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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 000-16931
United National Bancorp
(Exact name of registrant as specified in its charter)
New Jersey 22-2894827
- --------------------------------------------------------------------------------
(State or other jurisdiction 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 April 30, 1998, there were 9,279,791 shares of common stock, $1.25 par
value, outstanding.
<PAGE>
UNITED NATIONAL BANCORP
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE(S)
ITEM 1 Financial Statements and Notes to Consolidated
Financial Statements 1-6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-15
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 16-17
SIGNATURES 18
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
United National Bancorp
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------------- ----------------
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 43,594 $ 39,569
Federal Funds Sold 1,700 1,500
Securities Available for Sale, at Market Value 568,149 541,245
Securities Held to Maturity 47,613 45,308
Trading Account Securities, at Market Value 1,331 1,221
Loans (Net of Unearned Income) 611,712 613,712
Less: Allowance for Possible Loan Losses 7,064 7,633
----------------- ----------------
Loans, Net 604,648 606,079
Premises and Equipment, Net 21,260 21,503
Investment in Joint Venture 3,151 3,151
Other Real Estate 1,538 1,463
Intangible Assets, Primarily Core Deposit Premiums 10,418 10,818
Other Assets 41,649 37,979
----------------- ----------------
Total Assets $1,345,051 $1,309,836
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 175,772 $ 166,260
Savings 379,309 380,105
Time 436,254 441,484
----------------- ----------------
Total Deposits 991,335 987,849
Short-Term Borrowings 84,883 79,546
Other Borrowings 119,710 92,706
Other Liabilities 15,326 18,785
----------------- ----------------
Total Liabilities 1,211,254 1,178,886
Company-Obligated Mandatorily Redeemable
Preferred Series B Capital Securities of a
Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Company 20,000 20,000
----------------- ----------------
STOCKHOLDERS' EQUITY
Preferred Stock, authorized 1,000,000 shares,
none issued and outstanding - -
Common Stock, $1.25 Par Value,
Authorized 16,000,000 Shares,
Issued 9,373,592 in 1998 and 9,366,549 in 1997,
Outstanding Shares 9,279,289 in 1998
and 9,272,246 in 1997 11,717 11,708
Additional Paid-in Capital 80,261 80,102
Retained Earnings 17,049 14,826
Treasury Stock (94,303 shares in 1998 and 1997) (1,352) (1,352)
Restricted Stock (64) (73)
Accumulated Other Comprehensive Income 6,186 5,739
----------------- ----------------
Total Stockholders' Equity 113,797 110,950
----------------- ----------------
Total Liabilities and Stockholders' Equity $1,345,051 $1,309,836
================= ================
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1998 1997
----------------- ----------------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $14,481 $13,911
Interest and Dividends on Securities Available for Sale:
Taxable Income 7,940 4,339
Tax-Exempt Income 697 556
Interest and Dividends on Securities Held to Maturity:
Taxable Income 474 918
Tax-Exempt Income 193 152
Dividends on Trading Accounts Securities 6 3
Interest on Federal Funds Sold and
Deposits with Federal Home Loan Bank 308 226
----------------- ----------------
TOTAL INTEREST INCOME 24,099 20,105
----------------- ----------------
INTEREST EXPENSE
Interest on Savings Deposits 1,601 1,745
Interest on Time Deposits 6,216 5,180
Interest on Short-Term Borrowings 931 463
Interest on Other Borrowings 1,680 232
----------------- ----------------
Total Interest Expense 10,428 7,620
----------------- ----------------
Net Interest Income 13,671 12,485
Provision for Possible Loan Losses 975 900
----------------- ----------------
Net Interest Income After
Provision for Possible Loan Losses 12,696 11,585
----------------- ----------------
NON-INTEREST INCOME
Trust Income 1,437 1,200
Service Charges on Deposit Accounts 1,067 1,066
Other Service Charges, Commissions and Fees 1,561 1,524
Net Gains from Securities Transactions 156 156
Other Income 697 437
----------------- ----------------
TOTAL NON-INTEREST INCOME 4,918 4,383
----------------- ----------------
