SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-16931
United National Bancorp
(Exact name of registrant as specified in its charter)
New Jersey 22-2894827
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
1130 Route 22 East, Bridgewater, New Jersey 08807-0010
(Address of principal executive offices) (Zip Code)
(908) 429-2200
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of July 31, 1996 there were 3,592,290 shares of common stock,
$2.50 par value, outstanding.
<PAGE>
UNITED NATIONAL BANCORP
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE(S)
ITEM 1 Financial Statements and Notes to Consolidated
Financial Statements 1-5
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-12
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 13
ITEM 6 Exhibits and Reports on Form 8-K 13-14
SIGNATURES 15
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
United National Bancorp
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 47,857 $ 45,572
------- -------
Federal Funds Sold 3,000 7,000
------- -------
Securities:
Available for Sale, at
Market Value 290,381 334,156
Held to Maturity 56,725 24,838
Trading Account Securities,
at Market Value 384 417
------- -------
Total Securities 347,490 359,411
------- -------
Loans (Net of Unearned Income) 561,043 551,222
Less: Allowance for Possible
Loan Losses 7,453 7,412
------- -------
Net Loans 553,590 543,810
------- -------
Investment in Joint Venture 3,151 3,151
Premises and Equipment, Net 22,123 22,730
Other Real Estate 2,197 2,747
Intangible Assets, Primarily
Core Deposit Premiums 12,073 12,967
Other Assets 15,255 13,157
--------- ---------
Total Assets $1,006,736 $1,010,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 147,410 $ 153,095
Savings 364,210 369,561
Time 331,092 331,972
------- -------
Total Deposits 842,712 854,628
Short-Term Borrowings 63,157 53,347
Obligation under Capital Lease 9,686 9,680
Other Liabilities 10,239 11,491
------- -------
Total Liabilities 925,794 929,146
------- -------
Stockholders' Equity:
Preferred Stock, authorized 300,000
shares, none issued and outstanding - -
Common Stock, $2.50 Par Value,
Authorized 5,000,000 Shares,
Issued 3,633,794 in 1996 and 1995,
Outstanding Shares 3,592,290 and
3,584,889 in 1996 and 1995,
respectively. 9,085 9,085
Additional Paid-In Capital 52,414 52,411
Retained Earnings 23,236 19,563
Treasury Stock (41,504 shares
in 1996 and 48,905 in 1995) (1,337) (1,578)
Restricted Stock (182) (317)
Net Unrealized (Loss) Gain on Securities
Available for Sale, Net of Income Tax
(Benefit) Provision of $(1,171) in
1996 and $1,152 in 1995 (2,274) 2,235
------- -------
Total Stockholders' Equity 80,942 81,399
--------- ---------
Total Liabilities and Stockholders'
Equity $1,006,736 $1,010,545
========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1996 1995 1996 1995
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 12,216 $ 12,109 $ 24,153 $ 23,042
Interest and Dividends on
Securities Available for Sale:
Taxable Income 4,677 3,698 9,627 7,347
Tax-Exempt Income 562 285 1,098 556
Interest and Dividends on
Securities Held to Maturity:
Taxable Income 643 1,816 1,070 3,258
Tax-Exempt Income 104 271 166 571
Dividends on Trading Account
Securities 4 3 7 6
Interest on Federal Funds Sold
and Deposits with Federal Home
Loan Bank 8 258 22 669
------ ------ ------ ------
Total Interest Income 18,214 18,440 36,143 35,449
------ ------ ------ ------
INTEREST EXPENSE
Interest on Deposits:
Interest on Savings Deposits 1,687 2,229 3,406 4,481
Interest on Time Deposits 4,425 4,684 9,005 8,340
Interest on Short-Term Borrowings 601 225 1,233 586
Interest on Obligation Under
Capital Lease 232 155 464 155
------ ------ ------ ------
Total Interest Expense 6,945 7,293 14,108 13,562
------ ------ ------ ------
Net Interest Income 11,269 11,147 22,035 21,887
Provision for Possible Loan Losses 550 - 1,000 450
------ ------ ------ ------
Net Interest Income After
Provision for Possible Loan Losses 10,719 11,147 21,035 21,437
------ ------ ------ ------
NON-INTEREST INCOME
Trust Income 1,125 1,150 2,325 2,300
Service Charges on Deposit Accounts 912 834 1,838 1,678
Other Service Charges, Commissions
and Fees 986 474 1,951 953
Net Gains from Securities
Transactions 216 403 359 794
Other Income 399 304 728 819
------ ------ ------ ------
Total Non-Interest Income 3,638 3,165 7,201 6,544
