U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-20254
1ST UNITED BANCORP
(Exact name of registrant as specified in its charter)
FLORIDA 65-0178023
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
980 N. FEDERAL HWY., BOCA RATON, FL 33432
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (561) 392-4000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of Class)
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(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
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. Yes. [X] No. [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K (X).
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. $85,731,000 as of January 31, 1997.
State the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date. 8,435,804 as of January 31,
1997.
DOCUMENTS INCORPORATED BY REFERENCE
Amendment No. 2 to the Issuer's Registration Statement on Form S-4, No
33-45665, declared effective May 11, 1992 and the Registrant's 1996 Annual
Report to Shareholders are incorporated by reference into Parts I and II of this
Form 10-K. The Proxy Statement for the Registrant's 1997 Annual Meeting of
Shareholders will be incorporated by reference, when filed, into Part III of
this Form 10-K.
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1st United Bancorp and Subsidiary
INDEX
DOCUMENT*
PART I AND PAGE
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Item 1. Business K p 5
Item 2. Properties K p 23
Item 3. Legal Proceedings K p 26
Item 4. Submission of Matters to a Vote of
Security Holders K p 26
PART II
Item 5. Market for Registrant's Common Equity
and Related Shareholder Matters AR p 26
Item 6. Selected Financial Data AR p 6
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations AR p 8
Item 8. Financial Statements and Supplementary
Data AR p 28
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure N/A
PART III
Item 10. Directors and Executive Officers
of the Registrant PS
Item 11. Executive Compensation PS
Item 12. Security Ownership of Certain
Beneficial Owners and Management PS
Item 13. Certain Relationships and Related
Transactions PS
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K K P 29
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* K means the Form 10-K
AR means the Registrant's 1996 Annual Report to
Shareholders
PS means the Registrant's Proxy Statement to be filed in
connection with its 1997 Annual Meeting of
Shareholders in accordance with General Instructions
G(3)
N/A means not applicable
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
that involve risks and uncertainties, and there are certain important factors
that could cause actual results to differ materially from those anticipated.
These important factors include, but are not limited to, economic conditions
(both generally and more specifically in the markets in which Bancorp and 1st
United operate), competition for Bancorp's and 1st United's customers from other
providers of financial services, government legislation and regulation (which
changes from time to time and over which Bancorp and 1st United have no
control), changes in interest rates, the impact of Bancorp's rapid growth, and
other risks detailed in Bancorp's other filings with the Securities and Exchange
Commission, all of which are difficult to predict and many of which are beyond
the control of Bancorp.
PART I
ITEM 1. BUSINESS
GENERAL
1st United Bancorp ("Bancorp"), a bank holding company, is a Florida
corporation which was incorporated on March 30, 1989 for the purpose of
acquiring 1st United Bank ("1st United"). 1st United became the subsidiary of
Bancorp by means of a transaction in which the shareholders of 1st United became
the shareholders of Bancorp. As a bank holding company, Bancorp is regulated by
the Federal Reserve Board ("FRB").
1st United received authorization from the Florida Department of Banking
and Finance ("FDBF") and commenced operations as a Florida-chartered bank on
December 17, 1987. 1st United's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") and it is a member of the Federal Reserve System
and the Federal Home Loan Bank Board of Atlanta.
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1st United engages in the general business of banking, throughout its
service area of Palm Beach County, Brevard County, southern Martin County and
northern Broward County. 1st United maintains its central banking office in Boca
Raton, Florida and presently operates 29 full-service banking facilities as
follows: two in Boca Raton, two in West Palm Beach, two in Lake Worth and one
each in Hypoluxo, Hobe Sound, Stuart, Lighthouse Point, Singer Island, Lake
Park, Jupiter/Tequesta and sixteen throughout Brevard County. Each banking
facility concentrates its service on the local community in which it is located.
Although Palm Beach County, Brevard County, Martin County and Broward County
have a great deal of tourist business, 1st United's target market consists of
professionals and businesses; as such the operations of 1st United have not, to
date, been materially impacted by seasonal fluctuations in the populations of
the counties in which it operates.
Approximately 67% ($325 million) of 1st United's deposits are derived
from nine of its branches located in Palm Beach County, Florida. In general,
Palm Beach County is an affluent, growing market with a total population of
approximately 1 million and an average medium household income of $37,000. 1st
United's deposits represent approximately 3.4% of all commercial bank deposits
and 2.0% of combined commercial bank and thrift deposits in the county.
1st United is the largest community bank headquartered in Palm Beach
County. The banking industry in Palm Beach County is highly competitive. The
dominant commercial banks or thrifts in the county include: Barnett Bank, First
Union, Great Western Bank and NationsBank. Of the total deposits of $16.2
billion in Palm Beach County at September 30, 1996, according to the Florida
Bankers Association, these financial institutions represented approximately $8.4
billion in deposits or 52% of the market.
As a result of the acquisition of The American Bancorporation of the
South ("American"), 1st United acquired 16 branches and approximately $150
million in commercial bank deposits in Brevard County, Florida. These deposits
represent approximately 5% of total commercial bank deposits and approximately
4% of combined
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commercial bank and thrift deposits in Brevard County, making 1st
United the largest community bank in this market. The dominant commercial banks
or thrifts in Brevard County include: First Union, NationsBank, Barnett Bank and
Sun Trust. Of the total deposits of $3.7 billion in Brevard County at September
30, 1996, according to the Florida Bankers Association, these financial
institutions represented approximately $2.6 billion in deposits or 70% of the
market. Brevard County is approximately 100 miles north of 1st United's branches
in Martin County, Florida and has a population of approximately 470,000 and a
median household income of $34,000.
1st United's deposits of approximately $8 million in Martin County
represent a market share of less than 1%. Bancorp will continue to review its
competitive position and prospects for future operations in the Martin County
market.
The Lighthouse Point branch is located in northern Broward County,
approximately 12 miles south of 1st United's main office, and was acquired on
February 21, 1994 in connection with the acquisition of certain assets and
liabilities of New River Bank. This branch had less than $8 million (less than
1% of the market) in deposits at December 31, 1996.
1st United originates commercial, consumer, and real estate loans to
individuals and businesses. The primary focus of 1st United is providing
personalized quality banking products and services to small to medium size
businesses, including professionals, and general retail customers within its
market area. Management believes that this local market strategy, accompanied by
strategic placement of bank personnel and branches, enables 1st United to
attract and retain low cost core deposits which provide substantially all of 1st
United's funding requirements. 1st United provides the services traditionally
provided by commercial banks (with the exception of trust services), including:
interest and non-interest-bearing accounts, consumer, business and real estate
loans, membership in shared ATM networks that include HONOR and PRESTO!, credit
cards, and safe deposit boxes.
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Bancorp's operating strategy emphasizes (i) continued expansion of 1st
United, primarily in Palm Beach, Broward, Brevard and Martin counties, through
internal growth and, when favorable, through selective acquisitions of, or
mergers with, healthy, distressed or failed institutions or the selective
acquisition of branches of such institutions; (ii) continued focus upon
providing personalized quality banking products to small to medium size
businesses and general retail customers; (iii) expanding its Small Business
Administration guaranteed loan program, residential mortgage lending, and
merchant credit cards; and (iv) controlling exposure to interest rate risk while
optimizing operating results through effective asset/liability management and
investment policies.
In large part, the ability of 1st United to make investments such as loans
depends on the amount of deposits that 1st United can generate. 1st United's
profitability, in turn, depends primarily on the difference between the interest
rates 1st United pays for deposits and the rate of return it receives on loans
and on other investments. There is competitive pressure on both of these rates
from entities other than banks and thrift institutions. For example, investment
funds of bank customers are also sought by stock brokerage firms with products
such as money market accounts. These non-deposit investment products
traditionally pay higher rates of return than are paid on deposits by banks and
thrift institutions. Additionally, there is an increasing number of lenders
seeking the lending business traditionally provided by banks and thrift
institutions. These lenders include insurance companies, mortgage brokers and
small loan companies. This competition has forced banks to manage closely their
cost of funds and yield on loans and other earning assets and has made
management of the interest spread more crucial and difficult. This competitive
trend is expected to continue, and 1st United's earnings could be adversely
affected.
ACQUISITIONS
On November 1, 1996, the Company completed its merger with Park
Bankshares, Inc. ("Park") and its wholly owned subsidiary, First National Bank
of Lake Park. Park had total assets and deposits of approximately $60.1 million
and $54.9 million, respectively. The transaction was accounted for under the
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pooling-of-interests method of accounting for business combinations and
accordingly, the consolidated financial statements have been restated for the
periods prior to the merger to include Park. In connection with the transaction,
the Company issued 816,000 of its common shares to Park shareholders.
On January 5, 1996, Bancorp acquired American and merged its
wholly-owned subsidiary, The American Bank of the South, into 1st United.
Consideration paid by Bancorp to the shareholders of American was $10,017,000
and was paid in the form of 30% cash and 70% stock. Approximately 820,000 shares
(value per share of $7.78 net of issuance costs) of Bancorp common stock were
issued in this acquisition. This acquisition was accounted for using the
purchase method of accounting and approximately $3.6 million in goodwill was
recorded and is being amortized over 15 years under the straight-line method.
In the American acquisition approximately $163.7 million in total
assets were acquired. Included in this total were approximately $25.6 million,
$48 million, $73 million, $8 million and $5 million in federal funds,
investments, net loans, bank premises and equipment and other real estate,
respectively. Included in loans were approximately $11 million in nonaccrual
loans. Approximately $152.3 million in deposits, which includes approximately
30% in noninterest bearing demand deposits, were assumed and sixteen (16)
bank-owned branch locations throughout Brevard County were acquired.
On January 6, 1997, Bancorp executed an acquisition agreement (the
"Agreement") to acquire Island National Bank and Trust Company ("Island"), which
is based in Palm Beach, Florida. The Agreement calls for Bancorp to issue to
Island shareholders up to a maximum of $17.75 million in Bancorp Common Stock.
Island has three location: two in the Town of Palm Beach and one in Palm Beach
Gardens. At December 31, 1996, Island had total assets, deposits and equity of
$130 million, $118 million, and $10.9 million, respectively. The acquisition is
anticipated to be consummated in the second quarter of 1997 and is subject to
regulatory and Island shareholder approval and satisfaction of other
contingencies. Management anticipates the acquisition will be accounted for as a
"pooling of interests" under generally accepted accounting principles.
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REGULATORY MATTERS
Bank holding companies and banks are extensively regulated under both
federal and state law. These laws and regulations are intended primarily to
protect depositors, not shareholders. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to the particular statutory and regulatory provisions.
A change in the applicable law or regulation may have a material effect on the
business and the prospects of Bancorp and 1st United.
REGULATION OF BANCORP
GENERAL
As a result of its ownership of 1st United, Bancorp is registered as a bank
holding company, and is regulated by the FRB under the Bank Holding Company Act
of 1956, as amended ("BHCA"). Bancorp is required to file with the FRB annual
reports and other information regarding its business operations and those of its
subsidiary. The FRB exercises this regulation of Bancorp through authority
delegated to the Federal Reserve Bank of Atlanta.
The BHCA requires, among other things, the prior approval of the FRB in any
case where a bank holding company proposes to (i) acquire all or substantially
all of the assets of a bank, (ii) acquire direct or indirect ownership or
control of more than 5% of the outstanding voting stock of any bank (unless it
owns a majority of such bank's voting shares) or (iii) merge or consolidate with
any other bank holding company.
Additionally, the BHCA prohibits a bank holding company, with certain
limited exceptions, from (i) acquiring or retaining direct or indirect ownership
or control of more than 5% of the outstanding voting stock of any company which
is not a bank or bank holding company, or (ii) engaging directly or indirectly
in activities other than those of banking, managing or controlling banks, or
performing services for its subsidiaries unless such
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non-banking business is determined by the FRB to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The recent enactment of the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 ("EGRPRA") streamlines the nonbanking activities
application process for well capitalized and well managed bank holding
companies. Under EGRPRA, qualified bank holding companies may commence a
regulatory approved nonbanking activity without prior notice to the FRB; written
notice in merely required within 10 days after commencing the activity. Also,
under EGRPRA, the prior notice period is reduced to 12 business days in the
event of any nonbanking acquisition or share purchase, assuming the size of the
acquisition does not exceed 10% of risk-weighted assets of the acquiring bank
holding company and the consideration does not exceed 15% in Tier 1 capital.
This prior notice requirement also applies to commencing a nonbanking activity
de nova which has been previously approved by order of the FRB, but not yet
implemented by regulations.
The BHC Act was amended in September 1994 by the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Act"). The
Interstate Banking Act provided that, effective September 29, 1995, adequately
capitalized and managed bank holding companies were permitted to acquire banks
in any state. State laws prohibiting interstate banking or discriminating
against out-of-state banks were preempted as of the effective date. States
cannot enact laws opting out of this provision; however, states may adopt a
minimum age restriction requiring that target banks located within the state be
in existence for a period of years, up to a maximum of five years, before such
bank may be subject to the Interstate Banking Act. The Interstate Banking Act
establishes deposit caps which prohibit acquisitions that result in the
acquiring company controlling 30 percent or more of the deposits of insured
banks and thrift institutions held in the state in which the target maintains a
branch or 10 percent or more of the deposits nationwide. States have the
authority to waive the 30 percent deposit cap. State-level deposit caps are not
preempted as long as they do not discriminate against out-of-state companies,
and the federal deposit caps apply only to initial entry acquisitions.
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In addition, the Interstate Banking Act provides that as of June 1,
1997, adequately capitalized and managed banks will be able to engage in
interstate branching by merging with banks in different states. States may enact
legislation authorizing interstate mergers earlier than June 1, 1997, or, unlike
the interstate banking provision discussed above, states may opt out of the
application of the interstate merger provision by enacting specific legislation
before June 1, 1997.
The Interstate Banking Act also expands former exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks will be
examined every 18 months. Other provisions of the Interstate Banking Act address
paper work reduction and regulatory improvements, small business and commercial
real estate loan securitization, truth-in-lending amendments on high cost
mortgages, strengthening of the independence of certain financial regulatory
agencies, money laundering, flood insurance reform and extension of certain
statutes of limitation.
Florida has responded to the enactment of the Interstate Banking Act by
enacting the Florida Interstate Branching Act ("Florida Branching Act") which is
to become effective on May 31, 1997. The purpose of the Florida Branching Act is
to permit interstate branching, effective June 1, 1997, through merger
transactions under the Interstate Banking Act. Under the Florida Branching Act,
with the prior approval of the FDBF, a Florida bank may establish, maintain and
operate one or more branches in a state other than the State of Florida pursuant
to a merger transaction in which the Florida bank is the resulting bank. In
addition, the Florida Branching Act provides that one or more Florida banks may
enter into a merger transaction with one or more out-of-state banks, and an
out-of-state bank resulting from such transaction may maintain and operate the
branches of the Florida bank that participated in such merger. An out-of-state
bank, however, shall not be permitted to acquire a Florida bank in a merger
transaction unless the Florida bank has been in existence and continuously
operated for more than three years.
At this time, Bancorp is unable to predict how the Interstate Banking
Act and the Florida Branching Act may affect its operations.
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Under a policy of the FRB with respect to bank holding company
operations, a bank holding company is required to serve as a source of financial
strength to its subsidiary depository institutions and to commit all available
resources to support such institutions in circumstances where it might not do so
absent such policy. Although this "source of strength" policy has been
challenged in litigation, the FRB continues to take the position that it has
authority to enforce it. The FRB under the BHCA also has cease and desist
authority pursuant to which it may require a bank holding company to terminate
any activity or to relinquish control of a nonbank subsidiary (other than a
nonbank subsidiary of a bank) upon the FRB's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of
any bank subsidiary of the bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act (the "FDI Act") require insured depository institutions which are
under common control to reimburse the FDIC for any loss suffered by the Bank
Insurance Fund ("BIF") of the FDIC as a result of the default of a commonly
controlled insured depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution in danger of
default. Accordingly, the cross-guarantee provisions enable the FDIC to access a
bank holding company's healthy BIF members. The FDIC may decline to enforce the
cross-guarantee provisions if it determines that a waiver is in the best
interest of the Savings Association Insurance Fund ("SAIF") or the BIF or both.
In 1993, the FDI Act was amended to allow claims by depositors against an
institution which is being liquidated or otherwise dissolved to have priority
over the claims of the institution's shareholders and other senior or general
creditors. For purposes of this statutory provision, the priority for depositors
also includes the FDIC.
The FRB, the FDBF and the FDIC collectively have extensive enforcement
authority over commercial banks. This authority has been enhanced substantially
by the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") and the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). This enforcement authority includes, among other things, the ability
to assess civil money penalties, to issue cease and desist or removal orders, to
initiate injunctive actions, and, in extreme
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cases, to terminate deposit insurance. In general, these enforcement actions may
be initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the federal banking
agencies. FIRREA significantly increased the amount of and the grounds for civil
money penalties and generally requires public disclosure of final enforcement
actions.
COMMUNITY REINVESTMENT ACT The Community Reinvestment Act of 1977
("CRA") requires a financial institution to help meet the credit needs of its
entire community, including low-income and moderate-income areas. On May 3,
1995, the federal banking agencies issued final regulations which change the
manner in which the regulators measure a bank's compliance with the CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA rating on a institution's actual lending, service and investment
performance, rather than the extent to which the institution conducts needs
assessments, documents community outreach or complies with other procedural
requirements. Federal banking agencies may take CRA compliance into account when
regulating a supervising bank and holding company activities; for example, CRA
performance may be considered in approving proposed bank acquisitions.
CAPITAL ADEQUACY GUIDELINES
The FRB is the federal regulatory and examining authority for bank
holding companies. The FRB has adopted capital adequacy guidelines for bank
holding companies and their subsidiary state-chartered banks that are members of
the Federal Reserve System, of which 1st United is a member. Bank holding
companies and their subsidiary state-chartered member banks are required to
comply with FRB's risk-based guidelines. The risk-based capital guidelines are
designed to make regulatory capital requirements more sensitive to differences
in risk profiles among banks and bank holding companies, to account for
off-balance sheet exposure, and to minimize disincentives for holding liquid
assets. Under these guidelines, assets and off-balance sheet items are assigned
to broad risk categories, each with designated weights. The resulting capital
ratios represent capital as a percentage of total risk-weighted assets and
off-balance sheet items.
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At December 31, 1996, the minimum ratio of total capital to
risk-weighted assets (including certain off-balance sheet activities, such as
standby letters of credit) for bank holding companies is 8%. "Tier 1 Capital,"
consisting of common stockholders' equity, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
certain goodwill items and other intangible assets, is required to equal at
least 4% of risk-weighted assets. The remainder ("Tier II Capital") may consist
of (a) an allowance for loan losses of up to 1.25% of risk-weighted risk assets,
(b) excess of qualifying perpetual preferred stock, (c) hybrid capital
instruments, (d) perpetual debt, (e) mandatory convertible securities, and (f)
subordinated debt and intermediate-term preferred stock of up to 50% of Tier I
Capital. Total capital is the sum of Tier I and Tier II Capital less reciprocal
holdings of other banking organizations' capital instruments, investments in
unconsolidated subsidiaries and any other deductions as determined by the FRB
(determined on a case by case basis or as a matter of policy after formal
rule-making).
In computing total risk-weighted assets, bank holding company assets
are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain
off-balance sheet items are given similar credit conversion factors to convert
them to asset equivalent amounts to which an appropriate risk-weight will apply.
