UNITED STATES
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 March 31, 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 office and zip code) (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 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 April 28, 1995 was 2,142,548.
<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 10
PART II
- -------
ITEM 1 LEGAL PROCEEDINGS 12
ITEM 2 CHANGES IN THE RIGHTS OF THE CORPORATION'S
SECURITY HOLDERS 12
ITEM 3 DEFAULTS BY THE CORPORATION ON ITS
SENIOR SECURITIES 12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 12
ITEM 5 OTHER INFORMATION 12
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
PART I
Item 1. Financial Statements
--------------------
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 71,971 $ 93,221
Money market investments 4,321 2,555
Securities available-for-sale 102,686 100,070
Investment securities (market value:
1995 - $953,797; 1994 - $931,639) 968,429 965,239
Federal funds sold 46,000 115,000
Loans, net of unearned discounts of $326
in 1995 and $255 in 1994 377,348 374,375
Less: Allowance for loan losses 11,274 11,091
---------- -----------
Net loans 366,074 363,284
Premises and equipment, net 11,491 11,754
Accrued interest receivable 20,498 21,289
Other assets 19,625 8,528
---------- -----------
Total assets $1,611,095 $1,680,940
========== ==========
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposits
Demand $ 250,160 $ 264,781
Savings 738,280 770,977
Time 331,407 318,980
----------- -----------
Total deposits 1,319,847 1,354,738
Securities sold under repurchase agreements 70,841 110,141
Other borrowed funds 5,764 12,341
Other liabilities 26,659 22,137
----------- -----------
Total liabilities 1,423,111 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
2,523,976 shares in 1995 and 1994 2,524 2,524
Additional paid-in capital 23,947 23,947
Retained earnings 181,583 169,967
Net unrealized gain on securities available-
for-sale, net of income taxes 1,945 6,747
----------- -----------
209,999 203,185
Less: treasury stock, at cost, 379,695 shares
at March 31, 1995, and 376,270 shares at
December 31, 1994 22,015 21,602
----------- -----------
Total stockholders' equity 187,984 181,583
----------- -----------
Total liabilities and
stockholders'equity $1,611,095 $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
March 31,
1995 1994
---- ----
<S> <C> <C>
Interest income
Interest and fees on loans
Taxable income $ 8,112 $ 7,435
Tax-exempt income 126 155
Interest and dividends on securities available-
for-sale 1,747 1,526
Interest on investment securities
Taxable income 15,086 14,707
Tax-exempt income 140 95
Interest on money market investments 30 30
Interest on federal funds sold 799 570
------- -------
Total interest income 26,040 24,518
------- -------
Interest expense
Savings and time deposits 9,215 7,345
Securities sold under repurchase agreements 705 456
Other borrowed funds 135 92
-------- -------
Total interest expense 10,055 7,893
------- --------
Net interest income 15,985 16,625
Provision for loan losses
- (300)
------- --------
Net interest income after provision for
loan losses 15,985 16,925
------- -------
Other operating income
Gain on exchange of securities available-for-
sale 12,008 -
Service charges on deposit accounts 765 744
Trust fees 239 233
Other income 352 637
------- -------
Total other operating income 13,364 1,614
-------- --------
Net interest and other operating income 29,349 18,539
------- -------
Other operating expenses
Salaries and employee benefits 4,956 5,068
Net occupancy expense 913 1,036
Equipment expense 471 448
FDIC insurance premium 756 759
Other expense 2,121 2,571
------- -------
Total other operating expenses 9,217 9,882
------- -------
Income before income taxes 20,132 8,657
Income taxes 6,799 2,919
------- -------
Net income $ 13,333 $ 5,738
======== =======
Income per share of common stock:
Average outstanding shares 2,147 2,134
===== =====
Net income $6.21 $2.69
===== =====
Dividend paid per share of common stock $.80 $.70
==== ====
Cash dividend payable per share- May 2, 1994 - $.70
==== ====
