SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
Commission File Number 0-21656
UNITED COMMUNITY BANKS, INC.
(Exact name of registrant as specified in its charter)
GEORGIA 58-180-7304
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
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-------------------------------------------- 59 Highway 515, PO Box 398
Blairsville, Georgia 30512
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 745-2151
Securities registered pursuant to Section 12(b) of the Act: None
Name of exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. _[X]_
Aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 15, 2001: $387,069,000 based on $36.77 per share, the
last average sale price known to the Registrant for the common stock, for which
there is no established public trading market.
As of March 15, 2001, 10,526,774 shares of common stock were issued,
including 140,000 shares deemed outstanding pursuant to prime plus 1/4%
convertible subordinated payable-in-kind debentures due December 31, 2006 and
presently exercisable options to acquire 336,457 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on June 7, 2001 are incorporated herein into Part III by
reference.
PART I
ITEM 1. BUSINESS.
United and the Banks
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United Community Banks, Inc. ("United") was incorporated under the laws
of Georgia in 1987 and commenced operations in 1988 by acquiring 100% of the
outstanding shares of Union County Bank, now known as United Community Bank
("United Community"). United is a bank holding company registered under the Bank
Holding Company Act of 1956. All of United's activities are currently conducted
by its wholly-owned subsidiaries: United Community, which was organized as a
Georgia banking corporation in 1950; Carolina Community Bank, Murphy, North
Carolina ("Carolina"), which United acquired in 1990; Peoples Bank of Fannin
County, Blue Ridge, Georgia ("Fannin"), which United acquired in 1992; Towns
County Bank, Hiawassee, Georgia ("Towns"), which United also acquired in 1992;
White County Bank, Cleveland, Georgia ("White"), which United acquired in 1995;
and First Clayton Bank and Trust, Clayton, Georgia ("First Clayton"), which
United acquired in 1997; Bank of Adairsville, Adairsville, Georgia
("Adairsville"), which United acquired in 1999; 1st Floyd Bank, Rome Georgia
("Floyd"), which United acquired in 1999; Independent Bank & Trust, Powder
Springs, Georgia ("Independent"), which United acquired in 2000; and Dawson
County Bank, Dawson, Georgia ("Dawson"), which United also acquired in 2000.
United Community, Carolina, Fannin, Towns, White, First Clayton, Adairsville,
Floyd, Independent, and Dawson are collectively referred to in this report as
the "Banks."
The 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, 2000, the Banks operated a
total of 41 locations. To emphasize the commitment to community banking, both
United Community and Fannin operate branches under trade names that are closely
identified with the communities in which they are located. United Community
operates two branches in Lumpkin County, Georgia, under the trade name "United
Community Bank of Lumpkin County," two branches in Habersham County, Georgia,
under the trade name "First Bank of Habersham," and one branch in Hall County,
Georgia, under the trade name "United Community Bank of Hall County." Fannin
operates one branch in Gilmer County, Georgia, under the trade name of "United
Community Bank of Gilmer County." The operation of bank branches under trade
names is permissible under current state and federal banking regulations and
requires certain customer disclosures, which both United Community and Fannin
provide.
In addition, United owns an insurance agency, United Agencies, Inc.
("UAI").
The Mortgage People Company ("MPC"), a division of United Community, is
a full-service retail mortgage lending operation approved as a seller/servicer
for Federal National Mortgage Association and Federal Home Mortgage Corporation.
MPC was organized to provide fixed and adjustable-rate mortgages. During 2000,
MPC originated $116 million of residential mortgage loans for the purchase of
homes and to refinance existing mortgage debt, of which substantially all were
sold into the secondary market with no recourse to MPC.
Acquired by United in 2000, Brintech, Inc. ("Brintech"), a subsidiary
of United, is a consulting firm for the financial services industry. Brintech
provides consulting and other advisory services in the areas of technology,
efficiency, security, network, internet banking, web site development,
marketing, core processing, and telecommunications.
Forward-looking Statements
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This Form 10-K, both in the Management's Discussion and Analysis
section and elsewhere, contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and uncertainties.
Although United believes that the assumptions underlying the forward-looking
statements contained in the discussion are reasonable, any of the assumptions
could be inaccurate, and therefore, no assurance can be made that any of the
forward-looking statements included in this discussion will be accurate. Factors
that could cause actual results to differ from results discussed in
forward-looking statements include, but are not limited to: economic conditions
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(both generally and in the markets where United operates); competition from
other providers of financial services offered by United; government regulation
and legislation; changes in interest rates; material unforeseen changes in the
financial stability and liquidity of United's credit customers; and other risks
detailed in United's filings with the Securities and Exchange Commission, all of
which are difficult to predict and which may be beyond the control of United.
United undertakes no obligation to revise forward-looking statements to reflect
events or changes after the date of this discussion or to reflect the occurrence
of unanticipated events.
Monetary Policy and Economic Conditions
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The operating income and net income of the Banks depend to a
substantial extent on the difference between income the Banks receive from their
loans, investments, and other earning assets, and the interest the Banks pay on
their deposits and other liabilities. These rates are highly sensitive to many
factors that are beyond the control of the Banks, including national and
international economic conditions and the monetary policies of various
governmental and regulatory authorities.
Competition
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The market for banking and bank-related services is highly competitive.
The Banks actively compete in their respective market areas, which collectively
cover north Georgia and western North Carolina, with other providers of deposit
and credit services. These competitors include other commercial banks, savings
banks, savings and loan associations, credit unions, mortgage companies, and
brokerage firms. The following table displays each of Banks and the respective
percentage of total deposits in each county where the Bank has operations. 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 ("FDIC") Summary of Deposits as of June 30, 2000.
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UNITED COMMUNITY BANKS, INC.
SHARE OF LOCAL MARKET (COUNTY)
BANKS AND SAVINGS INSTITUTIONS
MARKET RANK IN
SHARE MARKET
UNITED COMMUNITY
Habersham 15% 3
Lumpkin 23 2
Union 82 1
Hall 1 11
CAROLINA
Cherokee 46 1
Clay 68 1
Graham 41 1
Haywood 11 5
Henderson 2 12
Jackson 18 2
Macon 9 3
Swain 24 2
Transylvania 12 4
FANNIN
Fannin 63 1
Gilmer 20 3
WHITE
White 49 1
TOWNS
Towns 39 2
FIRST CLAYTON
Rabun 31 2
ADAIRSVILLE
Bartow 9 5
FLOYD
Floyd 12 5
INDEPENDENT
Cobb 2 11
Paulding 5 5
DAWSON COUNTY
Dawson 46 1
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Loans
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The Banks make both secured and unsecured loans to individuals, firms,
and corporations. 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, 2000, consumer, real estate
construction, real estate mortgage, and commercial loans represented
approximately 9%, 14%, 67%, and 10% respectively, of United's total loan
portfolio.
Specific risk elements associated with each of the Banks' lending categories
include, but are not limited to:
Commercial Industry concentrations; inability to
monitor the condition of collateral
(inventory, accounts receivable and
vehicles); lack of borrower management
expertise, increased competition; use of
specialized or obsolete equipment as
collateral; insufficient cash flow from
operations to service debt payment.
Real estate - construction Inadequate collateral and long-term
financing agreements
Real estate - mortgage Changes in local economy affecting
borrower's employment; insufficient
collateral value due to decline in property
value.
Consumer Loss of borrower's employment; changes in
local economy; the inability to monitor
collateral (vehicles, boats, and mobile
homes)
Inter-agency guidelines adopted by federal bank regulators mandate that
financial institutions establish real estate lending policies with maximum
allowable real estate loan-to-value limits, subject to an allowable amount of
non-conforming loans as a percentage of capital. The Banks adopted the federal
guidelines as their maximum allowable limits; however, policy exceptions are
permitted for real estate loan customers with strong financial credentials.
Lending Policy
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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 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 Board of Directors.
Loan Review and Non-performing Assets
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The Loan Review Department of United reviews, or engages an independent
third party to review, each of the Banks' loan portfolios 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
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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. Under United's 10-grade loan grading system, grades 1
through 6 are considered "pass" (acceptable) credit risk and grades 7 through 10
are "adversely classified" credits that require management's attention. 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 Bank Board of
Directors meeting.
In addition, the Loan Review Department conducts a quarterly analysis
to determine the adequacy of the Allowance for Loan Losses ("ALL") for each of
the Banks. The aggregation of the ALL analyses for the Banks provides the
consolidated analysis for United. The ALL 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 (1996 through
2000), which provides required minimum ALL 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 ALL
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 ALL. There
is no current process used to measure or adjust for differences between the
loss factors for adversely classified loans used in the ALL analysis and
actual losses charged to the ALL.
The difference between the actual ALL (as presented in the consolidated
financial statements) and the allocated ALL represents the unallocated ALL.
The unallocated ALL provides for coverage of credit losses inherent in the
loan portfolio but not provided for in the ALL analysis.
Asset/liability Management
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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
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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 Management's Discussion and Analysis
(Part II, Item 7) and Quantitative and Qualitative Disclosures About Market Risk
(Part II, Item 7A) sections of this report.
Investment Policy
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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
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As of December 31, 2000, United and its subsidiaries had an aggregate
of 968 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.
Supervision and Regulation
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GENERAL. United is a registered bank holding company subject to
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve") under the Bank Holding Company Act of 1956, as amended (the "Act").
United is required to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the Federal Reserve.
The 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 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
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o making investments in corporations or projects designed
primarily to promote community welfare.
In addition, 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 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.
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, Fannin, White, Towns, First Clayton,
Adairsville, Floyd, Independent, and Dawson as state banking associations
organized under Georgia law, are subject to the supervision of, and are
regularly examined by, the DBF. Carolina 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, Fannin, White, Towns, First Clayton,
Adairsville, Floyd, Independent, or Dawson, and the FDIC and the NCBC must grant
prior approval of any merger, consolidation, or other corporate reorganization
of Carolina. 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, Fannin, Towns, White, First Clayton, Adairsville,
Floyd, Independent, and Dawson 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:
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(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 may
declare a dividend for as much of the undivided profits of Carolina as it deems
appropriate, so long as Carolina'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, 2000, net assets available from the Banks to pay dividends
without prior approval from regulatory authorities totaled approximately $23
million. For 2000, United's declared cash dividend payout to stockholders was
20% 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
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 stockholders' 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, Section 38 of 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
"1991 Act"). The "prompt corrective action" provisions set forth five regulatory
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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 1991 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,
2000 and 1999, 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.
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.
Executive Officers of United
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Executive officers of United are elected by the Board of Directors
annually in January and hold office until the following January unless they
sooner resign or are removed from office by the Board of Directors.
The executive officers of United, and their ages, positions with United
and the Banks, and terms of office as of February, 2001, are as follows:
Name (age) Position with United or Banks Officer of United Since
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Jimmy C. Tallent (48) President, Chief Executive Officer and 1988
Director of United; Chairman of the Board
of United Community, Towns and White;
Director of Carolina, Fannin, First Clayton,
Adairsville, and Floyd.
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Harold Brewer (57) Executive Vice President and Chief Operating 2000
Officer of United since October 2000; prior to
joining United, he was Chairman and Chief
Executive Officer of Brintech
Guy W. Freeman (64) Executive Vice President of United; Chief Executive 1995
Officer and Director of Carolina.
Thomas C. Gilliland (53) Executive Vice President and Director of United; 1992
Chairman and Chief Executive Officer of Fannin.
Rex S. Schuette (51) Executive Vice President and Chief Financial 2001
Officer of United since February 2001; prior to
joining United, he was Senior Vice President and
Chief Accounting Officer of State Street Corporation
None of the above officers is related to another and there are no
arrangements or understandings between them and any other person pursuant to
which any of them was elected as an officer, other than arrangements or
understandings with directors or officers of United acting solely in their
capacities as such.
ITEM 2. PROPERTIES.
The executive offices of United are located at 63 Highway 515,
Blairsville, Georgia. United leases 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 46 locations, of
which 38 locations are owned and 8 are leased. Note 5 to United's Consolidated
Financial Statements includes additional information regarding amounts invested
in premises and equipment.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of United
during the fourth quarter of the fiscal year covered by this report.
11
PART II
ITEM 5. MARKET FOR UNITED'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
STOCK. There is no established public trading market for United's
common stock. At December 31, 2000, there were approximately 4,932 shareholders
of record. Management of United is aware of 452 sales and transfers of United's
stock in 2000, aggregating approximately 246,000 shares in blocks ranging from 1
share to 10,000 shares at prices ranging from $32.00 to $50.00 per share. In
addition, on August 4, 2000, United concluded a public offering of its common
stock in which it sold 418,377 shares at $38.00 per share. Management is aware
of 883 sales and transfers of United's stock in 1999, aggregating approximately
602,500 shares in blocks ranging from one share to 10,000 shares at prices
ranging from $35.00 to $55.00 per share.
DIVIDENDS. United declared cash dividends of $.20 per common share in
1999 and $.30 per common share in 2000. Federal and state laws and regulations
impose restrictions on the ability of United and the Banks to pay dividends.
Additional information regarding this item is included in note 16 to the
Consolidated Financial Statements and under the heading of "Supervision and
Regulation" in Part I of this report.
12
ITEM 6. SELECTED FINANCIAL DATA
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 "ALCO"). The ALCO 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, 2000 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.
UNITED COMMUNITY BANK, INC.
SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31
(in thousands, except per share data; taxable equivalent)
2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ----
FOR THE YEAR(1)
Net interest income $ 96,524 $ 80,969 $ 68,042 $ 54,168 $ 41,708 $ 31,489
Provision for loan losses (7,631) (5,966) (3,014) (3,251) (1,937) (1,243)
Non-interest income 18,867 15,693 12,979 10,967 9,316 5,441
-------------------------------------------------------------------------------
Total Revenue 107,760 90,696 78,007 61,884 49,087 35,687
Non-interest expense 73,676 63,505 53,104 42,252 33,710 24,656
Income taxes 12,337 9,938 9,253 6,262 4,934 3,159
-------------------------------------------------------------------------------
Net income $ 21,747 $ 17,253 $ 15,650 $ 13,370 $ 10,443 $ 7,872
===============================================================================
PER COMMON SHARE(1)
Basic $ 2.11 $ 1.71 $ 1.57 $ 1.39 $ 1.15 $ 0.92
Diluted 2.07 1.67 1.54 1.38 1.13 0.90
Cash dividends declared 0.30 0.20 0.15 0.10 0.10 0.08
Book value 14.79 11.82 11.73 10.22 8.08 7.34
KEY PERFORMANCE RATIOS (1)
Return on average stockholders' equity 15.90% 14.74% 14.75% 15.57% 14.84% 13.77%
Return on average assets 0.89 0.81 1.00 1.06 1.08 1.04
Efficiency ratio 65.17 67.63 67.74 65.61 66.05 66.77
Net interest margin, taxable equivalent 4.18 4.08 4.69 4.60 4.86 3.90
Dividend payout ratio (2) 14.24 11.68 9.58 7.19 8.70 8.15
Average equity to average assets 5.58 5.47 6.78 6.84 7.30 7.57
AT YEAR END
Loans $ 1,792,055 $ 1,564,148 $ 1,203,495 $ 991,878 $ 753,010 $ 559,794
Earning assets 2,352,475 2,195,712 1,678,016 1,286,832 1,007,848 802,787
Assets 2,528,879 2,384,678 1,813,004 1,410,596 1,087,454 868,487
Deposits 1,995,865 1,869,379 1,432,224 1,203,353 954,081 776,322
Stockholders' equity 158,388 119,312 115,364 99,378 74,891 65,216
Common Shares outstanding 10,514 10,094 9,836 9,726 9,269 8,881
AVERAGE BALANCES
Loans $ 1,687,970 $ 1,396,384 $ 1,095,452 $ 885,092 $ 648,712 $ 506,341
Earning assets 2,306,843 1,984,026 1,450,838 1,173,131 889,645 700,124
Assets 2,453,250 2,139,594 1,565,315 1,256,074 964,154 755,328
Deposits 1,941,496 1,659,534 1,163,096 1,096,686 857,611 669,795
Stockholders' equity 136,810 117,064 106,096 85,872 70,376 57,170
Shares outstanding - basic 10,300 10,079 9,999 9,589 9,080 8,594
Shares outstanding - diluted 10,597 10,421 10,305 9,817 9,271 8,780
ASSET QUALITY
Allowance for loan losses $ 24,698 $ 20,043 $ 14,402 $ 12,404 $ 9,718 $ 6,373
Non-performing assets 6,716 3,652 2,274 2,052 2,558 4,423
Allowance for loan losses to loans 1.38 1.28 1.20 1.25 1.29 1.14
Net charge-offs to average loans 0.18 0.15 0.09 0.06 0.06 0.07
Non-performing assets to total assets 0.27 0.15 0.13 0.15 0.24 0.51
REPORTED RESULTS, FOR THE YEAR
Net income $ 14,517 $ 16,098 $ 15,650 $ 13,360 $ 10,443 $ 7,872
Earnings per share:
Basic 1.41 1.60 1.57 1.39 1.15 0.92
Diluted 1.39 1.56 1.54 1.38 1.13 0.90
Return on average stockholders' equity 10.61% 13.75% 14.75% 15.56% 14.82% 13.77%
Return on average assets 0.59 0.75 1.00 1.06 1.08 1.04
Efficiency ratio 72.23 69.60 67.74 65.80 66.20 66.77
Dividend payout ratio (2) 21.28 12.50 9.58 7.19 8.70 8.15
UNITED COMMUNITY BANK, INC.
SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31
(in thousands, except per share data; taxable equivalent)
(continued)
5YEAR
CAGR
----
FOR THE YEAR(1)
Net interest income 25%
Provision for loan losses 44
Non-interest income 28
Total Revenue 25
Non-interest expense 24
Income taxes 31
Net income 23
PER COMMON SHARE(1)
Basic 18
Diluted 18
Cash dividends declared 32
Book value 15
KEY PERFORMANCE RATIOS (1)
Return on average stockholders' equity 13.77%
Return on average assets 1.04
Efficiency ratio 66.77
Net interest margin, taxable equivalent 3.90
Dividend payout ratio (2) 8.15
Average equity to average assets 7.57
AT YEAR END
Loans 26
Earning assets 24
Assets 24
Deposits 21
Stockholders' equity 19
Common Shares outstanding 3
AVERAGE BALANCES
Loans 27
Earning assets 27
Assets 27
Deposits 24
Stockholders' equity 19
Shares outstanding - basic 4
Shares outstanding - diluted 4
ASSET QUALITY
Allowance for loan losses
Non-performing assets
Allowance for loan losses to loans 1.14
Net charge-offs to average loans 0.07
Non-performing assets to total assets 0.51
REPORTED RESULTS, FOR THE YEAR
Net income 13
Earnings per share:
Basic 9
Diluted 9
Return on average stockholders' equity 13.77%
Return on average assets 1.04
Efficiency ratio 66.77
Dividend payout ratio (2) 8.15
(1) Excludes merger related charges of $10.6 million and $1.8 million for
2000 and 1999, respectively. These charges decreased net income by $7.2
million and $1.2 million, and diluted earnings per share by $.68 and
$.11, respectively.
(2) Determined by dividing dividends declared (excluding pooled
subsidiaries) by consolidated net income.
CAGR: Compound Annual Growth Rate
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to provide insight into the
financial condition and results of operations of United and should be read in
conjunction with the consolidated financial statements and accompanying notes.
OVERVIEW
United is a bank holding company registered under the Bank Holding
Company Act of 1956 and was incorporated under the laws of the state of Georgia
in 1987. United's activities are conducted by its wholly-owned subsidiaries,
which include a financial services company and the following banking
institutions, (which banks are collectively referred to as the "Banks" in this
discussion):
Year Number of
Bank Subsidiaries Acquired Offices
----------------- -------- -------
United Community Bank 1988(1) 7
Carolina Community Bank 1990 14
Peoples Bank of Fannin County 1992 4
Towns County Bank 1992 1
White County Bank 1995 2
First Clayton Bank & Trust 1997 1
Bank of Adairsville 1999 2
First Floyd Bank 1999 3
Dawson County Bank 2000 3
Independent Bank 2000 3
Brintech, Inc. 2000 1
(1) Organized as a Georgia banking corporation in 1950.
At December 31, 2000, United had total consolidated assets of $2.5
billion, total loans of $1.8 billion, total deposits of $2.0 billion and
stockholders' equity of $158 million. Excluding merger related charges, United's
net income for 2000 was $21.7 million, an increase of $4.5 million, or 26%, from
1999, and diluted earnings per share increased to $2.07 in 2000, from $1.67 in
1999, or 24%. Return on average stockholders equity for 2000 was 15.90%, as
compared to 14.74% for 1999.
SIGNIFICANT TRANSACTIONS DURING 2000
STOCK OFFERING
On August 4, 2000, United completed a public offering of 418,377 shares
of common stock at a price of $38.00 per share providing $15.8 million in new
equity capital, net of offering-related expenses. United used the net proceeds
of the offering to provide capital for its subsidiary banks and for general
corporate purposes, including the reduction of parent company debt.
MERGERS
On September 29, 2000, United completed its merger with Brintech, Inc.
("Brintech"), a consulting firm based in New Smyrna Beach, Florida in exchange
for 283,390 unregistered shares of United common stock. In addition, United
issued $2.9 million of preferred stock to key non-shareholder employees of
Brintech in connection with satisfaction of certain contractual obligations
triggered by the change in control of Brintech. Additional information about the
business of Brintech is included in the Non-interest Income section of this
discussion.
14
On July 26, 2000, United completed its mergers with North Point
Bancshares, Inc. ("Dawson County Bank"), a single-bank holding company based in
Dawsonville, Georgia, and Independent Bancshares, Inc., a single-bank holding
company based in Powder Springs, Georgia. United issued 958,024 shares of common
stock in exchange for all outstanding shares of Dawson County Bank and 817,604
shares of common stock in exchange for all outstanding shares of Independent
Bank.
These mergers were accounted for as poolings of interests, and United's
financial results preceding the dates of the mergers were restated to reflect
the combined financial position and results of operations of acquired units.
TRUST PREFERRED SECURITIES
In 2000, United formed two wholly owned statutory trusts, which issued
$15 million of guaranteed preferred beneficial interests in United's junior
subordinated deferrable interest debentures. These debentures qualify as Tier 1
capital under Federal Reserve Board guidelines. All of the common securities of
the trusts are owned by United. The proceeds from the issuance of the securities
and the Trust Preferred Securities were used by the trusts to purchase $15.5
million of junior subordinated debentures of United which carry a fixed interest
rate. The proceeds received by United from the sale of the junior subordinated
debentures were used to prepay line of credit borrowings of approximately $12.5
million and for other corporate purposes. The debentures represent the sole
asset of the trusts. The debentures and related income statement effects are
eliminated in United's financial statements. Refer to Note 9 of the consolidated
financial discussion for further information on the term and structure of these
securities.
OTHER TRANSACTIONS
On September 8, 2000, United completed the sale of substantially all
assets of its consumer finance company subsidiaries to Lendmark Financial
Services, Inc. ("Lendmark") for cash. The assets sold to Lendmark consisted
primarily of consumer installment loans, net of the associated allowance for
loan losses, with outstanding principal balances of approximately $6.5 million.
There was no material gain or loss recorded in connection with this transaction.
The financial assets and liabilities that were not acquired by Lendmark were
transferred to one of United's affiliate banks or to United. The operations of
both United Family Finance Co. and United Family Finance Co. of North Carolina
were discontinued. Management does not expect to re-enter the consumer finance
company business. During 2000, United ceased operation of its insurance agency
subsidiary, United Agencies, Inc.
SIGNIFICANT TRANSACTIONS DURING 1999
In August 1999, United completed its merger with First Floyd
Bankshares, Inc. 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 report have been restated to include the results of First Floyd Bank for
all periods presented.
In March 1999, United completed its acquisition of Adairsville
Bancshares, Inc. in Adairsville, Georgia. Effective April 1, 1999, the results
of operations for 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 amortized to expense over 15 years.
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.
RESULTS OF OPERATIONS
Net income, excluding merger related charges, was $21.7 million in
2000, an increase of 26% from the $17.3 million earned in 1999. Diluted earnings
per common share were $2.07 for 2000, compared with $1.67 reported for 1999, an
increase of 24%. Return on average equity for 2000 was 15.9%, compared with
14.74% for 1999. Return on average assets for 2000 was .89% as compared to .81%
in 1999.
During 2000 and 1999, United's reported net income included certain
merger related charges. These charges included losses relating to the
realignment and sale of a portion of the securities portfolio and expenses
related to mergers completed in those years.
15
Reported net income for 2000 was $14.5 million, or $1.39 per diluted share,
compared to $16.1 million, or $1.56 per diluted share for 1999. The reported
results for 2000 provided a return on average stockholders' equity of 10.69% and
a return on average assets of .59%.
TABLE 1 - CONDENSED CONSOLIDATED INCOME SUMMARY For the years ended December 31,
(in thousands, taxable equivalent)
CHANGE
2000 1999 1998 2000-1999
Interest income $ 213,115 $ 171,211 $ 135,706 24%
Interest expense 116,591 90,242 67,664 29
-------------------------------------
Net interest income 96,524 80,969 68,042 19%
Provision for loan losses 7,631 5,966 3,014 28
-------------------------------------
Net interest income after
provision for loan losses 88,893 75,003 65,028 19%
Non-interest income 18,867 15,693 12,979 20
-------------------------------------
Total revenue 107,760 90,696 78,007 19%
Non-interest expense 73,676 63,505 53,104 16
-------------------------------------
Income before income taxes 34,084 27,191 24,903 25%
Income tax expense 12,337 9,938 9,253 24
-------------------------------------
Net income $ 21,747 $ 17,253 $ 15,650 26
=====================================
NET INTEREST INCOME (TAXABLE EQUIVALENT)
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 $96.5 million in 2000,
an increase of $15.5 million, or 19%, from the level recorded in 1999. Net
interest income for 1999 increased $12.9 million, or 19%, over the 1998 level.
In 2000, average interest earning assets increased $323 million, or
16%, over the 1999 amount. This increase was primarily due to the increased
growth in real estate loans. Average loans outstanding for 2000 were $1.7
billion, compared with $1.4 billion in 1999. Average interest bearing
liabilities for 2000 increased $267 million, or 15%, over the 1999 average
balance. This increase was primarily due to an increase in the level of average
interest bearing deposits of $252 million, or 17%. Average borrowed funds
totaled $366 million remaining relatively stable increasing $15 million, or 4%,
when compared to 1999.
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.
For the years 2000, 1999, and 1998, United's net interest spread was
3.58%, 3.60% and 4.06%, while the net interest margin was 4.18%, 4.08% and
4.69%, respectively. The 61 basis point decrease in the net interest margin from
1998 to 1999 is primarily attributed to the following: narrower spread on the
assets and associated liabilities in the leverage program; increased reliance on
borrowed funds; and increased competitive pricing pressure on loans and
deposits.
The average cost of interest bearing liabilities for 2000 was 5.66%, an
increase of 63 basis points from 1999 primarily due to a higher rate environment
spurred by rate increases by the Federal Reserve Bank. Core deposits, which
include transaction accounts, savings accounts and non-brokered certificates of
deposit less than $100,000, represented approximately 78% of total deposits in
2000 and 1999.
16
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,
(In thousands, taxable equivalent)
2000 1999
------------------------------------------------------------------------------
AVERAGE AVG. AVERAGE AVG.
BALANCE INTEREST RATE BALANCE INTEREST
-------------------------------------------------------------------------------
Assets:
Interest-earning assets:
Loans, net of unearned income $ 11,687,970 $ 170,890 10.12% $ 1,396,384 $ 135,113
Taxable investments 491,438 33,182 6.75 468,059 28,172
Tax-exempt investments (1) 82,238 6,044 7.35 87,773 6,276
Federal funds sold and other intenest income 45,197 2,999 6.64 31,810 1,650
------------------------------- ----------------------------
TOTAL INTEREST-EARNING ASSETS 2,306,843 213,115 9.24 1,984,026 171,211
------------------------------- ----------------------------
Non-interest-earning assets:
Allowance for loan losses (22,421) (17,230)
Cash and due from banks 59,574 72,009
Premises and equipment 54,635 53,486
Other assets 54,619 47,303
------------ -----------
TOTAL ASSETS $ 2,453,250 $ 2,139,594
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Transaction accounts $ 411,551 17,062 4.15% $ 389,669 14,678
Savings deposits 85,828 2,413 2.81 81,946 2,311
Certificates of deposit 1,196,310 74,011 6.19 970,043 53,726
------------------------------- -----------------------------
Total interest-bearing deposits 1,693,689 93,486 5.52 1,441,658 70,715
------------------------------- -----------------------------
Federal Home Loan Bank advances 294,409 17,537 5.96 249,755 13,096
Long-term debt and other borrowings 72,108 5,568 7.72 102,197 6,431
------------------------------- -----------------------------
Total borrowed funds 366,517 23,105 6.30 351,952 19,527
------------------------------- -----------------------------
TOTAL INTEREST-BEARING LIABILITIES 2,060,206 116,591 5.66% 1,793,610 90,242
------------- ------------
Non-interest-bearing liabilities:
Non-interest-bearing deposits 247,807 217,876
Other liabilities 8,427 11,044
------------ ----------
Total liabilities 2,316,440 2,022,530
------------ ----------
Stockholders' equity 136,810 117,064
------------ ----------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 2,453,250 $ 2,139,594
============ =========
NET INTEREST INCOME $ 96,524 $ 80,969
============ ============
Net interest-rate spread 3.58%
=======
NET INTEREST MARGIN (3) 4.18%
=======
TABLE 2 - AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST ANALYSIS
FOR THE YEARS ENDED DECEMBER 31,
(In thousands, taxable equivalent)
(CONTINUED)
1999 1998
--------------------------------------------------------
Average Avg.
