SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1995 Commission File Number: 0-11282
UNITED COUNTIES BANCORPORATION
(exact name of Registrant as specified in its Charter)
New Jersey 22-2453041
(State of Incorporation) (I.R.S. Employer
Identification Number)
Four Commerce Drive
Cranford, New Jersey 07016 908-931-6600
(Address of principal executive (Telephone Number)
office and zip code)
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 requirement for the past 90 days.
Yes X No
----------- -------
The number of shares of Registrant's Common Stock, no par value, $1 stated
value, outstanding as of October 31, 1995 was 2,148,638.
<PAGE>
UNITED COUNTIES BANCORPORATION
------------------------------
FORM 10Q
INDEX
PART I PAGE
- ----- ----
ITEM 1 FINANCIAL STATEMENTS AND NOTES TO FINANCIAL 1
STATEMENTS
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II
- -------
ITEM 1 LEGAL PROCEEDINGS 14
ITEM 2 CHANGES IN THE RIGHTS OF THE CORPORATION'S
SECURITY HOLDERS 14
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS
SENIOR SECURITIES 14
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14
ITEM 5 OTHER INFORMATION 14
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
<PAGE>
PART I
Item 1. Financial Statements
--------------------
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 75,663 $ 93,221
Money market investments 7,460 2,555
Securities available-for-sale 104,228 100,070
Investment securities (market value:
1995 - $939,550; 1994 - $931,639) 935,114 965,239
Federal funds sold 90,000 115,000
Loans, net of unearned discounts of $366
in 1995 and $255 in 1994 388,600 374,375
Less: Allowance for loan losses 11,042 11,091
---------- ----------
Net loans 377,558 363,284
Premises and equipment, net 11,303 11,754
Accrued interest receivable 19,543 21,289
Other assets 9,593 8,528
---------- ----------
Total assets $1,630,462 $1,680,940
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits
Demand $ 249,211 $ 264,781
Savings 712,011 770,977
Time 342,003 318,980
---------- ----------
Total deposits 1,303,225 1,354,738
Securities sold under repurchase agreements 91,536 110,141
Other borrowed funds 8,354 12,341
Other liabilities 28,256 22,137
---------- ----------
Total liabilities 1,431,371 1,499,357
Stockholders' equity:
Preferred stock: no par value, no stated
value; authorized 3,000,000 shares; zero
shares issued and outstanding - -
Common stock: no par value, $1 stated value;
authorized 6,000,000 shares; issued 2,529,588
shares in 1995 and 2,523,976 shares in 1994 2,530 2,524
Additional paid-in capital 24,244 23,947
Retained earnings 188,071 169,967
Net unrealized gain on securities available-
for-sale, net of income taxes 6,479 6,747
----------- ----------
221,324 203,185
Less: treasury stock, at cost, 381,438 shares
at September 30, 1995, and 376,270 shares at
December 31, 1994 22,233 21,602
----------- ----------
Total stockholders' equity 199,091 181,583
----------- ----------
Total liabilities and stockholders'
equity $1,630,462 $1,680,940
========== ==========
</TABLE>
<PAGE>
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Interest income
Interest and fees on loans
Taxable income $ 8,149 $ 7,706
Tax-exempt income 139 151
Interest and dividends on securities
available-for-sale 1,618 1,547
Interest on investment securities
Taxable income 14,737 15,151
Tax-exempt income 123 140
Interest on money market investments 67 60
Interest on federal funds sold 1,081 835
-------- --------
Total interest income 25,914 25,590
-------- --------
Interest expense
Savings and time deposits 9,340 8,488
Securities sold under repurchase agreements 854 509
Other borrowed funds 105 77
-------- ---------
Total interest expense 10,299 9,074
-------- ---------
Net interest income 15,615 16,516
Provision for loan losses -0- (200)
-------- ---------
Net interest income after provision for
loan losses 15,615 16,716
-------- ---------
Other operating income
Gains on securities available-for-sale 255 -
Service charges on deposit accounts 721 775
Trust fees 258 252
Other income 352 816
-------- ---------
Total other operating income 1,586 1,843
-------- ---------
Net interest and other operating income 17,201 18,559
------- -------
Other operating expenses
Salaries and employee benefits 5,036 5,300
Net occupancy expense 785 896
Equipment expense 362 420
FDIC insurance premium 17 768
Other expense 1,874 2,547
--------- --------
Total other operating expenses 8,074 9,931
--------- --------
Income before income taxes 9,127 8,628
Income taxes 2,968 2,647
--------- --------
Net income $ 6,159 $ 5,981
======== =======
Income per share of common stock:
Average outstanding shares 2,146 2,138
===== =====
Net income $2.87 $2.80
===== =====
Dividend paid per share of common stock $1.85 $.80
===== ====
Cash dividend payable - November 1
- $.80
==== ====
</TABLE>
<PAGE>
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Income Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Interest Income
Interest and fees on loans
Taxable income $24,467 $22,710
Tax-exempt income 387 460
Interest and dividends on securities
available-for-sale 4,976 4,625
Interest on investment securities
Taxable income 44,852 44,721
