SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):
July 22, 2003

United Community Banks, Inc.
(Exact name of registrant as specified in its charter)

63 Highway 515, P.O. Box 398
Blairsville, Georgia 30512
(Address of principal executive offices)

Registrant’s telephone number, including area code:
(706) 781-2265

Not applicable
(Former name or former address, if changed since last report)

 

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 hereunto duly authorized.

 

For Immediate Release

July 22, 2003
 

For more information:

Rex S. Schuette Chief Financial Officer 706-781-2265 rex_schuette@ucbi.com

UNITED COMMUNITY BANKS, INC. REPORTS
17% GAIN IN OPERATING EARNINGS PER SHARE
FOR SECOND QUARTER 2003

Strong Loan and Fee Revenue Growth

BLAIRSVILLE, GA, July 22, 2003 – United Community Banks, Inc. (Nasdaq: UCBI), Georgia’s third largest bank holding company, today announced net operating income of $9.9 million for the second quarter of 2003, up 22% from $8.1 million for the second quarter of 2002.  Diluted operating earnings per share of $.42 increased 17% from $.36 in the second quarter of 2002.  Total revenue, on a taxable equivalent basis, of $43.6 million increased 21% from the year-ago second quarter.  On an operating basis, return on equity was 15.43%, compared with 16.67% a year ago and return on assets was 1.06%, compared with 1.12% a year ago.

For the first six months of 2003, net operating income of $18.5 million rose $2.7 million, or 17%, from $15.8 million for the same period a year ago.  Diluted operating earnings per share totaled $.81, an increase of $.10, or 14%, from $.71 a year earlier.  Total revenue of $81.3 million increased 15%, while operating expenses of $51.6 million were up 13%.

Operating earnings for the second quarter and first six months of 2003 exclude pre-tax merger-related charges of $.7 million and $1.5 million, respectively, or $.02 and $.04 per diluted share.  The merger-related charges were for legal, investment advisor and other professional fees, the termination of equipment leases and conversion costs related to the acquisitions of First Georgia Holding, Inc. (“First Georgia Bank”) that was completed on May 1, 2003 and First Central Bancshares, Inc. (“First Central Bank”) that was completed on March 31, 2003.  Including those charges, second quarter net income, diluted earnings per share, return on equity and return on assets were $9.5 million, $.40, 14.76% and 1.01%, respectively.  For the first six months, net income, diluted earnings per share, return on equity and return on assets were $17.5 million, $.77, 15.09% and 1.01%, respectively.

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“United Community Bank’s second quarter performance was driven by strong loan demand across all of our markets and a rise in fee revenue,” said Jimmy Tallent, President and Chief Executive Officer.  “The strength of our markets relative to the national economy helped us increase loans by $281 million, or, 12%, from a year ago.  The acquisitions of First Central Bank and First Georgia Bank contributed an additional $310 million in loans.  The latest wave of mortgage refinancing and new deposit products and services introduced last year were responsible for the rise in fee revenue.”

First Georgia Bank, which was acquired in the second quarter (May 1) for approximately $13 million in cash and 1,177,000 shares of common stock, added approximately $220 million in loans, $250 million in deposits and $33 million in intangible assets.  The acquisition of First Central Bank at the end of the first quarter of 2003 (March 31), added approximately $90 million in loans, $160 million in deposits and $20 million in intangible assets.  First Georgia Bank’s and First Central Bank’s earnings have been included in United’s consolidated results immediately following their acquisition dates.

“Our stated long-term financial goals are to achieve sustained double-digit earnings per share growth and return on equity in the range of 16% to 18%,” Tallent said.  “We expect our return on common equity to remain in the 15% range for the rest of the year due to our recent acquisitions that reduced our expected return on equity by approximately 100 basis points.  We believe, however, that over time our return on equity will return to our targeted range by combining revenue growth with disciplined expense controls. Our return on tangible equity, which excludes the effects of acquisition-related intangibles, was 19.54% for the second quarter compared with 18.05% for the same period a year ago.”