Most loans will be assigned to the 100% risk category, except for performing
first mortgage loans fully secured by residential property, which carry a 50%
risk rating. Most investment securities (including, primarily, general
obligation claims on states or other political subdivisions of the United
States) will be assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S.
Treasury or obligations backed by the full faith and credit of the U.S.
Government, which have a 0% risk-weight. In covering off-balance sheet items,
direct credit substitutes, including general guarantees and standby letters of
credit backing financial obligations, are given a 100% conversion factor.
Transaction-related contingencies such a bid bonds, standby letters of credit
backing non-financial obligations, and undrawn commitments (including commercial
credit lines with an initial maturity of more than one year) have a 50%
conversion factor. Short-term
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commercial letters of credit are converted at 20% and certain short-term
unconditionally cancelable commitments have a 0% factor.
The FRB has also adopted regulations which supplement the risk-based
guidelines and require bank holding companies to maintain a minimum ratio of
Tier I capital to total assets of 3% (the "leverage ratio"). The FRB emphasized
that the 3% leverage ratio constitutes a minimum requirement for well-run
banking organizations having diversified risk, including no undue interest rate
risk exposure, excellent asset quality, high liquidity, good earnings and a
composite regulatory rating of 1 under the regulatory rating system for banks.
Banking organizations experiencing or anticipating significant growth, as well
as those organizations which do not satisfy the criteria described above, will
be required to maintain a minimum leverage ratio ranging generally from 4% to
5%. The FRB also continues to consider a "tangible Tier I leverage ratio" in
evaluating proposals for expansion or new activities. The tangible Tier I
leverage ratio is the ratio of a banking organization's Tier I Capital, less
deductions for intangibles otherwise includable in Tier I Capital, to total
tangible assets.
A bank which fails to meet minimum capital requirements may be subject
to a capital directive which is enforceable in the same manner and to the same
extent as a final cease and desist order, and must submit a capital plan within
60 days to the FDIC. If the leverage ratio falls to 2% or less, the bank may be
deemed to be operating in an unsafe or unsound condition, allowing the FDIC to
take various enforcement actions, including possible termination of insurance or
placing the institution into receivership or conservatorship.
It should be noted that the minimum ratios referred to above are merely
guidelines and the FRB possesses the discretionary authority to require higher
ratios with respect to bank holding companies and state-member banks.
At December 31, 1996, Bancorp exceeded minimum capital requirements. At
December 31, 1996, Bancorp's capital to risk- weighted assets was 11.25% and
Tier I capital to risk-weighted assets was 10.21%. At December 31, 1996,
Bancorp's leverage ratio
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was 7.86%, which also exceeded the minimum requirements. Bancorp currently
exceeds the requirements contained in FRB regulations, policies and directives
pertaining to capital adequacy, and management of Bancorp is unaware of any
violation or alleged violation of these regulations, policies or directives.
FDICIA requires the federal banking agencies, including the FRB and the
FDIC, to revise existing risk-based capital standards to take adequate account
of interest rate risk. The FRB, the FDIC and the United States Office of the
Comptroller of the Currency have issued a joint notice of proposed rule making
which would revise the interest-based capital standards to ensure that banks
measure and monitor their interest rate risk and maintain adequate capital for
that risk.
REGULATION OF 1ST UNITED BANK
GENERAL
1st United is a banking institution which is chartered by, and operates in,
the State of Florida; as such, it is subject to supervision and regulation by
the FDBF. 1st United is a member bank of the Federal Reserve System and its
operations are subject to broad federal regulation and oversight by the FRB. The
deposit accounts of 1st United are insured by the FDIC which gives the FDIC
certain enforcement powers over 1st United. Various consumer laws and
regulations also affect the operations of 1st United, including state usury
laws, laws relating to fiduciaries, consumer credit and equal credit laws, and
fair credit reporting.
The FDBF supervises and regulates all areas of 1st United's operations
including, without limitation, making of loans, the issuance of securities, the
conduct of 1st United's corporate affairs, capital adequacy requirements,
payment of dividends and the establishment or termination of branches. In this
regard, the FDBF has authorized 1st United to maintain 29 full service banking
facilities in Palm Beach, Broward, Brevard and Martin Counties.
As a state-chartered banking institution in the State of Florida, 1st
United is empowered by statute, subject to the limitations contained in those
statues, to take savings and time deposits and pay interest on them, to accept
checking accounts, to
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make loans on residential and other real estate, to make consumer and commercial
loans, to invest, with certain limitations, in equity securities and in debt
obligations of banks and corporations and to provide various other banking
services on behalf of 1st United's customers.
The FRB imposes restrictions on 1st United with respect to loans and
extensions of credit to certain related parties and purchases from and other
transactions with Bancorp's principal shareholders, officers, directors and
their affiliates, respectively. Extensions of credit (i) must be made on
substantially the same terms (including interest rates and collateral) as and
following credit underwriting procedures that are not less stringent than those
prevailing at the time for comparable transactions with persons not covered
above and who are not employees, and (ii) must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, extensions
of credit to each person beyond limits set by FRB regulations must be approved
by the Board of Directors. 1st United also is subject to certain lending limits
and restrictions on overdrafts to such persons. A violation of these
restrictions may result in the assessment of substantial civil monetary
penalties on 1st United or any officer, director, employee, agent or other
person participating in the conduct of the affairs of 1st United or the
imposition by the FRB of a cease and desist order.
In addition, FDICIA prohibits insured state-chartered institutions,
such as 1st United, from conducting activities "as principal" that are not
permitted for national banks. A bank may, however, engage in an otherwise
prohibited activity if it meets its minimum capital requirements and the FDIC
determines that the activity does not present a significant risk to the deposit
insurance funds.
MONETARY POLICY AND ECONOMIC CONTROL
The commercial banking business in which 1st United engages is affected
not only by general economic conditions, but also by the monetary policies of
the FRB. Changes in the discount rate on member bank borrowing, availability of
borrowing at the "discount window," open market operations, the imposition of
changes in reserve requirements against member banks' deposits and assets of
foreign branches and the imposition of and changes in
-18-
<PAGE>
reserve requirements against certain borrowings by banks and their affiliates
are some of the instruments of monetary policy available to the FRB. These
monetary policies are used in varying combinations to influence overall growth
and distributions of bank loans, investments and deposits, and this use may
affect interest rates charged on loans or paid on deposits. The monetary
policies of the FRB have had a significant effect on the operating results of
commercial banks and are expected to do so in the future. The monetary policies
of the FRB are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the international trade balance and in the
fiscal policies of the United States government. The effect of such policies on
the future business and earnings of Bancorp and 1st United cannot be predicted.
FDICIA
FDICIA was enacted on December 19, 1991. Some of the more significant
provisions of FDICIA are outlined below:
SUPERVISORY REFORMS FDICIA requires the federal banking agencies and
the FDIC, as insurer, to take prompt action to resolve problems within unhealthy
banking institutions. All depository institutions are classified into one of
five categories ranging from well-capitalized to critically undercapitalized. As
an institution's capital level declines, it becomes subject to increasing
regulatory scrutiny and tighter restrictions on operations, management and
capital distributions. Based on the company's most recent notice from the
Federal Reserve Bank, 1st United has been classified as "well capitalized".
FDICIA further requires an increase in the frequency of "full-scope,
on-site" examinations and expands the audit requirements. In addition, federal
banking agencies are mandated to review and prescribe uniform accounting
standards that are at least as stringent as Generally Accepted Accounting
Principles.
REAL ESTATE LENDING POLICIES Pursuant to FDICIA, the FRB, and the other
federal banking agencies adopted real estate lending
-19-
<PAGE>
guidelines pursuant to which each insured depository institution is required to
adopt and maintain written real estate lending policies in conformity with the
prescribed guidelines. Under these guidelines, each institution is expected to
set loan to value ratios not exceeding the supervisory limits set forth in the
guidelines. A loan to value ratio is generally defined as the total loan amount
divided by the appraised value of the property at the time the loan is
originated. The guidelines also require that the institution's real estate
policy require proper loan documentation and that it establishes prudent under
writing standards. These guidelines became effective on March 19, 1993.
TRUTH IN SAVINGS ACT The FDICIA also contains the Truth in Savings Act.
The FRB adopted Regulations DD under the Truth in Savings Act that became
effective on June 21, 1993. The purpose of the Truth in Savings Act is to
require the clear and uniform disclosure of the rates of interest which are
payable on deposit accounts by depository institutions and the fees that are
assessable against deposit accounts, so that consumers can make a meaningful
comparison between the competing claims of financial institutions with regard to
deposit accounts and products.
BROKERED DEPOSITS The FDICIA also amended the prior law with respect to
the acceptance of brokered deposits by insured depository institutions to permit
only a "well capitalized" depository institution to accept brokered deposits
without prior regulatory approval. Under implementing regulations, "well
capitalized" banks may accept deposits without prior regulatory approval. Under
implementing regulations, "well capitalized" banks may accept brokered deposits
without restriction, "adequately capitalized" banks may accept brokered deposits
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), while "undercapitalized" banks may not accept brokered deposits. The
regulations contemplate that the definitions of "well capitalized," "adequately
capitalized" and "undercapitalized" will be the same as the definitions adopted
by the agencies to implement the prompt corrective action provisions of the
FDICIA (as described above).
-20-
<PAGE>
RESERVE REQUIREMENTS
1st United is required to maintain reserves against its transaction
accounts. Reserve requirements and the amount of required reserves is subject to
adjustment by the FRB.
DIVIDENDS
1st United is subject to legal limitations on the frequency and amount
of dividends paid to Bancorp. The FRB or the FDIC may restrict the ability of a
bank to pay dividends if such payments would constitute an unsafe or unsound
banking practice. These regulations and restrictions may limit Bancorp's ability
to obtain funds from 1st United, for its cash needs, including funds for
acquisitions and the payment of dividends, interest and operating expenses.
In addition, Florida law places certain restrictions on the declaration
of dividends from state chartered banks to their holding companies. Pursuant to
Section 658.37 of the Florida Banking Code, the Board of Directors of state
chartered banks, after charging off bad debts, depreciation, and other worthless
assets, if any, and making provisions for reasonably anticipated future losses
on loans and other assets, may quarterly, semi-annually or annually declare a
dividend of up to the aggregate net profits of that period combined with the
bank's retained net profits for the preceding two years and, with the approval
of the FDBF declare a dividend from retained net profits which accrued prior to
the preceding two years. Before declaring such dividends, 20% of the net profits
for the preceding period as is covered by the dividend must be transferred to
the surplus fund of the bank until this fund becomes equal to the amount of the
bank's common stock then issued and outstanding. A state-chartered bank may not
declare any dividend if (i) its net income from the current year combined with
the retained net income for the preceding two years is a loss or (ii) the
payment of such dividend would cause the capital account of 1st United to fall
below the minimum amount required by law, regulation, order, or any written
agreement with the FDBF or a federal regulatory agency.
-21-
<PAGE>
EMPLOYEES
As of December 31, 1996, Bancorp had 299 employees of which 285 were
full time.
ITEM 2. PROPERTIES
As of February 1, 1997, 1st United operated 29 facilities, consisting
of its main office, and 28 branches. Of these 29 facilities, 18 are owned by 1st
United and 11 are leased.
The table below summarizes information with respect to the leased
properties.
LOCATION SQUARE FEET EXPIRATION DATE RENT
- -------- ----------- --------------- ----
Main Office(1) 8,000 1997 plus 2 - 5 $16,590/month plus
year renewal 5% increase annually
options
Second floor 2,200 1997 $2,380/month plus
(1), (2) 5% increase
annually
Hobe Sound 1,900 2006 plus 3 - 5 $3,525/month until
year renewal 1996 with scheduled
options increases
Hypoluxo 10,000 2001 plus 4 - 5 $12,680/month plus
year renewal 4% increase
options annually
Jupiter (4) 10,000 1999 plus 2 - 5 $9,500/month plus
year renewal annual CPI increase
options
Lighthouse Point 1,920 1998 plus 2 - 1 $3,470/month plus
year renewal 3% increase
options annually
-22-
<PAGE>
Lake Worth(3) 25,812 1998 plus 3 - 5 $26,280/month
year renewal
options
Northbridge
Center 3,800 2004 plus 4 - 5 $4,311/month plus
West Palm Beach year renewal scheduled increase
options
Lake Avenue 4,800 1996 plus 3 - 5 $7,080/month plus
year renewal annual CPI
options increase
Military Trail 8,041 2000 plus 2 - 5 $6,700/month plus
year renewal scheduled
options increases
Singer Island 3,900 2000 plus 1 - 5 $5,400/month
year renewal plus scheduled
options increases
(1) Leased from a partnership controlled by Bancorp's Chairman.
(2) Located in the main office.
(3) 1st United has an option to buy at this building, at any
time, for its appraised value.
(4) Leased from a partnership in which Bancorp Director Herman Jeffer is a
partner.
The table below summarizes information with respect to properties owned by 1st
United. The sixteen properties acquired from American had a carrying value of
approximately $6.5 million which, based upon recent appraisals, approximates
their fair value. All locations are considered by management to be in good
conditions and each has drive through facilities.
-23-
<PAGE>
LOCATION SQUARE FEET
-------- -----------
Merritt Island Branch *
(former Main Office of American) 9,700 sq. feet
Cocoa Beach Branch *
Cocoa Beach 5,000 sq. feet
Cape South Branch *
Cape Canaveral 1,600 sq. feet
Cape North Branch *
Cape Canaveral 1,600 sq. feet
Rockledge Branch *
Rockledge 1,600 sq. feet
Melbourne Branch *
Melbourne 7,200 sq. feet
Palm Bay Branch *
Palm Bay 841 sq. feet
Audobon Branch *
Merritt Island 841 sq. feet
Indialantic Branch *
Indialantic 4,685 sq. feet
Cocoa Branch *
Cocoa 1,590 sq. feet
Titusville Branch *
Titusville 2,240 sq. feet
Indian Harbor Branch *
Indian Harbor Beach 4,685 sq. feet
-24-
<PAGE>
Croton Branch *
Melbourne 1,600 sq. feet
College Branch *
Cocoa 3,000 sq. feet
Port St. John Branch *
Cocoa 3,000 sq. feet
Courtney Branch *
Merritt Island 4,800 sq. feet
Stuart Branch
Stuart 1,870 sq. feet
Lake Park Branch
Lake Park 12,500 sq. feet
* Acquired from American and located in Brevard County.
ITEM 3. LEGAL PROCEEDINGS
Neither Bancorp nor 1st United is involved in any legal proceedings
except for routine litigation incidental to the business of banking.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the 4th quarter of the year ended December 31, 1996, the Company
did not submit any matter to a vote of security holders.
-25-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The information required by this Item 5 is set forth in Bancorp's
Annual Report to Shareholders for the year ended December 31, 1996 ("Annual
Report") on page 26 thereof. The Annual Report is being filed concurrently
herewith as Exhibit 13 and is incorporated herein by this reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is set fourth in the Annual
Report on page 6 and such information is incorporated herein by this reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item 8 is set forth in the Annual
Report on pages 8 through 25 and such information is incorporated herein by this
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 is set forth in Bancorp's
Annual Report on pages 28 through 47 and such information is incorporated herein
by this reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
-26-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 will be set forth in Bancorp's
Proxy Statement and such information contained in Bancorp's Proxy Statement,
when filed, will be incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be set forth in Bancorp's
Proxy Statement and such information contained in Bancorp's Proxy Statement,
when filed, will be incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 will be set forth in Bancorp's
Proxy Statement and such information contained in Bancorp's Proxy Statement,
when filed, will be incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 will be set forth in Bancorp's
Proxy Statement and such information contained in Bancorp's Proxy Statement,
when filed, will be incorporated herein by this reference.
-27-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 8-K
a. (1) AND (2) The following consolidated financial statements and report
of independent auditor of Bancorp are included in Item 8:
Report of independent Certified Public Accountants
Consolidated balance sheets - December 31, 1996 and 1995
Consolidated statements of income - years ended December 31,
1996, 1995 and 1994
Consolidated statements of shareholders' equity - years
ended December 31, 1996, 1995 and 1994
Consolidated statements of cash flows - years ended December
1996, 1995 and 1994
Notes to consolidated financial statements - December 31,
1996
Schedules to the consolidated financial statements required by Article
9 of Regulation S-X are not required under the related instructions or
are inapplicable, and therefore have been omitted.
(3) Listing of Exhibits
2.1 Purchase Agreement for Island National Bank and Trust Company***
2.2 Purchase Agreement for Park Bankshares, Inc.****
2.3 Purchase agreement for The American Bancorporation of the
South*****
-28-
<PAGE>
3. Articles of Incorporation and Bylaws of 1st United Bancorp*
10.1 Amended and Restated Employment Agreement between Warren S.
Orlando and 1st United Bancorp*
10.2 Leases dated November 26, 1986, and November 8, 1992, between 1st
United Bank and 980 Associates for 1st United Bank's main office
facility*
11. Computation of per share earnings**
13. 1996 Annual Report to Shareholders**
21. Subsidiaries of 1st United Bancorp**
23. Consent of Independent Certified Public Accountants**
27. Financial Data Schedule**
b. Reports on Form 8-K
On November 1, 1996, Bancorp filed a form 8-K to report the
consummation of the acquisition of Park Bankshares, Inc.
* Contained in Amendment No. 2 to the Issuer's Registration Statement on
Form S-4, No. 33-45655, declared effective on May 11, 1992, and incorporated
herein by this reference.
** Filed herewith
*** Contained on Form 8-K dated January 6, 1997 and incorporated herein by
this reference.
**** Contained on Form 8-K dated July 27, 1996 and incorporated herein by this
reference.
***** Contained on Form 8K dated July 29, 1995 and incorporated herein by this
reference.
-29-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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.
1ST UNITED BANCORP
/S/ WARREN S. ORLANDO
- -------------------------------------------------
Warren S. Orlando, CEO
/S/ JOHN MARINO
- -------------------------------------------------
John Marino, Treasurer and CFO
Date FEBRUARY 15, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of February 15, 1997.
SIGNATURES TITLE
---------- -----
/S/ ANTHONY COMPARATO
- --------------------------------------------------------------------------------
Anthony Comparato Chairman of the Board of Directors
/S/ WARREN S. ORLANDO
- --------------------------------------------------------------------------------
Warren S. Orlando CEO, President and Director
(Principal Executive Officer)
/S/ JOHN MARINO
- --------------------------------------------------------------------------------
John Marino Treasurer and CFO (Principal Financial
and Accounting officer)
/S/ HAROLD TOPPEL
- --------------------------------------------------------------------------------
Harold Toppel Director
-30-
<PAGE>
/S/ EDWARD A. SASSO
- --------------------------------------------------------------------------------
Edward A. Sasso Director
/S/ LINDSEY R. PERRY, SR.
