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 March 31, 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 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
As of April 30, 1997, there were 4,370,976 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 1-6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-14
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
United National Bancorp
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 49,358 $ 55,392
Federal Funds Sold 36,500 5,887
Securities:
Available for Sale, at Market Value 302,746 305,667
Held to Maturity 65,856 67,576
Trading Account Securities,
at Market Value 527 512
---------- ----------
Total Securities 369,129 373,755
Loans (Net of Unearned Income) 604,602 621,138
Less: Allowance for Possible
Loan Losses 7,761 8,158
---------- ----------
Net Loans 596,841 612,980
Investment in Joint Venture 3,151 3,151
Premises and Equipment, Net 22,040 21,883
Other Real Estate 1,444 1,722
Intangible Assets, Primarily
Core Deposit Premiums 10,739 11,179
Other Assets 16,008 16,804
---------- ----------
Total Assets $1,105,210 $1,102,753
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 152,633 $ 159,018
Savings 382,291 389,292
Time 397,438 388,410
---------- ----------
Total Deposits 932,362 936,720
Short-Term Borrowings 32,498 46,328
Obligation under Capital Lease 9,696 9,693
Other Liabilities 13,813 13,060
---------- ----------
Total Liabilities 988,369 1,005,801
---------- ----------
Trust Capital Securities 20,000 -
---------- ----------
Stockholders' Equity:
Preferred Stock, authorized 300,000
shares, none issued and outstanding - -
Common Stock, $2.50 Par Value,
Authorized 5,000,000 Shares,
Issued 4,413,331 in 1997 and
4,365,503 in 1996,
Outstanding Shares 4,369,268 in 1997
and 4,321,507 in 1996 11,033 10,914
Additional Paid-In Capital 65,475 64,895
Retained Earnings 22,501 21,719
Treasury Stock (44,063 shares in 1997
and 43,996 in 1996) (1,338) (1,337)
Restricted Stock (86) (176)
Net Unrealized Gain(Loss) on Securities
Available for Sale, Net of Tax (744) 937
---------- ----------
Total Stockholders' Equity 96,841 96,952
---------- ----------
Total Liabilities and Stockholders'
Equity $1,105,210 $1,102,753
========== ==========
</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
March 31,
----------------------------------
1997 1996
---------- ----------
INTEREST INCOME
<S> <C> <C>
Interest and Fees on Loans $ 13,911 $ 13,077
Interest and Dividends on
Securities Available for Sale:
Taxable Income 4,339 5,309
Tax-Exempt Income 556 539
Interest and Dividends on
Securities Held to Maturity:
Taxable Income 918 427
Tax-Exempt Income 152 62
Dividends on Trading Accounts
Securities 3 3
Interest on Federal Funds Sold
and Deposits with Federal Home
Loan Bank 226 74
---------- ----------
Total Interest Income 20,105 19,491
---------- ----------
INTEREST EXPENSE Interest on Deposits:
Interest on Savings Deposits 1,745 1,848
Interest on Time Deposits 5,180 4,764
Interest on Short-Term Borrowings 463 632
Interest on Obligation Under
Capital Lease 232 232
---------- ----------
Total Interest Expense 7,620 7,476
---------- ----------
Net Interest Income 12,485 12,015
Provision for Possible Loan Losses 900 475
---------- ----------
Net Interest Income After
Provision for Possible Loan Losses 11,585 11,540
---------- ----------
NON-INTEREST INCOME
Trust Income 1,200 1,200
Service Charges on Deposit Accounts 1,066 951
Other Service Charges, Commissions
and Fees 1,524 1,186
Net Gains from Securities Transactions 156 156
Other Income 437 432
---------- ----------
Total Non-Interest Income 4,383 3,925
---------- ----------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 5,141 5,469
Occupancy Expense, Net 823 915
Furniture and Equipment Expense 675 717
Data Processing Expense 1,113 960
Amortization of Intangible Assets 440 447
Merger Related Charge 1,665 -
Other Expenses 2,705 2,307
---------- ----------
Total Non-Interest Expense 12,562 10,815
---------- ----------
Income Before Provision for
Income Taxes 3,406 4,650
Provision for Income Taxes 1,028 1,607
---------- ----------
Net Income $ 2,378 $ 3,043
========== ==========
Net Income Per Common Share $ 0.54 $ 0.70
