SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 1, 1997
1ST UNITED BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 0-20254 65-0178023
- ------------------------ ------------------------ --------------------------------
(State of Incorporation) (Commission File Number) (IRS Employer Identification No.)
</TABLE>
980 NORTH FEDERAL HIGHWAY, BOCA RATON, FLORIDA 33432
---------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (561) 392-4000
NOT APPLICABLE
-----------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
1ST UNITED BANCORP
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Item 2. Acquisition.
On January 6, 1997, 1st United Bancorp ("Bancorp") executed an
agreement (the "Agreement") to acquire Island National Bank and Trust Company
("Island"). A Form 8-K dated January 6, 1997 was filed upon the signing of the
Agreement.
On April 1, 1997, the transaction contemplated by the Agreement
was consummated. Under the terms of the Agreement, Bancorp issued approximately
1.365 million shares of Bancorp Common Stock to the shareholders of Island. The
acquisition was accounted for as a "pooling of interests" under generally
accepted accounting principles. On April 11, 1997, Bancorp filed a Form 8-K with
the Securities and Exchange Commission (the "Island 8-K") which contained
audited financial statements for Island for the years ended December 31, 1996
and 1995 and unaudited Bancorp/Island pro forma financial information as of
December 31, 1996 and for the two years then ended.
Bancorp is hereby amending the Island 8-K to include audited
Bancorp supplementary consolidated financial statements (the "Audited
Supplementary Financial Statements") containing supplementary consolidated
balance sheets of Bancorp as of December 31, 1996 and 1995, and supplementary
consolidated statements of income, shareholders' equity and cash flows for the
years ended December 31, 1996, 1995 and 1994. The Audited Supplementary
Financial Statements (and the notes attached thereto) restate Bancorp's audited
consolidated financial statements to include the effects of the acquisition of
Island, which was accounted for as a pooling-of-interests. The Audited
Supplementary Consolidated Financial Statements are set forth in Item 7(b) of
this Form 8-K/A.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired:
Audited Consolidated Financial Statements for Island National
Bank and Trust Company for the years ended December 31, 1996
and 1995.
(b) Financial Information of Bancorp
Audited Supplementary Consolidated Financial Statements for
1st United Bancorp at and as of December 31, 1996 and 1995,
and for the years ended December 31, 1996, 1995 and 1994.
<PAGE>
(c) Exhibits
2.1* Acquisition Agreement between 1st United Bancorp, 1st
United Bank and Island National Bank and Trust
Company, dated January 6, 1997 (the "Acquisition
Agreement")
2.2** Amendment No. 1 to the Acquisition Agreement
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO Seidman, LLP
27.1 Financial Data Schedule for Period Ended
December 31, 1996
27.2 Financial Data Schedule for Period Ended
December 31, 1995
27.3 Financial Data Schedule for Period Ended
December 31, 1994
----------------
* Incorporated by reference from Bancorp's Form 8-K
dated January 6, 1997, as filed with the Securities
and Exchange Commission on January 16, 1997 (File No.
0-20254).
** Incorporated by reference from Bancorp's Form 8-K
dated April 1, 1997, as filed with the Securities and
Exchange Commission on April 11, 1997 (File No.
0-20254).
<PAGE>
Item 7(a)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Island National Bank and Trust Company
Palm Beach, Florida
We have audited the accompanying consolidated balance sheets of Island National
Bank and Trust Company and subsidiary (the "Bank") as of December 31, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Island
National Bank and Trust Company and its subsidiary as of December 31, 1996 and
1995, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
February 4, 1997 Certified Public Accountants
1
<PAGE>
<TABLE>
<CAPTION>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS
Cash and due from banks $ 6,411,960 $ 4,782,581
Federal funds sold 32,786,701 8,498,774
- -------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 39,198,661 13,281,355
- -------------------------------------------------------------------------------------------
INVESTMENT SECURITIES (Note 1):
Available for sale 2,485,630 7,106,438
Held to maturity 4,592,898 4,589,418
Other 766,750 683,400
- -------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES 7,845,278 12,379,256
- -------------------------------------------------------------------------------------------
LOANS, net (Note 2) 79,354,484 77,831,680
BANK PREMISES AND EQUIPMENT, net (Note 3) 1,320,609 1,454,431
ACCRUED INTEREST RECEIVABLE 533,160 687,331
INTANGIBLE ASSETS FROM ACQUISITION OF TRUST COMPANY,
net of accumulated amortization (Note 4) 935,284 1,049,872
OTHER REAL ESTATE OWNED 733,277 648,241
OTHER ASSETS (Notes 5 and 7) 957,009 755,904
- -------------------------------------------------------------------------------------------
$130,877,762 $108,088,070
===========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Non interest bearing $ 26,725,015 $ 17,991,411
Interest bearing:
Savings and transaction 65,989,360 53,022,164
Time under $100,000 16,427,561 14,771,087
Time $100,000 or more (Note 6) 8,963,890 11,051,670
- -------------------------------------------------------------------------------------------
Total deposits 118,105,826 96,836,332
Other liabilities 1,740,267 886,882
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 119,846,093 97,723,214
- -------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 7, 9 and 13)
STOCKHOLDERS' EQUITY (Note 10):
Common stock $5.00 par value, 2,000,000 shares authorized;
614,901 share issued and outstanding 3,074,505 3,074,505
Additional paid in capital 8,767,069 8,767,069
Accumulated deficit (796,505) (1,585,282)
Net unrealized gain (loss) on securities available
for sale (Note 1) (13,400) 108,564
- -------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 11,031,669 10,364,856
- -------------------------------------------------------------------------------------------
$130,877,762 $108,088,070
===========================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996 1995
- --------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans $ 6,955,281 $6,943,181
Interest on investment securities 675,260 902,246
Interest on federal funds sold 387,554 437,411
Other 31,778 26,620
- --------------------------------------------------------------------------------
TOTAL INTEREST INCOME 8,049,873 8,309,458
INTEREST EXPENSE ON DEPOSITS (Note 12) 2,780,338 3,051,650
- --------------------------------------------------------------------------------
NET INTEREST INCOME 5,269,535 5,257,808
PROVISION FOR LOAN LOSSES 85,000 120,500
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 5,184,535 5,137,308
- --------------------------------------------------------------------------------
NON INTEREST INCOME
Investment services 955,870 836,537
Trust services 833,450 723,053
Customer services charges and other 401,032 421,962
Securities gains (losses) (6,875) --
Gain (loss) on sales of other real estate owned 33,976 (2,286)
- --------------------------------------------------------------------------------
TOTAL NON INTEREST INCOME 2,217,453 1,979,266
- --------------------------------------------------------------------------------
NON INTEREST EXPENSE
Salaries and employee benefits (Note 7) 2,921,669 2,837,738
Occupancy (Note 9) 1,325,979 1,278,087
Professional fees 363,789 360,469
Furniture and equipment 350,147 277,231
Data processing 300,108 223,207
Advertising and business development 220,933 220,038
Supplies 137,808 129,291
Securities clearing fees 126,975 135,575
Amortization of intangible assets (Note 4) 114,588 114,588
Directors' fees 104,937 159,300
Trust servicing fees 79,314 71,585
Other insurance 68,902 104,081
Deposit insurance 2,000 116,674
Other 433,333 388,473
- --------------------------------------------------------------------------------
TOTAL NON INTEREST EXPENSE 6,550,482 6,416,337
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES (BENEFIT) 851,506 700,237
INCOME TAXES (BENEFIT) (NOTE 5) 62,729 (244,240)
- --------------------------------------------------------------------------------
NET INCOME $ 788,777 $ 944,477
================================================================================
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
<TABLE>
<CAPTION>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NET
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL SECURITIES
COMMON PAID IN ACCUMULATED AVAILABLE
STOCK CAPITAL DEFICIT FOR SALE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 $3,074,505 $8,767,069 $(2,529,759) $ (68,857)
Net income - - 944,477 -
Net change in unrealized gain (loss) on
securities available for sale - - - 177,421
- -----------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 3,074,505 8,767,069 (1,585,282) 108,564
Net income - - 788,777 -
Net change in unrealized gain (loss) on
securities available for sale - - - (121,964)
- -----------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 $3,074,505 $8,767,069 $ (796,505) $ (13,400)
=====================================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 788,777 $ 944,477
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 527,510 513,747
Provision for loan losses 85,000 120,500
Deferred income taxes (144,006) (254,370)
Securities losses 6,875 --
(Gains) losses on sales of other real estate owned (33,976) 2,286
Amortization of investment securities discounts and
premiums (5,849) (205,454)
Decrease (increase) in other assets 120,738 (207,819)
Decrease in other liabilities 33,157 84,278
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,378,226 997,645
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities available for sale (4,506,870) (5,998,594)
Proceeds from sales and maturities of investment
securities available for sale 8,993,125 13,794,102
Purchases of investment securities held to maturity -- (1,065,130)
Proceeds from maturities of investment securities held to
maturity -- 68,150
Purchases of other investment securities (83,350) --
Net increase in loans (2,341,081) (6,698,707)
Proceeds from sales of other real estate owned 1,486,862 95,407
Capital expenditures, net (279,100) (395,275)
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 3,269,586 (200,047)
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 21,269,494 3,041,912
- ----------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 21,269,494 3,041,912
- ----------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 25,917,306 3,839,510
CASH AND CASH EQUIVALENTS, beginning of year 13,281,355 9,441,845
- ----------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $39,198,661 $13,281,355
========================================================================================
</TABLE>
SEE ACCOMPANYING SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
The consolidated financial statements include the accounts of Island National
Bank and Trust Company (the "Bank") and its wholly owned subsidiary, Island
Investment Services, Inc. ("IIS" or "Subsidiary"). The Bank provides a wide
range of banking, investment and trust services to individual and corporate
customers primarily in Palm Beach County, Florida. All significant intercompany
balances and transactions have been eliminated in consolidation.
ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
INVESTMENT SECURITIES
The Bank classifies investment securities into two categories and accounts for
them as follows:
SECURITIES HELD TO MATURITY:
Investment securities for which the Bank has the intention and ability to hold
to maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts, using methods that approximate the interest method.
SECURITIES AVAILABLE FOR SALE:
Securities available for sale are carried at estimated market value. Unrealized
holding gains and losses, net of income taxes, on securities available for sale
are reported as a net amount in a separate component of stockholders' equity
until realized.
Gains and losses realized from the sale of investment securities are computed by
the specific identification method.
6
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
LOANS
Loans are stated at the amount of unpaid principal, net of the allowance for
loan losses, and net deferred loan origination fees and costs. Interest on loans
is generally accrued daily based on the principal balance outstanding. The
accrual of interest income is generally discontinued when a loan becomes ninety
days past due as to principal or interest. When interest accruals are
discontinued, uncollected interest credited to income in the current year is
reversed and interest accrued in the prior year is charged to the allowance for
loan losses.
Loan origination fees and certain direct origination costs are deferred and
amortized as an adjustment of the related loan's yield. The Bank is amortizing
these amounts over the expected life of the related loans using methods which
approximate the interest method. Commitment fees based on a percentage of a
customer's unused line of credit and fees related to standby letters of credit
are recognized over the commitment period.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level considered adequate to
provide for potential loan losses inherent in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio and other relevant factors.
Under generally accepted accounting principles a loan is considered to be
impaired when it is probable that the Bank will be unable to collect all
principal and interest amount according to the contractual terms of the loan
agreement. Under this definition, management considers loans that have been
placed on non accrual status or which have been renegotiated in a troubled debt
restructuring to be impaired. The allowance for loan losses related to loans
identified as impaired is primarily based on the excess of the loan's current
outstanding principal balance over the estimated fair market value of the
related collateral. For impaired loans that are not collateral dependent, the
allowance for loan losses is recorded at the amount by which the outstanding
recorded principal balance exceeds the current best estimate of the future cash
flows on the loan, discounted at the loan's effective interest rate.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the straight
line method over the estimated useful lives of the assets.
7
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OTHER REAL ESTATE
Other real estate consists of property acquired through foreclosure proceedings
or acceptance of a deed in lieu of foreclosure. Such property is carried at the
lower of the basis in the loan at the time of settlement or fair value less
costs to sell. Loan losses arising from the acquisition of such property are
charged against the allowance for loan losses upon acquisition. Losses arising
from disposition and revaluations of such property are charged to expense as
incurred.
INCOME TAXES
The Bank and its Subsidiary file consolidated Federal and State income tax
returns. The provision for income taxes is based on amounts reported in the
statement of income, after exclusion of non taxable income items such as
interest on state and municipal securities, and includes deferred taxes provided
for temporary differences between financial statement and income tax bases of
assets and liabilities. Deferred taxes are computed on the "liability" method.
STATEMENTS OF CASH FLOWS
For purposes or reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are sold for one day periods.
TRUST ASSETS
Securities and other property held by the trust department in agency or
fiduciary capacities are not included in the consolidated financial statements
since they are not assets of the Bank. Revenues from trust services are recorded
in income as earned.
RECLASSIFICATIONS
Certain amounts in the 1995 financial statements have been reclassified in order
to conform to the 1996 presentation.
8
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECENT ACCOUNTING PRONOUNCEMENTS
The Bank applies Accounting Principles Board (APB) Opinion 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
fixed price stock option plans. Accordingly, no compensation cost is recognized
as a result of options awarded under the plan. In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock Based Compensation." SFAS No. 123 allows
companies to continue to account for their stock option plans in accordance with
APB Opinion 25 but encourages the adoption of a new accounting method which
requires the recognition of compensation expense based on the estimated fair
value of employee stock options. Companies not electing to follow the new fair
value based method are required to provide expanded footnote disclosures,
including pro forma net income, determined as if the company had applied the new
method. SFAS No. 123 is required to be adopted prospectively beginning January
1, 1996. Management is accounting for its stock option plans in accordance with
APB Opinion 25, however, the dollar amount disclosures required by SFAS No. 123
are insignificant and are not included in the Bank's financial statements.
9
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 INVESTMENT SECURITIES
The classification and carrying amounts of investment securities and their
approximate market value, as shown in the accompanying consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996:
Available for sale:
U.S. Treasury securities $ 1,507,885 $ 3,975 $ (1,860) $ 1,510,000
U.S. Government agencies 999,227 - (23,597) 975,630
------------------------------------------------------------------------------------------------------------------------------
2,507,112 3,975 (25,457) 2,485,630
------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
U.S. Treasury securities 4,492,898 117,883 - 4,610,781
State of Israel bond 100,000 - - 100,000
------------------------------------------------------------------------------------------------------------------------------
4,592,898 117,883 - 4,710,781
------------------------------------------------------------------------------------------------------------------------------
Other:
Federal Reserve Bank stock 307,750 - - 307,750
Federal Home Loan Bank stock 459,000 - - 459,000
------------------------------------------------------------------------------------------------------------------------------
766,750 - - 766,750
------------------------------------------------------------------------------------------------------------------------------
$7,866,760 $121,858 $(25,457) $ 7,963,161
==============================================================================================================================
DECEMBER 31, 1995:
Available for sale:
U.S. Treasury securities $2,997,874 $ 30,251 $ - $ 3,028,125
U.S. Government agencies 4,000,000 78,313 - 4,078,313
------------------------------------------------------------------------------------------------------------------------------
6,997,874 108,564 - 7,106,438
------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
U.S. Treasury securities 4,489,418 242,614 - $ 4,732,032
State of Israel bond 100,000 - - 100,000
------------------------------------------------------------------------------------------------------------------------------
4,589,418 242,614 - 4,832,032
------------------------------------------------------------------------------------------------------------------------------
Other:
Federal Reserve Bank stock 287,200 - - $ 287,200
Federal Home Loan Bank stock 396,200 - - 396,200
------------------------------------------------------------------------------------------------------------------------------
683,400 - - 683,400
------------------------------------------------------------------------------------------------------------------------------
$12,270,692 $351,178 $ - $12,621,870
==============================================================================================================================
</TABLE>
In accordance with the transition provisions of the SFAS No. 115
Implementation Guide issued by the FASB in November 1995, the Bank
transferred securities with an amortized cost of $4,000,000 from the held
to maturity to the available for sale category on December 29, 1995. The
net unrealized gain on the securities transferred was approximately
$78,000.
