assets:
Loans $ 27,380 (6,837) 20,543 19,109 (658) 18,451
Taxable investments 13,149 (128) 13,021 2,677 (22) 2,655
Tax-exempt investments 995 (79) 916 1,803 (438) 1,365
Federal funds sold
and other interest income (461) (133) (594) (156) 77 (79)
------------------------------------- -------------------------------------
Total interest-earning assets 41,063 (7,177) 33,886 23,433 (1,041) 22,392
Interest-bearing liabilities:
Transaction accounts 2,646 (609) 2,037 2,487 483 2,970
Savings deposits 468 20 488 252 30 282
Certificates of deposit 9,575 (2,584) 6,991 5,806 (692) 5,114
------------------------------------- -------------------------------------
Total interest-bearing deposits 12,689 (3,173) 9,516 8,545 (179) 8,366
FHLB advances 8,345 (259) 8,086 3,080 (452) 2,628
Long-term debt and other borrowings 4,660 (500) 4,160 387 153 540
------------------------------------- -------------------------------------
Total borrowed funds 13,005 (759) 12,246 3,467 (299) 3,168
------------------------------------- -------------------------------------
Total interest-bearing liabilities 25,694 (3,932) 21,762 12,012 (478) 11,534
------------------------------------- -------------------------------------
Increase (decrease)
in net interest income $ 15,369 (3,245) 12,124 11,421 (563) 10,858
===================================== =====================================
PROVISION FOR LOAN LOSSES
The provision for loan losses in 1999 was $5.1 million, compared with
$2.6 million in 1998 and $2.8 million in 1997. As a percentage of average
outstanding loans, the provisions recorded for 1999, 1998 and 1997 were .41%,
.27% and .36%, respectively. Net loan charge-offs as a percentage of average
outstanding loans for 1999 were .15%, compared with .10% for 1998 and .05% for
1997. The increase in the provision for loan loss in 1999 is primarily
attributed to growth in the loan portfolio and the increased level of net
charge-offs.
The provision for loan losses is based on management's evaluation of
inherent risks in the loan portfolio and the corresponding analysis of the
allowance for loan losses. Additional discussion on loan quality and the
allowance for loan losses is included in the ASSET QUALITY section of this proxy
statement/prospectus.
NON-INTEREST INCOME
Total non-interest income for 1999 was $10.8 million, compared with
$9.1 million in 1998 and $7.2 million in 1997. The following table presents the
components of non-interest income for 1999, 1998 and 1997.
66
Table 4 - Non-interest Income
(in thousands)
------------------------------------------------------------------
Years Ended December 31,
------------------------------------------------------------------
1999 % Change 1998 % Change 1997
- --------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 5,161 22% 4,227 15% 3,681
Mortgage loan and related fees 1,638 -10% 1,822 57% 1,157
ATM fees 539 69% 319 40% 228
Insurance commissions 1,027 53% 672 159% 259
Trust and brokerage revenue 622 46% 427 132% 184
Gains (losses) on securities sales, net 543 -32% 804 9% 737
Safe deposit box rental 219 26% 174 16% 150
Bank-owned life insurance 395 n/m - n/m -
Other 692 1% 684 -15% 804
------------------------------------------------------------------
Total $ 10,836 19% 9,129 27% 7,200
==================================================================
The primary source of non-interest income for United is service charges
and fees on deposit accounts held by the banks. Total deposit service charges
and fees for 1999 were $5.2 million, or 48% of total non-interest income,
compared with $4.2 million, or 46% of total non-interest income in 1998. The
growth of deposit service charge and fee revenue for 1999 and 1998 was primarily
due to the increase in the number of deposit accounts.
Net gains on the sale of securities totaled $543,000 for 1999, compared
with $804,000 for 1998 and $737 in 1997. The gains in 1999 were primarily
related to the sale of an equity security. Securities gains recognized during
1998 and 1997 gains were primarily the result of a general decline in interest
rates coupled with management's decision to shift a portion of the balance of
the securities portfolios of the banks to higher yielding mortgage securities.
Mortgage loan and related fees for 1999 were $1.6 million, a decrease
of 10% compared with 1998. This decrease was primarily due to the higher
interest rate environment during 1999 that reduced the market for mortgage
refinance loans. Substantially all of the mortgage loan and related fees
recorded during 1999 were received as the result of originating approximately
$129 million of residential mortgages that were subsequently sold into the
secondary market. These loans were all sold with the right to service the loans
(the servicing asset) released to the purchaser for a fee. The decrease in
mortgage loan and related fees for 1999 was offset by the effect of recognizing
$72,000 less in amortization of mortgage servicing rights in 1999 compared with
1998. This reduction of amortization was in response to decreased prepayment
levels within the serviced loan portfolio due to higher mortgage market interest
rates.
Trust and brokerage revenue for 1999 was $622,000, an increase of 46%
compared with 1998. This increase is primarily attributed to management's
continued focus on personal trust business opportunities within the current
customer base of the banks.
Insurance commissions increased $355,000, or 53%, compared with 1998.
This increase is primarily attributed to loan growth-related increased credit
life sales at United Family Finance Co. and United Family Finance Co. of North
Carolina of $198,000 and increased commission revenue for United Agencies, Inc.
of $96,000. The revenue increase at United Agencies, Inc. resulted from a
one-time commission on the sale of bank-owned life insurance policies to the
banks.
Non-interest income for 1999 also included $395,000 of revenue related
to the increase in value of $8.1 million of bank-owned life insurance contracts
purchased by United in December 1998.
NON-INTEREST EXPENSE
Total non-interest expense for 1999 was $54.2 million, compared with
$43.9 million in 1998 and $34.1 million in 1997. Non-interest expense for 1999
includes $1.8 million of charges related to the merger with 1st Floyd Bank,
67
primarily for employee contractual obligations, write-off of obsolete equipment
and professional fees. The following table presents the components of
non-interest expense for the years ended December 31, 1999, 1998 and 1997.
Table 5 - Non-interest Expense
(in thousands)
-------------------------------------------------------------
Years Ended December 31,
-------------------------------------------------------------
1999 % Change 1998 % Change 1997
- --------------------------------------------------------------------------------------------------------
Salaries $ 23,571 21% 19,435 29% 15,053
Employee benefits 6,113 19% 5,125 33% 3,861
Occupancy 3,193 17% 2,719 30% 2,086
Furniture and equipment 4,439 41% 3,158 46% 2,169
Communications 1,526 29% 1,180 63% 725
Advertising and public relations 2,331 6% 2,207 2% 2,158
Postage, printing and supplies 2,710 14% 2,372 33% 1,787
Professional fees 1,467 2% 1,432 29% 1,110
Amortization of intangibles 710 39% 509 23% 414
Other expense 6,260 7% 5,827 24% 4,700
-------------------------------------------------------------
52,320 19% 43,964 29% 34,063
Merger-related expenses 1,845 - -
------------ ------------- ------------
Total non-interest expense $ 54,165 23% 43,964 29% 34,063
============ ============= ============
Total salaries and benefits for 1999, excluding merger-related
expenses, increased by 21% over the 1998 level. This increase was primarily due
to staff additions for new branch bank offices, staffing increases at existing
branches that experienced growth, and the addition of several senior management
positions at the holding company during the second half of 1998 and 1999. United
had 778 full-time equivalent employees at December 31, 1999, compared with 687
at year-end 1998.
Total occupancy expense for 1999 increased by 17% compared with 1998.
This increase is primarily attributed to the opening of new branch bank offices
located in the primary market areas of United during the second half of 1998 and
1999 and the acquisition of Bank of Adairsville.
Total furniture and equipment expense for 1999, excluding
merger-related expenses, increased by 41% compared with 1998. This increase is
primarily attributed to the depreciation expense for the wide area computer
network, the acquisition of Bank of Adairsville and expense associated with the
operation of new branch bank offices.
Communications expense, which includes data circuit costs, local phone
service, long-distance service and cellular service increased by 29% during 1999
and 63% during 1998. These increases were both primarily due to the new
facilities opened since 1997 and new expenses associated with installation and
maintenance of frame-relay data circuits that are the communications backbone
for United's wide-area computer network.
Postage, printing and supply expense for 1999 increased by 14% compared
with 1998. This increase is a direct result of increases in the number of
deposit, loan and trust customers during the year.
Amortization of intangible assets in 1999 increased 39% compared with
1998. This increase is attributed to the amortization of the goodwill asset
related to the acquisition of Bank of Adairsville in March 1999. Additional
information regarding United's accounting policy for goodwill and deposit-based
intangible assets is included in the notes to the consolidated financial
statements.
68
The efficiency ratio measures a bank's total operating expenses as a
percentage of net interest income (before provision for loan losses) and
non-interest income, excluding net gains or losses on the sale of securities and
merger-related expenses. United's efficiency ratio for 1999 was 66.9%, compared
with 68.1% in 1998 and 65.2% in 1997.
During 1999 United recognized $1.8 million of expenses related to the
merger with 1st Floyd Bank. These charges consisted of compensation expense
($692,000); equipment write-offs ($424,000); professional fees ($522,000) and,
other expense ($207,000). At December 31, 1999, $455,000 of the total $1.8
million merger charge was recorded as an accrued liability.
INCOME TAXES
United had income tax expense of $5.9 million in 1999, compared with
$6.0 million in 1998 and $5.0 million in 1997. United's effective tax rates (tax
expense expressed as a percentage of pre-tax net income) for 1999, 1998 and 1997
were 30.2%, 31.9% and 31.1%, respectively. These effective rates are lower than
the statutory Federal tax rate primarily because of interest income on certain
investment securities and loans that is exempt from income taxes. Additional
information regarding United's income taxes can be found in note 11 to the
consolidated financial statements.
BALANCE SHEET REVIEW
Total assets at December 31, 1999 were $2.1 billion, an increase of
$541 million, or 34%, from December 31, 1998. On an average basis, total assets
increased $541 million, or 40%, from 1998 to 1999. Average interest earning
assets for 1999 were $1.8 billion, compared with $1.3 million for 1998, an
increase of 40%.
LOANS
Total loans averaged $1.2 billion in 1999, compared with $956 million
in 1998, an increase of 29%. At December 31, 1999, total loans were $1.4
billion, an increase of $339 million, or 32%, from December 31, 1998. Over the
past five years, United has experienced strong loan growth in all markets, with
particular strength in loans secured by real estate, both residential and
non-residential. The following table presents a summary of the loan portfolio by
category over that period.
Table 6 - Loans Outstanding
(in thousands)
December 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Commercial $ 125,245 109,647 119,262 110,402 68,427
Real estate - construction 161,774 121,900 83,528 55,045 31,663
Real estate - mortgage 969,385 694,561 545,556 390,294 300,666
Consumer 143,956 135,057 124,153 106,504 88,504
--------------------------------------------------------------------------
Total loans $ 1,400,360 1,061,165 872,499 662,245 489,260
==========================================================================
As a percentage of total loans:
Commercial 8.9% 10.3% 13.7% 16.7% 14.0%
Real estate - construction 11.6% 11.5% 9.6% 8.3% 6.5%
Real estate - mortgage 69.2% 65.5% 62.5% 58.9% 61.4%
Consumer 10.3% 12.7% 14.2% 16.1% 18.1%
--------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
==========================================================================
Substantially all of United's loans are to customers located in Georgia
and North Carolina, in the immediate market areas of the banks. This includes
loan customers who have a seasonal residence in the banks' market areas. The
following table indicates United's loans by specific collateral type or loan
purpose as of December 31, 1999:
69
Table 7 - Loans by Collateral Type or Purpose
(in thousands)
Percent of
Total Loans
------------
Secured by real estate:
Residential first liens $ 506,729 36.1%
Residential second liens 27,177 1.9%
Home equity lines of credit 53,191 3.8%
Construction and land development 161,774 11.6%
Non-farm, non-residential 355,269 25.4%
Farmland 16,173 1.2%
Multi-family residential 10,846 0.8%
--------------- ------------
Total real estate 1,131,159 80.8%
--------------- ------------
Other loans:
Commercial and industrial 105,221 7.5%
Agricultural production 9,923 0.7%
States and municpalities 10,101 0.7%
Consumer installment loans 136,983 9.8%
Credit cards and other revolving credit 6,973 0.5%
--------------- ------------
Total other loans 269,201 19.2%
--------------- ------------
Total loans $ 1,400,360 100.0%
=============== ============
As of December 31, 1999, United's 20 largest credit relationships
consisted of loans and loan commitments ranging from $2.4 to $10.0 million, with
an aggregate total credit exposure of $77 million. All of these credits have
been underwritten in a prudent manner and structured in order to minimize
United's potential exposure to loss.
The following table sets forth the maturity distribution of real estate
construction and commercial loans, including the interest rate sensitivity for
loans maturing in greater than one year, as of December 31, 1999. United's loan
policy does not permit automatic roll-over of matured loans.
Table 8 - Loan Portfolio Maturity
(in thousands)
Rate Structure for Loans
Maturity Maturing Over One Year
-------------------------------------------------------------------------
One Year One through Over Five Fixed Floating
or Less Five Years Years Total Rate Rate
- ----------------------------------------------------------------------------------------------------------
Commercial $ 61,266 42,493 21,486 125,245 57,214 6,765
Real estate - construction 130,607 31,167 - 161,774 7,581 23,586
-------------------------------------------------------------------------
Total $ 191,873 73,660 21,486 287,019 64,795 30,351
=========================================================================
ASSET QUALITY AND RISK ELEMENTS
United manages asset quality and controls credit risk through
diversification of the loan portfolio and the application of policies designed
to promote sound underwriting and loan monitoring practices. United's loan
administration function is charged with monitoring asset quality, establishing
credit policies and procedures and enforcing the consistent application of these
policies and procedures at all of the banks.
The provision for loan losses is the annual cost of providing an
adequate allowance for anticipated potential future losses on loans. The amount
each year is dependent upon many factors including loan growth, net charge-offs,
changes in the composition of the loan portfolio, delinquencies, management's
70
assessment of loan portfolio quality, the value of collateral, and economic
factors and trends. The evaluation of these factors is performed by United's
credit administration department through an analysis of the adequacy of the
allowance for loan losses.
Reviews of non-performing, past due loans and larger credits, designed
to identify potential charges to the allowance for loan losses, as well as
determine the adequacy of the allowance, are conducted on a regular basis during
the year. These reviews are performed by the responsible lending officers, as
well as a separate loan review department, and consider such factors as the
financial strength of borrowers, the value of the applicable collateral, past
loan loss experience, anticipated loan losses, growth in the loan portfolio,
prevailing and anticipated economic conditions and other factors.
United does not currently allocate the allowance for loan losses to the
various loan categories and there were no significant changes in the estimation
methods and assumptions used to determine the adequacy of the allowance for loan
losses during 1999.
The following table presents a summary of changes in the allowance for loan
losses for each of the past five years.
Table 9
Years Ended December 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
Balance beginning of period $ 12,680 10,989 8,536 5,316 4,415
Provision for loan losses 5,104 2,612 2,814 1,751 1,128
Allowance for loan losses acquired
from subsidiary at acquisition date 1,822 - - 1,813 -
Amounts charged-off:
Commercial 357 460 73 329 148
Real estate - construction 4 - - - 24
Real estate - residential mortgage 556 233 99 13 337
Consumer 1,936 770 658 361 205
------------------------------------------------------
Total loans charged-off 2,853 1,463 830 703 714
------------------------------------------------------
Recoveries of charged-off loans:
Commercial 167 287 22 251 187
Real estate - construction 5 - - - -
Real estate - residential mortgage 323 36 296 49 188
Consumer 474 219 151 59 112
------------------------------------------------------
Total recoveries 969 542 469 359 487
------------------------------------------------------
Net charge-offs 1,884 921 361 344 227
------------------------------------------------------
Balance end of period $ 17,722 12,680 10,989 8,536 5,316
======================================================
Total loans:
At year-end $ 1,400,360 1,061,165 872,499 662,245 489,260
Average $ 1,237,892 956,452 773,245 567,456 434,682
As a percentage of average loans:
Net charge-offs 0.15% 0.10% 0.05% 0.06% 0.05%
Provision for loan losses 0.41% 0.27% 0.36% 0.31% 0.26%
Allowance as a percentage of year-end loans 1.27% 1.19% 1.26% 1.29% 1.09%
Allowance as a percentage of non-performing loans 974% 1174% 964% 527% 220%
Management believes that the allowance for loan losses at December 31,
1999 is sufficient to absorb losses inherent in the loan portfolio as of that
date based on the best information available, including the credit risks related
to the Year 2000 issue described in detail later in this discussion. This
assessment involves uncertainty and judgment; therefore, the adequacy of the
allowance for loan losses cannot be determined with precision and may be subject
to change in future periods. In addition, bank regulatory authorities, as part
of their periodic examination of the banks, may require additional charges to
the provision for loan losses in future periods if the results of their review
warrant.
71
NON-PERFORMING ASSETS
Non-performing loans, which included non-accrual loans and accruing
loans past due over 90 days, totaled $1.8 million at year-end 1999, compared
with $1.1 million at December 31, 1998. At December 31, 1999, the ratio of
non-performing loans to total loans was .13%, compared with .10% at year-end
1998. Non-performing assets, which include non-performing loans and foreclosed
real estate, totaled $2.4 million at December 31, 1999, compared with $1.5
million at year-end 1998.
It is the general policy of the banks to place loans on non-accrual
status when, in the opinion of management, the principal and interest on a loan
is not likely to be repaid in accordance with the loan terms. When a loan is
placed on non-accrual status, interest previously accrued but not collected is
reversed against current interest income. Depending on management's evaluation
of the borrower and loan collateral, interest on a non-accrual loan may be
recognized on a cash basis as payments are received. Loans made by the banks to
facilitate the sale of other real estate are made on terms comparable to loans
of similar risk.
There were no commitments to lend additional funds to loan customers
with loans on non-accrual status at December 31, 1999. The table below
summarizes United's non-performing assets for each of the last five years.
Table 10 - Non-Performing Assets
(in thousands)
December 31,
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
Non-accrual loans $ 1,370 612 601 992 2,018
Loans past due 90 days or more and
still accruing 450 468 539 628 402
--------------------------------------------------------------
Total non-performing loans 1,820 1,080 1,140 1,620 2,420
Other real estate owned 541 424 386 210 65
--------------------------------------------------------------
Total non-performing assets $ 2,361 1,504 1,526 1,830 2,485
==============================================================
Total non-performing loans as a percentage
of total loans 0.13% 0.10% 0.13% 0.24% 0.49%
Total non-performing assets as a percentage
of total assets 0.11% 0.09% 0.13% 0.20% 0.34%
At December 31, 1999, United had $5.1 million of loans which were not
classified as non-performing but for which known information about the
borrowers' financial condition caused management to have concern about the
ability of the borrowers to comply with the repayment terms of the loans. These
loans were identified through the loan review process described in the ASSET
QUALITY AND RISK ELEMENTS section of this discussion above that provides for
assignment of a risk rating based on an ten-grade scale to all commercial and
commercial real estate loans. Based on the evaluation of current market
conditions, loan collateral, other secondary sources of repayment and cash flow
generation, management does not anticipate any significant losses related to
these loans. These loans are subject to continuing management attention and are
considered in the determination of the allowance for loan losses.
INVESTMENT SECURITIES
The composition of the securities portfolio reflects United's
investment strategy of maintaining an appropriate level of liquidity while
providing a relatively stable source of income. The securities portfolio also
provides a balance to interest rate risk and credit risk in other categories of
72
the balance sheet while providing a vehicle for the investment of available
funds, furnishing liquidity, and supplying securities to pledge as required
collateral for certain deposits. During 1999, United expanded its leverage
program, which uses borrowed funds to purchase investment securities, by
approximately $89 million over year-end 1998.
Total average securities increased 86% during 1999 and 33% during 1998.
The following table shows the carrying value of United's securities, by security
type, as of December 31, 1999, 1998 and 1997.
Table 11 - Carrying Value of Securities
(in thousands)
December 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------
Securities held to maturity:
U.S. Treasury $ - - 500
U.S. Government agencies - 1,885 22,361
State and political subdivisions - 53,386 42,330
Mortgage-backed securities - 2,122 4,368
Other securities - 913 146
---------------------------------------------
Total securites held to maturity - 58,306 69,705
---------------------------------------------
Securities available for sale:
U.S. Treasury 32,400 33,080 47,442
U.S. Government agencies 102,730 46,904 51,762
State and political subdivisions 78,824 22,610 12,243
Mortgage-backed securities 297,932 220,636 36,139
Other securities 22,617 10,557 6,190
---------------------------------------------
Total securities available for sale 534,503 333,787 153,776
---------------------------------------------
Total securities $ 534,503 392,093 223,481
=============================================
On January 1, 1999, United adopted Statement of Financial Accounting
Standards No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES" ("SFAS No. 133"). As permitted by SFAS No. 133, United transferred
all securities classified as held to maturity at January 1, 1999 to available
for sale. Accordingly, the carrying value of United's entire securities
portfolio at December 31, 1999 is recorded on the balance sheet at its fair
market value of $535 million. At year-end 1998, United had $58 million of
securities classified as held to maturity. These securities had a fair market
value at year-end 1998 of $60 million.
United's investment portfolio consists principally of U.S. Government
and agency securities, municipal securities, various equity securities and U.S.
Government sponsored agency mortgage-backed securities. A mortgage-backed
security relies on the underlying mortgage pools of loans to provide a cash flow
of principal and interest. The actual maturities of these securities will differ
from the contractual maturities because the loans underlying the security may
prepay with or without prepayment penalties. Decreases in interest rates will
generally cause an increase in prepayment levels. In a declining interest rate
environment, United may not be able to reinvest the proceeds from these
prepayments in assets that have comparable yields. However, because the majority
of the mortgage-backed securities have adjustable rates, the negative effects of
changes in interest rates on income and the carrying values of these securities
are somewhat mitigated.
During the fourth quarter of 1998, management initiated a leverage
program designed to make optimal utilization of United's assets and capital.
This program provides for using borrowed funds (principally FHLB advances)
secured by mortgage loans and securities of the banks to purchase additional
securities. The securities purchased in conjunction with the leverage program
during 1998 and 1999 are primarily mortgage backed pass-through and other
mortgage backed securities, including collateralized mortgage obligations. As of
December 31, 1999, the leverage program at United added $164 million in total
borrowings and earning assets. Management does not expect any increase in the
73
leverage program assets during 2000, and plans to use proceeds from the leverage
securities paydowns to fund loan growth and reduce associated leverage program
borrowings.
At December 31, 1999, United had 25% of its total investment portfolio
in mortgage backed pass-through securities, all of which are issued or backed by
Federal agencies, compared with 35% at December 31, 1998. United did not have
securities of any issuer in excess of 10% of equity at year-end 1999 or 1998.
Other mortgage-backed securities, including collateralized mortgage obligations,
represented 14% of the total securities portfolio at December 31, 1999, compared
with 29% at year-end 1998. Approximately 81% of the other mortgage-backed
securities portfolio was collateralized by mortgage-backed securities issued or
backed by Federal agencies as of December 31, 1999.
