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 September 30, 1997
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 or other jurisdiction (I.R.S. Employer
of 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)
N/A
(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
As of November 4, 1997, there were 9,271,213 shares of common stock, $1.25 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 1-6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-15
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
United National Bancorp
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
----------------- ----------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 45,672 $ 55,392
Federal Funds Sold 12,500 5,887
Securities:
Available for Sale, at Market Value 508,856 305,667
Held to Maturity 49,860 67,576
Trading Account Securities, at Market Value 1,083 512
----------------- ----------------
Total Securities 559,799 373,755
Loans (Net of Unearned Income) 619,754 621,138
Less: Allowance for Possible Loan Losses 7,638 8,158
----------------- ----------------
Net Loans 612,116 612,980
Investment in Joint Venture 3,151 3,151
Premises and Equipment, Net 20,748 21,883
Other Real Estate 1,417 1,722
Intangible Assets, Primarily Core Deposit Premiums 9,858 11,179
Other Assets 17,880 16,804
----------------- ----------------
Total Assets $1,283,141 $1,102,753
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 164,123 $ 159,018
Savings 355,115 389,292
Time 449,510 388,410
----------------- ----------------
Total Deposits 968,748 936,720
Short-Term Borrowings 78,718 46,328
Other Borrowed Funds 92,703 9,693
Other Liabilities 15,740 13,060
----------------- ----------------
Total Liabilities 1,155,909 1,005,801
Company-Obligated Mandatorily Redeemable
Preferred Series B Capital Securities of a
Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Company 20,000 -
----------------- ----------------
Stockholders' Equity:
Preferred Stock, authorized 1,000,000 shares,
none issued and outstanding - -
Common Stock, $1.25 Par Value,
Authorized 16,000,000 Shares, Issued 9,362,049 in 1997 and 9,254,866 in 1996,
Outstanding Shares 9,268,135 in 1997
and 9,161,595 in 1996 11,703 10,914
Additional Paid-in Capital 79,999 64,895
Retained Earnings 11,800 21,719
Treasury Stock (93,914 shares in 1997
and 93,271 in 1996) (1,346) (1,337)
Restricted Stock (79) (176)
Net Unrealized Gain on Securities
Available for Sale, Net of Tax 5,155 937
----------------- ----------------
Total Stockholders' Equity 107,232 96,952
----------------- ----------------
Total Liabilities and Stockholders' Equity $1,283,141 $1,102,753
================= ================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------- ---------------------------------------
1997 1996 1997 1996
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $14,337 $13,772 $42,085 $40,140
Interest and Dividends on Securities
Available for Sale:
Taxable Income 7,284 4,517 17,252 14,886
Tax-Exempt Income 628 559 1,742 1,662
Interest and Dividends on Securities
Held to Maturity:
Taxable Income 681 902 2,466 1,972
Tax-Exempt Income 143 111 451 277
Dividends on Trading Accounts Securities 5 3 12 10
Interest on Federal Funds Sold and
Deposits with Federal Home Loan Bank 245 86 598 226
----------------- ------------------ ----------------- ------------------
TOTAL INTEREST INCOME 23,323 19,950 64,606 59,173
----------------- ------------------ ----------------- ------------------
INTEREST EXPENSE
Interest on Deposits:
Interest on Savings Deposits 1,678 1,832 5,105 5,498
Interest on Time Deposits 5,880 4,774 16,560 14,160
Interest on Short-Term Borrowings 1,126 771 2,451 2,004
Interest on Other Borrowed Funds 1,296 233 1,818 697
----------------- ------------------ ----------------- ------------------
Total Interest Expense 9,980 7,610 25,934 22,359
----------------- ------------------ ----------------- ------------------
Net Interest Income 13,343 12,340 38,672 36,814
Provision for Possible Loan Losses 900 725 2,700 1,853
----------------- ------------------ ----------------- ------------------
Net Interest Income After
Provision for Possible Loan Losses 12,443 11,615 35,972 34,961
----------------- ------------------ ----------------- ------------------
NON-INTEREST INCOME
Trust Income 1,200 990 3,600 3,315
Service Charges on Deposit Accounts 1,009 963 3,056 2,853
Other Service Charges, Commissions
and Fees 1,571 1,254 4,590 3,645
Net Gains from Securities Transactions 494 47 830 421
Other Income 629 609 1,535 1,618
----------------- ------------------ ----------------- ------------------