========== ==========
Weighted Average Shares Outstanding 4,367 4,344
</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>
Net Unrealized
Additional Gain(Loss) 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 - - 2,378 - - - 2,378
Cash Dividends Declared -
$.30 Per Share - - (1,319) - - - (1,319)
Exercise of Stock Options
(47,828 Shares) 119 580 (277) - - - 422
Change in Unrealized Gain
(Loss) on Securities
Available for Sale - - - - - (1,681) (1,681)
Treasury Stock Activity
(67 Shares) - - - (1) - - (1)
Restricted Stock - - - - 90 - 90
------- ------- ------- ------- ------ ------- -------
Balance-March 31, 1997 $11,033 $65,475 $22,501 $(1,338) $ ( 86) $ (744) $96,841
======= ======= ======= ======= ====== ======= =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,378 $ 3,043
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 1,033 964
Amortization (Accretion) of Securities, Net 83 (2)
Provision for Possible Loan Losses 900 475
Provision for Deferred Income Taxes 12 124
Net Gain(loss) on Disposition of Premises and Equipment 3 (6)
Net Gain on Sale of Securities Available for Sale (140) (142)
Trading Account Securities Activity, Net (15) (35)
Decrease in Other Assets 1,642 2,375
Increase(Decrease) in Other Liabilities 471 (769)
Restricted Stock Activity 90 131
------- -------
Net Cash Provided by Operating Activities 6,457 6,158
------- -------
INVESTING ACTIVITIES Securities Available for Sale:
Proceeds from Sales of Securities 25,352 42,977
Proceeds from Maturities of Securities 7,107 10,415
Purchases of Securities (28,879) (61,121)
Securities Held to Maturity:
Proceeds from Maturities of Securities 8,962 9,140
Purchases of Securities (10,383) (16,540)
Net Decrease in Loans 15,239 3,997
Expenditures for Premises and Equipment (753) (323)
Proceeds from Disposal of Premises and Equipment - 160
Decrease in Other Real Estate 278 9
------- -------
Net Cash Provided by (Used in) Investing Activities 16,923 (11,286)
------- -------
FINANCING ACTIVITIES
Net Decrease in Demand and Savings Deposits (13,386) (6,641)
Net Increase in Certificates of Deposit 9,028 10,322
Net Decrease in Short-Term Borrowings (13,830) (10,046)
Cash Dividends on Common Stock (1,034) (968)
Proceeds from Exercise of Stock Options 422 -
Purchase of Treasury Stock (1) (3)
Sale of Treasury Stock - 187
Proceeds of Trust Capital Securities 20,000 -
------- -------
Net Cash Provided by (Used in) Financing Activities 1,199 (7,149)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 24,579 (12,277)
Cash and Cash Equivalents at Beginning of Period 61,279 57,201
------- -------
Cash and Cash Equivalents at End of Period $ 85,858 $ 44,924
======= =======
..........................................................................................................................
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Period:
Interest $ 9,279 $ 8,850
Income Taxes 1,418 1,162
Reclass to Available for Sale from Held to Maturity 3,160 -
</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.
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 549,212 shares of the
Company's common stock.
In February 1997, the Financial Accounting Standards Board (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
5
<PAGE>
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 New Era Bank and Farrington acquisitions and for the impact of
subsequent stock dividends. The impact of stock grants is not significant. Stock
options and equity contracts, which were dilutive, have been considered in
computing the weighted average number of common shares outstanding.
(4) Capital
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 were invested by the Trust in junior
subordinated debentures of the Company. 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) 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 $142,659,000 and $150,354,000 and letters
of credit of $2,151,000 and $3,130,000 at March 31, 1997 and December 31, 1996,
respectively), which are not reflected in the accompanying consolidated
financial statements.
6
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF 0PERATIONS.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 and March 31, 1996.
