SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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)
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 July 30, 1997, there were 8,742,416 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 1-7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-18
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 19-20
SIGNATURES 21
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
United National Bancorp
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 38,981 $ 55,392
Federal Funds Sold - 5,887
Securities:
Available for Sale, at Market Value 459,563 305,667
Held to Maturity 50,861 67,576
Trading Account Securities,
at Market Value 874 512
---------- ----------
Total Securities 511,298 373,755
Loans (Net of Unearned Income) 624,949 621,138
Less: Allowance for Possible
Loan Losses 7,682 8,158
---------- ----------
Net Loans 617,267 612,980
Investment in Joint Venture 3,151 3,151
Premises and Equipment, Net 21,186 21,883
Other Real Estate 1,505 1,722
Intangible Assets, Primarily
Core Deposit Premiums 10,299 11,179
Other Assets 14,068 16,804
---------- ----------
Total Assets $1,217,755 $1,102,753
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 163,522 $ 159,018
Savings 362,039 389,292
Time 415,461 388,410
----------- ----------
Total Deposits 941,022 936,720
Short-Term Borrowings 79,896 46,328
Other Borrowed Funds 59,699 9,693
Other Liabilities 14,977 13,060
----------- ----------
Total Liabilities 1,095,594 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 8,830,664 in 1997 and
8,731,006 in 1996,
Outstanding Shares 8,742,416 in 1997
and 8,643,014 in 1996 11,038 10,914
Additional Paid-In Capital 65,534 64,895
Retained Earnings 24,305 21,719
Treasury Stock (88,248 shares in 1997
and 87,992 in 1996) (1,340) (1,337)
Restricted Stock (85) (176)
Net Unrealized Gain on Securities
Available for Sale, Net of Tax 2,709 937
---------- ----------
Total Stockholders' Equity 102,161 96,952
----------- ----------
Total Liabilities and Stockholders'
Equity $1,217,755 $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 Six Months Ended
June 30, June 30,
--------------------------------------- ---------------------------------------
1997 1996 1997 1996
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $13,837 $13,291 $27,748 $26,368
Interest and Dividends on Securities
Available for Sale:
Taxable Income 5,629 5,060 9,968 10,369
Tax-Exempt Income 558 564 1,114 1,103
Interest and Dividends on Securities
Held to Maturity:
Taxable Income 867 643 1,785 1,070
Tax-Exempt Income 156 104 308 166
Dividends on Trading Accounts Securities 4 4 7 7
Interest on Federal Funds Sold and
Deposits with Federal Home Loan Bank 127 66 353 140
----------------- ------------------ ----------------- ------------------
TOTAL INTEREST INCOME 21,178 19,732 41,283 39,223
----------------- ------------------ ----------------- ------------------
INTEREST EXPENSE
Interest on Deposits:
Interest on Savings Deposits 1,682 1,818 3,427 3,666
Interest on Time Deposits 5,500 4,622 10,680 9,386
Interest on Short-Term Borrowings 862 601 1,325 1,233
Interest on Other Borrowings 290 232 522 464
----------------- ------------------ ----------------- ------------------
Total Interest Expense 8,334 7,273 15,954 14,749
----------------- ------------------ ----------------- ------------------
Net Interest Income 12,844 12,459 25,329 24,474
Provision for Possible Loan Losses 900 653 1,800 1,128
----------------- ------------------ ----------------- ------------------
Net Interest Income After
Provision for Possible Loan Losses 11,944 11,806 23,529 23,346
----------------- ------------------ ----------------- ------------------
NON-INTEREST INCOME
Trust Income 1,200 1,125 2,400 2,325
Service Charges on Deposit Accounts 981 939 2,047 1,890
Other Service Charges, Commissions
and Fees 1,495 1,205 3,019 2,391
Net Gains from Securities Transactions 180 218 336 374
Other Income 469 577 906 1,009
----------------- ------------------ ----------------- ------------------
TOTAL NON-INTEREST INCOME 4,325 4,064 8,708 7,989
----------------- ------------------ ----------------- ------------------
NON-INTEREST EXPENSE
Salaries and Employee Benefits 4,871 5,191 10,012 10,660
Occupancy Expense, Net 833 818 1,656 1,733
Furniture and Equipment Expense 683 714 1,358 1,431
Data Processing Expense 1,181 1,070 2,294 2,030
Amortization of Intangible Assets 440 447 880 894
Distributions on Series B Capital
Securities 501 - 557 -
Merger Related Charge and
Loss on Disposition of Assets 543 - 2,208 -
Other Expenses 2,715 2,557 5,364 4,864
----------------- ------------------ ----------------- ------------------
TOTAL NON-INTEREST EXPENSE 11,767 10,797 24,329 21,612
----------------- ------------------ ----------------- ------------------
Income Before Provision for Income Taxes 4,502 5,073 7,908 9,723
Provision for Income Taxes 1,386 1,866 2,414 3,473
----------------- ------------------ ----------------- ------------------
Net Income $3,116 $3,207 $5,494 $6,250
================= ================== ================= ==================
Net Income Per Common Share $0.36 $0.37 $0.63 $0.72
================= ================== ================= ==================
Weighted Average Shares Outstanding 8,742 8,696 8,738 8,693