10
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 INVESTMENT SECURITIES--CONTINUED
The amortized cost and estimated market values of investment securities at
December 31, 1996, are summarized by contractual maturity as follows:
AMORTIZED ESTIMATED
COST MARKET VALUE
-------------------------------------------------------------------------
Available for sale:
Due in one year or less $ - $ -
Due after one year through five years 2,507,112 2,485,630
-------------------------------------------------------------------------
2,507,112 2,485,630
-------------------------------------------------------------------------
Held to maturity:
Due in one year or less 1,499,357 1,508,281
Due after one year through five years 3,093,541 3,202,500
-------------------------------------------------------------------------
4,592,898 4,710,781
-------------------------------------------------------------------------
Other:
No scheduled maturity 766,750 766,750
-------------------------------------------------------------------------
$7,866,760 $7,963,161
=========================================================================
At December 31, 1996, investment securities held to maturity with a
carrying value of approximately $1,700,000, were pledged as collateral for
trust purposes and for other purposes required or permitted by law.
2 LOANS AND ALLOWANCE FOR LOAN LOSSES
An analysis of loans is as follows:
DECEMBER 31, 1996 1995
-------------------------------------------------------------------------
Real estate:
Residential $44,236,995 $43,343,532
Commercial 19,555,457 19,279,928
Construction 1,799,361 2,737,565
Commercial 10,734,931 8,966,972
Consumer 4,553,863 4,954,572
-------------------------------------------------------------------------
80,880,607 79,282,569
Less:
Allowance for loan losses 1,274,650 1,174,796
Net deferred loan origination fees
and costs 251,473 276,093
-------------------------------------------------------------------------
$79,354,484 $77,831,680
=========================================================================
11
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2 LOANS AND ALLOWANCE FOR LOAN LOSSES--CONTINUED
Changes in the allowance for loan losses are as follows:
YEARS ENDED DECEMBER 31, 1996 1995
-------------------------------------------------------------------------
Balance, beginning of year $ 1,174,796 $1,177,760
Provision for loan losses 85,000 120,500
Recoveries 14,854 14,919
Charge-offs - (138,383)
-------------------------------------------------------------------------
Balance, end of year $ 1,274,650 $1,174,796
=========================================================================
At December 31, 1996 and 1995, the total recorded investment in impaired
loans all of which had allowances determined in accordance with SFAS No.
114 and No. 118, amounted to approximately $354,000 and $700,000,
respectively. The allowance for loan losses related to impaired loans
amounted to approximately $51,000 and $63,000 at December 31, 1996 and
1995, respectively.
3 BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
DECEMBER 31, 1996 1995
-------------------------------------------------------------------------
Leasehold improvements $1,152,304 $1,705,191
Furniture, fixtures and equipment 1,598,106 1,034,967
-------------------------------------------------------------------------
2,750,410 2,740,158
Less accumulated depreciation and amortization 1,429,801 1,285,727
-------------------------------------------------------------------------
$1,320,609 $1,454,431
=========================================================================
4 INTANGIBLE ASSETS
Goodwill, representing the cost of Island National Trust and Investment
Division in excess of tangible and identifiable intangible net assets
acquired, is amortized on a straight-line basis over a fifteen year
period. At December 31, 1996 and 1995, goodwill aggregated $765,437 and
$843,941, net of accumulated amortization of $416,115 and $337,611,
respectively.
Trust account servicing rights are amortized over a ten year period. At
December 31, 1996 and 1995, trust account servicing rights aggregated
$169,847 and $205,931, net of accumulated amortization of $190,945 and
$154,861, respectively.
12
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5 INCOME TAXES (BENEFIT)
Income taxes (benefit) consist of the following:
YEARS ENDED DECEMBER 31, 1996 1995
-------------------------------------------------------------------------
Current:
Federal $ 197,647 $ 10,130
State 9,088 0
-------------------------------------------------------------------------
206,735 10,130
-------------------------------------------------------------------------
Deferred:
Federal (143,838) (229,832)
State (168) (24,538)
-------------------------------------------------------------------------
(144,006) (254,370)
-------------------------------------------------------------------------
$ 62,729 $(244,240)
=========================================================================
Income taxes (benefit) differ from the amount computed by applying the
statutory Federal income tax rate of 34 percent to income before income
taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Tax expense at statutory Federal income tax rate $ 289,512 $ 237,600
Utilization of net operating loss carryforward (112,638) (295,400)
Change in deferred tax asset valuation allowance (153,637) (212,980)
Other 39,492 26,540
------------------------------------------------------------------------------------
$ 62,729 $(244,240)
====================================================================================
</TABLE>
The income tax effects of temporary differences that give rise to deferred
tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset (liability):
Allowance for loan losses $337,900 $305,900
Net operating loss carryforwards - 112,600
Net deferred loan fees and costs 94,600 103,900
Deferred gain on the sale of real estate 43,600 51,300
Depreciation 59,500 45,100
Charitable contributions - 28,000
Trust servicing rights 24,000 19,400
Net unrealized (gain) loss on securities available for sale 8,100 (40,900)
-----------------------------------------------------------------------------------------------
567,700 625,300
Less valuation allowance - 225,300
-----------------------------------------------------------------------------------------------
Net deferred tax asset $567,700 $400,000
===============================================================================================
</TABLE>
Income taxes paid for the years ended December 31, 1996 and 1995, amounted
to $14,530 and $5,748, respectively.
13
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6 TIME DEPOSITS
Approximate maturities of certificates of deposit issued in amounts of
$100,000 or more are as follows:
DECEMBER 31, 1996 1995
-------------------------------------------------------------------------
Less than three months $1,769,000 $ 2,150,000
Over three months but less than twelve months 6,340,000 6,571,000
Twelve months or more 855,000 2,331,000
-------------------------------------------------------------------------
$8,964,000 $11,052,000
=========================================================================
7 COMPENSATION PLANS
STOCK BENEFIT PLAN
The Bank has adopted a Stock Benefit Plan (the "Plan") for the benefit of
all employees. Under the Plan, 90,000 shares (increased by 30,000 shares
in 1993) of authorized by unissued common stock have been reserved which
may be adjusted for the effect of stock dividends, stock splits, and other
similar activities.
Under the Plan, the Board of Directors may award eligible employees any
combination of stock options, stock appreciation rights, restricted stock
awards, deferred stock awards and stock purchase rights.
STOCK OPTIONS
A summary of common stock option activity is as follows:
YEARS ENDED DECEMBER 31, 1996 1995
-------------------------------------------------------------------------
Options outstanding at beginning of year 51,350 52,800
Granted - 1,200
Exercised - -
Canceled (1,050) (2,650)
-------------------------------------------------------------------------
Options outstanding at end of year 50,300 51,350
=========================================================================
Option price range $13.50 to $22 $13.50 to $22
=========================================================================
Options exercisable at year end 49,717 49,733
=========================================================================
Options available for grant at year end 38,050 37,000
=========================================================================
14
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7 COMPENSATION PLANS--CONTINUED
Options granted to one officer of the Bank vested ratably over a six-year
period from date of grant and other options vest ratably over a three year
period from date of grant. Options for 42,000 shares expire 10 years after
the date granted. All other options granted expire the earlier of ten
years after the date granted or within 30 days of termination of
employment.