Rate Balance Interest Rate
---------------------------------------------------------
Assets:
Interest-earning assets: 9.68% $ 1,095,452 $ 113,42 10.35%
Loans, net of unearned income 6.02 243,533 14,772 6.07
Taxable investments 7.15 72,144 5,253 7.28
Tax-exempt investments (1) 5.19 39,709 2,261 5.69
Federal funds sold and other intenest income ------------------------
TOTAL INTEREST-EARNING ASSETS 8.63% 1,450,838 135,706 9.35%
------------------------
Non-interest-earning assets: (13,384)
Allowance for loan losses 52,091
Cash and due from banks 40,932
Premises and equipment 34,838
Other assets -------------
$ 1,565,315
TOTAL ASSETS =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing deposits: 3.77% $ 309,172 $ 12,209 3.95%
Transaction accounts 2.82 64,226 1,830 2.85
Savings deposits 5.54 789,698 46,533 5.89
Certificates of deposit ------------------------
4.91 1,163,096 60,572 5.21
------------------------
Total interest-bearing deposits 5.24 90,834 5,010 5.52
Federal Home Loan Bank advances 6.29 26,315 2,082 7.91
Long-term debt and other borrowings ------------------------
5.55 117,149 7,092 6.05
Total borrowed funds ------------------------
5.03 1,280,245 67,664 5.29%
TOTAL INTEREST-BEARING LIABILITIES ----------------------
Non-interest-bearing liabilities: 165,747
Non-interest-bearing deposits 13,227
Other liabilities -------------
1,459,219
Total liabilities -------------
106,096
Stockholders' equity -------------
TOTAL LIABILITIES $ 1,565,315
AND STOCKHOLDERS' EQUITY =============
$ 68,042
NET INTEREST INCOME =============
3.60% 4.06%
Net interest-rate spread ======== =======
4.08% 4.69%
NET INTEREST MARGIN (3) ======== =======
(1) Interest income on tax-exempt securities and loans has been increased by
50% to reflect comparable interest on taxable securities.
(2) For computational purposes, includes non-accrual loans and mortgage loans
held for sale.
(3) Net interest margin is tax equivalent net-interest income divided by
average interest-earning assets.
17
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)
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Increase (Decrease)
Due to Changes in Due to Changes in
---------------------------------------- --------------------------------------
Volume Rate Total Volume Rate Total
----------------------------------------- --------------------------------------
Interest-earning assets:
Loans $ 29,283 $ 6,494 $ 35,777 $ 31,158 $ (9,465) $ 21,693
Taxable investments 1,457 3,553 5,010 13,619 (219) 13,400
Tax-exempt investments (403) 171 (232) 1,138 (115) 1,023
Federal funds sold
and other interest income 811 538 1,349 (450) (161) (611)
-------- -------- -------- -------- -------- --------
TOTAL INTEREST-EARNING ASSETS 31,148 10,756 41,904 45,465 (9,960) 35,505
INTEREST-BEARING LIABILITIES:
Transaction accounts 854 1,530 2,384 3,179 (710) 2,469
Savings deposits 109 (7) 102 505 (24) 481
Certificates of deposit 13,508 6,777 20,285 10,627 (3,434) 7,193
-------- -------- -------- -------- -------- --------
Total interest-bearing deposits 14,471 8,300 22,771 14,311 (4,168) 10,143
FHLB advances 2,522 1,919 4,441 8,765 (679) 8,086
Long-term debt and other borrowings (2,136) 1,273 (863) 6,004 (1,655) 4,349
-------- -------- -------- -------- -------- --------
Total borrowed funds 386 3,192 3,578 14,769 (2,334) 12,435
-------- -------- -------- -------- -------- --------
TOTAL INTEREST-BEARING LIABILITIES 14,857 11,492 26,349 29,080 (6,502) 22,578
-------- -------- -------- -------- -------- --------
INCREASE (DECREASE)
IN NET INTEREST INCOME $ 16,291 $ (736) $ 15,555 $ 16,385 $ (3,458) $ 12,927
======== ======== ======== ======== ======== ========
PROVISION FOR LOAN LOSSES
The provision for loan losses was $7.6 million in 2000, compared with
$6.0 million in 1999, and $3.0 million in 1998. As a percentage of average
outstanding loans, the provisions recorded for 2000, 1999, and 1998 were .45%,
.43%, and .28%, respectively. Net loan charge-offs as a percentage of average
outstanding loans for 2000 were .18%, compared with .15% for 1999 and .09% for
1998. The increase in the provision for loan loss in 2000 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
report.
18
NON-INTEREST INCOME
Total non-interest income for 2000, excluding merger-related charges,
was $18.9 million, compared with $15.7 million in 1999 and $13.0 million in
1998. The following table presents the components of non-interest income for
2000, 1999 and 1998.
TABLE 4 - NON-INTEREST INCOME
For the years ended December 31,
(in thousands)
Change
2000 1999 1998 2000-1999
- ---------------------------------------------------------------------------------------------------------
Service charges on deposit accounts $ 7,436 $ 6,079 $ 5,187 22%
Consulting fees 4,984 3,055 2,241 63
Mortgage loan and related fees 1,429 1,923 2,140 -26
Trust and brokerage fees 1,085 622 378 74
ATM fees 811 631 330 29
Insurance commissions 876 1,059 628 -17
Securities gaines (losses), net (33) 544 804 -106
Other 2,279 1,780 1,271 28
--------------------------------------------------
Total $ 18,867 $ 15,693 $ 12,979 20%
=================================================
A significant source of non-interest income for United is service
charges and fees on deposit accounts. Total deposit service charges and fees for
2000 were $7.4 million compared with $6.1 million in 1999. The growth of deposit
service charge and fee revenue for 2000 and 1999 was primarily due to the
increase in the number of deposit accounts.
Consulting fees for 2000 were $5.0 million, an increase of $1.9
million, or 63%, over 1999. The increase reflects growth in the number of
customers and expanded consulting services for network, internet banking, and
web-site development.
Mortgage loan and related fees for 2000 were $1.4 million, a decrease
of 26% when compared with 1999. This decrease is the result of a continuation of
a decline in volume of 1999 trends primarily due to the higher interest rate
environment which reduced the market for mortgage refinancing. Substantially all
of the fees were the result of originating approximately $116 million of
residential mortgages that were subsequently sold into the secondary market,
including the right to service these loans.
19
NON-INTEREST EXPENSE
Total non-interest expense for 2000 was $73.7 million, compared with
$63.5 million in 1999 and $53.1 million in 1998. Non-interest expense for 2000
and 1999, excludes $8.0 million and $1.8 million, respectively, of
merger-related charges. These charges primarily consisted of employee
contractual obligations, write-off of obsolete equipment and other merger costs.
The following table presents the components of non-interest expense for the
years ended December 31, 2000, 1999 and 1998.
TABLE 5 - NON-INTEREST EXPENSE
For the years ended December 31
(in thousands)
Change
2000 1999 1998 2000-1999
- -----------------------------------------------------------------------------------------------
Salaries and employee benefits $ 42,519 $ 36,550 $ 30,309 16%
Occupancy 12,158 8,756 7,066 39
Postage, printing and supplies 3,547 3,782 2,381 -6
Advertising and public relations 2,904 3,090 2,060 -6
Professional fees 2,816 2,754 1,567 2
Communications 1,806 1,686 1,224 7
Amortization of intangibles 763 838 560 -9
Other expense 7,163 6,049 7,937 18
-------------------------------------------
$ 73,676 $ 63,505 $ 53,104 16%
===========================================
Total salaries and benefits for 2000 of $42.5 million, increased by 16%
over 1999. This increase was primarily due to adding staff to support business
growth and strengthening of management at the holding company. At December 31,
2000, United had 968 full-time equivalent employees as compared with 906 at
year-end 1999.
Occupancy and equipment expense for 2000 of $12.2 million increased by
39% as compared with 1999. The increase in occupancy costs is primarily
attributable to additional space to support growth in business and new offices.
Communications expense, which includes data circuit costs, local phone
service, long-distance service and cellular service increased by 7% during 2000.
The efficiency ratio measures total operating expenses as a percentage
of total revenue, excluding the provision for loan losses, net securities gains
(losses) and merger-related expenses. United's efficiency ratio for 2000 was 65%
as compared with 68% for 1999. The improvement in the efficiency ratio is due to
managements' focus on controlling non-interest expenses and improving operating
results.
INCOME TAXES
Income taxes, as reported for 2000, were $6.6 million as compared with
$7.0 million in 1999 and $7.4 million in 1998. The effective tax rates (as a
percentage of pre-tax net income) for 2000, 1999 and 1998 were 31.1%, 30.4% and
32.2%, respectively. These effective rates are lower than the statutory tax rate
primarily due to interest income on certain investment securities and loans that
are exempt from income taxes. Additional information regarding income taxes can
be found in Note 10 to the consolidated financial statements.
BALANCE SHEET REVIEW
Total assets at December 31, 2000 were $2.5 billion, an increase of
$144 million, or 6%, from December 31, 1999. On an average basis, total assets
increased $314 million, or 15%, from 1999 to 2000. Average interest earning
assets for 2000 were $2.3 billion, compared with $2.0 million for 1999, an
increase of 15%.
20
LOANS
Total loans averaged $1.7 billion in 2000, compared with $1.4 billion
in 1999, an increase of 21%. At December 31, 2000, total loans were $1.8
billion, an increase of $228 million, or 15%, from December 31, 1999. 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
As of December 31,
(in thousands)
2000 1999 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
Commercial $ 177,009 $ 151,112 $ 141,743 $ 146,639 $ 135,838
Real estate - construction 256,886 211,034 161,257 112,190 70,084
Real estate - mortgage 1,194,625 1,034,790 745,739 593,725 429,617
Consumer 163,535 167,212 154,755 139,324 117,471
--------------------------------------------------------------------
Total loans $ 1,792,055 $ 1,564,148 $ 1,203,494 $ 991,878 $ 753,010
====================================================================
As a percentage of total loans:
Commercial 10% 10% 12% 15% 18%
Real estate - construction 14 14 13 11 9
Real estate - mortgage 67 66 62 60 57
Consumer 9 10 13 14 16
--------------------------------------------------------------------
Total 100% 100% 100% 100% 100%
====================================================================
Substantially all of United's loans are to customers located in Georgia
and North Carolina, 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, 2000:
TABLE 7 - LOANS BY COLLATERAL TYPE OR PURPOSE
As of December 31, 2000
(in thousands)
Percent of
Total Loans
-----------
Secured by real estate:
Residential - single family $ 655,919 36%
Non-farm, non-residential 437,088 24
Construction and land development 256,886 14
Home equity lines of credit 61,909 4
Farmland 29,322 2
Multi-family residential 10,387 1
----------- ------
Total loans secured by real estate 1,451,511 81%
----------- ------
Other loans:
Commercial and industrial 155,980 9
Consumer installment loans 152,634 8
States and municipalities 16,205 1
Credit cards and other revolving lines of credit 10,901 1
Agricultural production 4,824 -
----------- ------
Total other loans 340,544 19
----------- ------
Total loans $ 1,792,055 100%
=========== ======
21
As of December 31, 2000, United's 20 largest credit relationships
consisted of loans and loan commitments ranging from $3.3 to $13.9 million, with
an aggregate total credit exposure of $123.2 million. All of these credits have
been underwritten in a prudent manner and structured 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, 2000. United's loan
policy does not permit automatic roll-over of matured loans.
TABLE 8 - LOAN PORTFOLIO MATURITY
As of December 31, 2000
(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 $ 87,519 $ 66,810 $ 22,680 $ 177,009 $ 45,515 $ 43,975
Real estate - construction 214,803 42,083 - 256,886 3,353 38,730
--------------------------------------------------------- --------------------------
Total $ 302,322 $ 108,893 $ 22,680 $ 433,895 $ 48,868 $ 82,705
========================================================= ==========================
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 charged to earnings is based upon
management's judgment of the amount necessary to maintain the allowance at a
level adequate to absorb probable losses. 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 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 2000.
22
The following table presents a summary of changes in the allowance for
loan losses for each of the past five years.
TABLE 9 - ALLOWANCE FOR LOAN LOSS
Years Ended December 31,
2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
Balance beginning of period $ 20,043 $ 14,402 $ 12,404 $ 9,718 $ 6,373
Provision for loan losses 7,631 5,966 3,014 3,251 1,937
Allowance for loan losses acquired
from subsidiary at acquisition date - 1,822 - - 1,813
Charged-offs: -
Commercial 676 362 476 200 472
Real estate - construction - 4 - - -
Real estate - residential mortgage 567 782 299 167 19
Consumer 2,494 2,038 849 739 410
------------------------------------------------------------------------
Total loans charged-off 3,737 3,186 1,624 1,106 901
------------------------------------------------------------------------
Recoveries:
Commercial 167 180 296 29 363
Real estate - construction - 5 - - -
Real estate - residential mortgage 59 331 68 317 52
Consumer 535 523 244 195 81
------------------------------------------------------------------------
Total recoveries 761 1,039 608 541 496
------------------------------------------------------------------------
Net charge-offs 2,976 2,147 1,016 565 405
------------------------------------------------------------------------
Balance end of period $ 24,698 $ 20,043 $ 14,402 $ 12,404 $ 9,718
========================================================================
Total loans:
At year-end $ 1,792,055 $ 1,564,148 $ 1,203,495 $ 991,878 $ 753,010
Average 1,687,970 1,396,384 1,095,452 885,092 648,712
Allowance as a percentage of year-end loans 1.38% 1.28% 1.20% 1.25% 1.29%
Average loans as a percent of:
Net charge-offs 0.18 0.15 0.09 0.06 0.06
Provision for loan losses 0.45 0.43 0.28 0.37 0.30
Allowance as a percentage of non-performing loans 444 700 832 872 496
23
Management believes that the allowance for loan losses at December 31,
2000 is sufficient to absorb losses inherent in the loan portfolio as of that
date based on the best information available. 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.