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Taxable equivalent net interest revenue for the second quarter rose $4.2 million, or 14%, to $34.8 million from the same period a year ago.  Recent acquisitions contributed approximately $2.7 million, leaving the core growth rate at approximately 5%.  “Excluding the acquisitions and despite the weak national economy, United Community Banks still experienced strong loan growth and new business in our markets,” Tallent said. 

Net interest revenue was up $1.2 million, or 4%, from first quarter of 2003.  Taxable equivalent net interest margin for the second quarter was 3.99% versus 4.51% a year ago due to margin compression caused by lower interest rates, which partially offset the positive impact of the increase in loans. “Over the past three quarters, net interest margin has stabilized in the low 4% range and we expect to continue at that level for the remainder of the year,” Tallent said. “On a consecutive quarter basis, excluding acquisitions, our net interest revenue grew approximately 5%, and with our margin remaining in this 4% range we are prepared to maintain our earnings momentum by achieving a strong base of core business growth combined with tight expense controls.”

The second-quarter provision for loan losses was $1.5 million, down $.3 million from a year earlier and unchanged from the first quarter of 2003.  “We continue to carefully protect our credit quality as we pursue growth opportunities and add new business,” Tallent added.  “In fact, we reduced non-performing assets by $1.0 million from last year while significantly growing our loan portfolio.” 

Non-performing assets totaled $8.2 million compared with $9.2 million a year ago and $7.7 million at March 31, 2003.  As a percentage of total assets, non-performing assets were .21 % at June 30, 2003, compared to ..22 % at March 31, 2003, and .31% at June 30, 2002.  “Non-performing assets increased $.5 million from the first quarter, due primarily to our recent acquisition,” Tallent commented.  “However, we still reduced non-performing assets as a percentage of total assets.  Our conservative lending strategy of targeting loans secured by hard assets is at the very foundation of our high credit quality.” 

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Fee revenue of $10.3 million for the second quarter increased $3.0 million, or 41%, from $7.3 million a year ago.  Excluding the contribution of recent mergers, fee revenue grew 23%, primarily driven by higher mortgage refinancing fees and service charges and fees on deposit accounts.  Mortgage refinancing activity reached record levels as customers took advantage of further declines in long-term interest rates pushing mortgage fees to $3.3 million for the quarter, up $1.9 million over 2002.  Service charges and fees on deposit accounts were $4.7 million, up $1.2 million primarily due to increasing popularity of new products and services introduced last year and continued growth in transaction volumes and new accounts.

Excluding merger-related charges, operating expenses were $27.7 million, up $4.5 million, or 19%, from the second quarter of 2002.  Operating expenses in the second quarter for the two bank acquisitions accounted for $2.8 million of this increase, leaving the underlying core expense growth rate at 7%.  Salaries and employee benefits of $17.6 million increased  $2.9 million, or 20%, with more than half of this increase resulting from the recent acquisitions.  The balance of the increase in salaries and benefits costs is due primarily to incentive compensation associated with the increase in mortgage refinancing activities and normal merit increases.  Headcount at June 30, 2003, excluding acquisitions, was at the same level as a year ago.  Communications and equipment expenses increased $.6 million primarily resulting from an increase in depreciation and amortization costs for investments in software, telecommunications and technology equipment over the last twelve months.  Increases in all other expense categories were primarily related to the recent acquisitions, as tighter expense controls have been successful in holding down core expense levels. 

“We continue to diligently monitor and control expenses while growing our balance sheet and total revenue,” Tallent said. “Excluding acquisitions, total revenue increased 9% while operating expenses rose 7%, providing for a positive operating leverage of 2%, which contributed to our 17% growth in diluted operating earnings per share this quarter.  Our efficiency ratio was 61.40% for the quarter compared with 61.25% a year ago.  We are striving for an efficiency ratio in the range of 58% to 60% over the next two years, which we believe is reasonable given our service-oriented community banking platform.

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  “Looking forward, we believe United Community Banks remains on target to achieve earnings per share growth within our long-term goal of 12% to 15% for the balance of 2003,” Tallent said.  “Our outlook is based on assumptions that include a continued, stable economic environment in our markets combined with strong credit quality.  We anticipate loan growth will continue in the range of 10% to 14% for the year.  We stand by our commitment to superior customer service, growing both internally and through selective mergers, and improving our operating efficiency while maintaining solid credit quality.” 