At the time of inception, organizers of the Bank were granted options on
21,067 shares, in the aggregate, of authorized but unissued common stock.
The options were fully vested on the date of grant, expire December 2,
1998, and have an option price of $20 per share. As of December 31, 1996,
none of these options were exercised.
DIRECTORS' DEFERRED COMPENSATION PLAN
During October 1995, the Bank terminated a supplemental retirement plan
covering certain directors, and paid accumulated deferred compensation of
approximately $194,000 to those directors. Expense recognized under the
plan was approximately $79,000 in 1995. The Bank is the beneficiary of
life insurance policies with cash surrender values that had been purchased
as a method of partially funding benefits under this plan.
PROFIT SHARING PLAN
The Bank established a profit sharing plan, which provides for the Bank to
make contributions pursuant to applicable salary savings elections and
discretionary sponsor contributions as may be determined by the Board of
Directors. The sponsor contribution for the years ended December 31, 1996
and 1995, of approximately $34,000 and $26,000, respectively, are included
in salaries and employee benefits expense in the accompanying consolidated
statement of income.
8 RELATED PARTY TRANSACTIONS
The Bank has entered into borrowing transactions with its directors,
significant stockholders and their affiliates. In management's opinion,
such transactions were on substantially the same terms and conditions,
including interest rates and collateral, as those prevailing at the same
time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present
other unfavorable features. The aggregate amount of credit to such related
parties at December 31, 1996 and 1995, was approximately $3,619,000 and
$3,541,000, respectively.
15
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9 COMMITMENTS AND CONTINGENCIES
In the normal course of business the Bank is a party to financial
instruments with off balance sheet risk to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit, liquidity and interest rate risk in
excess of the amount recognized in the balance sheet. The contract amounts
of those instruments outstanding at December 31, 1996, reflect the extent
of involvement the Bank has in particular classes of financial instruments
and are summarized as follows:
Commitments to extend credit $ 13,616,000
Standby letters of credit 564,000
The Bank's exposure to credit loss in the event of non performance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments on conditional obligations as it does for extensions of credit
recorded on the balance sheet.
Standby letters of credit are conditional commitments issued by the Bank
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 loans to customers.
Substantially all of the Bank's loans, commitments and standby letters of
credit have been granted to customers in the Bank's southeast Florida
market area. The concentrations of credit by type of loan are set forth in
Note 2.
At December 31, 1996, the Bank was obligated under four non cancelable
operating leases, three for banking facilities and one for its
administrative center. These leases contain provisions for common area
maintenance charges, renewal options and escalation clauses providing for
increased rentals based primarily on increases in the average consumer
price index.
On March 31, 1992, the Bank executed a purchase and sale agreement to
acquire real property in the Town of Palm Beach for use as the main
banking center and corporate offices of the Bank and its subsidiary. On
April 8, 1992, the Bank entered into a sale leaseback transaction on the
newly acquired property with a partnership whose principal is also a
director of the Bank. The initial lease term is for 10 years with the
option to renew the lease for five consecutive terms of five years each.
The gain on the sale leaseback was approximately $205,000 and is being
recognized on a straight line basis over the initial 10 year lease term.
16
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9 COMMITMENTS AND CONTINGENCIES--CONTINUED
For financial reporting purposes, minimum fixed rent payments are
recognized over the lease term on a straight line basis.
Total rental expense for operating leases in 1996 and 1995 was
approximately $958,000 and $921,000. Of the total rent expense in 1996 and
1995, approximately $582,000 and $603,000 was for the related party lease.
Future minimum lease payments under these non cancelable operating leases
as of December 31, 1996, were approximately as follows:
TOTAL RELATED PARTY
AMOUNT LEASE
-------------------------------------------------------------------------
1997 $ 782,000 $ 481,000
1998 803,000 495,000
1999 777,000 510,000
2000 799,000 525,000
2001 692,000 541,000
Thereafter 745,000 368,000
-------------------------------------------------------------------------
$4,598,000 $2,920,000
=========================================================================
The Bank is a party to litigation and claims arising from when the Bank
filed to foreclose on real estate collateralizing a loan. The borrower
filed a counterclaim alleging truth in lending violations, and sought to
rescind the mortgage, require the Bank to return all interest paid, and
pay attorney fees and costs. The Bank's total exposure in this case is
approximately $187,000. The Bank was successful in obtaining the
foreclosure judgment and defeating the truth in lending defenses in a May
1996 trial. However, the judgment is now on appeal awaiting oral
arguments. The Bank continues to respond vigorously to the defenses and
counterclaims raised by the borrower. Management while presently unable to
determine the outcome, does not believe the outcome will have a material
adverse effect on the Bank's future operations.
17
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10 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 possibly
additional discretionary actions 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 qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulators to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations)
to risk weighted assets (as defined), and of Tier 1 capital (as defined)
to average assets (as defined). Management believes, as of December 31,
1996, that the Bank meets all capital adequacy requirements to which it is
subject.
As of December 31, 1996, the most recent notification from the Office of
the Comptroller of the Currency 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 1 risk based and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed the institution's category. The Bank's
actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
-------------------------------------------------------------------------------------
DECEMBER 31, 1996 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ---------------------------------------- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets) $11,030,409 15.2% $5,798,000 8.0% $7,247,000 10.0%
Tier 1 Capital (to Risk Weighted Assets) 10,109,785 14.0% 2,899,000 4.0% 4,348,000 6.0%
Tier 1 Capital (to Average Assets) 10,109,785 9.2% 4,405,000 4.0% 5,506,000 5.0%
======================================== =====================================================================================
DECEMBER 31, 1995
- ---------------------------------------- -------------------------------------------------------------------------------------
Total Capital (to Risk Weighted Assets) $10,062,849 15.0% $5,132,000 8.0% $6,715,000 10.0%
Tier 1 Capital (to Risk Weighted Assets) 9,206,420 13.7% 2,686,000 4.0% 4,029,000 6.0%
Tier 1 Capital (to Average Assets) 9,206,420 8.5% 4,350,000 4.0% 5,437,000 5.0%
- ---------------------------------------- -------------------------------------------------------------------------------------
</TABLE>
The amount of dividends which may be declared by the Bank is regulated by
the Office of the Comptroller of the Currency. As of December 31, 1996,
the Bank had no accumulated earnings available for the payment of
dividends.
18
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11 FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosure of fair value of financial instruments is required by SFAS No.
107, "Disclosures About Fair Value of Financial Instruments". Disclosure
of fair value estimates are not required for non financial assets and
liabilities, such as fixed assets, intangibles and anticipated future
business. As a result, the following fair values are not comprehensive and
therefore do not reflect the underlying value of the Bank.
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
CASH AND CASH EQUIVALENTS - the carrying amounts reported in the balance
sheet approximate those assets' fair value.
INVESTMENT SECURITIES - fair values were based on quoted market prices, if
available. If a quoted market price is not available, fair values were
estimated using quoted market prices for similar securities.
LOANS RECEIVABLE - for residential mortgage loans, fair values were
estimated using quoted market prices for sales of whole loans with similar
characteristics, such as repricing dates, product type and size. For other
homogeneous categories of loans, fair values were estimated using quoted
market prices for securities backed by similar loans, adjusted for
differences in loan characteristics. The fair value of other types of
loans, for which quoted market prices are not available, were estimated by
discounting expected cash flows using current interest rates on loans with
similar terms.