NON-INTEREST EXPENSE
Salaries, Wages and Employee Benefits 5,085 5,141
Occupancy Expense, Net 860 823
Furniture and Equipment Expense 873 675
Data Processing Expense 1,836 1,113
Distributions of Series B Capital Securities 501 56
Amortization of Intangible Assets 401 440
Net Cost to Operate Other Real Estate 63 114
Merger Related Charge - 1,665
Other Expenses 3,016 2,535
----------------- ----------------
TOTAL NON-INTEREST EXPENSE 12,635 12,562
----------------- ----------------
Income Before Provision for Income Taxes 4,979 3,406
Provision for Income Taxes 1,339 1,028
----------------- ----------------
NET INCOME $ 3,640 $ 2,378
================= ================
NET INCOME PER COMMON SHARE:
Basic $ 0.39 $ 0.26
================= ================
Diluted $ 0.39 $ 0.25
================= ================
Weighted Average Shares Outstanding:
Basic 9,275 9,262
Diluted 9,429 9,337
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Restricted Comprehensive Stockholders'
Stock Capital Earnings Stock Stock Income Equity
------- --------- ---------- ---------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 $11,708 $80,102 $14,826 $(1,352) $(73) $ 5,739 $110,950
Net Income - - 3,640 - - - 3,640
Cash Dividends Declared
$0.15 Per Share - - (1,398) - - - (1,398)
Exercise of Stock Options
(5,243 Shares) 7 96 (19) - - - 84
Change in Unrealized Gain on
Securities Available for Sale - - - - - 447 447
Restricted Stock Activity 2 63 - - 9 - 74
------- ------- -------- --------- ------------- -------------------- -------------
Balance-March 31, 1998 $11,717 $80,261 $17,049 $(1,352) $ (64) $6,186 $113,797
======= ======= ======== ========= ============= ==================== =============
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
United National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------------
1998 1997
---------------- ----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 3,640 $ 2,378
Adjustments to Reconcile Net Income to Net Cash Provided
By Operating Activities:
Depreciation and Amortization 939 1,033
Amortization of Securities, Net 239 83
Provision for Possible Loan Losses 975 900
Benefit for Deferred Income Taxes 157 12
Net Loss (Gain) on Disposition/Writedown
Of Premises and Equipment 22 3
Net Gain on Sale of Securities Available for Sale (126) (140)
Trading Account Securities Activity, Net (110) (15)
(Increase)Decrease in Other Assets (4,054) 1,642
(Decrease)Increase in Other Liabilities (3,460) 471
Restricted Stock Activity 74 90
---------------- ----------------
Net Cash (Used in) Provided by Operating Activities (1,704) 6,457
---------------- ----------------
INVESTING ACTIVITIES Securities Available for Sale:
Proceeds from Sales of Securities 105,655 25,352
Proceeds from Maturities of Securities 11,273 7,107
Purchases of Securities (143,141) (28,879)
Securities Held to Maturity:
Proceeds from Maturities of Securities 19,412 8,962
Purchases of Securities (21,847) (10,383)
Net Increase in Loans 456 15,239
Expenditures for Premises and Equipment (667) (753)
Proceeds from Disposal of Premises and Equipment 349 -
(Increase) Decrease in Other Real Estate (75) 278
---------------- ----------------
Net Cash (Used in) Provided by Investing Activities (28,585) 16,923
---------------- ----------------
FINANCING ACTIVITIES
Net Increase (Decrease) in Demand and Savings Deposits 8,716 (13,386)
Net (Decrease) Increase in Certificates of Deposit (5,230) 9,028
Net Increase (Decrease) in Short-Term Borrowings 5,337 (13,830)
Net Increase in Other Borrowed Funds 27,004 -
Cash Dividends on Common Stock (1,397) (1,034)
Proceeds from Exercise of Stock Options 84 422
Purchase of Treasury Stock - (1)
Sale of Treasury Stock - -
Proceeds of Trust Capital Securities - 20,000
---------------- ----------------
Net Cash (Used in) Provided by Financing Activities 34,514 1,199
---------------- ----------------
Net Increase in Cash and Cash Equivalents 4,225 24,579
Cash and Cash Equivalents at Beginning of Period 41,069 61,279
---------------- ----------------
Cash and Cash Equivalents at End of Period $45,294 $85,858
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Period:
Interest $11,520 $ 9,279
Income Taxes 3,200 1,418
Reclass to Available for Sale from Held to Maturity - 3,160
See Accompanying Notes to Consolidated Financial Statements.