</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
Three Months Ended Preferred Common Paid-in Retained Income Treasury
March 31, 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 Plan 0
Net income 13,333 13,333
Dividend declared (1,717) (1,717)
Treasury stock acquired -
3,425 shares (413) (413)
Net change in net
unrealized gain on
securities available-
for-sale, net of income
taxes (4,802) (4,802)
----- ------ ------- ------- ------- -------- --------
Balances at
March 31, 1995 - $2,524 $23,947 $181,583 $1,945 $(22,015) $187,984
===== ====== ======= ======== ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Gain on
Securities
Available-
for-Sale
Additional Net of
Three Months Ended Preferred Common Paid-in Retained Income Treasury
March 31, 1994 Stock Stock Capital Earnings 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 5 148 153
Net income 5,738 5,738
Dividend declared -
payable 05/02/94 (1,494) (1,494)
Treasury stock acquired-
4,541 shares (437) (437)
Net unrealized gain
on securities
available-for-sale,
net of income taxes $4,800 4,800
---- ------- ------- -------- ------- --------
- --------
Balances at
March 31, 1994 - $2,506 $23,118 $157,462 $4,800 $(21,158) $166,728
=== ====== ======= ======== ====== ======== ========
</TABLE>
<PAGE>
<TABLE>
UNITED COUNTIES BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flow
(In thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 13,333 $ 5,738
Adjustments to reconcile net income to
net cash from operating activities:
Gain on exchange of securities
available-for-sale (7,630) -
Amortization of premiums and discounts,
net 1,350 2,282
Depreciation 319 355
Provision for loan losses -0- (300)
Deferred income tax expense (benefit) 81 (151)
Amortization of deferred loan fees (67) 35
Decrease in interest receivable 791 553
Increase (decrease) in interest payable 342 (54)
(Increase) decrease in other assets (13,060) (1,957)
Increase (decrease) in other liabilities 1,832 (381)
Increase in current income tax payable 2,415 3,022
------- --------
Total adjustments (13,627) 3,404
-------- --------
Net cash from (applied to) operating
activities (294) 9,142
-------- --------
Investing Activities:
Proceeds from maturities of securities
available-for-sale 5,126 0
Purchases of securities available-
for-sale (3,372) 0
Proceeds from maturities/calls of
investment securities 36,216 91,437
Purchases of investment securities (40,421) (66,711)
Net increase in short-term investments (1,766) (313)
Increase in federal funds sold 69,000 32,000
Net (increase) decrease in credit card
receivables and other short-term loans (3,546) 7,800
Principal collected on longer term loans 24,119 35,492
Longer term loans originated or acquired (23,358) (33,223)
Purchases of premises and equipment, net (56) (156)
-------- ---------
Net cash from investing activities 61,942 66,326
--------- ---------
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts (47,318) (18,303)
Net increase (decrease) in open time
accounts 4,365 (254)
Proceeds from sales of certificates of
deposit 36,879 23,725
Payments for maturing certificates of
deposit (28,817) (21,586)
Net decrease in short-term borrowings (45,877) (51,213)
Payments to acquire treasury stock (413) (437)
Dividends paid (1,717) (1,494)
Proceeds from exercise of stock options 0 153
---------- -----------
Net cash applied to financing
activities (82,898) (69,409)
--------- ----------
Net increase (decrease) in cash and
equivalents (21,250) 6,059
-------- ----------
Cash and cash equivalents at beginning
of period 93,221 85,388
-------- ----------
Cash and cash equivalents at end
of period $ 71,971 $ 91,447
========== ==========
Cash paid during the period for:
Interest $ 9,712 $ 7,399
========== ==========
Income taxes $ 0 $ 60
=========== ==========
Transfer from investment securities to
securities available-for-sale $ 0 $ 100,054
=========== ==========
</TABLE>
<PAGE>
UNITED COUNTIES BANCORPORATION
Notes to Consolidated Financial Statements
(Unaudited)
[CAPTION]
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 charged 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 3.
