SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 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 November 1,1996 there were 3,810,970 shares of common stock,
$2.50 par value, outstanding.
<PAGE>
This Form 10-Q/A is being filed to correct the last paragraph under the
caption "Non-Interest Exense" in Management's Discussion and Analysis
on Page 10.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 0PERATIONS.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1996 and September 30, 1995.
OVERVIEW
In the third quarter of 1996, the Company recorded net income of $2,701,000 or
$.71 per share, an increase of 5.1% and 6.0% over the $2,570,000 or $.67 per
share reported for the same period last year, respectively.
During the third quarter of 1996, all financial institutions with OAKAR or SAIF
deposits were required to record a one-time special assessment to recapitalize
the Savings Association Insurance Fund ("SAIF"), as a consequence of the SAIF
recapitalization passed by Congress and signed into law during the quarter. The
Company recorded a one-time after-tax assessment of $307,000 or $.08 per share
due to its SAIF deposits. Net income, excluding one-time SAIF charge, was
$3,008,000 or $.79 per share compared to $2,570,000 or $.67 per share for the
quarters ended September 30, 1996 and 1995, respectively.
For the nine months ended September 30, 1996, net income was $8,317,000, an
increase of 28.4% from the $6,476,000 reported in the same period last year.
Per share earnings were $2.19 and $1.69, respectively, a 29.6% increase. The
results for 1995 included a one-time merger related charge of $1,096,000, after
tax, or $.29 per share.
Current year net income increased 13.9% over prior year net income, after
excluding the one-time SAIF charge of $307,000 in 1996 and the merger related
charge of $1,096,000, in the nine months ended September 30, 1995.
The increase in net income for the three and nine months ended September 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 September 30, 1996, increased $208,000 or
1.1% from the $18,179,000 reported for the same period in 1995. This was
attributable to an increase in interest and fees on loans of $842,000 offset by
a decrease in interest and dividends on securities of $481,000 and by a $153,000
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 3 basis points from 8.19% for the third quarter of
1995 to 8.16% for the third quarter of 1996. The increase in interest income
was primarily attributable to the $16,278,000 increase in average interest
earning assets.
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<PAGE>
For the nine months ended September 30, 1996, interest income increased
$980,000 or 1.8% from the $53,550,000 reported for the same period in 1995.
This was attributable to an increase of $2,031,000 in interest and fees on loans
offset by $251,000 decrease in interest and dividends on securities, and a
decrease of $800,000 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 $43,657,000, offset in part by a 26 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 third quarter of 1996 decreased $430,000 or 5.6% to
$7,294,000 from $7,724,000 for the same period last year. Specifically,
interest on savings and time deposits decreased $822,000 while interest on
short-term borrowings increased $392,000. The Company's average cost of funds
decreased from 4.07% for the third quarter of 1995 to 3.85% for the third
quarter in 1996, while average interest bearing liabilities increased
$18,548,000.
For the nine months ended September 30, 1996, interest expense increased by
$117,000. Interest expense on the obligation under capital lease increased by
$310,000 and short-term borrowings increased by $1,039,000, while savings and
time deposit interest expense decreased by $1,232,000.
Net Interest Income
The effect of the changes in interest income and interest expense for the third
quarter of 1996 was a net increase of $638,000 or 6.1% in net interest income
as compared to the third quarter of 1995. The net interest margin, on a fully
taxable basis, increased 23 basis points over the same quarter last year while
the net interest spread increased 19 basis points to 4.31%.
Net interest income for the nine months ended September 30, 1996, increased
$863,000 or 2.7% over the same period last year. The net interest margin
declined 10 basis points while the net interest spread decreased 18 basis
points.
Provision and Allowance for Possible Loan Losses
The provision for loan losses was $1,625,000 for the nine months ended September
30, 1996 as compared to $450,000 for the comparable period in 1995. For the
third quarter of 1996, the provision was $625,000. There was no provision in
the comparable 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 September 30,
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<PAGE>
1996 was adequate to absorb presently anticipated possible future losses on
existing loans and commitments. At September 30, 1996, the ratio of the
allowance for possible loan losses to non-performing loans was 75.13% as
compared to 99.82% at September 30, 1995.