Tax-exempt income 387 354
Interest on money market investments 165 127
Interest on federal funds sold 2,552 2,169
--------- ---------
Total interest income 77,786 75,166
--------- --------
Interest expense
Savings and time deposits 27,888 23,818
Securities sold under repurchase agreements 2,262 1,334
Other borrowed funds 348 249
---------- -----------
Total interest expense 30,498 25,401
-------- ---------
Net interest income 47,288 49,765
Provision for loan losses
(500) (825)
--------- --------
Net interest income after provision for
loan losses 47,788 50,590
--------- ---------
Other operating income
Gains on securities available-for-sale 12,263 -
Service charges on deposit accounts 2,246 2,295
Trust fees 751 806
Other income 1,086 2,403
----------- ---------
Total other operating income 16,346 5,504
---------- ---------
Net interest and other operating income 64,134 56,094
--------- --------
Other operating expenses
Salaries and employee benefits 15,030 15,524
Net occupancy expense 2,567 2,722
Equipment expense 1,246 1,325
FDIC insurance premium 1,528 2,286
Other expense 5,754 7,923
--------- ---------
Total other operating expenses 26,125 29,780
-------- --------
Income before income taxes 38,009 26,314
Income taxes 12,500 8,595
---------- ---------
Net income $25,509 $17,719
======= =======
Income per share of common stock:
Average outstanding shares 2,145 2,136
===== =====
Net income $11.89 $8.30
====== =====
Dividends paid per share of common stock $3.45 $2.20
===== =====
Cash dividend payable - November 1 - $ .80
== =====
</TABLE>
<PAGE>
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands)
(Unaudited)
<CAPTION>
Net
Unrealized
Gain on
Securities
Available-
for-Sale
Additional Net of
Nine Months Ended Preferred Common Paid-in Retained Income Treasury
September 30, 1995 Stock Stock Capital Earnings Taxes Stock Total
- ------------------ -------- ----- ------- -------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1995 - $2,524 $23,947 $169,967 $6,747 $(21,602) $181,583
Shares issued under
Incentive Stock
Option Plans 6 297 303
Net income 25,509 25,509
Dividends paid (7,405) (7,405)
Treasury stock acquired -
5,168 shares (631) (631)
Net change in net
unrealized gain on
securities available-
for-sale, net of income
taxes ( 268) (268)
--- ------ ------- -------- ------ --------- ---------
Balances at
September 30, 1995 - $2,530 $24,244 $188,071 $6,479 $(22,233) $199,091
=== ====== ======= ======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized Gain
on Securities
Additional Available-for
Nine Months Ended Preferred Common Paid-in Retained Sale, Net of Treasury
September 30, 1994 Stock Stock Capital Earnings Income Taxes Stock Total
- ------------------ ------ ------ ------- -------- ------------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1994 - $2,501 $22,970 $153,218 - $(20,721) $157,968
Shares issued under
Incentive Stock
Option Plans 15 586 601
Net income 17,719 17,719
Dividends paid (3,207) (3,207)
Dividend payable 11/1/94 (1,710) (1,710)
Treasury stock acquired -
6,204 shares (598) (598)
Net unrealized gain
on securities
available-for-sale,
net of income taxes $7,293 7,293
--- ------ ------- --------- ------ ------- --------
Balances at
September 30, 1994 - $2,516 $23,556 $166,020 $7,293 $(21,319) $178,066
=== ====== ======= ======== ====== ======== ========
</TABLE>
<PAGE>
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1995 1994
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 25,509 $ 17,719
Adjustments to reconcile net income to
net cash from operating activities:
Gains on sales of securities available-
for-sale (173) 0
Gains on exchanges of securities
available-for-sale (12,090) -
Amortization of premiums and discounts,
net 3,532 6,328
Depreciation 932 1,077
Provision for loan losses (500) (825)
Deferred income tax expense (benefit) 4,599 (52)
Amortization of deferred loan fees (165) 29
Decrease in interest receivable 1,746 829
Increase (decrease) in interest payable 1,817 (40)
Increase in other assets (6,083) (2,963)
Increase in other liabilities 4,387 1,243
Increase in current income tax payable 80 81
------ -------
Total adjustments (1,918) 5,707
------- -------
Net cash from operating activities 23,591 23,426
------- --------
Investing Activities:
Proceeds from sale of securities
available-for-sale 898 0
Proceeds from maturities of securities
available-for-sale 10,308 5,000
Purchases of securities available-for-sale (3,866) 0
Proceeds from maturities/calls of
investment securities 118,543 218,646
Purchases of investment securities (91,050) (236,472)
Net (increase) decrease in short-term
investments (4,905) 31
Net decrease in federal funds sold 25,000 57,000
Net decrease in credit card receivables
and other short-term loans 2,104 10,006
Principal collected on longer term loans 71,383 92,844
Longer term loans originated or acquired (87,245) (95,192)
Purchases of premises and equipment, net (481) (424)
-------- ---------
Net cash from investing activities 40,689 51,439
-------- ---------
Financing Activities:
Net decrease in demand deposits, NOW
accounts, and savings accounts (74,536) (30,650)
Net increase in open time accounts 4,304 3,367