On July 17, 2003, the company’s Board of Directors declared a regular third-quarter cash dividend of $.075 per common share payable October 1, 2003, to shareholders of record as of the close of business on September 15, 2003. “Earlier this year, we increased our annual dividend rate for 2003 to $.30 per share, up $.05, or 20%, over the dividends paid for 2002,” Tallent said.  “This increase reflects our continued strong performance and our commitment to deliver value to our shareholders.”

Under the stock purchase program, the company has authorization to purchase of up to 1.5 million shares of its common stock through December 31, 2004.  As of June 30, 2003, a total of 806,000 shares have been purchased with an average cost per share of $21.71.

On March 31, 2003, United Community Banks completed the acquisition of First Central Bank, headquartered in Lenoir City, with assets of $160 million and eight locations in the Knoxville area.  “We are proceeding with a smooth integration process and will complete the system conversions in the third quarter,” Tallent said.

On May 1, 2003, United Community Banks completed the acquisition of First Georgia Bank, headquartered in Brunswick, with assets of $260 million and six locations.  “During the second quarter, we successfully completed all systems conversions for First Georgia Bank and have increased product offerings in those markets,” Tallent said. “We are well on track to achieve our expected objectives as we take advantage of the growth opportunities in these new markets.  Both of these acquisitions will be slightly accretive to earnings in 2003.”

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Conference Call

United Community Banks will hold a conference call to discuss the contents of this news release, as well as business highlights and financial outlook, on Tuesday, July 22, 2003 at 11:00 a.m. ET.  The telephone number for the conference call is (800) 915-4836.  The conference call will also be available by web-cast within the Investor Relations section of the company's web site, www.ucbi.com.   

About United Community Banks, Inc.

Headquartered in Blairsville, United Community Banks is the third-largest bank holding company in Georgia.  At June 30, 2003, United Community Banks had assets of $3.9 billion and operated 19 community banks with 67 banking offices located throughout north Georgia, metro Atlanta, coastal Georgia, western North Carolina, and east Tennessee.  The company specializes in providing personalized community banking services to individuals and small to mid-size businesses in its markets.  United Community Banks also offers the convenience of 24-hour access to its services through a network of ATMs, telephone and on-line banking.  United Community Banks common stock is listed on the Nasdaq National Market under the symbol UCBI.  Additional information may be found at the company’s web site, www.ucbi.com.

Safe Harbor

This news release contains forward-looking statements, as defined by Federal Securities Laws, including statements about financial outlook and business environment. These statements are provided to assist in the understanding of future financial performance and such performance involves risks and uncertainties that may cause actual results to differ materially from those in such statements.  Any such statements are based on current expectations and involve a number of risks and uncertainties.  For a discussion of factors that may cause such forward-looking statements to differ materially from actual results, please refer to the section entitled “Forward Looking Statements” on page 4 of United Community Banks, Inc. annual report filed on Form 10-K with the Securities and Exchange Commission.

(Tables Follow)