Non-Interest Income
For the third quarter of 1996, compared to the third quarter of 1995, total
non-interest income increased $721,000 or 27.5%, due primarily to a $529,000
increase in other service charges, commissions and fees, along with increases of
$40,000 in service charges on deposit accounts, $86,000 in other income, $30,000
in trust income and $36,000 in net gains on securities transactions. 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 $510,000 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 nine months ended September 30, 1996, non-interest income increased
$1,376,000 or 15.0% from the same period in 1995, due primarily to increases of
$1,527,000 in other service charges, commissions and fees, $200,000 in service
charges on deposit accounts and $55,000 in trust income. These increases were
partially offset by declines in net gains on securities transactions of $399,000
and other income of $7,000. 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 increase in other service charges, commissions and fees
was primarily the result of the secured credit card application fees, which
increased $1,546,000 from the same period last year.
Non-Interest Expense
For the quarter ended September 30, 1996, non-interest expense increased
$403,000 or 4.3% from the same period last year. During the third quarter,
the Company recorded a pre-tax charge of $512,000 for the one-time special SAIF
assessment. Excluding the SAIF assessment, non-interest expense declined
$109,000 or 1.2% from the same period last year. Salaries and employee
benefits decreased $470,000 or 9.2% as salaries decreased $229,000 and
employee benefits decreased $241,000. 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 declined $17,000 or 2.2% as a result
of ongoing expense reduction programs. Furniture and equipment expense
decreased $330,000 or 32.5% as a result of reduced computer equipment rental
and maintenance expense achieved by outsourcing data processing. Certain
expenses previously recorded in salaries and benefits, furniture and equipment
expense, as well as, other expenses are now recorded as data processing expense.
Data processing expense increased by $581,000 as a result of outsourcing data
processing. Other expenses, excluding the one-time SAIF assessment, increased
by $108,000 or 5.5% primarily as a result of increased expenses related to
credit card marketing.
For the nine months ended September 30, 1996, non-interest expense decreased
$2,277,000 or 7.2% from the same period last year. Excluding the merger related
charge in 1995 and the one-time SAIF assessment in 1996, non-interest expense
declined $1,119,000 or 3.7% from 1995 to 1996. Salaries and employee benefits
9
<PAGE>
decreased $1,247,000 or 7.8% as salaries and wages decreased by $918,000 and
employee benefits decreased by $329,000. Occupancy expenses rose $326,000 or
15.9% as a result of the expenses relating to the new headquarters facility.
Furniture and equipment expense decreased $690,000 or 25.0% as a result of
reduced computer equipment rental and maintenance expense achieved by
outsourcing data processing. Data processing expense increased by $1,591,000 as
a result of outsourcing data processing. Amortization of intangibles increased
by $124,000. Other expenses, excluding one-time charges, decreased by
$1,223,000 or 16.3%. 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 $200,000 to $1,252,000 for the third quarter of
1996 as compared to $1,052,000 for the same period in 1995. For the nine months
ended September 30, 1996, income tax expense increased $1,500,000 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.
10
<PAGE>
FINANCIAL CONDITION
September 30, 1996 as compared to December 31, 1995.
Total assets increased $1,846,000 or .2% from December 31, 1995. There were
increases of $16,129,000 in net loans and $5,384,000 in cash and due from banks.
These increases were offset, in part, by decreases in securities of $11,525,000,
Federal funds of $4,500,000 and $3,642,000 in all other assets, which consists
of premises and equipment, other real estate, intangible assets and other
assets.
Total loans at September 30, 1996 increased $16,181,000 or 2.9% to $567,403,000
from December 31, 1995. Real estate loans increased by $19,389,000 or 10.2% to
$209,663,000 at September 30, 1996, as a result of growth in both the
residential and commercial real estate portfolios. The credit card portfolio
increased by $1,840,000 or 11.2% from $16,470,000 at December 31, 1995 to
$18,310,000 at September 30, 1996. This increase resulted from credit card
accounts opened through Affinity Card programs established with local
municipalities somewhat offset by a decline in the nationwide secured card
portfolio. Partially offsetting these increases, personal loans decreased
$4,328,000 or 2.3% from December 31, 1995, as a result of payments on the
portfolio exceeding new loan growth. A majority of the decline in personal
loans was in the indirect auto portfolio, which has seen lower new loan
origination volume as a result of the consumer's preference for leasing new
vehicles versus financing. In addition, the commercial loan portfolio decreased
by $720,000 or .5% to $151,454,000 at September 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 of period presented.