<PAGE>
3. 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 (in thousands):
<TABLE>
<CAPTION>
March 31, 1995
--------------
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Investment Securities Held-to-Maturity:
- --------------------------------------
United States Treasury securities
and obligations of United States
government corporations and
agencies $813,914 $ 1,990 $12,870 $803,034
Obligations of states and
political subdivisions 13,784 0 3 13,781
Corporate obligations 140,731 117 3,866 136,982
-------- -------- ------- --------
Total $968,429 $ 2,107 $16,739 $953,797
======== ======= ======= ========
</TABLE>
[CAPTION]
<TABLE>
March 31, 1995
--------------
Amortized Gross Unrealized Book/Market
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
Securities Available-for-Sale:
- ------------------------------
United States Treasury securities
and obligations of United States
government corporations and
agencies $ 71,400 $ 123 $ 1,256 $ 70,267
Marketable equity securities 28,302 4,137 20 32,419
-------- -------- ------- ---------
Total $ 99,702 $ 4,260 $ 1,276 $102,686
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Amortized Gross Unrealized Estimated
Cost Gains Losses Market Value
---- ----- ------ ------------
<S> <C> <C> <C> <C>
Investment Securities Held-to-Maturity:
- --------------------------------------
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
-----------------
Amortize Gross Unrealized Book/Market
Cost Gains Losses Value
----- ----- ------ -----
<S> <C> <C> <C> <C>
Securities Available-for-Sale
- -----------------------------
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 $173,269,000 at March 31, 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 March 31, 1995 and December 31,
1994, by contractual maturity, are shown in the table below. 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):
<TABLE>
<CAPTION>
March 31, 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 $177,132 $177,737 $ 144,914 $ 144,896
Due after one year through
five years 750,258 736,648 757,617 728,328
Due after five years through
ten years 40,563 38,939 62,193 57,904
Due after ten years 476 473 515 511
-------- -------- --------- ----------
Total $968,429 $953,797 $ 965,239 $ 931,639
======== ======== ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mach 31, 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 $ 15,029 $ 15,152 $ 15,062 $ 15,117
Due after one year through
five years 56,371 55,115 61,512 59,016
--------- --------- --------- ---------
Total $ 71,400 $ 70,267 $ 76,574 $ 74,133
========= ========= ======== =========
</TABLE>
Proceeds from sales of securities during the three months ended March 31,
1995, were zero. Proceeds from sales of securities during 1994 were zero.
Fixed income investment securities are traded in liquid markets and are of
investment quality as rated by nationally recognized rating services.
4. Loans
-----
The following summarizes the loan categories, net of unearned discounts,
at March 31, 1995, and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Real estate loans:
Construction $ 15,499 $ 15,214
Commercial 117,340 115,829
Residential:
Conventional 98,373 99,028
Insured or guaranteed 1,024 1,067
Home equity & secondary mortgage 84,538 87,568
Economic Development Authority 6,866 7,013
Term 2,509 2,555
--------- ---------
Total real estate loans 326,149 328,274
Consumer loans 17,755 16,905
Credit card 2,367 3,075
Commercial and industrial 30,972 26,005
Lease financing receivables 105 116
--------- ---------
Total loans, net of unearned discounts $377,348 $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 March 31, 1995, real estate loans amounted to 86.4% of the total
loan portfolio compared to 87.7% at December 31, 1994.
<PAGE>
5. Allowance for Loan Losses
-------------------------
The following is an analysis of changes in the Allowance for Loan Losses
(in thousands):
<TABLE>
<CAPTION>
Three months For the year Three months
ended ended ended
March 31, 1995 Dec. 31, 1994 March 31, 1994
-------------- ------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year $11,091 $11,014 $11,014
Provision for loan losses -0- (825) (300)
Recoveries of loans previously
charged-off 519 1,175 391
Loans charged-off (336) (273) (94)
------ ------- -------
Balance at period end $11,274 $11,091 $11,011
======= ======= =======
</TABLE>
6. Risk Elements
-------------
Risk elements, which include nonaccrual loans, restructured loans,
and loans past due 90 days or more at March 31, 1995, December 31, 1994, and
March 31, 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 Dec. 31, 1994 March 31, 1994
-------------- ------------- --------------
<S> <C> <C> <C>
Nonaccrual loans $ 2,807 $ 2,769 $ 22
Restructured loans 4,908 5,265 5,715
Loans past due 90 days or more 1,868 2,401 5,262
-------- --------- --------
Total $ 9,583 $ 10,435 $10,999
======== ======== =======
</TABLE>
The impact of risk elements on interest income is not considered material.