------ ------ ------ ------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 4,889 5,459 10,038 10,815
Occupancy Expense, Net 764 729 1,620 1,277
Furniture and Equipment Expense 691 880 1,385 1,745
Data Processing Expense 761 211 1,404 394
Amortization of Intangibles 447 428 894 789
Merger Related Charge - 1,670 - 1,670
Other Expenses 2,231 2,827 4,218 5,624
------ ------ ------ ------
Total Non-Interest Expense 9,783 12,204 19,559 22,314
------ ------ ------ ------
Income Before Provision for
Income Taxes 4,574 2,108 8,677 5,667
Provision for Income Taxes 1,670 749 3,061 1,761
------- ------- ------- -------
Net Income $ 2,904 $ 1,359 $ 5,616 $ 3,906
======= ======= ======= =======
Net Income Per Common Share $ 0.81 $ 0.38 $ 1.56 $ 1.08
======= ======= ======= =======
Weighted Average Shares Outstanding 3,592 3,597 3,590 3,601
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Additional Net Unrealized Total
Common Paid-In Retained Treasury Restricted Gain(Loss) on Securities Stockholders'
Stock Capital Earnings Stock Stock Available for Sale Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1996 $ 9,085 $52,411 $19,563 $(1,578) $ (317) $ 2,235 $81,399
Net Income - - 5,616 - - - 5,616
Cash Dividends Declared -
$.54 Per Share - - (1,943) - - - (1,943)
Change in Unrealized Gain
(Loss) on Securities
Available for Sale - - - - - (4,509) (4,509)
Treasury Stock Purchased - - - (3) - - (3)
Treasury Stock Sold
(7,700 Shares) - 3 - 248 - - 251
Restricted Stock Activity
(4,252 Shares) - - - (4) 135 - 131
------ ------ ------ ------ ----- ------ ------
Balance-June 30, 1996 $ 9,085 $52,414 $23,236 $(1,337) $ (182) $(2,274) $80,942
===== ====== ====== ====== ===== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1996 1995
OPERATING ACTIVITIES ------ ------
<S> <C> <C>
Net Income $ 5,616 $ 3,906
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 1,889 1,480
Amortization of Securities Premiums, Net 7 298
Provision for Possible Loan Losses 1,000 450
Provision for Deferred Income Taxes 288 94
Net Gain on Disposition of Premises and Equipment (7) (24)
Net Gain on Sale of Securities Available for Sale (352) (701)
Trading Account Securities Activity, Net 33 (91)
Increase in Other Assets (63) (2,164)
(Decrease) Increase in Other Liabilities (1,252) 2,065
------ -------
Net Cash Provided by Operating Activities 7,159 5,313
------ -------
INVESTING ACTIVITIES
Securities Available for Sale:
Proceeds from Sales of Securities 96,496 26,489
Proceeds from Maturities of Securities 23,896 10,621
Purchases of Securities (83,095) (34,814)
Securities Held to Maturity:
Proceeds from Maturities of Securities 8,852 5,020
Purchases of Securities (40,748) (38,646)
Net Increase in Loans (10,780) (29,443)
Deposit Premium from Branch Acquisition - (11,659)
Expenditures for Premises and Equipment (587) (2,515)
Proceeds from Disposal of Premises and Equipment 206 683
Decrease (Increase) in Other Real Estate 550 (2,166)
------ ------
Net Cash Used in Investing Activities (5,210) (76,430)
------ ------
FINANCING ACTIVITIES
Net Decrease in Demand and Savings Deposits (11,036) (11,362)
Net (Decrease) Increase in Certificates of Deposit (880) 122,650
Net Increase (Decrease) in Short-Term Borrowings 9,810 (37,960)
Stock Issued from Debenture Conversion - 1,048
Stock Issued from Equity Contracts - 221
Cash Dividends on Common Stock (1,937) (1,662)
Proceeds from Exercise of Stock Options - 578
Restricted Stock Activity 131 32
Sale of Treasury Stock 251 37
Purchase of Treasury Stock (3) (625)
------ ------
Net Cash (Used in) Provided by Financing Activities (3,664) 72,957
------ ------
Net (Decrease) Increase in Cash and Cash Equivalents (1,715) 1,840
Cash and Cash Equivalents at Beginning of Period 52,572 61,041
------ ------
Cash and Cash Equivalents at End of Period $ 50,857 $ 62,881
====== ======
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period:
Interest $ 15,259 $ 13,053
Income Taxes 3,805 2,325
Capital Lease Obligation Incurred - 9,750
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
UNITED NATIONAL BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements included herein
have been prepared by United National Bancorp (the "Company"), in accordance
with generally accepted accounting principles and pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements have been
condensed or omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's latest
annual report on Form 10-K.