Proceeds from sales of certificates of
deposit 103,933 75,019
Payments for maturing certificates of
deposit (85,214) (69,339)
Net decrease in short-term borrowings (22,592) (47,563)
Payments to acquire treasury stock (631) (598)
Dividends paid (7,405) (4,700)
Proceeds from exercise of stock options 303 601
-------- --------
Net cash applied to financing
activities
(81,838) (73,863)
-------- --------
Net increase (decrease) in cash and cash
equivalents (17,558) 1,002
-------- --------
Cash and cash equivalents at beginning
of period 93,221 85,388
--------- ---------
Cash and cash equivalents at end of
period $ 75,663 $ 86,390
========== ==========
Cash paid during the period for:
Interest $ 28,681 $ 25,441
========== ==========
Income taxes $ 8,666 $ 10,790
========== ==========
Transfer from investment securities to
securities available-for-sale - $ 100,054
=========== ==========
</TABLE>
<PAGE>
UNITED COUNTIES BANCORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
1. Principles of Consolidation
---------------------------
The consolidated financial statements of United Counties Bancorporation
include the accounts of the parent company and subsidiaries, United Capital
Corporation and United Counties Trust Company (Bank), and its subsidiaries.
All material intercompany transactions have been eliminated. In the opinion
of management, all adjustments made to the unaudited interim financial
statements necessary for a fair statement of the results for the period have
been included and were of a normal recurring nature.
2. Adoption of Recent Accounting Pronouncements
--------------------------------------------
Effective January 1, 1995, the Bancorporation adopted FASB Statement No.
114, `Accounting by Creditors for Impairment of a Loan.'' This Standard
applies to contractual rights to receive money on demand or on fixed or
determinable dates that are recognized as assets on creditors' balance sheets,
including accounts receivable due in more than one year. A loan is considered
impaired if, based upon current information and events, it is probable that the
creditor will not be able to collect all principal and interest due in
accordance with the terms of the agreement. Once a loan is considered
impaired, the Standard requires calculation of the present value of expected
future cash flows using the effective rate of the loan. If the calculated
present value is less than the recorded investment in the loan, the
difference is to be charge to bad debt expense with a corresponding credit
to a valuation allowance account. Loans for which repayment is expected to
be provided by the underlying collateral, the fair value of the collateral of
the loan may be used.
Also effective January 1, 1995, the Bancorporation adopted FASB Statement
No. 118, `Accounting by Creditors for Impairment of a Loan-Income Recognition
and Disclosures.'' This Standard amends the income recognition and disclosure
requirements of FASB No. 114.
The adoption of these Standards did not have a material effect on the
financial position of the Bancorporation.
FASB No. 115, `Accounting for Certain Investments in Debt and Equity
Securities,''was adopted on January 1, 1994. This Standard applies to equity
securities having readily determinable fair values and to all debt securities.
For accounting and financial reporting purposes, securities are to be
classified into one of the following three categories: 1) held-to-maturity; 2)
trading securities; or 3) available-for-sale. Only debt securities may be
classified as held-to-maturity. Those securities that are classified as held-
to-maturity are to be carried at amortized cost while unrealized gains/losses
from the changes in market value for investments categorized as available-for-
sale are to be reported as a separate component of stockholders' equity net of
related tax effects. See Note 4.
3. Pending Acquisition
-------------------
On May 24, 1995 United Counties Bancorporation (`UCB'') announced that it
signed a definitive merger agreement with Meridian Bancorp, Inc., Reading,
Pennsylvania (`Meridian''), pursuant to which UCB will be acquired in a tax-
free, stock-for-stock merger. Pursuant to the merger, each of the outstanding
shares of UCB common stock will be exchanged for five (5) shares of Meridian
common stock. UCB will be merged into Meridian and UCB's wholly-owned
subsidiary, United Counties Trust Company (`UCTC''), will be merged into
Meridian's wholly-owned subsidiary, Meridian Bank, New Jersey (`MBNJ''). The
acquisition is conditioned upon necessary bank regulatory approvals,
shareholder approval and other customary terms and conditions. In connection
with the merger agreement UCB also granted Meridian an option to acquire
375,000 shares of UCB stock at $125 per share under certain circumstances.
On October 10, 1995, Meridian Bancorp, Inc. announced the signing of a
definitive merger agreement with CoreStates Financial Corp (CoreStates) of
Philadelphia, Pennsylvania. Under the terms of this agreement, each share of
Meridian common stock will be exchanged for 1.225 shares of CoreStates common
stock and is dependent upon a similar approval process.