DEPOSITS
Total average deposits for 1999 were $1.4 billion, an increase of $302
million, or 26% from 1998. Average non-interest bearing demand deposit accounts
increased $46 million, or 34%, and average interest bearing transaction accounts
increased $69 million, or 27%, from 1998. Average time deposits for 1999 were
$872 million, an increase of 24% from 1998.
Time deposits of $100,000 and greater totaled $312 million at December
31, 1999, compared with $220 million at year-end 1998. During 1999, United began
to utilize "brokered" time deposits, issued in certificates of less than
$100,000, as an alternative source of cost-effective funding. Average brokered
time deposits outstanding in 1999 were $23 million; no material amounts of
brokered time deposits were outstanding during 1998. Total interest paid on time
deposits of $100,000 and greater during 1999 was $13.5 million. The following
table sets forth the scheduled maturities of time deposits of $100,000 and
greater and brokered time deposits at December 31, 1999.
Table 12 - Maturities of Time Deposits of $100 Thousand and Greater and Brokered
Deposits (in thousands)
$100 Thousand and Greater:
Three months or less $ 99,463
Over three through six months 77,963
Over six through twelve months 74,866
Over one year 60,074
-----------------
Total $ 312,366
=================
Brokered Deposits:
Three months or less $ 10,250
Over three through six months 15,250
Over six through twelve months 32,000
Over one year 12,000
-----------------
Total $ 69,500
=================
Short-term Borrowings
At December 31, 1999, all of the banks were shareholders in the Federal
Home Loan Bank of Atlanta. Through this affiliation, secured advances totaling
$288 million were outstanding at rates competitive with time deposits of like
maturities. United anticipates continued utilization of this short and long term
source of funds to minimize interest rate risk. The FHLB advances outstanding at
December 31, 1999 had both fixed and floating interest rates ranging from 4.35%
to 7.81%. Approximately 28% of the FHLB advances mature prior to December 31,
2000. Additional information regarding FHLB advances, including scheduled
maturities, is provided in note 7 to the consolidated financial statements.
74
INTEREST RATE SENSITIVITY MANAGEMENT
The absolute level and volatility of interest rates can have a
significant impact on United's profitability. The objective of interest rate
risk management is to identify and manage the sensitivity of net interest income
to changing interest rates, in order to achieve United's overall financial
goals. Based on economic conditions, asset quality and various other
considerations, management establishes tolerance ranges for interest rate
sensitivity and manages within these ranges.
United uses income simulation modeling as the primary tool in measuring
interest rate risk and managing interest rate sensitivity. Simulation modeling
considers not only the impact of changing market rates of interest on future net
interest income, but also such other potential causes of variability as earning
asset volume, mix, yield curve relationships, customer preferences and general
market conditions.
Interest rate sensitivity is a function of the repricing
characteristics of United's portfolio of assets and liabilities. These repricing
characteristics are the time frames within which the interest bearing assets and
liabilities are subject to change in interest rates either at replacement,
repricing or maturity during the life of the instruments. Interest rate
sensitivity management focuses on the maturity structure of assets and
liabilities and their repricing characteristics during periods of changes in
market interest rates. Effective interest rate sensitivity management seeks to
ensure that both assets and liabilities respond to changes in interest rates
within an acceptable timeframe, thereby minimizing the impact of interest rate
changes on net interest income. Interest rate sensitivity is measured as the
difference between the volumes of assets and liabilities in United's current
portfolio that are subject to repricing at various time horizons: immediate; one
to three months; four to twelve months; one to five years; over five years, and
on a cumulative basis. The differences are known as interest sensitivity gaps.
The following table shows interest sensitivity gaps for these different
intervals as of December 31, 1999.
Table 13 - Interest Rate Gap Sensitivity
(in thousands)
One Four One Over Five
Through Through Through Years and
Three Twelve Five Non-rate
Immediate Months Months Years Sensitive Total
- --------------------------------------------------------------------------------------------------------------
Interest earning assets:
Federal funds sold $ 23,380 - - - - 23,380
Securities - 74,762 36,415 180,943 242,383 534,503
Mortgage loans held for sale - 6,326 - - - 6,326
Loans - 302,510 520,066 433,361 144,423 1,400,360
----------------------------------------------------------------
Total interest earning assets 23,380 383,598 556,481 614,304 386,806 1,964,569
---------------------------------------------------------------
Interest bearing liabilities:
Demand deposits - 328,815 - - - 328,815
Savings deposits - - 73,953 - - 73,953
Time deposits - 292,233 519,000 243,385 - 1,054,618
Fed funds purchased/repurchase agreements 31,812 - - - - 31,812
FHLB advances 37,625 20,000 26,750 203,197 287,572
Notes payable 15,365 - 2,142 9 - 17,516
Convertible subordinated debentures - - - - 3,500 3,500
Trust preferred securities - - - - 21,000 21,000
---------------------------------------------------------------
Total interest bearing liabilities 84,802 641,048 621,845 446,591 24,500 1,818,786
---------------------------------------------------------------
Non-interest bearing sources of funds - - - - 192,006 192,006
----------------------------------------------------------------
Interest sensitivity gap (61,422) (257,450) (65,364) 167,713 170,300 (46,223)
----------------------------------------------------------------
Cumulative sensitivity gap $ (61,422) (318,872) (384,236)(216,523) (46,223) -
================================================================
As seen in the preceding table, during the first year 74% of interest
bearing liabilities will reprice compared with 49% of all interest earning
assets. Changes in the mix of earning assets or supporting liabilities can
75
either increase or decrease the net interest margin without affecting interest
rate sensitivity. In addition, the interest rate spread between an asset and its
supporting liability can vary significantly while the timing of repricing for
both the asset and the liability remains the same, thus impacting net interest
income. This characteristic is referred to as basis risk and generally relates
to the possibility that the repricing characteristics of short-term assets tied
to United's prime lending rate are different from those of short-term funding
sources such as certificates of deposit.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities that are not reflected in the
interest rate sensitivity analysis. These prepayments may have significant
impact on United's net interest margin. Because of these factors, an interest
sensitivity gap analysis may not provide an accurate assessment of United's
exposure to changes in interest rates.
Table 13 indicates United is in a liability sensitive or negative gap
position for the first twelve months. This liability sensitive position would
generally indicate that United's net interest income would decrease should
interest rates rise and would increase should interest rates fall. Due to the
factors cited previously, current simulation results indicate only minimal
sensitivity to parallel shifts in interest rates; however, no assurance can be
given that United is not at risk from interest rate increases or decreases.
Management also evaluates the condition of the economy, the pattern of market
interest rates and other economic data to determine the appropriate mix and
repricing characteristics of assets and liabilities necessary to optimize the
net interest margin.
The following table presents the expected maturity of the total securities by
maturity date and average yields based on amortized cost (for all obligations on
a fully taxable basis) at December 31, 1999. The composition and
maturity/repricing distribution of the securities portfolio is subject to change
depending on rate sensitivity, capital and liquidity needs.
Table 14 - Expected Maturity of Securities Available for Sale
(in thousands)
Over One Over Five
Year Years
One Year Through Through Over
or Less Five Years Ten Years Ten Years Total
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury 9,252 23,148 - - 32,400
U.S. Government agencies 4,405 61,903 33,202 3,220 102,730
State and political subdivisions 5,324 32,280 24,749 16,471 78,824
Other securities - - - 320,549 320,549
------------------------------------------------------------------
Total securities available for sale 18,981 117,331 57,951 340,240 534,503
------------------------------------------------------------------
Percent of total 3.6% 22.0% 10.8% 63.6% 100.0%
Weighted average yield 5.66% 6.37% 7.47% 6.07% 6.27%
Includes mortgage-backed securities.
Based on amortized cost.
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 during 1999, 1998 and 1997. Derivative
financial instruments can be a cost and capital effective means of modifying the
repricing characteristics of on-balance sheet assets and liabilities. These
contracts include interest rate swaps under which United pays a variable rate
and receives a fixed rate, 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 contract rate. To minimize the credit risk of derivative
financial instruments, United requires all contract counterparties to have an
investment grade or better credit rating.
The cost of the cap contracts is included in other assets in the
consolidated balance sheet and is being amortized on a straight-line basis over
the five-year term of the contracts. At December 31, 1999 the cap contracts had
an aggregate remaining book value of $373,000. The following table presents
United's cap contracts outstanding at December 31, 1999.
76
Table 15 - Cap Contracts as of December 31, 1999
(in thousands)
Notional Contract Contract Fair
Maturity Amount Index Rate Value
August 31, 2001 5,000 Prime 10.00% 9
August 27, 2001 20,000 Prime 10.00% 46
September 18, 2003 10,000 3 Month LIBOR 5.50% 476
January 4, 2004 10,000 Prime 7.75% 506
---------------- ------------
Total 45,000 1,037
================ ============
The following table presents United's swap contracts outstanding at
December 31, 1999.
Table 16 - Swap Contracts as of December 31, 1999
(in thousands)
Notional Rate Rate Fair
Maturity Amount Received Paid ( Value
April 2, 2001 15,000 8.41% 8.50% (169)
April 5, 2001 10,000 9.50% 8.50% 15
May 8, 2001 10,000 8.26% 8.50% (138)
June 7, 2001 10,000 8.69% 8.50% (96)
July 27, 2001 10,000 8.85% 8.50% (70)
October 12, 2001 10,000 9.11% 8.50% (57)
June 7, 2002 10,000 9.05% 8.50% (114)
June 14, 2002 10,000 9.12% 8.50% (102)
June 24, 2002 20,000 8.80% 8.50% (304)
July 29, 2002 25,000 9.04% 8.50% (281)
August 10, 2002 10,000 9.60% 8.50% (51)
December 23, 2002 10,000 9.19% 8.50% (164)
------------------------------------------------
Total/weighted average 150,000 8.95% 8.50% (1,531)
================================================
Based on prime rate at December 31, 1999.
Effective January 1, 1999, United adopted SFAS No. 133, which requires
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 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 December 31, 1999, United's
derivative financial instruments had an aggregate negative fair value of
$494,000.
United requires all derivative financial instruments be used only for
asset/liability management through the hedging of 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 risk sensitivity is minimal and should not have any material
unintended impact on United's financial condition or results of operations.
77
LIQUIDITY MANAGEMENT
The objective of liquidity management is to ensure that sufficient
funding is available, at reasonable cost, to meet the ongoing operational cash
needs of United and to take advantage of income producing opportunities as they
arise. While the desired level of liquidity will vary depending upon a variety
of factors, it is the primary goal of United to maintain a sufficient level of
liquidity in all expected economic environments. Liquidity is defined as the
ability of a bank to convert assets into cash or cash equivalents without
significant loss and to raise additional funds by increasing liabilities.
Liquidity management involves maintaining United's ability to meet the daily
cash flow requirements of the banks' customers, both depositors and borrowers.
The primary objectives of asset/liability management are to provide for
adequate liquidity in order to meet the needs of customers and to maintain an
optimal balance between interest-sensitive assets and interest-sensitive
liabilities, so that United can also meet the investment requirements of its
shareholders as market interest rates change. Daily monitoring of the sources
and use of funds is necessary to maintain a position that meets both
requirements.
The asset portion of the balance sheet provides liquidity primarily
through loan principal repayments and the maturities and sales of securities.
Mortgage loans held for sale totaled $6.3 million at December 31, 1999, and
typically turn over every 45 days as the closed loans are sold to investors in
the secondary market. Real estate-construction and commercial loans that mature
in one year or less amounted to $192 million, or 14%, of the total loan
portfolio at December 31, 1999. Other short-term investments such as federal
funds sold are additional sources of liquidity.
The liability section of the balance sheet provides liquidity through
depositors' interest bearing and non-interest bearing deposit accounts. Federal
funds purchased, FHLB advances and securities sold under agreements to
repurchase are additional sources of liquidity and represent United's
incremental borrowing capacity. These sources of liquidity are short-term in
nature and are used as necessary to fund asset growth and meet other short-term
liquidity needs.
As disclosed in United's consolidated statements of cash flows included
in the consolidated financial statements, net cash provided by operating
activities was $26.8 million during 1999. The major sources of cash provided by
operating activities are net income partially offset by funding of mortgage
loans held for sale and changes in other assets and other liabilities. Net cash
used in investing activities of $478.7 million consisted primarily of a net
increase in loans of $325.8 million and securities purchases of $244.9 million
funded largely by sales, maturities and paydowns of securities of $99.4 million
and additional net borrowings from the FHLB of $100.7 million. Net cash provided
by financing activities provided the remainder of funding sources for 1999. The
$502.1 million of net cash provided by financing activities consisted primarily
of a $381 million net increase in deposits and a net increase in FHLB advances
of $100.7 million.
In the opinion of management, United's liquidity position at December
31,1999, is sufficient to meet its expected cash flow requirements. Reference
should be made to the consolidated statements of cash flows appearing in the
consolidated financial statements for a three-year analysis of the changes in
cash and cash equivalents resulting from operating, investing and financing
activities.
CAPITAL RESOURCES AND DIVIDENDS
Shareholders' equity at December 31, 1999 was $96.2 million, an
increase of $2.4 million, or 2.6%, from December 31, 1998. Excluding the change
in the capital category of accumulated other comprehensive income (loss),
shareholders' equity increased by 13.3%. Accumulated other comprehensive income
(loss) is not included in the calculation of regulatory capital adequacy ratios.
For additional information on accumulated other comprehensive income (loss),
please refer to the statements of other comprehensive income, which is included
with the consolidated financial statements. Dividends of $1.5 million, or $.20
per share, were declared on common stock in 1999, an increase of 33% per share
from the amount declared per share in 1998. The dividend payout ratios for 1999
and 1998 were 11.8% and 9.4%, respectively. United has historically retained the
majority of its earnings in order to provide a cost-effective source of capital
for continued growth and expansion. However, in recognition that cash dividends
78
are an important component of shareholder value, management has instituted a
dividend program that provides for increased cash dividends when earnings and
capital levels permit.
In July 1998, a statutory business trust, United Community Capital
Trust, was created by United which in July 1998, issued guaranteed preferred
beneficial interests in United's junior subordinated deferrable interest
debentures ("Trust Preferred Securities") to institutional investors in the
amount of $21 million. This issuance represented the guaranteed preferred
beneficial interests in $21.7 million in junior subordinated deferrable interest
debentures ("Subordinated Debentures") issued by United to United Community
Capital Trust. For regulatory purposes, the Trust Preferred Securities will be
treated as Tier I capital of United. The subordinated debentures are the sole
assets of United Community Capital Trust and bear an interest rate of 8.125%
with a maturity date of July 15, 2028, which may be shortened to a date not
earlier than July 15, 2008. If the subordinated debentures are redeemed in part
or in whole prior to July 15, 2008, the redemption price of the Subordinated
Debentures and the Trust Preferred Securities will include a premium ranging
from 4.06% in 2008 to .41% in 2017.
In March 1997, United completed an offering to the public of 300,000
shares of United common stock registered under the Securities Act of 1933,
pursuant to which $6.5 million in additional capital was raised after deducting
certain issuance costs. United used the proceeds of the offering primarily to
invest additional capital in United Community Bank, Carolina Community Bank and
Towns County Bank to support the asset growth that the banks were experiencing.
On December 31, 1996, United completed a private placement of
convertible subordinated payable-in-kind debentures due December 31, 2006. The
debentures bear interest at the rate of one quarter of one percentage point over
the prime rate per annum as quoted in the WALL STREET JOURNAL, payable on a
quarterly basis.
The debentures may be redeemed, in whole or in part, on or after
January 1, 1998, at the option of United upon at least 20 days and not more than
60 days notice, at a redemption price equal to 100% of the principal amount of
the debentures to be redeemed plus interest accrued and unpaid as of the date of
redemption. The holders of the debentures have the right, excercisable at any
time up to December 31, 2006, to convert such debentures at the principal amount
thereof into shares of Common Stock of United at the conversion price of $25 per
share, subject to adjustment for stock splits and stock dividends.
The Board of Governors of the Federal Reserve System has issued
guidelines for the implementation of risk-based capital requirements by U.S.
banks and bank holding companies. These risk-based capital guidelines take into
consideration risk factors, as defined by regulators, associated with various
categories of assets, both on and off balance sheet. Under the guidelines,
capital strength is measured in two tiers which are used in conjunction with
risk adjusted assets to determine the risk based capital ratios. The guidelines
require an 8% total risk-based capital ratio, of which 4% must be Tier I
capital.
United's Tier I capital, which consists of shareholders' equity and
qualifying trust preferred securities less other comprehensive income, goodwill
and deposit-based intangibles, totaled to $117 million at December 31, 1999.
Tier II capital components include supplemental capital components such as a
qualifying allowance for loan losses and qualifying subordinated debt. Tier I
capital plus Tier II capital components is referred to as Total Risk-based
Capital and was $137 million at December 31, 1999. The percentage ratios, as
calculated under the guidelines, were 8.44% and 9.95% for Tier I and Total
Risk-based Capital, respectively, at December 31, 1999.
A minimum leverage ratio is required in addition to the risk-based
capital standards and is defined as period end shareholders' equity and
qualifying trust preferred securities, less other comprehensive income, goodwill
and deposit-based intangibles divided by average assets adjusted for goodwill
and deposit-based intangibles. Although a minimum leverage ratio of 4% is
required for the highest-rated bank holding companies which are not undertaking
significant expansion programs, the Federal Reserve Board requires a bank
holding company to maintain a leverage ratio greater than 4% if it is
experiencing or anticipating significant growth or is operating with less than
well-diversified risks in the opinion of the Federal Reserve Board. The Federal
Reserve Board uses the leverage and risk-based capital ratios to assess capital
adequacy of banks and bank holding companies. United's leverage ratios at
December 31, 1999 and 1998 were 5.52% and 7.11%, respectively.
79
All three of the capital ratios of United and the banks currently
exceed the minimum ratios required in 1999 as defined by federal regulators.
United monitors these ratios to ensure that United and the banks remain within
regulatory guidelines. Further information regarding the actual and required
capital ratios of United and the banks is provided in note 13 to the
consolidated financial statements.
IMPACT OF INFLATION AND CHANGING PRICES
A bank's asset and liability structure is substantially different from
that of an industrial firm in that primarily all assets and liabilities of a
bank are monetary in nature, with relatively little investments in fixed assets
or inventories. Inflation has an important impact on the growth of total assets
and the resulting need to increase equity capital at higher than normal rates in
order to maintain an appropriate equity to assets ratio.
United's management believes the impact of inflation on financial
results depends on United's ability to react to changes in interest rates and,
by such reaction, reduce the inflationary impact on performance. United has an
asset/liability management program which attempts to manage United's interest
rate sensitivity position. In addition, periodic reviews of banking services and
products are conducted to adjust pricing in view of current and expected costs.
YEAR 2000
The "Year 2000" issue refers to potential problems that could result
from the improper processing of dates and date-dependent calculations by
computers and other microchip-embedded technology. In simple terms, problems
with Year 2000 can result from a computer's inability to recognize a two-digit
date field (00) as representing Year 2000 and, incorrectly, recognize the year
as 1900. Failure to identify and correct this problem prior to January 1, 2000
could result in system processing errors that would disrupt a company's normal
business operations. In recognition of the seriousness of this issue, United
established a Year 2000 Committee in January 1998. The committee was chaired by
United's Chief Information Officer and reported directly to United's board of
directors on a quarterly basis.
United complied with all aspects of a Year 2000 directive issued in May
1997 by the Federal Financial Institutions Examination Council ("FFIEC") that
established key milestones that all financial institutions needed to meet with
regard to Year 2000 testing and remediation. None of United's systems, including
systems provided to United by third parties, sustained a failure related to Year
2000 and no contingency plans were subject to implementation as a result of
system failure. In addition, there was no material impact on the liquidity of
United or the banks resulting from excessive deposit withdrawal activity.
Although management is not aware of any Year 2000 failures experienced by
commercial loan customers, such problems could take several months to surface in
the form of increased loan delinquencies. Management believes that the allowance
for loan losses at December 31, 1999 is sufficient to absorb losses inherent in
the loan portfolio, including losses related to failure of borrowers to
adequately prepare the direct and indirect impact a Year 2000 computer failure
had on their business.
The following table sets forth United's budget for the Year 2000 issue
and actual amounts expended as of December 31, 1999. All amounts shown are
pre-tax. In addition, the table indicates the percentage of each budget line
category that was recognized as current period expense through December 1999,
and the percentage that was recorded as a new asset(s) with expense recognized
over the useful life of the asset through charges to depreciation expense.
Management does not expect any additional expenditures related to Year 2000.
80
Table 17 - Year 2000 Budget
(in thousands)
Actual Costs % of Budget
% of Total Incurred as of Expended as of % of Costs to Be:
Budget Budget 31-Dec-99 31-Dec-99 Expensed Amortized
------------------------------------------------------------ ---------------------------
Consulting $ 175 9% 34 19% 100% 0%
Inventory 70 4% 60 86% 100% 0%
Testing 82 4% 28 34% 100% 0%
Remediation 1,520 80% 1,344 88% 15% 85%
Resources 53 3% 36 68% 100% 0%
----------------------------------------------------------- ---------------------------
Total $1,900 100% 1,502 79% 12% 88%
============================================================ ===========================
In accordance with recently issued accounting guidelines on how Year
2000 costs should be recognized for financial statement purposes, United
recognized as current period expense all costs associated with the consulting,
inventory, testing and resources components of the Year 2000 budget. The costs
associated with remediation, which comprised approximately 90% of the Year 2000
expenditures, are primarily related to the installation of a new wide-area
desktop computer network ("WAN") that replaced virtually all of the desktop
computers, file servers and peripheral equipment. In addition to being Year 2000
compliant, the new WAN provides United with a uniform standard desktop computer
configuration, internal and external e-mail capability, Internet access and
savings on telephone communication costs through utilization of the WAN
communications backbone for voice communication. United intends to leverage this
new WAN technology to increase the levels of employee productivity and improve
operating efficiency. The costs of the WAN component of the Year 2000
remediation budget is being recognized over a useful life of three years at a
cost of approximately $450,000 per year starting in the first quarter of 1999.
This annual cost does not include any of the anticipated savings that United
expects to achieve through improved operating efficiency and reduced
telecommunications costs.
United funded the costs associated with preparing for Year 2000 out of
its normal operating cash flows. No major information technology initiatives
were postponed as a result of Year 2000 preparation that would have materially
impacted United's financial condition or results of operations.
81
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
United's net interest income and the fair value of its financial
instruments (interest earning assets and interest bearing liabilities) are
influenced by changes in market interest rates. United actively manages its
exposure to interest rate fluctuations through policies established by its
Asset/Liability Management Committee. The Asset/Liability Management Committee
meets regularly and is responsible for approving asset/liability management
policies, developing and implementing strategies to improve balance sheet
positioning and net interest income and assessing the interest rate sensitivity
of the banks.