In the opinion of the Company, all adjustments (consisting only of normal
recurring accruals) which are necessary for a fair presentation of the
operating results for the interim periods, have been included. The results of
operations for periods of less than a year are not necessarily indicative of
results for the full year.
In November 1995, the Company, through United National Bank (the "Bank"),
acquired a 50% ownership in United Financial Services, Inc., ("United
Financial") a third party data processing service bureau. The investment is
being accounted for by the equity method.
Effective June 30, 1995, the Company acquired New Era Bank ("New Era"). The
acquisition has been accounted for under the pooling of interests method of
accounting and, accordingly, all prior period financial statements presented
have been restated.
(2) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and Federal funds sold. Generally, Federal funds are sold
for a one day period.
(3) Income Per Common Share
Net income per common share is computed by dividing net income by the weighted
average number of shares outstanding during each period, retroactively
adjusted for the New Era acquisition and for the impact of subsequent stock
dividends. The impact of stock grants is not significant. The stock options
and equity contracts (which were issued by New Era and were exercised prior to
consummation of the acquisition of New Era), which were dilutive, have been
considered in computing the weighted average number of common shares
outstanding.
(4) Commitments and Contingencies
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit and
guarantees (including unused loan commitments of $114,968,000 and $111,187,000
and letters of credit of $2,298,000 and $2,791,000 at June 30, 1996 and
December 31, 1995, respectively), which are not reflected in the accompanying
consolidated financial statements.
5
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 0PERATIONS.
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1996 and June 30, 1995.
OVERVIEW
The Company realized net income of $2,904,000 for the second quarter of 1996,
an increase of $1,545,000 or 113.7% from the $1,359,000 reported for the same
period in 1995. Earnings per share were $.81 as compared to the $.38 for the
respective periods.
The results for the second quarter of 1995 included a one-time merger related
charge of $1,096,000, after tax, or $.30 per share. Net income for the second
quarter of 1995, before the merger related charge, was $2,455,000. Income in
the second quarter of 1996 increased 18.3% over the same period in 1995,
excluding the merger related charge.
For the six months ended June 30, 1996, net income was $5,616,000, an increase
of 43.8% from the $3,906,000 reported in the same period last year. Per share
earnings were $1.56 and $1.08, respectively, a 44.4% increase. The current
year net income compared to the prior year net income, excluding the merger
related charge, increased 12.3%.
The increase in net income for the three and six months ended June 30, 1996,
compared to 1995, resulted from a number of factors, including a slight
increase in net interest income combined with a more substantial increase in
non-interest income and certain reductions in non-interest expenses, offset in
part by an increase in the provision for possible loan losses.
EARNINGS ANALYSIS
Interest Income
Interest income for the quarter ended June 30, 1996, decreased $226,000, or
1.2% from the $18,440,000 reported for the same period in 1995. This was
attributable to an increase in interest and fees on loans of $107,000 offset
by a decrease in interest and dividends on securities of $83,000 and by a
$250,000 decrease in interest on Federal funds sold and deposits with Federal
Home Loan Bank. The yield on average interest earning assets on a fully
taxable equivalent basis decreased 37 basis points from 8.49% for the second
quarter of 1995 to 8.12% for the second quarter of 1996. The increase in
interest income was primarily attributable to the $31,386,000 increase in
average interest earning assets.
For the six months ended June 30, 1996, interest income increased $694,000, or
2.0%, from the $35,449,000 reported for the same period in 1995. This was
attributable to an increase of $1,111,000 in interest and fees on loans and a
$230,000 increase in interest and dividends on securities, partly offset by a
decrease of $647,000 in interest on Federal funds sold and deposits with
Federal Home Loan Bank. The increase in interest income was the result of an
increase in average interest earning assets of $38,952,000, offset in part, by
a 24 basis point decrease in the yield on average interest earning assets.