- --------------------------------------------------------------------------------
Lindsey R. Perry, Sr. Director
/S/ HERMAN JEFFER
- --------------------------------------------------------------------------------
Herman Jeffer Director
/S/ MARIO A. DIFEDERICO
- --------------------------------------------------------------------------------
Mario A. DiFederico Director
/S/ HARVEY S. KLEIN
- --------------------------------------------------------------------------------
Harvey S. Klein Director
/S/ THOMAS L. DELANEY
- --------------------------------------------------------------------------------
Thomas L. Delaney Director
/S/ MAXWELL C. KING
- --------------------------------------------------------------------------------
Maxwell C. King Director
/S/ JAMES D. BEATY
- --------------------------------------------------------------------------------
James D. Beaty Director
/S/ RONALD A. DAVID
- --------------------------------------------------------------------------------
Ronald A. David Director
/S/ BILLIE H. MCCUTCHEN
- --------------------------------------------------------------------------------
Billie H. McCutchen Director
/S/ DAVID B. DICKENSON
- --------------------------------------------------------------------------------
David B. Dickenson Director
/S/ DEAN VEGOSEN
- --------------------------------------------------------------------------------
Dean Vegosen Director
/S/ JAMES B. BAER
- --------------------------------------------------------------------------------
James B. Baer Director
/S/ THOMAS J. HANFORD
- --------------------------------------------------------------------------------
Thomas J. Hanford Director
-31-
<PAGE>
/S/ FRANK J. ZAPPALA
- --------------------------------------------------------------------------------
Frank J. Zappala Director
-32-
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
11 Computation of per share earnings
13 1996 Annual Report to Shareholders
21 Subsidiaries of 1st United Bancorp
23 Consent of Independent Certified Public Accountants
27 Financial Data Schedule
Exhibit 11 - Statements Re: Computation of Per Share Earnings
Primary: 1996 1995 1994
---- ---- ----
(Amounts in thousands, except per share amounts)
Average shares outstanding 8,375 7,338 5,779
Net effect of the assumed
exercise of stock options
based on the treasury stock
method using average market
price 212 238 161
----- ---- -----
Total 8,587 7,576 5,940
===== ===== =====
Net income $7,435 $5,025 $2,971
===== ===== =====
Net income $ .87 $ .66 $ .50
===== ===== ====
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<PAGE>
1996 1995 1994
---- ---- ----
(Amounts in thousands, except per share amounts)
Fully Diluted:
Average shares outstanding 8,375 7,338 5,779
Net effect of the assumed
exercise of stock options
based on the treasury stock
method using average market
price or year ended market
price, whichever is higher 248 184 140
----- ----- -----
Total 8,623 7,583 5,963
===== ===== =====
Net income $7,435 $5,025 $2,971
===== ===== =====
Income per common share:
Net income $ .86 $ .66 $ .50
===== ==== ====
EXHIBIT 13
INDEX TO MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Acquisitions
Financial Condition
Results of Operations
Market Price & Dividends
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to provide an
understanding of the significant factors that influenced Bancorp's results of
operations and financial condition for the year ended December 31, 1996 as
compared to 1995, and 1995 compared to 1994. This discussion and analysis should
be read in conjunction with the Company's consolidated financial statements and
corresponding notes.
ACQUISITIONS
On January 5, 1996, Bancorp acquired (the "Acquisition") The American
Bancorporation of the South ("American") and merged its wholly-owned subsidiary,
The American Bank of the South, into 1st United Bank. Consideration paid by
Bancorp to the shareholders of The American Bancorporation of the South was
$10.017 million and was paid in the form of 30% cash and 70% stock.
Approximately 820,000 shares (value per share of $7.78 net of issuance
costs) of Bancorp common stock were issued in this Acquisition. The Acquisition
was accounted for using the purchase method of accounting and approximately $3.6
million in goodwill was recorded and is being amortized over 15 years under the
straight-line method.
Approximately $163.7 million in total assets were acquired. Included in
this total was approximately $25.6 million, $48 million, $73 million, $8 million
and $5 million in federal funds, investments, net loans, bank premises and
equipment, and other real estate, respectively. Included in loans were
approximately $11 million in nonaccrual loans. Approximately $152.3 million in
deposits, which includes approximately 30% in non interest bearing demand
deposits, were assumed and sixteen (16) bank-owned branch locations throughout
Brevard County were acquired.
On November 1, 1996, 1st United Bancorp (the "Company" or "Bancorp")
completed its acquisition of Park Bankshares, Inc. ("Park") and its wholly owned
subsidiary, First National Bank of Lake Park. Park had total assets and deposits
of approximately $60.1 million and $54.9 million, respectively. Park had four
branches with one each in West Palm Beach, Riviera Beach, Lake Park and Jupiter,
Florida. The Jupiter and West Palm Beach branches were closed on January 31,
1997. Since 1st United has branches that overlap these markets it does not
anticipate losing significant deposits from the branch closings. The transaction
was accounted for under the pooling-of-interests method of accounting for
business combinations and accordingly, the consolidated financial statements and
related Management's Discussion and Analysis of Financial Condition and Results
of Operations have been restated for the periods prior to the merger to include
Park. In connection with the transaction, the Company issued 816,000 of its
common shares to Park shareholders.
FINANCIAL CONDITION
Bancorp consolidated assets at December 31, 1996 were $561.3 million, an
increase of $188.9 million (51%) over 1995. Loans, investments, cash and cash
and cash equivalents, deposits and equity had increased by $118.6 million (45%),
$7.8 million (15%), $48.3 million (127%), $174.9 million (53%) and $12.7 million
(33%), respectively.
Bancorp's growth in 1996 was primarily a result of the acquisition of
American on January 5, 1996. American had total assets, loans, investments, cash
and cash equivalents and deposits of $163.7 million, $72.8 million, $47.8
million, $25.6 million and $152.3 million, respectively. Approximately $19
million in investments were sold and $18.6 million in investments matured (net
of purchases) to fund the additional loan growth during 1996 and anticipated
future loan growth.
Bancorp's consolidated assets at December 31, 1995 were $372.4 million, an
increase of $35.8 million (11%) over 1994. Bancorp experienced significant
growth in its loan, deposit and equity accounts as compared to 1994; net loans
increased $48.4 million (23%), deposits increased $30.9 million (10%), and
shareholders' equity increased $6.2 million (19%). Correspondingly, during 1995
Bancorp experienced a decrease in cash and cash equivalents of $1.2 million
(3%), and a $14.8 million (22%) decrease in investment securities.
Bancorp's growth in 1995 was primarily attributable to the April 14, 1995
acquisition of Jupiter Tequesta National Bank ("JTNB"), a one-location bank
headquartered in Tequesta, Florida. Prior to the acquisition, JTNB's total
assets, deposits and capital was approximately $57 million, $53 million and $4
million, respectively. Bancorp issued approximately 486,000 shares (value per
share of $6.77, net of issuance costs), of common stock and paid $3.4 million
cash to the shareholders of JTNB. The acquisition was accounted for using the
purchase method of accounting and approximately $3.3 million in goodwill was
recorded which is being amortized over 15 years using the straight-line method.
During 1995 approximately $16.6 million of investment securities matured
and approximately $12 million of the acquired JTNB investment portfolio was sold
during the year. The proceeds from these securities were used to fund loan
growth, accommodate the anticipated runoff, at maturity, of higher cost time
deposits assumed in the June 1994 acquisition of Suburban Bank, and to pay off
maturing public fund deposits. The loss of deposits was consistent with
Bancorp's business plan for the acquisition of Suburban Bank.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
CAPITAL RESOURCES
The following presents, in thousands, the capital resources and the related
ratios of Bancorp:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Long-term debt $ 0 $39 $ 2,044
---------------------------------
Risk adjusted assets 431,987 317,356 227,342
---------------------------------
Total assets 561,288 372,433 336,636
---------------------------------
TIER 1 CAPITAL
Common shareholders' equity $51,032 $38,337 $32,138
Unrealized losses on available for sale securities, net of tax 97 6 347
Excludable portion of net deferred tax assets 0 0 (1,210)
Goodwill and other excludable intangibles (7,016) (4,424) (892)
---------------------------------
44,113 33,919 30,383
TIER 2 CAPITAL
Includable portion of allowance for loan losses 5,402 3,967 2,823
---------------------------------
Total regulatory capital $49,515 $37,886 $33,206
=================================
Tier 1 risk adjusted capital ratio 10.21% 10.69% 13.36%
=================================
Total risk adjusted capital ratio 11.46% 11.94% 14.61%
=================================
Leverage ratio 7.86% 9.11% 8.97%
=================================
Long-term debt to common equity ratio N/A .1% 6.4%
=================================
</TABLE>
Common shareholders' equity increased by approximately $12.7 million (33%)
to $51.0 million at December 31, 1996. The increase resulted from net income of
$7.4 million in 1996, $6.4 million in common stock issued to acquire American,
and approximately $964 thousand from the exercise of stock options. These
increases were partially offset by approximately $1.7 million in dividends
declared, a common stock repurchase of $267 thousand and unrealized losses in
available-for-sale securities, net of tax, of $91 thousand.
Common shareholders' equity increased by approximately $6.2million (19%) to
$38.3 million at December 31, 1995. Common stock issued in the JTNB acquisition
resulted in $3.3 million in additional capital. Bancorp also repurchased and
retired 180,000 shares of common stock resulting in a decrease in capital of
$1.3 million, and 4,500 stock options were exercised providing $15 thousand in
new capital. The other changes in capital in 1995 consisted of net income of
$5.0 million, dividends of $1.2 million and the change in unrealized losses on
available-for-sale securities, net of tax, of $341 thousand.
In 1989, the Federal Reserve Board adopted supervisory risk-based capital
ratios of capital to risk-weighted assets which required Bancorp and 1st United
to maintain as of December 31, 1992 and thereafter a minimum of an 8.00% total
risk-based capital ratio, at least half of which must be Tier 1 capital.
Bancorp's total risk-based capital ratio was 11.46% and Tier 1 capital ratio was
10.21% as of December 31, 1996. Bancorp and 1st United exceed all regulatory
capital requirements at December 31, 1996.
LOANS
At December 31, 1996, total gross loans outstanding amounted to $388.7
million, an increase of $120.3 million (45%) over 1995. Approximately $75
million of this increase resulted from the American acquisition. New loans
exceeded maturities and payoffs for the remaining $45.3 million increase in
1996.
At December 31, 1995, total gross loans outstanding amounted to $268.4
million, an increase of $48.8 million (22%) over total gross loans at December
31, 1994. As a result of the JTNB acquisition, approximately $37.4 million in
gross loans were acquired. New loans exceeded maturities and payoffs for the
remaining $11.4 million increase.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
LOANS BY TYPE
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 49,689 13% $ 39,574 15% $ 44,546 20% $ 30,855 28% $ 33,969 32%
Real Estate Construction 20,342 5% 10,810 4% 245 0% 4,147 4% 4,174 4%
Mortgage 308,047 79% 211,463 79% 168,896 77% 69,974 64% 60,984 57%
Installment 5,369 2% 5,619 2% 5,023 2% 3,698 3% 8,048 6%
Other 5,298 1% 946 0% 940 1% 463 1% 655 1%
--------------------------------------------------------------------------------------
Total Gross Loans $388,745 100% $268,412 100% $219,650 100% $109,137 100% $107,830 100%
======================================================================================
</TABLE>
1st United's loan portfolio does not contain any concentrations of credit
that exceed 10% of total loans in a category other than those specifically
identified in the table above.
The largest loan category as of December 31, 1996 was real estate loans,
which comprised 84% of the total loan portfolio or $328.4 million, whereas in
1995 real estate loans comprised 83% of the total loan portfolio or $222.3
million. Of the total amount of real estate loans outstanding as of December 31,
1996, 19% were secured by residential properties and 81% were secured by
commercial properties, as compared with 22% and 78%, respectively, in 1995.
LOAN MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
December 31, 1996
Maturing
------------------------------------------------------
After One
Within But Within After
(IN THOUSANDS) One Year Five Years Five Years Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $22,616 $ 18,735 $ 8,338 $ 49,689
Real estate
Construction 9,532 6,821 3,989 20,342
Mortgage 49,608 133,170 125,269 308,047
Installment 1,719 3,650 5,369
Other 2,102 3,196 5,298
------------------------------------------------------
Total $85,577 $165,572 $137,596 $388,745
======================================================
Loans maturing after one year with:
Fixed interest rates $ 29,081 $ 27,430
Variable interest rates 136,491 110,166
------------------------------------------------------
Total $165,572 $137,596
======================================================
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses is established through provisions
charged to the statement of income. Assessing the adequacy of the allowance for
possible loan losses involves substantial uncertainties and is based upon
management's evaluation of the amounts required to meet estimated charge-offs in
the loan portfolio after weighing various factors.
1st United's determination of the adequacy of the allowance for loan losses
is based on an evaluation of the risk characteristics of its loan portfolio,
historical loan loss experience, the quality of specific loans, past due loans,
the level of nonaccruing loans, the value of underlying collateral, current
economic conditions, volume, growth of the loan portfolio and other relevant
factors.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ALLOWANCE FOR LOAN LOSSES-SUMMARY OF LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 6,839 $ 6,752 $1,549 $1,928 $ 871
Charge-offs:
Commercial (701) (120) (511) (664) (336)
Real Estate (690) (619) (351) (205) (105)
Installment (43) (262) (116) (16) (37)
-------------------------------------------------------
Total Charge-offs (1,434) (1,001) (978) (885) (478)
Recoveries:
Commercial 131 430 129 88 45
Real Estate 247 21 15 3 48
Installment 30 97 27 0 0
-------------------------------------------------------
Total recoveries 408 548 171 91 93
-------------------------------------------------------
Net charge-offs (1,026) (453) (807) (794) (385)
Provision for loan losses 170 207 356 415 391
Allowance of purchased banks at date acquired 2,568 333 5,654 0 1,051
-------------------------------------------------------
Balance at end of period $ 8,551 $ 6,839 $6,752 $1,549 $1,928
=======================================================
Ratio of net charge-offs during period to average loans,
net of unearned interest, outstanding during the period .29% .18% .45% .75% .41%
=======================================================
</TABLE>
The allowance of purchased banks of $2.6 million in 1996 represents the
allowance for loan losses transferred from American. The allowance of purchased
banks of $333 thousand in 1995 represents the allowance for loan losses
transferred from JTNB. The allowance of purchased banks in 1994 of $5.7 million
represents the allowance for loan losses transferred from Suburban ($5.3
million) and New River ($400 thousand). During 1992, 1st United added $1.051
million from purchased banks, which was acquired in the Mizner Bank merger.
During 1996, 1995, 1994, 1993 and 1992, 1st United charged $170 thousand, $207
thousand, $356 thousand, $415 thousand and $391 thousand, respectively, against
operations for the provision for loan losses.
The allowance for loan losses at December 31, 1996 was approximately $8.6
million or 2.2% of gross loans outstanding as compared with $6.8 million or 2.5%
as of December 31, 1995 and $6.8 million or 3.1% as of December 31, 1994. The
ratio of the allowance for loan losses to non-performing loans was 71%, 201%,
and 236% at December 31, 1996, 1995 and 1994, respectively. The decrease in
allowance for loan losses to non performing loans was related to non performing
assets at December 31, 1996 acquired from American and Suburban (combined
approximately $6.5 million), which when acquired had been written down to the
fair value of the underlying collateral and no additional losses are
anticipated.
Net charge-offs for 1996 were $1.03 million, which represents a .29% ratio
of net charge-offs to average outstanding loans for 1996. Charge-offs during
1996 included approximately $800 thousand in former Suburban loans, which had
specific allocations of the allowance on the acquisition date and at December
31, 1995. This compares to net charge- offs for 1995 of $453 thousand
representing a .18% ratio of net charge-offs to average outstanding loans for
the period.
Net charge-offs for 1994 were $807 thousand which represents a .45% ratio
of net charge-offs to average outstanding loans for the period. Of these
charge-offs, $325 thousand or 40% was related to loans acquired through the
Suburban Acquisition. These loans had specifically allocated reserves at the
acquisition date. Net charge-offs for 1993 were $794 thousand or .75% of average
outstanding loans. Of these charge-offs, $410 thousand or 52% related to loans
acquired through the Mizner Bank merger. These loans had specifically allocated
reserves at December 31, 1992 and their related loan loss reserves were acquired
on the merger date along with the loans. Net charge-offs of $385 thousand were
incurred during 1992, representing a .41% ratio of net charge-offs to average
outstanding loans for the period.
Loans are charged-off against the allowance for loan losses when management
believes the collectability of the principal is unlikely. Management believes
that loans have historically been charged-off on a timely basis.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
1996
-----------------------
% OF
LOANS
IN EACH
CATEGORY
TO TOTAL
AMOUNT LOANS
-----------------------
<S> <C> <C>
Domestic:
Commercial $2,618 13%
Real estate:
Construction 67 5
Mortgage 3,801 79
Installment 135 2
Other 135 1
-------------------
Total allocated to
specific categories 6,756 100%
===
Unallocated Reserves 1,795
-------------------
Total $8,551
===================
<CAPTION>
December 31, December 31, December 31, December 31,
1995 1994 1993 1992
------------------------------------------------------------------------------------
% of % of % of % of
Loans Loans Loans Loans
in Each in Each in Each in Each
Category Category Category Category
to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial $2,066 15% $2,139 20% $ 750 28% $ 521 32%
Real estate:
Construction 59 4 52 0 32 4 81 4
Mortgage 3,152 79 3,207 77 528 64 880 57
Installment 128 2 121 2 24 3 130 6
Other 99 0 104 1 14 1 16 1
-----------------------------------------------------------------------------------
Total allocated to
specific categories 5,504 100% 5,623 100% 1,348 100% 1,628 100%
=== === === ===
Unallocated Reserves 1,335 1,129 201 300
------------------------------------------------------------------------
Total $6,839 $6,752 $1,549 $1,928
========================================================================
</TABLE>
Management's allocation of the allowance to specific categories is based on
an evaluation of historical loan loss experience, current economic conditions,
and specific loan problems as identified by management and an independent loan
consultant. Additional unallocated reserves were provided, based on the above
factors, as well as volume and growth of the loan portfolio and peer group
ratios of loan loss reserves to total loans, for unidentified losses included in
the loan portfolio which will be allocated as circumstances warrant. Management
believes that the charge-offs on its loan portfolio for 1997 will be between
$700 thousand and $1.2 million based on current estimates involving all of the
above evaluative factors. Ultimate loan losses may vary significantly from
current estimates. Because the allowance for possible loan losses is based on
various estimates and includes a high degree of judgment, subsequent changes in
general economic conditions and the economic prospects of borrowers may require
changes in those estimates.
NON-PERFORMING ASSETS
Non-performing loans consist of loans which are 90 days past due for which
1st United continues to accrue interest and loans which have been placed on a
nonaccrual status. The accrual of interest on loans is generally discontinued
when a loan becomes 90 days past due as to principal or interest payments. In
certain instances, management may elect to continue the accrual of interest when
the loan is in the process of collection and the estimated net realizable value
of the collateral is sufficient to cover the principal balance, accrued
interest, and collection costs.
NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
(IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans 90 days or more past due and still
accruing interest $ 347 $ 951 $ 766 $ 146 $ 90
Nonaccrual loans 11,762 2,459 2,096 996 1,806
-------------------------------------------------------
Total $12,109 $3,410 $2,862 $1,142 $1,896
=======================================================
Ratio of non-performing loans to total loans
outstanding 3.11% 1.27% 1.30% 1.04% 1.76%
=======================================================
Restructured loans $ 900 $ 313 $ 629 $ 0 $ 0
=======================================================
Other real estate owned $ 3,196 $1,552 $3,078 $1,232 $2,444
=======================================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
At December 31, 1996, 1st United had nonaccrual loans of $11.8 million or
3.03% of total loans, as compared to $2.459 million or .92% of total loans, at
December 31, 1995. Of the nonaccrual loans at December 31, 1996, $6.5 million
were acquired as part of the American and Suburban acquisitions.