</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 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 - - 5,494 - - - 5,494
Cash Dividends Declared -
$.30 Per Share - - (2,631) - - - (2,631)
Exercise of Stock Options
(99,658 Shares) 124 639 (277) - - - 486
Change in Unrealized Gain
on Securities
Available for Sale - - - - - 1,772 1,772
Treasury Stock Activity
(256 Shares) - - - (3) - - (3)
Restricted Stock - - - - 91 - 91
------- ------- ------- ------- ------ ------- -------
Balance-June 30, 1997 $11,038 $65,534 $24,305 $(1,340) $ ( 85) $ 2,709 $102,161
======= ======= ======= ======= ======= ======= ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1997 1996
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 5,494 $ 6,250
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Depreciation and Amortization 1,975 1,924
Amortization of Securities, Net 172 21
Provision for Possible Loan Losses 1,800 1,128
(Benefit)Provision for Deferred Income Taxes (52) 288
Net Loss/(Gain) on Disposition/Writedown
of Premises and Equipment 544 (7)
Net Gain on Sale of Securities Available for Sale (160) (362)
Trading Account Securities Activity, Net (362) 33
Decrease(Increase) in Other Assets 2,956 (94)
Increase(Decrease) in Other Liabilities 1,633 (1,045)
Restricted Stock Activity 91 131
-------- --------
Net Cash Provided by Operating Activities 14,091 8,267
-------- --------
INVESTING ACTIVITIES Securities Available for Sale:
Proceeds from Sales of Securities 26,269 98,515
Proceeds from Maturities of Securities 22,239 29,946
Purchases of Securities (196,599) (93,152)
Securities Held to Maturity:
Proceeds from Maturities of Securities 24,510 8,852
Purchases of Securities (10,919) (40,748)
Net Increase in Loans (6,087) (10,294)
Expenditures for Premises and Equipment (2,031) (625)
Proceeds from Disposal of Premises and Equipment - 206
Decrease in Other Real Estate 217 549
-------- -------
Net Cash Used in Investing Activities (142,401) (6,751)
-------- -------
FINANCING ACTIVITIES
Net Decrease in Demand and Savings Deposits (22,749) (12,651)
Net Increase in Certificates of Deposit 27,051 2,265
Net Increase in Short-Term Borrowings 33,568 9,810
Net Increase in Other Borrowed Funds 50,000 -
Cash Dividends on Common Stock (2,341) (1,937)
Proceeds from Exercise of Stock Options 486 -
Purchase of Treasury Stock (3) (3)
Sale of Treasury Stock - 251
Proceeds of Trust Capital Securities 20,000 -
-------- -------
Net Cash Provided by (Used in) Financing Activities 106,012 (2,265)
-------- -------
Net Decrease in Cash and Cash Equivalents (22,298) (749)
Cash and Cash Equivalents at Beginning of Period 61,279 57,201
-------- -------
Cash and Cash Equivalents at End of Period $ 38,981 $56,452
========= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period:
Interest $ 16,248 $15,824
Income Taxes 3,454 4,328
Reclass to Available for Sale from Held to Maturity 3,160 -
Reclass to Other Assets of Vacant Operations Center
from Premises and Equipment Pending Sale 1,100 -
</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 1,098,424 shares
(adjusted for the effect of the two-for-one stock split paid on July 1, 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.
5
<PAGE>
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 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.
6
<PAGE>
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. 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 $162,079,000 and $150,354,000 and letters
of credit of $2,022,000 and $3,130,000 at June 30, 1997 and December 31, 1996,
respectively), which are not reflected in the accompanying consolidated
financial statements.
7
<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
June 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 six months ended June 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 Six Months Ended June 30, 1997 and June 30, 1996.
OVERVIEW
The Company realized net income of $3,116,000 for the second quarter of 1997, as
compared to $3,207,000 reported for the same period in 1996. Adjusted for the
two-for-one stock split, earnings per share were $.36 for the second quarter of
1997 as compared to $.37 for the prior year.
During the quarter, the Company recorded a loss on the pending sale of its
former operations center (the "Operations Center Loss"). The operations center
had been vacant since the departments originally located in that building were
moved to the Company's Headquarters building during 1997. The Operations Center
Loss of $326,000, net of taxes, was recorded in the second quarter on the sale,
which was consummated in August 1997. Excluding the Operations Center Loss, the
8
<PAGE>
Company reported earnings for the second quarter of 1997 of $3,442,000, up 7.3%
from the prior year. Earnings per share for the second quarter 1997, excluding
the Operations Center Loss, were $.39, up 5.4% over the same period in 1996.
For the six months ended June 30, 1997, net income was $5,494,000, as compared
to $6,250,000 for the same period last year. Per share earnings were $.63 and
$.72, 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"). Excluding the
Merger Charge and the Operations Center Loss (together defined as "One-Time
Charges"), earnings for the six months ended June 30, 1997 were $6,892,000, up
10.3% compared to the $6,250,000 reported in 1996.