TOTAL NON-INTEREST INCOME 4,903 3,863 13,611 11,852
----------------- ------------------ ----------------- ------------------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 4,903 4,911 14,915 15,571
Occupancy Expense, Net 777 809 2,433 2,542
Furniture and Equipment Expense 771 707 2,129 2,138
Data Processing Expense 1,290 1,050 3,584 3,080
Amortization of Intangible Assets 440 448 1,320 1,342
Distributions on Series B Capital
Securities 500 - 1,057 -
Merger Related Charge and
Loss on Disposition of Assets - - 2,208 -
Other Expenses 2,845 3,060 8,209 7,924
----------------- ------------------ ----------------- ------------------
TOTAL NON-INTEREST EXPENSE 11,526 10,985 35,855 32,597
----------------- ------------------ ----------------- ------------------
Income Before Provision for Income Taxes 5,820 4,493 13,728 14,216
Provision for Income Taxes 1,909 1,459 4,323 4,932
----------------- ------------------ ----------------- ------------------
Net Income $3,911 $3,034 $9,405 $9,284
================= ================== ================= ==================
Net Income Per Common Share $0.42 $0.33 $1.02 $1.01
================= ================== ================= ==================
Weighted Average Shares Outstanding 9,269 9,222 9,264 9,217
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain Total
Common Paid-In Retained Treasury Restricted on Securities Stockholders'
Stock Capital Earnings Stock Stock Available for Sale Equity
-------- --------- ----------- ------------ ------------ ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1997 $10,914 $64,895 $21,719 $(1,337) $(176) $ 937 $ 96,952
Net Income - - 9,405 - - - 9,405
Cash Dividends Declared
$.42 Per Share - - (3,943) - - - (3,943)
Stock Issued in Payment of
Dividend - 529,928 shares 663 14,441 (15,104) - - - -
Exercise of Stock Options
(107,183 Shares) 126 663 (277) - - - 512
Change in Unrealized Gain on
Securities Available for Sale - - - - - 4,218 4,218
Treasury Stock Activity
(643 Shares) - - - (9) - - (9)
Restricted Stock - - - - 97 - 97
-------- -------- --------- ----------- ------------- -------------------- --------------
Balance-September 30, 1997 $11,703 $79,999 $11,800 $(1,346) $ (79) $5,155 $107,232
======== ======== ========= =========== ============= ==================== ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $9,405 $9,284
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,865 2,862
Amortization of Securities, Net 165 122
Provision for Possible Loan Losses 2,700 1,853
Benefit for Deferred Income Taxes (107) (377)
Net Loss(Gain) on Disposition/Writedown
of Premises and Equipment 545 (7)
Net Gain on Sale of Securities Available for Sale (520) (373)
Trading Account Securities Activity, Net (571) (6)
Decrease in Other Assets 3,249 1,616
Increase(Decrease) in Other Liabilities 2,400 (457)
Restricted Stock Activity 97 133
------- ------
Net Cash Provided by Operating Activities 20,228 14,650
------- ------
INVESTING ACTIVITIES Securities Available for Sale:
Proceeds from Sales of Securities 35,297 128,217
Proceeds from Maturities of Securities 49,290 34,782
Purchases of Securities (295,359) (116,566)
Securities Held to Maturity:
Proceeds from Maturities of Securities 36,684 14,106
Purchases of Securities (11,030) (53,757)
Net Increase in Loans (1,836) (16,536)
Expenditures for Premises and Equipment (2,768) (750)
Proceeds from Disposal of Premises and Equipment 1,814 191
Decrease in Other Real Estate 305 952
------- -------
Net Cash Used in Investing Activities (187,603) (9,361)
------- -------
FINANCING ACTIVITIES
Net Decrease in Demand and Savings Deposits (29,072) (21,798)
Net Increase in Certificates of Deposit 61,100 15,892
Net Increase in Short-Term Borrowings 32,390 7,837
Net Increase in Other Borrowed Funds 83,000 -
Cash Dividends on Common Stock (3,653) (2,907)
Proceeds from Exercise of Stock Options 512 42
Purchase of Treasury Stock (9) (3)
Sale of Treasury Stock - 251
Proceeds of Trust Capital Securities 20,000 -
------- ------
Net Cash Provided by (Used in) Financing Activities 164,268 (686)
------- ------
Net Decrease in Cash and Cash Equivalents (3,107) 4,603
Cash and Cash Equivalents at Beginning of Period 61,279 57,201
------- -------
Cash and Cash Equivalents at End of Period $58,172 $61,804
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period:
Interest $26,994 $24,495
Income Taxes 3,979 5,609
Reclass to Available for Sale from Held to Maturity 3,160 -
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<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.