At December 31, 1995, 1st United had nonaccrual loans of $2.459 million or
.92% of total loans as compared to $2.096 million million or .95% of total loans
as December 31, 1994.
During 1996, 1995, 1994, 1993 and 1992, 1st United recorded $691 thousand,
$132 thousand, $63 thousand, $14 thousand, and $12 thousand, respectively, in
interest income on nonaccrual loans. The additional income that would have been
recorded during 1996, 1995, 1994, 1993 and 1992 had these loans been performing,
was $467 thousand, $173 thousand, $75 thousand, $32 thousand and $37 thousand,
respectively.
Loans past due 90 days or more and still accruing interest totalled $347
thousand at December 31, 1996 and included two loans. Each of these loans are in
the process of collection and the underlying collateral supports the continued
accrual of interest. Loans past due 90 days or more and still accruing interest
totalled $951 thousand, $766 thousand, $146 thousand and $90 thousand at
December 31, 1995, 1994, 1993 and 1992, respectively.
Restructured loans consist of loans where either the original terms have
been modified to provide for a reduction of the stated interest rate for the
remaining original life of the loans, an extension of the maturity dates at a
stated interest rate lower than the current market rate for new loans with
similar risk, or a reduction in the face or maturity amount of the loans or
accrued interest as stated in the related agreements. 1st United had $900
thousand, $313 thousand and $629 thousand in restructured loans at December 31,
1996, 1995 and 1994, respectively. There were no restructured loans at December
31, 1993 and 1992.
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired under FAS 114 was $12.6 million ($11.8 million were on
a nonaccrual basis) and $3.3 million ($2.5 million were on a nonaccrual basis),
respectively. Included in the impaired loans of $12.6 million at December 31,
1996 are $11.2 million in loans with a related allowance for loan losses of $1.9
million, and $1.4 million that as a result of writedowns do not have an
allowance for loan losses. Included in the 1995 amount of $3.3 million is $1.57
million in loans with a related allowance for loan losses of $578,000 and $1.73
million of impaired loans that as a result of write-downs do not have an
allowance for loan losses. The average recorded investment in impaired loans
during the years ended December 31, 1996 and 1995 was approximately $16.1
million and $3.85 million, respectively. For the years ended December 31, 1996,
1995 and 1994, the Company recognized interest income on impaired loans of
$761,000, $194,000 and $268,000, respectively.
Management has developed an internal system for evaluating and grading
loans on a quarterly basis. At December 31, 1996, $22.6 million in loans were
included on 1st United's internal watch list of which $10.5 million are
performing loans. In addition, the loans considered impaired under FAS 114 of
$12.6 million are included in the watch list. Watch list loans totalled
approximately $12.9 million and $18.6 million at December 31, 1995 and 1994,
respectively. A substantial portion of the $9.7 million increase in the watch
list loans in 1996 was due to the American acquisition. The $5.7 million (31%)
decrease in watch list loans in 1995 was primarily due to loan payoffs; or
conversion to other real estate. Watch list assets are those loans that have
been graded substandard or worse by management, regulators or the independent
loan review consultant, due to potential weaknesses in the borrower's ability to
repay the loan, weaknesses in collateral, the borrower's financial condition or
other factors. Loans included on the watch list are reviewed and evaluated
bi-weekly by senior management.
During the second quarter of 1996, the Federal Reserve Bank completed an
examination of 1st United. 1st United's level and classification of identified
potential problem loans was not materially revised as a result of this
regulatory examination process.
Governmental examination procedures require individual judgments about a
borrower's ability to repay loans, sufficiency of collateral values and the
effects of changing economic circumstances. The procedures are similar to those
employed by 1st United in determining the adequacy of the allowance for loan
losses and in classifying loans.
Management and the board of directors of the Company and 1st United
evaluate existing practices and procedures on an ongoing basis. In addition,
regulators often make recommendations during the course of their examinations
that relate to the operations of the Company and 1st United. As a matter of
practice, management and the boards of directors of the Company and 1st United
promptly consider and implement such recommendations.
Other real estate owned consists of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
At December 31, 1996, other real estate totalled $3.2 million of which $3.1
million was a result of the American acquisition. The $3.2 million of other real
estate includes two commercial real estate properties with a carrying value of
approximately $2.1 million. The remaining balance is comprised of residential
properties. During 1996 approximately $9.1 million in other real estate was sold
resulting in a net gain of $305 thousand.
At December 31, 1995, other real estate owned, totalling approximately $1.6
million, consisted of four properties. At December 31, 1994, other real estate
consisted of fifteen properties totaling $3.1 million.
During 1995, 1st United took title to six other real estate properties, one
of which was acquired in the JTNB acquisition and five which resulted from
former Suburban Bank loans. Five of these properties were subsequently disposed
of during 1995 and twelve of the fifteen properties 1st United owned at December
31, 1994 were sold during 1995. The disposal of these seventeen other real
estate properties resulted in a net gain of approximately $249 thousand during
1995.
All of 1st United's other real estate properties are carried at the lower
of cost or fair value less disposal costs. Holding costs incidental to these
assets (including those acquired from American) include real estate taxes,
insurance, maintenance expenses and related costs are estimated to be $600,000
for 1997. These costs will be charged to expense as incurred.
INVESTMENT SECURITIES
1st United holds investments with varying maturities to maintain liquidity,
generate interest and dividend income and manage its net interest margin. 1st
United purchases investment securities with funds not needed to meet current
loan and customer deposit demand. 1st United generally purchases U.S. Treasuries
and U.S. Government Agencies with weighted average maturities varying from two
to five years. 1st United does not have a trading account and does not regularly
sell securities prior to maturity.
In May of 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," ("FAS 115") effective for fiscal years beginning
after December 15, 1993. Under FAS 115, debt securities that 1st United has both
the positive intent and ability to hold to maturity are carried at amortized
cost. Debt securities that 1st United does not have the positive intent and
ability to hold to maturity and all marketable equity securities are classified
as available-for-sale or trading and carried at fair value. Unrealized holding
gains and losses on securities classified as available-for-sale are carried as a
separate component of shareholders' equity, net of related income tax effects.
1st United has no trading securities.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The following summarizes the cost and estimated fair value of securities
available-for-sale and held to maturity at December 31, 1996:
Available-for-Sale
December 31, 1996
<TABLE>
<CAPTION>
Estimated
(IN THOUSANDS) Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $12,826 $12,768
Obligations of state and political subdivisions 328 355
Mortgage-backed securities 5,445 5,341
Foreign government securities 25 25
-----------------------------
18,624 18,489
Equity securities 3,149 3,161
-----------------------------
$21,773 $21,650
=============================
</TABLE>
Held to Maturity
December 31, 1996
<TABLE>
<CAPTION>
Estimated
(IN THOUSANDS) Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $16,067 $15,948
Obligations of state and political subdivisions 708 717
Mortgage-backed securities 20,924 20,793
Foreign government securities 625 609
-----------------------------
$38,324 $38,067
=============================
</TABLE>
The following summarizes the cost and estimated fair value of securities
available-for-sale and held to maturity at December 31, 1995:
Available-for-Sale
December 31, 1995
<TABLE>
<CAPTION>
Estimated
(IN THOUSANDS) Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $ 6,905 $ 6,971
Obligations of state and political subdivisions 1,050 1,054
Mortgage-backed securities 8,457 8,422
Foreign government securities 25 25
-----------------------------
16,437 16,472
Equity securities 1,742 1,750
-----------------------------
$18,179 $18,222
=============================
</TABLE>
Held to Maturity
December 31, 1995
<TABLE>
<CAPTION>
Estimated
(IN THOUSANDS) Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $16,641 $16,455
Obligations of state and political subdivisions 1,118 1,171
Mortgage-backed securities 15,331 15,516
Foreign government securities 600 587
Other Securities 271 271
-----------------------------
$33,961 $34,000
=============================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The following summarizes the cost and estimated fair value of securities
available-for-sale and held to maturity at December 31, 1994:
Available-for-Sale
December 31, 1994
<TABLE>
<CAPTION>
Total
Estimated
(IN THOUSANDS) Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $ 5,780 $ 5,719
Mortgage-backed securities 5,794 5,447
Foreign government securities 25 25
-----------------------------
11,599 11,191
Equity Securities 2,314 2,245
-----------------------------
$13,913 $13,436
=============================
</TABLE>
Held-to-Maturity
December 31, 1994
<TABLE>
<CAPTION>
Total
Estimated
(IN THOUSANDS) Cost Fair Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $25,682 $24,326
Obligations of state and political subdivisions 4,574 4,170
Mortgage-backed securities 22,581 21,614
Foreign government securities 600 587
Other securities 90 90
-----------------------------
$53,527 $50,787
=============================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
INTEREST SENSITIVITY (MATURITY)
Available-for-Sale
December 31, 1996
<TABLE>
<CAPTION>
After One But After Five But
Within One Within Five Within Ten After Ten
Year Years Years Years
-------------------------------------------------------------------------
(IN THOUSANDS) Amount Yield Amount Yield Amount Yield Amount Yield Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
and obligations of U.S.
government agencies $8,524 5.40% $2,267 6.26% $1,977 7.14% $ - -% $12,768
Obligations of states
and political subdivisions 355 5.82% 355
Mortgage-backed securities - - 449 6.00 - - 4,892 6.47% 5,341
Foreign government securities - - - - 25 8.12 - - 25
Other securities - - - - - - 3,161 6.33% 3,161
-----------------------------------------------------------------------------------
Total investment securities $8,524 5.40% $2,716 6.22% $2,002 7.15% $8,408 6.39% $21,650
===================================================================================
</TABLE>
Held To Maturity
December 31, 1996
<TABLE>
<CAPTION>
After One But After Five But
Within One Within Five Within Ten After Ten
Year Years Years Years
--------------------------------------------------------------------------
(IN THOUSANDS) Amount Yield Amount Yield Amount Yield Amount Yield Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities
and obligations of U.S.
government agencies $2,256 6.14% $13,111 5.49% $ 700 6.95% $ - -% $16,067
Obligations of states
and political subdivisions* 397 7.66 311 7.39 - - 708
Mortgage-backed securities 360 5.24 2,995 5.94 2,029 7.33 15,540 6.77 20,924
Foreign government securities - - 225 7.45 400 7.87 - - 625
------------------------------------------------------------------------------------
Total investment securities $3,013 6.23% $16,642 5.63% $3,129 7.32% $15,540 6.77% $38,324
====================================================================================
</TABLE>
* TAX EQUIVALENT YIELD, ASSUMING A 34% TAX RATE
The total carrying value of securities classified as available for sale and
held to maturity at December 31, 1996 was $60.0 million, an increase of $7.8
million over the total carrying value of investments at December 31, 1995. The
net increase was a result of $47.8 million in investments acquired from American
and approximately $10.5 million in purchases. Offsetting these increases,
Bancorp had investment maturities and normal principal paydowns of $29.2 million
and investment sales of approxiamtely $19.2 million.
The total carrying value of securities available-for-sale and held to
maturity at December 31, 1995 totaled $52.2 million, a decrease of $14.8 million
from 1994. The decrease is primarily the result of maturity of investment
securities including normal principal paydowns on mortgage-backed securities.
During 1995 approximately $16 million of investment securities were acquired in
the JTNB acquisition of which approximately $12 million was sold and
approximately $4 million was retained. Proceeds of the securities sales and
maturities were used to fund loan demand and anticipated deposit runoff.
At December 31, 1996, 1st United's total securities had a market value of
$59.7 million which was $257 thousand less than their carrying value.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
DEPOSITS
The following table sets forth average deposit balances for the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------------------------------
AVERAGE % OF TOTAL Average % of Total Average % of Total
(IN THOUSANDS) DEPOSITS BALANCE Deposits Balance Deposits Balance
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits $133,421 28.3% $ 76,161 24.8% $ 53,145 21.9%
NOW and money market deposits 178,732 37.9 128,916 42.0 112,088 46.3
Savings deposits 49,589 10.5 28,176 9.2 14,138 5.8
Time deposits 110,332 23.3 73,567 24.0 62,795 26.0
---------------------------------------------------------------------------------
Total $472,074 100.0% $306,820 100.0% $242,166 100.0%
=================================================================================
</TABLE>
At December 31, 1996, Bancorp had total deposits of $505 million, an
increase of $174.9 million (53%) over 1995. The acquisition of American resulted
in the addition of $152.3 million in deposits at January 5, 1996. In addition,
at December 31, 1996 deposits included a deposit of approximately $17 million,
which was received on October, 1996 and is anticipated to be paid out in
February, 1997.
At December 31, 1995, Bancorp had total deposits of $330.2 million, an
increase of $30.9 million (10%) over 1994. The acquisition of JTNB provided
approximately $53 million in deposits. The former Suburban Bank offices
experienced a net reduction in deposits of $15.4 million during 1995 and the
Jupiter Tequesta office experienced a $6.8 million reduction in deposits since
the acquisition date. These deposits were generally high rate deposits and/or
had terms inconsistent with 1st United's asset/liability structure. The
withdrawals were anticipated and consistent with Bancorp's business plan for the
acquisitions of Suburban Bank and JTNB.
The average deposit mix for 1996 did not change significantly from 1995.
The average deposit mix for 1995 changed slightly from 1994. The most notable
change was an increase in savings deposits from 5.8% to 9.2% of the deposit
base. This increase is due to the JTNB acquisition. JTNB had approximately $23.3
million in savings deposits, a substantially higher proportion than 1st United.
Time deposits, NOW and money market accounts represented a smaller portion of
the deposit base in 1995 and non-interest bearing demand deposits were a greater
portion of the total deposits.
The following table sets forth the maturity of certificates of deposit of
$100,000 or more at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996 % of Total
- --------------------------------------------------------------
<S> <C> <C>
Maturity Group:
3 months or less $ 4,502 19%
Over 3 to 6 months 4,691 20
Over 6 to 12 months 12,503 53
Beyond 1 year 1,711 8
-------------------------------
Total $23,407 100%
===============================
</TABLE>
INTEREST RATE SENSITIVITY
A substantial portion of 1st United Bancorp's assets and liabilities are
"interest rate sensitive." An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice within that
time period.
Interest rate sensitivity management focuses on minimizing the effects of
interest rate changes on net interest income. The principal objective of 1st
United's asset and liability management is to minimize the vulnerability of its
operations to changes in interest rates and manage the ratio of interest rate
sensitive assets to interest rate sensitive liabilities within specified
maturities or repricing dates. Interest rate sensitivity is measured by gaps,
defined as the difference between interest earning assets and interest-bearing
liabilities maturing or repricing within a given time period. A gap is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. A gap is considered negative
when the amount of interest rate sensitive liabilities exceeds interest rate
sensitive assets. A gap ratio greater than one, or asset interest rate
sensitivity, generally indicates that net interest income will improve if
interest rates rise. A gap ratio of less than one, or liability interest rate
sensitive, generally indicates that net interest income will decrease if
interest rates rise.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
While gap analysis is a valuable tool in assessing the potential impact of
interest rate changes on net interest income, other factors, such as changes in
balance sheet composition and the interest rate spread relationship between
interest earning assets and interest bearing liabilities, also have an important
impact in determining net interest income.
As of December 31, 1996, 1st United had a twelve month cumulative gap ratio
of 1.13. 1st United's Asset Liability Committee (the "Committee"), which manages
and monitors its interest rate sensitivity, has prescribed a range of .80 to
1.20 percent for the cumulative one year gap ratio. Exceptions to this range are
approved by the Committee. It is the objective of 1st United to manage the mix
and maturities of interest earning assets and interest bearing liabilities to
optimize the interest income during changing economic cycles.
ANALYSIS OF INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1996
----------------------------------------------------------------------------
Immediately
Adjustable 2 Days 3 Months 6 Months
or 1 Day Through Through Through Over
(IN THOUSANDS) Maturity 3 Months 6 Months 1 Year 1 Year Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment securities $ 8,448 $ 9,699 $ 3,964 $ 7,331 $ 30,532 $ 59,974
Interest bearing deposits and
federal funds sold 56,075 0 0 0 0 56,075
Loans 130,155 109,489 35,449 36,611 76,258 387,962
---------------------------------------------------------------------------
Total Earning Assets $194,678 $119,188 $39,413 $43,942 $106,790 $504,011
===========================================================================
Interest Bearing Liabilities:
NOW and Money Market Accounts $199,O44 $ 0 $ 0 $ 0 $ 0 $199,044
Savings Accounts 49,779 0 0 0 0 49,779
Time Deposits 1,030 31,047 27,919 43,065 11,146 114,207
---------------------------------------------------------------------------
Total Interest Bearing Liabilities $249,853 $ 31,047 $27,919 $43,065 $ 11,146 $363,030
===========================================================================
Interest Rate Sensitivity Gap $(55,175) $ 88,141 $11,494 $ 877 $ 95,644 $140,981
===========================================================================
Cumulative Interest Rate
Sensitivity Gap $(55,075) $32,966 $44,460 $45,337 $140,981
===========================================================================
Cumulative Interest Rate Sensitivity
Gap as a Percentage of Total Assets (9.83)% 5.87% 7.92% 8.08% 24.96%
===========================================================================
Cumulative Gap Ratio .78 1.12 1.14 1.13 1.39
===========================================================================
</TABLE>
LIQUIDITY
Liquidity is defined as the ability to meet current and future financial
obligations of a short term nature. 1st United's liquidity position continues to
be strong in 1996 with a regulatory liquidity ratio (net cash, short-term and
marketable assets to net deposits and short term liabilities) of 26.3% at
December 31, 1996, compared to a liquidity ratio of 20.2% at December 31, 1995.
The primary source of 1st United's liquidity is federal funds
sold-overnight loans to major commercial banks and interest bearing deposits. At
December 31, 1996 federal funds sold and interest bearing deposits totaled $56.1
million. Funds not required to meet loan and deposit demand were invested
primarily in U.S. Treasury securities and U.S. Government Agency securities and
mortgage-backed securities guaranteed by U.S. government agencies. Bancorp
considers these investments to be secondary sources of liquidity. Bancorp's
securities investment portfolio had a carrying value of $60 million as of
December 31, 1996.
An additional external source of liquidity is an unsecured, $12.0 million
Federal Funds line of credit that 1st United has established through two
financial institutions. During 1996, 1995 and 1994, 1st United borrowed an
average of $476 thousand, $3.5 million and $1.2 million, respectively, on these
federal funds lines. These lines were not utilized during 1993. In addition, 1st
United has entered into a master repurchase agreement with another financial
institution. No funds were borrowed under this agreement in 1996, 1995 or 1994.
As of December 31, 1996, short term investments (due within one year and
available for sale securities) and federal funds sold and interest bearing
deposits totaled $67.6 million as compared to potentially volatile liabilities
of $40.4 million.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
Net income for 1996 was $7.4 million or $.87 per share, as compared with
net income of $5.0 million or $.66 per share for 1995, and net income of $3.0
million or $.50 per share for 1994.
The following table sets forth certain ratios for the years ended December
31, 1996, 1995 and 1994:
Year Ended December 31,
---------------------------
1996 1995 1994
---------------------------
Return on average assets (R.O.A.) 1.41% 1.44% 1.09%
Return on average equity (R.O.E.) 15.63% 14.19% 11.78%
Dividend payout ratio 24.14% 24.24% 14.00%
Average equity to assets ratio 9.02% 10.14% 9.27%
The net income of $7.4 million for 1996 included a significant one time
charge of $1.2 million and one time gain of approximately $529 thousand. The
charge of $1.2 million related to merger costs and expenses from the acquisition
of Park on November 1, 1996 which was accounted for as a pooling of interests.