The increase in earnings before the One-Time Charges for the three months and
six months ended June 30, 1997, compared to 1996, was the result of an increase
in net interest income combined with an increase in non-interest income and a
decrease in the provision for income taxes, 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 June 30, 1997 represented a $1,446,000 or
7.3% increase from the $19,732,000 reported for the same period in 1996. This
was attributable to increases in interest and dividends on securities of
$839,000, interest and fees on loans of $546,000 and interest on federal funds
sold and deposits with Federal Home Loan Bank ("FHLB") of $61,000. The yield on
average interest earning assets on a fully taxable equivalent basis decreased 12
basis points from 8.31% for the second quarter of 1996 to 8.19% for the second
quarter of 1997. The increase in interest income was primarily attributable to
the $77,729,000 increase in average interest earning assets, offset slightly by
the 12 basis point decrease in the yield on earning assets. During mid-May 1997,
the Company, as part of a strategy to effectively leverage its capital and
improve net interest income, completed the purchase of $100 million of
investment securities funded through FHLB advances (the "Leverage Strategy").
For the six months ended June 30, 1997, interest income increased $2,060,000 or
5.3%, from the $39,223,000 reported for the same period in 1996. This was
attributable to increases in interest and fees on loans of $1,380,000, interest
and dividends on securities of $467,000, and interest on federal funds sold and
deposits with the FHLB of $213,000. The increase in interest income was
primarily the result of the $53,682,000 increase in average interest earning
assets. This was offset in part by a decrease in the yield on average earning
assets from 8.25% for the six months ended June 30, 1996 to 8.22% 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
9
<PAGE>
deposits, the Company's interest expense for the second quarter of 1997
increased $1,061,000, or 14.6%, to $8,334,000 from $7,273,000 for the same
period last year. Specifically, interest on savings and time deposits rose
$742,000, interest on short-term borrowings increased $261,000, and interest on
other borrowings increased $58,000. The Company's average cost of funds
increased from 3.72% for the second quarter of 1996 to 3.95% for the second
quarter in 1997. Average interest bearing liabilities increased by $51,422,000
from the second quarter of 1996 to the same period in 1997.
For the six months ended June 30, 1997, interest expense increased by $1,205,000
over the same period in 1996. Interest expense on savings and time deposits
increased by $1,055,000, interest expense on short-term borrowings increased by
$92,000, and interest on other borrowings increased $58,000.
Net Interest Income
The net effect of the changes in interest income and interest expense for the
second quarter of 1997 was an increase of $385,000 or 3.1% in net interest
income as compared to the second quarter of 1996. The net interest margin and
net interest spread, on a fully taxable equivalent basis, decreased 23 basis
points and 35 basis points, respectively, from the same period last year.
Net interest income for the six months ended June 30, 1997, increased $855,000
or 3.5% over the same period last year. The net interest margin decreased 9
basis points, while the net interest spread decreased 14 basis points from the
same period last year.
Provision for Possible Loan Losses
For the three months ended June 30, 1997, the provision for possible loan losses
was $900,000, compared to $653,000 for the same period last year. The provision
for possible loan losses was $1,800,000 for the six months ended June 30, 1997,
as compared to $1,128,000 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 June 30,
1997 was adequate to absorb possible future losses on existing loans and
commitments that are currently inherent in the loan portfolio.* At June 30,
1997, the ratio of the allowance for possible loan losses to non-performing
loans was 85.03% as compared to 70.00% at June 30, 1996.
Non-Interest Income
For the second quarter of 1997, compared to the second quarter 1996, total
non-interest income increased $261,000 or 6.4%, due primarily to a $290,000
increase in other service charges, commissions and fees, along with increases
10
<PAGE>
of $75,000 in trust income, and $42,000 in service charges on deposit accounts.
These increases were offset in part by reductions in other income of $108,000
and $38,000 in net gains on securities transactions. 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 six months ended June 30, 1997, non-interest income increased $719,000
from the same period in 1996, due primarily to increases of $628,000 in other
service charges commissions and fees, along with increases of $75,000 in trust
income, and $157,000 in service charges on deposit accounts. The increases for
the six 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
$103,000 along with a reduction in net gains from securities transactions of
$38,000.
Non-Interest Expense
For the quarter ended June 30, 1997, non-interest expense increased $970,000, or
9.0% from the same period last year. In connection with the Operations Center
Loss, the Company recorded a pre-tax charge of $543,000. Excluding this charge,
non-interest expense increased $427,000, or 4.0% from the second quarter of
1997. Salaries and employee benefits decreased $320,000, or 6.2%, as salaries
decreased $221,000, while employee benefits decreased by $99,000. 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. Occupancy expense increased $15,000, or
1.8%. Furniture and equipment expense decreased $31,000, or 4.3%. Data
processing expense increased $111,000, or 10.4% as a result of increased volume
of items processed through United Financial Services, Inc. ("United Financial").
United Financial, a data processing joint venture, is 50% owned by the Company.
The cash distributions on the trust capital securities of $501,000 resulted from
the placement of $20 million of trust capital securities during March 1997. In
addition, other expenses, including amortization of intangible assets, increased
$151,000 primarily as a result additional marketing, postage and telephone
expenses incurred for credit card marketing.