NON-PERFORMING ASSETS
Non-performing assets, which include non-accrual loans and accruing
loans past due over 90 days, totaled $5.6 million at year-end 2000, compared
with $2.9 million at December 31, 1999. At December 31, 2000, the ratio of
non-performing loans to total loans was .31%, compared with .18% at year-end
1999. Non-performing assets, which include non-performing loans and foreclosed
real estate, totaled $6.7 million at December 31, 2000, compared with $3.7
million at year-end 1999.
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 customers whose
loans were on non-accrual status at December 31, 2000. The table below
summarizes United's non-performing assets for each of the last five years.
TABLE 10 - NON-PERFORMING ASSETS
As of December 31,
(in thousands)
2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Non-accrual loans $ 4,605 $ 2,106 $ 1,183 $ 839 $ 1,274
Loans past due 90 days or more and accruing 956 758 547 583 685
--------------------------------------------------------------------------
Total non-performing loans 5,561 2,864 1,730 1,422 1,959
Other real estate owned 1,155 788 544 630 599
--------------------------------------------------------------------------
Total non-performing assets $ 6,716 $ 3,652 $ 2,274 $ 2,052 $ 2,558
==========================================================================
Non-performing loans as a percentage
of total loans 0.31% 0.18% 0.14% 0.14% 0.26%
Non-performing assets as a percentage
of total assets 0.27 0.15 0.13 0.15 0.24
At December 31, 2000, 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 a 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.
24
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
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.
Total average securities increased 6% during 2000 and 76% during 1999.
The substantial increase in the average balance in 1999 was related to an
expansion of the United's leveraging program. The following table shows the
carrying value of United's securities, by security type, as of December 31,
2000, 1999 and 1998.
TABLE 11 - CARRYING VALUE OF INVESTMENT SECURITIES
As of December 31, 2000
(in thousands)
2000 1999 1998
- ---------------------------------------------------------------------------------------------------
Held to maturity securities:
U.S. Treasury $ - $ - $ 498
U.S. Government agencies - 6,821 8,700
State and political subdivisions - 3,371 57,104
Mortgage-backed securities - 796 3,499
Other - - 913
------------------------------------------
Total securites held to maturity - 10,988 70,714
------------------------------------------
Available for sale securities:
U.S. Treasury 6,034 32,400 35,366
U.S. Government agencies 108,362 134,949 72,043
State and political subdivisions 83,976 82,589 25,175
Mortgage-backed securities 301,363 305,533 228,811
Other 32,376 23,238 11,212
------------------------------------------
Total available for sale 532,111 578,709 372,607
------------------------------------------
Total securities $ 532,111 $ 589,697 $ 443,321
==========================================
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
("CMOs"). During 2000, proceeds from paydowns and maturities of the leverage
securities were used to fund loan growth and reduced associated leverage program
borrowings.
25
At December 31, 2000, United had 27% of its total investment portfolio
in mortgage backed pass-through securities, all of which are issued or backed by
Federal agencies, compared with 23% at December 31, 1999. United did not have
securities of any issuer in excess of 10% of equity at year-end 2000 or 1999.
Other mortgage-backed securities, including CMOs, represented 29% of the total
securities portfolio at December 31, 2000, compared with 21% at year-end 1999.
Approximately 75% of the other mortgage-backed securities portfolio was
collateralized by mortgage-backed securities issued or backed by Federal
agencies as of December 31, 2000. See Note 4 to the consolidated financial
statements for further discussion of investment portfolio and related fair value
and maturity information.
DEPOSITS
Total average deposits for 2000 were $1.9 billion, an increase of $282
million, or 17% from 1999. Average non-interest bearing demand deposit accounts
increased $30 million, or 14%, and average interest bearing transaction accounts
increased $22 million, or 6%, from 1999. Average time deposits for 2000 were
$1.2 billion, an increase of 23% from 1999.
Time deposits of $100,000 and greater totaled $383 million at December
31, 2000, compared with $349 million at year-end 1999. 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 2000 and 1999 were $53.9 and $23.0 million,
respectively. Total interest paid on time deposits of $100,000 and greater
during 2000 was $20.2 million. The following table sets forth the scheduled
maturities of time deposits of $100,000 and greater and brokered time deposits
at December 31, 2000.
TABLE 12 - MATURITIES OF TIME DEPOSITS OF $100,000 AND GREATER AND BROKERED
DEPOSITS As of December 31, 2000 (in thousands)
$100,000 and Greater:
Three months or less $ 102,509
Three to six months 111,821
Six to twelve months 110,381
Over one year 58,267
---------
Total $ 382,978
=========
Brokered Deposits:
Three months or less $ 11,900
Three to six months 8,500
Six to twelve months 15,000
Over one year 17,500
---------
Total $ 52,900
=========
26
SHORT-TERM BORROWINGS
At December 31, 2000, all of the Banks were shareholders in the Federal
Home Loan Bank of Atlanta. Through this affiliation, secured advances totaling
$257 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, 2000 had both fixed and floating interest rates ranging from 4.35%
to 7.81%. Approximately 15% of the FHLB advances mature prior to December 31,
2001. Additional information regarding FHLB advances, including scheduled
maturities, is provided in Note 8 to the consolidated financial statements.
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 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.
The Company's net interest income, and the fair value of its financial
instruments, are influenced by changes in the level of interest rates. The
Company manages its exposure to fluctuations in interest rates through policies
established by Asset/Liability Management Committee ("ALCO") of its Subsidiary
Banks. The ALCO meets periodically and has responsibility for approving
asset/liability management policies, formulating and implementing strategies to
improve balance sheet positioning and/or earnings and reviewing the interest
rate sensitivity of the Company.
Management utilizes an interest rate simulation model to estimate the
sensitivity of net interest income to changes in interest rates. Such estimates
are based upon a number of assumptions for each scenario, including the level of
balance sheet growth, deposit repricing characteristics and the rate of
prepayments.
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, 2000.
27
TABLE 13 - INTEREST RATE GAP SENSITIVITY
As of December 31, 2000
(in thousands)
Interest Sensitivity Periods in Months
Immediate 1 to 3 4 to 12 13 to 60 Over 60 Total
- -----------------------------------------------------------------------------------------------------------------------------
Interest earning assets:
Interest bearing deposits with banks $ 2,404 $ -- $ -- $ -- $ -- $ 2,404
Federal funds sold 19,780 -- -- -- -- 19,780
Securities 22,619 53,597 67,836 254,779 133,280 532,111
Mortgage loans held for sale -- 6,125 -- -- -- 6,125
Loans 513,360 299,461 497,986 404,561 76,687 1,792,055
-----------------------------------------------------------------------------
Total interest-earning assets 558,163 359,183 565,822 659,340 209,967 2,352,475
-----------------------------------------------------------------------------
Interest bearing liabilities:
Demand deposits 413,978 -- -- -- -- 413,978
Savings deposits 86,568 -- -- -- -- 86,568
Time deposits -- 298,971 698,458 240,355 160 1,237,944
Fed funds purchased/repurchase agreements 52,640 -- -- -- -- 52,640
FHLB advances -- 19,780 19,780 138,868 78,797 257,225
Notes payable -- -- 1,743 -- -- 1,743
Convertible subordinated debentures -- -- -- -- 3,500 3,500
Trust preferred securities -- -- -- -- 36,000 36,000
-----------------------------------------------------------------------------
Total interest-bearing liabilities 553,186 318,751 719,981 379,223 118,457 2,089,598
Interest rate swaps, net (140,000) -- -- -- -- (140,000)
Non-interest bearing sources of funds -- -- -- -- 257,376 257,376
-----------------------------------------------------------------------------
Interest sensitivity gap (135,023) 40,432 (154,159) 280,117 91,510
-----------------------------------------------------------------------------
Cumulative sensitivity gap $ (135,023) $ (94,591) $ (248,750) $ 31,367 $ 122,877
========== ========== ========== ========== ==========
Cumulative gap percent(1) -6% -4% -11% 1% 5%
(1) Cumulative interest rate sensitivity position as a percent of average total
interest-earning assets.
As seen in the preceding table, during the first year 76% of interest
bearing liabilities will reprice compared with 63% of all interest earning
assets. Changes in the mix of earning assets or supporting liabilities can
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.
28
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, 2000. 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 AVAILABLE FOR SALE SECURITIES
As of December 31, 2000
(in thousands)
Maturity By Years
--------------------------------------------------------------------
1 or Less 1 to 5 5 - 10 Over 10 Total
- ------------------------------------------------------------------------------------------------------------------
U.S. Treasury $ 4,110 $ 1,924 $ - $ - $ 6,034
U.S. Government agencies 8,266 76,853 19,515 3,728 108,362
State and political subdivisions 3,966 31,969 26,868 21,173 83,976
Other securities (1) 50 8,692 23,634 301,363 333,739
------------------------------------------------------------------
Total securities available for sale $ 16,392 $ 119,438 $ 70,017 $ 326,264 $ 532,111
=================================================================
Weighted average yield (2) 6.65% 6.46% 6.33% 5.85% 6.44%
(1) Includes mortgage-backed securities.
(2) 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 2000, 1999 and 1998. 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.
29
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. The following table presents United's cap
contracts outstanding at December 31, 2000.
TABLE 15 - CAP CONTRACTS
As of December 31, 2000
(in thousands)
NOTIONAL CONTRACT CONTRACT FAIR
Maturity Amount Index Rate Value
---------------------------------------------------------
August 31, 2001 $ 5,000 Prime 10% $ --
August 27, 2001 20,000 Prime 10 --
------- -----
Total $25,000 $ --
======= ====
The following table presents United's swap contracts outstanding at
December 31, 2000.
TABLE 16 - SWAP CONTRACTS
As of December 31, 2000
(in thousands)
NOTIONAL RATE RATE FAIR
Maturity Amount Received Paid (1) Value
---------------------------------------------------
April 2, 2001 $ 15,000 8.41% 9.50% $ (37)
April 5, 2001 10,000 9.50% 9.50% 2
May 8, 2001 10,000 8.26% 9.50% (52)
June 7, 2001 10,000 8.69% 9.50% (20)
July 27, 2001 10,000 8.85% 9.50% (18)
October 12, 2001 10,000 9.11% 9.50% 12
June 7, 2002 10,000 9.05% 9.50% 44
June 14, 2002 10,000 9.12% 9.50% 55
June 24, 2002 20,000 8.80% 9.50% 70
July 29, 2002 25,000 9.04% 9.50% 125
August 10, 2002 10,000 9.60% 9.50% 139
---------------------------------------------------
Total/weighted average $ 140,000 8.93% 9.50% $ 320
===================================================
(1) Based on prime rate at December 31, 2000.
Effective January 1, 1999, United adopted SFAS No. 133, as amended by
SFAS No. 137 and 138 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 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,
2000, United's derivative financial instruments had an aggregate positive fair
value of $320,000.
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
30
interest rate risk sensitivity is minimal and should not have any material
unintended impact on United's financial condition or results of operations.
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 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 $6.1 million at December 31, 2000, 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 $302 million, or 17%, of the total loan
portfolio at December 31, 2000. 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, net cash
provided by operating activities was $19 million during 2000. The major sources
of cash provided by operating activities are net income partially offset by
changes in other assets and other liabilities. Net cash used in investing
activities of $171 million consisted primarily of a net increase in loans of
$232 million and securities purchases of $79 million funded largely by sales,
maturities and paydowns of securities of $149 million. Net cash provided by
financing activities provided the remainder of funding sources for 2000. The
$121 million of net cash provided by financing activities consisted primarily of
a $126 million net increase in deposits and a net increase in FHLB advances of
$37 million. In the opinion of management, United's liquidity position at
December 31, 2000, is sufficient to meet its expected cash flow requirements.
CAPITAL RESOURCES AND DIVIDENDS
Stockholders' equity at December 31, 2000 was $158 million, an increase of
$39.1 million, or 33%, from December 31, 1999. Accumulated other comprehensive
income (loss) is not included in the calculation of regulatory capital adequacy
ratios. Excluding the change in the accumulated other comprehensive gain,
stockholders' equity increased by 25%. Dividends of $2.9 million, or $.30 per
share, were declared on common stock in 2000, an increase of 50% per share from
the amount declared in 1999. The dividend payout ratios for 2000 and 1999 were
21% and 13%, respectively. United has historically retained the majority of its
earnings to provide a cost effective source of capital for continued growth and
expansion. However, in recognition that cash dividends 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.
On December 31, 1996, United completed a private placement of convertible
subordinated debentures due December 31, 2006 (the "2006 Debentures"). The 2006
Debentures bear interest at the rate of 25 basis points over the prime rate, as
quoted in the Wall Street Journal, payable quarterly. The 2006 Debentures may be
redeemed, in whole or in part, on or after January 1, 1998, at the option of
31
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 2006 Debentures have the right, exercisable 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 excludes other comprehensive
income, consists of stockholders' equity and qualifying capital securities less
goodwill and deposit-based intangibles, totaled to $186 million at December 31,
2000. 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 $212 million at December 31, 2000. The percentage ratios, as
calculated under the guidelines, were 10.3% and 11.8% for Tier I and Total
Risk-based Capital, respectively, at December 31, 2000.
A minimum leverage ratio is required in addition to the
risk-based capital standards and is defined as period end stockholders' equity
and qualifying capital 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 3% 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 3% 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, 2000 and 1999 were 7.5% and 5.9%, respectively.
All three of the capital ratios of United and the Banks
currently exceed the minimum ratios required in 2000 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 12 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 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.