United utilizes an interest rate simulation model to monitor and
evaluate the impact of changing interest rates on net interest income. The
estimated impact on United's net interest income sensitivity over a one-year
time horizon as of December 31, 1999 is indicated in the table below. The table
assumes an immediate and sustained parallel shift in interest rates of 200 basis
points and no change in the composition of United's balance sheet.
Net Interest Income Sensitivity
December 31, 1999
(in thousands)
Percentage Increase (Decrease) in
Interest Income/Expense Given
Principal/Notional Immediate and Sustained Parallel
Amounts of Earning Interest Rate Shifts
Assets, Interest Bearing ------------------------------------------
Liabilities and Derivatives at Down 200 Up 200
December 31, 1999 Basis Points Basis Points
------------------------ ----------------- -----------------
Assets repricing in:
One year or less $ 963,549
Over one year 1,001,110
----------------
Total $ 1,964,659 -7.41% 7.30%
================
Liabilities repricing in:
One year or less $ 1,347,695
Over one year 471,091
----------------
Total $ 1,818,786 12.62% 11.88%
================
Derivative hedge instruments $ 195,000
Net interest income sensitivity -0.81% 1.49%
United's Asset/Liability Management Committee policy requires that a
200 basis point shift in interest rates not result in a decrease of net interest
income of more than 10%. The information presented in the tables above is based
on the same assumptions set forth in United's Asset/Liability Management
Committee policy.
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.
82
DESCRIPTION OF SECURITIES
The following is a summary of material provisions of United's common
stock, preferred stock, and debentures:
GENERAL. The authorized capital stock of United currently consists of
10,000,000 shares of common stock, $1.00 par value per share. If the amendment
to the United Restated Articles of Incorporation is approved, the authorized
capital stock of United will consist of 50,000,000 shares of common stock, $1.00
par value per share and 10,000,000 shares of preferred stock, $1.00 par value
per share. As of May 1, 2000, 8,442,990 shares, including 140,000 shares deemed
outstanding pursuant to outstanding debentures and presently exercisable options
to acquire 267,122 shares of United's common stock, were issued and outstanding,
and no shares of preferred stock were issued and outstanding.
COMMON STOCK. All voting rights are vested in the holders of the common
stock. Each holder of common stock is entitled to one vote per share on any
issue requiring a vote at any meeting. The shares do not have cumulative voting
rights. All shares of United common stock are entitled to share equally in any
dividends that United's board of directors may declare on United common stock
from sources legally available for distribution. The determination and
declaration of dividends is within the discretion of United's board of
directors. Upon liquidation, holders of United common stock will be entitled to
receive on a pro rata basis, after payment or provision for payment of all debts
and liabilities of United, all assets of United available for distribution, in
cash or in kind.
The outstanding shares of United common stock are, and the shares of
United common stock to be issued by United in connection with the merger will
be, duly authorized, validly issued, fully paid, and nonassessable.
PREFERRED STOCK. United is authorized to issue 10,000,000 shares of
preferred stock, issuable in specified series and having specified voting,
dividend, conversion, liquidation, and other rights and preferences as United's
board of directors may determine. The preferred stock could be issued for any
lawful corporate purpose without further action by United shareholders. The
issuance of any preferred stock having conversion rights might have the effect
of diluting the interests of United's other shareholders. In addition, shares of
preferred stock could be issued with certain rights, privileges and preferences
which would deter a tender or exchange offer or discourage the acquisition of
control of United. The board of directors presently has no plans to issue any
preferred stock.
DEBENTURES. Debentures in the principal amount of $3,500,000 that are
due on December 31, 2006, are outstanding as of the date hereof. These
debentures bear interest at the rate of one quarter of one percentage point over
the prime rate per annum as quoted in THE WALL STREET JOURNAL, payable on April
1, July 1, October 1, and January 1 of each year commencing on April 1, 1998, to
holders of record at the close of business on the 15th day of the month
immediately preceding the interest payment date. Interest is computed on the
basis of the actual number of days elapsed in a year of 365 or 366 days, as
applicable. Interest on the debentures is payable, at the option of the board of
directors of United, in cash or in an additional debenture with the same terms
as the outstanding debentures.
The debentures may be redeemed, in whole or in part from time to time
on or after January 1, 1999, at the option of United upon at least 20 days and
not more than 60 days notice, at a redemption price equal to 100% of the
principal amount of the debentures to be redeemed plus interest accrued and
unpaid as of the date of redemption.
The holder of any debentures not called for redemption will have the
right, exercisable at any time up to December 31, 2006, to convert those
debentures at the principal amount thereof into shares of United common stock at
the conversion price of $25.00 per share, subject to adjustment for stock splits
and stock dividends.
The debentures are unsecured obligations of United and are subordinate
in right of payment to all obligations of United to its other creditors, except
obligations ranking on a parity with or junior to the debentures. The debentures
were not issued pursuant to an indenture, and no trustee acts on behalf of
debenture holders.
TRANSFER AGENT AND REGISTRAR. The Transfer Agent and Registrar for United's
common stock and the debentures is SunTrust Bank, 58 Edgewood Avenue, Room 2000,
Atlanta, Georgia 30303.
83
LEGAL OPINIONS
Kilpatrick Stockton LLP counsel to United, will provide an opinion as
to the (a) legality of the United common stock to be issued in connection with
the North Point merger and (b) the income tax consequences of the North Point
merger. As of the date of this proxy statement/prospectus, members of Kilpatrick
Stockton LLP own an aggregate of 2,000 shares of United common stock.
EXPERTS FOR UNITED AND NORTH POINT
The audited consolidated financial statements of United and its
subsidiaries included or incorporated by reference in this proxy
statement/prospectus and elsewhere in the registration statement have been
audited by Porter Keadle Moore LLP, certified public accountants, as indicated
in their related audit reports, and are included on the authority of that firm
as experts in giving those reports.
The audited consolidated financial statements of North Point included
in this proxy statement/prospectus and elsewhere in the registration statement
have been audited by Mauldin & Jenkins, LLC, independent certified public
accountants, as indicated in their related audit reports, and are included on
the authority of that firm as experts in giving those reports.
OTHER MATTERS THAT MAY COME BEFORE THE NORTH POINT MEETING
Management of North Point knows of no matters other than those stated
above that are to be brought before the meetings. If any other matters should be
presented for consideration and voting, however, it is the intention of the
persons named in the respective enclosed proxies to vote in accordance with
their judgment as to what is in the best interest of North Point.
84
INDEX TO FINANCIAL DATA
PAGE
----
NORTH POINT
- -----------
Report of North Point Certified Public Accountants...........................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.................................F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997...........................................................F-4
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997...............................................F-5
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997...............................................F-6
Consolidated Statements of Cash Flows Years Ended
December 31, 1999, 1998 and 1997 (Unaudited)...............................................F-7
Notes to Consolidated Financial Statements...................................................F-9
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 (Unaudited)..............................................................F-32
Consolidated Statements of Income for the Three Months
Ended March 31, 2000 and 1999 (Unaudited)..................................................F-33
Consolidated Statements of Earnings Per Share for the Three
Months Ended March 31, 2000 and 1999 (Unaudited)...........................................F-34
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2000 and 1999.................................................F-35
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999..............................................................F-36
Notes to Unaudited Pro Form Consolidated Financial Statements................................F-37
UNITED
- ------
Report of Independent Certified Public Accountants...........................................F-38
Consolidated Balance Sheets as of December 31, 1999 and 1998.................................F-39
Consolidated Statements of Earnings for the Years Ended
December 31, 1999, 1998 and 1997 ..........................................................F-40
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1999, 1998 and 1997...............................................F-41
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1999, 1998 and 1997...........................................F-42
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997...........................................................F-43
Notes to Consolidated Financial Statements...................................................F-44
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 (Unaudited)..............................................................F-67
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 (Unaudited)........................................................F-68
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 (Unaudited)..................................................F-69
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 2000 and 1999.................................................F-70
Notes to Consolidated Financial Statements (Unaudited) ......................................F-71
F-1
INDEPENDENT AUDITOR'S REPORT
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
NORTH POINT BANCSHARES, INC. AND SUBSIDIARY
DAWSONVILLE, GEORGIA
We have audited the accompanying consolidated balance sheets
of NORTH POINT BANCSHARES, INC. AND SUBSIDIARY as of December 31, 1999 and 1998,
and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
North Point Bancshares, Inc. and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ MAULDIN & JENKINS, LLC
Atlanta, Georgia
February 11, 2000, except for Note 16
as to which the date is March 3, 2000
F-2
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- -----------------------------------------------------------------------------------------------
Assets 1999 1998
------ ------------- -------------
Cash and due from banks $ 4,268,780 $ 3,689,204
Interest-bearing deposits in banks 2,981,000 1,990,000
Federal funds sold 4,180,000 6,340,000
Securities available-for-sale 25,371,787 20,334,308
Securities held-to-maturity
(fair value $3,784,371 and $4,832,239) 3,762,312 4,701,141
Loans 62,212,476 54,546,899
Less allowance for loan losses 1,196,321 844,379
------------- -------------
Loans, net 61,016,155 53,702,520
------------- -------------
Premises and equipment 2,746,140 1,938,640
Other assets 2,152,249 1,184,627
------------- -------------
TOTAL ASSETS $ 106,478,423 $ 93,880,440
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 17,738,035 $ 16,403,479
Interest-bearing demand 26,990,521 21,043,825
Savings 5,349,760 5,643,648
Time, $100,000 and over 16,324,953 12,282,921
Other time 30,161,356 28,741,569
------------- -------------
Total deposits 96,564,625 84,115,442
Other borrowings 389,302 25,008
Other liabilities 344,041 368,237
------------- -------------
TOTAL LIABILITIES 97,297,968 84,508,687
------------- -------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5; 5,000,000 shares
authorized, 428,385 and 342,708 issued and outstanding 2,141,925 1,713,540
Capital surplus 1,985,091 1,985,091
Retained earnings 5,629,760 5,563,657
Accumulated other comprehensive income (loss) (576,321) 109,465
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,180,455 9,371,753
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 106,478,423 $ 93,880,440
============= =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------- --------------- ---------------
INTEREST INCOME
Loans $ 5,972,797 $ 5,965,847 $ 5,032,816
Taxable securities 1,331,696 1,163,460 1,322,346
Nontaxable securities 287,978 236,637 232,097
Deposits in other banks 136,152 79,521 58,680
Federal funds sold 396,947 230,671 185,863
Other investments 30,758 17,648 11,081
-------------- -------------- --------------
TOTAL INTEREST INCOME 8,156,328 7,693,784 6,842,883
-------------- -------------- --------------
INTEREST EXPENSE
Deposits 3,621,042 2,993,253 2,792,901
Other borrowings 8,161 10,199 9,040
-------------- -------------- --------------
3,629,203 3,003,452 2,801,941
-------------- -------------- --------------
NET INTEREST INCOME 4,527,125 4,690,332 4,040,942
PROVISION FOR LOAN LOSSES 620,000 200,000 175,000
-------------- -------------- --------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,907,125 4,490,332 3,865,942
-------------- -------------- --------------
OTHER INCOME
Service charges on deposit accounts 451,007 484,551 474,507
Loss on sale of securities available-for-sale 0 0 (2,021)
Other service charges and fees 69,800 56,382 54,061
Other operating income 104,039 112,659 99,188
-------------- -------------- --------------
Total other income 624,846 653,592 625,735
-------------- -------------- --------------
OTHER EXPENSES
Salaries and employee benefits 1,642,029 1,429,959 1,316,192
Equipment expenses 200,714 209,403 211,429
Occupancy expenses 148,006 139,373 137,127
Other operating expenses 1,079,125 913,725 825,581
-------------- -------------- --------------
Total other expenses 3,069,874 2,692,460 2,490,329
-------------- -------------- --------------
INCOME BEFORE INCOME TAXES 1,462,097 2,451,464 2,001,348
INCOME TAX EXPENSE 453,547 814,165 662,344
-------------- -------------- --------------
NET INCOME $ 1,008,550 $ 1,637,299 $ 1,339,004
============== ============== ==============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 2.35 $ 3.82 $ 3.13
============== ============== ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
NET INCOME $ 1,008,550 $ 1,637,299 $ 1,339,004
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized holding gains (losses) on
securities available-for-sale arising during
period, net of tax (benefits) of $(353,284),
$38,235, and $24,341, respectively (685,786) 74,221 44,601
Reclassification adjustment for losses realized
in net income, net of tax (benefit) of $(667) - - 1,354
----------- ----------- -----------
Other comprehensive income (loss) (685,786) 74,221 45,955
----------- ----------- -----------
COMPREHENSIVE INCOME $ 322,764 $ 1,711,520 $ 1,384,959
=========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 and 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Accumulated
-------------------------- Other Total
Par Capital Retained Comprehensive Stockholders'
Shares Value Surplus Earnings Income (Loss) Equity
---------- ---------- ---------- ----------- ------------- -------------
Balance, December 31, 1996 285,590 $1,427,950 $1,985,091 $ 3,661,173 $ (10,711) $ 7,063,503
Net income - - - 1,339,004 - 1,339,004
Cash dividends declared,
$.88 per share - - - (376,979) - (376,979)
20% stock dividend 57,118 285,590 - (285,590) - -
Other comprehensive
income - - - - 45,955 45,955
------- ---------- ---------- ----------- --------- -----------
Balance, December 31, 1997 342,708 1,713,540 1,985,091 4,337,608 35,244 8,071,483
Net income - - - 1,637,299 - 1,637,299
Cash dividends declared,
$.96 per share - - - (411,250) - (411,250)
Other comprehensive
income - - - - 74,221 74,221
------- ---------- ---------- ----------- --------- -----------
Balance, December 31, 1998 342,708 1,713,540 1,985,091 5,563,657 109,465 9,371,753
Net income - - - 1,008,550 - 1,008,550
Cash dividends declared,
$ 1.20 per share - - - (514,062) - (514,062)
25% stock dividend 85,677 428,385 - (428,385) - -
Other comprehensive
loss - - - - (685,786) (685,786)
------- ---------- ---------- ----------- --------- -----------
Balance, December 31, 1999 428,385 $2,141,925 $1,985,091 $ 5,629,760 $(576,321) $ 9,180,455
======= ========== ========== =========== ========= ===========
See Notes to Consolidated Financial Statements.
F-6
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------ ------------ -----------
OPERATING ACTIVITIES
Net income $ 1,008,550 $ 1,637,299 $ 1,339,004
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 78,151 78,151 78,151
Depreciation 149,528 139,037 163,508
Provision for loan losses 620,000 200,000 175,000
Deferred income taxes (152,100) (55,541) (55,927)
Loss on sales of securities available-for-sale 0 0 2,021
Increase in interest receivable (216,218) (41,806) (113,304)
Increase (decrease) in interest payable 36,645 20,709 (18,921)
Decrease in income taxes payable (67,280) (70,441) (111,638)
Other operating activities (15,460) 5,676 40,587
------------ ------------ -----------
Net cash provided by operating activities 1,441,816 1,913,084 1,498,481
------------ ------------ -----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (18,922,053) (13,298,729) (8,915,404)
Proceeds from maturities of securities
available-for-sale 12,845,504 7,352,886 3,791,959
Proceeds from sales of securities available-for-sale 0 0 1,244,560
Purchases of securities held-to-maturity (114,046) 0 (100,000)
Proceeds from maturities of securities
held-to-maturity 1,052,875 7,952,472 4,737,671
Net (increase) decrease in Federal funds sold 2,160,000 (2,280,000) (2,500,000)
Net increase in interest-bearing deposits in banks (991,000) (797,000) (198,000)
Net increase in loans (8,346,907) (6,777,643) (7,492,399)
Proceeds from sale of other real estate owned 111,000 334,500 0
Purchase of premises and equipment (957,028) (433,834) (139,207)
------------ ------------ -----------
Net cash used in investing activities (13,161,655) (7,947,348) (9,570,820)
------------ ------------ -----------
FINANCING ACTIVITIES
Net increase in deposits 12,449,183 7,719,212 6,852,788
Net increase (decrease) in other borrowings 364,294 (383,193) 198,282
Dividends paid (514,062) (411,250) (376,979)
------------ ------------ -----------
Net cash provided by financing activities 12,299,415 6,924,769 6,674,091
------------ ------------ -----------
Net increase (decrease) in cash and due from banks 579,576 890,505 (1,398,248)
Cash and due from banks at beginning of year 3,689,204 2,798,699 4,196,947
------------ ------------ -----------
Cash and due from banks at end of year $ 4,268,780 $ 3,689,204 $ 2,798,699
============ ============ ===========
F-7
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -----------------------------------------------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $ 3,592,558 $ 2,982,743 $ 2,820,862
Income taxes $ 672,927 $ 940,147 $ 829,909
NONCASH TRANSACTION
Unrealized (gains) losses on securities
available-for-sale $ 1,039,070 $ (112,456) $ (69,629)
Principal balances of loans transferred
to other real estate owned $ 413,272 $ 275,500 $ 0
See Notes to Consolidated Financial Statements.
F-8
NORTH POINT BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
North Point Bancshares, Inc., (the "Company") is a bank holding
company whose business is conducted by its wholly-owned subsidiary,
Dawson County Bank (the "Bank"). The Bank is a commercial bank
located in Dawsonville, Dawson County, Georgia. The Bank provides a
full range of banking services in its primary market area of Dawson
County, Georgia and the surrounding counties.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions and
accounts are eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities as
of the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of
other real estate owned, and deferred tax assets.
CASH AND DUE FROM BANKS
Cash on hand, cash items in process of collection, and amounts due
from banks are included in cash and due from banks.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability
to hold to maturity are classified as held-to-maturity and recorded
at amortized cost. All other debt securities are classified as
available-for-sale and recorded at fair value with net unrealized
gains and losses reported in other comprehensive income (loss).
Equity securities without a readily determinable fair value are
classified as available-for-sale and recorded at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sale of securities are determined
using the specific identification method.
LOANS
Loans are reported at their outstanding principal balance less
unearned income and the allowance for loan losses. Interest income is
accrued based on the principal balance outstanding.
Loan origination fees and certain direct costs of most loans are
recognized at the time the loan is recorded. Loan origination fees
incurred for other loans are deferred and recognized as income over
the life of the loan. Because net origination loan fees and costs are
not material, the results of operations are not materially different
than the results which would be obtained by accounting for loan fees
and costs in accordance with generally accepted accounting
principles.
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan is confirmed.
Subsequent recoveries are credited to the allowance. Management's
determination of the adequacy of the allowance is based on an
evaluation of the portfolio, past loan loss experience, current
economic conditions, volume, growth, composition of the loan
portfolio, and other risks inherent in the portfolio. This evaluation
is inherently subjective as it requires material estimates that are
susceptible to significant change including the amounts and timing of
future cash flows expected to be received on impaired loans. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for
loan losses, and may require the Company to record additions to the
allowance based on their judgment about information available to them
at the time of their examinations.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS (CONTINUED)
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. Interest income is subsequently recognized only to
the extent cash payments are received.
A loan is impaired when it is probable the Company will be unable to
collect all principal and interest payments due in accordance with
the contractual terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of payments
expected to be received, using the contractual loan rate as the
discount rate. Alternatively, measurement may be based on observable
market prices or, for loans that are solely dependent on the
collateral for repayment, measurement may be based on the fair value
of the collateral. If the recorded investment in the impaired loan
exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the
provision for loan losses.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are stated at cost
less accumulated depreciation computed principally by the
straight-line method over the estimated useful lives of the assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair value
at the time of transfer to other real estate owned is charged to the
allowance for loan losses. Subsequent gains or losses on sale and any
subsequent adjustment to the value are recorded as other expenses.
The carrying amount of other real estate owned as of December 31,
1999 and 1998 was $247,272 and $ --, respectively.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENSION PLAN
The Company recognizes pension costs as paid, the results of which
are not materially different than the results which would be obtained
by accounting for net periodic pension costs in accordance with
generally accepted accounting principles.
INCOME TAXES
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred income tax assets and liabilities are
determined using the balance sheet method. Under this method, the net
deferred tax asset or liability is determined based on the tax
effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences will be
realized. A valuation allowance would be recorded for those deferred
tax items for which it is more likely than not that realization would
not occur.
The Company and the Bank file a consolidated income tax return. Each
entity provides for income taxes based on its contribution to income
taxes (benefits) of the consolidated group.
EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the
weighted average number of shares of common stock outstanding. As of
December 31, 1999, 1998 and 1997, the weighted average number of
shares was 428,385 adjusted for stock dividends declared.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130
describes comprehensive income as the total of all components of
comprehensive income, including net income. Other comprehensive
income refers to revenues, expenses, gains and losses that under
generally accepted accounting principles are included in
comprehensive income but excluded from net income. Currently, the
Company's other comprehensive income (loss) consists of unrealized
gains and losses on available-for-sale securities.
RECENT DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The effective date of this statement has been deferred
by SFAS No. 137 until fiscal years beginning after June 15, 2000.
However, the statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. The Company expects to adopt
this statement effective January 1, 2001. SFAS No. 133 requires the
Company to recognize all derivatives as either assets or liabilities
in the balance sheet at fair value. For derivatives that are not
designated as hedges, the gain or loss must be recognized in earnings
in the period of change. For derivatives that are designated as
hedges, changes in the fair value of the hedged assets, liabilities,
or firm commitments must be recognized in earnings or recognized in
other comprehensive income until the hedged item is recognized in
earnings, depending on the nature of the hedge. The ineffective
portion of a derivative's change in fair value must be recognized in
earnings immediately. Management has not yet determined what effect
the adoption of SFAS No. 133 will have on the Company's earnings or
financial position.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- --------- ------------ -----------
SECURITIES AVAILABLE-FOR-SALE
DECEMBER 31, 1999:
U. S. GOVERNMENT AND AGENCY
SECURITIES $20,850,538 $ 537 $ (670,319) $20,180,756
STATE AND MUNICIPAL SECURITIES 3,089,172 7,820 (140,936) 2,956,056
MORTGAGE-BACKED SECURITIES 2,213,290 1,768 (72,084) 2,142,974
EQUITY SECURITIES 92,001 -- -- 92,001
----------- --------- ------------ -----------
$26,245,001 $ 10,125 $ (883,339) $25,371,787
=========== ========= ============ ===========
December 31, 1998:
U. S. Government and agency
securities $15,841,108 $ 123,045 $ (19,317) $15,944,836
State and municipal securities 2,513,785 56,026 (4,858) 2,564,953
Mortgage-backed securities 1,721,558 10,960 -- 1,732,518
Equity securities 92,001 -- -- 92,001
----------- --------- ------------ -----------
$20,168,452 $ 190,031 $ (24,175) $20,334,308
=========== ========= ============ ===========
SECURITIES HELD-TO-MATURITY
DECEMBER 31, 1999:
U. S. GOVERNMENT AND AGENCY
SECURITIES $ 247,031 $ 719 $ -- $ 247,750
STATE AND MUNICIPAL SECURITIES 3,110,776 25,887 (6,904) 3,129,759
MORTGAGE-BACKED SECURITIES 404,505 2,357 -- 406,862
----------- --------- ------------ -----------
$ 3,762,312 $ 28,963 $ (6,904) $ 3,784,371
=========== ========= ============ ===========
December 31, 1998:
U. S. Government and agency
securities $ 743,441 $ 10,591 $ -- $ 754,032
State and municipal securities 3,451,796 118,212 (695) 3,569,313
Mortgage-backed securities 505,904 4,716 (1,726) 508,894
----------- --------- ------------ -----------
$ 4,701,141 $ 133,519 $ (2,421) $ 4,832,239
=========== ========= ============ ===========
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (CONTINUED)
The amortized cost and fair value of securities as of December 31,
1999 by contractual maturity are shown below. Maturities may differ
from contractual maturities in mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid without
penalty. Therefore, these securities and equity securities are not
included in the maturity categories in the following summary.