Effective February 28, 1997, the Company acquired Farrington Bank
("Farrington"). The acquisition has been accounted for under the
pooling-of-interests method of accounting and, accordingly, the financial
statements include the consolidated accounts of Farrington for all periods
presented. The transaction resulted in the issuance of 1,164,329 shares
(adjusted for the effect of the two-for-one stock split paid on July 1, 1997 and
the 6% stock dividend paid November 3, 1997) of the Company's common stock.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement No. 130"). Statement No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Under Statement No. 130, comprehensive
income is divided into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in equity, such
as unrealized gains or losses on securities available for sale. Statement No.
130 is effective for interim and annual periods beginning after December 15,
1997. Comparative financial statements provided for earlier periods are required
to be reclassified to reflect application of the provisions of the Statement.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement No. 131"). Statement No. 131 establishes standards for the way
public business enterprises are to report information about operating segments
in annual financial statements and requires those enterprises to report selected
financial information about operating segments in interim financial reports to
shareholders. Statement No. 131 is effective for financial statements for
periods beginning after December 15, 1997.
In February 1997, the FASB issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("Statement No. 128"). Statement No. 128
supersedes Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per
Share", and specifies the computation, presentation and disclosure requirements
for earnings per share (EPS) for entities with publicly held common stock or
potential common stock. Statement No. 128 replaces Primary EPS and Fully Diluted
EPS with Basic EPS and Diluted EPS, respectively. Statement No. 128 also
requires dual presentation of Basic and Diluted EPS on the face of the income
statement for entities with complex capital structures and a reconciliation of
the information utilized to calculate Basic EPS to that used to calculate
Diluted EPS.
Statement No. 128 is effective for financial statement periods ending after
December 15, 1997. Earlier application is not permitted. After adoption, all
prior EPS are required to be restated to conform with Statement No. 128. The
Company expects that the adoption of Statement No. 128 will result in Basic EPS
being approximately the same as Net Income per Common Share presently reported
and Diluted EPS will be lower than presently reported Net Income per Common
Share.
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("Statement No. 129") was issued in February 1997.
Statement No. 129 is effective for periods ending after December 15, 1997.
Statement No. 129 lists required disclosures about capital structure that had
been included in a number of separate statements and opinions of authoritative
accounting literature. As such, the adoption of Statement No. 129 is not
expected to have a significant impact on the disclosures in financial statements
of the Company.
(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 Farrington acquisition and for the impact of subsequent stock dividends
and stock splits. The impact of stock grants is not significant. Stock options,
which were dilutive, have been considered in computing the weighted average
number of common shares outstanding.
(4) Capital
On September 16, 1997, the Company's Board of Directors approved a six-percent
stock dividend of its common stock. The stock dividend was paid on November
3, 1997 to stockholders of record on October 15, 1997. On May 22, 1997, the
Company's Board of Directors approved a two-for-one stock split of its common
stock. The stock split was paid on July 1, 1997 to stockholders of record
on June 13, 1997. All share amounts in the financial statements have been
restated for the impact of the stock dividend and stock split.
On March 21, 1997, the Company placed $20 million of trust capital securities
through UNB Capital Trust I, a statutory business trust formed under the laws of
the State of Delaware, of which all common securities are owned by the Company.
The capital securities pay cumulative cash distributions semiannually at an
annual rate of 10.01%. The semi-annual distributions may, at the option of the
Company, be deferred for up to 5 years. The securities are redeemable from March
15, 2007 until March 15, 2017 at a declining rate of 105.0% to 100.0% of the
principal amount. After March 15, 2017 they are redeemable at par until March
15, 2027 when redemption is mandatory. Prior redemption is permitted under
certain circumstances such as changes in tax or regulatory capital rules. The
proceeds of the capital securities, along with its capital, were invested by the
Trust in $20,619,000 principal amount of 10.01% junior subordinated debentures
of the Company due March 15, 2027, which are the sole assets of the Trust. The
Company guarantees the capital securities through the combined operation of the
debentures and other related documents. The Company's obligations under the
guarantee are unsecured and subordinate to senior and subordinated indebtedness
of the Company. The capital securities qualify as Tier I capital for regulatory
capital purposes and are accounted for as minority interest.
(5) Pending Branch Acquisitions
On August 29, 1997, the Company, through its wholly owned subsidiary,
United National Bank entered into an agreement to assume deposits of
approximately $20 million, and two branch locations from Summit Bank. In
connection with the transaction the Company will record an intangible asset of
approximately $1.4 million representing the premium paid over the carrying
amount of deposits to be acquired. The Company expects the transaction to be
consummated in early December 1997.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 0PERATIONS.