For the six months ended June 30, 1997, non-interest expense increased
$2,717,000, or 12.6% 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. Excluding these One-Time Charges,
non-interest expense increased $509,000, or 2.4% from 1996 to 1997. Salaries and
employee benefits decreased $648,000, or 6.1% as salaries and wages decreased
$385,000 and employee benefits decreased by $263,000. Occupancy expense
decreased $77,000 as a result of lower building maintenance costs,
11
<PAGE>
including reduced snow removal costs during 1997. Furniture and equipment
expense decreased $73,000 or 5.1%. Data processing expense increased $264,000,
or 13.0% over the same period in 1996 as a result of higher processing volumes.
The cash distributions on the trust capital securities of $557,000 resulted from
their placement in March 1997. Other expenses, including amortization of
intangible assets, increased $500,000 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 61.79% in
the second quarter of 1997, compared to 61.66% a year earlier. For the six
months ended June 30, 1997 and 1996, the efficiency ratios were 61.16% and
62.73%, respectively.
Income Taxes
Income tax expense decreased $480,000 to $1,386,000 for the second quarter of
1997 as compared to $1,866,000 for the same period in 1996. For the six months
ended June 30, 1997, income tax expense decreased $1,059,000 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 second 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 $166,000 in the second
quarter. The Company anticipates similar savings in future quarters.*
12
<PAGE>
FINANCIAL CONDITION
June 30, 1997 as compared to December 31, 1996.
Total assets increased $115,002,000 or 10.4% from December 31, 1996. Securities
increased by $137,543,000, as a result of a leverage strategy implemented during
the second quarter and investments purchased with the proceeds raised from the
trust capital securities. The Company utilized $100 million of FHLB advances to
fund the growth in the investment portfolio, which in turn increased net
interest income. In addition, loans, net of allowance, increased $4,287,000.
Conversely, there were decreases of $16,411,000 in cash and due from banks,
$5,887,000 in Federal funds sold and $4,530,000 in all other assets, which
consists of premises and equipment, other real estate, intangible assets and all
other assets.
Total loans at June 30, 1997 increased $3,811,000 or 0.6%, to $624,949,000 from
year-end 1996. The residential and commercial real estate loan portfolios
increased by $28,443,000 or 11.4% from $250,503,000 at December 31, 1996 to
$278,946,000 at June 30, 1997. The credit card portfolio increased $630,000 or
1.9% from December 31, 1996 to $32,994,000 at June 30, 1997. Partially
offsetting these increases, personal loans decreased $18,159,000 or 9.7% from
December 31, 1996 to $168,670,000 at June 30, 1997, as a result of loan payments
on the indirect automobile loan portfolio exceeding new loan growth. In
addition, commercial loans decreased $7,103,000 or 4.7% to $144,339,000 at June
30, 1997.
The following schedule presents the components of loans, by type, net of
unearned income, for each period presented.
June 30, December 31,
(In Thousands) 1997 1996
--------- --------
Commercial $144,339 $151,442
Real Estate 278,946 250,503
Personal Loans 168,670 186,829
Credit Card Loans 32,994 32,364
-------- --------
Loans, Net of Unearned Income $624,949 $621,138
======== ========
Within the securities portfolio, the majority of the increase occurred in the
mortgage-backed securities, which increased $82,448,000. Other securities,
consisting of money market mutual funds and trust preferred issues increased by
$42,680,000. U.S. Treasury securities and U.S. government agencies and
corporations increased by $12,156,000. This was offset in part by a $103,000
decrease in obligations of states and political subdivisions. Trading account
securities rose $362,000.
13
<PAGE>
The amortized cost and approximate market value of securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
June 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 $ 86,191 $ 86,415 $ 58,401 $ 58,299
Obligations of States and
Political Subdivisions 45,014 45,748 44,765 45,231
Agency Issued Mortgage-Backed
Securities 257,536 256,648 175,452 174,040
Other Securities 66,717 70,752 25,635 28,097
-------- -------- -------- --------
Total Securities Available
For Sale 455,458 459,563 304,253 305,667
-------- -------- -------- --------
Securities Held to Maturity
U.S. Treasury Securities and
U.S. Government Agencies
and Corporations 33,928 33,789 49,888 49,890
Obligations of States and
Political Subdivisions 12,023 11,971 12,643 12,484
Agency Issued Mortgage-Backed
Securities 4,785 4,679 4,945 4,814
Other Securities 125 127 100 103
-------- -------- -------- --------
Total Securities Held
to Maturity 50,861 50,566 67,576 67,291
-------- -------- -------- --------
Trading Securities 547 874 360 512
- ------------------ -------- -------- -------- --------
TOTAL SECURITIES $506,866 $511,003 $372,189 $373,470
======== ======== ======== ========
</TABLE>
Total deposits increased $4,302,000 or .5%. Time deposits increased by
$27,051,000, while savings deposits decreased $27,253,000. Demand deposits
increased by $4,504,000. Short-term borrowings increased by $33,568,000 and
other borrowings increased by $50,006,000, as the Bank utilized a leverage
strategy to increase the investment portfolio. Management continues to monitor
the shift of deposits and level of borrowings through its Asset/Liability
Management Committee.