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UNITED COMMUNITY BANKS, INC.
Consolidated Statement of Income
For the Three and Six Months Ended June 30, 2003 and 2002
		Three Months Ended							Six Months Ended
		June 30,							June 30,
(in thousands, except per share data)		2003			2002				2003			2002
Interest revenue:		(Unaudited)			(Unaudited)				(Unaudited)			(Audited)
Interest and fees on loans		$	45,732		$	42,235			$	86,838		$	83,634
Interest on federal funds sold and deposits in banks		99			183				167			351
Interest on investment securities:
Taxable		6,099			5,495				12,065			11,441
Tax-exempt		739			814				1,470			1,640
Total interest revenue		52,669			48,727				100,540			97,066
Interest expense:
Interest on deposits:
Demand		2,163			2,980				4,391			5,396
Savings		115			132				205			264
Time		10,781			10,961				20,889			23,052
Other borrowings		5,408			4,688				10,571			9,739
Total interest expense		18,467			18,761				36,056			38,451
Net interest revenue		34,202			29,966				64,484			58,615
Provision for loan losses		1,500			1,800				3,000			3,300
Net interest revenue after provision for loan losses		32,702			28,166				61,484			55,315
Fee revenue:
Service charges and fees		4,687			3,481				8,261			6,225
Mortgage loan and related fees		3,335			1,436				5,647			3,243
Consulting fees		1,154			1,174				2,274			2,165
Brokerage fees		448			492				868			989
Securities gains (losses), net		(3)			-				(3)			-
Other		695			719				1,646			1,601
Total fee revenue		10,316			7,302				18,693			14,223
Total revenue		43,018			35,468				80,177			69,538
Operating expenses:
Salaries and employee benefits		17,571			14,658				32,675			28,434
Occupancy		2,194			2,061				4,296			4,176
Communications and equipment		2,104			1,514				4,004			3,023
Postage, printing and supplies		1,172			965				2,117			1,966
Professional fees		1,076			922				1,971			1,740
Advertising and public relations		967			989				1,673			1,719
Amortization of intangibles		328			85				413			170
Merger-related charges		668			-				1,508			-
Other		2,287			2,001				4,467			4,340
Total operating expenses		28,367			23,195				53,124			45,568
Income before income taxes		14,651			12,273				27,053			23,970
Income taxes		5,182			4,174				9,520			8,151
Net income		$	9,469		$	8,099			$	17,533		$	15,819
Net income available to common stockholders		$	9,441		$	8,073			$	17,488		$	15,767
Earnings per common share:
Basic		$	.41		$	.38			$	.79		$	.74
Diluted		.40			.36				.77			.71
Average common shares outstanding:
Basic		22,853			21,407				22,040			21,407
Diluted		23,592			22,383				22,777			22,224

 

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UNITED COMMUNITY BANKS, INC.
Consolidated Balance Sheet
For the period ended
		June 30,			December 31,			June 30,
($ in thousands)		2003			2002			2002
ASSETS		(Unaudited)			(Audited)			(Unaudited)
Cash and due from banks		$	94,542		$	75,027		$	86,103
Interest-bearing deposits in banks		41,632			31,318			64,442
Federal funds sold		-			-			27,635
Cash and cash equivalents		136,174			106,345			178,180
Securities available for sale		660,625			559,390			426,076
Mortgage loans held for sale		38,536			24,080			8,7 42
Loans, net of unearned income		2,861,481			2,381,798			2,269,973
Less - allowance for loan losses		37,353			30,914			29,190
Loans, net		2,824,128			2,350,884			2,240,783
Premises and equipment, net		82,356			70,748			68,454
Accrued interest receivable		22,564			20,275			22,317
Intangible assets		65,835			12,767			12,938
Other assets		75,711			66,855			57,118
Total assets		$	3,905,929		$	3,211,344		$	3,014,608
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand		$	397,043		$	297,613		$	323,854
Interest-bearing demand		790,518			734,494			655,015
Savings		134,223			100,523			99,417
Time		1,549,142			1,252,609			1,262,090
Total deposits		2,870,926			2,385,239			2,340,376
Accrued expenses and other liabilities		23,917			17,222			19,595
Federal funds purchased and repurchase agreements		51,990			20,263			48,843
Federal Home Loan Bank advances		585,725			492,130			335,859
Long-term debt and other borrowings		87,871			74,911			60,348
Total liabilities		3,620,429			2,989,765			2,805,021
Stockholders' equity:
Preferred stock, $1 par value; $10 stated value; 10,000,000 shares authorized;
65,500, 172,600 and 172,600 shares issued and outstanding		655			1,726			1,726
Common stock, $1 par value; 50,000,000 shares authorized;
23,804,382, 21,805,924 and 21,805,924 shares issued		23,804			21,806			21,806
Capital surplus		108,905			62,495			62,510
Retained earnings		149,843			135,709			121,467
Treasury stock; 493,054, 542,652 and 391,766 shares, at cost		(11,394)			(11,432)			(7,637)
Accumulated other comprehensive income		13,687			11,275			9,715
Total stockholders' equity		285,500			221,579			209,587
Total liabilities and stockholders' equity		$	3,905,929		$	3,211,344		$	3,014,608