UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to __________
Commission file number 0-21656
UNITED COMMUNITY BANKS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-180-7304
- ------------------------- ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 398, 59 Highway 515
Blairsville, Georgia 30512
- ------------------------------- ----------
(Address of principal executive (Zip Code)
Offices)
(404) 745-2151
------------------
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XX NO
--- ---
Common stock, par value $1 per share: 6,738,848 shares
outstanding as of August 12, 1997
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1997
and December 31, 1996 3
Consolidated Statements of Earnings for the Three Months and
Six Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
-2-
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
1997 1996
---------- ------------
(In Thousands)
ASSETS
Cash and due from banks $ 43,135 26,377
Federal funds sold 32,530 24,215
---------- ---------
Cash and cash equivalents 75,665 50,592
---------- ---------
Securities held to maturity (estimated fair value of $66,592 and $72,335) 65,958 72,022
Securities available for sale 122,475 74,864
Mortgage loans held for sale 2,845 6,727
Loans 687,410 592,351
Less: Allowance for loan losses 8,612 7,683
---------- ---------
Loans, net 678,798 584,671
---------- ---------
Premises and equipment 21,636 18,650
Accrued interest receivable 9,668 7,780
Other assets 11,486 12,724
---------- ---------
$ 988,531 828,030
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 94,474 77,908
Interest-bearing demand 167,494 158,124
Savings 40,229 39,001
Time 556,639 445,693
---------- ---------
Total deposits 858,836 720,726
Accrued expenses and other liabilities 5,667 5,876
Borrowed funds 49,844 38,574
Long-term debt 10,915 10,453
---------- ---------
Total liabilities 925,262 775,629
---------- ---------
Stockholders' equity:
Preferred Stock - -
Common stock, $1 par value; 10,000,000 shares authorized;
6,438,848 and 6,260,280 shares issued and outstanding 6,739 6,439
Capital surplus 21,517 15,341
Net unrealized gain (loss) on investment securities available for sale, net of tax 157 (75)
Retained earnings 34,856 30,696
---------- ---------
Total stockholders' equity 63,269 52,401
---------- ---------
$ 988,531 828,030
========= =========
- 3 -
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ---- ---- ----
(In Thousands Except Per Share Data)
INTEREST INCOME:
Interest and fees on loans $ 17,466 12,872 33,195 $ 24,930
Interest on deposits with other banks 170 12 170 34
Interest on federal funds sold 417 194 765 417
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 2,063 1,476 3,925 3,089
State, county and municipal 523 469 1,033 933
--------- --------- --------- ---------
Total interest income 20,639 15,023 39,088 29,403
--------- --------- --------- ---------
Interest expense:
Interest on deposits:
Demand 1,548 1,014 3,064 2,018
Savings 268 262 529 520
Time 7,970 5,705 14,895 11,567
--------- --------- --------- ---------
9,786 6,981 18,488 14,105
--------- --------- --------- ---------
Borrowed Funds 945 363 1,738 725
--------- --------- --------- ---------
Total interest expense 10,731 7,344 20,226 14,830
--------- --------- --------- ---------
Net interest income 9,908 7,679 18,862 14,573
Provision for loan losses 669 288 1,233 567
--------- --------- --------- ---------
Net interest income after provision for
loan losses 9,239 7,391 17,629 14,006
--------- --------- --------- ---------
Noninterest income:
Service charges and fees 1,027 664 1,957 1,273
Securities (losses) gains, net (1) (16) (8) 15
Mortgage loan and related fees 275 390 551 857
Other noninterest income 349 137 612 350
--------- --------- --------- ---------
Total noninterest income 1,650 1,175 3,112 2,495
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits 4,168 3,166 7,871 6,101
Occupancy 1,109 835 2,107 1,627
Deposit insurance premiums 25 6 43 17
Other noninterest expense 2,126 1,656 4,144 3,269
--------- --------- --------- ---------
Total noninterest expense 7,428 5,663 14,165 11,014
--------- --------- --------- ---------
Earnings before income taxes 3,461 2,903 6,576 5,487
Income taxes 1,072 1,008 2,087 1,917
--------- --------- --------- ---------
NET EARNINGS $ 2,389 1,895 4,489 3,570
========= ========= ========= =========
Net earnings per common share $ 0.36 0.30 0.68 0.57
Weighted average shares outstanding 6,696,050 6,260,280 6,567,450 6,260,280
- 4 -
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30,
1997 1996
---- ----
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,489 $ 3,570
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 1,019 1,201
Provision for loan losses 1,233 567
Gain on sale of investment securities 8 (15)
Change in assets and liabilities:
Interest receivable (1,889) (572)
Interest payable 797 (490)
Other assets 270 (563)
Accrued expenses and other liabilities (1,005) 1,022
Change in mortgage loans held for sale 3,882 4,444
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 8,804 9,164
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities held to maturity 7,738 8,911
Purchases of securities held to maturity (3,270) (7,476)
Proceeds from sales of securities available for sale 3,768 11,949
Proceeds from maturities and calls of securities available for sale 8,518 20,171
