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 September 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)
(706) 745-2151
------------------
(Telephone number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES XX NO
Common stock, par value $1 per share: 7,385,105 shares
outstanding as of November 14, 1997
UNITED COMMUNITY BANKS, INC. AND SUBSIDIARIES
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 3
Consolidated Statements of Earnings for the Three months and
Nine months Ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the Nine months
Ended September 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 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
-2-
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
1997 1996
------------- ------------
(In Thousands)
ASSETS
Cash and due from banks $ 42,417 28,081
Federal funds sold 6,435 24,585
---------- ---------
Cash and cash equivalents 48,852 52,666
---------- ---------
Securities held to maturity (estimated fair value of $70,012 and $76,624) 69,062 77,326
Securities available for sale 142,786 81,268
Mortgage loans held for sale 4,332 6,727
Loans 782,510 634,574
Less: Allowance for loan losses (9,987) (8,126)
---------- ---------
Loans, net 772,523 626,448
---------- ---------
Premises and equipment 24,642 20,108
Accrued interest receivable 10,581 8,534
Other assets 11,731 13,026
---------- ---------
$ 1,084,509 886,103
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 100,445 82,137
Interest-bearing demand 179,501 167,372
Savings 43,718 41,963
Time 621,637 481,829
---------- ---------
Total deposits 945,301 773,301
Accrued expenses and other liabilities 6,198 6,094
Borrowed Funds 51,385 38,574
Long-term debt 9,605 10,453
---------- ---------
Total liabilities 1,012,489 828,422
---------- ---------
Stockholders' equity:
Common stock, $1 par value; 10,000,000 shares authorized;
7,385,105 and 7,085,105 shares issued and outstanding 7,385 7,085
Capital surplus 24,698 18,522
Net unrealized loss on investment securities available for sale, net of 558 (87)
tax
Retained earnings 39,379 32,161
---------- ---------
Total stockholders' equity 72,020 57,681
---------- ---------
$ 1,084,509 886,103
========== ==========
-3-
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(In Thousands Except Per Share Data)
INTEREST INCOME:
Interest and fees on loans $ 19,841 $ 14,925 $ 55,435 $ 41,721
Interest on deposits with other banks 17 13 187 47
Interest on federal funds sold 610 259 1,394 737
Interest on investment securities:
U.S. Treasury and U.S. Government agencies 3,033 1,644 7,258 5,058
State, county and municipal (50) 503 1,033 1,479
---------- ---------- ---------- ----------
Total interest income 23,451 17,343 65,307 49,042
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits:
Demand 1,742 1,701 4,941 3,853
Savings 305 290 883 853
Time 9,432 6,127 25,517 18,660
---------- ---------- ---------- ----------
11,479 8,118 31,341 23,366
---------- ---------- ---------- ----------
Borrowed Funds 935 493 2,673 1,218
---------- ---------- ---------- ----------
Total interest expense 12,414 8,611 34,014 24,584
---------- ---------- ---------- ----------
Net interest income 11,037 8,732 31,293 24,458
Provision for loan losses 768 384 2,066 1,001
--------- ---------- ---------- ---------
Net interest income after provision for loan losses 10,269 8,348 29,227 23,457
---------- ---------- ---------- ---------
NONINTEREST INCOME:
Service charges and fees 1,092 713 3,190 2,085
Securities gains, net 259 2 242 18
Mortgage loan and related fees 263 361 814 1,218
Other noninterest income 126 218 761 609
--------- ---------- ---------- ----------
Total noninterest income 1,740 1,294 5,007 3,930
--------- --------- ---------- ---------
NONINTEREST EXPENSE:
Salaries and employee benefits 4,485 3,443 12,789 9,872
Occupancy 1,313 844 3,561 2,606
Deposit insurance premiums 28 4 72 22
Other noninterest expense 2,005 1,875 6,463 5,411
-------- --------- --------- ---------
Total noninterest expense 7,831 6,166 22,885 17,911
-------- --------- --------- ---------
Earnings before income taxes 4,178 3,476 11,349 9,476
Income taxes 1,322 1,127 3,611 3,212
-------- --------- --------- ---------
NET EARNINGS $ 2,856 2,349 7,738 6,264
======== ======== ======== ========
Net earnings per common share $ 0.39 0.34 1.06 0.90
Weighted average shares outstanding 7,383,065 6,906,028 7,270,911 6,923,988
-4-
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
1997 1996
----------- -----------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,738 6,265
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 1,663 1,734
Provision for loan losses 2,066 1,001
Gain on sale of investment securities (242) (18)
Change in assets and liabilities:
Interest receivable (2,047) (1,327)
Interest payable 1,041 (199)
Other assets 545 (164)
Accrued expenses and other liabilities (938) 1,455
Change in mortgage loans held for sale 2,395 5,688
---------- ---------
Net cash provided by operating activities 12,221 14,435
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities held to maturity 13,258 13,049
Purchases of securities held to maturity (9,614) (8,755)
Proceeds from sales of securities available for sale 21,194 13,678
Proceeds from maturities and calls of securities available for sale 15,226 21,591
Purchases of securities available for sale (92,310) (41,026)
Net increase in loans (148,076) (103,440)
Proceeds from sale of other real estate - 54
Purchase of bank premises and equipment (5,650) (1,593)
---------- ---------
Net cash used in investing activities (205,972) (106,442)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 32,190 57,722
Net increase in time deposits 139,809 10,686