SECURITIES AVAILABLE-FOR-SALE SECURITIES HELD-TO-MATURITY
----------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ---------- ----------
Due in one year or less $ 1,349,600 $ 1,345,948 $ 515,000 $ 514,158
Due from one year to five years 16,561,713 16,033,003 1,864,031 1,876,728
Due from five years to ten years 4,733,397 4,558,531 675,352 679,013
Due after ten years 1,295,000 1,199,330 303,424 307,610
Mortgage-backed securities 2,213,290 2,142,974 404,505 406,862
Equity securities 92,001 92,001 -- --
----------- ----------- ---------- ----------
$26,245,001 $25,371,787 $3,762,312 $3,784,371
=========== =========== ========== ==========
Securities with a carrying value of $17,171,093 and $12,247,226 at
December 31, 1999 and 1998, respectively, were pledged to secure
public deposits and for other purposes.
Gross realized losses on sales of securities available-for-sale for
the year ended December 31, 1997 amounted to $2,021. There were no
sales of securities during 1999 or 1998.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES
The composition of loans is summarized as follows:
DECEMBER 31,
-------------------------------
1999 1998
------------ -----------
Commercial, financial and agricultural $ 8,068,000 $ 5,484,000
Real estate - construction 12,556,000 8,299,000
Real estate - mortgage 33,380,000 27,059,000
Consumer 6,214,000 12,512,000
Other 2,045,204 1,247,667
------------ ------------
62,263,204 54,601,667
Unearned income (50,728) (54,768)
Allowance for loan losses (1,196,321) (844,379)
------------ ------------
Loans, net $ 61,016,155 $ 53,702,520
============ ============
Changes in the allowance for loan losses are as follows:
YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
----------- --------- ---------
BALANCE, BEGINNING OF YEAR $ 844,379 $ 710,259 $ 574,186
Provision for loan losses 620,000 200,000 175,000
Loans charged off (300,200) (86,857) (85,608)
Recoveries of loans previously charged off 32,142 20,977 46,681
----------- --------- ---------
BALANCE, END OF YEAR $ 1,196,321 $ 844,379 $ 710,259
=========== ========= =========
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
The total recorded investment in impaired loans was $706,288 and
$473,502 at December 31, 1999 and 1998, respectively. There were no
loans which had related allowances for loan losses determined in
accordance with SFAS No. 114, ("Accounting by Creditors for
Impairment of a Loan") at December 31, 1999 and 1998. The average
recorded investment in impaired loans for 1999 and 1998 was $143,057
and $174,420, respectively. Interest income recognized for cash
payments received on impaired loans was not material for the years
ended 1999, 1998, and 1997.
The Company has granted loans to certain directors, executive
officers, and their related entities. The interest rates on these
loans were substantially the same as rates prevailing at the time of
the transaction and repayment terms are customary for the type of
loan involved. Changes in related party loans for the year ended
December 31, 1999 are as follows:
BALANCE, BEGINNING OF YEAR $ 616,371
Advances 845,023
Repayments (666,199)
---------
BALANCE, END OF YEAR $ 795,195
=========
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
DECEMBER 31,
------------------------------
1999 1998
----------- ------------
Land $ 770,000 $ 770,000
Buildings and improvements 1,973,469 1,387,893
Equipment 1,908,034 1,536,582
----------- -----------
4,651,503 3,694,475
Accumulated depreciation (1,905,363) (1,755,835)
----------- -----------
$ 2,746,140 $ 1,938,640
=========== ===========
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5. DEPOSITS
At December 31, 1999, the amount of scheduled maturities of time
deposits are as follows:
2000 $ 39,153,309
2001 5,647,000
2002 797,000
2003 675,000
2004 214,000
--------------
$ 46,486,309
==============
As of December 31, 1999, the Company had a concentration of deposits
with one depositor totaling $9,273,783. In addition, the Company had
$1,762,958 in related party deposits as of December 31, 1999.
NOTE 6. OTHER BORROWINGS
Other borrowings consist of the following:
DECEMBER 31,
--------------------
1999 1998
-------- --------
Treasury, tax and loan note option account, with interest
at .25% less than the Federal funds rate, due on demand $389,302 $25,008
======== =======
NOTE 7. INCOME TAXES
Income tax expense consists of the following:
YEARS ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
Current $ 605,647 $ 869,706 $ 718,271
Deferred (152,100) (55,541) (55,927)
--------- --------- ---------
Income tax expense $ 453,547 $ 814,165 $ 662,344
========= ========= =========
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 7. INCOME TAXES (CONTINUED)
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- --------------------
AMOUNT PERCENT Amount Percent Amount Percent
--------- ------- --------- ------- --------- -------
Income taxes at statutory rate $ 497,113 34 % $ 833,498 34 % $ 680,458 34 %
Tax-exempt interest (148,317) (10) (118,070) (5) (100,796) (5)
Disallowed interest expense 20,060 1 16,153 1 13,519 --
State income taxes (benefits) (12,919) -- 42,198 2 46,429 3
Goodwill amortization 26,572 2 26,571 1 26,571 1
Other items, net 71,038 4 13,815 -- (3,837) --
--------- ---- --------- ---- --------- ---
Income tax expense $ 453,547 31 % $ 814,165 33 % $ 662,344 33 %
========= ==== ========= === ========= ===
The components of deferred income taxes are as follows:
DECEMBER 31,
----------------------
1999 1998
-------- --------
Deferred tax assets:
Loan loss reserves $379,854 $247,031
Securities available-for-sale 296,893 --
Other 26,338 --
-------- --------
703,085 247,031
-------- --------
Deferred tax liabilities:
Depreciation 53,632 43,478
Securities available-for-sale -- 56,391
Other -- 3,093
-------- --------
53,632 102,962
-------- --------
Net deferred tax assets $649,453 $144,069
======== ========
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. EMPLOYEE BENEFITS
The Company has a defined benefit pension plan covering substantially
all employees. Plan benefits are based on an employee's years of
service and cumulative earnings. The Company's funding policy is to
make contributions annually equal to the minimum amount as determined
by the plan sponsor. Contributions charged to expense were $102,000,
$92,777, and $91,999 for the years ended December 31, 1999, 1998 and
1997, respectively, which amounts were not materially different from
periodic pension costs as determined in accordance with generally
accepted accounting principles.
The following sets forth the plan's funded status for the plan years
ended September 30, 1999, 1998, and 1997, respectively.
1999 1998 1997
--------- --------- ---------
Change in benefit obligations:
Benefit obligation at beginning of year $ 740,021 $ 666,383 $ 578,386
Service cost 49,162 42,462 39,453
Interest cost 64,577 57,066 49,427
Actuarial gain (loss) 13,650 (25,890) (883)
Benefits paid -- -- --
--------- --------- ---------
Benefit obligation at end of year 867,410 740,021 666,383
--------- --------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year 579,552 500,978 402,896
Return on plan assets 15,640 (14,203) 6,083
Employer contribution 102,000 92,777 91,999
Benefits paid -- -- --
--------- --------- ---------
Fair value of plan assets at end of year 697,192 579,552 500,978
--------- --------- ---------
Funded status (170,218) (160,469) (165,405)
Unrecognized net transition obligation 140,393 152,092 163,791
Unrecognized net loss 107,969 60,129 28,535
--------- --------- ---------
Prepaid pension cost not included in balance sheet $ 78,144 $ 51,752 $ 26,921
========= ========= =========
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. EMPLOYEE BENEFITS (CONTINUED)
The components of net periodic pension cost are as follows:
YEARS ENDED SEPTEMBER 30,
-----------------------------------------
1999 1998 1997
-------- -------- --------
Service cost $ 49,162 $ 42,462 $ 39,453
Interest cost 64,577 57,066 49,427
Actual return on plan assets (19,847) (15,001) (6,932)
Amortization of unrecognized net transition obligation 11,699 11,699 11,699
Deferred investment loss (29,983) (28,280) (28,569)
-------- -------- --------
$ 75,608 $ 67,946 $ 65,078
======== ======== ========
Assumptions used were as follows:
1999 1998 1997
-------- -------- --------
Annual discount rate 8 % 8 % 8 %
Expected long-term rate of return on plan assets 8 % 8 % 8 %
Rate of increase in compensation 4 % 4 % 4 %
In 1998, the Company adopted a 401(k) retirement plan covering
substantially all employees. Contributions to the plan charged to
expense during 1999 and 1998 amounted to $25,525 and $19,496,
respectively.
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Company has entered into
off-balance-sheet financial instruments which are not reflected in
the financial statements. These financial instruments include
commitments to extend credit and standby letters of credit. Such
financial instruments are included in the financial statements when
funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in
excess of the amount recognized in the balance sheet.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. A summary of the Company's
commitments is as follows:
DECEMBER 31,
---------------------------
1999 1998
----------- -----------
Commitments to extend credit $11,312,834 $11,991,000
Standby letters of credit 1,016,067 535,500
----------- -----------
$12,328,901 $12,526,500
=========== ===========
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent
future cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
marketable securities, accounts receivable, inventory, equipment, and
personal property.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing letters
of credit is essentially the same as that involved in extending loans
to customers. Collateral held varies as specified above and is
required in instances which the Company deems necessary.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
NOTE 10. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer loans to
customers in Dawson County and surrounding counties. The ability of the majority
of the Company's customers to honor their contractual loan obligations is
dependent on the economy in Dawson County.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 10. CONCENTRATIONS OF CREDIT (CONTINUED)
Seventy-four percent of the Company's loan portfolio is secured by
real estate, of which a substantial portion is secured by real estate
in the Company's primary market area. Accordingly, the ultimate
collectibility of the loan portfolio is susceptible to changes in
market conditions in the Company's primary market area. The other
significant concentrations of credit by type of loan are set forth in
Note 3.
The Company, as a matter of policy, does not generally extend credit
to any single borrower or group of related borrowers in excess of 25%
of the Bank's statutory capital, or approximately $1,650,000.
NOTE 11. REGULATORY MATTERS
The Bank is subject to certain restrictions on the amount of
dividends that may be declared without prior regulatory approval. At
December 31, 1999, approximately $540,000 of retained earnings were
available for dividend declaration without regulatory approval.
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory, and
possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and Bank must
meet specific capital guidelines that involve quantitative measures
of the assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The capital amounts
and classifications are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors. The
holding company is not subject to prompt corrective action
provisions.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum amounts
and ratios of Total and Tier I capital to risk-weighted assets and of
Tier I capital to average assets. Management believes, as of December
31, 1999, the Company and Bank met all capital adequacy requirements
to which they are subject.
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS (CONTINUED)
As of December 31, 1999, the most recent notification from the
Federal Deposit Insurance Corporation categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, the Bank must maintain
minimum Total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the following table. There are no conditions
or events since that notification that management believes have
changed the Bank's category.
The Company and Bank's actual capital amounts and ratios are
presented in the following table.
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
---------------------- ------------------ -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------ ----- ------ -----
(DOLLARS IN THOUSANDS)
-----------------------------------------------------------------------
AS OF DECEMBER 31, 1999:
TOTAL CAPITAL TO RISK WEIGHTED ASSETS:
CONSOLIDATED $10,613 15.56% $5,453 8% $ N/A N/A
BANK $10,568 15.50% $5,453 8% $6,816 10%
TIER I CAPITAL TO RISK WEIGHTED ASSETS:
CONSOLIDATED $ 9,757 14.31% $2,727 4% $ N/A N/A
BANK $ 9,712 14.25% $2,727 4% $4,090 6%
TIER I CAPITAL TO AVERAGE ASSETS:
CONSOLIDATED $ 9,757 9.13% $4,275 4% $ N/A N/A
BANK $ 9,712 9.09% $4,275 4% $5,343 5%
As of December 31, 1998:
Total Capital to Risk Weighted Assets:
Consolidated $ 9,895 17.45% $4,536 8% $ N/A N/A
Bank $ 9,852 17.34% $4,545 8% $5,682 10%
Tier I Capital to Risk Weighted Assets:
Consolidated $ 9,184 16.20% $2,268 4% $ N/A N/A
Bank $ 9,140 16.09% $2,272 4% $3,408 6%
Tier I Capital to Average Assets:
Consolidated $ 9,184 9.85% $3,729 4% $ N/A N/A
Bank $ 9,140 9.80% $3,731 4% $4,663 5%
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. The use of
different methodologies may have a material effect on the estimated
fair value amounts. Also, the fair value estimates presented herein
are based on pertinent information available to management as of
December 31, 1999 and 1998. Such amounts have not been revalued for
purposes of these financial statements since those dates and,
therefore, current estimates of fair value may differ significantly
from the amounts presented herein.
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
CASH, DUE FROM BANKS, INTEREST-BEARING DEPOSITS IN BANKS, AND FEDERAL
FUNDS SOLD:
The carrying amounts of cash, due from banks,
interest-bearing deposits in banks, and Federal funds sold
approximate their fair value.
SECURITIES:
Fair values for securities are based on available quoted
market prices. The carrying values of equity securities
with no readily determinable fair value approximate fair
values.
LOANS:
For variable-rate loans that reprice frequently and have
no significant change in credit risk, fair values are
based on carrying values. For other loans, the fair values
are estimated using discounted cash flow models, using
current market interest rates offered for loans with
similar terms to borrowers of similar credit quality. Fair
values for impaired loans are estimated using discounted
cash flow models or based on the fair value of the
underlying collateral.
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow models, using current market interest
rates offered on certificates with similar remaining maturities.
OTHER BORROWINGS:
Other borrowings consist of short term obligations under a treasury,
tax and loan note option account which is due on demand. The carrying
amounts approximate their fair values.
ACCRUED INTEREST:
The carrying amounts of accrued interest approximate their fair
values.
Fair values of the Company's off-balance-sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
ACCRUED INTEREST (CONTINUED):
The estimated fair values and related carrying amounts of the
Company's financial instruments were as follows:
DECEMBER 31, 1999 December 31, 1998
------------------------------ --------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
----------- ----------- ----------- -----------
Financial assets:
Cash, due from banks,
interest-bearing deposits in
banks, and Federal funds sold $11,429,780 $11,429,780 $12,019,204 $12,019,204
Securities available-for-sale 25,371,787 25,371,787 20,334,308 20,334,308
Securities held-to-maturity 3,762,312 3,784,371 4,701,141 4,832,239
Loans 61,016,155 62,356,054 53,702,520 54,738,647
Accrued interest receivable 1,163,588 1,163,588 947,370 947,370
Financial liabilities:
Deposits 96,564,625 96,367,570 84,115,442 84,456,649
Other borrowings 389,302 389,302 25,008 25,008
Accrued interest payable 331,929 331,929 295,284 295,284
NOTE 13. STOCK DIVIDEND
On June 12, 1997 and January 14, 1999, the Company effected a
one-for-five and a one-for-four stock split, respectively, both in
the form of a stock dividend. Stockholders of record as of July 1,
1997 and January 20, 1999 received one additional share for every
five shares they owned and one additional share for every four shares
they owned on those dates, respectively. An amount equal to the par
value of common shares declared was transferred from retained
earnings to common stock. Earnings per share of common stock and all
per share amounts presented herein have been adjusted to give effect
to both splits.
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total
revenue are as follows:
DECEMBER 31,
----------------------------------------
1999 1998 1997
-------- -------- --------
Advertising $104,490 $ 68,916 $ 58,242
Printing, stationery and supplies 117,195 82,861 87,007
Data processing services 189,119 159,761 137,365
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION
The following information presents the condensed balance sheets of
North Point Bancshares, Inc. as of December 31, 1999 and 1998 and the
condensed statements of income and cash flows for the three years
ended December 31, 1999:
CONDENSED BALANCE SHEETS
1999 1998
--------- ----------
ASSETS
Cash $ 39,335 $ 41,751
Investment in subsidiary 9,135,365 9,249,606
Goodwill, net -- 78,151
Other assets 26,182 2,571
---------- ----------
Total assets $9,200,882 $9,372,079
========== ==========
LIABILITIES $ 20,427 $ 326
STOCKHOLDERS' EQUITY 9,180,455 9,371,753
---------- ----------
Total liabilities and stockholders' equity $9,200,882 $9,372,079
========== ==========
F-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF INCOME
1999 1998 1997
----------- ---------- -----------
INCOME
Interest $ 1,360 $ 1,278 $ 1,073
Dividends from subsidiary 516,000 420,000 384,000
----------- ---------- -----------
Total income 517,360 421,278 385,073
----------- ---------- -----------
EXPENSE
Salaries 3,000 3,000 3,000
Goodwill amortization 78,151 78,151 78,151
Other expense 2,715 5,085 4,232
----------- ---------- -----------
Total expense 83,866 86,236 85,383
----------- ---------- -----------
Income before income tax expense (benefits)
and equity in undistributed income of
subsidiary 433,494 335,042 299,690
INCOME TAX EXPENSE (BENEFITS) (3,513) 3,165 (5,066)
----------- ---------- -----------
Income before equity in undistributed
income of subsidiary 437,007 331,877 304,756
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARY 571,543 1,305,422 1,034,248
----------- ---------- -----------
Net income $ 1,008,550 $1,637,299 $ 1,339,004
=========== ========== ===========
F-29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15. PARENT COMPANY FINANCIAL INFORMATION (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
1999 1998 1997
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 1,008,550 $ 1,637,299 $ 1,339,004
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization 78,151 78,151 78,151
Undistributed income of subsidiary (571,543) (1,305,422) (1,034,248)
Other operating activities (3,512) 7,848 (5,067)
----------- ----------- -----------
Net cash provided by operating activities 511,646 417,876 377,840
----------- ----------- -----------
FINANCING ACTIVITIES
Dividends paid (514,062) (411,250) (376,979)
----------- ----------- -----------
Net cash used in financing activities (514,062) (411,250) (376,979)
----------- ----------- -----------
Net increase (decrease) in cash (2,416) 6,626 861
Cash at beginning of year 41,751 35,125 34,264
----------- ----------- -----------
Cash at end of year $ 39,335 $ 41,751 $ 35,125
=========== =========== ===========
NOTE 16. BUSINESS COMBINATION
On March 3, 2000, the Company entered into an definitive agreement
with United Community Bank, Inc. ("United") of Blairsville, Georgia.
Under this agreement, the Company will merge with and into United.
Upon consummation of the merger, each share of Company stock will be
converted into and exchanged for the right to receive approximately
2.25 shares of United common stock. Consummation is subject to
certain conditions, including regulatory and stockholder approval and
will be accounted for as a pooling of interests.
F-30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16. BUSINESS COMBINATION (CONTINUED)
Also, on March 3, 2000, United entered into a definitive agreement to
acquire Independent Bancshares, Inc. ("Independent"), a $145 million
one-bank holding company for Independent Bank & Trust, located in
Powder Springs, Georgia. Each share of Independent stock will be
converted into and exchanged for the right to receive approximately
.4211 shares of United common stock.
The following unaudited proforma data summarizes operating data as if
the combinations had been consummated on January 1, 1997.
AS OF AND FOR THE YEAR ENDED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
----------------------------------------------
1999 1998 1997
---------- ---------- ----------
Total assets $2,383,486 $1,812,585 $1,410,071
Stockholders' equity 118,887 115,415 99,571
Net income 16,692 15,510 13,197
Basic income per share 1.70 1.59 1.41
Diluted income per share 1.67 1.56 1.40
F-31
NORTH POINT BANCSHARES, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
- -----------------------------------------------------------------------------------------------------------------
MARCH 31, DECEMBER 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 7,295 7,250
Federal funds sold - 4,180
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 7,295 11,430
Securities held to maturity (estimated fair value of $3,550 and $3,784) 3,544 3,762
Securities available for sale 25,111 25,372
Loans, net of unearned income 75,336 62,212
Less: Allowance for loan losses (1,210) (1,196)
- -----------------------------------------------------------------------------------------------------------------
Loans, net 74,126 61,016
Premises and equipment, net 2,796 2,746
Other assets 2,238 2,152
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 115,110 106,478
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 18,536 17,738
Interest bearing demand 31,175 26,991
Savings 5,643 5,350
Time 48,284 46,486
- -----------------------------------------------------------------------------------------------------------------
Total deposits 103,638 96,565
Accrued expenses and other liabilities 595 344
Other borrowings 1,488 389
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 105,721 97,298
Stockholders' equity:
Common stock ($5 par value; 5,000,000 shares authorized; 428,385 2,142 2,142
shares issued and outstanding)
Capital surplus 1,985 1,985
Retained earnings 5,861 5,629
Accumulated other comprehensive income (599) (576)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 9,389 9,180
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 115,110 106,478
- -----------------------------------------------------------------------------------------------------------------
Outstanding common shares 428,385 428,385
Book value per common share $ 21.92 21.43
See notes to unaudited consolidated financial statements.
F-32
NORTH POINT BANCSHARES, INC. AND SUBSIDIARY
Unaudited Consolidated Statements of Income
(in thousands except, except per share data)
For the Three Months
ENDED MARCH 31,
2000 1999
-----------------------------------------
Interest income:
Interest and fees on loans $ 1,670 1,431
Interest on federal funds sold 99 132
Interest on investment securities:
Tax exempt 70 70
Taxable 416 300
- ---------------------------------------------------------------------------------------------------------
Total interest income 2,255 1,933
- ---------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits:
Demand 384 253
Savings 41 43
Time 632 571
Other borrowings 3 2
- ---------------------------------------------------------------------------------------------------------
Total interest expense 1,060 869
- ---------------------------------------------------------------------------------------------------------
Net interest income 1,195 1,064
Provision for loan losses 20 30
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 1,175 1,034
- ---------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges and fees 116 99
Securities gains, net - -
Other non-interest income 66 63
- ---------------------------------------------------------------------------------------------------------
Total noninterest income 182 162
- ---------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 452 390
Occupancy 102 81
Other noninterest expense 260 205
- ---------------------------------------------------------------------------------------------------------
Total noninterest expense 814 676
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 543 520
Income taxes 151 160
- ---------------------------------------------------------------------------------------------------------
NET INCOME $ 392 360
- ---------------------------------------------------------------------------------------------------------
Basic earnings per share $ 0.92 0.84
Diluted earnings per share $ 0.92 0.84
Average shares outstanding 428 428
Diluted average shares outstanding 428 428
See notes to unaudited consolidated financial statements.
