UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
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: 7,393,605 shares
outstanding as of May 13, 1998
PART I Financial Information
Item 1. Financial Statements
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1998 1997
------------- ------------
ASSETS (In Thousands)
Cash and due from banks $ 54,652 60,414
Federal funds sold 15,050 8,420
Cash and cash equivalents ----------- ---------
69,702 68,834
----------- ---------
Securities held to maturity (estimated fair value
of $72,652 and $70,846) 71,491 69,559
Securities available for sale 150,928 143,894
Mortgage loans held for sale 6,714 3,962
Loans 847,826 823,324
Less: Allowance for loan losses (10,802) (10,352)
----------- ---------
Loans, net 837,024 812,972
----------- ---------
Premises and equipment 29,957 27,737
Accrued interest receivable 11,405 10,985
Other assets 14,434 15,424
----------- ---------
$ 1,191,655 1,153,367
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 116,504 109,210
Interest-bearing demand 216,935 189,280
Savings 50,215 45,280
Time 651,164 633,309
----------- --------
Total deposits 1,034,818 977,079
Accrued expenses and other liabilities 6,448 7,274
Borrowed Funds 60,173 81,179
Long-term debt 12,401 12,722
----------- ---------
Total liabilities 1,113,840 1,078,254
----------- ---------
Stockholders' equity:
Common stock, $1 par value; 10,000,000 shares
authorized; 7,385,105 and 7,385,105 shares issued
and outstanding 7,385 7,385
Capital surplus 24,698 24,699
Retained earnings 44,851 42,198
Accumulated Other Comprehensive Income 881 831
----------- ---------
Total stockholders' equity 77,815 75,113
----------- ---------
$ 1,191,655 1,153,367
=========== ==========
See accompanying notes to consolidated financial statements.
-3-
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
and Comprehensive Income
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
-------- -----------
(In Thousands except Per Share Details)
INTEREST INCOME:
Interest and fees on loans $ 21,462 $ 16,905
Interest on federal funds sold 337 356
Interest on investment securities:
U.S. Treasury and U.S. Government 2,497 2,015
State, county and municipal 718 535
-------- -------
Total interest income 25,014 19,811
-------- -------
INTEREST EXPENSE:
Interest on deposits:
Demand 2,096 1,584
Savings 329 285
Time 9,624 7,498
-------- -------
12,049 9,367
-------- -------
Borrowed Funds 1,079 793
-------- -------
Total interest expense 13,128 10,160
-------- -------
Net interest income 11,886 9,651
Provision for loan losses 498 596
-------- -------
Net interest income after provision for 11,388 9,055
-------- -------
NONINTEREST INCOME:
Service charges and fees 1,183 1,006
Securities gains, net 103 (7)
Mortgage loan and related fees 436 276
Other noninterest income 132 263
-------- -------
Total noninterest income 1,854 1,538
-------- -------
NONINTEREST EXPENSE:
Salaries and employee benefits 5,260 3,920
Occupancy 1,418 1,069
Other noninterest expense 2,534 2,195
-------- -------
Total noninterest expense 9,212 7,184
-------- -------
Earnings before income taxes 4,030 3,409
Income taxes 1,371 1,117
-------- -------
NET EARNINGS $ 2,659 2,292
======== =======
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on investment
securities available for sale arising during the
period, net of tax of $54 and $(222) 114 (471)
Less reclassification adjustment for gains (losses)
included in net earnings, net of tax of $39 and $3 (64) 4
------- -------
Other comprehensive income (loss) 50 (467)
------- -------
COMPREHENSIVE INCOME $ 2,709 1,825
======= =======
Per share:
Net earnings $ 0.36 0.32
Net earnings - Assuming dilution $ 0.36 0.32
Average shares outstanding 7,385,105 7,085,105
Diluted average shares outstanding 7,596,081 7,257,551
See accompanying notes to consolidated financial statements.