Repayments of long-term debt (848) (573)
Proceeds from other borrowings 21,937 29,060
Repayments of other borrowings (9,126) (238)
Net Proceeds from sale of common stock 6,476 -
Purchase of treasury stock - (411)
Cash paid for dividends (501) (250)
---------- ---------
Net cash provided by financing activities 189,937 95,996
---------- ---------
Net increase (decrease) in cash and cash equivalents (3,814) 6,674
Cash and cash equivalents at beginning of period 52,666 34,254
---------- ---------
Cash and cash equivalents at end of period $ 48,852 40,928
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 34,628 24,783
Income taxes $ 3,985 3,080
Schedule of noncash investing and financing activities:
Change in dividends payable $ (501) -
Transfer of loans to other real estate owned $ 1,210 388
Change in unrealized gain / (loss) on securities available for sale $ 1,034 (1,237)
-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 principles followed by United Community Banks,
Inc. ("United") and its bank subsidiaries and the methods of
applying these principles conform with generally accepted
accounting principles and with general practices within the
banking industry. Certain principles, 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, United Community Bank
(UCB), Carolina Community Bank (Carolina), Peoples Bank
(Peoples), Towns County Bank (Towns), White County Bank (White),
and First Clayton Bank and Trust (Clayton) (collectively, the "Bank
Subsidiaries" and United Family Finance Company, Inc. (Finance), a
finance company subsidiary). All significant intercompany accounts
and transactions have been eliminated in consolidation. Certain
items in prior 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) BUSINESS COMBINATIONS
On September 12, 1997, United completed the acquisition
of First Clayton Bank and Trust (Clayton) of Rabun County,
Georgia, with the issuance of 646,555 shares of United's common
stock. At the date of closing, Clayton had assets of $73 million
and equity of $6 million. The transaction was accounted for under
the pooling-of-interest method of accounting and accordingly all
prior period information has been restated.
On August 21, 1997, United executed a Purchase and Assumption
Agreement to acquire certain assets and deposit liabilities of the
Ellijay office of The Bank of North Georgia. This branch office had
total loans of $3 million, and total deposits of $23 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,
7,385,105 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.
(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. SFAS No. 128
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.
-6-
Item II
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
OVERVIEW
Total assets at September 30, 1997 were $1.1 billion
representing a $198 million or a 22 percent increase from
December 31, 1996 and a $250 million or a 30 percent increase
from September 30, 1996.
On September 12, 1997, United completed the acquisition of
First Clayton Bank and Trust (Clayton) of Rabun County, Georgia,
with the issuance of 646,555 shares of United's common stock.
ASSETS AND FUNDING
At September 30, 1997, earning assets totaled $1 billion, an
increase of $181 million from December 31, 1996. The mix of
earning assets remained relatively the same during the first nine
months of 1997. Loans comprised 78 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 September 30, 1997, compared to 19
percent at December 31, 1996.
Interest bearing deposits at September 30, 1997 increased
$154 million from December 31, 1996, while non-interest bearing
deposits increased $18 million since December 31, 1996. At
September 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 $12.3 million
for the nine months ended September 30, 1997. For the first nine
months of 1997, net cash used by investing activities of $206
million consisted of proceeds from maturities of investment
securities of $28 million, proceeds from the sale of investment
securities of $21 million, offset by cash outflows of $102
million in investment securities purchases, a $148 million
increase in loans outstanding and purchases of bank premises and
equipment of $6 million. Net cash provided by financing
activities consisted largely of the $172 million increase in
deposits accounts, a net increase of $13 million in other
borrowings, as well as cash proceeds of $6.5 million from the
sale of common stock.
Total stockholders' equity at September 30, 1997, was 6.64
percent of total assets compared to 6.51 percent at December 31,
1996. The slight increase is attributed to the $6.6 million
dollar stock offering in the second quarter of 1997 and an
increase in the unrealized gain / (loss) on securities available
for sale of $645 thousand, offset by the growth in assets of $198
million for the first nine months of 1997.
At September 30, 1997, the company and its bank
subsidiaries were in compliance with various regulatory capital
requirements administrated by the Federal banking agencies.
-7-
RESULTS OF OPERATIONS
OVERVIEW
Net earnings for the nine months ended September 30, 1997
increased to $7.7 million or 24 percent over net earnings for the
first nine months of 1996. Net earnings per common share for the
third quarter also increased 15 percent from the same period in
1996 to $0.39. Net interest income increased 28 percent for the
three quarters ended September 30, 1997 over the same period of
1996 to $31.2 million. For the first nine months of 1997, the
provision for loan losses increased over 100 percent to $2.1
million for the nine month period. Noninterest income and
expense rose 27 percent and 28 percent respectively for the first
nine months of 1997.