Interest Expense
As a result of lower rates being paid on savings and interest-bearing
transaction accounts, and lower rates on renewing time deposits, the Company's
interest expense for the second quarter of 1996 decreased $348,000, or 4.8%,
6
<PAGE>
to $6,945,000 from $7,293,000 for the same period last year. Specifically,
interest on savings and time deposits decreased $801,000, interest on
short-term borrowings increased $376,000 and interest on obligation under
capital lease increased $77,000. The Company's average cost of funds decreased
from 3.98% for the second quarter of 1995 to 3.73% for the second quarter in
1996, while average interest bearing liabilities increased $14,856,000.
For the six months ended June 30, 1996, interest expense increased by
$546,000. Interest expense on the obligation under capital lease increased by
$309,000 and short-term borrowings increased by $647,000, while savings and
time deposit interest expense decreased by $410,000.
Net Interest Income
The net effect of the changes in interest income and interest expense for the
second quarter of 1996 was an increase of $122,000 or 1.1%, in net interest
income as compared to the second quarter of 1995. The net interest margin and
net interest spread, on a fully taxable equivalent basis, declined 10 basis
points and 12 basis points, respectively, from the same period last year.
Net interest income for the six months ended June 30, 1996, increased $148,000
or .7% over the same period last year. The net interest margin declined 18
basis points while the net interest spread decreased 22 basis points.
Provision for Possible Loan Losses
For the three months ended June 30, 1996, the provision for possible loan
losses was $550,000. There was no provision for possible loan losses in the
comparable period last year. The provision for possible loan losses was
$1,000,000 for the six months ended June 30, 1996, as compared to $450,000 for
the same period last year. The amount of the loan loss provision and the
level of the allowance for possible loan losses is based upon a number of
factors including, but not limited to, Management's evaluation of potential
losses in the portfolio, after consideration of appraised collateral values,
financial condition and past credit history of the borrowers as well as
prevailing and anticipated economic conditions.
Management believes that the allowance for possible loan losses at June 30,
1996 was adequate to absorb presently anticipated possible future losses on
existing loans and commitments. At June 30, 1996, the ratio of the allowance
for possible loan losses to non-performing loans was 73.8% as compared to
109.38% at June 30, 1995.
Non-Interest Income
For the second quarter of 1996, compared to the second quarter 1995, total
non-interest income increased $473,000 or 14.9%, due primarily to a $512,000
increase in other service charges, commissions and fees, along with increases
of $78,000 in service charges on deposit accounts and $95,000 in other
income. These increases were partially offset by decreases of $187,000 in net
gains on securities transactions and $25,000 in trust income. The increase in
other service charges, commissions and fees is primarily the result of
application fees collected on a new secured credit card solicitation program,
which began in January 1996, and increased $525,000 over the prior year. The
increase in service charges on deposit accounts is primarily the result of
increased fees on certain customer activities.
For the six months ended June 30, 1996, non-interest income increased $657,000
from the same period in 1995, due primarily to increases of $998,000 in other
service charges, commissions and fees and $160,000 in service charges on
deposit accounts. These increases were partially offset by a declines in net
gains on securities transactions of $435,000 and other income of $91,000.
Included in other income in 1995 was a $247,000 gain on the sale of the
Bridgewater branch facility which occurred in the first quarter of 1995. The
7
<PAGE>
increase in other service charges, commissions and fees was primarily the
result of the secured credit card application fees which increased $1,036,000
from the same period last year.
Non-Interest Expense
For the quarter ended June 30, 1996, non-interest expense declined $2,421,000,
or 19.8% from the same period last year, which included a pre-tax merger
related charge of $1,670,000. Excluding the merger related charge in 1995,
non-interest expense in the second quarter declined $751,000 or 7.1% from 1995
to 1996. Salaries and employee benefits decreased $570,000, or 10.4%, as
salaries decreased $413,000 and employee benefits expense decreased $157,000.
The reduction in salaries was achieved through the elimination of certain
positions resulting from the acquisition of New Era and by outsourcing data
processing through the joint venture investment in United Financial.
Occupancy expenses rose $35,000, or 4.8%, as a result of the expenses relating
to the new headquarters facility. Furniture and equipment expense decreased
$189,000, or 21.5%, as a result of reduced equipment rental and maintenance
expense achieved by outsourcing data processing. Other expenses decreased by
$27,000, or .8%, as a result of lower FDIC insurance premiums in 1996 and
elimination of redundant expenses as a result of the merger with New Era.