7. 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 March 31, 1995, the capital accounts of the Bank totalled $144,933,000
of which $82,139,000 was available for the payment of dividends to the parent
company.
8. 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 $8,135,000 at March 31, 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
$191,599,000 at March 31, 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>
9. Income Taxes
------------
The current and deferred amounts of federal income tax expense (benefit)
as of March 31, 1995 and 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
1995 1994
---- ----
<S> <C> <C>
Current expense $2,610 $3,070
Deferred expense (benefit) 4,189 (151)
----- ------
Total income tax expense $6,799 $2,919
====== ======
</TABLE>
The Bancorporation has established a deferred tax liability of $1,039,000
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.''
The significant components of the Corporation's deferred tax liabilities
and assets are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1995 1994 1994
---- ---- ----
<S> <C> <C> <C>
Deferred tax liabilities:
Accretion on bond discounts, net $ 543 $ 401 $ 171
Unrealized gain on securities
available-for-sale 1,039 3,703 2,815
Gain on exchange of securities
available-for-sale 4,378 - -
Other -0- -0- 14
-------- ------ -------
Total deferred tax liabilities 5 ,960 4,104 3,000
------- ------ -------
Deferred tax assets:
New Jersey Corporation business tax 1,160 1,281 1,598
Excess book over tax depreciation 524 496 381
Excess book bad debt 3,456 3,382 3,451
Postretirement benefits 3,186 3,108 2,912
Book over tax core deposit premium
amortization 529 525 380
Other, net 217 207 178
-------- -------- --------
Total deferred tax assets 9,072 8,999 8,900
------- -------- ------
Net deferred tax asset $3,112 $4,895 $5,900
====== ====== ======
</TABLE>
The significant components of the 1995 and 1994 deferred expense (benefit)
were:
<TABLE>
<CAPTION>
<S> <C> <C>
Deferred income tax expense (benefit) $4,189 $ (151)
====== =======
</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 `more 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 March 31, 1995 and 1994 as follow:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Statutory rate 35.0 % 35.0 %
Difference resulting from:
Tax-exempt income (0.4) (1.0)
Other, net (0.8) (0.3)
---- ----
Effective tax rate 33.8 % 33.7 %
==== ====
</TABLE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operation
------------
Net Income
- ----------
Net income for the three months ended March 31, 1995, amounted to
$13,333,000, or $6.21 per share, compared with $5,738,000, or $2.69 per share,
for the same period in 1994. This increase is the result of a $7,630,000, or
$3.55 per share, after tax gain on exchange of securities available-for-sale.
Net income exclusive of this gain totalled $5,703,000, or $2.66 per share.
Net Interest Income
- -------------------
Net interest income for the first quarter of 1995 decreased $640,000, or
3.8%, when compared to the same period in 1994. Total interest income was
higher by $1,522,000, or 6.2%. Contributing to the rise in interest income was
an increase in interest and fees on loans of $648,000, or 8.5%, the result of
higher volume and rates. Interest and dividend income from investment
securities, including securities available-for-sale, was higher by $645,000, or
4.0%, as higher rates were offset in part by lower volume. Interest from
money market investments remained essentially the same while interest on
federal funds sold rose $229,000, or 40.2%, as lower volume was more than
offset by higher rates.
Total interest expense increased $2,162,000, or 27.4%, from March 31, 1994
to March 31, 1995. Savings and time deposits grew by $1,870,000, or 25.5%, the
result of higher rates partially offset by lower volume. Securities sold under
repurchase agreements was higher by $249,000, or 54.6%, due to higher volume
and rates. Other borrowed funds rose by $43,000, or 46.7%, due to higher
rates.
Provision for Loan Losses
- -------------------------
For the three months ended March 31, 1995, the provision for loan losses
was zero compared to a credit of $300,000 for the first quarter of 1994. 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 March 31,
1995, the Allowance for Loan Losses as a percentage of period end loans was
2.99%, compared to 2.96% at December 31, 1994.
Other Operating Income
- ----------------------
For the first quarter of 1995, other operating income rose $11,750,000,
primarily the result of a $12,008,000 gain associated with the exchange of
securities available-for-sale. Exclusive of this gain, other operating income
declined $258,000, or 16.0%, largely attributable to lower credit card fees due
to the exit from the private label business during the fourth quarter of 1994.