14
<PAGE>
Asset Quality
At June 30, 1997, non-performing loans decreased $2,224,000 and $1,087,000, as
compared to December 31, 1996 and March 31, 1997, respectively. Of the
$2,224,000 decrease in non-performing loans, $518,000 was in the personal loan
portfolio, and $1,632,000 was in the real estate loan portfolio. The remaining
$74,000 of the decrease was in the commercial loan portfolio. 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>
June 30, March 31, Dec. 31, Sept. 30, June 30,
(Dollars in Thousands) 1997 1997 1996 1996 1996
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Total Assets $1,217,755 $1,105,210 $1,102,753 $1,076,212 $1,069,673
Total Loans (Net of
Unearned Income) $ 624,949 $ 604,602 $ 621,138 $ 598,115 $ 591,689
Allowance for Possible
Loan Losses $ 7,682 $ 7,761 $ 8,158 $ 8,267 $ 8,268
% of Total Loans 1.23% 1.28% 1.31% 1.38% 1.40%
Total Non-Performing Loans(1)$ 9,034 $ 10,121 $ 11,258 $ 11,278 $ 11,811
% of Total Assets .74% .92% 1.02% 1.05% 1.10%
% of Total Loans 1.45% 1.67% 1.81% 1.89% 2.00%
Allowance for Possible Loan
Losses to Non-Performing
Loans 85.03% 76.68% 72.46% 73.30% 70.00%
Total of Non-Performing
Assets $ 10,636 $ 11,723 $ 13,158 $ 13,225 $ 14,162
% of Total Assets .87% 1.06% 1.19% 1.23% 1.32%
</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 June 30, 1997, the recorded investment in loans that are considered to be
impaired under FASB Statement No. 114 was $7,791,000, of which $7,731,000 was on
a non-accrual basis. There was one troubled debt restructured loan of $60,000,
which is performing in accordance with the restructured agreement. The allowance
related to these loans amounted to $1,629,000.
For the quarter ended June 30, 1997, the Company recognized interest income on
impaired loans amounting to $22,000, all of which was recognized using the cash
15
<PAGE>
basis method of income recognition. For the six months ended June 30, 1997, the
Company recognized interest income on impaired loans of $280,000.
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 and
anticipated economic conditions. The allowance is increased by provisions
charged to expense and reduced by charge-offs, net of recoveries.
At June 30, 1997, the allowance for possible loan losses was $7,682,000, down
5.8% from the $8,158,000 at year-end 1996. Net charge-offs for the three months
and six months ended June 30, 1997 were $979,000 and $2,276,000, respectively.
Liquidity Management
At June 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 June 30, 1997, liquid investments, comprised of money market mutual fund
instruments, totaled $36,345,000. 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 $98,885,000 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 June 30, 1997, there were $75,000,000
of short-term lines of credit of which $68,000,000 was available. In addition,
the Bank has $46,600,000 available on established lines of credit totaling
$57,200,000 with the Federal Reserve Bank and the FHLB of New York at June 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 June 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
16
<PAGE>
decreases would not have a significant impact on the Company's net interest
income.
Capital
Total stockholders' equity increased $5,209,000 to $102,161,000 at June 30, 1997
from the $96,952,000 recorded at the end of 1996. The increase was due to net
income of $5,494,000, an increase in net unrealized gains on securities
available for sale of $1,772,000, exercises of stock options of $486,000 and
vesting of restricted stock of $91,000. These increases were offset in part by
cash dividends declared of $2,631,000 and net treasury stock activity of $3,000.
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 a Non-Interest Expense
item in the Company's income statement.
17
<PAGE>
The following table reflects the Company's capital ratios, as of June 30, 1997
and December 31, 1996, and have been presented in accordance with current
regulatory guidelines.
<TABLE>
<CAPTION>
(Dollars in Thousands) June 30, 1997 December 31, 1996
----------------- ------------------
Amount Ratio Amount Ratio
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Risk-Based Capital
Tier I Capital
Actual $109,571 14.54% $85,492 11.66%
Regulatory Minimum
Requirements 30,139 4.00 29,320 4.00
For Classification as
Well Capitalized 45,208 6.00 43,980 6.00
Combined Tier I and
Tier II Capital
Actual 117,253 15.56 93,650 12.78
Regulatory Minimum
Requirements 60,277 8.00 58,640 8.00
For Classification as
Well Capitalized 75,347 10.00 73,300 10.00
Leverage
Actual 109,571 9.66 85,492 7.96
Regulatory Minimum
Requirements 45,351 4.00 42,969 4.00
For Classification as
Well Capitalized 56,688 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 14.54% and from 12.78% to
15.56%, respectively, while the Tier I leverage ratio increased from 7.96% to
9.66 from December 31, 1996 to June 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 six months ended June 30, 1997, offset in
part by cash dividends declared.
18
<PAGE>
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On or about March 17, 1997, the Company mailed to its shareholders a proxy
statement ("Proxy Statement") for the purpose of soliciting proxies for use at
its Annual Meeting of Shareholders. The proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934 and there were no
solicitations in opposition thereto.