These were offset in part by data processing expenses and amortization of
goodwill resulting from outsourcing data processing through the joint venture
investment in United Financial.
For the six months ended June 30, 1996, non-interest expense decreased
$2,755,000 or 12.4% from the same period last year. Excluding the merger
related charge in 1995, non-interest expense declined $1,085,000 or 5.3% from
1995 to 1996. Salaries and employee benefits decreased $777,000, or 7.2%;
salaries and wages decreased by $658,000 and employee benefits decreased by
$119,000. Occupancy expenses rose $343,000, or 26.9%, as a result of the
expenses relating to the new headquarters facility. Furniture and equipment
expense decreased $360,000, or 20.6%, as a result of reduced equipment rental
and maintenance expense achieved by outsourcing data processing. Other
expenses decreased by $291,000. Included in other expense in 1995 was a
$220,000 loss recorded in the first quarter of 1995 on the sale of the Bank's
Knowlton branch facility.
Income Taxes
Income tax expense increased $921,000 to $1,670,000 for the second quarter of
1996 as compared to $749,000 for the same period in 1995. For the six months
ended June 30, 1996, income tax expense increased $1,300,000 when compared to
the prior year. Of this increase, $574,000 related to the income tax benefit
recorded on the merger related charges in 1995. The balance of the increase
in income taxes resulted from higher levels of taxable income in 1996.
FINANCIAL CONDITION
June 30, 1996 as compared to December 31, 1995.
Total assets decreased $3,809,000 or .4% from December 31, 1995. There were
decreases in investments of $11,921,000 and Federal funds of $4,000,000.
These decreases were offset in part by increases of $9,821,000 in loans,
$2,285,000 of cash and due from banks and $47,000 in all other assets, which
consists of premises and equipment, other real estate, intangible assets and
all other assets.
Total loans at June 30, 1996 increased $9,821,000 or 1.8% to $561,043,000 from
December 31, 1995. Real estate loans increased by $14,154,000 or 7.4% to
$204,428,000 at June 30, 1996, as a result of growth in the commercial real
estate portfolio. The credit card portfolio increased by $73,000 or .4% from
$16,470,000 at December 31, 1995 to $16,543,000 at June 30, 1996. This
increase resulted from credit card accounts opened through Affinity Card
programs established with local municipalities offset by a decline in the
8
<PAGE>
nationwide secured card portfolio. Partially offsetting these increases,
personal loans decreased $4,108,000 or 2.1% from December 31, 1995, as a
result of payments on the portfolio exceeding new loan growth. In addition,
the commercial loan portfolio decreased by $298,000 or .2% to $151,876,000 at
June 30, 1996 from $152,174,000 at December 31, 1995.
The following table presents the components of loans, net of unearned income,
by type, for each periods presented.
<TABLE>
<CAPTION>
June 30, December 31,
(In Thousands) 1996 1995
<S> <C> <C>
Commercial $151,876 $152,174
Real Estate 204,428 190,274
Personal Loans 188,196 192,304
Credit Card Loans 16,543 16,470
------- -------
Loans, Net of Unearned Income $561,043 $551,222
======= =======
</TABLE>
Within the securities portfolio, mortgaged-backed securities decreased by
$33,564,000. Offsetting this, in part, were increases in U.S. Treasury and
U.S. Government Agencies and Corporations of $5,561,000, obligations of State
and Political subdivisions of $8,565,000 and other securities of $7,550,000.
Trading account securities decreased by $33,000. The primary reason for the
decline in the investment portfolio was to obtain funding for loan growth
during the first half of 1996.