OVERVIEW
The Company realized net income of $2,378,000 for the first quarter of 1997, as
compared to $3,043,000 reported for the same period in 1996 Earnings per share
were $.54 as compared to the $.70 for the respective periods. Excluding the
Farrington merger related charge of $1,072,000, net of tax, the Company reported
earnings for the first quarter of 1997 of $3,450,000, up 13.4% from the prior
year. Earnings per share for 1997, excluding the merger related charge, were
$.79, up 12.9% over the first quarter of 1996.
The increase in earnings before the merger related charge for the three months
ended March 31, 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, non-interest expenses
and provision for income taxes.
EARNINGS ANALYSIS
Interest Income
Interest income for the quarter ended March 31, 1997 represented a $614,000 or
3.2% increase from the $19,491,000 reported for the same period in 1996. This
was attributable to an increase in interest and fees on loans of $834,000 and an
increase in interest on federal funds sold and deposits with Federal Home Loan
Bank of $152,000, partly offset by a $372,000 decrease in interest and dividends
on securities. The yield on average interest earning assets on a fully taxable
equivalent basis increased 6 basis points from 8.19% for the first quarter of
1996 to 8.25% for the first quarter of 1997. The increase in interest income was
primarily attributable to the $29,716,000 increase in average interest earning
assets.
Interest Expense
As a result of the increased average deposits, as well as the movement of
deposits from lower rate savings accounts to higher rate time deposits, the
Company's interest expense for the first quarter of 1997 increased $144,000, or
1.9%, to $7,620,000 from $7,476,000 for the same period last year. Specifically,
interest on savings and time deposits rose $313,000, while interest on
short-term borrowings decreased $169,000. The Company's average cost of funds
decreased from 3.80% for the first quarter of 1996 to 3.79% for the first
quarter in 1997. Average interest bearing liabilities increased by $23,662,000
from the first quarter of 1996 to the same period in 1997.
7
<PAGE>
Net Interest Income
The net effect of the changes in interest income and interest expense for the
first quarter of 1997 was an increase of $470,000 or 3.9% in net interest income
as compared to the first quarter of 1996. The net interest margin and net
interest spread, on a fully taxable equivalent basis, increased 6 basis points
and 7 basis points, respectively, from the same period last year.
Provision for Possible Loan Losses
For the three months ended March 31, 1997, the provision for possible loan
losses was $900,000, compared to $475,000 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 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 March
31, 1997 was adequate to absorb possible future losses on existing loans and
commitments that are currently inherent in the loan portfolio. At March 31,
1997, the ratio of the allowance for possible loan losses to non-performing
loans was 76.68% as compared to 81.69% at March 31, 1996.
Non-Interest Income
For the first quarter of 1997, compared to the first quarter 1996, total
non-interest income increased $458,000 or 11.7%, due primarily to a $338,000
increase in other service charges, commissions and fees, along with increases of
$115,000 in service charges on deposit accounts and $5,000 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 increase in service charges on deposit accounts is
primarily the result of increased fees on certain customer activities.
Non-Interest Expense
For the quarter ended March 31, 1997, non-interest expense increased $1,747,000,
or 16.2% from the same period last year. In connection with the acquisition of
Farrington, the Company recorded a pre-tax merger related charge of $1,665,000.
This charge consisted primarily of a payout on an existing employment contract,
a termination penalty on Farrington's data processing service, the write-off of
unusable fixed assets and supplies, professional services directly attributable
to the acquisition, and severance costs. Excluding the merger related charge,
non-interest expense increased $82,000, or .8% from the first quarter of 1996.
Salaries and employee benefits decreased $328,000, or 6.0%, as salaries
decreased $164,000, while employee benefits expense decreased by $164,000. The
reduction in salary and benefit expense was achieved primarily from outsourcing
facilities management and by outsourcing additional back-office functions to
United Financial Services, Inc.("United Financial"). Occupancy expenses declined
$92,000, or
8
<PAGE>
10.1%, as a result of lower building maintenance costs, including reduced snow
removal costs during 1997. Furniture and equipment expense decreased $42,000, or
5.9%, as a result of reduced equipment rental and maintenance expense achieved
by outsourcing data processing. These reductions were offset in part by a
$153,000 increase in data processing expenses resulting primarily from the joint
venture investment in United Financial. In addition, other expenses, including
amortization of intangible assets, increased $391,000 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
incurred during the first quarter of 1997. Also included in other expenses were
$56,000 of cash distributions on the trust capital securities.