The following discussion of the operating results and financial condition at
September 30, 1997 is intended to help readers analyze the accompanying
financial statements, notes and other supplemental information contained in this
document. Results of operations for the three and nine months ended September
30, 1997 are not necessarily indicative of results to be attained for any other
period.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and include expressions about our confidence and strategies and
our expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions. These statements may be
identified by an "asterisk" ("*") or such forward-looking terminology as
"expect", "believe", "anticipate", or by expressions of confidence such as
"continuing" or "strong" or similar statements or variations of such terms. Such
forward-looking statements involve certain risks and uncertainties. These
include, but are not limited to, expected cost savings not being realized or not
being realized within the expected time frame; income or revenues being lower
than expected or operating costs higher; competitive pressures in the banking or
financial services industries increasing significantly; business disruption
related to program implementation or methodologies; weakening of general
economic conditions nationally or in New Jersey; changes in legal and regulatory
barriers and structures; and unanticipated occurrences delaying planned programs
or initiatives or increasing their costs or decreasing their benefits. Actual
results may differ materially from such forward-looking statements. The Company
assumes no obligation for updating any such forward-looking statements at any
time.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1997 and September 30, 1996.
OVERVIEW
The Company realized net income of $3,911,000 for the third quarter of 1997, as
compared to $3,034,000 reported for the same period in 1996. The corresponding
1996 period included a one-time FDIC assessment of $307,000 or $0.03 per share.
Adjusted for the two-for-one stock split and six percent stock dividend,
earnings per share were $.42 for the third quarter of 1997 as compared to $.33
for the prior year.
For the nine months ended September 30, 1997, net income was $9,405,000, as
compared to $9,284,000 for the same period last year. Per share earnings were
$1.02 and $1.01, respectively. During the first quarter of 1997, the Company
recorded a merger-related charge (the "Merger Charge") of $1,072,000, net of
taxes, in connection with the acquisition of Farrington Bank ("Farrington"). In
the second quarter of 1997, the Company recorded a loss of $326,000, net of
taxes, on the sale of its Operations Center. Excluding the Merger Charge and the
Operations Center Loss (together defined as "One-Time Charges"), earnings for
the nine months ended September 30, 1997 were $10,803,000, up 12.6% compared to
the $9,591,000 reported in 1996. The corresponding 1996 period included a
one-time FDIC assessment of $307,000 or $0.03 per share.
The increase in earnings before the One-Time Charges for the three months and
nine months ended September 30, 1997, compared to 1996, was the result of an
increase in net interest income combined with an increase in non-interest
income, offset in part by increases in the provision for possible loan losses
and non-interest expenses.
EARNINGS ANALYSIS
Interest Income
Interest income for the quarter ended September 30, 1997 represented a
$3,373,000 or 16.9% increase from the $19,950,000 reported for the same period
in 1996. This was attributable to increases in interest and dividends on
securities of $2,649,000, interest and fees on loans of $565,000 and interest on
federal funds sold and deposits with Federal Home Loan Bank ("FHLB") of
$159,000. The yield on average interest earning assets on a fully taxable
equivalent basis decreased 17 basis points from 8.27% for the third quarter of
1996 to 8.10% for the third quarter of 1997. The increase in interest income was
primarily attributable to the $186,696,000 increase in average interest earning
assets, offset slightly by the 17 basis point decrease in the yield on earning
assets. In the second quarter, the Company developed and partially implemented a
strategy to effectively leverage its capital and improve net interest income, by
the purchase of additional investment securities funded through FHLB advances
(the "Leverage Strategy"). During mid-August 1997, the Company completed an
additional $50 million of the Leverage Strategy.
For the nine months ended September 30, 1997, interest income increased
$5,433,000 or 9.2%, from the $59,173,000 reported for the same period in 1996.
This was attributable to increases in interest and dividends on securities of
$3,116,000, interest and fees on loans of $1,945,000, and interest on federal
funds sold and deposits with the FHLB of $372,000. The increase in interest
income was primarily the result of the $98,028,000 increase in average interest
earning assets. This was offset in part by a decrease in the yield on average
earning assets from 8.26% for the nine months ended September 30, 1996 to 8.18%
for the comparable period in 1997.
Interest Expense
As a result of increased average deposits, the Leverage Strategy, as well as the
movement of deposits from lower rate savings accounts to higher rate time
deposits, the Company's interest expense for the third quarter of 1997 increased
$2,370,000, or 31.1%, to $9,980,000 from $7,610,000 for the same period last
year. Specifically, interest on savings and time deposits rose $952,000,
interest on short-term borrowings increased $355,000, and interest on other
borrowings increased $1,063,000. The Company's average cost of funds increased
from 3.76% for the third quarter of 1996 to 4.23% for the third quarter in 1997.