<TABLE>
<CAPTION>
September 30, December 31,
(In Thousands) 1996 1995
<S> <C> <C>
Commercial $151,454 $152,174
Real Estate 209,663 190,274
Personal Loans 187,976 192,304
Credit Card Loans 18,310 16,470
-------- --------
Loans, Net of Unearned Income $567,403 $551,222
======== ========
</TABLE>
Within the securities portfolio, mortgaged-backed securities decreased by
$24,104,000 along with other securities, which decreased by $1,737,000.
Offsetting this, in part, were increases in U.S. Treasury and U.S. Government
agencies and Corporations of $626,000 and obligations of State and Political
subdivisions of $13,684,000. Trading account securities increased by $6,000.
The primary reason for the decline in the investment portfolio was to obtain
funding for loan growth during the nine months ended September 30, 1996.
The amortized cost and approximate market value of securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
September 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 $ 59,917 $ 59,312 $ 81,067 $ 82,435
Obligations of States and
Political Subdivisions 44,809 44,780 39,449 39,923
Mortgage-Backed Securities 160,425 157,417 186,217 186,523
Other Securities 21,637 23,513 24,036 25,275
------- ------- ------- -------
Total Securities Available
for Sale 286,788 285,022 330,769 334,156
------- ------- ------- -------
11
September 30, 1996 December 31, 1995
Amortized Market Amortized Market
Securities Held to Maturity Cost Value Cost Value
U.S. Treasury Securities and
U.S.Government Agencies
and Corporations 44,900 44,505 21,151 21,462
Obligations of States and
Political Subdivisions 12,439 12,206 3,612 3,831
Mortgage-Backed Securities 5,002 4,754 - -
Other Securities 100 102 75 77
Total Securities ------- ------- ------- -------
Held to Maturity 62,441 61,567 24,838 25,370
------- ------- ------- -------
Trading Securities 339 423 339 417
------- ------- ------- -------
TOTAL SECURITIES $349,568 $347,012 $355,946 $359,943
======= ======= ======= =======
</TABLE>
Total deposits decreased $8,195,000 or 1.0% from December 31, 1995 to
$846,433,000 at September 30, 1996. Demand deposits decreased by $8,006,000,
savings deposits decreased by $16,081,000, while time deposits increased by
$15,892,000. Short-term borrowings increased by $7,837,000 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 September 30, 1996, non-performing loans increased $2,469,000, as compared to
December 31, 1995, but decreased by $164,000, as compared to June 30, 1996. Of
the increase in non-performing loans, $1,895,000 was in the commercial portfolio
and $748,000 was in the personal loan portfolio, primarily indirect automobile
loans. Non-performing loans decreased by $131,000 in the Real Estate loan
portfolio and by $43,000 in the credit card portfolio. 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 second 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>
Sept. 30 June 30, March 31, Dec. 31, Sept. 30,
(Dollars in Thousands) 1996 1996 1996 1995 1995
<S> <C> <C> <C> <C> <C>
Total Assets $1,012,391 $1,006,736 $1,001,175 $1,010,545 $1,001,684
Total Loans (Net of
Unearned Income) $ 567,403 $ 561,043 $ 546,582 $ 551,222 $ 527,981
12
<PAGE>
Sept. 30 June 30, March 31, Dec. 31, Sept. 30,
(Dollars in Thousands) 1996 1996 1996 1995 1995
Allowance for Possible
Loan Losses $ 7,464 $ 7,453 $ 7,348 $ 7,412 $ 7,929
% of Total Loans 1.32% 1.33% 1.34% 1.34% 1.50%
Total Non-Performing
Loans (1) $ 7,935 $ 10,099 $ 8,314 $ 7,466 $ 7,943
% of Total Assets .98% 1.00% .83% .74% .79%
% of Total Loans 1.75% 1.80% 1.52% 1.35% 1.50%
Allowance for Possible Loan
Losses to Non-Performing
Loans 75.13% 73.80% 88.38% 99.28% 99.82%
Total of Non-Performing
Assets $ 11,882 $ 12,450 $ 11,159 $ 10,436 $ 11,724
% of Total Assets 1.17% 1.24% 1.11% 1.03% 1.17%
</TABLE>
(1) Non-performing loans consist of:
(a)impaired loans, which includes non-accrual and renegotiated loans, and
(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 September 30, 1996, the recorded investment in loans that are considered to
be impaired under Financial Accounting Standards Board Statement No. 114 was
$6,445,000, of which $6,373,000 was on a non-accrual basis. There was one
troubled debt restructured loan for $72,000, which is performing in accordance
with the terms of the restructured agreement. The Allowance related to these
loans amounted to $1,690,000.