F-33
NORTH POINT BANCSHARES, INC. AND SUBSIDIARY
UNAUDITED STATEMENT OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the Three Months
Ended March 31,
2000 1999
- ----------------------------------------------------------------------------------------------------
Basic earnings per share:
Weighted average shares outstanding 428 428
Net income 392 360
Basic earnings per share 0.92 0.84
Diluted earnings per share 0.92 0.84
F-34
NORTH POINT BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31
------------- -------------
2000 1999
------------- -------------
Net income $ 392 360
Other comprehensive income (loss), before tax:
Unrealized holding gains (losses) on investment
securities available for sale (34) (154)
Less reclassification adjustment for gains on investment
securities available for sale - -
------------- -------------
Total other comprehensive income (loss), before tax (34) (154)
------------- -------------
INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER
COMPREHENSIVE INCOME
Unrealized holding gains (losses) on investment securities (11) (51)
Less reclassification adjustment for gains on investment
securities available for sale - -
------------- -------------
Total income tax expense (benefit) related to other
comprehensive income (loss) (11) (51)
------------- -------------
Total other comprehensive income (loss), net of tax (23) (103)
------------- -------------
Total comprehensive income $ 369 257
============= =============
F-35
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
MARCH 31
2000 1999
-------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 392 360
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation, amortization and accretion 40 (7)
Provision for loan losses 20 30
Change in assets and liabilities:
Interest receivable 83 136
Other assets (301) (204)
Accrued expenses and other liabilities 260 71
-------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 494 386
-------------------------
CASHFLOWS FROM INVESTING ACTIVITIES, NET OF PURCHASE ACQUISITIONS:
Proceeds from maturities and calls of securities held to maturity 218 588
Proceeds from maturities and calls of securities available for sale 734 5,025
Purchases of securities available for sale (500) (8,175)
Net increase in loans (13,124) (1,749)
Proceeds from sale of other real estate - -
Purchase of bank premises and equipment (1) (71)
-------------------------
NET CASH USED IN INVESTING ACTIVITIES (12,673) (4,382)
-------------------------
CASHFLOWS FROM FINANCING ACTIVITIES, NET OF PURCHASE ACQUISITIONS
Net change in demand and savings deposits 5,275 6,133
Net change in time deposits 1,798 1,926
Net change in long-term debt and other borrowings 1,099 177
Dividends paid (128) (128)
-------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,044 8,108
-------------------------
Net change in cash and cash equivalents (4,135) 4,112
Cash and cash equivalents at beginning of period 11,430 12,019
-------------------------
Cash and cash equivalents at end of period $ 7,295 16,131
=========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,054 864
Income Taxes $ 146 170
F-36
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
NOTE 1 - BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial information has
been prepared assuming that the Merger will be accounted for under the pooling
of interests accounting method and is based on the historical consolidated
financial statements of United Community Banks, Inc. ("United") and North Point
Bancshares, Inc. ("North Point").
NOTE 2 - SHAREHOLDERS' EQUITY
In the Merger, United will exchange 2.2368 shares of United common
stock for each share of North Point common stock. North Point had 428,385 shares
of common stock outstanding at March 31, 2000, which will be exchanged for
approximately 958,211 shares of United common stock.
NOTE 3 - Merger Related Charges
In connection with the Merger, United and North Point expect to incur
pre-tax merger related charges of approximately $1.3 million. These are expected
to include approximately $880,000 of occupancy related expenses (equipment
write-offs and contract terminations), $250,000 of compensation expense,
$135,000 of merger-related professional fees (investment banking, legal and
accounting) and $35,000 of other merger expenses.
These amounts and the related tax effects have not been reflected in
the unaudited pro forma consolidated financial information because they are will
not have a material impact on the shareholders' equity of the combined company
and are not expected to have a continuing impact on the operations of the
combined company.
F-37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
United Community Banks, Inc.
Blairsville, Georgia
We have audited the consolidated balance sheets of United Community Banks, Inc.
and subsidiaries as of December 31, 1999 and 1998 and the related statements of
income, comprehensive income, changes in stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Community
Banks, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
\s\ PORTER KEADLE MOORE, LLP
Atlanta, Georgia
February 25, 2000, except for note 20
as to which the date is March 3, 2000
F-38
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
Assets
------
1999 1998
---- ----
(IN THOUSANDS)
Cash and due from banks, including reserve requirements
of $25,890 and $18,205 $ 89,231 51,102
Federal funds sold 23,380 13,010
--------- ---------
Cash and cash equivalents 112,611 64,112
--------- ---------
Securities held to maturity (estimated fair value of $60,018) - 58,306
Securities available for sale 534,503 333,787
Mortgage loans held for sale 6,326 8,129
Loans 1,400,360 1,061,166
Less allowance for loan losses 17,722 12,680
--------- ---------
Loans, net 1,382,638 1,048,486
--------- ---------
Premises and equipment, net 47,365 41,247
Accrued interest receivable 17,861 14,019
Other assets 30,136 23,313
--------- ---------
Total assets $ 2,131,440 1,591,399
========= =========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Demand $ 192,006 152,201
Interest-bearing demand 328,815 295,549
Savings 73,953 65,323
Time 1,054,618 725,250
--------- ---------
Total deposits 1,649,392 1,238,323
--------- ---------
Accrued expenses and other liabilities 24,378 20,089
Federal funds purchased and repurchase agreements 31,812 26,520
Federal Home Loan Bank advances 287,572 186,854
Long-term debt and other borrowings 17,516 1,277
Convertible subordinated debentures 3,500 3,500
Guaranteed preferred beneficial interests in company's junior
subordinated debentures (Trust Preferred Securities) 21,000 21,000
--------- ---------
Total liabilities 2,035,170 1,497,563
--------- ---------
Commitments
Stockholders' equity:
Preferred stock - -
Common stock, $1 par value; 10,000,000 shares authorized;
8,034,268 and 8,003,722 shares issued and outstanding 8,034 8,004
Capital surplus 30,310 29,999
Retained earnings 66,606 54,500
Accumulated other comprehensive income (loss) (8,680) 1,333
--------- ---------
Total stockholders' equity 96,270 93,836
--------- ---------
Total liabilities and stockholders' equity $ 2,131,440 1,591,399
========= =========
See accompanying notes to consolidated financial statements.
F-39
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
Interest income:
Interest and fees on loans $ 119,542 99,057 80,537
Interest on federal funds sold 1,050 1,645 1,723
Interest on investment securities:
Taxable 25,285 12,260 9,609
Tax exempt 3,863 3,252 2,319
--------- --------- ---------
Total interest income 149,740 116,214 94,188
--------- --------- ---------
Interest expense:
Interest on deposits:
Demand 12,236 10,200 7,230
Savings 2,008 1,520 1,238
Time 48,415 41,423 36,309
--------- --------- ---------
62,659 53,143 44,777
Other borrowings 19,107 6,861 3,693
--------- --------- ---------
Total interest expense 81,766 60,004 48,470
--------- --------- ---------
Net interest income 67,974 56,210 45,718
Provision for loan losses 5,104 2,612 2,814
--------- --------- ---------
Net interest income after provision for loan losses 62,870 53,598 42,904
--------- --------- ---------
Non-interest income:
Service charges and fees 5,161 4,227 3,681
Securities gain, net 543 804 737
Mortgage loan and other related fees 1,638 1,822 1,157
Other non-interest income 3,494 2,276 1,625
--------- --------- ---------
Total non-interest income 10,836 9,129 7,200
--------- --------- ---------
Non-interest expense:
Salaries and employee benefits 30,366 24,560 18,914
Occupancy 9,582 7,057 4,980
Other non-interest expense 14,217 12,347 10,169
--------- --------- ---------
Total non-interest expense 54,165 43,964 34,063
--------- --------- ---------
Income before income taxes 19,541 18,763 16,041
Income taxes 5,893 5,990 4,987
--------- --------- ---------
Net income $ 13,648 12,773 11,054
========= ========= =========
Basic income per share $ 1.70 1.60 1.42
========= ========= =========
Diluted income per share $ 1.66 1.57 1.40
========= ========= =========
See accompanying notes to consolidated financial statements.
F-40
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Net income $ 13,648 12,773 11,054
------ ------ ------
Other comprehensive income:
Unrealized holding gains (losses) on investment securities
available for sale (15,608) 1,581 2,272
Less reclassification adjustment for gains on
sales of investment securities available for sale 543 804 737
------ ------ ------
Total other comprehensive income (loss), before income taxes (16,151) 777 1,535
------ ------ ------
Income tax expense (benefit) related to other comprehensive
income:
Unrealized holding gains (losses) on investment securities
available for sale (5,932) 601 864
Less reclassification adjustment for gains (losses) on
sales of investment securities available for sale 206 306 280
------ ------ ------
Total income tax expense (benefit) related to other
comprehensive income (6,138) 295 584
------ ------ ------
Total other comprehensive income (loss), net of tax (10,013) 482 951
------- ------ ------
Total comprehensive income $ 3,635 13,255 12,005
======= ====== ======
See accompanying notes to consolidated financial statements.
F-41
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
Accumulated
Common Stock Other
------------ Capital Retained Comprehensive
Shares Amount Surplus Earnings Income/(Loss) Total
------ ------ ------- -------- ------------- -----
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Balance, December 31, 1996, as previously reported 7,084,621 $ 7,085 18,516 32,162 (88) 57,675
Adjustment in connection with pooling of interests 508,393 509 3,733 452 (12) 4,682
--------- ------ ------ ------ ------ ------
Balance, December 31, 1996, as restated 7,593,014 7,594 22,249 32,614 (100) 62,357
Change in unrealized gain on securities
available for sale, net of tax - - - - 951 951
Cash dividends declared, ($.10 per share) - - - (759) - (759)
Net income - - - 11,054 - 11,054
Proceeds from common stock offering,
net of offering cost 300,000 300 6,177 - - 6,477
Proceeds from resale of treasury stock
of pooled entity 484 - 6 - - 6
--------- --------- ------ ------ ------ ------
Balance, December 31, 1997 7,893,498 7,894 28,432 42,909 851 80,086
Change in unrealized gain on securities
available for sale, net of tax - - - - 482 482
Cash dividends declared, ($.15 per share) - - - (1,182) - (1,182)
Net income - - - 12,773 - 12,773
Proceeds from common stock offering,
net of offering costs 101,724 102 1,458 - - 1,560
Proceeds from exercise of stock options 8,500 8 109 - - 117
--------- ------- ------ ------ ------ ------
Balance, December 31, 1998 8,003,722 8,004 29,999 54,500 1,333 93,836
Change in unrealized gain (loss) on securities
available for sale, net of tax - - - - (10,013) (10,013)
Cash dividends declared, ($.20 per share) - - - (1,542) - (1,542)
Net income - - - 13,648 - 13,648
Proceeds from exercise of stock options,
including disqualified disposition tax benefit 30,546 30 311 - - 341
--------- ------- ------ ------ ------ ------
Balance, December 31, 1999 8,034,268 $ 8,034 30,310 66,606 (8,680) 96,270
========= ======= ====== ====== ====== ======
See accompanying notes to consolidated financial statements.
F-42
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 13,648 12,773 11,054
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, amortization and accretion 5,135 3,027 2,542
Provision for loan losses 5,104 2,612 2,814
Deferred income tax benefit (1,616) (766) (404)
Gain on sale of securities available for sale (543) (810) (737)
Change in assets and liabilities, net of effects of purchase acquisitions:
Other assets and accrued interest receivable (4,859) (411) (4,470)
Accrued expenses and other liabilities 6,292 (10,561) 725
Mortgage loans held for sale 1,803 (4,167) 2,765
------- ------- -------
Net cash provided by operating activities 24,964 1,697 14,289
------- ------- -------
Cash flows from investing activities, net of effects of purchase acquisitions:
Cash acquired from (paid for) acquisitions and branch purchases (2,757) 20,282 -
Proceeds from maturities and calls of securities held to maturity - 25,439 18,009
Purchases of securities held to maturity - (14,087) (10,564)
Proceeds from sales of securities available for sale 8,131 44,193 36,683
Proceeds from maturities and calls of securities available for sale 91,280 68,363 22,470
Purchases of securities available for sale (241,019) (268,590) (121,996)
Net increase in loans (325,833) (186,254) (210,706)
Purchases of premises and equipment (8,318) (14,842) (9,875)
Purchases of life insurance contracts - (8,117) -
Transaction costs associated with Trust Preferred Securities - (959) -
------- ------- -------
Net cash used in investing activities (478,516) (334,572) (275,979)
------- ------- -------
Cash flows from financing activities, net of effects of purchase acquisitions:
Net change in demand and savings deposits 64,998 119,487 67,709
Net change in time deposits 316,005 61,683 156,897
Net change in federal funds purchased and repurchase agreements 5,292 (6,901) 33,421
Proceeds from notes payable and other borrowings 16,239 - 4,747
Proceeds from FHLB advances 201,625 221,249 16,636
Proceeds from Trust Preferred Securities - 21,000 -
Repayments of notes payable - (12,792) (1,131)
Repayments of FHLB advances (100,907) (78,715) (7,389)
Proceeds from exercise of stock options 216 117 -
Proceeds from sale of common stock - 1,560 6,477
Proceeds from resale of treasury stock of pooled entity - - 6
Cash paid for dividends (1,417) (1,089) (825)
------- ------- -------
Net cash provided by financing activities 502,051 325,599 276,548
------- ------- -------
Net change in cash and cash equivalents 48,499 (7,276) 14,858
Cash and cash equivalents at beginning of period 64,112 71,388 56,530
------- ------- -------
Cash and cash equivalents at end of period $ 112,611 64,112 71,388
======= ======== =======
See accompanying notes to consolidated financial statements.
F-43
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting principles followed by United Community Banks, Inc. ("United")
and its subsidiaries and the methods of applying these principles conform with
generally accepted accounting principles and with general practices within the
banking industry. The following is a description of the more significant of
those policies.
ORGANIZATION AND BASIS OF PRESENTATION
- --------------------------------------
United is an eight-bank holding company whose business is conducted by its
wholly-owned bank subsidiaries. United is subject to regulation under the Bank
Holding Company Act of 1956. The consolidated financial statements include the
accounts of United Community Banks, Inc. and its wholly-owned commercial bank
subsidiaries, United Community Bank, Blairsville, Georgia ("UCB"), Carolina
Community Bank, Murphy, North Carolina ("Carolina"), Peoples Bank of Fannin
County, Blue Ridge, Georgia ("Peoples"), Towns County Bank, Hiawassee, Georgia
("Towns"), White County Bank, Cleveland, Georgia ("White"), First Clayton Bank
and Trust, Clayton, Georgia ("Clayton"), Bank of Adairsville, Adairsville,
Georgia ("Adairsville"), 1st Floyd Bank, Rome, Georgia ("Floyd") (collectively,
the "Banks") and United Family Finance Company, Inc. ("Finance"), a finance
company subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain items in prior years' financial
statements have been reclassified to conform to the current financial statement
presentations.
The Banks are commercial banks that serve markets throughout North Georgia and
Western North Carolina and provide a full range of customary banking services.
The Banks are insured and subject to the regulation of the Federal Deposit
Insurance Corporation ("FDIC").
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with these valuations, management obtains independent
appraisals for significant properties.
A substantial portion of United's loans are secured by real estate located in
North Georgia and Western North Carolina. Accordingly, the ultimate
collectibility of a substantial portion of United's loan portfolio is
susceptible to changes in the real estate market conditions of this market area.
INVESTMENT SECURITIES
- ---------------------
United classifies its securities in one of three categories: held to maturity,
available for sale, or trading. Trading securities are bought and held
principally for the purpose of selling them in the near term. United does not
have investments classified in the trading category. Held to maturity securities
are those securities for which United has the ability and intent to hold until
maturity. All other securities are classified as available for sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or accretion of
premiums or discounts. Unrealized holding gains and losses, net of the related
tax effect, on securities available for sale are excluded from income and are
reported as a separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with transfers
of securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity. The unrealized holding gains or
losses included in the separate component of stockholders' equity for securities
transferred from available for sale to held to maturity are maintained and
amortized into income over the remaining life of the security as an adjustment
to the yield in a manner consistent with the amortization or accretion of
premium or discount on the associated security.
F-44
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
INVESTMENT SECURITIES, continued
- ---------------------
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to income
and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment to the yield. Realized gains and losses for securities
classified as available for sale and held to maturity are included in income and
are derived using the specific identification method for determining the cost of
securities sold.
MORTGAGE LOANS HELD FOR SALE
- ----------------------------
Mortgage loans held for sale are carried at the lower of aggregate cost or
market value. The amount by which cost exceeds market value is accounted for as
a valuation allowance. Changes in the valuation allowance are included in the
determination of net income of the period in which the change occurs. No market
valuation allowances were required at December 31, 1999 or 1998.
LOANS AND ALLOWANCE FOR LOAN LOSSES
- -----------------------------------
All loans are stated at principal amount outstanding. Interest on loans is
primarily calculated by using the simple interest method on daily balances of
the principal amount outstanding.
Accrual of interest is discontinued on a loan when management believes, after
considering economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is doubtful.
When a loan is placed on nonaccrual status, previously accrued and uncollected
interest is charged to interest income on loans. Generally, payments on
nonaccrual loans are applied to principal.
A loan is impaired when, based on current information and events, it is probable
that all amounts due, according to the contractual terms of the loan, will not
be collected. Impaired loans are measured based on the present value of expected
future cash flows, discounted at the loan's effective interest rate, or at the
loan's observable market price, or the fair value of the collateral if the loan
is collateral dependent. Interest income on impaired loans is recognized using
the cash-basis method of accounting during the time within the period in which
the loans were impaired. The Banks had no material amounts of impaired loans at
December 31, 1999 or 1998.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely. The
allowance represents an amount, which, in management's judgment, will be
adequate to absorb probable losses on existing loans that may become
uncollectible.
Management's judgment in determining the adequacy of the allowance is based on
evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality, and review of specific problem loans. In
determining the adequacy of the allowance for loan losses, management uses a
loan grading system that rates loans in ten different categories. Grades seven
through ten are assigned allocations of loss based on the standard regulatory
loss percentages set forth in the FDIC Interagency Policy Statement on the
Allowance for Loan and Lease Losses issued in 1993. Loans graded one through six
are allocated loss ranges based on historical loss experience for the previous
five years. The combination of these results are compared quarterly to the
recorded allowance for loan losses and material deficiencies are adjusted by
increasing the provision for loan losses. Management has a devoted internal loan
review department that is independent of the lending function to challenge and
corroborate the loan grading system and provide additional analysis in
determining the adequacy of the allowance for loan losses and the future
provisions for estimated loan losses.
F-45
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
LOANS AND ALLOWANCE FOR LOAN LOSSES, continued
- -----------------------------------
Management believes the allowance for loan losses is adequate. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review United's allowance for loan losses. Such agencies may
require United to recognize additions to the allowance based on their judgments
of information available to them at the time of their examination.
PREMISES AND EQUIPMENT
- ----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed primarily using the straight-line method over the
estimated useful lives of the related assets. Costs incurred for maintenance and
repairs are expensed currently. The range of estimated useful lives for
buildings and improvements is 15 to 40 years, and for furniture and equipment, 3
to 10 years.
GOODWILL AND DEPOSIT-BASED INTANGIBLES
- --------------------------------------
Goodwill, arising from the excess cost over the fair value of net assets
acquired of purchased bank subsidiaries, is amortized on a straight-line basis
over periods not exceeding 25 years. Deposit assumption premiums paid in
connection with branch bank purchases are being amortized over 15 years, the
estimated life of the deposit base acquired. On an ongoing basis, management
reviews the valuation and amortization periods of goodwill and the deposit
assumption premiums to determine if events and circumstances require the
remaining lives to be reduced.
MORTGAGE SERVICING RIGHTS
- -------------------------
United's mortgage banking division accounts for mortgage servicing rights as a
separate asset regardless of whether the servicing rights are acquired through
purchase or origination. United's mortgage servicing rights represent the
unamortized cost of purchased and originated contractual rights to service
mortgages for others in exchange for a servicing fee and ancillary loan
administration income. Mortgage servicing rights are amortized over the period
of estimated net servicing income and are periodically adjusted for actual and
anticipated prepayments of the underlying mortgage loans. Impairment analysis is
performed quarterly after stratifying the rights by interest rate. Impairment,
defined as the excess of the asset's carrying value over its current fair value,
is recognized through a valuation allowance. At December 31, 1999 and 1998, no
valuation allowances were required for United's mortgage servicing rights.
United recognized approximately $15,000 in servicing assets during 1997, and
recognized amortization expense relating to servicing assets of approximately
$315,000, $387,000, and $144,000 during 1999, 1998 and 1997, respectively.
INCOME TAXES
- ------------
Deferred tax assets and liabilities are recorded for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Future tax
benefits, such as net operating loss carryforwards, are recognized to the extent
that realization of such benefits is more likely than not. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which the assets and liabilities are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income tax expense in the period that
includes the enactment date.
In the event the future tax consequences of differences between the financial
reporting bases and the tax bases of United's assets and liabilities results in
deferred tax assets, an evaluation of the probability of being able to realize
the future benefits indicated by such asset is required. A valuation allowance
is provided for the portion of the deferred tax asset when it is more likely
than not that some portion or all of the deferred tax asset will not be
realized. In assessing the realizability of the deferred tax assets, management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income and tax planning strategies.
F-46
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
- ---------------------------------------------
Effective January 1, 1999, United adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), which establishes accounting and reporting
standards for hedging activities and for derivative instruments including
derivative instruments embedded in other contracts. It requires the fair value
recognition of derivatives as assets or liabilities in the financial statements.
The accounting for the changes in the fair value of a derivative depends on the
intended use of the derivative instrument at inception. The change in fair value
of instruments used as fair value hedges is accounted for in the income of the
period simultaneous with accounting for the fair value change of the item being
hedged. The change in fair value of the effective portion of cash flow hedges is
accounted for in comprehensive income rather than income, and the change in fair
value of foreign currency hedges is accounted for in comprehensive income as
part of the translation adjustment. The change in fair value of derivative
instruments that are not intended as a hedge is accounted for in the income of
the period of the change. At the date of initial application, an entity may
transfer any held to maturity security into the available for sale or trading
categories without calling into question the entity's intent to hold other
securities to maturity in the future. In 1999, the Banks transferred all held to
maturity investment securities to available for sale under this provision of
SFAS No. 133. The held to maturity securities had amortized cost of $58.3
million and net unrealized gains of $1.8 million. The result of the transfer was
to increase stockholders' equity by $1.1 million, which represented the net of
tax effect of the unrealized gains associated with the held to maturity
investments transferred.
OTHER
- -----
Property (other than cash deposits) held by the Banks in a fiduciary or agency
capacity for customers is not included in the consolidated balance sheets since
such items are not assets of the Banks.