These expenses were directly related to the acquisition and will not be ongoing
and included severance, legal fees, consultant fees and filing fees. The $529
thousand gain on sale of asset was due to the one time gain on the sale of
merchant credit card accounts. 1st United sold these accounts to the company
that had provided processing service for the previous two years. There is no
significant effect on future net revenue due to the sale of these merchant
accounts.
Excluding these two one time items from net income results in additional
income after tax of approximately $440 thousand. R.O.E and R.O.A adjusted to
exclude these items would be 16.6% and 1.50%, respectively for 1996. The effect
on earnings per share (EPS) for these items is approximately $.05 per share for
1996 which would have resulted in an EPS of $.92 per share for 1996 as adjusted,
compared to stated EPS of $.87 per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NET INTEREST INCOME
Bancorp's average balance sheet and summary of net interest income (in
thousands) for the years ended December 31, 1996, 1995, and 1994 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996
------------------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------------------------------------------
<S> <C> <C>
ASSETS
Interest earnings assets:
Loans (net of unearned
income)* $357,741 $33,799 9.45%
Taxable investment
securities 72,775 4,546 6.25
Non-taxable investment
securities** 1,121 65 5.80
Federal funds sold and
repurchase agreements 23,542 1,246 5.29
Due from banks 13,706 715 5.22
-----------------------------------
Total earnings assets 468,885 40,371 8.61
Non-interest earnings assets:
Cash & due from banks 27,896
Premises & equipment 15,093
Other assets 24,959
Allowance for loan losses (9,528)
-----------------------------------
Total non-interest
earning assets 58,420
-----------------------------------
Total assets $527,305
===================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities
Demand and Money
Market deposits $178,732 3,818 2.14
Savings deposits 49,589 1,481 2.99
Time deposits 110,332 5,439 4.93
Long-term debt 645 71 11.01
Short-term debt 1,306 68 5.21
-----------------------------------
Total interest bearing
liabilities 340,604 10,877 3.19
Non-interest bearing
liabilities:
Demand deposits 133,421
Other liabilities 5,711
-----------------------------------
Total non-interest bearing
liabilities 139,132
-----------------------------------
Total liabilities 479,736
Shareholders' equity 47,569
-----------------------------------
Total liabilities and
shareholders' equity $527,305
===================================
Net interest income $29,494 5.42%
===================================
Net yield on average interest
earning assets 6.29%
===================================
<CAPTION>
1995 1994
---------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earnings assets:
Loans (net of unearned
income)* $251,015 $25,002 9.96% $177,498 $15,424 8.69%
Taxable investment
securities 60,091 3,595 5.98 61,772 3,547 5.74
Non-taxable investment
securities** 3,805 205 5.39 4,126 227 5.51
Federal funds sold and
repurchase agreements 6,356 373 5.87 6,559 284 4.33
Due from banks 1,774 126 7.10
-------------------------------------------------------------------------
Total earnings assets 323,041 29,301 9.07 249,955 19,482 7.79
Non-interest earnings assets:
Cash & due from banks 16,062 14,112
Premises & equipment 6,646 4,737
Other assets 10,310 8,046
Allowance for loan losses (7,095) (4,999)
------------------------------------------------
Total non-interest
earning assets 25,923 21,896
------------------------------------------------
Total assets $348,964 $271,851
================================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest bearing liabilities
Demand and Money
Market deposits $128,916 3,004 2.33 $112,088 2,144 1.91
Savings deposits 28,176 955 3.39 14,138 280 1.98
Time deposits 73,567 3,720 5.06 62,795 2,572 4.10
Long-term debt 872 80 9.17 1,700 161 9.47
Short-term debt 4,274 259 6.06 1,254 53 4.23
-------------------------------------------------------------------------
Total interest bearing
liabilities 235,805 8,018 3.40 191,975 5,210 2.71
Non-interest bearing
liabilities:
Demand deposits 76,161 53,145
Other liabilities 1,583 1,522
------------------------------------------------
Total non-interest bearing
liabilities 77,744 54,667
------------------------------------------------
Total liabilities 313,549 246,642
Shareholders' equity 35,415 25,209
------------------------------------------------
Total liabilities and
shareholders' equity $348,964 $271,851
================================================
Net interest income $21,283 5.67% $14,272 5.08%
=========================================================================
Net yield on average interest
earning assets 6.59% 5.71%
=========================================================================
</TABLE>
* INCLUDES NONACCRUAL LOANS WHICH ARE NOT SIGNIFICANT
** TAX EQUIVALENT BASIS BASED ON A 36% EFFECTIVE TAX RATE
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The following table presents the effect on net interest income of changes
from prior periods in volume, rate and rate/volume for the categories and
periods indicated. The effect of a change in volume has been determined by
applying the rate in the current period to the change in volume during the
current period. The effect of a change in rate was determined by applying the
change in the rate from the earlier period to the volume from the earlier
period. The rate/volume variance has been allocated to the volume variance.
Average daily balances of all categories in each reported period were used in
the volume computations. Average daily rates in each reported period were used
in rate computations.
<TABLE>
<CAPTION>
1996 VERSUS 1995 1995 versus 1994
INCREASE (DECREASE) Increase (Decrease)
DUE TO CHANGE IN Due to Change In
-----------------------------------------------------------------------
(IN THOUSANDS) VOLUME RATE TOTAL Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $10,077 (1,280) $ 8,797 $7,325 $2,253 $9,578
Taxable investment securities 789 162 951 (100) 148 48
Non-taxable investment securities (156) 16 (140) (17) (5) (22)
Federal funds sold and due from banks 1,533 (71) 1,462 114 101 215
--------------------------------------------------------------------
Total Interest Income 12,243 (1,173) 11,070 7,322 2,497 9,819
Interest Expense:
Interest bearing checking and money
market deposits 1,059 (245) 814 389 471 860
Savings deposits 639 (113) 526 476 199 675
Time deposits 1,815 (96) 1,719 207 941 1,148
Long term debt (25) 16 (9) (76) (5) (81)
Short term debt (155) (36) (191) 183 23 206
--------------------------------------------------------------------
Total Interest Expense 3,333 (474) 2,859 1,179 1,629 2,808
--------------------------------------------------------------------
Net Interest Income $ 8,910 $ (699) $ 8,211 $6,143 $868 $7,011
====================================================================
</TABLE>
Total interest income increased by $11.1 million (38%) to $40.4 million for
the year ended December 31, 1996. This increase was primarily due to an overall
increase in the earning assets of Bancorp. Average earning assets increased
$145.8 million to $469 million for the year ended December 31, 1996. The
American Acquisition on January 5, 1996 added approximately $120 million in
earning assets. In addition, the average earning assets of JTNB of $52.7 million
acquired in April, 1995 affected the comparison to 1995. The overall yield on
interest earning assets decreased 46 basis points ( 5%) to 8.61% for the year
ended December 31, 1995. As noted in the average balance sheet above, the mix of
earning assets shifted from higher yielding loans and investments into the lower
yielding federal funds sold and due from banks categories resulting in a lower
overall yield on earning assets. The asset mix change was a result of the assets
acquired from American.
Total interest expense increased $2.9 million (36%) over 1995 to $10.9
million for the year ended December 31, 1996. Average interest bearing
liabilities increased approximately $104.8 million (44%) due primarily to the
American acquisition and the acquisition of JTNB in 1995. The cost of interest
bearing liabilities decreased 21 basis points (6%) to 3.19% in 1996.
Total interest income increased by $9.8 million (50%) to $29.3 million for
the year ended December 31, 1995. This increase was primarily due to an overall
increase in the earning assets of Bancorp. Average earning assets increased
$73.1 million to $323 million for the year ended December 31, 1995. The JTNB
Acquisition on April 14, 1995 added approximately $52.7 million in earning
assets. In addition, the average earning assets of the Suburban and New River
Acquisitions in 1994 affected the comparison to 1995. The overall yield on
interest earning assets increased 128 basis points (16%) to 9.07% for the year
ended December 31, 1995. As noted in the average balance sheet above, the mix of
earning assets shifted from the lower yielding investments and into the higher
yielding loan category resulting in a higher overall yield on earning assets.
During 1994 and 1995, Wall Street Journal prime rate, on which a substantial
portion of 1st United loans are directly or indirectly based, increased from
6.0% to 9.0% before returning to 8.5% at year end. These increases had a
positive impact on the yield on interest earning assets.
Total interest expense increased $2.8 million (54%) over 1994 to $8.0
million for the year ended December 31, 1995. Average interest bearing
liabilities increased approximately $43.8 million (23%) due primarily to the
JTNB acquisition on April 14, 1995 and the acquisitions of Suburban and New
River in 1994. The cost of
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
interest bearing liabilities increased 69 basis points (25%) to 3.40% in 1995.
Jupiter Tequesta National Bank had approximately $23 million in higher yielding
savings accounts which substantially increased interest expense/rates on savings
accounts. Also, the interest expense and rates for 1995 reflect the effects of
Suburban Bank and New River Bank for a full year as opposed to partial years in
1994. Also, yields on time deposits have generally increased over 1994.
The net interest margin of 6.29% in 1996 compares to net interest margin in
1995 and 1994 of 6.59% and 5.71%, respectively. The decrease in 1996 was
primarily a result from mix of earning assets in 1996 as compared to 1995 due to
the American acquisition.
OTHER INCOME
Other income for the year ended December 31, 1996 increased $3.935 million
(99%) over 1995 to $7.9 million. Service charges on deposit accounts increased
$2.133 million (101%) primarily as a result of the $152 million in deposits
acquired from American. Gain on sale of loans increased $470 thousand (115%) to
$880 thousand for the year ended December 31, 1996 due to $13.2 million loans
guaranteed by the Small Business Administration (SBA), which were sold which
compares to $6.3 million in 1995. Net gain on sale of assets increased $437
thousand (475%) to $529 thousand due primarily to the gain on sale of merchant
credit card accounts. 1st United sold these accounts to the company that had
provided processing service for the previous two years. Rental income decreased
$139 thousand (78%) to $40 thousand primarily as a result of 1st United selling
its West Palm Beach branch and leasing back a portion in early 1996. During
1995, a portion of the building had been leased to unrelated parties resulting
in additional rent income. 1st United recorded a loss of approximately $40
thousand in the sale of the building. Miscellaneous income increased $1.0
million (125%) primarily as a result of the increased deposit and customer base
acquired from American.
Other income for the year ended December 31, 1995 increased $1.1 million
(38%) over 1994. Service charges on deposit accounts increased $383 thousand
(22%), of which approximately $130 thousand is attrituble to Suburban Bank being
owned for all of 1995 as opposed to 7 months in 1994, and approximately $100
thousand is attributable to the deposit base acquired in the JTNB purchase.
Credit card discount fees increased 44% to $111 thousand due to an expansion in
the department related to the acquisitions. Rental income increased 95% to $179
thousand as a result of leasing the Military Trail building (acquired with
Suburban Bank) for the full year in 1995, and due to rental income from
subletting the former operations center beginning in August, 1995. Miscellaneous
income increased 49% to $831 thousand in 1995. The components of Miscellaneous
Income with the most significant increases were as follows: sale of mortgage
servicing rights increased $87 thousand, miscellaneous income related to the
Jupiter Tequesta branch (acquired during 1995) increased $17 thousand,
miscellaneous income related to the Suburban Bank branches (only owned 7 months
during 1994) increased $209 thousand.
OTHER EXPENSE
Other expenses increased $8.3 million (48%) to $25.5 million for the year
ended December 31, 1996. Changes in specific accounts follow:
<TABLE>
<CAPTION>
Year Ended
December 31, Dollar Percentage
---------------------- Income Increase
1996 1995 (Decrease) (Decrease)
----------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $11,590 $ 7,881 $3,709 47%
Occupancy, furniture and equipment 4,783 3,505 1,278 36%
Stationery, printing and supplies 565 398 167 42%
Professional fees 910 858 52 6%
FDIC insurance expense 124 527 (403) (76%)
Other real estate expense 612 515 97 19%
Miscellaneous taxes 225 137 88 64%
Insurance 329 231 98 42%
Telephone 563 324 239 74%
Postage 375 212 163 77%
Goodwill amortization 620 289 331 114%
Merger expenses 1,221 0 1,221 1221%
Miscellaneous 3,556 2,345 1,211 52%
---------------------------------------------------
$25,473 $17,222 $8,251 48%
===================================================
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
The decrease in FDIC insurance expense was a result of a substantial
reduction in the assessment rate which occurred in 1995 whereby 1st United's
assessment was reduced from $.23 per $1,000 in assessable deposits to zero. The
assessment paid in 1996 was a result of a one time charge on approximately $20
million in deposits insured by the Savings Association Insurance Fund (SAIF),
which were acquired from New River. The $1.221 million merger expenses for 1996
were one time expenses incurred as a result of acquiring Park on November 1,
1996. Included in this amount are legal fees, consultant fees, one time
severance charges and filing fees. The remaining increases in expenses were due
to the American acquisition whereby 16 new branches and related assets and
liabilities were acquired on January 5, 1996.
Other expenses increased 39% to $17.2 million during 1995. The components
of other expense changed as follows; salaries and benefits up $2.3 million
(41%), occupancy up $849 thousand (32%), stationery and supplies up $118
thousand (42%), professional fees up $464 thousand (118%), FDIC insurance
increased $51 thousand (11%), other real estate expense increased $182 thousand
(55%), miscellaneous taxes increased $41 thousand (43%), telephone increased $90
thousand (38%), postage increased $52 thousand (33%), goodwill amortization
increased $162 thousand (128%), miscellaneous expense increased $571 thousand
(32%). The changes in the other expense categories result primarily from owning
the former Suburban Bank for all of 1995 versus seven months in 1994 and from
the addition of the Jupiter Tequesta operation, acquired in April, 1995. The
acquisition of JTNB added one banking center and approximately 14 employees to
1st United. In addition, on June 16, 1995 the 1st United Glades Plaza branch was
closed. 1st United determined that this was a redundant branch in its market and
that the branch customers could be served by the nearby South Military Trail
branch, which is less than one mile away. Approximately $118 thousand was
expended for lease termination costs and fixed asset writeoffs as a result of
the branch closing. The FDIC insurance expense did not rise proportionately with
the deposit base because of a substantial reduction in the assessment rate
during 1995 when the FDIC determined the Bank Insurance Fund to be fully
capitalized. The rate dropped from twenty three cents per $1000 of assessable
deposits to $.04 cents and subsequently to zero for FDIC insured deposits.
During the third quarter of 1995, 1st United received a refund of approximately
$80 thousand dollars from the FDIC as a result of this rate reduction
retroactive to June 1, 1995. 1st United continues to pay an assessment to the
FDIC at twenty three cents per thousand dollars of deposits for deposits
acquired in 1994 in the New River Bank purchase. These deposits are insured by
the Savings Association Insurance Fund (SAIF) which is not recapitalized.
At December 31, 1995, approximately $20 million are classified as OAKAR
deposits and were assessed at twenty three cents per thousand dollars.
Miscellaneous other expense included an increase of $382 thousand in other real
estate expenses. These expenses related to maintenance costs of other real
estate properties.
INCOME TAXES
The total provision for income taxes of $4.3 million, $2.8 million and $1.5
million for the years ended December 31, 1996, 1995 and 1994, respectively, was
computed using the statutory federal and state income tax rates.
Effective January 1, 1993, Bancorp adopted FASB Statement No. 109,
"Accounting for Income Taxes" ("FAS 109"). Under Statement 109, the liability
method is used in accounting for income taxes. Under this method deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. A valuation allowance must be established for deferred tax
assets if it is "more likely than not" that all or a portion will not be
realized. Prior to the adoption of FAS 109, income tax expense was determined
using the deferred method. Deferred tax expense was based on items of income and
expense that were reported in different years in the financial statements and
tax returns and were measured at the tax rate in effect in the year the
difference originated.
Management has determined that it is "more likely than not" that Bancorp
will ultimately realize the full benefit of its deferred tax assets related to
future deductible items and qualified loss carry forwards. Accordingly, a
valuation allowance is not required for the approximately $2.8 million of
deferred tax assets recorded as of December 31, 1996, which is included in other
assets.
Tax benefits of the deferred assets can be realized through the generation
of future taxable income. The amount of future income required, based on
currently enacted tax rates applied to the deferred tax asset, is approximately
$7.8 million over the next 13 years. The following is a summary of positive
evidence leading to management's conclusion that a valuation allowance is not
necessary for net deferred tax assets:
/bullet/ Except for its initial full year of operating (1988) Bancorp has earned
taxable income each year. Cumulative income before taxes for the last
5 years ending December 31, 1996 has been approximately $26 million
for book.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
/bullet/ The American Acquisition in January, 1996 added approximately $164
million and $152 million in assets and deposits, respectively, and has
increased the earning potential of Bancorp as evidenced by results of
operations since the American Acquisition.
/bullet/ Market position for Bancorp has improved as a result of the American
Acquisition. Bancorp is the largest locally owned commercial bank
headquartered in Palm Beach County, Florida.
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations for the
years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA) March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Interest income $10,052 $9,745 $10,026 $10,548
Interest expense 2,818 2,642 2,563 2,854
Net interest income 7,234 7,103 7,463 7,694
Provision for loan losses 80 30 10 50
Investment securities gains (losses) 0 0 0 (65)
Income before income taxes 2,809 3,266 3,112 2,574
Applicable income taxes 1,064 1,184 1,117 961
Net income 1,745 2,082 1,995 1,613
Per common share:
Primary .21 .24 .23 .19
1995
Interest income $ 6,359 $7,519 $ 7,753 $ 7,659
Interest expense 1,685 2,115 2,185 2,033
Net interest income 4,674 5,404 5,568 5,626
Provision for loan losses 40 53 54 60
Investment securities gains (losses) 0 0 0 (13)
Income before income taxes 1,532 1,899 2,107 2,280
Applicable income taxes 537 683 756 817
Net income 995 1,216 1,351 1,463
Per common share:
Primary .14 .16 .17 .19
</TABLE>
Earning for the quarter ended June 30, 1996 increased to $2.1 million or
$.24 per share due to the gain on sale of assets recorded during the quarter
resulting in approximately $260 thousand in after tax earnings or $.03 per share
for the quarter. The quarter ended December 31, 1996 earnings decreased to $1.6
million or $.19 per share due to two non recurring items recorded during the
quarter. Merger expenses related to Park resulted in a one time after tax charge
of approximately $730 thousand and gain on sale of real estate resulted in net
after tax earnings of $192 thousand. Combined these items reduced after tax
earnings for the quarter ended December 31, 1996 by $538 thousand or $.06 per
share.
CERTAIN ACCOUNTING STANDARDS
In March, 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt Statement 121
in the first quarter of 1996 and, based on current circumstances, does not
believe the effect of adoption will be material.
Bancorp does not have any financial instruments which would be affected by
Financial Accounting Standard Board Statement No. 119 ("FAS 119"). FAS 119
requires new qualitative disclosures regarding derivative financial instruments
(e.g. futures, forwards, swaps and options).
Bancorp does not have any plans which would be affected by Financial
Accounting Standards Board Statement No. 106, "Employers Accounting for Post
Retirement Benefits Other Than Pensions" which required accrual for
post-employment benefits during either the employees' service periods or at the
time a liability is incurred.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
MARKET PRICE & DIVIDENDS
Bancorp Common Stock is traded on the NASDAQ Market under the symbol FUBC.