32
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market Risk Information
(in thousands) Principal/Notional Amounting Maturing in:
Rate-sensitive assets: 2001 2002 2003 2004 2005
----------------------------------------------------------------------------------------------------------------------
Fixed interest rate loans $ 436,090 $ 147,785 $ 97,181 $ 54,828 $ 39,515
Average interest rate 9.63% 9.40% 9.59% 8.96% 9.38%
Variable interest rate loans 567,497 49,144 45,603 22,584 24,197
Average interest rates 10.06% 8.11% 8.29% 7.08% 7.50%
Fixed interest rate securities 97,930 87,313 62,259 63,609 41,245
Average interest rate 6.25% 6.45% 6.31% 6.41% 6.57%
Variable interest rate securities 1,468 516 524 1,405 495
Average interest rate 6.60% 6.65% 6.67% 6.80% 6.85%
Other interest bearing assets 22,184 -- -- -- --
Average interest rate 6.50% 0.00% 0.00% 0.00% 0.00%
Rate-sensitive liabilities:
- ----------------------------------------------------------------------------------------------------------------------
Savings and interest bearing checking $ 500,546 $ -- $ -- $ -- $ --
Average interest rate 3.90% 0.00% 0.00% 0.00% 0.00%
Fixed interest rate time deposits 994,947 188,242 32,393 12,529 6,293
Average interest rate 6.38% 6.59% 6.58% 6.24% 7.06%
Variable interest rate time deposits 3,348 32 -- -- --
Average interest rate 7.98% 7.37% 0.00% 0.00% 0.00%
Fixed interest rate borrowings 122,167 39,474 32,428 55,867 532
Average interest rate 6.69% 6.79% 6.08% 6.10% 5.97%
Variable interest rate borrowings 64,640 -- -- -- --
Average interest rate 6.73% 0.00% 0.00% 0.00% 0.00%
Rate-sensitive derivative
financial instruments:
- ----------------------------------------------------------------------------------------------------------------------
Pay variable interest rate swaps - Prime $ 65,000 $ 75,000 $ -- $ -- $ --
Average receive rate 8.77% 9.10% 0.00% 0.00% 0.00%
Interest rate caps - Prime 25,000 -- -- -- --
Average strike rate 10.00% 0.00% 0.00% 0.00% 0.00%
Market Risk Information
(in thousands)
(Continued)
Total Total
Thereafter 2000 1999
-------------------------------------------------
Fixed interest rate loans $ 60,479 $ 835,878 $ 696,070
Average interest rate 8.24% 9.45% 8.72%
Variable interest rate loans 253,277 962,302 874,404
Average interest rates 7.50% 9.10% 8.83%
Fixed interest rate securities 132,831 485,187 537,698
Average interest rate 6.40% 6.38% 7.16%
Variable interest rate securities 42,516 46,924 51,999
Average interest rate 6.87% 6.85% 6.69%
Other interest bearing assets -- 22,184 35,541
Average interest rate 0.00% 6.50% 6.10%
Rate-sensitive liabilities:
- -------------------------------------------------------------------------------------------------
Savings and interest bearing checking $ -- $ 500,546 $ 478,611
Average interest rate 0.00% 3.90% 3.60%
Fixed interest rate time deposits 160 1,234,564 1,161,032
Average interest rate 5.54% 6.42% 5.75%
Variable interest rate time deposits -- 3,380 3,378
Average interest rate 0.00% 7.98% 6.99%
Fixed interest rate borrowings 36,000 286,468 329,360
Average interest rate 9.35% 6.31% 5.71%
Variable interest rate borrowings -- 64,640 39,786
Average interest rate 0.00% 6.73% 6.39%
Rate-sensitive derivative
financial instruments:
- -------------------------------------------------------------------------------------------------
Pay variable interest rate swaps - Prime $ -- $ 140,000 $ 150,000
Average receive rate 0.00% 8.95% 8.97%
Interest rate caps - Prime -- 25,000 45,000
Average strike rate 0.00% 10.00% 8.50%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the registrant and report of
independent auditors are included herein as follows:
33
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants 35
Consolidated Balance Sheets as of December 31, 2000 and 1999 36
Consolidated Statements of Income for the year ended
December 31, 2000, 1999 and 1998 37
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2000, 1998 and 1998 38
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 2000, 1999 and 1998 39
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 40
Notes to Consolidated Financial Statements 41 - 58
34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
United Community Banks, Inc.
Blairsville, Georgia
We have audited the accompanying consolidated balance sheets of United Community
Banks, Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000.
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 did not audit the 1999 and 1998 consolidated financial
statements of Independent Bancshares, Inc. and subsidiary or the 1999 and 1998
consolidated financial statements of North Point Bancshares, Inc. and
subsidiary, which were pooled with United Community Banks, Inc. in 2000 as
explained in note 2 to the consolidated financial statements. The statements are
included in the accompanying consolidated financial statements and reflect total
assets of $251,580,000 as of December 31, 1999 and net income of $2,630,000 and
$2,736,000 for the years ended December 31, 1999 and 1998, respectively. Those
statements were audited by other auditors whose reports have been furnished to
us and our opinion, insofar as it relates to these amounts, is based solely on
the reports of the other auditors.
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, based on our audits and the reports of other auditors, 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000, in conformity with generally accepted accounting principles.
/s/ Porter Keadle Moore LLP
PORTER KEADLE MOORE LLP
Atlanta, Georgia
February 23, 2001
35
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
ASSETS
(in thousands)
2000 1999
----------- -----------
Cash and due from banks $ 80,109 $ 98,322
Interest bearing deposits in banks 2,404 2,981
Federal funds sold 19,780 32,560
----------- -----------
Cash and cash equivalents 102,293 133,863
Securities available for sale 532,111 578,709
Securities held to maturity (fair value of $9,953 in 1999) -- 10,988
Mortgage loans held for sale 6,125 6,326
Loans 1,792,055 1,564,148
Less - Allowance for loan losses (24,698) (20,043)
----------- -----------
Loans, net 1,767,357 1,544,105
Premises and equipment, net 56,930 56,456
Interest receivable 25,384 19,954
Other assets 38,679 34,277
----------- -----------
Total assets $ 2,528,879 $ 2,384,678
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 257,375 $ 226,358
Interest-bearing demand 413,978 394,139
Savings 86,568 84,472
Time 1,237,944 1,164,410
----------- -----------
Total deposits 1,995,865 1,869,379
Accrued expenses and other liabilities 23,518 26,841
Federal funds purchased 48,640 27,490
Repurchase agreements 4,000 4,322
Federal Home Loan Bank advances 257,225 294,279
Long-term debt 41,243 43,055
----------- -----------
Total liabilities 2,370,491 2,265,366
----------- -----------
Commitments
Stockholders' equity:
Preferred stock, $1 par value; $10 stated value;
10,000,000 shares authorized; issued 287,410 2,874 --
Common stock, $1 par value; 50,000,000 shares authorized;
issued 10,513,949 and 10,093,572 10,514 10,094
Capital surplus 59,386 44,001
Retained earnings 85,718 74,813
Accumulated other comprehensive loss (104) (9,596)
----------- -----------
Total stockholders' equity 158,388 119,312
----------- -----------
Total liabilities and stockholders' equity $ 2,528,879 $ 2,384,678
=========== ===========
See accompanying notes to consolidated financial statements.
36
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands, except per share data)
2000 1999 1998
--------- --------- ---------
Interest income:
Interest and fees on loans $ 170,538 $ 134,986 $ 113,352
Interest on federal funds sold and deposits in banks 2,999 1,650 2,261
Interest on investment securities:
Taxable 33,182 28,172 14,772
Tax exempt 4,029 4,184 3,501
--------- --------- ---------
Total interest income 210,748 168,992 133,886
--------- --------- ---------
Interest expense:
Interest on deposits:
Demand 17,062 14,678 12,209
Savings 2,413 2,311 1,830
Time 74,011 53,726 46,533
--------- --------- ---------
93,486 70,715 60,572
Other borrowings 23,105 19,527 7,092
--------- --------- ---------
Total interest expense 116,591 90,242 67,664
--------- --------- ---------
Net interest income 94,157 78,750 66,222
Provision for loan losses 7,631 5,966 3,014
--------- --------- ---------
Net interest income after provision for loan losses 86,526 72,784 63,208
Non-interest income:
Service charges and fees 7,436 6,079 5,187
Consulting fees 4,984 3,055 2,241
Mortgage loan and other related fees 1,429 1,923 2,140
Securities (losses) gains, net (2,687) 544 804
Other 5,051 4,092 2,607
--------- --------- ---------
Total non-interest income 16,213 15,693 12,979
--------- --------- ---------
Non-interest expense:
Salaries and employee benefits 46,134 37,242 30,309
Occupancy 13,966 10,866 8,290
Other 21,556 17,242 14,505
--------- --------- ---------
Total non-interest expense 81,656 65,350 53,104
--------- --------- ---------
Income before income taxes 21,083 23,127 23,083
Income taxes 6,566 7,029 7,433
--------- --------- ---------
Net income $ 14,517 $ 16,098 $ 15,650
========= ========= =========
Net income available to common shareholders $ 14,474 $ 16,098 $ 15,650
========= ========= =========
Earnings per share:
Basic $ 1.41 $ 1.60 $ 1.57
Diluted 1.39 1.56 1.54
Weighted average shares outstanding (in thousands):
Basic 10,300 10,079 9,999
Diluted 10,597 10,421 10,306
See accompanying notes to consolidated financial statements
37
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands)
2000 1999 1998
-------- -------- --------
Net income $ 14,517 $ 16,098 $ 15,650
-------- -------- --------
Other comprehensive income:
Unrealized holding gains (losses) on investment securities 12,642 (17,389) 1,787
Reclassification adjustment for losses (gains) on
investment securities included in non-interest income 2,687 (544) (804)
-------- -------- --------
Total other comprehensive income (loss), before income taxes 15,329 (17,933) 983
-------- -------- --------
Income tax expense (benefit) related to the above items:
Unrealized holding gains (losses) on investment securities 4,820 (6,583) 676
Reclassification adjustment for losses (gains) on
investment securities 1,017 (206) (306)
-------- -------- --------
Total income tax expense (benefit) 5,837 (6,789) 370
-------- -------- --------
Net unrealized holdings gains (losses), on investment securities 9,492 (11,144) 613
-------- -------- --------
Total comprehensive income $ 24,009 $ 4,954 $ 16,263
======== ======== ========
See accompanying notes to consolidated financial statements.
38
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands, except share data)
<
Preferred Common Capital
Stock Stock Surplus
----- ----- -------
Balance, December 31, 1997, as restated $ -- $ 9,726 $ 40,922
--------- --------- ---------
Net income -- -- --
Cash dividends declared ($.15 per share) -- -- --
Cash dividends declared by pooled subsidiaries -- -- --
Common stock offering, net (issued 101,724 shares) -- 102 1,458
Common stock (issued 8,500 shares) -- 8 109
Net unrealized holding gains on investment securities -- -- --
Balance, December 31, 1998 -- 9,836 42,489
Net income -- -- --
Cash dividends declared ($.20 per share) -- -- --
Cash dividends declared by pooled subsidiaries -- -- --
Common stock (issued 30,546 shares) -- 31 311
Stock dividends declared by pooled subsidiaries (issued 191,642 shares) -- 192 236
Proceeds from capital investments into pooled subsidiary (issued 35,423 shares) -- 35 965
Net unrealized holding losses on investment securities -- -- --
--------- --------- ---------
Balance, December 31, 1999 -- 10,094 44,001
Net income -- -- --
Cash dividends declared ($.30 per share) -- -- --
Cash dividends declared by pooled subsidiaries -- -- --
Common stock offering, net (issued 418,377 shares) -- 418 15,346
Common stock (issued 2,000 shares) -- 2 39
Preferred stock (issued 287,410 shares) 2,874 -- --
Dividends declared on preferred stock ($.15 per share) -- -- --
Net unrealized holding gains on investment securities -- -- --
--------- --------- ---------
Balance, December 31, 2000 $ 2,874 $ 10,514 $ 59,386
========= ========= =========
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands, except share data)
(CONTINUED)
Accumulated
Other
Retained Comprehensive
Earnings Income (Loss) Total
-------- ------------- -----
Balance, December 31, 1997, as restated $ 47,795 $ 935 $ 99,378
--------- --------- ---------
Net income 15,650 -- 15,650
Cash dividends declared ($.15 per share) (1,182) -- (1,182)
Cash dividends declared by pooled subsidiaries (772) -- (772)
Common stock offering, net (issued 101,724 shares) -- -- 1,560
Common stock (issued 8,500 shares) -- -- 117
Net unrealized holding gains on investment securities -- 613 613
Balance, December 31, 1998 61,491 1,548 115,364
Net income 16,098 -- 16,098
Cash dividends declared ($.20 per share) (1,542) -- (1,542)
Cash dividends declared by pooled subsidiaries (806) -- (806)
Common stock (issued 30,546 shares) -- -- 342
Stock dividends declared by pooled subsidiaries (issued 191,642 shares) (428) -- --
Proceeds from capital investments into pooled subsidiary (issued 35,423 shares) -- -- 1,000
Net unrealized holding losses on investment securities -- (11,144) (11,144)
--------- --------- ---------
Balance, December 31, 1999 74,813 (9,596) 119,312
Net income 14,517 -- 14,517
Cash dividends declared ($.30 per share) (2,923) -- (2,923)
Cash dividends declared by pooled subsidiaries (646) -- (646)
Common stock offering, net (issued 418,377 shares) -- -- 15,764
Common stock (issued 2,000 shares) -- -- 41
Preferred stock (issued 287,410 shares) -- -- 2,874
Dividends declared on preferred stock ($.15 per share) (43) -- (43)
Net unrealized holding gains on investment securities -- 9,492 9,492
--------- --------- ---------
Balance, December 31, 2000 $ 85,718 $ (104) $ 158,388
========= ========= =========
See accompanying notes to consolidated financial statements.
39
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands)
2000 1999 1998
--------- --------- ---------
Operating activities:
Net income $ 14,517 $ 16,098 $ 15,650
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation, amortization and accretion 5,451 5,782 3,528
Provision for loan losses 7,631 5,966 3,014
Deferred income tax benefit (3,791) (1,857) (888)
Loss (gain) on sale of securities available for sale 1,577 (544) (804)
Loss (gain) on sale of securities held to maturity 1,110 -- --
Loss on disposal of premises and equipment 1,848 -- --
Change in assets and liabilities, net of effects of purchase acquisitions:
Other assets and accrued interest receivable (8,420) (5,072) (659)
Accrued expenses and other liabilities (770) 5,182 (10,710)
Mortgage loans held for sale 201 1,805 (4,173)
--------- --------- ---------
Net cash provided by operating activities 19,354 27,360 4,958
--------- --------- ---------
Investing activities, net of effects of purchase acquisitions:
Proceeds from sales of securities available for sale 58,990 9,132 44,193
Proceeds from sales of securities held to maturity 3,867 -- --
Proceeds from maturities and calls of securities available for sale 84,316 110,082 82,214
Purchases of securities available for sale (78,833) (267,920) (291,519)
Proceeds from maturities and calls of securities held to maturity 1,920 1,533 34,514
Purchases of securities held to maturity -- (114) (14,087)
Net increase in loans (232,107) (347,992) (209,980)
Purchases of premises and equipment (7,166) (9,831) (17,379)
Cash acquired from (paid for) acquisitions and branch purchases -- (2,757) 20,282
Purchases of life insurance contracts (3,350) -- (8,351)
Proceeds from sale of other real estate 889 267 794
--------- --------- ---------
Net cash used in investing activities (171,474) (507,600) (359,319)
--------- --------- ---------
Financing activities, net of effects of purchase acquisitions:
Net change in deposits 126,486 407,088 205,882
Net change in federal funds purchased and repurchase agreements 20,828 5,656 (5,727)
Net change in notes payable and other borrowings (16,812) 19,596 (12,792)
Proceeds from FHLB advances 231,625 201,625 221,249
Repayments of FHLB advances (268,679) (100,907) (78,715)
Proceeds from Trust Preferred Securities 15,000 -- 21,000
Transaction costs associated with Trust Preferred Securities (521) -- (959)
Proceeds from exercise of stock options 41 216 117
Proceeds from sale of common stock 15,764 -- 1,560
Proceeds from capital investment into pooled subsidiaries -- 1,000 --
Cash paid for dividends on common stock (2,493) (1,417) (1,088)
Cash paid for dividends by pooled subsidiaries (646) (806) (613)
Cash paid for dividends on preferred stock (43) -- --
--------- --------- ---------
Net cash provided by financing activities 120,550 532,051 349,914
--------- --------- ---------
Net change in cash and cash equivalents (31,570) 51,811 (4,447)
Cash and cash equivalents at beginning of period 133,863 82,052 86,499
--------- --------- ---------
Cash and cash equivalents at end of period $ 102,293 $ 133,863 $ 82,052
========= ========= =========
See accompanying notes to consolidated financial statements.