DEPOSIT LIABILITIES - the fair value of demand deposits and certain money
market deposits was the amount payable on demand at the reporting date.
The fair value of fixed maturity certificates of deposit was based on the
discounted value of contractual cash flows using discount rates that
equaled the interest rates currently offered for deposits of similar
remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND OTHER OFF BALANCE SHEET FINANCIAL
INSTRUMENTS - Consideration of the fair value of commitments to extend
credit and letters of credit is based on fees charged to enter into
similar agreements. Since the fees charged by the Bank are nominal, the
estimate of fair value is negligible.
19
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11 FAIR VALUE OF FINANCIAL INSTRUMENTS--CONTINUED
The approximate carrying amount and estimated fair values of the Bank's
financial instruments, in thousands, at December 31, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents $39,199 $39,199 $13,281 $13,281
Investment securities 7,845 7,963 12,379 12,622
Loans, net of allowance 79,354 78,424 77,832 78,079
FINANCIAL LIABILITIES:
Deposits:
Without stated maturities 92,714 92,714 71,013 71,013
With stated maturities 25,391 25,465 25,823 26,117
=====================================================================================================
UNRECOGNIZED FINANCIAL INSTRUMENTS (1)
Commitments to extend credit $ - $ - $ - $ -
Letters of credit - - - -
=====================================================================================================
(1) Contract or notional amounts for unrecognized financial instruments
totaled approximately $14,180,000 at December 31, 1996, as set forth
in Note 9.
</TABLE>
12 INTEREST EXPENSE
Interest paid was approximately $2,747,000 and $2,992,000 for the years
ended December 31, 1996 and 1995.
13 SUBSEQUENT EVENT
On January 6, 1997, the Bank entered into a definitive agreement to merge
with 1st United Bank, a subsidiary of 1st United Bancorp, a publicly held
bank holding company whose main office is located in Boca Raton, Florida.
Stockholders of the Bank will receive approximately 2.15 shares of the
common stock of 1st United Bancorp for each share of the Bank's common
stock they own. The transaction is subject to regulatory approval and must
be approved by a minimum two-thirds vote of the Bank's stockholders. The
transaction is expected to be completed in April 1997.
20
<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
1st United Bancorp and Subsidiaries
We have audited the supplementary consolidated balance sheets of 1st United
Bancorp and Subsidiaries (formed as a result of the consolidation of 1st United
Bancorp and Island National Bank and Trust Company) as of December 31, 1996 and
1995 and the related supplementary consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. The supplementary consolidated financial statements
give retroactive effect to the merger of 1st United Bancorp and Island National
Bank and Trust Company on April 1, 1997, which has been accounted for using the
pooling-of-interests method as described in the notes to the supplementary
consolidated financial statements. These supplementary financial statements are
the responsibility of the management of 1st United Bancorp. Our responsibility
is to express an opinion on these supplementary financial statements based on
our audits. We did not audit the financial statements of Island National Bank
and Trust Company which statements reflect total assets constituting 19% for
1996 and 22% for 1995 of the related supplementary consolidated financial
statement totals, and which reflect net income constituting approximately 10%,
16% and 16% of the related supplementary consolidated financial statement
totals for the years ended December 31, 1996, 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 Island National Bank
and Trust Company, 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 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
supplementary financial statements referred to above present fairly, in all
material respects, the consolidated financial position of 1st United Bancorp at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, after giving retroactive effect to the merger of Island National Bank and
Trust Company, as described in the notes to the supplementary consolidated
financial statements, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
West Palm Beach, Florida
January 9, 1997, except for the first and
fourth paragraphs of Note 2, as to
which the date is April 1, 1997, the
first and second paragraphs of Note 15,
as to which the date is July 1, 1997, and
the third paragraph of Note 15, as to which
the date is August 7, 1997.
1
<PAGE>
Item 7(b)
1ST UNITED BANCORP AND SUBSIDIARIES
SUPPLEMENTARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
Cash and due from banks $ 35,779 $ 25,266
Interest bearing deposits 42,480 728
Federal funds sold 47,262 25,324
-------- --------
Total cash and cash equivalents 125,521 51,318
Investment securities available-for-
sale 24,903 26,012
Investment securities held to maturity
(market value of $42,778 and $38,832
in 1996 and 1995, respectively) 42,917 38,550
Loans, net of allowance for loan losses
of $9,826 and $8,014 in 1996 and
1995, respectively 458,765 338,651
Bank premises and equipment, net 16,295 8,759
Accrued interest receivable 3,093 2,761
Other real estate owned 3,929 2,200
Goodwill, net 7,951 5,079
Other assets 8,792 7,191
-------- --------
$692,166 $480,521
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits, non-interest
bearing $168,715 $109,871
NOW and money market accounts 257,639 171,724
Savings deposits 57,173 44,877
Time deposits of $100,000 or more 32,371 30,320
Time deposits less than $100,000 107,227 70,214
-------- --------
Total deposits 623,125 427,006
Long-term debt 0 39
Securities sold under agreement to
repurchase 0 700
Accrued interest and other
liabilities 6,976 4,074
-------- --------
Total liabilities 630,101 431,819
Shareholders' equity:
Common Stock, par value $.01 per
share-authorized 20,000,000 shares,
issued and outstanding 9,801,189
and 8,811,189 shares in 1996 and
1995, respectively. 98 88
Additional paid-in capital 45,677 38,608
Retained earnings 16,400 9,904
Unrealized (losses) gains on
available-for-sale securities,
net of taxes (110) 102
------- --------
Total shareholders' equity 62,065 48,702
------- --------
$692,166 $480,521
======== ========
See Accompanying Notes
2
<PAGE>
<TABLE>
<CAPTION>
1ST UNITED BANCORP AND SUBSIDIARIES
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
1996 1995 1994
---- ---- ----
(IN THOUSANDS EXCEPT PER-SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 40,754 $ 31,945 $21,248
Investment securities 5,286 4,691 4,339
Federal funds sold 1,634 810 567
Interest bearing deposits 747 153 22
-------- -------- -------
48,421 37,599 26,176
Interest expense:
Deposits 13,511 10,731 7,235
Notes payable and long-term debt 71 80 151
Short-term borrowings 75 259 63
-------- -------- -------
13,657 11,070 7,449
-------- -------- -------
Net interest income 34,764 26,529 18,727
Provision for loan losses 255 327 356
-------- -------- -------
Net interest income after provision
for loan losses 34,509 26,202 18,371
Non interest income:
Customer service charges 5,754 3,127 2,066
Investment services 956 837 805
Trust services 833 723 669
Securities (losses) gains, net (72) (13) 14
Gain on sale of loans 880 410 392
Gain of sale of other real estate
owned, net 339 233 48
Gain on sale of assets 529 92 0
Other 910 545 727
-------- -------- -------
10,129 5,954 4,721
Non interest expense:
Salaries and employee benefits 14,512 10,719 8,329
Occupancy, furniture and equipment 6,459 5,060 3,725
Stationery, printing and supplies 703 527 374
Professional fees 1,274 1,218 693
FDIC insurance expense 124 677 692
Other real estate expense 652 554 333
Other taxes 225 137 96
Insurance 400 302 334
Telephone 654 393 234
Postage 494 314 160
Amortization of intangible assets 735 404 242
Merger expenses 1,221 0 0
Other 4,572 3,333 3,039
-------- -------- -------
32,025 23,638 18,251
-------- -------- -------
Income before income taxes 12,613 8,518 4,841
Income taxes 4,389 2,549 1,301
-------- -------- -------
Net income $ 8,224 $ 5,969 $ 3,540
======== ======== =======
Net income per share $ 0.83 $ 0.67 $ 0.48
======== ======== =======
</TABLE>
See Accompanying Notes
3
<PAGE>
<TABLE>
<CAPTION>