At the Annual Meeting, held on April 15, 1997, the shareholders approved the
following proposals set forth in the Proxy Statement, by the votes indicated:
1. Election of the four (4) directors nominated by the Company's Board
of Directors to serve until the expiration of their terms and
thereafter until their successors shall have been duly elected and
have been qualified. The vote tabulation with respect to each
nominee for director is as follows:
Term Affirmative Withheld
Director Expiration Votes Votes
Donald A. Buckley 2000 2,901,981 118,313
Antonia S. Marotta 2000 2,916,801 103,493
Charles N. Pond, Jr. 2000 2,911,837 108,457
Ronald E. West 2000 2,917,342 102,952
The following directors' terms of office continued after the
meeting:
George W. Blank
C. Douglas Cherry
Thomas C. Gregor
Charles E. Hance
John R. Kopicki
John W. McGowan III
Patricia A. McKiernan
Kenneth W. Turnbull
David R. Walker
George J. Wickard
2. An amendment to the Certificate of Incorporation to increase the
authorized common stock from 10,000,000 to 16,000,000 shares
(adjusted for the effect of the two-for-one stock split paid on
July 1, 1997) and the authorized preferred stock from 300,000 to
1,000,000 shares.
For - 2,140,056; Against - 431,782; Abstain - 10,346.
3. An amendment to the Company's 1995 Stock Option Plan for
Non-Employee Directors (the "Director Plan") to increase the size
of the options granted to each non-employee director elected or
re-elected at an annual meeting and to increase the number of
shares reserved for
19
<PAGE>
issuance by the Company under the Director's Plan from 70,000
shares to 130,000 shares (adjusted for the effect of the two-for-
one stock split paid on July 1, 1997.
For - 2,478,320; Against - 413,875; Abstain - 36,849
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
(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 May 30, 1997. Under Item 5, United reported
that its Board of Directors had declared a 2 for 1 stock split of its
common stock. The stock split will be payable on July 1, 1997 to
Stockholders of Record on June 13, 1997. A press release reporting its
2 for 1 stock split was filed as an exhibit to the 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.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED NATIONAL BANCORP
-----------------------
(Registrant)
Dated: August 13, 1997 By: /s/Thomas C. Gregor
--------------------
Thomas C. Gregor, Chairman
President and CEO
Dated: August 13, 1997 By: /s/Donald W. Malwitz
---------------------
Donald W. Malwitz
Vice President & Treasurer
21
Exhibit 3A
CERTIFICATE OF INCORPORATION
OF
UNITED NATIONAL BANCORP
PURSUANT TO THE NEW JERSEY BUSINESS
CORPORATION ACT, N.J.S.A. SECTION 14A:1-1 ET SEQ
------------------------------------------------
As amended through July 1, 1997
ARTICLE 1
1. The name of this Corporation is: UNITED NATIONAL BANCORP.
2. The principal office of this Corporation is: 65 Readington Road,
Branchburg, New Jersey 08876.
ARTICLE 2
1. The purpose for which this Corporation is organized is to act to the
fullest extent permitted by law as a bank holding company and to otherwise
engage in any activity within the purposes for which corporations may be
organized under the New Jersey Business Corporation Act.
ARTICLE 3
1. The total authorized capital stock of the Corporation shall be
17,000,000 shares, consisting of 16,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock which may be issued in one or more classes or series.
The shares of Common Stock shall constitute a single class and shall have a par
value of $1.25 per share. The shares of Preferred Stock of each class or series
shall be without nominal or par value, except that the amendment authorizing the
initial issuance of any class or series, adopted by the board of directors as
provided herein, may provide that shares of any class or series shall have a
specified par value per share, in which event all of the shares of such class or
series shall have the par value per share so specified.
2. The Board of Directors of the Corporation is expressly authorized from
time to time to adopt and to cause to be executed and filed without further
approval of the shareholders amendments to this Certificate of Incorporation
authorizing the issuance of one or more classes or series of Preferred Stock for
such consideration as the Board of Directors may fix. In an amendment
authorizing any class or series of Preferred Stock, the Board of Directors is
expressly authorized to determine:
(a) The distinctive designation of the class or series and the number
of shares which will constitute the class or series, which number may be
increased or decreased (but not below the number of shares then outstanding in
that class or above the total shares authorized herein) from time to time by
action of the Board of Directors.