-4-
UNITED COMMUNITY BANKS, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
--------- -----------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,659 $ 2,292
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 601 525
Provision for loan losses 498 596
Loss (Gain) on sale of investment securities (103) 7
Change in assets and liabilities:
Interest receivable (420) (873)
Interest payable (83) 329
Other assets 1,379 1,165
Accrued expenses and other liabilities (565) (1,093)
Change in mortgage loans held for sale (2,752) 1,203
--------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,214 4,151
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and calls of securities held to maturity 4,478 5,610
Purchases of securities held to maturity (7,366) (1,676)
Proceeds from sales of securities available for sale 5,728 3,767
Proceeds from maturities and calls of securities available for sale 8,020 4,928
Purchases of securities available for sale (19,702) (33,160)
Net increase in loans (25,187) (54,383)
Proceeds from sale of other real estate 109 7
Purchase of bank premises and equipment (2,650) (965)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (36,570) (75,872)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand and savings deposits 39,884 13,999
Net increase in time deposits 17,855 49,169
Proceeds from long-term debt - 750
Repayments of long-term debt (321) (283)
Proceeds from Other Borrowings 10,090 4,500
Repayments of Other Borrowings (31,099) (400)
Cash paid for dividends (185) (161)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 36,224 67,574
--------- --------
Net increase (decrease) in cash and cash equivalents 868 (4,147)
Cash and cash equivalents at beginning of period 68,834 52,670
--------- --------
Cash and cash equivalents at end of period $ 69,702 $ 48,523
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 13,211 $ 10,480
Income Taxes $ 1,200 $ 977
Schedule of noncash investing and financing activities:
Change in dividends payable $ (185) $ (161)
Transfer of loans to other real estate owned $ 885 $ 274
Change in unrealized gain / (loss) on securities available for sale $ 50 $ (731)
-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, 1997.
(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), White County Bank (White),
and First Clayton Bank and Trust (Clayton). United also owns
United Family Finance Co. (UFF), a consumer finance company
and United Community Agencies, Inc. (UCA), an insurance 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, 1997.
(2) BUSINESS COMBINATIONS
On January 30, 1998, United acquired certain assets and
deposit liabilities of the Ellijay office of The Bank of North
Georgia, which had total loans of $3 million, and total deposits
of $23 million.
(3) EARNINGS PER SHARE
Net earnings per common share are based on the weighted
average number of common shares outstanding during each period.
Diluted earnings per share is computed using the weighted average
number of shares outstanding during each period, adjusted for
the dilutive effect of stock options and convertible debentures.
(4) RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130"). SFAS 130 established standards
for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements.
Comprehensive income is defined as "the change in equity (net
assets) of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. It
includes all changes in equity during a period escept those resulting
from investments by owners and distributions to owners." Comprehensive
income for United currently includes net income and unrealized gains
and losses on securities available for sale. United's comprehensive
income for the period is reflected in the accompanying statements
of earnings.
-6-
Item II
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition
OVERVIEW
Total assets at March 31, 1998 were $1.2 billion
representing a $38 million or a 3 percent increase from December 31,
1997 and a $237 million or a 25 percent increase from March 31,
1997.
On January 30, 1998, United acquired certain assets and
deposit liabilities of the Ellijay office of The Bank of North
Georgia, which had total loans of $3 million, and total deposits
of $23 million.
ASSETS AND FUNDING
At March 31, 1998, earning assets totaled $1.1 billion, an
increase of $43 million from December 31, 1997. The mix of
earning assets remained relatively the same during the first
three months of 1998. Loans comprised 78 percent of total
earning assets, compared to 79 percent at December 31, 1997. In
addition, the percentage of earning assets represented by total
investment securities was 20 percent at March 31, 1998, and
December 31, 1997.
Interest bearing deposits at March 31, 1998 increased $50
million from December 31, 1997, while non-interest bearing
deposits increased $7 million since December 31, 1997. At March
31, 1998, deposits accounted for 93 percent of United's funding,
compared to 91 percent at December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities totaled $1 million
for the three months ended March 31, 1998. For the first three
months of 1998, net cash used by investing activities of $36.6
million consisted of proceeds from maturities of investment
securities of $12.5 million, proceeds from the sale of investment
securities of $5.7 million, offset by cash outflows of $27
million in investment securities purchases, a $25 million
increase in loans outstanding, and purchases of bank premises and
equipment of $2.7 million. Net cash provided by financing
activities consisted largely of the $40 million increase in
demand and savings deposit accounts, and an increase of $18 million
in time deposits.
Total stockholders' equity at March 31, 1998, was 6.53 percent
of total assets, unchanged from December 31, 1997. At March 31, 1998,
the Company and its bank's subsidiaries were in compliance with various
regulatory capital requirements administrated by the Federal banking
agencies.