The table sets forth the high and low bid prices for Bancorp's common stock
for the year ended December 31, 1996 and 1995:
Bid Price
---------------------------
High Low
---------- ---------
1996
Fourth Quarter $13 3/8 $10 3/8
Third Quarter 10 3/4 9 3/4
Second Quarter 10 1/2 9
First Quarter 9 5/8 7 3/4
1995
Fourth Quarter $ 8 3/4 $ 7 7/8
Third Quarter 9 7 5/8
Second Quarter 8 1/4 7
First Quarter 7 1/4 5 3/4
As of December 31, 1996 the approximate number of record holders of the
Common Stock was 1,039.
On October 28, 1996, the Board of Director declared a $.10 dividend for the
shareholders. On each of April 24, 1996 and July 24, 1996, the Board of
Directors declared a $.04 per share dividend for the shareholders. On each of
April 25, 1995, July 25, 1995, October 24, 1995 and January 23, 1996, the Board
of Directors declared a $.03 per share dividend for the shareholders.
On January 24, 1995, the Board of Directors declared a $.08 per share cash
dividend for shareholders of record on February 3, 1995. On February 22, 1994
and February 23, 1993, the Board of Directors declared a $.07 per share cash
dividend for shareholders. The Board will annually determine whether future
dividends, if any, will be declared. See note 12 to the audited financial
statements for a discussion of state regulatory restrictions on the declarations
and payment of dividends.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements that involve risks
and uncertainties, and there are certain important factors that could cause
actual results to differ materially from those anticipated. These important
factors include, but are not limited to, economic conditions (both generally and
more specifically in the markets in which Bancorp and 1st United operate),
competition for Bancorp's and 1st United's customers from other providers of
financial services, government legislation and regulation (which changes from
time to time and over which Bancorp and 1st United have no control), changes in
interest rates, the impact of Bancorp's rapid growth, and other risks detailed
in the Annual Report on Form 10-K and in Bancorp's other filings with the
Securities and Exchange Commission, all of which are difficult to predict and
many of which are beyond the control of Bancorp.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
1st United Bancorp and Subsidiaries
We have audited the accompanying consolidated balance sheets of 1st United
Bancorp and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the consolidated financial statements of Park
Bankshares, Inc., which was acquired by 1st United Bancorp in 1996 and
accounted for under the pooling of interests method (see Note 2), which
statements reflect total assets of $65.7 million as of December 31, 1995, and
total revenues of $4.4 million and $3.3 million for the years ended December
31, 1995, and 1994, respectively. Those statements were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as
it relates to data included for Park Bankshares, Inc. is based solely on the
report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation.
We believe that our audits and the report of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of 1st United Bancorp and
Subsidiaries at December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
West Palm Beach, Florida
January 9, 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
December 31,
-----------------------
1996 1995
-----------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,247 $ 21,211
Interest bearing deposits 41,600 0
Federal funds sold 14,475 16,825
---------------------
Cash and cash equivalents 86,322 38,036
Investment securities available-for-sale 21,650 18,222
Investment securities held to maturity (market value of $38,067 and $34,000 in 1996
and 1995, respectively) 38,324 33,961
Loans, net of allowance for loan losses of $8,551 and $6,839 in 1996 and 1995,
respectively 379,411 260,819
Bank premises and equipment, net 14,974 7,305
Accrued interest receivable 2,560 2,074
Other real estate owned 3,196 1,552
Goodwill, net 7,016 4,029
Other assets 7,835 6,435
---------------------
$561,288 $372,433
=====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits, non-interest bearing $141,990 $ 91,880
NOW and money market accounts 199,044 128,399
Savings deposits 49,779 35,180
Time deposits of $100,000 or more 23,407 19,268
Time deposits less than $100,000 90,800 55,443
---------------------
Total deposits 505,020 330,170
Long term debt 0 39
Securities sold under agreement to repurchase 0 700
Accrued interest and other liabilities 5,236 3,187
---------------------
Total liabilities 510,256 334,096
Shareholders' equity:
Common Stock, par value $.01 per share--authorized 20,000,000 shares, issued and
outstanding 8,435,804 and 7,445,804 shares in 1996 and 1995, respectively 84 74
Additional paid-in capital 33,851 26,782
Retained earnings 17,194 11,487
Unrealized losses on available-for-sale securities, net of taxes (97) (6)
---------------------
51,032 38,337
---------------------
$561,288 $372,433
=====================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER-SHARE DATA)
Year Ended December 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $33,799 $25,002 $15,424
Federal funds sold 1,246 373 284
Interest bearing deposits 715 126 0
Investment securities:
Interest 4,416 3,664 3,656
Dividends 195 125 96
-------------------------------
40,371 29,290 19,460
Interest expense:
Deposits 10,738 7,679 4,996
Notes payable and long-term debt 71 80 151
Short-term borrowings 68 259 63
-------------------------------
10,877 8,018 5,210
Net interest income 29,494 21,272 14,250
Provision for loan losses 170 207 356
-------------------------------
Net interest income after provision for loan losses 29,324 21,065 13,894
Other income:
Service charges on deposit accounts 4,249 2,116 1,733
Credit card discount fees 100 111 77
Net gain (loss) on sale of investment securities (65) (13) 14
Gain on sale of loans 880 410 392
Net gain on sale of other real estate 305 249 17
Net gain on sale of assets 529 92 0
Rental income 40 179 92
Miscellaneous 1,872 831 558
-------------------------------
7,910 3,975 2,883
Other expenses:
Salaries and employee benefits 11,590 7,881 5,609
Occupancy, furniture and equipment 4,783 3,505 2,656
Stationery, printing and supplies 565 398 280
Professional fees 910 858 394
FDIC insurance expense 124 527 476
Other real estate expense 612 515 333
Miscellaneous taxes 225 137 96
Insurance 329 231 216
Telephone 563 324 234
Postage 375 212 160
Goodwill amortization 620 289 127
Merger expenses 1,221 0 0
Miscellaneous 3,556 2,345 1,774
-------------------------------
25,473 17,222 12,355
Income before income taxes 11,761 7,818 4,422
Income taxes 4,326 2,793 1,451
-------------------------------
Net income $ 7,435 $ 5,025 $ 2,971
===============================
Net income per common share $ .87 $ .66 $ .50
===============================
Average common shares and common stock equivalents
outstanding 8,587 7,576 5,940
===============================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
Unrealized Gains
(Losses) on
Common Stock Additional Available-for- Total
------------------- Paid-in Retained Sale Securities Shareholders'
Shares Amount Capital Earnings Net of Tax Equity
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 4,034,284 $ 40 $11,632 $ 4,881 $ (29) $16,524
Stock issued for acquisition of
New River Bank net assets 555,395 6 2,396 0 0 2,402
Retirement of stock by pooled company 0 0 (47) 0 0 (47)
Stock issued for acquisition of
Suburban Bank 705,625 7 3,150 0 0 3,157
Unrealized losses on available-for-sale
securities, net of tax 0 0 0 0 (318) (318)
Cash dividends--$.07 per share 0 0 0 (225) 0 (225)
Issuance of common stock, net 1,840,000 18 7,656 0 0 7,674
Net income 0 0 0 2,971 0 2,971
------------------------------------------------------------------------
Balance at December 31, 1994 7,135,304 71 24,787 7,627 (347) 32,138
Repurchase of common stock (180,000) (2) (1,305) 0 0 (1,307)
Stock issued for acquisition of
Jupiter Tequesta National Bank 486,000 5 3,285 0 0 3,290
Exercise of stock options 4,500 0 15 0 0 15
Unrealized loss on available-for-sale
securities, net of tax 0 0 0 0 341 341
Cash dividends--$.16 per share 0 0 0 (1,090) 0 (1,090)
Cash dividends of pooled company 0 0 0 (75) 0 (75)
Net income 0 0 0 5,025 0 5,025
------------------------------------------------------------------------
Balance at December 31, 1995 7,445,804 74 26,782 11,487 (6) 38,337
Exercise of stock options 170,000 2 962 0 0 964
Stock issued for acquisition of
American Bancorporation 820,000 8 6,374 0 0 6,382
Retirement of stock by pooled company 0 0 (267) 0 0 (267)
Cash dividends--$.21 per share 0 0 0 (1,659) 0 (1,659)
Cash dividends of pooled company 0 0 0 (69) 0 (69)
Unrealized losses on available-for-sale
securities, net of tax 0 0 0 0 (91) (91)
Net income 0 0 0 7,435 0 7,435
------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 8,435,804 $ 84 $33,851 $17,194 $ (97) $51,032
========================================================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year Ended December 31,
----------------------------------
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,435 $ 5,025 $ 2,971
Adjustments to reconcile net income to net cash provided by operating
activities, net of effects of acquisitions
Provision for loan losses 170 207 356
Amortization of goodwill 620 289 127
Depreciation 1,550 955 755
Deferred income taxes 2,821 480 1,209
Net gain on sale of other real estate (305) (249) (17)
Gain on sale of loans (880) (410) (392)
Loans originated for sale (13,188) (6,272) (5,630)
Sales of loans and loan participation certificates 14,068 6,697 6,049
Accretion of loan discount 0 0 (127)
Decrease (increase) in accrued interest receivable 615 (238) 98
(Decrease) increase in accrued interest payable (188) (153) 758
Other (242) (749) (1,231)
----------------------------------
Net cash provided by operating activities 12,476 5,582 4,926
INVESTING ACTIVITIES
Net cash acquired (paid) in acquisitions 21,067 (316) 3,469
Purchase of investment securities held to maturity (3,356) (484) (1,743)
Maturities of investment securities held to maturity 8,495 23,846 10,236
Purchase of investment securities available-for-sale (7,157) (7,510) (12,205)
Maturities of investment securities available-for-sale 20,665 2,698 4,387
Sales of investment securities available-for-sale 19,232 12,176 28,230
Increase in net loans (51,440) (13,222) (194)
Purchases of premises and equipment (2,188) (1,706) (1,160)
Proceeds from sales of premises and equipment 1,469 0 0
Proceeds from sales of other real estate 9,128 3,059 1,089
Decrease in other assets 923 763 1,332
----------------------------------
Net cash provided by investing activities 16,838 19,304 33,441
FINANCING ACTIVITIES
Payment of cash dividends (1,728) (1,165) (225)
(Repurchase) issuance of common stock (267) (1,307) 7,627
Exercise of stock options 964 15 0
Decrease in short term borrowings (700) 0 (6,654)
Increase in notes payable to related parties 2,200 0 3,003
Repayments of notes payable to related parties (2,200) 0 (3,003)
Repayments of long-term debt (2,782) (2,005) (217)
Repayments of mandatory convertible debt 0 0 (300)
Net increase (decrease) in demand deposits, NOW accounts, money
market accounts and savings deposits 24,711 (19,506) 10,982
Net decrease in time deposits (2,129) (1,901) (24,566)
Other liabilities 903 (227) (526)
----------------------------------
Net cash provided by (used in) financing activities 18,972 (26,096) (13,879)
----------------------------------
Increase in cash and cash equivalents 48,286 (1,210) 24,488
Cash and cash equivalents at beginning of year 38,036 39,246 14,758
----------------------------------
Cash and cash equivalents at end of year $ 86,322 $38,036 $ 39,246
==================================
Supplemental Schedule of Non-Cash Investing and Financing Activities
Loans transferred to other real estate owned $ 5,487 $ 1,521 $ 1,821
==================================
Assets (net of cash) acquired in acquisitions $138,053 $53,671 $171,956
==================================
Liabilities assumed in acquisitions $156,331 $ 53,465 $170,687
==================================
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
1st United Bancorp ("Bancorp" or the "Company") is a bank holding company
regulated by the Federal Reserve Board. Its principal business is the
operation of 1st United Bank ("1st United" or "Bank"), its wholly owned
subsidiary. The consolidated financial statements include the accounts of the
Company and 1st United. All significant intercompany balances and
transactions have been eliminated in consolidation.
1st United commenced operations as a Florida chartered bank on December 17,
1987 and currently engages in the general business of banking throughout its
service area of Palm Beach County, southern Martin County, Brevard County and
northern Broward County, Florida. 1st United's deposits are insured by the
FDIC and it is a member of the Federal Reserve System and the Federal Home
Loan Bank Board.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
INVESTMENT SECURITIES
Debt securities that Bancorp has both the positive intent and ability to hold
to maturity are carried at amortized cost. Debt securities that Bancorp does
not have the positive intent and ability to hold to maturity and all
marketable equity securities are classified as available-for-sale or trading
and carried at fair value. Unrealized holding gains and losses on securities
classified as available-for-sale are carried as a separate component of
shareholders' equity, net of related tax effect. Unrealized holding gains and
losses on securities classified as trading are reported in earnings. The
amortized cost of debt securities classified as held to maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated lives of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net gain (loss) on sale of
investment securities. The cost of securities sold is based on the specific
identification method.
LOANS
Loans generally are stated at their outstanding unpaid principal balances net
of any deferred fees or costs on originated loans, or unamortized premiums or
discounts on purchased loans. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income using the
interest method. Loan origination fees, net of certain direct origination
costs, are deferred and recognized as an adjustment of the yield (interest
income) of the related loans.
NONACCRUAL LOANS--Generally, a loan is classified as nonaccrual and the
accrual of interest on such loan is discontinued when the contractual payment
of principal or interest has become 90 days past due or management has
serious doubts about further collectibility of principal or interest, even
though the loan is currently performing. A loan may remain on accrual status
if it is in the process of collection and is either guaranteed or well
secured. When a loan is placed on nonaccrual status, unpaid interest credited
to income in the current year is reversed and unpaid interest accrued in
prior years is charged against the allowance for credit losses. Interest
received on nonaccrual loans generally is either applied against principal or
reported as interest income according to management's judgment as to the
collectibility of principal. Generally, loans are restored to accrual status
when the obligation is brought current, has performed in accordance with the
contractual terms for a reasonable period of time and the ultimate
collectibility of the total contractual principal and interest is no longer
in doubt.
ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is established
through provisions for loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance for loan losses, and
subsequent recoveries, if any, are credited to the allowance. Although
management believes the allowance for possible loan losses is adequate, their
evaluation of possible loan losses is a continuing process which may
necessitate adjustments to the allowance in future periods.
Effective January 1, 1994, Bancorp adopted Financial Accounting Standards
Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan"
("FAS 114"). Under the new standard, the allowance for loan losses related to
loans that are identified for evaluation in accordance with FAS 114 is based
on discounted cash flows using the loan's initial effective interest rate or
the fair value of the collateral for certain collateral dependent loans.
Prior to 1994, the allowance for loan losses related to these loans was based
on undiscounted cash flows or the fair value of the collateral for collateral
dependent loans. The adoption of FAS 114 did not have a material impact on
the financial condition or results of operations of Bancorp.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance is based on Bancorp's past loan
loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of any underlying collateral,
composition of the loan portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective as it requires
material estimates including the amounts and timing of future cash flows
expected to be received on impaired loans that may be susceptible to
significant change.
OTHER REAL ESTATE OWNED (OREO)
OREO is comprised of property acquired through a foreclosure proceeding or
acceptance of a deed-in-lieu of foreclosure. In accordance with FAS 114, a
loan is classified as OREO when Bancorp has taken possession of the
collateral regardless of whether formal foreclosure proceedings take place.
Foreclosed assets initially are recorded at fair value at the date of
foreclosure establishing a new cost basis. After foreclosure, valuations are
periodically performed by management and the real estate is carried at the
lower of (1) cost or (2) fair value less estimated costs to dispose. Revenue
and expenses from operations of OREO and changes in the valuation allowance
are included in other real estate income and other real estate expense in the
statement of income.
GAIN ON SALE OF LOANS
Gain on sale of loans results from the sale of the government guaranteed
portion of Small Business Administration (SBA) loans originated by 1st
United. SBA loans originated by 1st United are generally guaranteed by the
U.S. Government up to 90% of the principal balance of the loans. During 1996,
1995, and 1994, 1st United sold loans with principal balances of $13,188,000,
$6,272,000, and $5,630,000, respectively, resulting in gains of $880,000,
$410,000, and $392,000, respectively. Loans held for sale are reported at the
lower of cost or market value on a specific identification basis as of the
balance sheet date. No loans were classified as held for sale at December 31,
1996 and 1995.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed primarily using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements
are amortized over the shorter of the terms of the respective leases or their
estimated useful lives. Maintenance and repairs are charged to expenses as
incurred. Gains and losses on dispositions of premises and equipment are
reflected in the statement of income.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees", and, accordingly,
recognizes no compensation expense for the stock option grants.
STATEMENT OF CASH FLOWS
For the purposes of the statement of cash flows, the Company considers cash
and due from banks, certificates of deposits with other financial
institutions with original maturities of three months or less and federal
funds sold as cash equivalents.
During 1996, 1995, and 1994, cash paid by the Company for income taxes
amounted to $3,065,000, $2,633,000, and $1,151,000, respectively. In
addition, interest of $11,065,000, $7,962,000, and $5,163,000 was paid in
1996, 1995 and 1994, respectively.
CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS
The Bank is required to maintain a non-interest bearing reserve balance with
the Federal Reserve Bank. The average reserve balance was approximately $4.0
million in 1996.
INCOME TAXES
Income taxes have been provided using the liability method in accordance with
FASB Statement No. 109, "Accounting for Income Taxes."
GOODWILL
The Company, at each balance sheet date, evaluates the recovery of the
carrying amount of goodwill by determining if any impairment indicators are
present. These indicators include duplication of resources resulting from
acquisitions, income derived from business acquired and other factors. If
this review indicates that goodwill will not be recoverable, as principally
determined based on the estimated undiscounted cash flows of the acquired
entity over the remaining amortization period, the Company's carrying value
of the goodwill is reduced by the estimated shortfall of future cash flows.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
RECLASSIFICATION
Certain amounts presented in the consolidated financial statements for prior
years have been reclassified for comparative purposes.
INCOME PER COMMON SHARE
Income per common share amounts are based on the weighted average number of
shares of common stock and common stock equivalents outstanding during each
year. Common stock equivalents represent the potentially dilutive effect of
the assumed exercise of certain outstanding stock options.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March, 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of",
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted
Statement 121 in the first quarter of 1996, which did not have a material
impact on the financial condition or operations of Bancorp.
_____________________________________________________________________________
2. MERGERS AND ACQUISITIONS
On November 1, 1996, the Company completed its merger with Park Bankshares,
Inc. ("Park") and its wholly owned subsidiary, First National Bank of Lake
Park. Park had total assets and deposits of approximately $60.1 million and
$54.9 million, respectively. The transaction was accounted for under the
pooling-of-interests method of accounting for business combinations and
accordingly, the consolidated financial statements have been restated for the
periods prior to the merger to include Park. In connection with the
transaction, the Company issued 816,000 of its common shares to Park
shareholders.