<PAGE>
4. Investment Securities and Securities Available-for-Sale
-------------------------------------------------------
On January 1, 1994, FASB No. 115 was adopted. The following tables
present information related to the portfolio of investment securities held-
to-maturity and available-for-sale of the Bancorporation as of September 30,
1995 and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
September 30, 1995
------------------
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
Investment Securities Held-to-Maturity:
- --------------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities
and obligations of United States
government corporations and
agencies $785,747 $8,254 $3,606 $790,395
Obligations of states and
political subdivisions 13,618 0 2 13,616
Corporate obligations 135,749 1,245 1,455 135,539
-------- ------ ------ -------
Total $935,114 $9,499 $5,063 $939,550
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
------------------
Amortized Gross Unrealize Book/Market
Cost Gains Losses Value
---- ----- ------ -----
Securities Available-for-Sale:
- ------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities
and obligations of United States
government corporations and
agencies $ 66,067 $ 280 $ 330 $ 66,017
Marketable equity securities 27,968 10,243 0 38,211
-------- ------- ------- --------
Total $ 94,035 $10,523 $ 330 $104,228
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
Investment Securities Held-to-Maturity:
- --------------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities
and obligations of United States
government corporations and
agencies $810,182 $ 525 $27,433 $783,274
Obligations of states and political
subdivisions 14,778 4 4 14,778
Corporate obligations 140,279 162 6,854 133,587
------- ------ ------- --------
Total $965,239 $ 691 $34,291 $931,639
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Amortized Gross Unrealized Book/Market
Cost Gains Losses Value
----- ----- ------ -----
Securities Available-for-Sale:
- ------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities
and obligations of United States
government corporations and
agencies $ 76,574 $ 77 $ 2,518 $ 74,133
Marketable equity securities 13,046 12,891 0 25,937
-------- ------- ------- ---------
Total $ 89,620 $12,968 $ 2,518 $100,070
======== ======= ======= ========
</TABLE>
The carrying value of securities pledged to secure public funds and for
other purposes as required by law was $176,961,000 at September 30, 1995, and
$209,635,000 at December 31, 1994.
The amortized cost and estimated market value of investment securities
held-to-maturity and available-for-sale at September 30, 1995 and December 31,
1994, by contractual maturity, are shown in the table on the next page.
Expected maturities may differ from contractual maturities since certain
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties (in thousands):
<PAGE>
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
Amortized Estimated Amortized Estimated
Cost Market Value Cost Market Value
--- ------------ ---- ------------
Investment Securities Held-to-Maturity:
- --------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $220,755 $221,718 $ 144,914 $ 144,896
Due after one year through
five years 703,850 706,910 757,617 728,328
Due after five years through
ten years 10,113 10,528 62,193 57,904
Due after ten years 396 394 515 511
-------- -------- --------- ---------
Total $935,114 $939,550 $ 965,239 $ 931,639
======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
------------------ -----------------
Amortized Book/Market Amortized Book/Market
Cost Value Cost Value
---- ------ ----- -----
Securities Available-for-Sale:
- ------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $20,126 $ 20,192 $ 15,062 $ 15,117
Due after one year through
five years 45,941 45,825 61,512 59,016
------- --------- -------- ---------
Total $ 66,067 $ 66,017 $ 76,574 $ 74,133
======== ========= ======== ========
Proceeds from sales of securities available-for-sale for the nine months
ended September 30, 1995, were $898,000. Proceeds from sales of securities
during 1994 were zero. Gross gains of $173,000 were recorded in 1995.
Fixed income investment securities are traded in liquid markets and are of
investment quality as rated by nationally recognized rating services.
</TABLE>
5. Loans
-----
The following summarizes the loan categories, net of unearned discounts,
at September 30, 1995, and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Real estate loans:
Construction $ 15,262 $ 15,214
Commercial 123,990 115,829
Residential:
Conventional 99,678 99,028
Insured or guaranteed 923 1,067
Home equity & secondary mortgage 90,205 87,568
Economic Development Authority 6,528 7,013
Term 4,371 2,555
-------- --------
Total real estate loans 340,957 328,274
Consumer loans 17,481 16,905
Credit card 1,450 3,075
Commercial and industrial 28,472 26,005
Lease financing receivables 240 116
-------- --------
Total loans, net of unearned discounts $388,600 $374,375
======== ========
</TABLE>
The primary lending marketplace of the Bancorporation includes the New
Jersey Counties of Middlesex, Monmouth, Morris, Somerset, and Union.
A significant portion of the loan portfolio of the Bank is secured by real
estate. At September 30, 1995, and December 31, 1994, real estate loans
amounted to 87.7% of the total loan portfolio.