Average interest bearing liabilities increased by $137,466,000 from the third
quarter of 1996 to the same period in 1997.
For the nine months ended September 30, 1997, interest expense increased by
$3,575,000 over the same period in 1996. Interest expense on savings and time
deposits increased by $2,007,000, interest expense on short-term borrowings
increased by $447,000, and interest on other borrowings increased $1,121,000.
Net Interest Income
The net effect of the changes in interest income and interest expense for the
third quarter of 1997 was an increase of $1,003,000 or 8.1% in net interest
income as compared to the third quarter of 1996. The net interest margin and net
interest spread, on a fully taxable equivalent basis, decreased 47 basis points
and 64 basis points, respectively, from the same period last year.
Net interest income for the nine months ended September 30, 1997, increased
$1,858,000 or 5.0% over the same period last year. The net interest margin
decreased 23 basis points, while the net interest spread decreased 31 basis
points from the same period last year.
Provision for Possible Loan Losses
For the three months ended September 30, 1997, the provision for possible loan
losses was $900,000, compared to $725,000 for the same period last year. The
provision for possible loan losses was $2,700,000 for the nine months ended
September 30, 1997, as compared to $1,853,000 for the same period last year. The
amount of the loan loss provision and the level of the allowance for possible
loan losses are based upon a number of factors including 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.
In the opinion of Management, the allowance for possible loan losses at
September 30, 1997 was adequate to absorb possible future losses on existing
loans and commitments that are currently inherent in the loan portfolio.* At
September 30, 1997, the ratio of the allowance for possible loan losses to
non-performing loans was 78.83% as compared to 73.30% at September 30, 1996.
Non-Interest Income
For the third quarter of 1997, compared to the third quarter of 1996, total
non-interest income increased $1,040,000 or 26.9%, due primarily to $447,000 in
net gains on securities transactions and $317,000 of increases in other service
charges, commissions and fees and increases of $210,000 in trust income. In
addition, there were increases of $46,000 in service charges on deposit accounts
and $20,000 of increases in other income. The increase in other service charges,
commissions and fees is the result of an increase in the volume of application
fees collected on the secured credit card solicitation program. The current
credit card marketing program was implemented in January 1996 and the response
rate had grown steadily throughout 1996. During 1997, the application response
rate has remained relatively constant. The increase in service charges on
deposit accounts is primarily the result of increased fees on certain customer
activities. The increased fees resulted from revised service charge fee
structures, which were implemented during the second half of 1996.
For the nine months ended September 30, 1997, non-interest income increased
$1,759,000 from the same period in 1996, due primarily to increases of $945,000
in other service charges commissions and fees, $409,000 in net gains from
securities transactions, $285,000 in trust income, and $203,000 in service
charges on deposit accounts. The increases for the nine month period were due to
the same factors that caused the quarterly increases. These increases were
partially offset by a decline in other income of $83,000.
Non-Interest Expense
For the quarter ended September 30, 1997, non-interest expense increased
$541,000, or 4.9% from the same period last year. Included in the third quarter
of 1996 was a one-time FDIC assessment of$512,000. Excluding this charge,
non-interest expense increased $1,053,000 or 10.1% from 196 to 1997. Salaries
and employee benefits decreased $8,000, as employee benefits decreased $39,000,
while salaries increased by $31,000. The reduction in salary and benefit expense
was achieved by the elimination of certain positions resulting from the
acquisition of Farrington along with the outsourcing of facilities management,
offset by additional employees hired for two new branches opened during the
quarter. Occupancy expense decreased $32,000, or 4.0%. Furniture and equipment
expense decreased $64,000, or 9.1%. Data processing expense increased $240,000,
or 22.9% as a result of increased volume of items processed through United
Financial Services, Inc. ("United Financial") as well as increased credit card
processing. United Financial, a data processing joint venture, is 50% owned by
the Company. Distributions on the trust capital securities, at an annual rate of
10.01%, amounted to approximately $500,000. Other expenses and amortization of
intangible assets, increased $289,000, primarily as a result of additional
marketing, postage and telephone expenses incurred for credit card marketing,
offset in part by the lower volume of fees paid to brokers originating loans
partly secured by the Small Business Administration ("SBA").