</TABLE>
<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 January 1, 1998, the Company adopted the provisions of 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. Comparative financial
statements provided for earlier periods have been reclassified to reflect the
application of the provisions of Statement No. 130.
Statement No. 130 requires total comprehensive income and its components to be
displayed on the face of a financial statement for annual financial statements.
For interim financial statements, Statement No. 130 requires only total
comprehensive income to be reported and allows such disclosure to be presented
in the notes to the interim financial statements. For the Company, comprehensive
income is determined by adding unrealized investment holding gains or losses
during the period to net income.
Total comprehensive income amounted to the following for the three month periods
ended March 31:
1998 1997
----------- -----------
Net Income $3,640,000 $2,378,000
Change in Net Unrealized Gain on
Securities Available for Sale, Net of Tax 447,000 (1,680,000)
---------- -----------
Comprehensive Income $4,087,000 $698,000
========== ===========
In February 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("Statement No. 132").
Statement No. 132 revises employers' disclosures about pension and other
postretirement benefits plans. It does not change the measurement or recognition
of those plans. It standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information in changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis, and eliminates certain required
disclosures of previous accounting pronouncements.
<PAGE>
Statement No. 132 is effective for fiscal years beginning after December 15,
1997. Earlier application is encouraged. Restatement of disclosures for earlier
periods provided for comparative purposes is required unless the information is
not readily available. As Statement No. 132 affects disclosure requirements, it
is not expected to have an impact on the 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) Net Income Per Common Share
Basic income per common share is computed by dividing net income by the weighted
average number of shares outstanding during each period.
Diluted net income per common share is computed by dividing net income by
weighted average number of shares outstanding, as adjusted for the assumed
exercise of options for common stock, using the treasury stock method. Potential
shares of common stock resulting from stock option agreements totaled 154,000,
and 75,000 in 1998 and 1997, respectively.
All weighted average shares outstanding have been adjusted for subsequent the 6%
stock dividend in 1997 and the 2 for 1 stock split in 1997.
(4) Capital
All share amounts presented have been restated for subsequent stock dividends
and splits.
<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
March 31, 1998 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 months ended March 31, 1998 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 Months Ended March 31, 1998 and March 31, 1997.
OVERVIEW
The Company realized net income of $3,640,000 for the first quarter of 1998, as
compared to $2,378,000 reported for the same period in 1997. The corresponding
1997 period included a one-time merger-related charge (the "Merger Charge") of
$1,072,000, net of taxes, or $0.12 per diluted share which was recorded in
connection with the acquisition of Farrington Bank ("Farrington"). Earnings per
diluted share were $0.39 for the first quarter of 1998 as compared to $0.25 for
the prior year.
The increase in earnings before the Merger Charge for the three months ended
March 31, 1998, compared to 1997, was the result of an increase in net interest
income combined with an increase in non-interest income, offset in part by
increases in the provision for possible loan losses and non-interest expenses.
EARNINGS ANALYSIS
Interest Income
Interest income for the quarter ended March 31, 1998 represented a $3,994,000 or
19.9% increase from the $20,105,000 reported for the same period in 1997. This
was attributable to increases in interest and dividends on securities of
$3,342,000, interest and fees on loans of $570,000 and interest on federal funds
sold and deposits with Federal Home Loan Bank ("FHLB") of $82,000. The yield on
average interest earning assets on a fully taxable equivalent basis decreased 9
basis points from 8.25% for the first quarter of 1997 to 8.16% for the first
quarter of 1998. The increase in interest income was primarily
<PAGE>
attributable to the $211,174,000 increase in average interest earning assets,
offset slightly by the 9 basis point decrease in the yield on earning assets.
During the second and third quarters of 1997, the Company developed and
implemented a strategy to increase earning assets, effectively leveraging its
capital and improving net interest income, by the purchase of $150 million of
additional investment securities funded through advances and repurchase
agreements (the "Growth Strategy"). During the first quarter of 1998, the
Company completed an additional $50 million of the Growth Strategy.
Interest Expense
As a result of increased average deposits, the Growth Strategy, as well as the
movement of deposits from lower rate savings accounts to higher rate time
deposits, the Company's interest expense for the first quarter of 1998 increased
$2,808,000, or 36.9%, to $10,428,000 from $7,620,000 for the same period last
year. Specifically, interest on savings and time deposits rose $892,000,
interest on short-term borrowings increased $468,000, and interest on other
borrowings increased $1,448,000. The Company's average cost of funds increased
from 3.79% for the first quarter of 1997 to 4.26% for the first quarter in 1998.