The amortized cost and approximate market value of securities are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
<S> <C> <C> <C> <C>
Securities Available for Sale
U.S. Treasury Securities
and U.S. Government
Agencies and Corporations $ 66,092 $ 65,224 $ 81,067 $ 82,435
Obligations of States and
Political Subdivisions 44,953 44,433 39,449 39,923
Mortgage-Backed Securities 151,810 147,924 186,217 186,523
Other Securities 30,970 32,800 24,036 25,275
------- ------- ------- -------
Total Securities Available
For Sale 293,825 290,381 330,769 334,156
------- ------- ------- -------
Securities Held to Maturity
U.S. Treasury Securities and
U.S.Government Agencies
and Corporations 43,923 43,279 21,151 21,462
Obligations of States and
Political Subdivisions 7,667 7,478 3,612 3,831
Mortgage-Backed Securities 5,035 4,742 - -
Other Securities 100 101 75 77
------- ------- ------- -------
Total Securities
Held to Maturity 56,725 55,600 24,838 25,370
------- ------- ------- -------
9
<PAGE>
June 30, 1996 December 31, 1995
Amortized Market Amortized Market
Cost Value Cost Value
------- ------- ------- -------
Trading Securities 325 384 339 417
------- ------- ------- -------
TOTAL SECURITIES $350,875 $346,365 $355,946 $359,943
======= ======= ======= =======
</TABLE>
Total deposits decreased $11,916,000 or 1.4% from December 31, 1995 to
$842,712,000 at June 30, 1996. Demand deposits decreased by $5,685,000,
savings deposits decreased by $5,351,000, while time deposits declined by
$880,000. Short-term borrowings increased by $9,810,000 to partially cover
the decline in deposits. Management continues to monitor the level of
deposits and borrowings through its Assets/Liability Management Committee.
Asset Quality
At June 30, 1996, non-performing loans increased $2,633,000, as compared to
December 31, 1995. Of the increase in non-performing loans, $2,132,000 was in
the commercial portfolio, $473,000 was in the personal loan portfolio,
primarily indirect automobile loans, and $84,000 was in the Real Estate loan
portfolio. Non-performing loans in the credit card portfolio deceased by
$56,000. Of the increase in the commercial loan portfolio, $1,350,000
represented one loan which became 90 days past due and still accruing during
the quarter. The loan is currently in litigation and is secured by
approximately $2,600,000 of real estate. Management and the Loan Review
Department review the large credits in the performing loan portfolio, as well
as the non-performing loans on a regular basis.
The following table provides an analysis of non-performing loans and assets:
<TABLE>
<CAPTION>
June 30, March 31, Dec. 31, Sept. 30, June 30,
(dollars in thousands) 1996 1996 1995 1995 1995
--------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Total Assets $1,006,736 $1,001,175 $1,010,545 $1,001,684 $980,922
Total Loans (Net of
Unearned Income) $ 561,043 $ 546,582 $ 551,222 $ 527,981 $509,663
Allowance for Possible
Loan Losses $ 7,453 $ 7,348 $ 7,412 $ 7,929 $ 8,828
% of Total Loans 1.33% 1.34% 1.34% 1.50% 1.73%
Total Non-Performing
Loans (1) $ 10,099 $ 8,314 $ 7,466 $ 7,943 $ 8,071
% of Total Assets 1.00% .83% .74% .79% .82%
% of Total Loans 1.80% 1.52% 1.35% 1.50% 1.58%
Allowance for Possible Loan
Losses to Non-Performing
Loans 73.80% 88.38% 99.28% 99.82% 109.38%
Total of Non-Performing
Assets $ 12,450 $ 11,159 $ 10,436 $ 11,724 $ 11,775
% of Total Assets 1.24% 1.11% 1.03% 1.17% 1.20%
</TABLE>
(1) Non-performing loans consist of:
(a)impaired loans, which includes non-accrual and renegotiated loans, and
10
<PAGE>
(b)loans which are contractually past due 90 days or more as to principal
or interest, but are still accruing interest at previously negotiated
rates to the extent that such loans are both well secured and in the
process of collection.
At June 30, 1996, the recorded investment in loans that are considered to be
impaired under Financial Accounting Standards Board Statement No. 114 was
$5,860,000, of which $5,785,000 was on a non-accrual basis. There was one
troubled debt restructured loan for $75,000, which is performing in accordance
with the terms of the restructured agreement. The Allowance related to these
loans amounted to $1,603,000.
The following table discloses the aggregate amount of impaired loans measured
under the two measurement methods and applicable Allowance at June 30, 1996
(dollars in thousands).
<TABLE>
<CAPTION>
Number Impaired Allocated
Measurement Method Of Loans Loans Allowance
- ---------------------- -------- -------- ---------
<S> <C> <C> <C>
Fair Market Value 38 $5,136 $1,188
Discounted Cash Flow 10 724 415
--- ----- -----
Total Impaired Loans 48 $5,860 $1,603
=== ===== =====
</TABLE>
For the quarter ended June 30, 1996, the Company recognized interest income
on impaired loans amounting to $45,000, all of which was recognized using
the cash basis method of income recognition. For the six months ended June
30, 1996, the Company recognized interest income on impaired loans
amounting to $46,000.