NET INTEREST INCOME
Net interest income for the nine months ended September 30,
1997 increased $6.8 million over the first nine months of 1996.
This increase was the result of a $16.3 million, or 33 percent,
increase in interest income and a $9.4 million, or 38 percent,
increase in interest expense. The increase in interest income
was primarily due to an increase in average earning assets of
$237 million, or 34 percent, which more than offset a 10 basis
point decline in the average yield on earning assets from 9.08
percent to 8.98 percent. The largest portion of the increase in
average earning assets occurred in the average balance of loans,
which increased 37 percent, or $191 million, and in total
investment securities which increased $37 million. These
increases were funded primarily by increases in time deposits.
Interest expense for the nine months ended September 30, 1997,
increased by $9.4 million, or 38 percent. The increase in
interest expense was due primarily to a 36 percent increase in total
interest bearing liabilities coupled with an increase of 17 basis
points in the rate paid on liabilities. The majority of
the increase in interest bearing liabilities was due to a $158
million, or 39 percent, increase in time deposits via promotions
in new markets. Similarly the increase in the rate paid on
interest bearing liabilities is the result of a time 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 nine months of 1997, the net interest
margin was 4.61 percent compared to 4.85 percent for the same
period in 1996. This 24 basis point decrease was primarily the
result of a decrease in the overall earning asset yield of 10
basis points coupled with an increase in the average rate paid
for interest bearing liabilities of 17 basis points. The
decrease in the average earning asset yield is the result of a
decrease in the average loan yield of 18 basis points offset
slightly by an increase in the yield earned on the investment
securities. The increase in the rate paid on interest bearing
-8-
liabilities is attributed to time deposits representing a higher
percentage of the interest bearing liability funding mix for the
first nine months of 1997 over the same period in 1996.
NONINTEREST INCOME AND EXPENSE
Noninterest income for the first nine months of 1997
increased $1.1 million, or 27 percent over the same period in
1996. Service charges on deposits increased over $1.1 million,
or 51 percent. The increase in service charges resulted from an
increase in number of accounts and balances outstanding in
transaction deposit accounts and branch openings in the western
North Carolina markets. Other income increased $153 thousand;
this increase is primarily attributed to an increase in gains on
the sale of SBA loans. These increases in noninterest income are
offset slightly by a decrease in mortgage loan and related fees,
which decreased $370 thousand, as a result of increased rates for
the first nine months of 1997.
Noninterest expenses increased $5 million, or 28 percent,
during the first nine months of 1997 over the same period in
1996. Salaries and employee benefits increased $2.9 million, or
30 percent, for the three quarters. The increase in salaries and
benefits was 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 37 percent due primarily to the increase in the new
facilities. Other noninterest expense, including stationary and
supplies and advertising , increased $1.1 million during the
first nine months 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 nine months of
1997 compared to the same period in 1996 by $400 thousand, or 12
percent. The effective tax rates for the nine months ended
September 30, 1997 and 1996 were 32 percent and 34 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 nine months ended
September 30, 1997 increased to $2.1 million from
the $1 million 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
September 30, 1997 was $10 million compared to $8.1 million at
December 31, 1996. The ratio of the allowance for loan losses to
loans outstanding at September 30, 1997 was 1.28 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.
-9-
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 $ 1.6 million at September 30, 1997
compared to $1.0 million at September 30, 1996. Nonperforming
assets as a percentage of total loans and other real estate owned
was .20 percent at September 30, 1997 and .17 percent at
September 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 nonperforming assets to an earning
status.
At September 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.
-10-
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 - None
---------------------------------------------------
Item 5. Other Information -
-----------------
On August 21, 1997, United executed a Purchase and Assumption
Agreement to acquire certain assets and deposit liabilities of the
Ellijay office of The Bank of North Georgia. This branch office had
total loans of $3 million, and total deposits of $23 million.
Item 6. Exhibits and Reports on Form 8-K
-------------------------------
Exhibit 27 - Financial Data Schedule (for SEC use only)
There were no Reports on Form 8-K.
-11-
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: November 14, 1997
--------------------------
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: November 14, 1997
---------------------------
9
0000857855
UNITED COMMUNITY BANKS
1,000
9-MOS
DEC-31-1997
JAN-01-1997
SEP-30-1997
42,417
844,856
6,435
0
142,786
69,062
70,012
786,842
(9,987)
1,084,509
945,301
51,385
6,198
9,605
0
0
7,385
64,635
1,084,509
55,435
9,872
0
65,307
31,341
34,014
31,293
2,066
242
6,463
11,349
11,349
0
0
7,738
1.06
1.06
4.61
822
543
0
0
8,126
535
331
9,988
9,988
0
9,988