<PAGE>
6. Allowance for Loan Losses
-------------------------
The following is an analysis of changes in the Allowance for Loan Losses
Account (in thousands):
<TABLE>
<CAPTION>
Nine months For the year Nine months
ended ended ended
Sept. 30, 1995 Dec. 31, 1994 Sept. 30, 1994
-------------- ------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $11,091 $11,014 $11,014
Provision for loan losses (500) (825) (825)
Recoveries of loans previously
charged-off 917 1,175 822
Loans charged-off (466) (273) (180)
------- ------- -------
Balance at period end $11,042 $11,091 $10,831
======= ======= =======
</TABLE>
7. Risk Elements
-------------
Risk elements, which include nonaccrual loans, restructured loans,
loans past due 90 days or more, and other real estate owned at September 30,
1995, December 31, 1994, and September 30, 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994 Sept. 30, 1994
-------------- ------------- ---------------
<S> <C> <C> <C>
Nonaccrual loans $ 2,791 $ 2,769 $ 284
Restructured loans 4,809 5,265 5,436
Loans past due 90 days or more 2,362 2,401 5,132
Other real estate owned 125 - -
------- --------- -------
Total $10,087 $ 10,435 $10,852
======= ======== =======
</TABLE>
The impact of risk elements on interest income is not material.
8. Dividend Restrictions
---------------------
Certain limitations are imposed by New Jersey statutes on the availability
of a subsidiary bank's undistributed net assets for the payment of dividends to
the parent company without prior approval of the regulatory authorities. The
Bank may pay dividends only if, following the payment of each such dividend,
the capital stock of the subsidiary bank will not be impaired and (1) the
Bank will have additional paid-in capital of not less than 50% of its capital
stock, or, if not, (2) the payment of such dividends will not reduce the
additional paid-in capital of the Bank. The Bank is also subject to the
Federal Deposit Insurance Corporation regulations that require the Bank to
maintain minimum capital ratios. Under current law, a minimum leverage
ratio (Tier 1 capital to quarterly average assets, less intangibles) of 4%,
Tier 1 risk-based capital ratio of 4% and total risk-based capital ratio,
Tier 2, of 8% must be maintained.
At September 30, 1995, the capital accounts of the Bank totalled
$150,388,000 of which $87,713,000 was available for the payment of dividends to
the parent company.
9. Commitments and Contingent Liabilities
--------------------------------------
The Bancorporation may, from time to time, be a defendant in legal
proceedings relating to the conduct of its business. In the normal course of
business there also are outstanding various contingent liabilities, such as
commitments to extend credit (including standby letters of credit in the amount
of $7,364,000 at September 30, 1995, and $7,327,000 at December 31, 1994) which
are not reflected in the accompanying consolidated financial statements. In
the judgement of management, the consolidated financial position of the
Bancorporation and its subsidiaries will not be affected materially by the
final outcome of any present legal proceeding or other contingent liability.
The Bancorporation is party to financial obligations with off-balance
sheet risk incurred in the normal course of business. These instruments
include commitments to extend credit in the form of loans totalling
$163,848,000 at September 30, 1995, and $185,847,000 at December 31, 1994.
The exposure of the Bancorporation to credit loss in the event of non-
performance by the other party to these financial instruments is equal to
the contractual amount. The Bancorporation uses the same credit policies in
granting these commitments as it does for loans presently outstanding.
Collateral is obtained when deemed appropriate. These commitments do not
necessarily represent future obligations. A substantial portion of these
commitments historically have remained unused, or if used, would be secured
by mortgages on real estate.
<PAGE>
10. Income Taxes
------------
The current and deferred amounts of federal income tax expense (benefit)
as of September 30, 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
1995 1994
---- ----
<S> <C> <C>
Current expense $ 7,901 $8,647
Deferred expense (benefit) 4,599 (52)
------- ------
Total income tax expense $12,500 $8,595
======= ======
</TABLE>
The Bancorporation has established a deferred tax liability of $3,714,000
as a result of the net unrealized gains on securities designated as available-
for-sale under the provisions of FASB No. 115, `Accounting for Certain
Investments in Debt and Equity Securities.''
Certain deferred tax information for 1994 has been adjusted from amounts
previously presented to conform with tax returns filed for this period.