Purchases of securities available for sale (58,127) (19,787)
Net increase in loans (95,039) (58,349)
Proceeds from sale of other real estate - 35
Purchase of bank premises and equipment (3,636) (616)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (140,048) (45,162)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 27,163 17,892
Net increase in time deposits 110,945 13,721
Proceeds from long-term debt 1,090 -
Repayments of long-term debt (565) (565)
Proceeds from other borrowings 12,810 6,000
Repayments of other borrowings (1,602) (141)
Proceeds from sale of common stock 6,476 -
Cash paid for dividends (329) -
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 155,988 36,907
------- -------
Net increase (decrease) in cash and cash equivalents 25,071 909
Cash and cash equivalents at beginning of period 50,592 31,988
------- -------
Cash and cash equivalents at end of period $ 75,665 $ 32,897
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 19,429 $ 15,320
Income Taxes $ 2,514 $ 1,800
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfer of loans to other real estate owned $ 693 $ 444
Change in unrealized gain / (loss) on securities available for sale,
net of tax $ 232 $ (698)
- 5 -
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements have not
been audited. The results of operations are not necessarily
indicative of the results of operations for the full year or any
other interim periods.
The accounting principales followed by United Community Banks,
Inc. ("United") and its bank subsidiaries and the methods of
applying these principales conform with generally accepted
accounting principales and with general practices within the
banking industry. Certain principales, which significantly affect
the determination of financial position, results of operation and
cash flows are summarized below and in United's annual report on
Form 10-K for the year ended, December 31, 1996.
(1) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
United and its wholly-owned subsidiaries, Union County Bank
(UCB), Carolina Community Bank (Carolina), Peoples Bank
(Peoples), Towns County Bank (Towns) and White County Bank
(White). All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain items in prior
period's financial statements have been reclassified to conform
to the current financial statement presentation.
The consolidated financial information furnished herein
reflects all adjustments that are, in the opinion of management,
necessary to present a fair statement of the results of
operations and financial position for the periods covered herein
and are normal and recurring in nature. For further information,
refer to the consolidated financial statements and footnotes
included in United's annual report on Form 10-K for the year
ended December 31, 1996.
(2) Proposed Acquisitions
---------------------
On June 12, 1997, United executed a Purchase Assumption Agreement
to acquire First Clayton Bank and Trust. First Clayton had total assets
of $68 million, loans of $51 million and deposits of $62 million.
(3) Common Stock Offering
---------------------
During the second quarter, United issued an additional 300,000 shares
of common stock at $22 a share. After the offering, 6,937,248 shares will
be deemed outstanding.
(4) Earnings Per Share
------------------
Net earnings per common share are based on the weighted
average number of common shares outstanding during each period.
The assumed conversion of the convertible subordinated debentures
and exercise of stock options does not result in material
dilution.
- 6 -
(5) Recently Issued Accounting Standards
------------------------------------
During February 1997, the Financial Accounting Standards Board
(FASB) issued SFAS No. 128, "Earnings per Share." SFAS 128 simplifies
current standards by eliminating the presentation of primary earnings per
share (EPS) and requiring the presentation of basic EPS, which includes
no potential common shares and thus no dilution. The Statement also
requires entities with complex capital structures to present basic and
diluted EPS on the face of the income statement and also eliminates the
modified treasury stock method of computing potential common shares. The
Statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Early application is
not permitted. Upon adoption, restatement of all prior period EPS data
presented is required.
- 7 -
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
OVERVIEW
Total assets at June 30, 1997 were $989 million representing
a $161 million or a 19 percent increase from December 31, 1996
and a $288 million or a 41 percent increase from June 30, 1996.
On June 12, 1997, United executed a Purchase Assumption Agreement
to acquire First Clayton Bank and Trust. First Clayton had total assets
of $68 million, loans of $51 million and deposits of $62 millsion.
ASSETS AND FUNDING
At June 30, 1997, earning assets totaled $911 million, an
increase of $141 million from December 31, 1996. The mix of
earning assets remained relatively the same during the first six
months of 1996. Loans comprised 75 percent of total earning
assets, compared to 77 percent at December 31, 1996. In addition,
the percentage of earning assets represented by total investment
securities was 21 percent at June 30, 1997, compared to 19
percent at December 31, 1996.