F-47
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
INCOME PER SHARE
- ----------------
United is required to report on the face of the statements of income, income per
common share with and without the dilutive effects of potential common stock
issuances from instruments such as options, convertible securities and warrants.
Basic income per common share is based on the weighted average number of common
shares outstanding during the period while the effects of potential common
shares outstanding during the period are included in diluted income per common
share. Additionally, United must reconcile the amounts used in the computation
of both basic income per share and diluted income per share. Income per common
share amounts for the years ended December 31, 1999, 1998 and 1997 are as
follows (dollars and shares in thousands, except for per share data):
FOR THE YEAR ENDED DECEMBER 31, 1999
Weighted
Average Common
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic income per share $ 13,648 8,020 $ 1.70
====
Effect of dilutive securities:
Stock options - 156
Convertible debentures 191 140
------ -----
Diluted income per share $ 13,839 8,316 $ 1.66
====== ===== ====
FOR THE YEAR ENDED DECEMBER 31, 1998
Weighted
Average Common
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic income per share $ 12,773 7,973 $ 1.60
====
Effect of dilutive securities:
Stock options - 133
Convertible debentures 187 140
------ -----
Diluted income per share $ 12,960 8,246 $ 1.57
====== ===== ====
F-48
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
INCOME PER SHARE, continued
----------------
FOR THE YEAR ENDED DECEMBER 31, 1997
Weighted
Average Common
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic income per share $ 11,054 7,810 $ 1.42
====
Effect of dilutive securities:
Stock options - 81
Convertible debentures 189 140
------ -----
Diluted income per share $ 11,243 8,031 $ 1.40
====== ===== ====
(1) MERGERS AND ACQUISITIONS
Effective August 27, 1999, the Company acquired, for 632,890 shares of its
$1 par value common stock and approximately $8,700 paid for fractional
shares, all of the outstanding common stock of 1st Floyd Bankshares, Inc.,
a $115 million one-bank holding company, located in Rome, Georgia. The
acquisition was accounted for as a pooling of interests and accordingly,
the consolidated financial statements for all periods presented have been
restated to include the financial position and results of operations as if
the combination had occurred on January 1, 1997.
The following is a reconciliation of the amounts of net interest income
and net earnings previously reported with the restated amounts (in
thousands):
1999 1998 1997
---- ---- ----
Net interest income:
The Company, as previously reported
in 1998 and 1997 $ 63,298 52,499 43,232
Floyd 4,676 3,711 2,486
------ ------- ------
As restated $ 67,974 56,210 45,718
====== ====== ======
Net income:
The Company, as previously reported
in 1998 and 1997 $ 13,231 12,152 10,735
Floyd 417 621 319
------ ------- -------
As restated $ 13,648 12,773 11,054
====== ====== ======
United recorded merger, integration and restructuring charges of $1.8
million during 1999 associated with the acquisition of 1st Floyd
Bankshares, Inc. The components of the charges are shown below (in
thousands):
Severance and related costs $ 692
Premises and equipment write-downs 424
Professional fees 522
Other merger-related expenses 207
-----
Total $ 1,845
=====
F-49
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(1) MERGERS AND ACQUISITIONS, continued
The following table presents a summary of activity with respect to the
merger-related accrual (in thousands):
Balance at beginning of year $ -
Merger-related charge 1,845
Cash payments (956)
Noncash write-downs (434)
-------
Balance at end of year $ 455
=======
On March 15, 1999, United acquired all the outstanding common stock of
Adairsville Bancshares, Inc., the parent company of Bank of Adairsville,
Adairsville, Georgia, for $7.1 million plus certain acquisition costs.
United accounted for this transaction using the purchase method, and
accordingly, the original purchase price was allocated to assets and
liabilities acquired based upon their fair values at the date of
acquisition. The excess of the purchase price over the fair value of the
net assets acquired (goodwill) was approximately $2.9 million and is being
amortized over 15 years using the straight-line method.
On January 30, 1998, Peoples assumed deposits of $23.4 million and
purchased certain assets totaling $3.7 million of a branch in Ellijay,
Georgia.
Effective September 12, 1997, United acquired, for 646,257 shares of its
$1 par value common stock and approximately $7,000 paid for fractional
shares, all of the outstanding common stock of First Clayton Bancshares,
Inc., a $73 million one-bank holding company, located in Clayton, Georgia.
The acquisition was accounted for as a pooling of interests.
(2) CASH FLOWS
United paid approximately $78 million, $59 million and $47 million in
interest on deposits and other liabilities during 1999, 1998 and 1997,
respectively. In connection with United's 1999 acquisition of Adairsville,
assets having a fair value of $36 million were acquired and liabilities
totaling $32 million were assumed.
For the Years Ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
Schedule of noncash investing and financing activities (in thousands):
Change in unrealized gains (losses) on securities available for sale,
net of tax $ (10,013) 482 951
Change in dividends payable $ 125 93 (66)
Deposit liabilities assumed in branch acquisition $ - 23,399 -
Assets acquired in branch acquisition, other than cash and
cash equivalents $ - 3,246 -
Investment securities purchase obligations $ 14,500 10,645 -
Transfer of securities held to maturity to available for sale $ 58,306 - -
Income tax benefit of disqualified disposition of shares under option $ 125 - -
F-50
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(3) INVESTMENT SECURITIES
Investment securities at December 31, 1999 and 1998, are as follows (in
thousands):
December 31, 1999
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE: Cost Gains Losses Value
---- ------ ------- -----
U.S. Treasuries $ 32,674 28 302 32,400
U.S. Government agencies 105,219 2 2,491 102,730
State and political subdivisions 81,116 253 2,545 78,824
Mortgage-backed securities 305,951 449 8,468 297,932
Other 23,403 - 786 22,617
------- --- ------ -------
Total $ 548,363 732 14,592 534,503
======= === ====== =======
December 31, 1998
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE: Cost Gains Losses Value
---- ------ ------- -----
U.S. Treasuries $ 32,090 990 - 33,080
U.S. Government agencies 46,421 492 9 46,904
State and political subdivisions 22,305 369 64 22,610
Mortgage-backed securities 220,171 945 480 220,636
Other 10,615 1 59 10,557
------- ----- --- -------
Total $ 331,602 2,797 612 333,787
======= ===== === =======
SECURITIES HELD TO MATURITY:
U.S. Government agencies $ 1,885 9 5 1,889
State and political subdivisions 53,386 1,691 33 55,044
Mortgage-backed securities 2,122 55 5 2,172
Other 913 - - 913
------- ----- --- ------
Total $ 58,306 1,755 43 60,018
====== ===== == ======
F-51
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTs, continued
(3) INVESTMENT SECURITIES, continued
The amortized cost and estimated fair value of the securities portfolio at
December 31, 1999, by contractual maturity, is presented in the following
table. Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations with or without call
or prepayment penalties.
Securities Available
for Sale
Amortized Estimated
Cost Fair Value
---- ----------
U.S. Treasuries:
Within 1 year $ 9,246 9,252
1 to 5 years 23,428 23,148
------ ------
$ 32,674 32,400
====== ======
U.S. Government agencies:
Within 1 year $ 4,450 4,405
1 to 5 years 63,670 61,903
5 to 10 years 33,611 33,202
More than 10 years 3,488 3,220
------- -------
$ 105,219 102,730
======= =======
State and political subdivisions:
Within 1 year $ 5,322 5,324
1 to 5 years 32,469 32,280
5 to 10 years 25,420 24,749
More than 10 years 17,905 16,471
------- -------
$ 81,116 78,824
======= =======
Other:
More than 10 years $ 23,403 22,617
======= =======
Total securities other than mortgage-backed
securities:
Within 1 year $ 19,018 18,981
1 to 5 years 119,567 117,331
5 to 10 years 59,031 57,951
More than 10 years 44,796 42,308
Mortgage-backed securities 305,951 297,932
------- -------
$ 548,363 534,503
======= =======
There were no sales of securities held to maturity during 1999, 1998 and
1997. Proceeds from sales of securities available for sale during 1999,
1998 and 1997 were $8 million, $44 million and $37 million, respectively.
Gross gains of $646,000, $807,000 and $767,000 for 1999, 1998 and 1997,
respectively, along with gross losses of $103,000, $3,000 and $30,000 for
1999, 1998 and 1997, respectively, were realized on those sales. Income tax
expense recognized on these gains and losses was $206,000, $306,000 and
$280,000 in 1999, 1998 and 1997, respectively.
Securities with a carrying value of $141 million and $102 million at
December 31, 1999 and 1998, respectively, were pledged to secure public
deposits and Federal Home Loan Bank advances.
F-52
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans at December 31, 1999 and 1998, are
summarized as follows (in thousands):
1999 1998
---- ----
Commercial, financial and agricultural $ 121,325 109,647
Real estate - construction 161,020 121,900
Real estate - mortgage 971,543 694,561
Consumer 146,472 135,058
---------- ----------
Total loans 1,400,360 1,061,166
Less allowance for loan losses 17,722 12,680
----------- -----------
Loans, net $ 1,382,638 1,048,486
========= =========
The Banks grant loans and extensions of credit to individuals and a
variety of firms and corporations located primarily in counties in North
Georgia and Western North Carolina. Although the Banks have diversified
loan portfolios, a substantial portion of the loan portfolios is
collateralized by improved and unimproved real estate and is dependent
upon the real estate market.
During 1999 and 1998, certain executive officers and directors of United
and its Banks, including their immediate families and companies with which
they are associated, maintained a variety of banking relationships with
the Banks. Total loans outstanding to these persons at December 31, 1999
and 1998 amounted to $39,559,000 and $22,755,000, respectively. The change
from December 31, 1998 to December 31, 1999 reflects payments amounting to
$25,188,000 and advances of $41,992,000. Such loans are made in the
ordinary course of business at normal credit terms, including interest
rate and collateral requirements, and do not represent more than normal
credit risk.
Changes in the allowance for loan losses are summarized as follows (in
thousands):
1999 1998 1997
---- ---- ----
Balance at beginning of year $ 12,680 10,989 8,536
Allowance for loan losses acquired from Adairsville 1,822 - -
Provisions charged to income 5,104 2,612 2,814
Loans charged off (2,854) (1,463) (830)
Recoveries of loans previously charged off 970 542 469
-------- -------- --------
Balance at end of year $ 17,722 12,680 10,989
====== ====== ======
United serviced approximately $55.0 million and $73.6 million of mortgage
loans for others at December 31, 1999 and 1998, respectively.
F-53
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998, are summarized as
follows (in thousands):
1999 1998
---- ----
Land and land improvements $ 10,662 8,187
Building and improvements 25,217 19,074
Furniture and equipment 25,449 20,714
Construction in progress 2,881 5,907
------ ------
64,209 53,882
Less accumulated depreciation 16,844 12,635
------ ------
$ 47,365 41,247
====== ======
Depreciation expense was approximately $4.2 million, $2.8 million and $2.2
million in 1999, 1998 and 1997, respectively.
(6) TIME DEPOSITS
The aggregate amount of time deposit accounts with a minimum denomination
of $100,000 was approximately $312,000,000 and $219,968,000 at December
31, 1999 and 1998, respectively.
At December 31, 1999, contractual maturities of time deposits are
summarized as follows (in thousands):
Maturing In:
-----------
2000 $ 829,681
2001 186,062
2002 28,983
2003 7,990
2004 1,512
Thereafter 390
---------
$ 1,054,618
=========
(7) Federal Home Loan Bank Advances
The Banks have advances from the Federal Home Loan Bank ("FHLB") with
monthly interest payments and principal payments due at various maturity
dates and interest rates ranging from 4.35% to 7.81% at December 31, 1999.
The FHLB advances are collateralized by first mortgage loans,
mortgage-backed securities and FHLB stock.
Advances from FHLB outstanding at December 31, 1999 mature as follows (in
thousands):
Year
----
2000 $ 80,682
2001 10,308
2002 56,433
2003 37,469
2004 39,255
Thereafter 63,425
-------
$ 287,572
=======
F-54
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(8) LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt and other borrowings at December 31, 1999 and 1998
consisted of the following (in thousands):
1999 1998
---- ----
Note payable, due at maturity with monthly interest payments through March
2001, secured by common stock of the Bank Subsidiaries. Interest is
variable based on the prime rate less 1.25%. The loan agreement
contains covenants and restrictions pertaining to the maintenance of
certain financial ratios, limitations on the incurrence of additional
debt, and the declaration of dividends or other capital transactions.
As of December 31, 1999, the Company had violated certain financial
covenants; however, the Company has obtained a waiver of these violations. $ 15,365 -
Commercial paper of Finance, due at maturity during 2000 and unsecured.
Interest is from 6.50% to 7.00% and is payable monthly. 2,151 1,277
------- -----
$ 17,516 1,277
====== =====
(9) CONVERTIBLE SUBORDINATED DEBENTURES
On December 31, 1996, United completed a private placement of convertible
subordinated debentures due December 31, 2006 (the "Debentures"). The
Debentures bear interest at the rate of one quarter of one percentage
point over the prime rate per annum, payable in quarterly installments.
The Debentures may be redeemed, in whole or in part at the option of
United upon at least 20 days and not more than 60 days notice, at a
redemption price equal to 100% of the principal amount of the Debentures
to be redeemed plus interest accrued and unpaid as of the date of
redemption. The holders of the Debentures not called for redemption will
have the right, exercisable at any time up to December 31, 2006, to
convert such Debenture at the principal amount thereof into shares of
common stock of United at the conversion price of $25 per share, subject
to adjustment for stock splits and stock dividends.
Certain directors and executive officers of United held convertible
debentures totaling $2,800,000 at December 31, 1999 and 1998.
(10) TRUST PREFERRED SECURITIES
In July, 1998, United formed a wholly owned Delaware statutory business
trust, United Community Capital Trust ("United Trust"), which issued $21
million of guaranteed preferred beneficial interests in United's junior
subordinated deferrable interest debentures that qualify as Tier 1 capital
under Federal Reserve Board guidelines. All of the common securities of
United Trust are owned by United. The proceeds from the issuance of the
Common Securities and the Trust Preferred Securities were used by United
Trust to purchase $21.7 million of junior subordinated debentures of
United which carry a fixed interest rate of 8.125 percent. The proceeds
received by United from the sale of the junior subordinated debentures
were used to prepay line of credit borrowings of approximately $11.8
million and for further investments in the Banks. The debentures represent
the sole asset of United Trust. The debentures and related income
statement effects are eliminated in United's financial statements.
The Trust Preferred Securities accrue and pay distributions semiannually
at a fixed rate of 8.125 percent per annum of the stated liquidation value
of $1,000 per capital security. United has entered into contractual
arrangements which, taken collectively, fully and unconditionally
guarantee payment of: (i) accrued and unpaid distributions required to be
paid on the Trust Preferred Securities; (ii) the redemption price with
respect to any Trust Preferred Securities called for redemption by United
Trust, and (iii) payments due upon a voluntary or involuntary dissolution,
winding up or liquidation of United Trust.
F-55
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(10) TRUST PREFERRED SECURITIES, continued
The Trust Preferred Securities are mandatorily redeemable upon maturity of
the debentures on July 15, 2028, or upon earlier redemption as provided in
the indenture. United has the right to redeem the debentures purchased by
United Trust: (i) in whole or in part, on or after July 15, 2008, and (ii)
in whole (but not in part) at any time within 90 days following the
occurrence and during the continuation of a tax event, investment company
event or capital treatment time (as defined in the offering circular). As
specified in the indenture, if the debentures are redeemed prior to
maturity, the redemption price will be the principal amount, any accrued
but unpaid interest, plus a premium ranging from 4.06 percent in 2008 to
0.41 percent in 2017.
(11) INCOME TAXES
During 1999, 1998 and 1997, United made income tax payments of
approximately $6.9 million, $6.3 million and $5.8 million, respectively.
The components of income tax expense for the years ended December 31,
1999, 1998 and 1997 are as follows (in thousands):
1999 1998 1997
---- ---- ----
Current $ 7,509 6,756 5,391
Deferred (reduction) (1,616) (766) (404)
----- ----- -----
$ 5,893 5,990 4,987
===== ===== =====
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate (34 percent) to
income before income taxes are as follows (in thousands):
1999 1998 1997
---- ---- ----
Pretax income at statutory rates $ 6,644 6,379 5,454
Add (deduct):
Tax-exempt interest income (1,360) (1,158) (878)
Nondeductible interest expense 256 224 147
Other 353 545 264
----- ----- -----
$ 5,893 5,990 4,987
===== ===== =====
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset at December 31, 1999 and 1998 (in thousands):
1999 1998
---- ----
Deferred tax assets:
Allowance for loan losses $ 6,823 4,848
Net operating loss and credit carryforwards 561 -
Unrealized loss of securities available for sale 5,099 -
Other 253 122
------ -----
Gross deferred tax assets 12,736 4,970
------ -----
Deferred tax liabilities:
Premises and equipment (1,983) (1,567)
Unrealized gain on securities available for sale - (879)
Other (216) (423)
------ -----
Gross deferred tax liabilities (2,199) (2,869)
------ -----
Net deferred tax asset $ 10,537 2,101
====== =====
F-56
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) EMPLOYEE BENEFIT PLANS
United has contributory employee benefit plans covering substantially all
employees, subject to certain minimum service requirements. United's
contribution to the plans is determined annually by the Board of Directors
and amounted to approximately $1,215,000, $1,025,000 and $803,000 in 1999,
1998, and 1997, respectively. The companies acquired in 1999 sponsored
certain defined contribution employee benefit plans that have been or will
be merged into the existing plan of United. Under these plans, the
acquired companies recognized expenses of approximately $113,000, $77,000
and $25,000 in 1999, 1998 and 1997, respectively.
During 1998, United initiated a defined post-retirement benefit plan to
provide retirement benefits to certain executive officers and other key
employees and to provide death benefits for their designated
beneficiaries. Under this plan, United purchased split-dollar whole life
insurance contracts on the lives of each participant. At December 31, 1999
and 1998, the cash surrender value of the insurance contracts was
approximately $8.6 million and $8.1 million, respectively. Expenses
incurred for benefits were approximately $204,000 during 1999. No expenses
were incurred for benefits during 1998.
(13) REGULATORY MATTERS
United and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, action by regulators that, if undertaken, could
have a direct material effect on the Banks' financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that
involve quantitative measures of the Banks' assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Banks' capital amounts and classification are also subject
to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Banks to maintain minimum amounts and ratios of total and Tier
1 capital (as defined) to risk-weighted assets (as defined), and of Tier 1
capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1999, that the Banks meet all capital adequacy
requirements to which they are subject.
Minimum ratios required by the Banks to ensure capital adequacy are 8% for
total capital to risk weighted assets and 4% each for Tier 1 capital to
risk weighted assets and Tier 1 capital to average assets. Minimum ratios
required by the Banks to be well capitalized under prompt corrective
action provisions are 10% for total capital to risk weighted assets, 6%
for Tier 1 capital to risk weighted assets and 5% for Tier 1 capital to
average assets. Minimum amounts required for capital adequacy purposes and
to be well capitalized under prompt corrective action provisions are
presented below for United and its most significant subsidiaries (in
thousands). Prompt corrective action provisions do not apply to bank
holding companies.
Minimum Minimum Minimum
Total Risk Based Tier 1 Risk Based Tier 1 Leverage
---------------- ------------------ ---------------
Prompt Prompt Prompt
Capital Corrective Capital Corrective Capital Corrective
1999 Adequacy Action Adequacy Action Adequacy Action
---- -------- ------ -------- ------ -------- ------
Consolidated $ 110,443 N/A 55,221 N/A 75,471 N/A
UCB 31,744 39,680 15,872 23,808 24,370 30,463
Carolina 30,176 37,720 15,088 22,632 22,933 28,666
1998
Consolidated $ 88,550 N/A 44,275 N/A 59,805 N/A
UCB 27,819 34,774 13,910 20,864 18,811 23,514
Carolina 22,814 28,517 11,407 17,110 16,965 21,207
F-57
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(13) REGULATORY MATTERS, continued
Actual capital amounts and ratios for United and its most significant
Banks as of December 31, 1999 and 1998, are as follows (in thousands):
Actual Actual Actual
Total Risk Based Tier 1 Risk Based Tier 1 Leverage
----------------- ------------------ ---------------
Actual Actual Actual
1999 Amount Ratio Amount Ratio Amount Ratio
---- ------ ----- ------ ----- ------ -----
Consolidated $ 137,298 9.95% 116,536 8.44% 116,536 5.52%
UCB 43,825 11.05% 38,865 9.80% 38,865 6.38%
Carolina 39,521 10.48% 34,991 9.28% 34,991 6.10%
1998
Consolidated $ 122,468 11.06% 106,269 9.60% 106,269 7.11%
UCB 39,272 11.29% 35,209 10.13% 35,209 7.49%
Carolina 30,374 10.65% 26,808 9.40% 26,808 6.32%
As of December 31, 1999 and 1998, the most recent notification from the
FDIC categorized each of the Banks as well capitalized under the
regulatory framework for prompt corrective action.
(14) COMMITMENTS
The Banks are parties to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend
credit, letters of credit and financial guarantees. These instruments
involve, to varying degrees, elements of credit risk in excess of the
amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Banks have in particular
classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit,
letters of credit and financial guarantees written is represented by the
contractual amount of these instruments. The Banks use the same credit
policies in making commitments and conditional obligations as for
on-balance-sheet instruments. In most cases, collateral or other security
is required to support financial instruments with credit risk.
The following table summarizes, as of December 31, 1999 and 1998, the
contract amount of off-balance sheet instruments (in thousands):
1999 1998
---- ----
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 212,099 136,281
Standby letters of credit $ 6,523 8,698
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
may expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Banks evaluate each
customer's creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, upon extension of credit is
based on management's credit evaluation. Collateral held varies, but may
include unimproved and improved real estate, certificates of deposit,
personal property or other acceptable collateral.
F-58
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(14) Commitments, continued
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Banks to guarantee the performance of a customer
to a third party. Those guarantees are primarily issued to local
businesses. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Banks hold real estate, certificates of deposit, equipment
and automobiles as collateral supporting those commitments for which
collateral is deemed necessary. The extent of collateral held for those
commitments varies.
United maintains an overall interest rate risk-management strategy that
incorporates the use of derivative instruments to minimize significant
unplanned fluctuations in earnings that are caused by interest rate
volatility. The goal is to manage interest rate sensitivity by modifying
the repricing or maturity characteristics of certain balance sheet assets
and liabilities so that the net interest margin is not, on a material
basis, adversely affected by movements in interest rates. As a result of
interest rate fluctuations, hedged assets and liabilities will appreciate
or depreciate in market value. The effect of this unrealized appreciation
or depreciation will generally be offset by income or loss on the
derivative instruments that are linked to the hedged assets and
liabilities. United views this strategy as a prudent management of
interest rate sensitivity, such that earnings are not exposed to undue
risk presented by changes in interest rates.