The significant components of the Corporation's deferred tax liabilities
and assets are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 30, September 30,
1995 1994 1994
----- ---- ----
<S> <C> <C> <C>
Deferred tax liabilities:
Accretion on bond discounts,
net $ 860 $ 401 $ 279
Unrealized gain on securities
available-for-sale 3,714 3,703 4,102
Gain on exchange of securities
available-for-sale 4,408 - -
------ ------ -------
Total deferred tax liabilities 8,982 4,104 4,381
------ ------ ------
Deferred tax assets:
New Jersey Corporation business
tax 1,039 1,281 1,419
Book over tax depreciation 564 496 350
Excess book bad debt 3,361 3,382 3,378
Postretirement benefits 3,348 3,108 3,041
Book over tax core deposit
premium amortization 708 696 510
Other, net 142 207 303
------- ------ ------
Total deferred tax assets 9,162 9,170 9,001
------- ------ ------
Net deferred tax asset $ 180 $5,066 $4,620
====== ====== ======
The significant components of the 1995 and 1994 deferred expense (benefit)
were:
Deferred income tax expense
(benefit) $4,599 $ (52)
====== ======
</TABLE>
As required by FASB 109, United Counties Bancorporation has determined
that it is not required to establish a valuation reserve for the deferred tax
asset account since it is ``ore likely than not'' that the deferred tax asset
will be realized through carryback to taxable income in prior years, future
reversals of existing taxable temporary differences, future taxable income
and tax planning strategies. The conclusion that it is `more likely than
not' that the deferred tax asset will be realized is based on the history of
earnings and the prospects for continued growth including an analysis of
potential uncertainties that may affect future operating results. Management
believes that future taxable income will be sufficient to realize the
benefits of temporary deductible differences that cannot be realized through
carryback to prior years or through the reversal of future temporary taxable
differences. Management will continue to review the tax criteria related to
the recognition of deferred tax assets.
The consolidated effective tax rate is reconciled to the statutory rate
for September 30, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory rate 35.0 % 35.0 %
Difference resulting from:
Tax-exempt income (0.7) (1.0)
Other, net (1.4) (1.3)
---- ----
Effective tax rate 32.9 % 32.7 %
==== ====
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation
------------
Net Income
- ----------
Net income for the three month period ended September 30, 1995, was
$6,159,000 compared to $5,981,000 for the comparable 1994 period. Earnings per
share were $2.87 for the 1995 period versus $2.80 for the same period a year
ago.This increase is due to changes in a number of factors described below.
For the nine months ended September 30, 1995, net income amounted to
$25,509,000, or $11.89 per share, compared to $17,719,000, or $8.30 per share,
for the same period in 1994. This increase is primarily the result of after-
tax gains on exchanges of securities available-for-sale of $7,682,000, or
$3.58 per share. Net income exclusive of these gains amounted to
$17,827,000, or $8.31 per share.
Net Interest Income
- -------------------
Net interest income for the third quarter of 1995 decreased by $901,000,
or 5.5%, when compared to the same period in 1994. Total interest income rose
$324,000, or 1.3%. Contributing to this increase was a rise in interest and
fees on loans of $431,000, or 5.5%, due to greater loan originations and higher
interest rates. Interest and dividend income from investment securities,
including securities available-for-sale declined $360,000, or 2.1%,
predominantly due to a lower level of investment securities. Interest on money
market investments rose $7,000, or 11.7%, while interest on federal funds sold
increased $246,000, or 29.5%, both primarily the result of higher interest
rates being earned. Total interest expense for the three months ended
September 30, 1995, increased $1,225,000, or 13.5%, as higher interest rates
were offset in part by lower interest bearing liabilities. Savings and time
deposit interest cost rose $852,000, or 10.0%, due to higher rates mitigated
in part by lower deposits. Interest paid for securities sold under
repurchase agreements increased $345,000, or 67.8%, due to both higher
balances and rates. Interest on other borrowed funds grew $28,000, or 36.4%,
due to higher rates.
For the nine months ended September 30, 1995, net interest income was
lower by $2,477,000, or 5.0%, when compared to the same period a year ago.
Total interest income increased $2,620,000, or 3.5%. Contributing factors
include interest and fees on loans rising $1,684,000, or 7.3%, the result of
greater loans outstanding and higher rates; interest and dividends on
investment securities, including securities available-for-sale, increased
$515,000, or 1.0%, as higher rates being earned offset lower level of invest-
ment securities; and interest on money market investments and federal funds
sold were higher by $38,000, or 29.9%, and $383,000, or 17.7%, respectively
as increased rates more than offset lower outstanding balances. Offsetting
the growth in interest income was a $5,097,000, or 20.1%, increase in
interest expense. Savings and time deposits interest expense rose
$4,070,000, or 17.1%, as higher rates were partially offset by lower
deposits. Interest cost for securities sold under repurchase agreements
increased $928,000, or 69.6%, due to higher activity and rates. Interest on
other borrowed funds grew by $99,000, or 39.8%, as higher rates were
partially offset by lower volume.
Provision for Loan Losses
- -------------------------
For the quarter ended September 30, 1995, the provision for loan losses
was zero compared to a credit of $200,000 recorded for the comparable period
a year ago.
For the nine months ended September 30, 1995, the provision for loan
losses was a credit of $500,000 versus a credit of $825,000 for the same
period in 1994.
The credit provision in 1995 is primarily the result of net recoveries
coupled with a lower level of risk elements while the 1994 credit provision was
primarily the result of net recoveries.