Interest bearing deposits at June 30, 1997 increased $121
million from December 31, 1996, while non-interest bearing
deposits increased $17 million since December 31, 1996. At June
30, 1997, deposits accounted for 94 percent of United's funding,
unchanged from year end.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $9.1 million
for the six months ended June 30, 1997. For the first six months
of 1997, net cash used by investing activities of $140 million
consisted of proceeds from maturities of investment securities of
$16.3 million, proceeds from the sale of investment securities of
$3.8 million, offset by cash outflows of $ 61.4 million in
investment securities purchases, a $95 million increase in loans
outstanding and purchases of bank premises and equipment of $3.6
million. Net cash provided by financing activities consisted
largely of the $138 million increase in deposits accounts, an
increase of $12 million in other borrowings, as well as cash
proceeds of $6.5 million from the sale of common stock.
Total stockholders' equity at June 30, 1997, was 6.40 percent
of total assets compared to 6.33 percent at December 31, 1996.
The slight increase is attributed to the $6.6 million dollar
stock offering in the second quarter of 1997 offset by the growth
in assets of $161 million for the first six month of 1997.
At June 30, 1997, the Company and its bank's subsidiaries were
in compliance with various regulatory capital requirements administrated
by the Federal banking agencies.
- 8 -
Results of Operations
OVERVIEW
Net earnings for the six ended months June 30, 1997 increased
to $4.5 million or 26 percent over net earnings for the first half
of 1996. Net earnings per common share for the first quarter
also increased 19 percent from the same period in 1996 to $.68.
Net interest income increased 29 percent for the six months ended
June 30, 1997 over the same period of 1996 to $18.9 million. For
the first half of 1997, the provision for loan losses increased
over 100 percent to $1.2 million for the six month period.
Noninterest income and expense rose 25 percent and 29 percent
respectively for the first six months of 1997.
NET INTEREST INCOME
Net interest income for the six months ended June 30, 1997
increased $4.3 million over the first half of 1996. This
increase was the result of a $9.7 million, or 33 percent,
increase in interest income and a $5.4 million, or 37 percent
increase in interest expense. The increase in interest income
was primarily due to an increase in average earning assets of
$210 million, or 33 percent, which more than offset a 11 basis
point decline in the average yield on earning assets from 9.12
percent to 9.01 percent. The largest portion of the increase in
average earning assets occurred in the average balance of loans,
which increased 39 percent, or $178 million, and in total
investment securities which increased $27.3 million. These
increases were funded primarily by increases in time deposits.
Interest expense for the six months ended June 330, 1997,
increased by $5.4 million, or 37 percent. The increase in interest
expense was due primarily to a 34 percent in total interest bearing
liabilities coupled with an increase of 13 basis points increase
in the rate paid on liabilities. The majority of the increase in
interest bearing liabilities was due to a $117 million, or 31
percent, increase in time deposit. Simarily the
increase in the rate paid on interest bearing liabilities is the
result of a Certificates of Deposits supplying a greater
percentage in the overall funding mix.
NET INTEREST MARGIN
The difference between the overall interest income on
earning assets and the interest expense paid on all funding
sources, including noninterest bearing deposits, expressed as
a percentage of earning assets is referred to as the net interest
margin. For the first six months of 1997 the net interest margin
was 4.67 percent compared to 4.84 percent for the same period in
1996. This 17 basis point decrease was the primary result of a
decrease in the overall earning asset yield of 11 basis points
coupled with an increase in the average rate paid for interest
bearing liabilities of 13 basis points. The decrease in the
average earning asset yield is the result of a
decrease in the average loan yield of 31 basis points offset
slightly by an increase in the yield earned on the investment
securities. The increase in the rate paid on interest bearing
liabilities is attributed to time deposits representing a
higher percentage of the interest bearing liability funding mix
for the first six months of 1997 over the same period in 1996.
- 9 -
NONINTEREST INCOME AND EXPENSE
Noninterest income for the first six months of 1997
increased $684 thousand, or 25 percent over the same period in
1996. Service charges on deposits increased over $684 thousand,
or 54 percent. The increase in service charges resulted by the
increase in number of accounts and balances outstanding in
transaction deposit accounts coupled with the Habersham
acquisition as well as branch openings in the Georgia and western
North Carolina markets. Mortgage loan and related fees
decreased $306 thousand, or 36% as a result of increased rates
for the first six months of 1997.
Noninterest expenses increased $3.1 million, or 29 percent,
during the first six months of 1997 over the same period in 1996.