1ST UNITED BANCORP AND SUBSIDIARIES
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands except share data)
UNREALIZED (LOSSES)
GAINS 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.... 5,399,669 $ 54 $23,458 $1,785 $ (14) $25,283
Stock issued for acquisition of
New River Bank net assets..... 555,395 6 2,396 2,402
Retirement of stock by pooled company ( 47) ( 47)
Stock issued for acquisition of
Suburban Bank.................. 705,625 7 3,150 3,157
Change in unrealized losses on
available-for-sale securities,
net of tax (402) ( 402)
Cash dividends - $.07 per share.. ( 225) ( 225)
Issuance of common stock, net.... 1,840,000 18 7,656 7,674
Net income 3,540 3,540
----------------------------------------------------------------
Balance at December 31, 1994..... 8,500,689 85 36,613 5,100 ( 416) 41,382
Repurchase of common stock...... (180,000) (2) (1,305) (1,307)
Stock issued for acquisition
of Jupiter Tequesta National
Bank........................ 486,000 5 3,285 3,290
Exercise of stock options...... 4,500 15 15
Change in unrealized gains
(losses) on securities
available-for-sale, net
of tax...................... 518 518
Cash dividends - $.06 per share. (1,090) (1,090)
Cash dividends of pooled company. ( 75) ( 75)
Net income 5,969 5,969
----------------------------------------------------------------
Balance at December 31, 1995... 8,811,189 88 38,608 9,904 102 48,702
Stock issued for acquisition
of The American Bancorporation
of the South................ 820,000 8 6,374 6,382
Exercise of stock options....... 170,000 2 962 964
Retirement of stock by pooled
company.................... (267) (267)
Change in unrealized gains
(losses) on securities
available-for-sale, net
of tax........................ (212) (212)
Cash dividends - $0.21 per share (1,659) (1,659)
Cash dividends of pooled company ( 69) ( 69)
Net income....................... 8,224 8,224
----------------------------------------------------------------
Balance at December 31, 1996... 9,801,189 $98 $45,677 $16,400 $(110) $62,065
================================================================
</TABLE>
See Accompanying Notes
4
<PAGE>
1ST UNITED BANCORP AND SUBSIDIARIES
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $8,224 $5,969 $3,540
Adjustments to reconcile net
income to net cash provided
by operating activities, net of
effects of purchase acquisitions
Provision for loan losses........... 255 327 356
Amortization of goodwill............ 735 404 242
Depreciation........................ 1,963 1,354 1,035
Deferred income taxes............... 2,676 226 1,059
Net gain on sale of other real
estate............................ (339) (233) ( 48)
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............................... ( 87) (1,091) (1,497)
----- ----- ------
Net cash provided by operating
activities........................ 13,854 6,580 5,443
5
<PAGE>
1ST UNITED BANCORP AND SUBSIDIARIES
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF CASH FLOWS- Continued
YEAR ENDED DECEMBER 31,
-----------------------------------
1996 1995 1994
INVESTING ACTIVITIES --------- --------- ---------
Net cash acquired (paid) in
acquisitions ..................... 21,067 ( 316) 3,469
Purchase of investment
securities held to maturity ...... ( 3,356) (1,549) (5,239)
Maturities of investment securities
held to maturity ................. 8,495 23,914 10,236
Purchase of investment
securities available-for-
sale ............................. (11,747) (13,508) (26,622)
Maturities and sales of investment
securities available-for-
sale ............................. 48,890 28,668 45,917
Increase in net loans .............. (53,781) (19,921) (2,559)
Purchases of premises and equipment ( 2,467) (2,101) (1,454)
Proceeds from sales of premises and
equipment ........................ 1,469 0 0
Proceeds from sales of other real
estate ........................... 10,615 3,154 1,210
Decrease in other assets ........... 923 763 1,332
--------- --------- ---------
Net cash provided by investing
activities ....................... 20,108 19,104 26,290
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 .................. 2,002 0 3,003
Repayments of notes payable to
related parties .................. (2,002) 0 (3,003)
Repayments of long-term debt ....... (2,782) (2,005) ( 517)
Net increase (decrease) in
demand deposits, NOW
accounts, money market
accounts, time and savings
deposits ......................... 43,851 (18,365) (6,271)
Other liabilities .................. 903 ( 227) ( 526)
--------- --------- ---------
Net cash provided by (used in)
financing activities ............. 40,241 (23,054) (6,566)
--------- --------- ---------
Increase in cash and cash
equivalents ...................... 74,203 2,630 25,167
Cash and cash equivalents at
beginning of year ................ 51,318 48,688 23,521
--------- --------- ---------
Cash and cash equivalents at
end of year ...................... $ 125,521 $ 51,318 $ 48,688
========= ========= =========
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
purchase acquisitions ............ $ 138,053 $ 53,671 $ 171,956
--------- --------- ---------
Liabilities assumed in purchase
acquisitions ..................... $ 156,331 $ 53,465 $ 170,687
--------- --------- ---------
See Accompanying Notes
6
<PAGE>
1ST UNITED BANCORP AND SUBSIDIARIES
NOTES TO SUPPLEMENTARY 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 businesses are
the operation of 1st United Bank ("1st United" or the "Bank") and Island
Investment Services, Inc. ("IIS"), both wholly owned subsidiaries. The
supplementary consolidated financial statements include the accounts of the
Company, 1st United and IIS. All significant intercompany balances and
transactions have been eliminated in consolidation. Through these subsidiaries
Bancorp provides a wide range of banking, investing and trust services to
individual and corporate customers in Palm Beach, Brevard, Martin and Northern
Broward counties.
The supplementary consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, and have been
retroactively restated to include the accounts of Island National Bank and Trust
Company ("Island") that merged with the Company on April 1, 1997 (Note 2).
The supplementary consolidated financial statements will become the
historical consolidated financial statements of the Company and subsidiaries
after consolidated financial statements covering the date of the consummation of
the merger are issued.
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.
7
<PAGE>
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.
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.
8
<PAGE>
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 expense 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.
9
<PAGE>
During 1996, 1995, and 1994, cash paid by the Company for income taxes
amounted to $3,080,000, $2,638,000 and $1,151,000, respectively. In addition,
interest of $13,812,000, $10,954,000, and $7,403,000 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.
TRUST ASSETS
Securities and other property held by the trust department in agency or
fiduciary capacities are not included in the consolidated financial statements
since they are not assets of the Bank. Revenues from trust services are recorded
in income as earned.
GOODWILL
The Company, at each balance sheet date, evaluates the recovery of the
carrying amount of goodwill to determine 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 carrying value of the goodwill is
reduced by the estimated shortfall of future cash flows.
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.
FASB STATEMENT NO. 121
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.
10
<PAGE>
2. MERGERS AND ACQUISITIONS
On April 1, 1997, Bancorp completed its merger with Island and its
wholly owned discount brokerage subsidiary IIS. At the date of acquisition
Island had total assets and deposits of approximately $145 million and $132
million, respectively. In connection with the transaction, Bancorp and Island
incurred one time expenses of $1,383,000 which were recorded in the three months
ended June 30, 1997. The transaction was accounted for under the
pooling-of-interests method of accounting for business combinations and
accordingly, the supplementary consolidated financial statements have been
restated for the periods prior to the merger to include Island. In connection
with the transaction, Bancorp issued approximately 1,365,000 of its common
shares to Island shareholders.