Average interest bearing liabilities increased by $177,004,000 from the first
quarter of 1997 to the same period in 1998.
Net Interest Income
The net effect of the changes in interest income and interest expense for the
first quarter of 1998 was an increase of $1,186,000 or 9.5% in net interest
income as compared to the first quarter of 1997. The net interest margin and net
interest spread, on a fully taxable equivalent basis, decreased 47 basis points
and 56 basis points, respectively, from the same period last year.
Provision for Possible Loan Losses
For the three months ended March 31, 1998, the provision for possible loan
losses was $975,000, compared to $900,000 for the same period last year. The
amount of the loan loss provision and the level of the allowance for possible
loan losses are based upon a number of factors including Management's evaluation
of potential losses in the portfolio, after consideration of appraised
collateral values, financial condition and past credit history of the borrowers
as well as prevailing and anticipated economic conditions.
In the opinion of Management, the allowance for possible loan losses at March
31, 1998 was adequate to absorb possible future losses on existing loans and
commitments that are currently inherent in the loan portfolio.* At March 31,
1998, the ratio of the allowance for possible loan losses to non-performing
loans was 85.05% as compared to 76.68% at March 31, 1997.
Non-Interest Income
For the first quarter of 1998, compared to the first quarter of 1997, total
non-interest income increased $535,000 or 12.2%, due primarily to increases of
$237,000 in trust income and $260,000 of increases in other income. In addition,
there were increases of $1,000 in service charges on deposit accounts and
$37,000 of increases in other service charges, commissions and fees. The
increase in other income is the result of the Company's investment in corporate
owned life insurance.
<PAGE>
Non-Interest Expense
For the quarter ended March 31, 1998, non-interest expense increased $73,000 or
0.6% from the same period last year. Included in the first quarter of 1997 was
the Merger Charge of $1,665,000, pre-tax. Excluding this charge, non-interest
expense increased $1,738,000 or 15.9% from 1997 to 1998. Salaries and employee
benefits decreased $56,000, as employee benefits decreased $270,000, while
salaries increased by $214,000. The reduction in salary and benefit expense was
achieved by lower hospitalization benefit costs and lower retirement benefits
cost, offset in part by additional employees hired for the new branches opened
during the latter part of 1997. Occupancy expense increased $37,000, or 4.5%.
Furniture and equipment expense increased $198,000, or 29.3% as a result of the
upgrading of the corporate wide personal computer network in mid-1997. Data
processing expense increased $723,000, or 65.0% as a result of increased volume
of items processed through United Financial Services, Inc. ("United Financial")
as well as increased credit card processing. United Financial, a data processing
joint venture, is 50% owned by the Company. Distributions on the trust capital
securities, issued in March 1997, at an annual rate of 10.01%, amounted to
$501,000. Other expenses and amortization of intangible assets, increased
$391,000, primarily as a result of additional marketing of new branch locations
and credit card marketing, increased credit card processing expense and
increased other legal and other professional expenses offset in part by
decreased costs to operate other real estate.
Income Taxes
Income tax expense increased $311,000 to $1,339,000 for the first quarter of
1998 as compared to $1,028,000 for the same period in 1997. The increase for the
quarter was the result of higher taxable income than the prior year.
<PAGE>
FINANCIAL CONDITION
March 31, 1998 as compared to December 31, 1997.
Total assets increased $35,215,000 or 2.7% from December 31, 1997. Securities
increased by $29,319,000. The Company utilized $50 million of advances and
repurchase agreements to fund the growth in the investment portfolio, which in
turn increased net interest income. The $50 million of investments purchased
through the Growth Strategy were partly offset by investments called or matured
in the first quarter. In addition, there were increases in cash and due from
banks of $4,025,000, Federal funds sold of $200,000, other real estate of
$75,000 and other assets of $3,670,000. Conversely, there were decreases of
$1,431,000 in loans, net of allowance, $400,000 in intangible assets and
$243,000 in premises and equipment.