For the nine months ended September 30, 1997, non-interest expense increased
$3,258,000, or 10.0% from the same period last year. Included in 1997 were the
pre-tax Merger Charge of $1,665,000 in the first quarter and the Operations
Center Loss of $543,000 in the second quarter. Included in the third quarter of
1996 was a one-time FDIC assessment of $512,000. Excluding these One-time
Charges, non-interest expense increased $1,562,000, or 4.9% from 1996 to 1997.
Salaries and employee benefits decreased $656,000 or 4.2% as salaries and wages
decreased $353,000 and employee benefits decreased by $303,000. Occupancy
expense decreased $109,000 as a result of lower building maintenance costs,
including reduced snow removal costs during 1997. Furniture and equipment
expense decreased $9,000. Data processing expense increased $504,000 or 16.4%
over the same period in 1996 as a result of higher processing volumes. The
distributions on the trust capital securities of $1,057,000 resulted from their
placement in March 1997. Other expenses and amortization of intangible assets,
increased $775,000 primarily as a result of additional marketing, postage and
telephone expenses incurred for credit card marketing, along with increases in
local marketing expenses, legal and professional fees.
The efficiency ratio, which is the ratio of expense to revenue, was 60.75% in
the third quarter of 1997, compared to 60.07% a year earlier. For the nine
months ended September 30, 1997 and 1996, the efficiency ratios were 61.02% and
61.84%, respectively.
Income Taxes
Income tax expense increased $450,000 to $1,909,000 for the third quarter of
1997 as compared to $1,459,000 for the same period in 1996. The increase for the
quarter was the result of higher taxable income than the prior year. For the
nine months ended September 30, 1997, income tax expense decreased $609,000 when
compared to the prior year. The decrease in income taxes was primarily the
result of the tax effect on the Operations Center Loss in the third quarter and
on the Merger Charge incurred in the first quarter of 1997. The Company
implemented certain tax planning strategies during the first quarter of 1997,
which had the effect of reducing overall income tax expense by approximately
$210,000 in the third quarter. The Company anticipates similar savings in future
quarters.*
<PAGE>
FINANCIAL CONDITION
September 30, 1997 as compared to December 31, 1996.
Total assets increased $180,388,000 or 16.4% from December 31, 1996. Securities
increased by $186,044,000, as a result of $150 million of leverage strategies
implemented during the second and third quarters and investments purchased with
the proceeds raised from the trust capital securities. The Company utilized $150
million of advances to fund the growth in the investment portfolio, which in
turn increased net interest income. In addition, Federal funds sold increased
$6,613,000. Conversely, there were decreases of $9,720,000 in cash and due from
banks, $864,000 in loans, net of allowance, and $1,685,000 in all other assets,
which consists of premises and equipment, other real estate, intangible assets
and all other assets.
Total loans at September 30, 1997 decreased $1,384,000 to $619,754,000
from year-end 1996. Personal loans decreased $37,299,000 or 20.0% from
December 31, 1996 to $149,530,000 at September 30, 1997, as a result of loan
payments on the indirect automobile loan portfolio exceeding new loan growth. In
addition, commercial loans decreased $8,735,000 or 5.8% to $142,707,000 at
September 30, 1997 and the credit card portfolio decreased $674,000 or
2.1% from December 31, 1996 to $31,690,000 at September 30, 1997. Partly
offsetting these decreases, the residential and commercial real estate loan
portfolios increased by $45,324,000 or 18.1% from $250,503,000 at December 31,
1996 to $295,827,000 at September 30, 1997.
The following schedule presents the components of loans, by type, net of
unearned income, for each period presented.
<TABLE>
<CAPTION>
September 30, December 31,
(In Thousands) 1997 1996
---------------- ----------------
<S> <C> <C>
Commercial $142,707 $151,442
Real Estate 295,827 250,503
Personal Loans 149,530 186,829
Credit Card Loans 31,690 32,364
----------------- ----------------
Loans, Net of Unearned Income $619,754 $621,138
================= ================
</TABLE>
Within the securities portfolio, the majority of the increase occurred in the
mortgage-backed securities, which increased $129,465,000. Other securities,
consisting of money market mutual funds and trust preferred issues increased by
$30,737,000. U.S. Treasury securities and U.S. government agencies and
corporations increased by $18,622,000. In addition, obligations of states and
political subdivisions increased by $6,649,000. Trading account securities
increased by $571,000.