Allowance for Possible Loan Losses
The allowance for possible loan losses is maintained at a level considered
adequate to provide for potential loan losses. The level of the allowance is
based on Management's evaluation of potential losses in the portfolio, after
consideration of risk characteristics of the loans and prevailing economic
conditions. The allowance is increased by provisions charged to expense and
reduced by charge-offs, net of recoveries.
At June 30, 1996, the allowance for possible loan losses was $7,453,000, up
.6% from the $7,412,000 at year-end 1995. Net charge-offs for the first half
of 1996 were $959,000.
Liquidity Management
At June 30, 1996, the amount of liquid assets remained at a level Management
deemed adequate to ensure that contractual liabilities, depositors' withdrawal
requirements, and other operational and customer credit needs could be
satisfied. This liquidity was maintained at the same time the Company was
managing the interest rate sensitivity of interest earning assets and interest
bearing liabilities so as to improve profitability.
At June 30, 1996, liquid investments, comprised of money market mutual fund
instruments, totaled $24,650,000 and all mature within 30 days.
Additional liquidity is generated from maturities and principal payments in
the investment portfolio. Scheduled maturities and anticipated principal
payments of the investment portfolio will approximate $67,788,000 throughout
the next twelve months. In addition, all or part of the investment securities
available for sale of $290,381,000 could be sold to provide liquidity. These
sources can be used to meet the funding needs during periods of loan growth.
Liquidity is also available through additional lines of credit and the ability
to incur additional debt. At June 30, 1996, there were $65,000,000 of
short-term lines of credit with remaining availability of $29,119,000. In
addition, the Bank has $21,201,000 available on established lines of credit
with the Federal Reserve Bank and the Federal Home Loan Bank of New York at
June 30, 1996 which further support and enhance liquidity.
11
<PAGE>
Interest Rate Sensitivity
Interest rate risk refers to potential changes in current and future net
interest income resulting from changes in interest rates, product spreads and
mismatches in the repricing between interest rate sensitive assets and
liabilities. The Company utilizes a simulation and market value of equity
model to assist in measuring and evaluating interest rate risk. Based upon
this model, the Company's interest rate sensitivity was essentially neutral
within reasonable ranges; for example, at June 30, 1996 interest rate
increases or decreases of 200 basis points would not be expected to have a
significant impact on the Company's net interest income and market value of
equity. However, there can be no assurance that interest rate increases or
decreases would not have a significant impact on the Company's net interest
income and market value of equity.
Capital
Total stockholders' equity decreased $457,000 to $80,942,000 at June 30, 1996
from the $81,399,000 recorded at the end of 1995. The decrease was due to a
reduction in unrealized gains on securities available for sale of $4,509,000
(from a $2,235,000 unrealized gain at December 31, 1995 to a $2,274,000
unrealized loss at June 30, 1996) and cash dividends declared of $1,943,000.
These decreases were offset, in part, by net income of $5,616,000 for the
first half of 1996, coupled with net sales of treasury stock of $248,000 and
restricted stock activity of $131,000.
The following table reflects the Company's capital ratios, as of June 30, 1996
and December 31, 1995, and have been presented in accordance with current
regulatory guidelines. Accordingly, the net unrealized gain on debt
securities available for sale has been excluded from the computation of Tier I
and Tier II capital.
<TABLE>
<CAPTION>
(dollars in thousands) June 30, 1996 December 31, 1995
Amount Ratio Amount Ratio
------- ------ ------- -------
<S> <C> <C> <C> <C>
Risk-Based Capital
Tier I Capital
Actual $71,632 10.87% $67,112 10.33%
Regulatory Minimum
Requirements $26,354 4.00% $25,989 4.00%
Combined Tier I and
Tier II Capital
Actual $79,085 12.00% $74,524 11.47%
Regulatory Minimum
Requirements $52,707 8.00% $51,978 8.00%
Leverage
Actual $71,632 7.17% $67,112 6.80%
Regulatory Minimum
Requirements $39,947 4.00% $39,490 4.00%
</TABLE>
The Company's risk-based capital ratios (Tier I and Combined Tier I and Tier
II Capital) and Tier I leverage ratio continue to exceed the minimum
requirements set forth by the Company's regulators. The Tier I ratio and the
combined Tier I and Tier II ratios both increased from 10.33% to 10.87% and
from 11.47% to 12.00%, respectively, while the Tier I leverage ratio increased
from 6.80% to 7.17% from December 31, 1995 to June 30, 1996, respectively.