Service charges on deposit accounts increased $21,000, or 2.8%, while trust
fees were higher by $6,000, or 2.6%. Other income decreased $285,000, or
44.7%, due to lower credit card fees.
Other Operating Expenses
- ------------------------
Other operating expense decreased $935,000, or 9.5%, when comparing the
first quarter of 1995 with the same period a year ago. Salaries and employee
benefits declined $112,000, or 2.2%, primarily the result of lower employee
benefit costs. Other expense fell $720,000, or 28.0%, a result of lower FDR
processing expenses due to the departure from the private label business and
other expenses incurred in the normal course of business. Net occupancy
expense was lower by $123,000, or 11.9%. Equipment expense increased $23,000,
or 5.1%, while FDIC insurance expense remained virtually unchanged.
Income Taxes
- ------------
Income tax expense rose $3,880,000 compared to the same period in 1994, as
a result of the gain on exchange of securities available-for-sale.
Analysis of Net Financial Margin
- --------------------------------
The net financial margin decreased to 4.35% for the three month period
ended March 31, 1995, from 4.40% reported at year end 1994. The yield on
interest earning assets increased 39 basis points, while the cost of all
funding sources was higher by 44 basis points.
<PAGE>
Total earning assets declined $58,455,000, or 3.8%, from year end 1994.
Federal funds sold decreased by $69,000,000, or 60.0%. Increases were recorded
in investment securities, including securities available-for-sale, of
$5,806,000, or 0.5%, and net loans of $2,973,000, or 0.8%. Money market
investments increased $1,766,000, or 69.1%.
Interest-bearing liabilities decreased $66,147,000, or 5.5%, from the
December 31, 1994, level. Savings deposits decreased $32,697,000, or 4.2%,
while time deposits rose $12,427,000, or 3.9%, due to the prevailing interest
rate environment. Short term borrowings, which consists of securities sold
under repurchase agreements and treasury tax and loan (other borrowed funds),
fell $45,877,000, or 37.5%. These decreases are primarily the result of
seasonal fluctuations.
Capital Resources
- -----------------
Stockholders' equity at March 31, 1995, totalled $187,984,000, an increase
of $6,401,000, or 3.5%, 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 March 31, 1995, were 36.9% and 38.2%,
respectively. At December 31, 1994, the ratios were 35.8% and 37.0%,
respectively.
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 March 31,
1995, the Bancorporation's ratio was 11.6%, 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, 96.0% of the total carrying value of the securities mature
in less than five years with the weighted avarage 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 materially adversely affect the consolidated financial position of
the Corporation.
Item 2. Changes in the Rights of the Corporation's Security Holders
-----------------------------------------------------------
The Corporation had no matters submitted to a vote at the Annual Meeting of
Stockholders held April 13, 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 March 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Submitted to and approved by the Stockholders at their annual meeting
on April 13, 1995, was the following proposal:
1) Matters voted upon:
a) The election of directors
2) Voting Results (Shares outstanding on record date February 24,
1995, totaled 2,146,781.)
<TABLE>
<S> <C>
a) The election of directors:
Shares represented totaled - 2,030,430
Votes cast FOR directors - 2,011,207
Withheld votes - 19,223
Eugene H. Bauer - 2,027,588
Anton J. Campanella - 2,030,330
John E. Holobinko - 2,030,410
William C. Johnson, Jr. - 2,024,597
Henry G. Largey - 2,030,430
Donald S. Nowicki - 2,030,430
</TABLE>
Item 5. Other Information
-----------------
On April 13, 1995, United Counties Bancorporation and its principal
subsidiary, United Counties Trust Company, entered into an Executive Employment
Agreement with Nicholas A. Frungillo, Jr.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits - None
(b) Reports on Form 8-K
No reports were filed on Form 8-K for the three months ended
March 31, 1995.
<PAGE>
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: May 10, 1995 By: /S/Nicholas A. Frungillo, Jr.
----------------------------
Nicholas A. Frungillo, Jr.
Treasurer and Chief Financial Officer