<PAGE>
The amortized cost and approximate market value of securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------------ -----------------------------
Amortized Market Amortized Market
Securities Available for Sale Cost Value Cost Value
- --------------------------------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities
And U.S. Government
Agencies and Corporations $92,361 $92,873 $58,401 $58,299
Obligations of States and
Political Subdivisions 52,464 53,399 44,765 45,231
Mortgage-Backed Securities 302,496 303,775 175,452 174,040
Other Securities 53,720 58,809 25,635 28,097
------------ ------------- ------------ ------------
Total Securities Available For Sale 501,041 508,856 304,253 305,667
------------ ------------- ------------ ------------
Securities Held to Maturity
- ---------------------------------------------
U.S. Treasury Securities and
U.S. Government Agencies
and Corporations 33,936 33,957 49,888 49,890
Obligations of States and
Political Subdivisions 11,124 11,115 12,643 12,484
Mortgage-backed Securities 4,675 4,626 4,945 4,814
Other Securities 125 128 100 103
------------ ------------- ------------ ------------
Total Securities Held to Maturity 49,860 49,826 67,576 67,291
------------ ------------- ------------ ------------
Trading Securities 625 1,083 360 512
- --------------------------------------------- ------------ ------------- ------------ ------------
Total Securities $551,526 $559,765 $372,189 $373,470
============ ============= ============ ============
</TABLE>
Total deposits increased $32,028,000 or 3.4%. Time deposits increased by
$61,100,000, while savings deposits decreased $34,177,000. Demand deposits
increased by $5,105,000. Short-term borrowings increased by $32,390,000 and
other borrowings increased by $83,010,000, as the Bank utilized leverage
strategies to increase the investment portfolio. Management continues to monitor
the shift of deposits and level of borrowings through its Asset/Liability
Management Committee.
<PAGE>
Asset Quality
At September 30, 1997, non-performing loans decreased $1,569,000 as compared to
December 31, 1996 and increased $655,000 as compared to June 30, 1997. Of the
$1,569,000 decrease in non-performing loans, $577,000 was in the personal loan
portfolio, $550,000 was in the real estate loan portfolio and the remaining
$442,000 of the decrease was in the commercial loan portfolio. The $655,000
increase from the prior quarter was the result of one residential mortgage
loan of $1,200,000 being placed on non-accrual, partly offset by
reductions non-performing loans in the commercial and personal portfolios. The
Loan Review Department reviews the large credits in the performing loan
portfolio, as well as the non-performing loans on a regular basis.
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30,
(Dollars in Thousands) 1997 1997 1997 1996 1996
------------------ ----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Total Assets $1,283,141 $1,217,755 $1,105,210 $1,102,753 $1,076,212
Total Loans (Net of $619,754 $624,949 $604,602 $621,138 $598,115
Unearned Income)
Allowance for Possible $7,638 $7,682 $7,761 $8,158 $8,267
Loan Losses
% of Total Loans 1.23 % 1.23 % 1.28 % 1.31 % 1.38 %
Total Non-Performing $9,689 $9,034 $10,121 $11,258 $11,278
Loans (1)
% of Total Assets 0.76 % 0.74 % 0.92 % 1.02 % 1.05 %
% of Total Loans 1.56 % 1.45 % 1.67 % 1.81 % 1.89 %
Allowance for Possible
Loan Losses
to Non-Performing Loans 78.83 % 85.03 % 76.68 % 72.46 % 73.30 %
Total of Non-Performing $11,408 $10,636 $11,723 $13,158 $13,225
Assets
% of Total Assets 0.89 % 0.87 % 1.06 % 1.19 % 1.23 %
</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, 1997, the recorded investment in loans that are considered to
be impaired under FASB Statement No. 114 was $7,541,000, of which $7,484,000 was
on a non-accrual basis. There was one troubled debt restructured loan of
$57,000, which is performing in accordance with the restructured agreement. The
allowance related to these loans amounted to $1,576,000.
For the quarter ended September 30, 1997, the Company recognized interest income
on impaired loans amounting to $55,000, all of which was recognized using the
cash basis method of income recognition. For the nine months ended September 30,
1997, the Company recognized interest income on impaired loans of $335,000
<PAGE>
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 and
anticipated economic conditions. The allowance is increased by provisions
charged to expense and reduced by charge-offs, net of recoveries.
At September 30, 1997, the allowance for possible loan losses was $7,638,000,
down 6.4% from the $8,158,000 at year-end 1996. Net charge-offs for the three
months and nine months ended September 30, 1997 were $944,000 and $3,220,000,
respectively.