The Company's capital ratios increased as a result of the net income for the
first half of 1996, offset in part by cash dividends declared.
12
<PAGE>
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On or about March 20, 1996, the Registrant mailed to its shareholders
a proxy statement ("Proxy Statement") for the purpose of soliciting
proxies for use at its Annual Meeting of Shareholders. The proxies
were solicited pursuant to Regulation 14A under the Securities
Exchange Act of 1934 and there were no solicitations in opposition
thereto.
At the Annual Meeting, held on April 16, 1996, the shareholders
approved the following proposals set forth in the Proxy Statement, by
the votes indicated:
1. An amendment to the Certificate of Incorporation to increase the
authorized common stock from 4,000,000 to 5,000,000 shares.
For - 2,273,298; Against - 227,828; Abstain - 35,016.
2. Election of the seven (7) directors nominated by the Company's
Board of Directors to serve until the expiration of their terms
and thereafter until their successors shall have been duly elected
and have been qualified. The following tabulation with respect to
each nominee for director is as follows:
<TABLE>
<CAPTION>
Term Affirmative Withheld
Director Expiration Votes Votes
<S> <C> <C> <C>
C. Douglas Cherry 1999 2,519,874 16,268
Thomas C. Gregor 1999 2,520,044 16,098
John W. McGowan III 1998 2,510,970 25,172
Patricia A. McKiernan 1999 2,510,715 25,427
Charles N. Pond, Jr. 1997 2,509,967 26,175
David R. Walker 1999 2,520,044 16,098
George J. Wickard 1999 2,512,393 23,749
</TABLE>
The following directors' terms of office continued after the meeting:
George W. Blank
Charles E. Hance
John R. Kopicki
Kenneth W. Turnbull
Donald A. Buckley
Richard C. Marder
Antonia S. Marotta
Ronald E. West
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(a) Certificate of Incorporation of the Company (Incorporated by
reference in the Company's Report of Form 10-K for the year ended
December 31, 1995 filed with the Securities and Exchange
Commission).
(3)(b) By-Laws of the Company (Incorporated by reference in the
Company's Report on Form 10-K for the year ended December 31,
1994 filed with the Securities and Exchange Commission).
(10) Material Contracts
No material contracts have been entered into during the quarter.
13
<PAGE>
(27) Financial Data Schedule
(b) Reports on Form 8-K
None.
14
<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 NATIONAL BANCORP
(Registrant)
Dated: August 13, 1996 By: THOMAS C. GREGOR
---------------------------
Thomas C. Gregor, Chairman,
President and CEO
Dated: August 13, 1996 By: DONALD W. MALWITZ
--------------------------
Donald W. Malwitz
Vice President & Treasurer
15
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 47,857
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,000
<TRADING-ASSETS> 384
<INVESTMENTS-HELD-FOR-SALE> 290,381
<INVESTMENTS-CARRYING> 56,725
<INVESTMENTS-MARKET> 55,600
<LOANS> 561,043
<ALLOWANCE> 7,453
<TOTAL-ASSETS> 1,006,736
<DEPOSITS> 842,712
<SHORT-TERM> 63,157
<LIABILITIES-OTHER> 10,239
<LONG-TERM> 9,686
0
0
<COMMON> 9,085
<OTHER-SE> 71,857
<TOTAL-LIABILITIES-AND-EQUITY> 1,006,736
<INTEREST-LOAN> 24,153
<INTEREST-INVEST> 11,961
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 36,143
<INTEREST-DEPOSIT> 12,411
<INTEREST-EXPENSE> 14,108
<INTEREST-INCOME-NET> 22,035
<LOAN-LOSSES> 1,000
<SECURITIES-GAINS> 359
<EXPENSE-OTHER> 19,559
<INCOME-PRETAX> 8,677
<INCOME-PRE-EXTRAORDINARY> 5,616
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,616
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 4.98
<LOANS-NON> 6,795
<LOANS-PAST> 3,229
<LOANS-TROUBLED> 75
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,412
<CHARGE-OFFS> 1,183
<RECOVERIES> 224
<ALLOWANCE-CLOSE> 7,453
<ALLOWANCE-DOMESTIC> 7,453
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