The Allowance for Loan Losses Account is an estimate and may be subject to
variance based upon economic conditions throughout our trade area as well as
periodic fluctuations in the financial condition of individual loans. At
September 30, 1995, the Allowance for Loan Losses as a percentage of period end
loans was 2.8% compared to 3.0% at December 31, 1994.
Other Operating Income
- ----------------------
Total other operating income declined $257,000, or 13.9%, when comparing
the quarter ended September 30, 1995 with the same period in 1994. This
decline is primarily the result of a reduction in credit card fees due to the
exit from that business during the fourth quarter of 1994. Service charges
on deposit accounts declined $54,000, or 7.0%, while trust fees increased
$6,000, or 2.4%. Other income fell $464,000, or 56.9%, largely attributable
to lower credit card fees.
<PAGE>
During the third quarter of 1995, gains from securities available for sale
totalled $255,000 compared to zero for the same 1994 period.
For the nine months ended September 30, 1995, total other operating income
rose $10,842,000, the result of $12,263,000 in gains from securities available-
for-sale. Exclusive of these gains, this category decreased $1,421,000, or
25.8%, due to lower credit card fees. Service charges on deposit accounts
declined $49,000, or 2.1%, while trust fees declined $55,000, or 6.8%. The
decline in other income of $1,317,000, or 54.8%, is primarily the result of
reduced credit card fees.
Other Operating Expenses
- ------------------------
Total other operating expenses decreased $1,857,000, or 18.7%, during the
third quarter of 1995 when compared to the same period a year ago. Salaries
and employee benefits declined $264,000, or 5.0%, largely attributable to
lower employee benefit costs. Net occupancy expense decreased $111,000, or
12.4%, while equipment expense was lower by $58,000, or 13.8%. FDIC
insurance premiums decreased by $751,000 as a result of the deposit
insurance refund. Other expense fell $673,000, or 26.4%, primarily the
result of lower credit card expenses due to the exit from the credit card
business during the fourth quarter of 1994, lower New Jersey Corporate taxes
and other expenses incurred in the normal course of business.
For the nine months ended September 30, 1995, total other operating
expense declined $3,655,000, or 12.3%, from a year ago. Salaries and
employee benefits declined $494,000, or 3.2%, primarily the result of lower
employee benefit costs. Net occupancy and equipment expenses decreased
$155,000, or 5.7%, and $79,000, or 6.0%, respectively. FDIC insurance
premiums were lower by $758,000 as a result of the previously discussed
refund. Other expense fell $2,169,000, or 27.4%. This decrease is largely
attributable to lower credit card expenses, New Jersey Corporate taxes and
other expenses incurred in the normal course of business, offset in part by
merger- related costs.
Income Taxes
- ------------
For the quarter ended September 30, 1995, income tax rose $321,000, or
12.1%. For the nine months ended September 30, 1995, income tax expense rose
$3,905,000, or 45.4%, primarily the result of gains on securities
available-for-sale.
Analysis of Net Financial Margin
- --------------------------------
The net financial margin decreased to 4.26% for the nine month period
ended September 30, 1995, from 4.31% for the six months ended June 30, 1995
compared to 4.35% for the period ended March 31, 1995. For the year ended
1994, the net financial margin was 4.40%. The yield on interest earning
assets increased 31 basis points, from December 31, 1994, while the cost of
all funding sources was higher by 45 basis points from the same fiscal year
end.
Total earning assets declined $31,837,000, or 2.0%, from year end 1994.
Federal funds sold decreased by $25,000,000 or 21.7%, while investment
securities, including securities available-for-sale, decreased $25,967,000, or
2.4%. Offsetting these declines were increases in money market investments of
$4,905,000, and net loans outstanding of $14,225,000, or 3.8%.
Interest-bearing liabilities decreased $58,535,000, or 4.8%, from the
December 31, 1994, level. Savings deposits decreased $58,966,000, or 7.6%,
while time deposits rose $23,023,000, or 7.2%, due to the prevailing interest
rate structure. Short term borrowings, which consists of securities sold under
repurchase agreements and treasury tax and loan (other borrowed funds) declined
$22,592,000, or 18.4%. These decreases, in part, are the result
of seasonal fluctuations and current interest rate environment.
Capital Resources
- -----------------
Stockholders' equity at September 30, 1995, totalled $199,091,000, an
increase of $17,508,000, or 9.6%, from the December 31, 1994, level. This
increase is attributable to earnings retention, net of dividends declared, less
a net decrease in the net unrealized gain on securities available-for-sale,
and purchases of treasury stock.
The final standard for the risk-based capital measures as dictated by the
Board of Governors of the Federal Reserve System became effective on December
31, 1992. As a result, bankholding companies are required to have a minimum
total risk-based capital ratio (Tier 1 and Tier 2) of 8.0% of which one half
must be Tier 1 capital which for the Bancorporation consists of common
stockholders' equity, whereas Tier 2 capital is comprised of Tier 1 capital
plus the allowable portion of the Allowance for Loan Loss Account. Tier 1
and Tier 2 ratios of the Bancorporation at September 30, 1995, were 37.6% and
39.8%, respectively. At December 31, 1994, the ratios were 35.8% and 37.0%,
respectively.