Total loans at March 31, 1998 decreased $2,000,000 to $611,712,000 from year-end
1997. Personal loans decreased $11,629,000 or 8.4% from December 31, 1997 to
$126,118,000 at March 31, 1998, as a result of loan payments on the indirect
automobile loan portfolio exceeding new loan growth. In addition, commercial
loans decreased $1,184,000 or 0.9% to $135,150,000 at March 31, 1998 and the
credit card portfolio decreased $639,000 or 1.9% from December 31, 1997 to
$32,501,000 at March 31, 1998. Partly offsetting these decreases, the
residential and commercial real estate loan portfolios increased by $11,452,000
or 3.7% from $306,491,000 at December 31, 1997 to $317,943,000 at March 31,
1998.
The following schedule presents the components of loans, by type, net of
unearned income, for each period presented.
<TABLE>
<CAPTION>
March 31, December 31,
(In Thousands) 1998 1997
----------------- ----------------
<S> <C> <C>
Commercial $135,150 $136,334
Real Estate 317,943 306,491
Personal Loans 126,118 137,747
Credit Card Loans 32,501 33,140
----------------- ----------------
Loans, Net of Unearned Income $611,712 $613,712
================= ================
</TABLE>
Within the securities portfolio, the majority of the increase occurred in the
mortgage-backed securities, which increased $40,830,000. U.S. government
agencies and corporations increased by $5,670,000. In addition, obligations of
states and political subdivisions increased by $8,441,000. Trading account
securities increased by $110,000, while Corporate debt securities (trust
preferred issues of other banks) increased $3,576,000. Other securities,
consisting of money market mutual funds and stock in Federal Reserve Bank and
Federal Home Loan Bank decreased by $27,325,000. U.S. Treasury securities
decreased by $1,983,000.
<PAGE>
The amortized cost and approximate market value of securities are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
------------------------------ -----------------------------
Amortized Market Amortized Market
Securities Available for Sale Cost Value Cost Value
- --------------------------------------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 4,994 $ 4,992 $ 7,987 $ 7,979
Obligations of U.S. Government
Agencies and Corporations 95,145 95,723 85,384 86,079
Obligations of States and
Political Subdivisions 58,358 59,801 55,632 56,887
Mortgage-Backed Securities 351,263 353,246 310,074 312,164
Corporate Debt Securities 16,796 17,496 13,496 13,920
Other Securities 32,222 36,891 59,974 64,216
------------ ------------- ------------ ------------
Total Securities Available For Sale 558,778 568,149 532,547 541,245
------------ ------------- ------------ ------------
Securities Held to Maturity
- ---------------------------------------------
U.S. Treasury Securities 1,994 1,995 990 995
Obligations of U.S. Government
Agencies and Corporations 23,979 23,896 27,953 27,936
Obligations of States and
Political Subdivisions 17,239 17,274 11,712 11,798
Mortgage-Backed Securities 4,276 4,276 4,528 4,506
Other Securities 125 130 125 129
------------ ------------- ------------ ------------
Total Securities Held to Maturity 47,613 47,571 45,308 45,364
------------ ------------- ------------ ------------
Trading Securities 660 1,331 581 1,221
- --------------------------------------------- ------------ ------------- ------------ ------------
Total Securities $607,051 $617,051 $578,436 $587,830
============ ============= ============ ============
</TABLE>
Total deposits increased $3,486,000 or 0.4%. Time deposits decreased by
$5,230,000, while savings deposits decreased $796,000. Demand deposits increased
by $9,512,000. Short-term borrowings increased by $5,337,000 and other
borrowings increased by $27,004,000, as the Bank continued to utilize Growth
Strategies to increase the investment portfolio. Management continues to monitor
the shift of deposits and level of borrowings through its Asset/Liability
Management Committee.
<PAGE>
Asset Quality
At March 31, 1998, non-performing loans decreased $324,000 as compared to
December 31, 1997. Of the decrease in non-performing loans, $177,000 was in the
personal loan portfolio and $263,000 was in the real estate loan portfolio. This
was partly offset by an increase of $116,000 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>
March 31, December 31, September 30, June 30, March 31,
(Dollars in Thousands) 1998 1997 1997 1997 1997
------------------ ----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Total Assets $1,345,051 $1,309,836 $1,283,141 $1,217,755 $1,105,210
Total Loans (Net of $611,712 $613,712 $619,754 $624,949 $604,602
Unearned Income)
Allowance for Possible $7,064 $7,633 $7,638 $7,682 $7,761
Loan Losses
% of Total Loans 1.15 % 1.24 % 1.23 % 1.23 % 1.28 %
Total Non-Performing $8,306 $8,630 $9,689 $9,034 $10,121
Loans (1)
% of Total Assets 0.62 % 0.66 % 0.76 % 0.74 % 0.92 %
% of Total Loans 1.36 % 1.41 % 1.56 % 1.45 % 1.67 %
Allowance for Possible
Loan Losses
to Non-Performing Loans 85.05 % 88.45 % 78.83 % 85.03 % 76.68 %
Total of Non-Performing $9,970 $10,267 $11,408 $10,636 $11,723
Assets
% of Total Assets 0.74 % 0.78 % 0.89 % 0.87 % 1.06 %
(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.