Liquidity Management
At September 30, 1997, 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, 1997, liquid investments, comprised of Federal funds sold and
money market mutual fund instruments, totaled $48,216,000. 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 $155,075,000 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, 1997,
there were $100 million of short-term lines of credit of which $67 million was
available. In addition, the Bank has $57.2 million available on established
lines of credit, which are currently unused, with the Federal Reserve Bank and
the FHLB of New York at September 30, 1997, 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, 1997 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 $10,280,000 to $107,232,000 at September
30, 1997 from the $96,952,000 recorded at the end of 1996. The increase was due
to net income of $9,405,000, an increase in net unrealized gains on securities
available for sale of $4,218,000, exercises of stock options of $512,000 and
vesting of restricted stock of $97,000. These increases were offset in part by
cash dividends declared of $3,943,000 and net treasury stock activity of $9,000.
On March 21, 1997, the Company placed $20,000,000 in aggregate liquidation
amount of 10.01% Capital Securities due March 15, 2027 (the "Securities") using
UNB Capital Trust I, a statutory business trust formed under the laws of the
State of Delaware. The Securities pay cash distributions semi-annually and such
distributions on the Securities may, at the option of the Company, be deferred
for up to 5 years. These securities qualify as Tier I capital for regulatory
purposes and are accounted for as minority interest. Accordingly, the cash
distributions on these securities are recorded as a Non-Interest Expense item in
the Company's income statement.
The following table reflects the Company's capital ratios, as of September 30,
1997 and December 31, 1996, and have been presented in accordance with current
regulatory guidelines.
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) September 30, 1997 December 31, 1996
-------------------------- -----------------------------
Amount Ratio Amount Ratio
---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C>
Risk-Based Capital
Tier I Capital
Actual $112,519 15.27 % $85,492 11.66 %
Regulatory Minimum Requirements 29,472 4.00 29,320 4.00
For Classification as Well Capitalized 44,208 6.00 43,980 6.00
Combined Tier I and Tier II Capital
Actual 120,157 16.31 93,650 12.78
Regulatory Minimum Requirements 58,944 8.00 58,640 8.00
For Classification as Well Capitalized 73,680 10.00 73,300 10.00
Leverage
Actual 112,519 9.10 85,492 7.96
Regulatory Minimum Requirements 49,443 4.00 42,969 4.00
For Classification as Well Capitalized 61,804 5.00 53,711 5.00
</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 11.66% to 15.27% and from 12.78% to
16.31%, respectively, while the Tier I leverage ratio increased from 7.96% to
9.10% from December 31, 1996 to September 30, 1997, respectively. The Company's
capital ratios increased as a result of the $20 million Securities privately
placed in March and net income for the nine months ended September 30, 1997,
offset in part by cash dividends declared.
<PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(a) Certificate of Incorporation of the Company as in
effect on July 1, 1997. (Incorporated by reference in
the Company's Report on Form 10-Q for the quarter
ended June 30, 1997 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.
(27) Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on August 12, 1997. Under Item
5, United made certain disclosures relating to
forward-looking statements.
<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: November 12, 1997 By: /s/Thomas C. Gregor
-------------------
Thomas C. Gregor, Chairman
President and CEO
Dated: November 12, 1997 By: /s/Donald W. Malwitz
---------------------
Donald W. Malwitz
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From Sec Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 45,672
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,500
<TRADING-ASSETS> 1,083
<INVESTMENTS-HELD-FOR-SALE> 508,856
<INVESTMENTS-CARRYING> 49,860
<INVESTMENTS-MARKET> 49,826
<LOANS> 619,754
<ALLOWANCE> 7,638
<TOTAL-ASSETS> 1,283,141
<DEPOSITS> 968,748
<SHORT-TERM> 78,718
<LIABILITIES-OTHER> 15,740
<LONG-TERM> 92,703
0
0
<COMMON> 11,703
<OTHER-SE> 95,529
<TOTAL-LIABILITIES-AND-EQUITY> 1,283,141
<INTEREST-LOAN> 42,085
<INTEREST-INVEST> 21,911
<INTEREST-OTHER> 598
<INTEREST-TOTAL> 64,606
<INTEREST-DEPOSIT> 21,665
<INTEREST-EXPENSE> 25,934
<INTEREST-INCOME-NET> 38,672
<LOAN-LOSSES> 2,700
<SECURITIES-GAINS> 830
<EXPENSE-OTHER> 35,855
<INCOME-PRETAX> 13,728
<INCOME-PRE-EXTRAORDINARY> 13,728
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,405
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 4.95
<LOANS-NON> 7,484
<LOANS-PAST> 2,148
<LOANS-TROUBLED> 57
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,158
<CHARGE-OFFS> 3,848
<RECOVERIES> 628
<ALLOWANCE-CLOSE> 7,638
<ALLOWANCE-DOMESTIC> 7,638
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