Derivative instruments that are used as part of United's interest rate
risk-management strategy include interest rate contracts (swaps and caps).
As a matter of policy, United does not use highly leveraged derivative
instruments for interest rate risk management. Interest rate swaps
generally involve the exchange of fixed- and variable-rate interest
payments between two parties, based on a common notional principal amount
and maturity date. Interest rate cap agreements provide for a variable
cash flow if interest rates exceed the cap rate, based on a notional
principal amount and maturity date.
By using derivative instruments, United is exposed to credit and market
risk. If the counterparty fails to perform, credit risk is equal to the
extent of the fair-value gain in a derivative. When the fair value of a
derivative contract is positive, this generally indicates that the
counterparty owes United, and, therefore, creates a repayment risk for
United. When the fair value of a derivative contract is negative, United
owes the counterparty and, therefore, it has no repayment risk. United
minimizes the credit (or repayment) risk in derivative instruments by
entering into transactions with high-quality counterparties that are
reviewed periodically by United.
United's derivative activities are monitored by its asset/liability
management committee as part of that committee's oversight of United's
asset/liability and treasury functions. United's asset/liability committee
is responsible for implementing various hedging strategies that are
developed through its analysis of data from financial simulation models
and other internal and industry sources. The resulting hedging strategies
are then incorporated into the overall interest-rate risk management.
As described more fully in the summary of significant accounting policies,
United adopted SFAS No. 133 during 1999. All of United's derivative
financial instruments are classified as highly effective fair value
hedges. United enters into interest-rate swaps and caps to convert a
portion of its fixed rate loans and a portion of its fixed-rate
liabilities to variable.
For the year ended December 31, 1999, there were no material amounts
recognized which represented the ineffective portion of fair-value hedges.
All components of each derivative's gain or loss are included in the
assessment of hedge effectiveness, unless otherwise noted.
F-59
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(15) PREFERRED STOCK
United may issue preferred stock in one or more series as established by
resolution of the Board of Directors, up to a maximum of 10,000,000
shares. Each resolution shall include the number of shares issued,
preferences, special rights and limitations as determined by the Board of
Directors. At December 31, 1999 and 1998, there were no preferred shares
issued or outstanding.
(16) STOCKHOLDERS' EQUITy
Dividends paid by the Banks are the primary source of funds available to
United for payment of dividends to its stockholders and other needs.
Applicable federal and state statutes and regulations impose restrictions
on the amount of dividends that may be declared by the Banks. At December
31, 1999, approximately $23 million of the Banks' net assets were
available for payment of dividends without prior approval from the
regulatory authorities. In addition to the formal statutes and
regulations, regulatory authorities also consider the adequacy of each
Bank's total capital in relation to its assets, deposits and other such
items. Capital adequacy considerations could further limit the
availability of dividends from the Banks.
During 1997, United issued 300,000 shares of common stock for
approximately $6,477,000, net of offering costs. The proceeds from this
sale of stock were used to inject capital into the Banks and for general
corporate purposes.
During 1995, the Board of Directors adopted the Key Employee Stock Option
Plan. Under this plan, options can be granted for shares of United's
common stock at a price equal to the fair market value at the date of
grant. At December 31, 1999, no shares were available for grant under this
plan. Floyd also previously adopted a stock option plan for its key
employees. This plan had provisions similar to United's plan. Holders of
options under the Floyd plan were issued options in connection with the
merger of United and Floyd at the exchange ratio of .8477 per option held.
All option amounts detailed below have been restated to reflect the
options outstanding under Floyd's plan.
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, entities to compute the fair value of options at the
date of grant and to recognize such costs as compensation expense
immediately if there is no vesting period or ratably over the vesting
period of the options. United has chosen not to adopt the cost recognition
principles of this statement and accounts for stock options under
Accounting Principles Board Opinion No. 25 and its related
interpretations. No compensation expense has been recognized in 1999, 1998
or 1997 related to the stock option plan. Had compensation cost been
determined based upon the fair value of the options at the grant dates
consistent with the method of SFAS No. 123, United's income and income per
share would have been reduced to the pro forma amounts indicated below (in
thousands, except per share data):
1999 1998 1997
---- ---- ----
Net income As reported $ 13,648 12,773 11,054
Pro forma $ 13,277 12,562 10,798
Basic income per share As reported $ 1.70 1.60 1.42
Pro forma $ 1.66 1.58 1.38
Diluted income per share As reported $ 1.66 1.57 1.40
Pro forma $ 1.62 1.55 1.37
The fair value of each option granted is estimated on the date of grant
using the minimum value method with the following weighted average
assumptions used for grants in 1999, 1998 and 1997: dividend yield of 1%,
risk free interest rate of 6% and an expected life of 10 years.
F-60
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(16) STOCKHOLDERS' EQUITY, continued
A summary of activity in United's stock option plan is presented below:
Weighted
Average Range
Option Option Price of Price
Shares Per Share Per Share
------ --------- ---------
Options outstanding at December 31, 1996 92,000 $ 13.65 $ 10.00 - 18.00
Options granted in 1997 146,671 $ 17.77 $ 11.80 - 22.51
-------
Options outstanding at December 31, 1997 238,671 $ 16.18 $ 10.00 - 22.51
Options granted in 1998 63,477 $ 28.08 $ 15.34 - 32.50
Options exercised in 1998 (8,500) $ 13.95 $ 10.00 - 22.00
Options forfeited in 1998 (3,500) $ 20.40 $ 18.00 - 22.00
-------
Options outstanding at December 31, 1998 290,148 $ 18.80 $ 10.00 - 32.50
Options granted in 1999 82,300 $ 37.75 $ 37.75 - 40.00
Options exercised in 1999 (30,546) $ 12.15 $ 10.00 - 30.00
Options forfeited in 1999 (1,000) $ 26.80 $ 22.00 - 30.00
-------
Options outstanding at December 31, 1999 340,902 $ 24.37 $ 10.00 - 40.00
=======
Options on 214,562, 124,404, and 102,104 shares were exercisable at
December 31, 1999, 1998 and 1997, respectively. The weighted average
grant-date fair value of options granted in 1999, 1998 and 1997 was
$15.65, $9.65 and $5.90, respectively. Such options have a weighted
average remaining contractual life of approximately 7 years as of December
31, 1999.
(17) SUPPLEMENTAL FINANCIAL DATA
Components of other non-interest expenses in excess of 1% of total
interest and non-interest income for the years ended December 31, 1999,
1998 and 1997 included advertising expenses of $1,673,000, $1,484,000, and
$1,566,000, respectively.
F-61
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(18) UNITED COMMUNITY BANKS, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
1999 1998
---- ----
(IN THOUSANDS)
Assets
------
Cash $ 247 424
Investment in subsidiaries 128,402 109,780
Other assets 11,361 8,982
------- ---------
$ 140,010 119,186
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 3,225 200
Notes payable 15,365 -
Convertible subordinated debentures 3,500 3,500
Junior subordinated debentures 21,650 21,650
Stockholders' equity 96,270 93,836
------- --------
$ 140,010 119,186
======= =======
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
(In Thousands)
Income:
Dividends from subsidiaries $ 4,000 3,927 1,210
Other 4,955 2,868 730
------- ------- --------
Total income 8,955 6,795 1,940
------- ------- -------
Expenses:
Interest 2,671 1,560 1,045
Other 10,397 5,638 2,097
------ ------- -------
Total expense 13,068 7,198 3,142
------ ------- -------
Loss before income tax benefit and equity in undistributed
income of subsidiaries (4,113) (403) (1,202)
Income tax benefit 2,684 1,410 823
------ ------- --------
Income (loss) before equity in undistributed income of subsidiaries (1,429) 1,007 (379)
Equity in undistributed income of subsidiaries 15,077 11,766 11,433
------ ------ ------
Net income $ 13,648 12,773 11,054
====== ====== ======
F-62
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(18) UNITED COMMUNITY BANKS, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
continued
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Cash flows from operating activities:
Net income $ 13,648 12,773 11,054
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in undistributed income of the subsidiaries (15,077) (11,766) (11,433)
Depreciation, amortization and accretion 779 387 300
Change in:
Other assets 503 1,600 (2,567)
Other liabilities 3,138 (736) (27)
------- ------ ------
Net cash provided by (used in) operating activities 2,991 2,258 (2,673)
------- ------ ------
Cash flows from investing activities:
Purchase of premises and equipment (737) (2,173) (1,273)
Capital contributions to the subsidiaries (9,300) (7,899) (5,250)
Purchase of bank subsidiary (7,191) - -
Purchase of investments (104) - -
------- ------ ------
Net cash used in investing activities (17,332) (10,072) (6,523)
------- ------ ------
Cash flows from financing activities:
Proceeds from junior subordinated debentures - 21,650 -
Proceeds from notes payable 15,365 - 3,400
Repayments of notes payable - (12,722) (1,131)
Proceeds from exercise of stock options 216 118 -
Proceeds from sale of common stock - - 6,477
Proceeds from resale of treasury stock of pooled entity - - 6
Dividends paid (1,417) (1,089) (825)
------- ------ ------
Net cash provided by financing activities 14,164 7,957 7,927
------- ------ ------
Net change in cash (177) 143 (1,269)
Cash at beginning of year 424 281 1,550
------- ------ ------
Cash at end of year $ 247 424 281
======== ====== ======
F-63
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it
is practicable to estimate that value. The assumptions used in the
estimation of the fair value of United's financial instruments are
detailed below. Where quoted prices are not available, fair values are
based on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be significantly affected
by the assumptions used, including the discount rate and estimates of
future cash flows. The following disclosures should not be considered a
surrogate of the liquidation value of United or its Banks, but rather a
good-faith estimate of the increase or decrease in value of financial
instruments held by United since purchase, origination, or issuance.
Cash and Cash Equivalents
-------------------------
For cash, due from banks and federal funds sold the carrying amount is
a reasonable estimate of fair value.
Securities Held to Maturity and Securities Available for Sale
-------------------------------------------------------------
Fair values for investment securities are based on quoted market prices.
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
Cash Surrender Value of Life Insurance
--------------------------------------
The carrying value of cash surrender value of life insurance is a
reasonable estimate of fair value.
Deposits
--------
The fair value of demand deposits, savings accounts and certain money
market deposits is the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposit is estimated
by discounting the future cash flows using the rates currently offered
for deposits of similar remaining maturities.
Federal Funds Purchased and Repurchase Agreements
-------------------------------------------------
The carrying amount of federal funds purchased and repurchase
agreements is a reasonable estimate of fair value.
Federal Home Loan Bank Advances
-------------------------------
The fair value of United's fixed rate borrowings are estimated using
discounted cash flows, based on United's current incremental borrowing
rates for similar types of borrowing arrangements. For variable rate
borrowings the carrying amount is a reasonable estimate of fair value.
Long-Term Debt and Convertible Subordinated Debentures
------------------------------------------------------
Long-term debt and convertible subordinated debentures are made using
variable rates; thus, the carrying amount is a reasonable estimate of
fair value.
Trust Preferred Securities
--------------------------
The fair value of United's trust preferred securities is estimated
using discounted cash flows, based on United's current incremental
borrowing rates for similar types of borrowing arrangements.
Interest Rate Swaps, Floors and Caps
------------------------------------
The fair value of interest rate swaps, floors and caps is obtained from
dealer quotes. These values represent the estimated amount United would
receive or pay to terminate the contracts or agreements, taking into
account current interest rates and, when appropriate, the current
creditworthiness of the counterparties.
Commitments to Extend Credit, Standby Letters of Credit and Financial
---------------------------------------------------------------------
Guarantees Written
------------------
Because commitments to extend credit and standby letters of credit are
made using variable rates or are commitments recently made, the
contract value is a reasonable estimate of fair value.
F-64
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, continued
(19) FAIR VALUE OF FINANCIAL INSTRUMENTS, continued
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time United's entire holdings
of a particular financial instrument. Because no market exists for a
significant portion of United's financial instruments, fair value
estimates are based on many judgments. These estimates are subjective in
nature and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions
could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, brokerage network, deferred income taxes,
premises and equipment and goodwill. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered
in the estimates.
The carrying amount and estimated fair values of United's financial
instruments at December 31, 1999 and 1998 are as follows (in thousands):
December 31, 1999 December 31, 1998
------------------ -----------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Assets:
Cash and cash equivalents $ 112,611 112,611 64,112 64,112
Securities held to maturity - - 58,306 60,018
Securities available for sale 534,503 534,503 333,787 333,787
Mortgage loans held for sale 6,326 6,326 8,129 8,129
Loans, net 1,382,638 1,378,299 1,048,486 1,051,252
Cash surrender value of life insurance 8,550 8,550 8,130 8,130
Liabilities:
Deposits 1,649,392 1,648,947 1,238,323 1,240,000
Federal funds purchased and
repurchase agreements 31,812 31,812 26,520 26,520
Federal Home Loan Bank advances 287,572 287,126 186,854 182,485
Long-term debt and other borrowings 17,516 17,516 1,277 1,277
Convertible subordinated debentures 3,500 3,500 3,500 3,500
Trust Preferred Securities 21,000 17,188 21,000 19,336
Interest rate contracts 113 113 - -
Unrecognized financial instruments:
Commitments to extend credit 212,099 212,099 136,281 136,281
Standby letters of credit 6,523 6,523 8,698 8,698
Interest rate contracts $ - - 437 448
F-65
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(20) SUBSEQUENT EVENTS
On March 3, 2000, United entered into a definitive agreement to acquire
North Point Bancshares, Inc. (North Point), a $107 million one-bank holding
company for Dawson County Bank, located in Dawsonville, Georgia for
approximately 958,000 shares of its common stock. Also on March 3, 2000,
United entered into an agreement to acquire Independent Bancshares, Inc.
(Independent), a $145 million one-bank holding company for Independent Bank
& Trust, located in Powder Springs, Georgia for approximately 872,000
shares of its common stock. These agreements are subject to approval of
applicable regulatory authorities and shareholders and will be accounted
for as pooling of interests. As such, historical financial information
presented in future reports will be restated to include North Point and
Independent.
The following unaudited pro forma data summarizes operating data as if the
combinations had been consummated on January 1, 1997:
As of and for the year ended
(in thousands, except per share amounts)
1999 1998 1997
---- ---- ----
Total assets $ 2,383,486 1,812,585 1,410,071
Stockholders' equity $ 118,908 115,415 99,571
Net income $ 16,692 15,510 13,197
Basic income per share $ 1.70 1.59 1.41
Diluted income per share $ 1.67 1.56 1.40
F-66
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.
F-67
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.
F-68
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
F-69
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.
F-70
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 870,595 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.
F-71
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
F-72
APPENDIX A
AGREEMENT AND PLAN OF MERGER BETWEEN UNITED AND NORTH POINT
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made
and entered into as of this 3rd day of March, 2000, by and between UNITED
COMMUNITY BANKS, INC. ("United") and NORTH POINT BANCSHARES, INC. ("North
Point"), both Georgia corporations (said corporations are hereinafter
collectively referred to as the "Constituent Corporations").
R E C I T A L S:
- - - - - - - -
WHEREAS, the authorized capital stock of United consists of
10,000,000 shares of Common Stock, $1.00 par value per share (the "United
Stock"), of which 8,429,090 shares are issued and outstanding; and
WHEREAS, the authorized capital stock of North Point consists
of 5,000,000 shares of Common Stock, $5.00 par value per share, of which
428,385 shares are issued and outstanding ("North Point Stock"); and
WHEREAS, the respective Boards of Directors of the Constituent
Corporations deem it advisable and in the best interests of each such
corporation and its shareholders that North Point merge with United, with United
being the surviving corporation; and
WHEREAS, the respective Boards of Directors of the Constituent
Corporations, by resolutions duly adopted, have unanimously approved and adopted
this Agreement, and the Board of Directors of North Point, by resolution duly
adopted, has directed that this Agreement be submitted to the shareholders of
North Point for their approval; and
WHEREAS, United has agreed to issue shares of United Stock
which shareholders of North Point will be entitled to receive, according to the
terms and conditions contained herein, on or after the Effective Date (as
defined herein) of the merger provided for herein.
NOW, THEREFORE, for and in consideration of the premises and
the mutual agreements herein contained, and other good and valuable
consideration, the receipt and adequacy of which as legally sufficient
consideration are hereby acknowledged, the parties hereto have agreed and do
hereby agree, as follows:
1. MERGER.
------
Pursuant to and with the effects provided in the applicable
provisions of Article 11 of the Georgia Business Corporation Code, as amended
(Chapter 2 of Title 14 of the Official Code of Georgia), North Point
(hereinafter sometimes referred to as the "Merged Corporation") shall be merged
A-1
with and into United (the "Merger"). United shall be the surviving corporation
(the "Surviving Corporation") and shall continue under the name "United
Community Banks, Inc." On the Effective Date (as defined herein) of the Merger,
the individual existence of the Merged Corporation shall cease and terminate.
2. ACTIONS TO BE TAKEN.
-------------------
The acts and things required to be done by the Georgia
Business Corporation Code in order to make this Agreement effective, including
the submission of this Agreement to the shareholders of the Merged Corporation
and the filing of the Certificate of Merger relating hereto in the manner
provided in said Code, shall be attended to and done by the proper officers of
the Constituent Corporations with the assistance of counsel as soon as
practicable.
3. EFFECTIVE DATE.
--------------
The Merger shall be effective upon the approval of this
Agreement by the shareholders of the Merged Corporation and the filing of the
Certificate of Merger relating hereto in the manner provided in the Georgia
Business Corporation Code (the "Effective Date").
4. ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING CORPORATION.
-----------------------------------------------------------------
(a) The Articles of Incorporation of United, as heretofore
amended, shall on the Effective Date be the Articles of Incorporation of the
Surviving Corporation.
(b) Until altered, amended or repealed, as therein provided,
the Bylaws of United as in effect on the Effective Date shall be the Bylaws of
the Surviving Corporation.
5. MANNER AND BASIS OF CONVERTING SHARES OF CAPITAL STOCK; CAPITAL
STRUCTURE OF THE SURVIVING CORPORATION.
- --------------------------------------------------------------------------------
The manner and basis of converting the shares of capital stock
of each of the Constituent Corporations into shares of the Surviving Corporation
shall be as follows:
(a) Upon the Effective Date each of the shares of North Point
Stock outstanding on the Effective Date shall be converted into fully paid and
nonassessable shares of United Stock at the rate of 2.2368 shares of United
Stock for each outstanding share of North Point Stock. If either party should
change the number of its outstanding shares as a result of a stock split, stock
dividend, or similar recapitalization with respect to such shares prior to the
Effective Date then the shares to be issued hereunder to holders of North Point
Stock shall be proportionately adjusted.
(b) No scrip or fractional share certificates of United Stock
shall be issued in connection with the Merger and an outstanding fractional
share interest will not entitle the owner thereof to vote, to receive dividends
or to have any of the rights of a shareholder with respect to such fractional
interest. In lieu of any fractional interest, there shall be paid in cash an
amount (computed to the nearest cent) equal to such fraction multiplied by
$38.00.
A-2
(c) As soon as practicable after the Effective Date, each
holder as of the Effective Date of any of the shares of North Point Stock, upon
presentation and surrender of the certificates representing such shares to
United, shall be entitled to receive in exchange therefor a certificate
representing the number of shares of United Stock to which such shareholder
shall be entitled according to the terms of this Agreement. Until such
surrender, each such outstanding certificate which prior to the Effective Date
represented North Point Stock shall be deemed for all corporate purposes to
evidence ownership of the number of shares of United Stock into which the same
shall have been converted and the right to receive payment for fractional
shares.
(d) Upon the Effective Date, each share of United Stock issued
and outstanding immediately prior to the Effective Date shall continue unchanged
and shall continue to evidence a share of common stock of the Surviving
Corporation.
6. TERMINATION OF SEPARATE EXISTENCE.
---------------------------------
Upon the Effective Date, the separate existence of the Merged
Corporation shall cease and the Surviving Corporation shall possess all of the
rights, privileges, immunities, powers and franchises, as well of a public
nature as of a private nature, of each of the Constituent Corporations; and all
property, real, personal and mixed, and all debts due on whatever account, and
all other choses in action, and all and every other interest of or belonging to
or due to each of the Constituent Corporations shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further act or
deed, and the title to any real estate or any interest therein, vested in either
of the Constituent Corporations shall not revert or be in any way impaired by
reason of the Merger. The Surviving Corporation shall thenceforth be responsible
and liable for all the liabilities, obligations and penalties of each of the
Constituent Corporations; and any claim existing or action or proceeding, civil
or criminal, pending by or against either of said Constituent Corporations may
be prosecuted as if the Merger had not taken place, or the Surviving Corporation
may be substituted in its place, and any judgment rendered against either of the
Constituent Corporations may thenceforth be enforced against the Surviving
Corporation; and neither the rights of creditors nor any liens upon the property
of either of the Constituent Corporations shall be impaired by the Merger.
7. FURTHER ASSIGNMENTS.
-------------------
If at any time the Surviving Corporation shall consider or be
advised that any further assignments or assurances in law or any other things
are necessary or desirable to vest in said corporation, according to the terms
hereof, the title to any property or rights of the Merged Corporation, the
proper officers and directors of the Merged Corporation shall and will execute
and make all such proper assignments and assurances and do all things necessary
and proper to vest title in such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes of this Agreement.
A-3
8. CONDITIONS PRECEDENT TO CONSUMMATION OF THE MERGER.
--------------------------------------------------
This Agreement is subject to, and consummation of the Merger
is conditioned upon, the fulfillment as of the Effective Date of each of the
following conditions:
(a) Approval of this Agreement by the affirmative vote of the
holders of a majority of the outstanding voting shares of North Point Stock; and
(b) All the terms, covenants, agreements, obligations and
conditions of the Agreement and Plan of Reorganization (the "Acquisition
Agreement") of even date herewith by and between North Point and United to be
complied with, satisfied and performed on or prior to the Closing Date (as
defined therein), shall have been complied with, satisfied and performed in all
material respects unless accomplishment of such covenants, agreements,
obligations and conditions has been waived by the party benefited thereby.
9. TERMINATION.
-----------
This Agreement may be terminated and the Merger abandoned in
accordance with the terms of the Acquisition Agreement, at any time before or
after adoption of this Agreement by the directors of either of the Constituent
Corporations, notwithstanding favorable action on the Merger by the shareholders
of the Merged Corporation, but not later than the issuance of the certificate of
merger by the Secretary of State of Georgia with respect to the Merger in
accordance with the provisions of the Georgia Business Corporation Code.
10. COUNTERPARTS; TITLE; HEADINGS.
-----------------------------
This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. The title of this Agreement and the
headings herein set out are for the convenience of reference only and shall not
be deemed a part of this Agreement.