<PAGE>
In addition to the risk-based capital measures, minimum leverage ratio
requirements exist. The current requirement is 3.0% for those bankholding
companies that meet certain criteria including the maintenance of the highest
regulatory rating. All other bankholding companies are required to maintain a
spread of between 100 to 200 basis points above the minimum. At September 30,
1995, the Bancorporation's ratio was 12.1%, compared to 10.8%
at year-end 1994.
Liquidity
- ---------
Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals, and maturing
obligations. Principal sources of liquidity include cash, temporary
investments, securities available-for-sale, and maturing investment securities.
Liquidity also may be enhanced by growth in funding sources, primarily retail
deposits.
The liquidity of the Bancorporation remains strong. Maturities of assets
are managed to ensure the timely funding of existing and future commitments.
Temporary investments, comprised of federal funds sold and money market
instruments, are discretionary assets having maturities of one day to one year.
Of the Bancorporation's temporary investments, 100% mature within 30 days.
Within the fixed income investment portfolio of the Bank, including securities
available-for-sale, 98.9% of the total carrying value of the securities mature
in less than five years with the weighted average maturity of the entire
portfolio being approximately two and one half years.
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------
In the normal course of business, various legal actions and claims arise
against the Corporation and its subsidiaries. None of such legal proceedings
currently pending or threatened, when resolved, will in the opinion of
management have a material adverse affect on the consolidated financial
position of the Corporation.
Item 2. Changes in the Rights of the Corporation's Security Holders
-----------------------------------------------------------
This information was previously reported on Form 10-Q for the period ended
March 31, 1995. No changes occurred during the quarter ended September 30,
1995.
Item 3. Defaults by the Corporation on its Senior Securities
----------------------------------------------------
The Corporation had no defaults on its Senior Securities for the three
months ended September 30, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
This information was previously reported on Form 10-Q for the period ended
March 31, 1995. No matters were submitted to a vote of security holders during
the quarter ended September 30, 1995.
Item 5. Other Information
-----------------
Corporation has no information to report as of this date.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K dated October 10, 1995, was filed with the Securities and Exchange
Commission on October 19, 1995 discussing the delay of the Special Meeting of
Stockholders scheduled for November 1, 1995 to vote upon the United Counties
Bancorporation (UCB) and Meridian Bancorp, Inc. (Meridian) merger agreement.
This delay is the result of Meridian announcing on October 10, 1995 that it has
entered into a definitive merger agreement to be acquired by CoreStates
Financial Corp (CoreStates). UCB stockholders will be provided with additional
information concerning the Meridian and CoreStates merger.
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 COUNTIES BANCORPORATION
------------------------------
(Registrant)
Date: November 7, 1995 By:/S/Nicholas A. Frungillo, Jr.
-----------------------------
Nicholas A. Frungillo, Jr.
Treasurer and Chief Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
Form 10Q for the period ended September 30, 1995, and is qualified
in its entirety by reference to such filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 75,663
<INT-BEARING-DEPOSITS> 7,460
<FED-FUNDS-SOLD> 90,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 104,228
<INVESTMENTS-CARRYING> 935,114
<INVESTMENTS-MARKET> 939,550
<LOANS> 388,600
<ALLOWANCE> 11,042
<TOTAL-ASSETS> 1,630,462
<DEPOSITS> 1,303,225
<SHORT-TERM> 99,890
<LIABILITIES-OTHER> 28,256
<LONG-TERM> 0
<COMMON> 2,530
0
0
<OTHER-SE> 196,561
<TOTAL-LIABILITIES-AND-EQUITY> 1,630,462
<INTEREST-LOAN> 24,854
<INTEREST-INVEST> 50,215
<INTEREST-OTHER> 2,717
<INTEREST-TOTAL> 77,786
<INTEREST-DEPOSIT> 27,888
<INTEREST-EXPENSE> 30,498
<INTEREST-INCOME-NET> 47,288
<LOAN-LOSSES> (500)
<SECURITIES-GAINS> 12,263
<EXPENSE-OTHER> 26,125
<INCOME-PRETAX> 38,009
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,509
<EPS-PRIMARY> 11.89
<EPS-DILUTED> 11.89
<YIELD-ACTUAL> 4.26
<LOANS-NON> 2,791
<LOANS-PAST> 2,362
<LOANS-TROUBLED> 4,809
<LOANS-PROBLEM> 9,962
<ALLOWANCE-OPEN> 11,091
<CHARGE-OFFS> 466
<RECOVERIES> 917
<ALLOWANCE-CLOSE> 11,042
<ALLOWANCE-DOMESTIC> 11,042
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