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 thousands)
Net interest income $2,437
Non-interest income 535
Net income 470
Separate results of operations of the combined entities for December
31, 1996, 1995 and 1994 were as follows: (in thousands)
1996 1995 1994
------- ------- -------
Net interest income:
Bancorp $29,494 $18,669 $12,034
Park 0 2,603 2,216
Island 5,270 5,257 4,477
------- ------- -------
Combined $34,764 $26,529 $18,727
======= ======= =======
Non-interest income:
Bancorp $ 7,910 $ 3,372 $ 2,323
Park 0 603 560
Island 2,219 1,979 1,838
------- ------- -------
Combined $10,129 $ 5,954 $ 4,721
======= ======= =======
Net income:
Bancorp $ 7,435 $ 4,502 $ 2,654
Park 0 523 317
Island 789 944 569
------- ------- -------
Combined $ 8,224 $ 5,969 $ 3,540
======= ======= =======
11
<PAGE>
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 Florida 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. 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 a 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 (in thousands except per share data):
YEAR ENDED DECEMBER 31,
-----------------------
1995
-------
Total interest income $48,650
Provision for loan losses 1,112
Net interest income after
provision for loan losses 32,324
Income before taxes 8,217
Net income 5,419
Net income per share .61
12
<PAGE>
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 $38,869 $29,591
Provision for loan losses 327 379
Net interest income after
provision for loan losses 27,472 20,499
Income before taxes 7,889 4,940
Net income 5,538 3,592
Net income per share .61 .46
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.
13
<PAGE>
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.
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 from the proceeds of a public
offering.
On July 13, 1993, Bancorp signed an agreement to acquire substantially all
the assets and certain liabilities of New River Bank ("New River"). 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 was recorded, which is being amortized over 60 months.
Accumulated amortization at December 31, 1996 and 1995 was $120,000 and $69,000,
respectively.
14
<PAGE>
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
DECEMBER 31
-----------
1994
-----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
Total interest income............... $30,791
Provision for loan losses........... 356
Net interest income after
provision for loan losses......... 21,208
Income before income taxes.......... 4,948
Income before cumulative effect
of accounting change.............. 3,610
Income per common share
before cumulative effect of
accounting change................. .46
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.
15
<PAGE>
3. INVESTMENT SECURITIES
The following is a summary of available-for-sale and held to maturity
securities at December 31, 1996:
AVAILABLE-FOR-SALE
------------------
(IN THOUSANDS)
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ------- ------ -------
U.S. Treasury securities and
obligations of U.S. govern-
ment agencies.............. $15,333 $ 18 $ 97 $15,254
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
------- ------- ------ -------
21,131 45 201 20,975
Equity securities........... 3,916 12 0 3,928
------- ------- ------ -------
$25,047 $ 57 $ 201 $24,903
======= ======= ====== =======
HELD TO MATURITY
------------------
(IN THOUSANDS)
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ------- ------ -------
U.S. Treasury securities
and obligations of U.S.
government agencies...... $20,560 $ 127 $ 128 $20,559
Obligations of state and
political subdivisions... 708 9 0 717
Mortgage-backed securities.. 20,924 201 332 20,793
Foreign government
securities............... 725 0 16 709
------- ------- ----- -------
$42,917 $ 337 $ 476 $42,778
======= ======= ===== =======
16
<PAGE>
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
------------------
(IN THOUSANDS)
ESTIMATED
FAIR
COST VALUE
------- -------
Due in one year or less........ $8,512 $ 8,524
Due after one year through
five years................... 4,826 4,753
Due after five year through
ten years.................... 2,020 2,002
Due after ten years............ 328 355
------- -------
15,686 15,634
Mortgage-backed securities..... 5,445 5,341
Equity securities.............. 3,916 3,928
------- -------
$25,047 $24,903
======= =======
HELD TO MATURITY
----------------
(IN THOUSANDS)
ESTIMATED
FAIR
COST VALUE
------- -------
Due in one year or less........ $ 4,152 $ 4,165
Due after one year through
five years................... 16,741 16,733
Due after five year through
ten years.................... 1,100 1,087
Due after ten years............ 0 0
------- -------
21,993 21,985
Mortgage-backed securities..... 20,924 20,793
------- -------
$42,917 $42,778
======= =======
17
<PAGE>
The following is a summary of available-for-sale and held to maturity
securities at December 31, 1995:
AVAILABLE-FOR-SALE
------------------
(IN THOUSANDS)
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ------- ------- ---------
U.S. Treasury securities and
obligations of U.S. govern-
ment agencies .................... $13,903 $ 174 $ 0 $14,077
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
------- ------- ------- -------
23,435 257 114 23,578
Equity securities ................. 2,425 9 0 2,434
------- ------- ------- -------
$25,860 $ 266 $ 114 $26,012
======= ======= ======= =======
HELD TO MATURITY
------------------
(IN THOUSANDS)
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ------- ------- ---------
U.S. Treasury securities
and obligations of U.S.
government securities...... $21,130 $ 275 $ 218 $21,187
Obligations of state and
political subdivisions..... 1,118 53 0 1,171
Mortgage-backed securities.. 15,331 222 37 15,516
Foreign government securities. 700 0 13 687
Other securities.............. 271 0 0 271
------- ------ ------ -------
$38,550 $ 550 $ 268 $38,832
======= ====== ====== =======
Proceeds from sales of investment securities during 1996, 1995
and 1994 were $19,232,000, $16,804,000, and $25,654,000, respectively, with
gross realized gains of $42,000, $42,000, and $14,000 and gross realized losses
of $104,000, $55,000, and $0, respectively. Income tax (benefit) on net realized
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 and $1,700,000 pledged as collateral for trust purposes.
18
<PAGE>
4. LOANS
An analysis of loans at December 31, 1996 and 1995 (in thousands) is as
follows:
1996 1995
-------- --------
Commercial.................. $ 60,424 $ 48,541
Real estate:
Construction.............. 22,141 13,548
Mortgage.................. 371,840 274,087
Installment............... 9,923 10,573
Other..................... 5,298 946
-------- --------
469,626 347,695
Less:
Unearned interest.......... (1,035) (1,030)
Allowance for loan losses.. (9,826) (8,014)
-------- --------
Net loans.................. $458,765 $338,651
======== ========
Activity in the allowance for loan losses (in thousands) is as follows:
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------ ------ ------
Balance at beginning
of year................... $8,014 $7,930 $2,709
Charge-offs................. (1,434) (1,140) (1,005)
Recoveries.................. 423 563 216
------ ------ ------
Net charge-offs............. (1,011) ( 577) ( 789)
Allowance of purchased banks
at date of acquisition.... 2,568 334 5,654
Provision charged to
operations................ 255 327 356
------ ------ ------
Balance at end of year...... $9,826 $8,014 $7,930
====== ====== ======
The allowance for purchased banks in 1996 of $2,568,000 represents the
allowance for loan losses transferred from American on the date of acquisition.
The allowance of purchased banks in 1995 of $334,000 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
$12,154,000, $3,159,000, and $2,353,000, 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.
19
<PAGE>
At December, 31, 1996 and 1995, the Company's recorded investment in loans
that are considered to be impaired under FAS 114 was $13.0 million and ($12.2
million were on a nonaccrual basis) $4.0 million ($3.2 million were on a
nonaccrual basis). Included in the impaired loans of $13.0 million at December
31, 1996, are $11.6 million in loans with a related allowance for loan losses of
$2.0 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 $4.0 million is $2.27
million impaired loans for which the related allowance for loan losses is
$647,000 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 $16.4 million and $4.15 million, respectively. For the years ended
December 31, 1996, 1995 and 1994, the Company recognized interest income on
impaired loans of approximately $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 $14,919,000 and $16,841,000, respectively. During
1996, new loans and repayments totaled approximately $2,778,000 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......... 4,134 4,254
Furniture, fixtures and
equipment.................. 8,688 6,169
------- ------
22,624 13,423
Less accumulated depreciation
and amortization.......... 6,329 4,664
------- ------
$16,295 $8,759
======= ======
20
<PAGE>
6. INCOME TAXES
Significant components of the provision for income tax expense for the years
ended December 31, 1996, 1995 and 1994 are as follows (in thousands):
1996 1995 1994
------ ------ ------
Current
Federal........................ $1,620 $2,172 $ 212
State.......................... 93 151 30
------ ------ ------
1,713 2,323 242
Deferred
Federal........................ 2,520 222 989
State.......................... 156 4 70
------ ------ ------
2,676 226 1,059
------ ------ ------
$4,389 $2,549 $1,301
====== ====== ======
Significant components of the Company's deferred tax assets, which are included
in other assets, are as follows (in thousands):
DECEMBER 31,
------------------
1996 1995
------ ------
Deferred tax assets:
Depreciation................. $( 356) $ 263
Loan loss provision.......... 1,958 1,433
Deferred loan fee income..... 244 321
OREO basis................... 402 222
Deferred compensation........ 307 74
Investments.................. 221 50
Other (net).................. 592 508
------ ------
$3,368 $2,871
Less valuation allowance..... 0 225
------ ------
$3,368 $2,646
====== ======
At December 31, 1996 and 1995, Bancorp had approximately $1,873,000 and
$578,000, respectively, of taxes receivable included in other assets.