Salaries and employee benefits increased $1.8 million, or 29
percent, for the first half. The increase in salaries and
benefits were the result of the addition of personnel in
connection with the First Bank of Habersham acquisition as well
as branch openings in Bryson City, Sylva, Cashiers, and Brevard
in the western North Carolina market and the opening of United
Community Banks of Lumpkin County. Net occupancy expense
increased 30 percent due primarily to the increase in the new
facilities as mentioned above. Other noninterest expense, including
stationary and supplies and advertising , increased $901 thousand
during the first half of 1997. The increase in other noninterest
expense is attributed to the new branches and normal business
growth as discussed previously.
INCOME TAXES
Income tax expense increased during the first six months of
1997 compared to the same period in 1996 by $170 thousand or 9
percent. The effective tax rates for the six months ended June 30,
1997 and 1996 were 32 percent and 35 percent, respectively.
The decrease is primarily due to a higher mix of both federal and
state tax-exempt interest income relative to pre-tax earnings.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for loan losses for the six months ended June 30,
1997 increased $667 thousand to $1.2 million from the $567
thousand reported for the same period in 1996. Management
considers the size and character of the loan portfolio, changes
in nonperforming and past due loans, historical loan loss
experience, the existing risk of individual loans, concentrations
of loans to specific borrowers and existing and prospective
economic conditions when determining the adequacy of the
allowance for loan losses. The allowance for loan losses at June 30,
1997 was $8.6 million compared to $7.7 million at December 31, 1996.
The ratio of the allowance for loan losses to loans
outstanding at June 30, 1997 was 1.25 percent compared to 1.30
percent at December 31, 1996. It is management's belief that the
allowance for loan losses is adequate to absorb probable loss in
the portfolio.
- 10 -
NONPERFORMING ASSETS AND PAST DUE LOANS
Nonperforming assets, comprised of nonaccrual loans, other
real estate owned and loans for which payments are more than 90
days past due, totaled $687 thousand at June 30, 1997 compared to
$1.45 million at December 31, 1996. Nonperforming assets as a
percentage of total loans and other real estate owned was .19
percent at June 30, 1996 and .26 percent at June 30, 1996.
United regularly monitors selected accruing loans for which
general economic conditions or changes within a particular
industry could cause the borrowers financial difficulties. This
continuous monitoring of the loan portfolio and the related
identification of loans with a high degree of credit risk are
essential parts of United's credit management. Management
continues to emphasize maintaining a low level of nonperforming
assets and returning current nonperfroming assets to an earning
status.
At June 30, 1997, management was unaware of any known
trends, events or uncertainties that will have or that are
reasonably likely to have a material effect on United's
liquidity, capital resources or operations.
- 11 -
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
-----------------
Item 2. Changes in Securities - None
---------------------
Item 3. Defaults Upon Senior Securities - None
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders -
---------------------------------------------------
a) United Community Banks, Inc. 1997 Annual
Meeting of Stockholders was held April 17, 1997
b) The following slate of directors was slated to serve
the current year term:
James A Brackett, Jr. P. Deral Horne
Billy M. Decker Charles E. Parks
Thomas C. Gilliland Clarence W. Mason Jr.
Robert L. Head Jr. W. C. Nelson, Jr.
Charles E. Hill Jimmy C. Tallent
Hoyt O. Holloway
4,828,312 shares were voted for the slate of directors and
330 shares voted against the slate.
c) The shareholders of United voted on the proposal to amed
the Key Individual Stock Option Plan to increase the
number of shares authorized under the plan. 4,814,062
(74.77%) shares were voted for the proposal, 6,400
(.10%) shares voted against the proposal, 8,180 (.13%)
shares abstained from the vote.
No matters, other than the election of the above slate of
directors and the above referenced proposal to amend the
Key Individual Stock Option Plan, were voted on at the
annual meeting.
Item 5. Other Information -
-----------------
On June 12, 1997, United executed a Purchase Assumption Agreement to
acquire First Clayton and Trust. First Clayton had total assets of $68
million, loans of $51 million and deposits of $62 million.
Item 6. Exhibits and Reports on Form 8-K - None
--------------------------------
Exhibit 27 - Financial Data Schedule (for SEC use only)
- 12 -
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
UNITED COMMUNITY BANKS, INC.
By: /s/ Jimmy C. Tallent
Jimmy C. Tallent, President
(Principal Executive Officer)
Date: August 13, 1997
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: August 13, 1997
9
0000857855
UNITED COMMUNITY BANKS, INC.
1,000
6-MOS
DEC-31-1997
APR-01-1997
JUN-30-1997
43,135
0
32,530
0
122,475
65,958
66,692
690,255
8,612
988,531
858,836
49,844
5,667
10,915
0
0
6,739
56,530
988,531
33,195
5,893
0
39,088
18,488
20,226
18,862
1,233
(8)
4,144
6,576
6,576
0
0
4,489
.68
.68
9.01
1,045
288
0
0
7,681
380
78
1,612
8,612
0
8,612