(b) The dividend rate on the shares of the class or series, whether
dividends will be cumulative, and, if so, from what date or dates;
(c) The price or prices at which, and the terms and conditions on
which, the shares of the class or series may be redeemed at the option of
the Corporation;
(d) Whether or not the shares of the class or series will be entitled
to the benefit of a retirement or sinking fund to be applied to the purchase or
redemption of such shares and, if so entitled, the amount of such fund and the
terms and provisions relative to the operation thereof;
<PAGE>
(e) Whether or not the shares of the class or series will be
convertible into, or exchangeable for, any other shares of stock of the
Corporation or other securities, and if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made, and any other terms
and conditions of such conversion or exchange;
(f) The rights of the shares of the class or series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(g) Whether or not the shares of the class or series will have
priority over, parity with, or be junior to the shares of any other class or
series in any respect, whether or not the shares of the class or series will be
entitled to the benefit of limitations restricting the issuance of shares of any
other class or series having priority over or on parity with the shares of such
class or series and whether or not the shares of the class or series are
entitled to restrictions on the payment of dividends on, the making of other
distributions in respect of, and the purchase or redemption of shares of any
other class or series of Preferred Stock or Common Stock ranking junior to the
shares of the class or series;
(h) Whether the class or series will have voting rights, in addition
to any voting rights provided by law, and if so, the terms of such voting
rights; and
(i) Any other preferences, qualifications, privileges, options and
other relative or special rights and limitations of that class or series.
ARTICLE 4
1. ELIMINATION OF CERTAIN LIABILITY OF DIRECTORS. A director of the
Corporation shall not be personally liable to the Corporation or its
shareholders for damages for breach of any duty owed to the Corporation or its
shareholders, except for liability for any breach of duty based upon an act or
omission (a) in breach of such person's duty of loyalty to the Corporation or
its shareholders, (b) not in good faith or involving a knowing violation of law
or (c) resulting in receipt by such person of an improper personal benefit.
2. ELIMINATION OF CERTAIN LIABILITY OF OFFICERS. Unless provided otherwise
by law, an officer of the Corporation shall not be personally liable to the
Corporation or its shareholders for damages for breach of any duty owed to the
Corporation or its shareholders, except for liability for any breach of duty
based upon an act or omission (a) in breach of such person's duty of loyalty to
the Corporation or its shareholders, (b) not in good faith or involving a
knowing violation of law or (c) resulting in receipt by such person of an
improper personal benefit.
3. REPEAL OR MODIFICATION OF THIS ARTICLE. Any repeal or modification of
the foregoing paragraphs by the shareholders of the Corporation shall not
adversely affect any right or protection of a director or an officer of the
Corporation existing at the time of such repeal or modification.
ARTICLE 5
1. (a) Except as otherwise provided herein, no purchase by the Corporation
from any Interested Person (as
-2-
<PAGE>
hereinafter defined) of shares of any stock of the Corporation owned by such
Interested Person shall be made at a price exceeding the average price paid by
such Interested Person for all shares of stock of the Corporation acquired by
such Interested Person during the two-year period preceding the date of such
proposed purchase unless such purchase is approved by the affirmative vote of
not less than two-thirds of the votes cast by Disinterested Shareholders (as
hereinafter defined) entitled to vote thereon.
(b) The provisions of this Section 1 of ARTICLE FIVE shall not apply
to (i) any offer to purchase made by the Corporation which is made on the same
terms and conditions to all holders of shares of stock of the Corporation, (ii)
any purchase by the Corporation of shares owned by an Interested Person
occurring after the end of two years following the date of the last acquisition
by such Interested Person of stock of the Corporation, (iii) any transaction
which may be deemed to be a purchase by the Corporation of shares of its stock
which is made in connection with the terms or operation of any stock option or
other employee benefit plan now or hereafter maintained by the Corporation, or
(iv) any purchase by the Corporation of shares of its stock at prevailing market
prices pursuant to a stock repurchase program.
2. Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation, no Transaction (as hereinafter
defined) between the Corporation and any Interested Person shall be valid nor
-3-
<PAGE>
shall any such Transaction be consummated unless (i) such Transaction is
expressly approved by at least the affirmative vote of Disinterested Directors
(as hereinafter defined) which vote at the time constitutes at least a majority
vote of the entire Board of Directors of the Corporation, or (ii) such
Transaction is approved by the affirmative vote of not less than two-thirds of
the votes cast by Disinterested Shareholders entitled to vote thereon, or (iii)
if such Transaction would result in payment of cash or other property to the
shareholders of the Corporation, such transaction provides for the payment to
each of the Disinterested Shareholders upon the consummation thereof, in
exchange for all the shares of the Corporation's capital stock held by each of
such Disinterested Shareholders, consideration which, as to both amount and
kind, is equal to or greater than the highest per share price actually paid by
or for the account of such Interested Person for the same class of shares of
capital stock held by such Disinterested Shareholders during both the two-year
period prior to the time any such Interested Person became such and the two-year
period prior to the consummation of such Transaction.
3. For purposes of this Article: (i) the term "Interested Person" means any
individual, corporation, partnership, trust, association or other organization
or entity (including any group formed for the purpose of acquiring, voting or
holding securities of the Corporation) which beneficially or of record, owns or
controls by agreement, voting
-4-
<PAGE>
trust or otherwise, at least 3% of the voting power of any class of capital
stock of the Corporation and who (a) is offering shares to the Corporation for
repurchase or (b) is party to a proposed Transaction with the Corporation, as
the case may be, and such term also includes any corporation, partnership,
trust, association, or other organization or entity in which one or more
Interested Persons have the power, trough the ownership of voting securities, by
contract, or otherwise, to influence significantly any of the management,
activities or policies of such corporation, partnership, trust, association, or
other organization or entity; (ii) the term "Disinterested Director" means a
director (excluding any directly who is an Interested Person) who was either a
member of the Board of Directors of the Corporation prior to the time the
Interested Person in the proposed transaction became an Interested Person or who
subsequently became a director of the Corporation and whose election, or
nomination for election, was approved by the vote of at least a majority of the
Disinterested Directors of the Corporation voting on such nomination or
election; (iii) the term "Disinterested Shareholders" means those holders of the
Corporation's capital stock entitled to vote on the transaction, none of which
is an Interested Person; and (iv) the term "Transaction" includes a merger,
consolidation, liquidation, or other form of corporate reorganization deemed to
involve the purchase or transfer of the shares of the Corporation.