</TABLE>
At March 31, 1998, the recorded investment in loans that are considered to be
impaired under FASB Statement No. 114 was $7,164,000, of which $7,114,000 was on
a non-accrual basis. There was one troubled debt restructured loan of $50,000,
which is performing in accordance with the restructured agreement. The allowance
related to these loans amounted to $1,118,000.
For the quarter ended March 31, 1998, the Company recognized interest income on
impaired loans amounting to $11,000, 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
<PAGE>
reduced by charge-offs, net of recoveries.
At March 31, 1998, the allowance for possible loan losses was $7,064,000, down
7.5% from the $7,633,000 at year-end 1997. Net charge-offs for the three months
months ended March 31, 1998 were $1,544,000.
Liquidity Management
At March 31, 1998, 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, 1998, liquid investments, comprised of Federal funds sold and money
market mutual fund instruments, totaled $22,006,000. 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 $121,121,000 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, 1998,
there were $240 million of short-term lines of credit of which $57 million was
available. In addition, the Bank has $57.2 million available on established
lines of credit, which are currently unused, with the Federal Reserve Bank and
the FHLB of New York at March 31, 1998, which further support and enhance
liquidity.
Capital
Total stockholders' equity increased $2,847,000 to $113,797,000 at March 31,
1998 from the $110,950,000 recorded at the end of 1997. The increase was due to
net income of $3,640,000, an increase in net unrealized gains on securities
available for sale of $447,000, exercises of stock options of $84,000 and
restricted stock activity of $74,000. These increases were offset in part by
cash dividends declared of $1,398,000.
<PAGE>
The following table reflects the Company's capital ratios, as of March 31, 1998
and December 31, 1997, and have been presented in accordance with current
regulatory guidelines.
<TABLE>
<CAPTION>
(Dollars in Thousands) March 31, 1998 December 31, 1997
-------------------------- -----------------------------
Amount Ratio Amount Ratio
---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C>
RISK-BASED CAPITAL
Tier I Capital
Actual $117,129 15.26 % $114,575 14.87 %
Regulatory Minimum Requirements 30,693 4.00 30,818 4.00
For Classification as Well Capitalized 46,040 6.00 46,228 6.00
Combined Tier I and Tier II Capital
Actual 124,193 16.18 122,208 15.86
Regulatory Minimum Requirements 61,386 8.00 61,637 8.00
For Classification as Well Capitalized 76,733 10.00 77,046 10.00
LEVERAGE
Actual 117,129 8.97 114,575 8.96
Regulatory Minimum Requirements 52,180 4.00 51,144 4.00
For Classification as Well Capitalized 65,225 5.00 63,931 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 14.87% to 15.26% and from 15.86% to
16.18%, respectively, while the Tier I leverage ratio increased from 8.96% to
8.97% from December 31, 1997 to March 31, 1998, respectively. The Company's
capital ratios increased as a result of net income for the three months ended
March 31, 1998, offset in part by cash dividends declared.
Item 3 - MARKET RISK - ASSET/LIABILITY MANAGEMENT.