11. AMENDMENTS; ADDITIONAL AGREEMENTS.
---------------------------------
At any time before or after approval and adoption by the
shareholders of North Point, this Agreement may be modified, amended or
supplemented by additional agreements, articles or certificates as may be
determined in the judgment of the respective Boards of Directors of the
Constituent Corporations to be necessary, desirable or expedient to further the
purposes of this Agreement, to clarify the intention of the parties, to add to
or modify the covenants, terms or conditions contained herein or to effectuate
or facilitate any governmental approval of the Merger or this Agreement, or
otherwise to effectuate or facilitate the consummation of the transactions
contemplated hereby; provided, however, that no such modification, amendment or
supplement shall reduce to any extent the consideration into which shares of
North Point Stock shall be converted in the Merger pursuant to Section 5 hereof.
A-4
IN WITNESS WHEREOF, the Constituent Corporations have each
caused this Agreement to be executed on their respective behalfs and their
respective corporate seals to be affixed hereto as of the day and year first
above written.
UNITED COMMUNITY BANKS, INC.
(CORPORATE SEAL)
By: /s/ Christopher J. Bledsoe
------------------------------
ATTEST: Christopher J. Bledsoe
Senior Vice President
/s/ Patrick J. Rusnak
- -----------------------------
Vice President
NORTH POINT BANCSHARES, INC.
(CORPORATE SEAL)
By: /s/ Don D. Gordon
-----------------------------
Name: Don D. Gordon
Title: President
/s/ Jimmy C. Bruce
- -----------------------------
Secretary
A-5
APPENDIX B
GEORGIA DISSENTER'S RIGHTS STATUTES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right when
and in the manner required by Code Sections 14-2-1320 through 14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable under all
the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Code 1981, section 14-2-1301, enacted by Ga. L. 1988, p. 1070,
section 1; Ga. L. 1993, p. 1231, section 16.)
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party:
(A) If approval of the shareholders of the
corporation is required for the merger by Code Section
14-2-1103 or 14-2-1104 or the articles of incorporation and
the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged
with its parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
B-1
(3) Consummation of a sale or exchange of all or substantially
all of the property of the corporation if a shareholder vote is
required on the sale or exchange pursuant to Code Section 14-2-1202,
but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect
of redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights;
(E) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Code Section
14-2-604; or
(F) Cancels, redeems, or repurchases all or part of
the shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be
no right of dissent in favor of the holder of shares of any class or series
which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at a meeting at which a plan of merger or share
exchange or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the plan of
merger or share exchange to accept for their shares anything except
shares of the surviving corporation or another publicly held
corporation which at the effective date of the merger or share exchange
are either listed on a national securities exchange or held of record
by more than 2,000 shareholders, except for scrip or cash payments in
lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise. (Code 1981,
section 14-2-1302, enacted by Ga. L. 1988, p. 1070, section 1; Ga. L.
1989, p. 946, section 58.)
B-2
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders. (Code 1981,
section 14-2-1303, enacted by Ga. L. 1988, p. 1070, section 1.)
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken. (Code
1981, section 14-2-1320, enacted by Ga. L. 1988, p. 1070, section 1; Ga. L.
1993, p. 1231, section 17.)
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his shares
under this article. (Code 1981, section 14-2-1321, enacted by Ga. L. 1988, p.
1070, section 1.)
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60
days after the date the notice required in subsection (a) of this Code
section is delivered; and
B-3
(4) Be accompanied by a copy of this article. (Code 1981,
section 14-2-1322, enacted by Ga. L. 1988, p. 1070, section 1.)
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in accordance
with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares
under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article. (Code
1981, section 14-2-1323, enacted by Ga. L. 1988, p. 1070, section 1.)
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under Code Section
14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
(Code 1981, section 14-2-1324, enacted by Ga. L. 1988, p. 1070, section 1.)
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of
the later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair
value of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer or is
deemed to have accepted such offer by failure to respond within said 30 days,
payment for his or her shares shall be made within 60 days after the making of
the offer or the taking of the proposed corporate action, whichever is later.
(Code 1981, section 14-2-1325, enacted by Ga. L. 1988, p. 1070, section 1; Ga.
L. 1989, p. 946, section 59; Ga. L. 1993, p. 1231, section 18.)
B-4
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure. (Code 1981, section 14-2-1326, enacted by Ga. L. 1988, p. 1070,
section 1; Ga. L. 1990, p. 257, section 20.)
14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his shares or that the
interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
Code section and is deemed to have accepted the corporation's offer unless he or
she notifies the corporation of his or her demand in writing under subsection
(a) of this Code section within 30 days after the corporation offered payment
for his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth
in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
(2) The shareholder may at any time, subject to the
limitations period of Code Section 14-2-1332, notify the corporation of
his own estimate of the fair value of his shares and the amount of
interest due and demand payment of his estimate of the fair value of
his shares and interest due. (Code 1981, section 14-2-1327, enacted by
Ga. L. 1988, p. 1070, section 1; Ga. L. 1989, p. 946, section 60; Ga.
L. 1990, p. 257, section 21; Ga. L. 1993, p. 1231, section 19.)
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of the county
where a corporation's registered office is located. If the surviving corporation
is a foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
B-5
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
provided in this chapter, Chapter 11 of Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment. (Code 1981, section 14-2-1330,
enacted by Ga. L. 1988, p. 1070, section 1; Ga. L. 1989, p. 946, section 61; Ga.
L. 1993, p. 1231, section 20.)
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable;
(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Code Sections 14-2-1320 through
14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited. (Code 1981, section 14-2-1331,
enacted by Ga. L. 1988, p. 1070, section 1.)
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be
brought more than three years after the corporate action was taken, regardless
of whether notice of the corporate action and of the right to dissent was given
by the corporation in compliance with the provisions of Code Section 14-2-1320
and Code Section 14-2-1322. (Code 1981, section 14-2-1332, enacted by Ga. L.
1988, p. 1070, section 1.)
B-6
PROXY
NORTH POINT BANCSHARES, INC.
DAWSONVILLE, GEORGIA
THIS PROXY IS SOLICITED BY NORTH POINT'S BOARD OF DIRECTORS
WHEN THIS PROXY IS PROPERLY EXECUTED AND RETURNED, AND NOT REVOKED, THE
SHARES OF COMMON STOCK IT REPRESENTS WILL BE VOTED AT THE MEETING IN ACCORDANCE
WITH THE CHOICE SPECIFIED BELOW, AND IF NO CHOICE IS SPECIFIED, IT WILL BE VOTED
FOR APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION AND AGREEMENT AND PLAN
OF MERGER BETWEEN UNITED COMMUNITY BANKS, INC. AND NORTH POINT BANCSHARES, INC.,
DATED MARCH 3, 2000.
The undersigned shareholder of North Point Bancshares, Inc. hereby
appoints __________ or ____________________, or either of them, with full power
of substitution to each, the proxies of the undersigned to vote, as designated
below, the shares of the undersigned at the special meeting of shareholders of
North Point Bancshares, Inc. to be held on __________________, 2000, and at any
adjournments thereof;
(a) PROPOSAL TO APPROVE THE MERGER AGREEMENT, providing for the merger
of North Point with and into United, pursuant to which each outstanding share of
common stock of North Point will be converted, subject to certain terms,
conditions, and adjustments as described in the merger agreement, into 2.2368
shares of common stock of United, and instead of the issuance of fractional
shares of United, United will pay cash in an amount equal to the fraction
multiplied by $38.00.
FOR |_| AGAINST |_| ABSTAIN |_|
(b) IN ACCORDANCE WITH THEIR BEST JUDGMENT with respect to any other
matters which may properly come before the meeting and any adjournment thereof.
Please date and sign this Proxy exactly as your name appears below:
Dated: _______________________, 2000
[LABEL] ____________________________________________
____________________________________________
NOTE: When signing as attorney, trustee, administrator, executor, or guardian,
please give your full title as such. If a corporation, please sign in full
corporate name by President or other authorized officer. In the case of joint
tenants, each joint owner must sign.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
United's Bylaws require it to indemnify and hold harmless its
directors, officers, and agents against judgments, fines, penalties, amounts
paid in settlement, and expenses, including attorney's fees, resulting from
various types of legal actions or proceedings if the actions of the party being
indemnified meet the standards of conduct specified therein. Determination
concerning whether or not the applicable standard of conduct has been met can be
made by (a) a disinterested majority of the board of directors, (b) United legal
counsel, or (c) an affirmative vote of a majority of shares held by the
shareholders. No indemnification may be made to or on behalf of a corporate
director, officer, employee or agent (a) in connection with a proceeding by or
in the right of the corporation in which such person was adjudged liable to the
corporation or (b) in connection with any other proceeding in which such person
was adjudged liable on the basis that personal benefit was improperly received
by him. As provided under Georgia law, the liability of a director may not be
eliminated or limited (a) for any appropriation, in violation of his duties, of
any business opportunity of United, (b) for acts or omissions which involve
intentional misconduct or a knowing violation of law, (c) for unlawful corporate
distributions or (d) for any transaction from which the director received an
improper benefit.
United's directors and officers are insured against losses arising from
any claim against them as such for wrongful acts or omissions, subject to
certain limitations.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. Description of Exhibit
-------- ----------------------
2 Agreement and Plan of Merger by and between United
Community Banks, Inc. and North Point Bancshares,
Inc., dated as of March 3, 2000.
3.1 Articles of Incorporation of United, as amended
(included as Exhibit 3.1 to United's Annual Report on
Form 10-K, for the year ended December 31, 1998 (the
"1998 10-K") previously filed with the SEC and
incorporated herein by reference).
3.2 Amended and Restated Bylaws of United, as amended
(included as Exhibit 3.2 to the 1998 10-K and
incorporated herein by reference).
4.1 Junior Subordinated Indenture of United with The
Chase Manhattan Bank, as Trustee, relating to the
Junior Subordinated Debentures (included as Exhibit
4.1 to United's Registration Statement on Form S-4,
File No. 333-64911, filed with the SEC on September
30, 1999 (the "1999 S-4") and incorporated herein by
reference).
4.2 Form of Certificate of Junior Subordinated Debenture
(included as Exhibit 4.2 to the 1999 S-4 previously
filed with the Commission and incorporated herein by
reference).
4.3 Certificate of Trust of United Community Capital
Trust (included as Exhibit 4.3 to the 1999 S-4
previously filed with the Commission and incorporated
herein by reference).
4.4 Amended and Restated Trust Agreement for United
Community Capital Trust (included as Exhibit 4.4 to
the 1999 S-4 previously filed with the Commission and
incorporated herein by reference).
4.5 Form of New Capital Security Certificate for United
Community Capital Trust (included as Exhibit 4.5 to
the 1999 S-4 previously filed with the Commission and
incorporated herein by reference).
4.6 Guarantee of United relating to the Capital
Securities (included as Exhibit 4.6 to the 1999 S-4
previously filed with the Commission and incorporated
herein by reference).
4.7 Registration Rights Agreement (included as Exhibit
4.7 to the 1999 S-4 previously filed with the
Commission and incorporated herein by reference).
4.8 Form of Floating Rate Convertible Subordinated
Payable In Kind Debenture due December 31, 2006
(included as Exhibit 4.2 to United's Registration
Statement on Form S-1, File No. 33-93278, filed with
the Commission on June 8, 1995, and incorporated
herein by reference).
4.9 Form of Subscription Agreement (included as Exhibit A
to United's Form S-1, File No. 333-20887, filed with
the Commission on January 31, 1998 and incorporated
by reference).
4.10 See Exhibits 3.1 and 3.2 for provisions of Articles
of Incorporation and By-Laws, as amended, which
define the rights of the Shareholders.
4.11 Form of certificate for United common stock (included
as Exhibit 4.3 to United's Form S-4, File No.
333-83113, filed with the Commission on July 14, 1999
and incorporated by reference (the "Floyd S-4")).
5 Opinion and Consent of Kilpatrick Stockton LLP.
8 Opinion and Consent of Kilpatrick Stockton LLP as to
the federal income tax consequences to the merger of
United Community Banks, Inc. and North Point
Bancshares, Inc.
10.1 United's 1995 Key Employee Stock Option Plan
(included as Exhibit 10.3 to United's Annual Report
on Form 10-K for the year ended December 31, 1994
(the "1994 10- K"), previously filed with the
Commission and incorporated herein by reference).
10.2 Broker Dealer Agreement between the Registrant and
The Carson Medlin Company dated January 28, 1998
(included as Exhibit 10.10 to United's Registration
Statement on Form S-1, File No. 333-20887, previously
filed with the Commission on January 31, 1998, and
incorporated herein by reference).
10.3 Amendment to Broker Dealer Agreement between the
Registrant and The Carson Medlin Company dated March
3, 1998 (included as Exhibit 10.11 to United's
Registration Statement on Form S-1, File No. 333-
20887, filed with the Commission on January 31, 1998,
and incorporated herein by reference).
10.4 Agreement and Plan of Merger, dated June 12, 1998, by
and between United and First Clayton Bancshares, Inc.
(included as Appendix A to United's Registration
Statement on Form S-4, File No. 333-31998, filed with
the Commission on July 24, 1998, and incorporated
herein by reference).
10.5 Agreement and Plan of Reorganization and Agreement
and Plan of Merger, dated June 3, 1999, by and
between United and 1st Floyd Bankshares (included as
Exhibit 2.1 to the Floyd S-4 and incorporated herein
by reference).
10.6 Broker Dealer Agreement between the Registrant and
Wachovia Securities, Inc. dated March 31, 2000
(includedas Exhibit 1.1 to United's Registration
Statement on Form S-3, File No. 333-33802, filed with
the Commission on March 31, 2000 (the "2000 S-3") and
incorporated herein by reference).
10.7 Escrow Agreement between the Registrant and Wachovia
Securities, Inc. dated March 31, 2000 (included as
Exhibit 1.2 to the 2000 S-3 and incorporated herein
by reference).
21 Subsidiaries of United (included as Exhibit 21 to the
Floyd S-4 and incorporated by reference).
23.1 Consent of Porter Keadle Moore, LLP.
23.2 Consent of Mauldin & Jenkins, LLC.
23.3 Consent of Kilpatrick Stockton LLP (included as part
of Exhibits 5 and 8).
24 Power of Attorney (included on the Signature Page to
the Registration Statement).
99 Annual Report on Form 10-K, as amended, for the
year ended December 31, 1999, for United (previously
filed by United with the SEC on March 13, 2000,
as amended, and incorporated herein by reference).
(b) Financial Statement Schedules.
-----------------------------
No financial statements schedules are required to be filed as part of
this Registration Statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(b) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (a) immediately preceding, or (ii) that
purports to meet the requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and United
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, UNITED
COMMUNITY BANKS, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
BLAIRSVILLE, STATE OF GEORGIA, ON MAY ____, 2000.
UNITED COMMUNITY BANKS, INC.
By:/s/ Jimmy C. Tallent
---------------------------------
Jimmy C. Tallent, President
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature
appears below constitutes and appoints Jimmy C. Tallent and Robert L. Head, or
either of them, as attorney-in-fact, with each having the power of substitution,
for him in any and all capacities, to sign any amendments to this Registration
Statement on Form S-4 and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON MAY ____, 2000.
SIGNATURE TITLE
--------- -----
/s/ Jimmy C. Tallent President and Director (Principal Executive
- ------------------------------------- Officer)
Jimmy C. Tallent
/s/ Robert L. Head, Jr. Chairman of the Board of Directors
- -------------------------------------
Robert L. Head, Jr.
/s/ Christopher J. Bledsoe Chief Financial Officer (Principal
- ------------------------------------- Financial Officer)
Christopher J. Bledsoe
/s/ Patrick J. Rusnak Controller (Principal Accounting Officer)
- -------------------------------------
Patrick J. Rusnak
/s/ Billy M. Decker Director
- -------------------------------------
Billy M. Decker
/s/ Thomas C. Gilliland Director
- -------------------------------------
Thomas C. Gilliland
/s/ Charles Hill Director
- -------------------------------------
Charles Hill
/s/ Hoyt O. Holloway Director
- -------------------------------------
Hoyt O. Holloway
/s/ P. Deral Horne Director
- -------------------------------------
P. Deral Horne
/s/ John P. Martin Director
- -------------------------------------
John P. Martin
/s/ Clarence William Mason, Sr. Director
- -------------------------------------
Clarence William Mason, Sr.
/s/ Zell B. Miller Director
- -------------------------------------
Zell B. Miller
/s/ W.C. Nelson, Jr. Director
- -------------------------------------
W.C. Nelson, Jr.
/s/ Charles E. Parks Director
- -------------------------------------
Charles E. Parks
/s/ Tim Wallis Director
- -------------------------------------
Tim Wallis
EXHIBIT INDEX
5 Opinion and Consent of Kilpatrick Stockton LLP.
8.1 Opinion and Consent of Kilpatrick Stockton LLP as to the
federal income tax consequences to the merger of United
Community Banks, Inc. and North Point Bancshares, Inc.
23.1 Consent of Porter Keadle Moore, LLP.
23.2 Consent of Mauldin & Jenkins, LLC.
United Community Banks, Inc.
63 Highway 515
Blairsville, Georgia 30512
Re: United Community Banks, Inc.
Registration Statement on Form S-4 (File No. 333-________)
Gentlemen:
At your request, we have examined the Registration Statement on Form
S-4 (the "Registration Statement") filed by United Community Banks, Inc. (the
"Company"), a Georgia corporation, with the Securities and Exchange Commission
with respect to the registration under the Securities Act of 1933, as amended,
of 958,211 shares of common stock, par value $5.00 per share, of the Company
(the "Common Stock"), to be issued by the Company to the shareholders of North
Point Bancshares, Inc. ("North Point"), in connection with the merger of North
Point with and into the Company.
As your counsel, and in connection with the preparation of the
Registration Statement, we have examined the originals or copies of such
documents, corporate records, certificates of public officials and officers of
the Company, and other instruments related to the authorization and issuance of
the Common Stock as we deemed relevant or necessary for the opinion expressed
herein. Based upon the foregoing, it is our opinion that the shares of Common
Stock to be issued by the Company to the North Point shareholders will be, upon
issuance, sale, and delivery in the manner and under the terms and conditions
described in the Registration Statement, validly issued, fully paid, and
nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name in the "Legal
Matters" section of the Registration Statement, including the Prospectus
constituting a part thereof, and any amendments thereto.
Yours truly,
KILPATRICK STOCKTON LLP
/s/ F. Sheffield Hale
----------------------------------------
F. Sheffield Hale,
a Partner
Attorneys at Law
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Telephone: 404.815.6500
Facsimile: 404.815.6555
Web site: www.kilstock.com
June 1, 2000 E-mail: abransford@kilstock.com
Direct Dial: 404.815.6480
North Point Bancshares, Inc.
c/o Don D. Gordon
109 Highway 53 West
Dawsonville, Georgia 30534-3414
Ladies and Gentlemen:
We have been requested to render our opinion expressed below in
connection with the proposed merger (the "Merger") of North Point Bancshares,
Inc. ("North Point"), a Georgia corporation, with and into United Community
Banks, Inc. ("United"), a Georgia corporation, with United being the surviving
entity, pursuant to the terms and conditions of that certain Merger Agreement
and Plan of Reorganization dated March 3, 2000, (the "Agreement"), by and
between North Point and United. Unless otherwise indicated, terms used herein
shall have the same meaning as defined in the Agreement.
In rendering our opinion, we have examined the Agreement, applicable
law, regulations, rulings, and decisions.
Our opinions set forth below are subject to the following assumptions,
qualifications, and exceptions:
A. During the course of all of the foregoing examinations, we
have assumed (i) the genuineness of all signatures, (ii) the
authenticity of all documents submitted to us as originals, (iii) the
legal capacity of all individuals, (iv) the conformity to original
documents of all documents submitted to us as certified, conformed, or
photostatic copies, and (v) the authority of each person or persons who
executed any document on behalf of another person.
B. As to various factual matters that are material to our
opinions set forth herein, we have relied upon the factual
representations and warranties set forth in the Agreement and related
documents. We have not independently verified, nor do we assume any
responsibility for, the factual accuracy or completeness of any such
representations, warranties, statements, or certificates.
Based on and in reliance on the foregoing and the further
qualifications set forth below, and provided that the Merger is consummated in
accordance with the Agreement, it is our opinion that:
(1) The Merger and the issuance of shares of United
Common Stock to the holders of North Point Stock in
connection therewith, as described in the Agreement,
will constitute a tax-free reorganization under
section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
(2) Except for the recognition of gain as required by
section 302 of the Code with respect to the receipt
by the holders of North Point Stock of cash in lieu
of the issuance of fractional shares of United Common
Stock, no gain or loss will be recognized by United,
North Point, or holders of North Point Stock as a
result of the Merger.
(3) The aggregate tax basis of the shares of United
Common Stock received by a holder of North Point
Stock pursuant to the Merger will be the same as the
tax basis of the shares of North Point Stock.
(4) The holding period of the shares of United Common
Stock received by a holder of North Point Stock as
part of the Merger will include the holding period of
the shares of North Point Stock exchanged therefor,
provided that the North Point Stock is held as a
capital asset on the date of consummation of the
Merger.
In general, cash received by holders of North Point Stock exercising
their dissenters' rights will be treated as amounts received from the sale of
their shares of North Point Stock, and (provided that such North Point Stock is
a capital asset in the hands of such shareholders) each such shareholder will
recognize capital gain or loss (short or long term, as appropriate) measured by
the difference between the sale price of such North Point Stock and such
shareholder's tax basis in such North Point Stock.
We express no opinion as to the following: (a) the tax consequences
that might be relevant to a particular holder of North Point Stock who is
subject to special treatment under certain federal income tax laws, such as
dealers in securities, banks, insurance companies, tax-exempt organizations,
non-United States persons, persons who do not hold their North Point Stock as
"capital assets" within the meaning of section 1221 of the Code, and persons who
acquired their North Point Stock pursuant to the exercise of options or
otherwise as compensation, or (b) any consequences arising under the laws of any
state, locality, or foreign jurisdiction.
This letter is solely for the information and use of you and the
shareholders of North Point and it is not to be used, circulated, quoted, or
referred to for any other purpose or relied upon by any other person for
whatever reason without our prior written consent.
KILPATRICK STOCKTON LLP
By: /s/ R. Alexander Bransford, Jr.
-----------------------------------------------
R. Alexander Bransford, Jr., a partner
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 25, 2000, except for note 20
as to which the date is March 3, 2000, included in the Annual Report of United
Community Banks, Inc. and subsidiaries, on Form 10-K for the year ended December
31, 1999, and included in this Registration Statement on Form S-4. We consent to
the use of the aforementioned report in the Registration Statement on Form S-4
and related prospectus, and to the use of our name as it appears under the
caption "Experts."
PORTER KEADLE MOORE LLP
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
June 1, 2000
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS FOR NORTH POINT
We hereby consent to the use in this Registration Statement of our
report dated February 11, 2000, except for Note 16 as to which date is March 3,
2000, relating to the consolidated financial statements of North Point
Bancshares, Inc. and subsidiary, and to the reference to our Firm under the
heading "Experts" in the Proxy Statement.
/s/ Mauldin & Jenkins LLC
Mauldin & Jenkins LLP
Powder Springs, Georgia
June 1, 2000