Income Taxes
Income tax expense decreased $579,000 to $1,028,000 for the first quarter of
1997 as compared to $1,607,000 for the same period in 1996. The decrease in
income taxes was primarily the result of the tax effect on the merger related
charge incurred in the first quarter of 1997. The Company has implemented
certain tax planning strategies during the first quarter of 1997, which will
have the effect of reducing overall state income tax expense starting in the
second quarter.
FINANCIAL CONDITION
March 31, 1997 as compared to December 31, 1996.
Total assets increased $2,457,000 or .2% from December 31, 1996. There were
decreases of, $16,139,000 in loans, net of allowance, $6,034,000 in cash and due
from banks, $4,626,000 in securities and $1,357,000 in all other assets, which
consists of premises and equipment, other real estate, intangible assets and all
other assets. Conversely, federal funds increased by $30,613,000, primarily as a
result of the proceeds raised from the trust capital securities.
Total loans at March 31, 1997 decreased $16,536,000 or 2.7%, to $604,602,000
from year-end 1996. Personal loans decreased $12,395,000 or 6.6% from December
31, 1996 to $174,434,000 at March 31, 1997, as a result of loan payments on the
indirect automobile loan portfolio exceeding new loan growth. The credit card
portfolio decreased $819,000 or 2.5% from December 31, 1996 to $31,545,000 at
March 31, 1997. In addition, commercial loans decreased $5,282,000 or 3.1% to
$166,059,000 at March 31, 1997. Partially offsetting these decreases, the
residential and commercial real estate loan portfolio increased by $1,960,000 or
.8% from $230,604,000 at December 31, 1996 to $232,564,000 at March 31, 1997.
Loan repayments received during the quarter not reinvested in new loans were
utilized to reduce short-term borrowings.
9
<PAGE>
The following schedule presents the components of loans, by type, net of
unearned income, for each periods presented.
<TABLE>
<CAPTION>
March 31, December 31,
(In Thousands) 1997 1996
<S> <C> <C>
Commercial $166,059 $171,341
Real Estate 232,564 230,604
Personal Loans 174,434 186,829
Credit Card Loans 31,545 32,364
-------- --------
Loans, Net of Unearned Income $604,602 $621,138
======== ========
</TABLE>
Within the securities portfolio, the majority of the decrease occurred in the
mortgage-backed securities, which decreased $5,096,000. Other securities and
obligations of states and political subdivisions also decreased by $2,071,000
and $855,000, respectively. This was offset in part by a increase of $3,381,000
in U.S. Treasury securities and U.S. government agencies and corporations.
Trading account securities rose $15,000. During the quarter, securities totaling
$3,160,000, which had previously been classified by Farrington as held to
maturity, were transferred to available for sale upon the consummation of the
merger.
The amortized cost and approximate market value of securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 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 $ 63,349 $ 62,665 $ 58,401 $ 58,299
Obligations of States and
Political Subdivisions 44,893 45,040 44,765 45,231
Agency Issued Mortgage-Backed
Securities 172,397 169,015 175,452 174,040
Other Securities 23,234 26,026 25,635 28,097
-------- ------- ------- -------
Total Securities Available
For Sale 303,873 302,746 304,253 305,667
-------- ------- ------- -------
Securities Held to Maturity
U.S. Treasury Securities and
U.S. Government Agencies
and Corporations 48,903 48,492 49,888 49,890
Obligations of States and
Political Subdivisions 11,979 11,766 12,643 12,484
10
<PAGE>
March 31, 1997 December 31, 1996
Amortized Market Amortized Market
Cost Value Cost Value
-------- ------- ------- -------
Agency Issued Mortgage-Backed
Securities 4,874 4,672 4,945 4,814
Other Securities 100 101 100 103
-------- ------- ------- -------
Total Securities Held
to Maturity 65,856 65,031 67,576 67,291
-------- ------- ------- -------
Trading Securities 360 527 360 512
-------- ------- ------- -------
TOTAL SECURITIES $370,089 $368,304 $372,189 $373,470
======== ======== ======== ========
</TABLE>
Total deposits decreased $4,358,000 or .5%. Time deposits increased by
$9,028,000, while savings deposits decreased $7,001,000. Demand deposits also
decreased by $6,385,000. Short-term borrowings decreased by $13,830,000, as the
Bank utilized funds received from loan paydowns to reduce borrowings. Management
continues to monitor the shift of deposits and level of borrowings through its
Asset/Liability Management Committee.