For the quarter ended September 30, 1996, the Company recognized interest income
on impaired loans amounting to $26,000, all of which was recognized using the
cash basis method of income recognition. For the nine months ended September
30, 1996, the Company recognized interest income on impaired loans amounting to
$72,000.
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 September 30, 1996, the allowance for possible loan losses was $7,464,000, up
.7% from the $7,412,000 at year-end 1995. Net charge-offs for the nine months
ended September 30, 1996 were $1,573,000, as compared to $2,118,000 for the same
period in 1995. Net charge-offs for the third quarters of 1996 and 1995 were
$614,000 and $899,000, respectively.
13
<PAGE>
Liquidity Management
At September 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 September 30, 1996, liquid investments, comprised of money market mutual fund
instruments and Federal Funds sold, totaled $17,837,000 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 $94,341,000 throughout the next
twelve months. In addition, all or part of the investment securities available
for sale 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 September 30, 1996, there were $65,000,000 of short-term lines of credit with
remaining availability of $44,000,000. In addition, the Bank has $8,701,000
available on established lines of credit with the Federal Reserve Bank and the
Federal Home Loan Bank of New York at September 30, 1996, which further support
and enhance liquidity.
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 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 September 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. 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.
Capital
Total stockholders' equity increased $2,424,000 to $83,823,000 at September 30,
1996 from the $81,399,000 recorded at the end of 1995. The increase was the
result of net income of $8,317,000 for the nine months ended September 30, 1996,
coupled with net sales of treasury stock of $248,000, $42,000 from the exercise
of stock options and restricted stock activity of $133,000. These increases
were offset, in part, by a reduction in unrealized gains on securities available
for sale of $3,401,000 (from a $2,235,000 unrealized gain at December 31, 1995
to a $1,166,000 unrealized loss at September 30, 1996) and cash dividends
declared of $2,915,000.
The following table reflects the Company's capital ratios, as of September 30,
1996 and December 31, 1995, and have been presented in accordance with current
14
<PAGE>
regulatory guidelines. Accordingly, the net unrealized gain (loss) on debt
securities available for sale has been excluded from the computation of Tier I
and Tier II capital.
<TABLE>
<CAPTION>
(Dollars in Thousands) September 30, 1996 December 31, 1995
Amount Ratio Amount Ratio
<S> <C> <C> <C> <C>
Risk-Based Capital
Tier I Capital
Actual $73,882 10.93% $67,112 10.33%
Regulatory Minimum
Requirements $27,039 4.00% $25,989 4.00%
Combined Tier I and
Tier II Capital
Actual $81,346 12.03% $74,524 11.47%
Regulatory Minimum
Requirements $54,078 8.00% $51,978 8.00%
Leverage
Actual $73,882 7.41% $67,112 6.80%
Regulatory Minimum
Requirements $39,907 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 10.93% and from 11.47% to
12.03%, respectively, while the Tier I leverage ratio increased from 6.80% to
7.41% from December 31, 1995 to September 30, 1996, respectively. The Company's
capital ratios increased as a result of the net income for the nine months ended
September 30, 1996, offset in part by cash dividends declared.
15
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: November 26, 1996 By: THOMAS C. GREGOR
Thomas C. Gregor, Chairman
President and CEO
Dated: November 26, 1996 By: DONALD W. MALWITZ
Donald W. Malwitz
Vice President & Treasurer
17