The 1996 results of operations of the Company include the pre-merger results
of operation for Park for the period January 1, 1996, through October 31,
1996. Summarized operating activity for Park for the 1996 pre-merger period
was as follows: (in 000's)
Net interest income $2,437
Non-interest income 535
Net income 470
Separate results of operations of the combined entities for December 31, 1995
and 1994 were as follows: (in 000's)
1995 1994
-------------------
Net interest income:
Bancorp $18,669 $12,034
Park 2,603 2,216
-------------------
Combined $21,272 $14,250
===================
Non-interest income:
Bancorp $ 3,372 $ 2,323
Park 603 560
-------------------
Combined $ 3,975 $ 2,883
===================
Net income:
Bancorp $ 4,502 $ 2,654
Park 523 317
-------------------
Combined $ 5,025 $ 2,971
===================
On January 5, 1996, Bancorp acquired The American Bancorporation of the South
("American") and merged its wholly-owned subsidiary, The American Bank of the
South, into 1st United. Consideration paid by Bancorp to the shareholders of
American was $10,017,000 and was paid in the form of 30% cash and 70% stock.
Approximately 820,000 shares (value per share of $7.78 net of issuance costs)
of Bancorp common stock were issued in this acquisition. This acquisition was
accounted for using the purchase method of accounting and approximately $3.6
million in goodwill was recorded and is being amortized over 15 years under
the straight-line method. Accumulated amortization of goodwill related to
American is $251,000 at December 31, 1996.
Approximately $163.7 million in total assets were acquired. Included in this
total was approximately $25.6 million, $48 million, $73 million, $8 million
and $5 million in federal funds, investments, net loans, bank premises and
equipment, and other real estate, respectively. Included in loans were
approximately $11 million in nonaccrual loans. Approximately $152.3 million
in deposits, which includes approximately 30% in non interest bearing demand
deposits, were assumed and sixteen (16) bank-owned branch locations
throughout Brevard County were acquired.
To facilitate the acquisition of American, certain of the directors of
Bancorp and senior management of 1st United committed to loan Bancorp $2.5
million.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
On January 4, 1996, Bancorp borrowed approximately $2.2 million from these
individuals at a 10% annual interest rate, payable quarterly, with the entire
outstanding principal balance due in one year. Bancorp paid a 1% commitment
fee and 1% funding fee to these individuals and also had the option of
extending the maturity of these notes for five one-year terms. Bancorp repaid
these borrowings in full on May 1, 1996.
The following summarizes (in thousands) the fair value of the assets of
American acquired and the liabilities of American assumed:
Cash and federal funds sold $ 25,645
Investment securities 47,761
Net loans 72,809
Other assets 17,483
Total deposits (152,268)
Borrowings (2,743)
Accrued interest and other liabilities (1,320)
---------
Net assets $ 7,367
=========
Pro forma financial information for Bancorp, as if the American acquisition
had taken place as of January 1, 1995 for income and per share data is as
follows:
Year Ended
(IN THOUSANDS EXCEPT PER SHARE DATA) December 31, 1995
- -----------------------------------------------------------
Total interest income $40,341
Provision for loan losses 992
Net interest income after
provision for loan losses 27,187
Income before taxes 7,517
Net income 4,475
Net income per share .59
This pro forma information does not purport to be indicative of the results
of operations which would have resulted had the acquisition been consummated
at the date assumed.
On April 14, 1995, Bancorp acquired Jupiter Tequesta National Bank ("JTNB").
JTNB, a one location national bank headquartered in Tequesta, Florida, had
total assets, deposits, and stockholders' equity of approximately $57
million, $53 million and $4 million, respectively. Bancorp issued
approximately 486,000 shares (value per share of $6.77 net of issuance costs)
of common stock and paid $3.4 million cash to the shareholders of JTNB. The
acquisition was accounted for using the purchase method of accounting and
approximately $3.3 million in goodwill was recorded which is being amortized
over 15 years under the straight-line method. Accumulated amortization at
December 31, 1996 and 1995 was, $393,000 and $156,000, respectively.
The following summarizes (in thousands) the fair value of the assets of JTNB
acquired and the liabilities of JTNB assumed:
Cash $ 3,084
Investment securities and federal funds 15,505
Net loans 37,150
Bank premises and equipment 331
Accrued interest receivable 326
Other real estate owned 50
Other assets 309
Deposits (52,285)
Short-term borrowings (350)
Accrued interest and other liabilities (830)
--------
Net assets $ 3,290
========
Pro forma financial information for Bancorp, as if the above acquisition had
taken place as of January 1, 1995 and 1994 for income and per share data is
as follows:
Year Ended
December 31,
-------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1995 1994
- ---------------------------------------------------------
Total interest income $30,560 $22,875
Provision for loan losses 207 379
Net interest income after
provision for loan losses 22,335 16,022
Income before taxes 7,189 4,521
Net income 4,594 3,023
Income per share .57 .47
This pro forma information does not purport to be indicative of the results
of operations which would have resulted had the acquisition been consummated
at the date assumed.
On June 3, 1994, Bancorp acquired substantially all the outstanding capital
stock of Suburban Bank, and subsequently merged it into 1st United Bank. As
consideration, Bancorp issued 705,625 shares (value per share of $4.48, net
of issuance costs) of its common stock, paid $100,000 in cash, assumed or
paid $2.7 million of outstanding debt and redeemed $585,000 in preferred
stock of Suburban Bankshares, the parent of Suburban Bank. Bancorp also
issued 41,300 options to the former president of Suburban Bank. These options
are exercisable at $4.50 per share and expire on June 3, 1997.
The acquisition was accounted for using the purchase method of accounting and
approximately $800,000 in goodwill was recorded in conjunction with the
transaction, which is being amortized over 15 years under the straight-line
method. Accumulated amortization at December 31, 1996 and 1995 was $188,000
and $138,000, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
The following summarizes (in thousands) the fair values of the assets and
liabilities of Suburban Bank acquired (net of cash paid) and, the liabilities
of Suburban Bankshares assumed:
Cash $ 4,386
Investment securities 41,860
Net loans 91,921
Bank premises and equipment 2,953
Accrued interest receivable 1,174
Other real estate owned 2,310
Other assets 4,980
Total deposits (137,532)
Short-term borrowings (5,434)
Long-term debt (2,261)
Mandatory convertible debt (300)
Accrued interest and other liabilities (1,480)
---------
Net assets $ 2,577
=========
To facilitate the acquisition of Suburban Bank, certain of the directors of
Bancorp and certain of the senior management of 1st United committed to loan
Bancorp $3.3 million on January 1, 1994. Bancorp paid a 2% commitment fee on
the $3.3 million, and, on May 26, 1994, borrowed a total of $3.0 million from
these individuals at a 10% annual interest rate, payable quarterly, with the
entire outstanding balance becoming due and payable one year later. On July
12, 1994, these loans were repaid.
On July 13, 1993, Bancorp signed an agreement to acquire substantially all
the assets and certain liabilities of New River Bank ("New River Bank"). At
December 31, 1993, New River had assets, deposits and capital of
approximately $26.8 million, $22 million and $4.5 million, respectively.
Under the terms of the agreement, on February 21, 1994, Bancorp paid
approximately $1.6 million in cash and issued 555,395 shares of Bancorp
common stock for the net assets of New River. This transaction was accounted
for under the purchase method of accounting and approximately $2.4 million in
capital (at $4.32 per share) and $240,000 in goodwill, which is being
amortized over 60 months, was recorded. Accumulated amortization at December
31, 1996 and 1995 was $120,000 and $69,000, respectively.
The following summarizes (in thousands) the fair values of the assets and
liabilities of New River acquired:
Cash $ 724
Investment securities 12,648
Net loans 13,878
Premises and equipment 14
Accrued interest receivable 176
Other real estate owned 37
Other assets 5
Total deposits (22,075)
Short term borrowings (1,220)
Accrued interest and other liabilities (385)
--------
Net assets $ 3,802
========
Pro forma financial information for Bancorp as if the acquisition of Suburban
Bank and substantially all the assets and liabilities of New River Bank had
taken place as of January 1, 1994 is as follows:
Year Ended
(IN THOUSANDS EXCEPT PER SHARE DATA) December 31, 1995
- -----------------------------------------------------------
Total interest income $24,075
Provision for loan losses 356
Net interest income after
provision for loan losses 16,731
Income before income taxes 4,529
Net income 3,041
Income per share .47
This pro forma information does not purport to be indicative of the results
of operations which would have resulted had the acquisition been consummated
at the date assumed.
_____________________________________________________________________________
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
3. INVESTMENT SECURITIES
The following is a summary of available-for-sale and held to maturity
securities at December 31, 1996:
<TABLE>
<CAPTION>
Available-for-Sale
-----------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(IN THOUSANDS) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies $12,826 $14 $ 72 $12,768
Obligations of state and political subdivisions 328 27 0 355
Mortgage-backed securities 5,445 0 104 5,341
Foreign government securities 25 0 0 25
--------------------------------------------------
18,624 41 176 18,489
Equity securities 3,149 12 0 3,161
--------------------------------------------------
$21,773 $53 $176 $21,650
==================================================
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(IN THOUSANDS) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies $16,067 $ 9 $128 $15,948
Obligations of state and political subdivisions 708 9 0 717
Mortgage-backed securities 20,924 201 332 20,793
Foreign government securities 625 0 16 609
--------------------------------------------------
$38,324 $219 $476 $38,067
==================================================
</TABLE>
The amortized cost and estimated market value of securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Available-for-Sale
------------------------
Estimated
Fair
(IN THOUSANDS) Cost Value
- ---------------------------------------------------------
Due in one year or less $ 8,512 $ 8,524
Due after one year through five
years 2,319 2,267
Due after five year through ten
years 2,020 2,002
Due after ten years 328 355
--------------------
13,179 13,148
Mortgage-backed securities 5,445 5,341
Equity securities 3,149 3,161
--------------------
$21,773 $21,650
====================
Held to Maturity
-----------------------
Estimated
Fair
(IN THOUSANDS) Cost Value
- ---------------------------------------------------------
Due in one year or less $ 2,653 $ 2,657
Due after one year through five
years 13,647 13,530
Due after five year through ten
years 1,100 1,087
Due after ten years 0 0
--------------------
17,400 17,274
Mortgage-backed securities 20,924 20,793
--------------------
$38,324 $38,067
====================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
The following is a summary of available-for-sale and held to maturity
securities at December 31, 1995:
<TABLE>
<CAPTION>
Available-for-Sale
------------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(IN THOUSANDS) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies $ 6,905 $ 66 $ 0 $ 6,971
Obligations of state and political subdivisions 1,050 5 1 1,054
Mortgage-backed securities 8,457 78 113 8,422
Foreign government securities 25 0 0 25
--------------------------------------------------
16,437 149 114 16,472
Equity securities 1,742 8 0 1,750
--------------------------------------------------
$18,179 $157 $114 $18,222
==================================================
</TABLE>
<TABLE>
<CAPTION>
Held to Maturity
-----------------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
(IN THOUSANDS) Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government securities $16,641 $ 32 $218 $16,455
Obligations of state and political subdivisions 1,118 53 0 1,171
Mortgage-backed securities 15,331 222 37 15,516
Foreign government securities. 600 0 13 587
Other securities 271 0 0 271
--------------------------------------------------
$33,961 $307 $268 $34,000
==================================================
</TABLE>
Proceeds from sales of investment securities during 1996, 1995 and 1994 were
$19,232,000, $12,176,000, and $28,230,000, respectively, with gross realized
gains of $42,000, $42,000, and $14,000 and gross realized losses of $107,000,
$55,000, and $0, respectively. Income tax (benefit) on net gains (losses) for
1996, 1995, and 1994 were ($22,000), ($6,000) and $5,000, respectively.
At December 31, 1996, 1st United had investment securities with a market
value of $1,672,000 pledged to the Federal Reserve Bank. In addition, at
December 31, 1996, 1st United had investment securities with a market value
of $8,329,000 pledged to the State of Florida to secure public funds.
_____________________________________________________________________________
4. LOANS
An analysis of loans at December 31, 1996 and 1995 (in thousands) is as
follows:
1996 1995
--------------------
Commercial $ 49,689 $ 39,574
Real estate:
Construction 20,342 10,810
Mortgage 308,047 211,463
Installment 5,369 5,619
Other 5,298 946
--------------------
388,745 268,412
Less:
Unearned interest (783) (754)
Allowance for loan losses (8,551) (6,839)
--------------------
Net loans $379,411 $260,819
====================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
Activity in the allowance for loan losses (in thousands) is as follows:
Year Ended
December 31,
---------------------------------
1996 1995 1994
--------------------------------
Balance at beginning of year $ 6,839 $ 6,752 $1,549
Charge-offs (1,434) (1,001) (978)
Recoveries 408 548 171
------------------------------
Net charge-offs (1,026) (453) (807)
Allowance of purchased banks
at date of acquisition 2,568 333 5,654
Provision charged to
operations 170 207 356
------------------------------
Balance at end of year $ 8,551 $ 6,839 $6,752
==============================
The allowance for purchased banks in 1996 of $2,568,000 represents allowance
for loan losses transferred from American on the date of acquisition. The
allowance of purchased banks in 1995 of $333,000 represents the allowance for
loan losses transferred from Jupiter Tequesta National Bank. The $5,654,000
in 1994 represents the allowance for loan losses transferred from Suburban
and New River Bank as a result of the acquisitions.
At December 31, 1996, 1995, and 1994, Bancorp had approximately $11,800,000,
$2,459,000, and $2,096,000, respectively, in nonaccrual loans. During 1996,
1995, and 1994 1st United recorded approximately $691,000, $132,000, and
$63,000, respectively, in interest income on nonaccrual loans. The additional
income that would have been reported during 1996, 1995, and 1994, had these
loans been performing, was approximately $467,000, $173,000, and $75,000,
respectively.
At December 31, 1996 and 1995, the Company's recorded investment in loans
that are considered to be impaired under FAS 114 was $12.6 million ($11.8
million were on a nonaccrual basis) and $3.3 million ($2.5 million were on a
nonaccrual basis), respectively. Included in the impaired loans of $12.6
million at December 31, 1996, are $11.2 million in loans with a related
allowance for loan losses of $1.9 million, and $1.4 million that, as a result
of writedowns, do not have an allowance for loan losses. Included in the 1995
amount of $3.3 million is $1.57 million impaired loans for which the related
allowance for loan losses is $578,000 and $1.73 million of impaired loans
that, as a result of write-downs, do not have an allowance for loan losses.
The average recorded investment in impaired loans during the years ended
December 31, 1996 and 1995 was approximately $16.1 million and $3.85 million,
respectively. For the years ended December 31, 1996, 1995 and 1994, the
Company recognized interest income on impaired loans of $761,000, $194,000
and $268,000, respectively.
Directors and officers of Bancorp were customers of and had other
transactions with 1st United in the ordinary course of business. Loan
transactions were made on substantially the same terms as those prevailing at
the time for comparable loans to other persons and did not involve more than
a normal level of risk of collectibility. The aggregate amount of these loans
at December 31, 1996 and 1995 was $11,300,000 and $13,300,000, respectively.
During 1996, new loans and repayments totaled approximately $2,700,000 and
$4,700,000, respectively.
_____________________________________________________________________________
5. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 (in thousands) are
summarized as follows:
1996 1995
------------------
Land $ 3,661 $ 858
Building 6,141 2,142
Leasehold improvements 2,981 2,549
Furniture, fixtures and equipment 7,090 5,134
------------------
19,873 10,683
Less accumulated depreciation and
amortization 4,899 3,378
------------------
$14,974 $ 7,305
==================
_____________________________________________________________________________
6. INCOME TAXES
Effective January 1, 1993, Bancorp adopted FASB Statement No. 109,
"Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the liability
method is used in accounting for income taxes. Under this method, deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Significant components of the provision for income tax expense for the years
ended December 31, 1996, 1995 and 1994 (in thousands) are as follows:
1996 1995 1994
----------------------------
Current
Federal $1,421 $2,162 $ 212
State 84 151 30
----------------------------
1,505 2,313 242
Deferred
Federal 2,665 452 1,139
State 156 28 70
----------------------------
2,821 480 1,209
----------------------------
$4,326 $2,793 $1,451
============================
The balance of the deferred tax asset, included in other assets, at December
31, 1996 and 1995 was $2,800,000 and $2,246,000, respectively. In addition at
December 31, 1996 and 1995, Bancorp had $1,873,000 and $578,000,
respectively, of taxes receivable included in other assets.
Significant components of the Company's deferred tax assets as of December 31
are as follows (in thousands):
December 31,
----------------
1996 1995
----------------
Deferred tax assets:
Depreciation $ (416) $ 263
Loan loss provision 1,620 1,127
Deferred loan fee income 149 217
OREO basis 402 222
Deferred compensation 307 74
Investments 221 50
Other (net) 517 293
----------------
$2,800 $2,246
================
A reconciliation of income tax expense with the amount computed by applying
the statutory federal income tax rate (34%) to income before income taxes (in
thousands) is as follows:
1996 1995 1994
----------------------------
Expected income taxes at
statutory rates $3,988 $2,653 $1,503
Amortization of goodwill 210 134 0
Amortization of start up costs 0 0 (12)
State income taxes (net of
federal taxes) 155 110 56
Other (27) (104) (96)
----------------------------
$4,326 $2,793 $1,451
============================
_____________________________________________________________________________
7. OFF-BALANCE SHEET RISK, COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK
1st United is a party to financial instruments with off-balance sheet risk,
which are issued in the normal course of business, to meet the financing
needs of its customers. These financial instruments consist of commitments to
extend credit and financial guarantees and involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized
in the consolidated balance sheets. The contract amounts reflect the extent
of involvement the Bank has in particular classes of financial instruments.
1st United primarily grants commercial and residential loans to customers
located in Palm Beach and Brevard Counties and surrounding cities. Although
1st United has a diversified loan portfolio, a portion of its debtors'
ability to honor their contracts is dependent upon the economic condition of
these areas.
1st United's exposure to credit loss in the event of nonperformance by the
other parties to the financial instruments for commitments to extend credit
and financial guarantees written is represented by the contractual notional
amount of those instruments. 1st United uses the same credit policies in
making commitments and conditional obligations as they do for on-balance
sheet instruments.
Financial instruments whose contract amounts represent credit risk at
December 31, 1996 include adjustable rate commitments to extend credit of
approximately $30,969,000.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and generally require a fee. As some commitments expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. 1st United evaluates the credit worthiness of each
customer on a case-by-case basis. 1st United generally extends credit only on
a secured basis. Collateral obtained varies but consists primarily of
commercial property, one-to-four family residences and motor vehicles.
Stand-by letters of credit are conditional commitments issued by 1st United
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The outstanding letters
of credit issued and outstanding at December 31, 1996 total $1,865,000. All
but four expire in 1997; one each expires in 2000 and 2002 and two expire in
2001. Twenty six letters of credit totaling $719,000 are collateralized by
certificates of
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
deposit; nine letters of credit totaling $617,000 are collateralized by
various assets and fifteen letters of credit totaling $529,000 are unsecured.
1st United leases its headquarters and former operations center from a
partnership, of which Bancorp's Chairman is the general partner. The leases
have been accounted for as operating leases. The leases provide for
agreed-upon rent increases throughout their respective ten-year and six-year
terms. The headquarters' lease provides for two, five-year renewal options.
Both leases expire during 1997. During 1996, 1995 and 1994, 1st United paid
the partnership approximately $330,000, $296,000, and $287,000, respectively
under the terms of the leases.
1st United leases substantially all of its other facilities under leases
which have been accounted for as operating leases. These leases provide for
scheduled rent increases over the lease terms, expire through 2006 and
generally contain renewal options.
Rent included in occupancy expense for the years ended December 31, 1996,
1995 and 1994 was approximately $1,333,000 $1,347,000, and $1,069,000,
respectively.