Results of Operations
OVERVIEW
Net earnings for the three months ended March 31, 1998
increased to $2.7 million or 16 percent over net earnings for the
first three months of 1997. Diluted net earnings per common
share for the first quarter also increased 13 percent from the
same period in 1997 to $0.36 from $0.32. Net interest income
increased 23 percent for the three months ended March 31, 1998
over the same period of 1997 to $11.9 million. For the first
three months of 1998, the provision for loan losses decreased
16 percent to $498 thousand as compared to $596 thousand for
the three month period ended March 31, 1997. Noninterest income
and expense rose 21 percent and 28 percent respectively for the
first three months of 1998.
NET INTEREST INCOME
Net interest income for the three months ended March 31,
1998 increased $2.2 million over the first three months of 1997.
This increase was the result of a $5.2 million, or 26 percent,
increase in interest income and a $2.9 million, or 29 percent
increase in interest expense. The increase in interest income
was primarily due to an increase in average earning assets of
$211.6 million, or 25 percent, with a 2 basis point increase in
the average yield on earning assets from 8.99 percent to 9.01
percent. The largest portion of the increase in average earning
assets occurred in the average balance of loans, which increased
26 percent, or $171 million, and in total investment securities
and federal funds sold which increased $40 million. These increases
were funded primarily by increases in time deposits.
Interest expense for the three months ended March 31, 1998,
increased by $2.9 million, or 29 percent. The increase in
interest expense was due primarily to a 20 percent increase in
average interest bearing liabilities coupled with an increase of 10
basis points in the rate paid on liabilities. The majority of
the increase in interest bearing liabilities was due to a $141
million, or 28 percent, increase in time deposits.
Similarly, the increase in the rate paid on interest bearing
liabilities is the result of 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 three months of 1998 the net interest
margin was 4.58 percent compared to 4.70 percent for the same
period in 1997. This 12 basis point decrease was the primary
result of a slight increase in the overall earning asset yield of
2 basis points offset by an increase in the average rate paid
for interest bearing liabilities of 10 basis points and a decrease
in the effect of fees collected on loans of 4 basis points. 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 three months of 1998 over
the same period in 1997.
NONINTEREST INCOME AND EXPENSE
Noninterest income for the first three months of 1998
increased $316 thousand, or 21 percent over the same period in
1997. Service charges on deposits increased over $177 thousand,
or 18 percent. The increase in service charges resulted from
acquisition as well as branch openings and expansions in the
Georgia and western North Carolina markets. Trust income
increased $47 thousand due to an increase in provided trust
services. Mortgage banking fees increased $161 thousand, or 58
percent, due to a favorable interest rate environment and an
increased number of closings. These increases in noninterest
income are offset slightly by a decrease in other income, which
decreased $131 thousand.
Noninterest expenses increased $2 million, or 28 percent,
during the first three months of 1998 over the same period in
1997. Salaries and employee benefits increased $1.3 million, or
34 percent, for the first quarter. The increase in salaries and
benefits was the result of the addition of personnel in
connection with the Ellijay office of The Bank of North Georgia
acquisition as well as branch openings in the western North
Carolina market. Net occupancy expense increased 33 percent due
primarily to the increase in new facilities. Other noninterest
expense, including stationary and supplies and advertising,
increased $339 thousand during the first three months of 1998.
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 three months
of 1998 compared to the same period in 1997 by $254 thousand or
23 percent. The effective tax rates for the three months ended
March 31, 1998 and 1997 were 34 percent and 33 percent,
respectively. The increase is primarily due to a lower 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 three months ended
March 31, 1998 decreased $98 thousand to $498 thousand from the
$596 thousand reported for the same period in 1997. This change
was due to a reduction in the volume of loan growth of 54 percent
from the same period in 1997. 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 March 31, 1998 was $10.8 million compared to $10.3
million at December 31, 1997. The ratio of the allowance for loan
losses to loans outstanding at March 31, 1998 was 1.27 percent compared
to 1.26 percent at December 31, 1997. It is management's belief
that the allowance for loan losses is adequate to absorb probable
loss in the portfolio.
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 $2.7million at March 31, 1998 compared to
$1.0 million at March 31,1997. Nonperforming assets as a
percentage of total loans and other real estate owned was .33
percent at March 31, 1998 and .10 percent at March 31,1997.
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 March 31, 1998, 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.
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: July 10, 1998
By: /s/ Christopher J. Bledsoe
Christopher J. Bledsoe
Chief Financial Officer
(Principal Financial Officer)
Date: July 10, 1998