Asset Quality
At March 31, 1997, non-performing loans decreased $1,137,000, as compared to
December 31, 1996. Of the decrease in non-performing loans, $430,000 was in the
personal loan portfolio, primarily credit card loans, and $866,000 was in the
real estate loan portfolio. This was partly offset by an increase in the
commercial loan portfolio of $159,000. 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>
March 31, Dec. 31, Sept. 30, June 30, March 31,
(Dollars in Thousands) 1997 1996 1996 1996 1996
---------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Total Assets $1,105,210 $1,102,753 $1,076,212 $1,069,605 $1,065,145
Total Loans (Net of
Unearned Income) $ 604,602 $ 621,138 $ 598,115 $ 591,687 $ 577,967
Allowance for Possible
Loan Losses $ 7,761 $ 8,158 $ 8,267 $ 8,267 $ 8,100
% of Total Loans 1.28% 1.31% 1.38% 1.40% 1.40%
Total Non-Performing Loans(1)$ 10,121 $ 11,258 $ 11,278 $ 11,811 $ 9,915
% of Total Assets .92% 1.02% 1.05% 1.10% .93%
% of Total Loans 1.67% 1.81% 1.89% 2.00% 1.72%
11
<PAGE>
March 31, Dec. 31, Sept. 30, June 30, March 31,
1997 1996 1996 1996 1996
---------- ---------- --------- --------- ----------
Allowance for Possible Loan
Losses to Non-Performing
Loans 76.68% 72.46% 73.30% 69.99% 81.69%
Total of Non-Performing
Assets $ 11,723 $ 13,158 $ 13,225 $ 14,162 $ 12,760
% of Total Assets 1.06% 1.19% 1.23% 1.32% 1.20%
</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 March 31, 1997, the recorded investment in loans that are considered to be
impaired under FASB Statement No. 114 was $8,780,000, of which $8,716,000 was on
a non-accrual basis. There was one troubled debt restructured loan of $64,000,
which is performing in accordance with the restructured agreement. The allowance
related to these loans amounted to $1,667,000.
For the quarter ended March 31, 1997, the Company recognized interest income on
impaired loans amounting to $258,000, all of which was recognized using the cash
basis method of income recognition.
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 March 31, 1997, the allowance for possible loan losses was $7,761,000, down
4.9% from the $8,158,000 at year-end 1996. Net charge-offs for the first quarter
of 1997 were $1,297,000.
Liquidity Management
At March 31, 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 March 31, 1997, liquid investments, comprised of Federal funds sold and money
market mutual fund instruments, totaled $53,361,000, and all mature within 30
days.
12
<PAGE>
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 $119,835,000 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
March 31, 1997, there were $70,000,000 of short-term lines of credit available
which were unused. In addition, the Bank has $50,158,000 available on
established lines of credit totaling $69,158,000 with the Federal Reserve Bank
and the Federal Home Loan Bank of New York at March 31, 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 March 31, 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 decreased $111,000 to $96,841,000 at March 31, 1997
from the $96,952,000 recorded at the end of 1996. The decrease was due primarily
to a reduction in net unrealized gains on securities available for sale of
$1,681,000 (from a $937,000 unrealized gain at December 31, 1996 to a $744,000
unrealized loss at March 31, 1997) and cash dividends declared of $1,312,000.