40
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) 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 a multi-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 in Georgia and North Carolina: United
Community Bank, Carolina Community Bank, Peoples Bank of Fannin County,
Towns County Bank, White County Bank, First Clayton Bank and Trust, Bank
of Adairsville, First Floyd Bank, Dawson County Bank and Independent Bank
& Trust (collectively, the "Banks"), and Brintech, Inc., a financial
services consulting subsidiary based in New Smyrna Beach, Florida. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
The Banks are commercial banks that serve markets throughout North Georgia
and Western North Carolina and provide a full range of 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, which is used as collateral for a
substantial portion of United's loans and real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection
with these valuations, management obtains independent appraisals for
significant properties.
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 earnings and are reported in other comprehensive income 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. These unrealized holding gains
or losses are amortized into earnings 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.
A decline in the fair market value of the held to maturity investment
securities below cost that is deemed other than temporary is charged to
earnings 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
securities are included in earnings and are derived using the specific
identification method for determining the cost of the 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 earnings for the period in which the
change occurs. No market valuation allowances were required at December
31, 2000 or 1999.
41
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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. At December 31, 2000 and 1999 there were no material amounts of
impaired loans.
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, is adequate to absorb probable losses on existing
loans.
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 consistent with those
applied by regulators. Management prepares a quarterly analysis of the
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.
Management believes the allowance for loan losses is adequate at December
31, 2000. 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 as incurred. 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 premiums associated
with the purchase of separate branches are amortized over the estimated
life of the deposit base, generally 15 years. On an ongoing basis,
management reviews the valuation and amortization periods for goodwill and
deposit premiums.
42
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 of a change in tax rates on deferred tax assets and liabilities
is recognized in income taxes during 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 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
earnings and tax planning strategies.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 1999, United adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"), as amended by SFAS
No. 137 and SFAS No. 138, 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 earnings 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 earnings. The change in fair value
of derivative instruments that are not intended as a hedge is accounted
for in the earnings of the period of the change.
In 1999, United transferred all held to maturity investment securities to
available for sale securities under this provision of SFAS No. 133. The
held to maturity securities had an amortized cost of $58.3 million and net
unrealized gains of $1.8 million. This transfer resulted in a $1.1
million, net of taxes, increase in stockholders' equity. As of December
31, 2000 and 1999, United held interest rate swaps and interest rate caps,
which were entered into as a means of managing its interest rate risk and
accounts for these hedge instruments as fair value hedges.
Statement of Financial Accounting Standards No. 138 was issued in June
2000 and amended SFAS No. 133 in order to address implementation issues.
Specifically, for United, is the provision which redefines a hedge in an
interest rate as the risk of change in an established benchmark interest
rate. United implemented SFAS No. 138 and such implementation did not have
a material impact on its financial position.
OTHER
Assets held by United in a fiduciary or agency capacity for customers is
not included in the consolidated balance sheets since such items are not
assets of United.
EARNINGS PER SHARE
United is required to report on the face of the statements of income,
earnings per common share with and without the dilutive effects of
potential common stock issuances from instruments such as options,
convertible securities and warrants. Basic earnings 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 earnings per common share. During 2000,
United paid dividends to Series A preferred stockholders totaling $43,000.
43
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
The following table sets forth the computation of basic and diluted
earnings per share for the years ended December 31 (in thousands, except
per share data):
2000 1999 1998
------- ------- -------
Net income available to common shareholders $14,474 $16,098 $15,650
Effects of convertible debentures 220 191 187
------- ------- -------
Diluted net earnings $14,694 $16,289 $15,837
======= ======= =======
Earnings per share:
Basic $ 1.41 $ 1.60 $ 1.57
Diluted 1.39 1.56 1.54
Basic weighted average shares (in thousands) 10,300 10,079 9,999
Effect of dilutive securities:
Stock options 157 202 167
Convertible debentures 140 140 140
------- ------- -------
Dilutive average shares 10,597 10,421 10,306
======= ======= =======
(2) MERGERS AND ACQUISITIONS
Effective July 26, 2000, United acquired, for 958,024 shares of its common
stock, all of the outstanding common stock of North Point Bancshares, Inc.
("Dawson"), a $119 million one-bank holding company, located in
Dawsonville, Georgia. In addition, United acquired, for 817,604 shares of
its common stock, all of the outstanding common stock of Independent
Bancshares, Inc. ("Independent"), a $153 million one-bank holding company,
located in Powder Springs, Georgia.
Effective September 29, 2000, United acquired, for 283,390 shares of its
common stock, all of the outstanding common stock of Brintech, Inc.
("Brintech"), a consulting firm located in New Smyrna Beach, Florida.
United has not filed a registration statement with the Securities and
Exchange Commission ("SEC"), for issuance of these shares and,
accordingly, the shareholders of Brintech will be restricted from resale
of their shares until the shares are registered with the SEC. In addition,
United issued 287,410 shares of its preferred stock to key non-shareholder
employees of Brintech in connection with satisfaction of certain
contractual deferred compensation obligations triggered by the change in
control of Brintech.
All of the acquisitions were accounted for as poolings 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, 1998.
The following is a reconciliation of the amounts of net interest income
and net earnings previously reported with the restated amounts (in
thousands):
2000 1999 1998
-------- -------- --------
Net interest income
As previously reported in 1999 and 1998 $ 81,665 $ 67,974 $ 56,210
Dawson 5,287 4,528 4,690
Independent 7,237 6,289 5,355
Brintech (32) (41) (33)
-------- -------- --------
As restated $ 94,157 $ 78,750 $ 66,222
======== ======== ========
44
Net income
As previously reported in 1999 and 1998 $ 15,066 $ 13,648 $ 12,773
Dawson 1,254 1,009 1,637
Independent 90 1,621 1,099
Brintech (1,893) (180) 141
-------- -------- --------
As restated $ 14,517 $ 16,098 $ 15,650
======== ======== ========
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) MERGERS AND ACQUISITIONS, CONTINUED
United recorded merger, integration and restructuring charges of $10.6
million during 2000 associated with the acquisitions of Dawson,
Independent and Brintech. The components of the charges are shown below
(in thousands):
Merger charges included in non-interest expenses:
Salaries and employee benefits - severance and related costs $ 3,615
Occupancy - disposal of premises and equipment 1,848
Professional fees - contract termination costs 927
Other merger-related expenses 1,590
-------
7,980
Loss on sale of securities 2,654
-------
Total merger-related charges $ 10,634
======
In March 1999, United acquired all the outstanding common stock of
Adairsville Bancshares, Inc. (Adairsville), the parent company of Bank of
Adairsville, 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.
In August 1999, United acquired for 632,890 shares of its common stock,
all of the outstanding common stock of First Floyd Bankshares, Inc., a
$115 million one-bank holding company located in Rome, Georgia. The
acquisition was accounted for as a pooling of interests.
(3) CASH FLOWS
United paid approximately $117 million, $87 million and $67 million in
interest on deposits and other liabilities during 2000, 1999 and 1998,
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,
------------------------------------------
2000 1999 1998
-------- -------- --------
Schedule of noncash investing and financing activities (in thousands):
Change in unrealized gains (losses) on securities available for sale,
net of tax $ 9,492 $(11,144) $ 613
Change in dividends payable 430 125 93
Assets acquired in branch acquisition, other than cash and
cash equivalents -- -- 3,246
Deposit liabilities assumed in branch acquisitions -- -- 23,399
Investment securities purchase obligations -- 14,500 10,645
Issuance of preferred stock in satisfaction of compensation liabilities 2,874 -- --
Transfer of held to maturity securities to available for sale 4,081 58,306 --
(4) INVESTMENT SECURITIES
Investment securities at December 31, 2000 and 1999, (in thousands):
AS OF DECEMBER 31, 2000
-----------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Available for Sale Securities: Cost Gains Losses Value
---- ------ ------- -----
U.S. Treasuries $ 5,996 $ 38 $ - $ 6,034
U.S. Government agencies 108,022 712 372 108,362
State and political subdivisions 83,808 827 659 83,976
Mortgage-backed securities 301,938 1,531 2,106 301,363
Other 32,266 213 103 32,376
-------- ------ ------ --------
Total $ 532,030 $ 3,321 $ 3,240 $ 532,111
======= ===== ===== =======
45
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) INVESTMENT SECURITIES, CONTINUED
AS OF DECEMBER 31, 1999
-----------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- ------- -------- --------
Available for Sale Securities:
U.S. Treasuries $ 32,674 $ 28 $ 302 $ 32,400
U.S. Government agencies 138,358 3 3,412 134,949
State and political subdivisions 85,054 261 2,726 82,589
Mortgage-backed securities 313,847 451 8,765 305,533
Other 24,024 -- 786 23,238
-------- -------- -------- --------
Total $593,957 $ 743 $ 15,991 $578,709
======== ======== ======== ========
Held to Maturity Securities:
U.S. Government agencies $ 6,821 $ 2 $ 1,041 $ 5,782
State and political subdivisions 3,371 26 7 3,390
Mortgage-backed securities 796 2 17 781
-------- -------- -------- --------
Total $ 10,988 $ 30 $ 1,065 $ 9,953
======== ======== ======== ========
The amortized cost and fair value of the securities portfolio at
December 31, 2000, 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.
Available for Sale Securities
---------------------------------
Amortized Cost Fair Value
-------------- ----------
U.S. Treasuries:
Within 1 year $ 4,098 $ 4,110
1 to 5 years 1,898 1,924
-------- --------
$ 5,996 $ 6,034
======== ========
U.S. Government agencies:
Within 1 year $ 8,264 $ 8,266
1 to 5 years 76,585 76,853
5 to 10 years 19,362 19,515
More than 10 years 3,811 3,728
-------- --------
$108,022 $108,362
======== ========
State and political subdivisions:
Within 1 year $ 3,963 $ 3,966
1 to 5 years 31,750 31,969
5 to 10 years 26,602 26,868
More than 10 years 21,493 21,173
-------- --------
$ 83,808 $ 83,976
======== ========
Other:
Within 1 year $ 50 $ 50
1 to 5 years 8,599 8,692
5 to 10 years 23,617 23,634
-------- --------
$ 32,266 $ 32,376
======== ========
Total securities other than mortgage-backed securities:
Within 1 year $ 16,375 $ 16,392
1 to 5 years 118,832 119,438
5 to 10 years 69,581 70,017
More than 10 years 25,304 24,901
Mortgage-backed securities 301,938 301,363
-------- --------
$532,030 $532,111
======== ========
46
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) INVESTMENT SECURITIES, CONTINUED
The following summarizes investment securities sales activities for the
years ended December 31, 2000, 1999 and
1998:
2000 1999 1998
-------- -------- --------
Proceeds from the sales of securities $ 62,857 $ 9,132 $ 44,193
======== ======== ========
Gross gains on sales of securities $ 21 $ 647 $ 807
Gross losses on sales of securities 2,708 103 3
-------- -------- --------
Net (losses) gains on sales of securities $ (2,687) $ 544 $ 804
======== ======== ========
Income taxes (benefits) attributable to sale of securities $ (1,017) $ 206 $ 306
======== ======== ========
During 2000 and 1999, in connection with the acquisitions of Dawson,
Independent, and First Floyd, United realigned the held-to-maturities
securities portfolios. As part of this realignment, during 2000 United sold
$5.0 million of the held to maturity securities which resulted in a net
loss of approximately $1.1 million. Additionally, during 2000 and 1999,
United transferred $4.1 million and $58.3 million, respectively, of the
held to maturity securities to the available for sale portfolio.
At December 31, 2000 and 1999, securities with a carrying value of $137
million and $162 million, respectively, were pledged to secure public
deposits and Federal Home Loan Bank advances.
(5) LOANS AND ALLOWANCE FOR LOAN LOSSES
Major classifications of loans at December 31, 2000 and 1999, are
summarized as follows (in thousands):
2000 1999
----------- -----------
Commercial, financial and agricultural $ 177,009 $ 151,112
Real estate - construction 256,886 211,034
Real estate - mortgage 1,194,625 1,034,790
Consumer 163,535 167,212
----------- -----------
Total loans 1,792,055 1,564,148
Less - allowance for loan losses (24,698) (20,043)
----------- -----------
Loans, net $ 1,767,357 $ 1,544,105
=========== ===========
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.
Changes in the allowance for loan losses are summarized as follows (in
thousands):
2000 1999 1998
-------- -------- --------
Balance at beginning of year $ 20,043 $ 14,402 $ 12,404
Provision for loan losses 7,631 5,966 3,014
Loan charge-offs (3,737) (3,186) (1,624)
Recoveries 761 1,039 608
Allowance acquired from Adairsville -- 1,822 --
-------- -------- --------
Balance at end of year $ 24,698 $ 20,043 $ 14,402
======== ======== ========
United serviced approximately $38 million and $55 million of mortgage
loans for other institutions at December 31, 2000 and 1999, respectively.
47
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) LOANS AND ALLOWANCE FOR LOAN LOSSES, CONTINUED
In the ordinary course of business, United and its Banks have loans
outstanding to certain executive officers and directors, including their
immediate families and companies with which they are associated.