The primary market risk faced by the Company is interest rate risk. The
Company's Asset/Liability Committee ("ALCO") monitors the changes in the
movement of funds and rate and volume trends to enable appropriate management
response to changing market and rate conditions.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario
versus net interest income in alternative interest rate scenarios. Management
reviews and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a 200 basis
point change in rates during the first year, in even monthly increments, with
rates held constant in the second year. The Company's ALCO has established that
interest income sensitivity will be considered acceptable if net interest income
in the above interest rate scenario is within 10% of net interest income in the
flat rate
<PAGE>
scenario in the first year and within 20% over the two-year time frame. At March
31, 1998, the Company's income simulation model indicates an acceptable level of
interest rate risk, with no significant change from December 31, 1997.*
Management also monitors interest rate risk by utilizing a market value of
equity model. The model computes estimated changes in net portfolio value
("NPV") of its cash flows from the Company's assets and liabilities in the event
of a change in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities. This analysis assesses the risk of gain or loss in market
risk sensitive instruments in the event of an immediate and sustained 200 basis
point increase or decrease in market interest rates. The Company's ALCO policy
indicates that the level of interest rate risk is acceptable if the immediate
200 basis point change in interest rates would not result in the loss of more
than 25% from the base market value of equity. At March 31, 1998, the market
value of equity indicates an acceptable level of interest rate risk, with no
significant change since December 31, 1997.*
Computation of prospective effects of hypothetical interest rates changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and duration of deposits, and should not be relied upon
as indicative of actual results. Further, the computations do not contemplate
any actions the ALCO could undertake in response to changes in interest rates.
<PAGE>
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On or about March 23, 1998, 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 21, 1998, the shareholders approved the
following proposals set forth in the Proxy Statement, by the votes indicated:
1. Election of the five (5) 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 Votes
Director Expiration Votes Against
George W. Blank 2001 7,268,568 64,198
Charles E. Hance 2001 7,258,535 74,231
John R. Kopicki 2001 7,268,178 64,588
John W. McGowan III 2001 7,267,370 65,396
Paul K. Ross 2001 7,259,644 73,122
The following directors' terms of office continued after the
meeting:
Donald A. Buckley
C. Douglas Cherry
Thomas C. Gregor
Antonia S. Marotta
Patricia A. McKiernan
Charles N. Pond, Jr.
David R. Walker
Ronald E. West
George J. Wickard
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(a) Certificate of Incorporation of the Company as in
effect on July 1, 1997. (Incorporated by reference in
the Company's Report on Form 10-Q for the quarter
ended June 30, 1997 filed with the Securities and
Exchange Commission.)
(3)(b) By-laws of the Company (Incorporated by reference
in the Company's Report on Form 10-K for the year
ended December 31, 1994 filed with the Securities and
Exchange Commission.)
<PAGE>
(10) Material Contracts
No material contracts have been entered into during
the quarter.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
<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, 1998 By: /s/Thomas C. Gregor
-------------------
Thomas C. Gregor, Chairman
President and CEO
Dated: May 14, 1998 By: /s/Donald W. Malwitz
---------------------
Donald W. Malwitz
Vice President & Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From SEC Form
10-Q and is Qualified in its Entirety by Reference to Such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 43,594
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,700
<TRADING-ASSETS> 1,331
<INVESTMENTS-HELD-FOR-SALE> 568,149
<INVESTMENTS-CARRYING> 47,613
<INVESTMENTS-MARKET> 47,571
<LOANS> 611,712
<ALLOWANCE> 7,064
<TOTAL-ASSETS> 1,345,051
<DEPOSITS> 991,335
<SHORT-TERM> 84,883
<LIABILITIES-OTHER> 15,326
<LONG-TERM> 119,710
0
0
<COMMON> 11,717
<OTHER-SE> 102,080
<TOTAL-LIABILITIES-AND-EQUITY> 1,345,051
<INTEREST-LOAN> 14,481
<INTEREST-INVEST> 9,304
<INTEREST-OTHER> 308
<INTEREST-TOTAL> 24,099
<INTEREST-DEPOSIT> 7,817
<INTEREST-EXPENSE> 10,428
<INTEREST-INCOME-NET> 13,671
<LOAN-LOSSES> 975
<SECURITIES-GAINS> 156
<EXPENSE-OTHER> 12,635
<INCOME-PRETAX> 4,979
<INCOME-PRE-EXTRAORDINARY> 4,979
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,640
<EPS-PRIMARY> 0.39
<EPS-DILUTED> 0.39
<YIELD-ACTUAL> 4.68
<LOANS-NON> 7,114
<LOANS-PAST> 1,142
<LOANS-TROUBLED> 50
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,633
<CHARGE-OFFS> 1,791
<RECOVERIES> 247
<ALLOWANCE-CLOSE> 7,064
<ALLOWANCE-DOMESTIC> 7,064
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