-5-
<PAGE>
4. The provisions of this Article shall not be amended without the
affirmative vote of not less than two-thirds of the votes cast by the
shareholders entitled to vote thereon; provided, however, that if, at the time
of such vote, there shall be one or more Interested Persons, (i) in the case of
amendment of Section 1 or 2 of this ARTICLE FIVE, such affirmative vote shall
include the affirmative vote in favor of such amendment of not less than
two-thirds of the votes cast by Disinterested Shareholders entitled to vote
thereon, or (ii) in the case of Section 2 of this ARTICLE FIVE, such amendment
shall have been approved by the affirmative vote of Disinterested Directors,
which vote at the time constitutes at least a majority vote of the entire Board
of Directors of the Corporation,
5. The provisions of this Article shall be in addition to any other
provisions of the New Jersey Business Corporation Law or this Certificate of
Incorporation or the By-Laws of the Corporation, each as amended from time to
time, applicable to the authorization and consummation by the Corporation of any
transaction or amendment contemplated by this ARTICLE FIVE.
ARTICLE 6
1. The address of the Corporation's initial registered office is: 202 Park
Avenue, Plainfield, New Jersey 07061.
-6-
<PAGE>
2. The name of the Corporation's initial registered agent at such address
is: Pierce Baugh.
ARTICLE 7
1. The number of directors constituting the Corporation's first Board of
Directors, and the names and addresses of the persons who are to serve as such
directors are as follows:
The initial Board of Directors shall consist of four persons:
Kenneth W. Turnbull
George F. Hetfield, Sr.
Lowell F. Johnson
Mrs. C. Northrop Pond
The address for each of them shall be c/o United National Bank, 202 Park Avenue,
Plainfield, New Jersey 07061.
ARTICLE 8
1. The names and addresses of the Corporation's incorporators are as
follows: George F. Hetfield, Sr., 102 North Avenue, Plainfield, New Jersey
07061.
ARTICLE 9
1. The duration of the Corporation shall be perpetual.
-7-
ARTICLE 10
1. This Certificate of Incorporation shall be effective on the date of its
filing.
ARTICLE 11
The directors of the Corporation shall be divided into three classes, as
nearly equal in number as possible, designated Class I, Class II and Class III.
Class I directors shall initially serve until the 1996 annual meeting of
shareholders; Class II directors shall initially serve until the 1997 annual
meeting of shareholders; and Class III directors shall initially serve until the
1998 annual meeting of shareholders. At each annual meeting of shareholders,
successors to the class of directors whose term expires at the annual meeting
shall be elected for a term expiring at the third succeeding annual meeting of
shareholders after their election. Except as otherwise provided by law, if the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible. In no case shall a decrease in the number of directors
shorten the term of any incumbent directors.
/s/ Thomas C. Gregor
------------------------------
THOMAS C. GREGOR
DATED: August 14, 1997
-8-
<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> 6-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 38,981
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 874
<INVESTMENTS-HELD-FOR-SALE> 459,563
<INVESTMENTS-CARRYING> 50,861
<INVESTMENTS-MARKET> 50,566
<LOANS> 624,949
<ALLOWANCE> 7,682
<TOTAL-ASSETS> 1,217,755
<DEPOSITS> 941,022
<SHORT-TERM> 79,896
<LIABILITIES-OTHER> 14,977
<LONG-TERM> 59,699
0
0
<COMMON> 11,038
<OTHER-SE> 91,123
<TOTAL-LIABILITIES-AND-EQUITY> 1,217,755
<INTEREST-LOAN> 27,748
<INTEREST-INVEST> 13,175
<INTEREST-OTHER> 353
<INTEREST-TOTAL> 41,283
<INTEREST-DEPOSIT> 14,107
<INTEREST-EXPENSE> 15,954
<INTEREST-INCOME-NET> 25,329
<LOAN-LOSSES> 1,800
<SECURITIES-GAINS> 336
<EXPENSE-OTHER> 24,329
<INCOME-PRETAX> 7,908
<INCOME-PRE-EXTRAORDINARY> 7,908
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,494
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
<YIELD-ACTUAL> 5.08
<LOANS-NON> 7,731
<LOANS-PAST> 1,243
<LOANS-TROUBLED> 60
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,158
<CHARGE-OFFS> 2,686
<RECOVERIES> 410
<ALLOWANCE-CLOSE> 7,682
<ALLOWANCE-DOMESTIC> 7,682
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