Management believes that such loans are made substantially on the same
terms, including interest rate and collateral, as those prevailing at the
time for comparable transactions with other customers. The following is a
summary of such loans outstanding and the activity in these loans for the
year ended December 31, 2000 (in thousands):
Balance at December 31, 1999 $ 44,559
New loans 54,092
Repayments (40,102)
Adjustment for changes in executive officers and directors (15,248)
------
Balance at December 31, 2000 $ 43,301
======
(6) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 2000 and 1999, (in thousands):
2000 1999
-------- --------
Land and land improvements $ 14,254 $ 12,520
Buildings 32,011 31,067
Furniture and equipment 30,719 30,630
Construction in progress 1,430 2,881
-------- --------
78,414 77,098
Less - accumulated depreciation (21,484) (20,642)
-------- --------
Premises and equipment, net $ 56,930 $ 56,456
======== ========
Depreciation expense was approximately $4.8 million, $4.9 million and $3.3
million for 2000, 1999 and 1998, respectively.
(7) TIME DEPOSITS
The aggregate amount of time deposit accounts with a minimum denomination
of $100,000 was approximately $383 million and $349 million at December
31, 2000 and 1999, respectively.
At December 31, 2000, the contractual maturities of time deposits are
summarized as follows (in thousands):
Maturing In:
-----------
2001 $ 997,429
2002 193,777
2003 25,531
2004 14,010
2005 7,037
thereafter 160
------------
$ 1,237,944
48
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) 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, 2000.
The FHLB advances are collateralized by first mortgage loans,
mortgage-backed securities and FHLB stock.
The maturities of outstanding advances from FHLB at December 31, 2000 are
as follows (in thousands):
Year
2001 $ 39,560
2002 46,732
2003 28,532
2004 47,508
2005 16,096
thereafter 78,797
--------
$ 257,225
========
(9) LONG-TERM DEBT
Long-term debt at December 31, 2000 and 1999 consisted of the following
(in thousands):
2000 1999
------- -------
Trust Preferred securities $36,000 $21,000
Convertible debentures 3,500 3,500
Other borrowings 1,743 18,555
------- -------
$41,243 $43,055
======= =======
Convertible Subordinated Debentures
----------------------------------
On December 31, 1996, United completed a private placement of convertible
subordinated debentures (the "Debentures") due December 31, 2006. The
Debentures bear interest at the rate of .25% over the prime rate, payable
quarterly. The Debentures may be redeemed, in whole or in part at the
option of United, within 60 days notice, at a redemption price equal to
100% of the principal amount of the Debentures plus accrued interest. The
Debentures are exercisable at any time, and may be converted into shares
of common stock of United at the price of $25 per share, subject to
adjustment for stock splits and stock dividends.
At December 31, 2000 and 1999, certain directors and executive officers of
United held convertible debentures totaling $2,575,000 and $2,875,000,
respectively.
Trust Preferred Securities
--------------------------
In September 2000, United formed a wholly owned Connecticut statutory
business trust, United Community Statutory Trust I ("United Statutory
Trust"), which issued $5 million of guaranteed preferred beneficial
interests in United's junior subordinated deferrable interest debentures
(the "Trust Preferred Securities"). These debentures qualify as Tier 1
capital under Federal Reserve Board guidelines. All of the common
securities of United Statutory Trust are owned by United. The proceeds
from the issuance of the common securities and the Trust Preferred
Securities were used by United Statutory Trust to purchase $5.2 million of
junior subordinated debentures of United, which carry a fixed interest
rate of 10.60%. The proceeds received by United from the sale of the
junior subordinated debentures were used to prepay other borrowings of
approximately $1.9 million and for other corporate purposes. The
debentures represent the sole asset of United Statutory Trust. The
debentures and related earnings statement effects are eliminated in
United's financial statements.
The Trust Preferred Securities accrue and pay distributions semiannually
at a fixed rate of 10.60% 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
Statutory Trust, and (iii) payments due upon a voluntary or involuntary
dissolution, winding up or liquidation of United Statutory Trust.
49
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) LONG-TERM DEBT, CONTINUED
The Trust Preferred Securities are mandatorily redeemable upon maturity of
the debentures on July 19, 2030, or upon earlier redemption as provided in
the indenture. United has the right to redeem the debentures purchased by
United Statutory Trust in whole or in part, on or after July 19, 2010. 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 5.3% in 2010 to .53% in
2019.
In July 2000, United formed a wholly owned Delaware statutory business
trust, United Community Capital Trust II ("United Trust II"), which issued
$10 million of guaranteed preferred beneficial interests in United's
junior subordinated deferrable interest debentures (the "Trust Preferred
Securities"). These debentures qualify as Tier 1 capital under Federal
Reserve Board guidelines. All of the common securities of United Trust II
are owned by United. The proceeds from the issuance of the common
securities and the Trust Preferred Securities were used by United Trust II
to purchase $10.3 million of junior subordinated debentures of United,
which carry a fixed interest rate of 11.295%. The proceeds received by
United from the sale of the junior subordinated debentures were used to
prepay other borrowings of approximately $10.6 million. The debentures
represent the sole asset of United Trust II. The debentures and related
earnings statement effects are eliminated in United's financial
statements.
The Trust Preferred Securities accrue and pay distributions semiannually
at a fixed rate of 11.295% 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 II, and (iii) payments due upon a voluntary or involuntary
dissolution, winding up or liquidation of United Trust II.
The Trust Preferred Securities are mandatorily redeemable upon maturity of
the debentures on July 19, 2030, or upon earlier redemption as provided in
the indenture. United has the right to redeem the debentures purchased by
United Trust II in whole or in part, on or after July 19, 2010. 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 2.824% in 2010 to .565%
in 2019.
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 that carry a fixed interest rate of 8.125 %. The proceeds received
by United from the sale of the junior subordinated debentures were used to
prepay other 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 earnings 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 % 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.
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 % in 2008 to .41 %
in 2017.
50
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES
Income taxes for the years ended December 31, 2000, 1999 and 1998 (in
thousands):
2000 1999 1998
-------- -------- --------
Current $ 10,357 $ 8,886 $ 8,321
Deferred (3,791) (1,857) (888)
-------- -------- --------
$ 6,566 $ 7,029 $ 7,433
======== ======== ========
The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate (of 34%) to
income before income taxes are as follows (in thousands):
2000 1999 1998
------- ------- -------
Pretax earnings at statutory rates $ 7,168 $ 7,863 $ 7,848
Add (deduct):
State taxes, net of federal benefit 780 388 415
Tax-exempt interest income (1,588) (1,541) (1,276)
Nondeductible interest expense 307 276 240
Other (101) 43 206
------- ------- -------
$ 6,566 $ 7,029 $ 7,433
======= ======= =======
The following summarizes the sources and expected tax consequences of
future taxable deductions (income) which comprise the net deferred tax
asset at December 31, 2000 and 1999 (in thousands):
2000 1999
-------- --------
Deferred tax assets:
Allowance for loan losses $ 9,172 $ 7,455
Accrued expenses 933 45
Net operating loss and credit carryforwards 604 561
Unrealized securities losses 12 5,571
Other 547 244
-------- --------
Total deferred tax assets 11,268 13,876
-------- --------
Deferred tax liabilities:
Premises and equipment (1,470) (2,099)
Other (5) (216)
-------- --------
Total deferred tax liabilities (1,475) (2,315)
-------- --------
Net deferred tax asset $ 9,793 $ 11,561
======== ========
During 2000, 1999 and 1998, United made income tax payments of
approximately $9.6 million, $8.6 million and $8.2 million, respectively.
(11) 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 $1,549,000, $1,215,000 and $1,025,000 in
2000, 1999, and 1998, respectively. The subsidiaries acquired in 2000 and
1999 had company sponsored employee benefit plans that have been or will
be merged into the existing plan of United. Under these plans, the
acquired subsidiaries recognized expenses of approximately $165,000,
$245,000 and $194,000 in 2000, 1999 and 1998, 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 each participant. At December 31, 2000 and 1999,
the cash surrender value of the insurance contracts was approximately
$14.5 million and $8.6 million, respectively. Expenses incurred for these
benefits were approximately $423,000 and $204,000 during 2000 and 1999,
respectively.
51
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) 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 financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, United and 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 capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures (as defined) established by regulation to ensure
capital adequacy require United and the Banks to maintain minimum amounts
and ratios of total and Tier 1 capital to risk-weighted assets, and of
Tier 1 capital to average assets.
As of December 31, 2000, the banks were categorized as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Banks must exceed the well
capitalized guideline ratios, as set forth in the table, and meet certain
other requirements. Management believes that the Banks exceed all well
capitalized requirements, and there have been no conditions or events
since year-end that would change the status of well capitalized.
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).
Regulatory United Carolina
Guidelines(1) United Community Community
----------------------- ---------------- --------------- ----------------
Well
Minimum Capitalized 2000 1999 2000 1999 2000 1999
------- ----------- ---- ---- ---- ---- ---- ----
Risk-based ratios:
Tier 1 capital 4% 6% 10.3% 9.0% 10.1% 9.8% 10.2% 9.3%
Total capital 8 10 11.8 10.4 11.3 11.1 11.5 10.5
Leverage ratio 3 5 7.5 5.9 7.5 6.4 7.3 6.1
Tier 1 capital $185,700 $140,255 $ 45,170 $ 38,865 $ 44,964 $ 34,991
Total capital 211,761 162,990 50,788 43,825 50,467 39,521
(1) The regulatory designations of "well capitalized" under prompt
corrective action regulations is not applicable to United (a bank
holding company). However, regulation Y defines "well capitalized"
for a bank holding company for the purpose of determining eligibility
for a streamlined review process for acquisition proposals. For such
purposes; "well capitalized" requires United to maintain a minimum
Tier 1 risk-based capital ratio of 6% and a minimum total risk-based
capital ratio of 10%.
Cash, Dividend, Loan and Other Restrictions
-------------------------------------------
At December 31, 2000 and 1999, the Banks were required by the Federal
Reserve Bank to maintain reserve balances of $8 million and $36 million,
respectively. Federal and state banking regulations place certain
restrictions on dividends paid by the Banks to United. At December 31,
2000, the Banks had approximately $23 million of retained earnings
available for distribution to United in the form of dividends.
The Federal Reserve Act requires that extensions of credit by United to
certain affiliates, including United, be secured by specific collateral,
that the extension of credit to any one affiliate be limited to 10% of
capital and surplus (as defined), and that extensions of credit to all
such affiliates be limited to 20% of capital and surplus.
52
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) COMMITMENTS
United and 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. United uses 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, 2000 and 1999, the
contract amount of off-balance sheet instruments (in thousands):
2000 1999
---- ----
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit $ 273,559 $ 257,099
Standby letters of credit 9,285 8,091
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. United evaluates 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.
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 fair value. The effect of this unrealized appreciation or
depreciation will generally be offset by earnings 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 risk in derivative instruments by entering into
transactions with high-quality counterparties that are reviewed
periodically by United.
53
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) COMMITMENTS, CONTINUED
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 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 years ended December 31, 2000 and 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.
(14) PREFERRED STOCK
United may issue preferred stock in one or more series, up to a maximum of
10,000,000 shares. Each series shall include the number of shares issued,
preferences, special rights and limitations as determined by the Board of
Directors. At December 31, 2000, there were 287,410 preferred shares
issued and outstanding which were issued as Series A non-cumulative
preferred stock. The dividend rate of the preferred stock is 6% per annum,
provided a dividend has been declared for the common shares. The holders
of the preferred stock maintain a liquidation preference to the common
stockholder. The preferred stock has no voting rights and United may
redeem the preferred stock for an amount equal to the stated value plus
the accrued dividend.
(15) STOCKHOLDERS' EQUITY
In May 2000, shareholders approved a proposal to increase the number of
authorized shares of common stock from 10,000,000 to 50,000,000 shares.
Through a private offering, which was completed in September 2000, United
issued 418,377 shares of common stock in exchange for approximately $15.8
million. The proceeds from the sale of stock were used to provide capital
for its subsidiary banks, general corporate purposes, and the reduction of
parent company debt.
In 2000, the shareholders approved the 2000 Key Employee Stock Option Plan
("2000 Plan"). Under the 2000 Plan, 490,000 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. The general terms of the stock option plan include a
five-year vesting period with an exercisable period not to exceed ten
years. Independent also had a stock option plan for its key employees.
This plan had provisions similar to United's plan. Holders of options
under the Independent plan were issued options in connection with the
merger of United and Independent at the exchange ratio of .4211 per option
held. All option amounts detailed below have been restated to reflect the
options outstanding under Independent's plan. As of December 31, 2000,
308,464 options bay be granted under the 2000 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. Had compensation costs been determined based upon the
fair value of the options at the grant dates consistent with the method of
SFAS No. 123, United's net income and earnings per share would have
reflected the pro forma amounts below (in thousands, except per share
data):
54
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) STOCKHOLDERS' EQUITY, CONTINUED
2000 1999 1998
---- ---- ----
Net income:
As reported $ 14,474 $ 16,098 $ 15,650
Pro forma 13,991 15,727 15,416
Basic earnings per share:
As reported 1.41 1.60 1.57
Pro forma 1.36 1.56 1.54
Diluted earnings per common share:
As reported 1.39 1.56 1.54
Pro forma 1.34 1.52 1.50
The weighted average fair value of options at grant date in 2000, 1999,
and 1998 was $8.57, $15.65 and $9.65, respectively.
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 2000, 1999 and 1998: dividend yield of 1%
for all periods; a risk free interest rate of 5% for 2000 and 6% for 1999
and 1998; and, an expected life of 7 years for 2000 and 10 years for 1999
and 1998.
Options outstanding and activity for the years ended December 31,
consisted of the following:
2000 1999 1998
--------------------------- --------------------------- ---------------------------
Weighted Avg. Weighted Avg. Weighted Avg.