As of December 31, 1996, aggregate future minimum lease payments under
noncancelable operating leases were as follows (in thousands):
1997 $1,210
1998 983
1999 703
2000 635
2001 480
Thereafter 420
------
Total future minimum lease payments $4,431
======
Effective February 1, 1993, 1st United established a 401(k) Pension and
Profit Sharing Plan covering substantially all employees. Employees may
contribute up to the maximum allowed by law. 1st United matches a minimum of
25% of the first 6% of the employee's salary contributed by the employee.
Management has the latitude to provide discretionary increases in the percent
matched. Based upon 1st United's performance the match provided in 1996 was
75% of the first six percent of the employee's salary contributed by the
employee. The employees vest in the employer contribution at 33 1/3 % per
year. During 1996, 1995 and 1994 1st United contributed approximately
$131,000, $126,000 and $23,000, respectively.
In addition to the above commitments and contingencies, there are various
matters of litigation pending against the company that management has
reviewed with legal counsel. Management believes that the aggregate liability
or loss, if any, resulting from such litigation will not be material to the
consolidated financial statements.
_____________________________________________________________________________
8. OTHER RELATED PARTY TRANSACTIONS
1st United obtains its property and casualty and group health and life and
workers compensation insurance through a national insurance broker, who is a
Director of 1st United. In 1996, 1995 and 1994, 1st United recognized
insurance expense of approximately $750,000, $706,000, and $497,000,
respectively, for these coverages.
_____________________________________________________________________________
9. MATURITIES OF CERTIFICATES OF DEPOSIT
At December 31, 1996, the scheduled maturities of certificates of deposit are
as follows (in thousands):
1997 $102,869
1998 7,593
1999 1,224
2000 2,205
2001 and thereafter 316
--------
$114,207
========
_____________________________________________________________________________
10. OTHER LIABILITIES
1st United has $12,000,000 available in unsecured overnight federal funds
lines of credit through two financial institutions. 1st United also has
entered into a master repurchase agreement with another financial institution
to borrow up to the value of 1st United's unpledged investment securities
held in safekeeping at the financial institution ($40 million available to
borrow at December 31, 1996). At December 31, 1996 and 1995, no funds were
drawn on these agreements.
_____________________________________________________________________________
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
FAS No. 107 requires that Bancorp disclose estimated fair values for certain
of its financial instruments. Financial instruments include such items as
loans, deposits, securities, and other instruments as defined by the
standard.
Fair value estimates are generally subjective in nature and are dependent
upon a number of significant assumptions associated with each instrument or
group of similar instruments, including estimates of discount rates, risks
associated with specific financial instruments, estimates of future cash
flows and relevant available market information. Fair value information is
intended to represent an estimate of an amount at which a financial
instrument could be exchanged in a current transaction between a willing
buyer and seller engaging in an exchange transaction.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
However, since there are no established trading markets for a significant
portion of Bancorp's financial instruments, Bancorp may not be able to
immediately settle its financial instruments; as such, the fair values are
not necessarily indicative of the amounts that could be realized through
immediate settlement. In addition, the majority of Bancorp's financial
instruments, such as loans and deposits, are held to maturity and are
realized or paid according to the contractual agreement with the customer.
Where available, quoted market prices are used to estimate fair values.
However, due to the nature of Bancorp's financial instruments, in many
instances quoted market prices are not available. Accordingly, Bancorp has
estimated fair values based on other valuation techniques, such as
discounting estimated future cash flows using a rate commensurate with the
risks involved or other acceptable methods. Fair values are estimated without
regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible income tax ramifications, or
estimated transaction costs. Fair values are also estimated at a specific
point in time and are based on interest rates and other assumptions at that
date. As events change the assumptions underlying these estimates, the fair
values of financial instruments will change.
Disclosure of fair values is not required for certain items such as premises
and equipment, OREO, prepaid expenses, core deposit intangibles and other
customer relationships, other intangible assets and income tax assets and
liabilities. Accordingly, the aggregate fair value amounts presented do not
purport to represent, and should not be considered representative of, the
underlying "market" or franchise value of Bancorp.
Because the standard permits many alternative calculation techniques and
because numerous assumptions have been used to estimate the fair value of
Bancorp's financial instruments, reasonable comparisons of Bancorp's fair
value information with other financial institutions' fair value information
cannot necessarily be made.
The methods and assumptions use to estimate the fair values of each class of
financial instrument are as follows:
CASH AND DUE FROM BANKS, INTEREST BEARING DEPOSITS IN OTHER BANKS AND FEDERAL
FUNDS SOLD --These items are generally short-term in nature and, the carrying
amounts reported in the balance sheets are reasonable approximations of their
fair values.
SECURITIES AVAILABLE-FOR-SALE AND SECURITIES HELD TO MATURITY--Fair values
are principally based on quoted market prices.
LOANS--Loans were valued using discounted cash flows. The discount rates used
to determine the fair value of these loans were based on interest rates
currently being charged by 1st United on comparable loans as to credit risk
and term.
ACCRUED INTEREST RECEIVABLE--The carrying amount of accrued interest
receivable approximates its fair value.
DEPOSITS--The fair values of deposits subject to immediate withdrawal, such
as interest and noninterest bearing checking, passbook savings and money
market deposit accounts, are equal to their carrying amounts. The carrying
amounts for variable rate certificates of deposit and other time deposits
approximate their fair values at the reporting date. Fair values for fixed
rate certificates of deposit and other time deposits are estimated by
discounting future cash flows using interest rates currently offered on time
deposits with similar remaining maturities.
ACCRUED EXPENSES AND OTHER LIABILITIES--Financial instruments classified as
accrued expenses and other liabilities subject to the disclosure requirements
of the standard consist principally of short-term liabilities; the carrying
amounts of these items approximate their fair values.
OTHER BORROWINGS: The fair values of securities sold under agreement to
repurchase and long term debt are estimated using discounted cash flow
analysis based on the Bank's current incremental borrowing rates for similar
types of borrowing arrangements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
The estimated fair values of Bancorp's financial instruments at December 31,
1996 and 1995 are presented in the following table.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
-----------------------------------------------------
CARRYING ESTIMATED Carrying Estimated
AMOUNT FAIR VALUE Amount Fair Value
-----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $ 30,247 $ 30,247 $ 21,211 $ 21,211
Interest bearing deposits $ 41,600 $ 41,600 $ 0 $ 0
Federal funds sold $ 14,475 $ 14,475 $ 16,825 $ 16,825
Investment Securities:
Available-for-sale $ 21,650 $ 21,650 $ 18,222 $ 18,222
Held to maturity $ 38,324 $ 38,067 $ 33,961 $ 34,000
Loans $379,411 $375,658 $261,499 $263,303
Accrued interest receivable $ 2,560 $ 2,560 $ 2,074 $ 2,074
LIABILITIES
Deposits $505,020 $510,093 $330,170 $330,590
Securities sold under agreements to repurchase $ 0 $ 0 $ 700 $ 700
Long term debt $ 0 $ 0 $ 39 $ 39
</TABLE>
_____________________________________________________________________________
12. SHAREHOLDERS' EQUITY
The shareholders of Bancorp are entitled to share equally in all dividends
which may be declared by the Board of Directors out of funds legally
available therefore. However, Florida law places certain restrictions on the
issuance of dividends from 1st United to Bancorp. Pursuant to Section 658.37
of the Florida Banking Code, the Board of Directors of 1st United, after
charging off bad debts, depreciation, and other worthless assets, if any, and
making provisions for reasonably anticipated future losses on loans and other
assets, may quarterly, semi-annually or annually declare a dividend of up to
the aggregate net profits of that period combined with 1st United's retained
net profits for the preceding two years and, with the approval of the Florida
Department of Banking and Finance, declare a dividend from retained net
profits which accrued prior to the preceding two years. Before declaring such
dividends, 20% of the net profits for the preceding period as is covered by
the dividend must be transferred to the surplus fund of 1st United until the
said fund becomes equal to the amount of 1st United's common stock then
issued and outstanding. 1st United shall not declare any dividend if (i) its
net income from the current year, combined with the retained net income for
the preceding two years, is a loss or (ii) the payment of such dividend would
cause the capital account of 1st United to fall below the minimum amount
required by law, regulation, order, or any written agreement with the
Department or a federal regulatory agency. On December 31, 1996, the total
amount of 1st United retained earnings available to be paid as dividends,
without prior regulatory approval, to Bancorp is $6.7 million.
The Company has an employment agreement, dated September 1, 1991, with its
chief executive officer ("CEO") for a period of three years subject to
termination under certain circumstances. Unless otherwise agreed to by the
parties, the term of the agreement is automatically extended for an
additional year on amounts and certain other benefits plus a bonus based on
the profitability of the Company. The agreement provides for a severance
payment to the individual equal to 2.99 times his then annual salary if his
termination is for other than "for cause." In addition, in the event of
voluntary termination resulting from a change of control, he is entitled to a
single payment of $250,000.
In April, 1996 the shareholders of Bancorp approved the 1996 Senior
Management Long-Term Performance Incentive Pan (the "Incentive Plan"). Under
the Incentive Plan, the Board can grant up to 600,000 Performance Share Units
which entitle its holder to be paid, on the third anniversary of the grant
date, in cash for each unit an amount equal to the difference of the fair
market value of Bancorp's common stock on the grant date and the fair value
on the third anniversary of the grant date. During 1996 the Board granted
100,000 Performance Share Units to management. On the grant date the fair
market value of Bancorp's common stock was $8.50.
_____________________________________________________________________________
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
13. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possible additional discretionary--action
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to quantitative judgements by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). As of December 31, 1996, the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal
Reserve Bank categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized
the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier
I leverage ratios as set forth in the following table. Bancorp's capital
ratios are not significantly different than 1st United's. There are no
conditions or events since that notification that management believes have
changed the institution's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------------------------------------------------------------------------------------
(IN 000's) Amount Ratio Amount Ratio Amont Ratio
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $48,469 11.22% /greater than/$34,574 /greater than/ .0% /greater than/$43,218 /greater than/10.0%
Tier I Capital
(to Risk Weighted Assets) 43,067 9.97 /greater than/ 17,287 /greater than/4.0 /greater than/$25,930 /greater than/ 6.0
Tier I Capital
(to Average Assets) 43,067 8.2 /greater than/ 21,092 /greater than/4.0 /greater than/$26,365 /greater than/ 5.0
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $37,495 11.8% /greater than/$25,388 /greater than/8.0% /greater than/$31,735 /greater than/10.0%
Tier I Capital
(to Risk Weighted Assets) 33,522 10.6 /greater than/ 12,694 /greater than/4.0 /greater than/ 19,041 /greater than/ 6.0
Tier I Capital
(to Average Assets) 33,522 9.6 /greater than/ 13,958 /greater than/4.0 /greater than/ 17,448 /greater than/ 5.0
</TABLE>
_____________________________________________________________________________
14. STOCK OPTION PLAN
Options, exclusive of those granted to the CEO were issued under the 1993 Key
Employee Stock Option Plan (the "Plan"). The Plan provides for the issuance
of stock options to employees under a three year vesting period and at
exercise prices equal to the fair value of the Company's stock on the date of
issuance. The Company does not have any additional options available to be
granted under this Plan.
The Company also granted its CEO the option to purchase 175,228 shares of
common stock of the Company through October 16, 1997 at an option price of
$3.33 per share. If unexercised, the options expire at a rate of 35,046
shares per year beginning October 15, 1997. 150,000 of these options were
exercised during 1996. The Company has also granted the chief executive
officer additional options to purchase 148,900 shares. These additional
options expire October 1, 2001 and are exercisable at $3.70 per share.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
A summary of the Company's stock option activity and related information for
the three years ended December 31, 1996 is as follows:
Average
Options Exercise Price
--------------------------
Options outstanding
December 31, 1993 414,028 $3.47
Granted 75,300 4.74
Exercised 0 0
Forfeited 0 0
---------------------
Options outstanding
December 31, 1994 489,328 3.67
Granted 20,000 6.35
Exercised (4,500) 3.33
Forfeited 0 0
---------------------
Outstanding--
December 31, 1995 504,828 3.77
Granted 29,500 8.00
Exercised (170,000) 3.47
Forfeited 0 0
---------------------
Outstanding--
December 31, 1996 364,328 $4.26
=====================
The exercise price of options granted during the year equaled the market
price of the underlying stock on the grant date.
For options outstanding at December 31, 1996, the exercice prices are between
$3.33 -$8.00 per share and their weighted average remaining contractual life
is approximately 6.5 years.
In October 1995, the Financial Accounting Standard Board (FASB) issued FASB
Statement No. 123, "Accounting for Stock Based Compensation" (FAS123). The
effect of applying the FAS 123 fair value method to the company's stock
options issued after December 15, 1994, results in net income and earnings
per share that are not materially different from the amounts reported.
_____________________________________________________________________________
15. SUBSEQUENT EVENTS
On January 6, 1997, Bancorp executed an acquisition agreement (the
"Agreement") to acquire Island National Bank and Trust Company ("Island"),
which is based in Palm Beach, Florida. The Agreement calls for Bancorp to
issue to Island shareholders up to a maximum of $17.75 million in Bancorp
Common Stock. Island has three locations: two in the Town of Palm Beach and
one in Palm Beach Gardens. At December 31, 1996, Island had total assets,
deposits and equity of $130 million, $118 million, and $10.9 million,
respectively. The acquisition is anticipated to be consummated in the second
quarter of 1997 and is subject to regulatory and Island shareholder approval
and satisfaction of other contingencies. Management anticipates the
acquisition will be accounted for as a "pooling of interests" under generally
accepted accounting principles.
_____________________________________________________________________________
16. 1ST UNITED BANCORP (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS
December 31,
---------------------
(DOLLARS IN THOUSANDS) 1996 1995
- -----------------------------------------------------
ASSETS
Cash in subsidiary bank $ 165 $ 585
Investment in subsidiary bank 43,000 33,522
Investment in non bank
subsidiaries 490 0
Goodwill 7,016 4,229
Other assets 379 56
-------------------
$51,050 $38,392
===================
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Long term debt $ 0 $ 39
Other liabilities 18 16
-------------------
18 55
Shareholders' equity 51,032 38,337
-------------------
$51.050 $38.392
===================
CONDENSED STATEMENTS OF INCOME
Year Ended December 31,
-----------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------
Income:
Dividends from
subsidiaries $5,776 $3,200 $ 325
Expenses:
Interest on long term
debt 71 63 143
Other 740 359 318
----------------------------
811 422 461
----------------------------
Income before income tax
benefit and equity in
undistributed income of
subsidiaries 4,965 2,778 (136)
Income tax benefit (72) (72) (148)
----------------------------
Income before equity in
undistributed income of
subsidiaries 5,037 2,850 12
Equity in undistributed
income of subsidiaries 2,398 2,175 2,959
----------------------------
Net income $7,435 $5,025 $2,971
============================
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOW
Year Ended December 31,
----------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- -----------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 7,435 $ 5,025 $ 2,971
Adjustments to reconcile net
income to net cash provided
by operating activities:
Goodwill amortization 620 256 127
Increase in other assets (323) (3) (44)
Increase (decrease) in other
liabilities 2 (51) (3)
Equity in undistributed
income of subsidiary (2,398) (2,175) (2,959)
-------------------------------
Net cash provided by
operating activities 5,336 3,052 92
INVESTING ACTIVITIES
Investment in banking
subsidiary 0 0 (3,500)
Net cash paid in
acquisitions (5,517) (285) (1,285)
-------------------------------
Net cash used in investing
activities (5,517) (285) (4,785)
FINANCING ACTIVITIES
Payment of cash dividends (1,728) (1,165) (225)
Increase in notes payable,
related parties 2,200 0 3,003
Decrease in notes payable,
related parties (2,200) (2,005) (3,003)
Repayment of
long term debt (2,782) 0 (217)
Repayment of mandatory
convertible debt 0 0 (300)
(Repurchase) issuance of
Common Stock (267) (1,307) 7,628
Bank subsidiary repurchase
of bank stock 3,574 0 0
Exercise of stock options 964 15 0
-------------------------------
Net cash (used) provided by
financing activities (239) (4,462) 6,886
-------------------------------
(Decrease) increase in cash
and cash equivalents (420) (1,695) 2,193
Cash and cash equivalents at
beginning of year 585 2,280 87
-------------------------------
Cash and cash equivalents at
end of year $ 165 $ 585 $ 2,280
===============================
EXHIBIT 21
The following chart lists all subsidiaries of 1st United Bancorp as of January
31, 1997. Each subsidiary is incorporated in the State of Florida and is 100%
owned by its parent. Except for Plumoso Properties, Inc., which holds all the
Brevard County owned branches, and 1st United Bank, each of the subsidiaries
identified below are nonoperating and do not have any significant assets.
100% Owned Subsidiaries of Bancorp
1. 1st United Bank
2. TAB Acquisition Company
100% Owned Subsidiaries of 1st United Bank
1. Lost Lake Development Company
2. Plumosa Properties, Inc.
3. Harbor Isles Development Corporation
4. The American Mortgage Corporation of The South
100% Owned Subsidiaries of TAB Acquisition Company
1. 340 Harbor Corporation
2. TAB Investments, Inc.
3. ABC Ventures, Inc.
4. Brevard Ohio Corporation
100% Owned Subsidiaries of TAB Investments, Inc.
1. Bancomputer, Inc.
2. Lake Harney Development Company
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of 1st United Bancorp of our report dated January 9, 1997 included in the 1996
Annual Report to Shareholders of 1st United Bancorp.
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-70376) pertaining to the Key Employees' Stock Option Plan of
1st United Bancorp of our report dated January 9, 1997, with respect to the
consolidated financial statements of 1st United Bancorp incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1996.
We consent to the incorporation by reference in the Registration Statement
(Form S-4 No. 33-45655) of 1st United Bancorp and in the related Prospectus of
our report dated January 9, 1997, with respect to the consolidated financial
statements of 1st United Bancorp incorporated by reference in this Annual Report
(Form 10-K) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
West Palm Beach, Florida
February 14, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,247
<INT-BEARING-DEPOSITS> 41,600
<FED-FUNDS-SOLD> 14,475
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,650
<INVESTMENTS-CARRYING> 38,324
<INVESTMENTS-MARKET> 38,067
<LOANS> 387,962
<ALLOWANCE> 8,551
<TOTAL-ASSETS> 561,288
<DEPOSITS> 505,020
<SHORT-TERM> 0
<LIABILITIES-OTHER> 5,236
<LONG-TERM> 0
0
0
<COMMON> 84
<OTHER-SE> 50,948
<TOTAL-LIABILITIES-AND-EQUITY> 561,288
<INTEREST-LOAN> 33,799
<INTEREST-INVEST> 4,611
<INTEREST-OTHER> 1,961
<INTEREST-TOTAL> 40,371
<INTEREST-DEPOSIT> 10,738
<INTEREST-EXPENSE> 10,877
<INTEREST-INCOME-NET> 29,494
<LOAN-LOSSES> 170
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 25,473
<INCOME-PRETAX> 11,761
<INCOME-PRE-EXTRAORDINARY> 11,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,435
<EPS-PRIMARY> .87
<EPS-DILUTED> .86
<YIELD-ACTUAL> 6.29
<LOANS-NON> 11,762
<LOANS-PAST> 347
<LOANS-TROUBLED> 900
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,839
<CHARGE-OFFS> 1,434
<RECOVERIES> 408
<ALLOWANCE-CLOSE> 8,551
<ALLOWANCE-DOMESTIC> 8,551
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