These decreases were offset in part by net income of $2,378,000, exercises of
stock options of $422,000 and restricted stock activity of $90,000.
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 will be recorded as an other expense item in
the company's income statement.
The following table reflects the Company's capital ratios, as of March 31, 1997
and December 31, 1996, and have been presented in accordance with current
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.
13
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands) March 31, 1997 December 31, 1996
----------------- -----------------
Amount Ratio Amount Ratio
-------- ------ ------- ------
<S> <C> <C> <C> <C>
Risk-Based Capital
Tier I Capital
Actual $107,382 15.39% $85,492 11.66%
Regulatory Minimum
Requirements 27,901 4.00 29,320 4.00
For Classification as
Well Capitalized 41,853 6.00 43,980 6.00
Combined Tier I and
Tier II Capital
Actual 115,143 16.51 93,650 12.78
Regulatory Minimum
Requirements 55,803 8.00 58,640 8.00
For Classification as
Well Capitalized 69,754 10.00 73,300 10.00
Leverage
Actual 107,382 9.93 85,492 7.96
Regulatory Minimum
Requirements 43,273 4.00 42,969 4.00
For Classification as
Well Capitalized 54,091 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 15.39% and from 12.78% to
16.51%, respectively, while the Tier I leverage ratio increased from 7.96% to
9.93% from December 31, 1996 to March 31, 1997, respectively. The Company's
capital ratios increased as a result of the $20 million of Trust Capital
Securities privately placed in March and net income for the quarter, offset in
part by cash dividends declared.
14
<PAGE>
Part II - Other Information
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.
(27) Financial Data Schedule
(b) Reports on Form 8-K
A Form 8-K was filed on March 10, 1997. Under Item 5, the
completion of the acquisition of Farrington Bank by United National
Bancorp ("United") was reported. In addition, United reported
consolidated net income for the fourth quarter and full year of
1996. Incorporated by reference were United's press releases dated
January 22, 1997 and February 28, 1997.
A Form 8-K was filed on March 28, 1997. Under Item 5, United
reported the placement of $20 million 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. A press release
announcing the placement of the Securities was filed as an exhibit
to the Form 8-K, together with certain operative documents executed
in connection with the transaction.
15
<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: May 14, 1996 By: /s/Thomas C. Gregor
Thomas C. Gregor, Chairman
President and CEO
Dated: May 14, 1996 By: /s/Donald W. Malwitz
Donald W. Malwitz
Vice President & Treasurer
16
<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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 43,358
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 36,500
<TRADING-ASSETS> 527
<INVESTMENTS-HELD-FOR-SALE> 302,746
<INVESTMENTS-CARRYING> 65,856
<INVESTMENTS-MARKET> 65,031
<LOANS> 604,602
<ALLOWANCE> 7,761
<TOTAL-ASSETS> 1,105,210
<DEPOSITS> 932,362
<SHORT-TERM> 32,498
<LIABILITIES-OTHER> 13,813
<LONG-TERM> 9,696
0
0
<COMMON> 11,033
<OTHER-SE> 85,808
<TOTAL-LIABILITIES-AND-EQUITY> 1,105,210
<INTEREST-LOAN> 13,911
<INTEREST-INVEST> 5,965
<INTEREST-OTHER> 226
<INTEREST-TOTAL> 20,105
<INTEREST-DEPOSIT> 6,925
<INTEREST-EXPENSE> 7,620
<INTEREST-INCOME-NET> 12,485
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 156
<EXPENSE-OTHER> 12,562
<INCOME-PRETAX> 3,406
<INCOME-PRE-EXTRAORDINARY> 3,406
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,378
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.54
<YIELD-ACTUAL> 5.15
<LOANS-NON> 8,716
<LOANS-PAST> 1,341
<LOANS-TROUBLED> 64
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,158
<CHARGE-OFFS> 1,467
<RECOVERIES> 170
<ALLOWANCE-CLOSE> 7,761
<ALLOWANCE-DOMESTIC> 7,761
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