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
Beginning of period 391,132 $ 23.07 341,522 $ 18.12 290,045 $ 15.84
Granted 181,536 38.00 82,300 39.50 63,477 28.08
Exercised (2,000) 20.63 (31,690) 12.23 (8,500) 13.95
Cancelled (6,900) 37.88 (1,000) 26.80 (3,500) 20.40
------- ------- -------
End of period 563,768 $ 27.70 391,132 $ 23.07 341,522 $ 18.12
======= ====== ======= ===== ======= =====
The following is a summary of stock options outstanding at December 31,
2000:
Options Outstanding Options Exercisable
------------------------------------------------------------------- -----------------------------
Average Weighted Average
Shares Range Price Remaining Life Shares Price
------ ----- ----- -------------- ------ -----------------
132,251 $ 10.00 - 14.25 $ 12.51 5.9 years 132,251 $ 12.51
46,477 15.34 - 18.00 17.51 5.5 years 46,477 17.51
74,204 22.00 - 22.51 22.17 6.2 years 64,204 22.19
53,000 30.00 - 32.50 30.05 7.0 years 31,800 30.05
257,836 37.75 - 40.00 38.45 9.1 years 61,725 38.75
------- -------
563,768 $ 27.70 336,457 $ 1.52
======= ====== =======
55
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) NON-INTEREST EXPENSE
Significant components of other non-interest expenses for the years ended
December 31, 2000, 1999 and 1998 included the following (in thousands):
2000 1999 1998
------- ------- -------
Advertising and public relations $ 2,904 $ 3,090 $ 2,060
Postage, printing and supplies 3,547 3,782 2,381
Professional fees 2,816 2,754 1,567
Other 9,788 7,616 8,497
------- ------- -------
Total other $19,055 $17,242 $14,505
======= ======= =======
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
United uses the following methods to estimate the fair value of financial
instruments:
For financial instruments that have quoted market prices, those quotes are
used to determine fair value. Financial instruments that have no defined
maturity, have a remaining maturity of 180 days or less, or reprice
frequently to a market rate, are assumed to have a fair value that
approximates reported book value, after taking into consideration any
applicable credit risk. If no market quotes are available, financial
instruments are valued by discounting the expected cash flows using an
estimated current market interest rate for the financial instrument. For
off-balance sheet derivative instruments, fair value is estimated as the
amount that United would receive or pay to terminate the contracts at the
reporting date, taking into account the current unrealized gains or losses
on open contracts.
The short maturity of United's assets and liabilities results in having a
significant number of financial instruments whose fair value equals or
closely approximates reported balance sheet value. Such financial
instruments are reported in the following balance sheet captions: cash and
cash equivalents, mortgage loans held for sale, securities sold under
repurchase agreements, and federal funds purchased. Fair value of
securities available for sale equals the balance sheet value. As of
December 31, 2000 and 1999, the fair value of interest rate contracts used
for balance sheet management were a receivable of $320 thousand and $113
thousand, respectively.
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 the premium or discount on any
particular financial instrument that could result from the sale of
United's entire holdings. 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 fair values for other balance sheet options at
December 31, 2000 and 1999 are as follows (in thousands):
December 31, 2000 December 31, 1999
-------------------------- -----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Assets:
Securities held to maturity $ -- $ -- $ 10,988 $ 9,953
Loans, net 1,767,357 1,766,999 1,544,105 1,541,454
Liabilities:
Deposits $1,995,865 $2,003,686 $1,869,379 $1,868,131
Federal Home Loan Bank advances 257,225 254,443 294,279 293,579
Long-term debt 41,243 39,091 43,055 39,243
56
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) CONDENSED FINANCIAL STATEMENTS OF UNITED COMMUNITY BANKS, INC.
(PARENT ONLY)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands)
2000 1999 1998
------- ------- -------
Dividends from subsidiaries $ 3,611 $ 4,537 $ 4,542
Other 6,998 5,248 2,893
------- ------- -------
Total income 10,609 9,785 7,435
Interest 3,619 2,671 1,560
Other 16,507 10,502 5,739
------ ------ -------
Total expense 20,126 13,173 7,299
Income tax benefit 4,552 2,689 1,404
------- ------- -------
Income (loss) before equity in undistributed income of subsidiaries (4,965) (699) 1,540
Equity in undistributed income of subsidiaries 19,482 16,797 14,110
------ ------ ------
Net income $ 14,517 $ 16,098 $ 15,650
====== ====== ======
BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
(in thousands)
Assets
2000 1999
-------- --------
Cash $ 557 $ 785
Investment in subsidiaries 191,497 151,470
Other assets 14,985 11,394
-------- --------
Total assets $ 207,039 $ 163,649
======= =======
Liabilities and Stockholders' Equity
Other liabilities $ 6,294 $ 3,822
Other short-term borrowings 1,743 15,365
Convertible subordinated debentures 3,500 3,500
Trust Preferred securities 37,114 21,650
-------- --------
Total liabilities 48,651 44,337
-------- --------
Stockholders' equity 158,388 119,312
------- -------
Total liabilities and stockholders' equity $ 207,039 $ 163,649
======= =======
57
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(18) CONDENSED FINANCIAL STATEMENTS OF UNITED COMMUNITY BANKS, INC.
(PARENT ONLY), CONTINUED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(in thousands)
2000 1999 1998
-------- -------- --------
Operating activities:
Net earnings $ 14,517 $ 16,098 $ 15,650
Adjustments to reconcile net earnings to net cash
(used) provided by operating activities:
Equity in undistributed earnings of the subsidiaries (19,482) (16,797) (14,110)
Depreciation, amortization and accretion 1,246 862 470
Change in:
Other assets (3,646) 525 1,613
Other liabilities 2,042 3,138 (2,295)
-------- -------- --------
Net cash (used) provided by operating activities (5,323) 3,826 1,328
-------- -------- --------
Investing activities:
Purchase of premises and equipment (1,191) (737) (2,173)
Investment in subsidiaries (8,179) (9,300) (7,899)
Purchase of bank subsidiary -- (7,191) --
Purchase of investment securities -- (104) --
-------- -------- --------
Net cash used in investing activities (9,370) (17,332) (10,072)
-------- -------- --------
Financing activities:
Proceeds from junior subordinated debentures 15,464 -- 21,650
Proceeds from notes payable 8,328 15,365 --
Repayments of notes payable (21,950) -- (12,722)
Proceeds from issuing common stock 41 216 117
Proceeds from common stock offering 15,764 -- 1,560
Dividends paid on common stock (2,493) (1,417) (1,088)
Cash dividends paid by acquired subsidiaries (646) (806) (613)
Dividends paid on preferred stock (43) --
-------- -------- --------
--------
--------
Net cash provided by financing activities 14,465 13,358 8,904
-------- -------- --------
Net change in cash (228) (148) 160
Cash at beginning of year 785 933 773
-------- -------- --------
Cash at end of year $ 557 $ 785 $ 933
======== ======== ========
58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
During United's two most recent fiscal years, United did not change
accountants and had no disagreement with its accountants on any matters of
accounting principles or practices or financial statement disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF UNITED.
The information contained under the heading "Information About Nominees
for Director" and "Section 16(a) Beneficial Ownership Reporting Compliance" in
the Proxy Statement to be used in connection with the solicitation of proxies
for United's 2001 Annual Meeting of Shareholders, to be filed with the SEC, is
incorporated herein by reference. Pursuant to instruction 3 to paragraph (b) of
Item 401 of Regulation S-K, information relating to the executive officers of
United is included in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation" in
the Proxy Statement to be used in connection with the solicitation of proxies
for United's 2001 Annual Meeting of Shareholders, to be filed with the SEC, is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information contained under the heading "Security Holdings of
Certain Beneficial Owners and Management," in the Proxy Statement to be used in
connection with the solicitation of proxies for United's 2001 Annual Meeting of
Shareholders, to be filed with the SEC, is incorporated herein by reference. For
purposes of determining the aggregate market value of United's voting stock held
by nonaffiliates, shares held by all directors and executive officers of United
have been excluded. The exclusion of such shares is not intended to, and shall
not, constitute a determination as to which persons or entities may be
"Affiliates" of United as defined by the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Certain Relationships and
Related Transactions" in the Proxy Statement to be used in connection with the
solicitation of proxies for United's 2001 Annual Meeting of Shareholders, to be
filed with the SEC, is incorporated herein by reference.
59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements.
--------------------
The following consolidated financial statements are located in Item 8
of this Report:
Report of Independent Auditors
Consolidated Balance sheets - December 31, 2000 and 1999
Consolidated Statements of Income - Years ended December 31, 2000,
1999, and 1998 Consolidated Statements of Comprehensive Income - Years
ended December 31, 2000, 1999, and 1998 Consolidated Statements of
Changes in Stockholders' Equity - Years ended December 31, 2000, 1999,
and 1998 Consolidated Statements of Cash Flows - Years ended December
31, 2000, 1999, and 1998 Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
-----------------------------
Schedules to the consolidated financial statements are
omitted, as the required information is not applicable.
3. Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
4. Exhibits.
--------
The following exhibits are required to be filed with this
Report on Form 10-K by Item 601 of Regulation S-K:
EXHIBIT NO. EXHIBIT
3.1 Articles of Incorporation of United, as
amended (included as Exhibit 3.1 to United's
Registration Statement on Form S-4, File No.
33-93286, filed with the Commission on July
24, 1997 (the "1997 S-4") and incorporated
herein by reference).
3.2 Amended and Restated Bylaws of United, as
amended (included as Exhibit 3.1 to United's
Annual Report on Form 10-K, for the year
ended December 31, 1997 (the "1997 10-K")
previously filed with the Commission 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
Commission on September 30, 1998 (the "1998
S-4") and incorporated herein by reference).
4.2 Form of Certificate of Junior Subordinated
Debenture (included as Exhibit 4.2 to the
1998 S-4 previously filed with the
Commission and incorporated herein by
reference).
60
4.3 Certificate of Trust of United Community
Capital Trust (included as Exhibit 4.3 to
the 1998 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 1998 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 1998 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
1998 S-4 previously filed with the
Commission and incorporated herein by
reference).
4.7 Registration Rights Agreement (included as
Exhibit 4.7 to the 1998 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, 1997 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.
10.1 United's 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 Loan Agreement dated April 26, 1995 by and
between The Bankers Bank and United,
together with the related Promissory Note in
the principal amount of $12,000,000 and
Stock Pledge Agreement (included as Exhibit
10.17 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).
10.3 Split-Dollar Agreement between United and
Jimmy C. Tallent dated June 1, 1994
(included as Exhibit 10.11 to the 1994 10-K,
previously filed with the Commission and
incorporated herein by reference).*
10.4 Agreement and Plan of Reorganization between
United and Floyd, dated as of June 3, 1999,
(included as Exhibit 2.1 to United's
registration statement on Form S-4,
Commission File no. 333-83113, filed with
the Commission on July 14, 1999 and
incorporated herein by reference).
61
10.5 Agreement and Plan of Reorganization between
United and Independent Bancshares, Inc.,
dated as of March 3, 2000 (Incorporated by
reference to Exhibit 2.2 to United's
Registration Statement on Form S-4 filed
June 8, 2000, as amended, Commission File
Number 333-38856)
10.6 Agreement and Plan of Reorganization between
United and North Point Bancshares, Inc.,
dated as of March 3, 2000 (Incorporated by
reference to Exhibit 2.1 to United's
Registration Statement on Form S-4 filed
June 2, 2000, as amended, Commission File
Number 333-38540)
10.7 Share Purchase Agreement by and among
United, United Community, Brintech, Inc.,
Harold Brewer, and Ross Whipple dated as of
September 29, 2000
12.1 Computation of ratio of earnings to fixed
charges (included as Exhibit 12.1 to the
1998 S-4 previously filed with the
Commission and incorporated herein by
reference).
21.1 Subsidiaries of United
23.1 Consent of Certified Public Accountants
24.1 Power of Attorney of certain officers and
directors of United (included on Signature
Page)
99.1 Notice of Annual Meeting and Proxy Statement
of United**
- ------------------------
* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit to this Annual Report on Form 10-K pursuant to Item
14(c) of Form 10-K.
** To be filed by amendment.
(b) United did not file any reports on Form 8-K during the fourth quarter of
2000.
62
SIGNATURES
Pursuant to the requirements of Section 13 or 15(a) of the Securities
Exchange Act of 1934, United has duly caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Blairsville, State of Georgia, on the 30th day of March, 2001.
UNITED COMMUNITY BANKS, INC.
(REGISTRANT)
By: /s/ Jimmy C. Tallent
--------------------------------------
Jimmy C. Tallent
President and Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
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 Report on Form
10-K 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 Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of United
in the capacities set forth and on the 30th day of March, 2001.
/s/ Jimmy C. Tallent
----------------------------------------------------
Jimmy C. Tallent
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Rex S. Schuette
- -----------------------------------------------------
Rex S. Schuette
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Robert L. Head, Jr.
- -----------------------------------------------------
Robert L. Head, Jr.
Chairman of the Board
/s/ Billy M. Decker
- -----------------------------------------------------
Billy M. Decker
Director
/s/ Thomas C. Gilliland
- -----------------------------------------------------
Thomas C. Gilliland
Director
/s/ Charles Hill
- -----------------------------------------------------
Charles Hill
Director
/s/ Hoyt O. Holloway
- -----------------------------------------------------
Hoyt O. Holloway
Director
/s/ Clarence William Mason, Sr.
- -----------------------------------------------------
Clarence William Mason, Sr.
Director
/s/ W. C. Nelosn, Jr.
- -----------------------------------------------------
W. C. Nelson, Jr.
Director
/s/ Charles E. Parks
- -----------------------------------------------------
Charles E. Parks
Director
/s/ Tim Wallis
- -----------------------------------------------------
Tim Wallis
Director
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
21 Subsidiaries of United.
23 Consent of Certified Public Accountants
Exhibit 21
Subsidiaries of United Community Banks, Inc.
State
of
Subsidiary Organization
- ---------- ------------
United Community Bank, Blairsville,
Georgia (d/b/a Union County Georgia Bank
in Union County, Georgia; First Bank of
Habersham in Habersham County, Georgia;
United Community Bank of Lumpkin County
in Lumpkin County, Georgia; and United
Community Bank of Hall County in Hall
County, Georgia)
Carolina Community Bank, Murphy, NC North Carolina
Peoples Bank of Fannin County, Blue
Ridge, Georgia (d/b/a Georgia Peoples
Bank in Blue Ridge and McCaysville,
Georgia and United Community Bank of
Gilmer County in Gilmer County, Georgia)
White County Bank, Cleveland, Georgia Georgia
Towns County Bank, Hiawassee, Georgia Georgia
First Clayton Bank & Trust, Clayton, Georgia Georgia
Bank of Adairsville, Adairsville, Georgia Georgia
First Floyd Bank, Rome, Georgia Georgia
Independent Bank & Trust Georgia
Dawson County Bank Georgia
Brintech, Inc. Florida
United Agencies, Inc., Blairsville, Georgia North Carolina
United Community Capital Trust Delaware
United Community Capital Trust II Delaware
United Community Capital Trust I Connecticut
Union Holdings, Inc. Nevada
Carolina Holdings, Inc. Nevada
Fannin Holdings, Inc. Nevada
White Holdings, Inc. Nevada
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 23, 2001 accompanying the
consolidated financial statements incorporated by reference in the Annual Report
of United Community Banks, Inc. on Form 10-K for the year ended December 31,
2000. We hereby consent to the incorporation by reference of said report in the
Registration Statement of United Community Banks, Inc. on Form S-8 (File No.
33-80885, effective December 27, 1995).
/s/ Porter Keadle Moore, LLP
PORTER KEADLE MOORE, LLP
Atlanta, Georgia
March 30, 2001