A reconciliation of income tax expense with the amount computed by applying the
statutory federal income tax rate (34%) to income before income taxes is as
follows (in thousands):
1996 1995 1994
---- ---- ----
Expected income taxes at
statutory rates........... $4,288 $2,896 $1,646
Amortization of goodwill..... 210 134 0
Amortization of start up
costs..................... 0 0 ( 12)
Change in deferred tax asset
valuation................. (154) (213) ( 89)
Utilization of net operating
loss carry forward........ (113) (295) (220)
State income taxes (net of
federal tax benefit)...... 155 110 56
Other........................ 3 ( 83) (80)
------ ------ ------
$4,389 $2,549 $1,301
====== ====== ======
21
<PAGE>
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.
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. Financial instruments whose
contract amounts represent credit risk at December 31, 1996 include adjustable
rate commitments to extend credit of approximately $44,585,000.
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 $2,429,000. All but four
expire in 1997; one each expires in 2000 and 2002 and two expire in 2001.
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, ten-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.
22
<PAGE>
On March 31, 1992, the Bank executed a purchase and sale agreement to
acquire real property in the Town of Palm Beach for use as the main banking
center and corporate offices of the Bank and its subsidiary. On April 8, 1992,
the Bank entered into a sale leaseback transaction on the newly acquired
property with a partnership whose principal is also a director of the Bank. The
initial lease term is for 10 years with the option to renew the lease for five
consecutive terms of five years each. The gain on the sale leaseback was
approximately $205,000 and is being recognized on a straight line basis over the
initial 10 year lease term. During 1996, 1995 and 1994, the Company paid the
partnership $582,000, $603,000 and $585,000, respectively.
1st United leases 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 $2,291,000 $2,268,000, and
$1,869,000, respectively.
As of December 31, 1996, aggregate future minimum lease payments under
noncancelable operating leases were as follows (in thousands):
1997.......................................... $1,992
1998.......................................... 1,786
1999.......................................... 1,480
2000.......................................... 1,434
2001.......................................... 1,172
Thereafter.................................... 1,165
------
Total future minimum lease payments........... $9,029
======
Effective February 1, 1993, 1st United established a 401(k) Pension and
Profit Sharing Plan (the "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. The
Plan allow management 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.
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 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.
23
<PAGE>
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. CERTIFICATES OF DEPOSIT
At December 31, 1996, the scheduled maturities of certificates of
deposit are as follows (In thousands):
1997 $126,175
1998 9,678
1999 1,224
2000 2,205
2001 and thereafter 316
--------
$139,598
========
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. 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.
24
<PAGE>
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 used 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.
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.
25
<PAGE>
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.
The estimated fair values of Bancorp's financial instruments at
December 31, 1996 and 1995 are presented in the following table (in thousands):
<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............ $35,779 $35,779 $25,266 $25,266
Interest bearing deposits.......... $42,480 $42,480 $ 728 $ 728
Federal funds sold................. $47,262 $47,262 $25,324 $25,324
Investment Securities:
Available-for-sale................ $24,903 $24,903 $26,012 $26,012
Held to maturity.................. $42,917 $42,778 $38,550 $38,832
Loans.............................. $458,765 $454,082 $338,651 $341,382
LIABILITIES
Deposits.......................... $623,125 $628,272 $427,006 $427,720
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.
26
<PAGE>
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. There are no conditions or
events since that notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
(IN 000'S) TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------- ----------------------------------------- ------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- --------------------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $60,190 11.9% /greater than/$40,348 /greater than/8.0% /greater than/$50,435 /greater than/10.0%
Tier I Capital
(to Risk Weighted Assets) $53,886 10.7% /greater than/$20,174 /greater than/4.0% /greater than/$30,261 /greater than/ 6.0%
Tier I Capital
(to Average Assets) $53,886 8.0% /greater than/$26,855 /greater than/4.0% /greater than/$33,568 /greater than/ 5.0%
As of December 31, 1995:
Total Capital
(to Risk Weighted Assets) $47,933 12.5% /greater than/$30,763 /greater than/8.0% /greater than/$38,454 /greater than/10.0%
Tier I Capital
(to Risk Weighted Assets) $43,126 11.2% /greater than/$15,382 /greater than/4.0% /greater than/$23,072 /greater than/ 6.0%
Tier I Capital
(to Average Assets) $43,126 9.0% /greater than/$19,241 /greater than/4.0% /greater than/$24,051 /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.
27
<PAGE>
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.
A summary of the Company's stock option activity and related
information for the year ended December 31, 1996 is as follows:
OPTIONS AVERAGE 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 exercise 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.
28
<PAGE>
15. SUBSEQUENT EVENTS
On July 1, 1997, Bancorp acquired Seaboard Savings Bank, F.S.B.
("Seaboard") and merged it into 1st United. Consideration paid by Bancorp to the
shareholders of Seaboard was $8,250,000 and was paid in the form of 50% cash and
50% common stock. Approximately 260,000 shares (value per share of $15.06, 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 million in goodwill was recorded and will be amortized over 15
years under the straight-line method.
Approximately $75 million in total assets were acquired in the Seaboard
acquisition. Included in this total was approximately $8 million, $12 million
and $53 million in interest bearing deposits, investments and net loans,
respectively. Approximately $69 million in deposits were assumed and one branch
located in Stuart, Florida was acquired.
On August 7, 1997, Bancorp announced that it had reached a definitive
agreement to be acquired by Wachovia Corporation ("Wachovia"). Wachovia has dual
headquarters in Winston-Salem, North Carolina and Atlanta, Georgia, and is the
20th largest banking company in the United States with $48.5 billion in assets.
The agreement has been approved by the Boards of Directors of both companies and
is subject to the approval of Bancorp's shareholders and appropriate regulatory
agencies. The merger is expected to close by year end. The agreement with
Wachovia provides for a tax-free exchange of Wachovia common shares for Bancorp
common shares at a value of $20.875 per share of Bancorp, or a purchase price of
$222 million. The exchange ratio will be a minimum of 0.3 and a maximum of 0.366
of a share of Wachovia common stock. Bancorp has granted Wachovia a stock option
representing approximately 19.9 percent of Bancorp's outstanding shares.
Directors of Bancorp collectively holding more than 20 percent of Bancorp's
common stock have agreed to vote in favor of the transaction.
16. 1ST UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Condensed Balance Sheets
(In thousands)
DECEMBER 31,
------------------
1996 1995
------- -------
ASSETS
Cash in subsidiary bank............. $ 165 $ 585
Investment in subsidiary bank....... 54,033 43,887
Investment in non bank subsidiary... 490 0
Goodwill............................ 7,016 4,229
Other assets........................ 379 56
------- ------
$62,083 $48,757
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long term debt.................... $ 0 $ 39
Other liabilities................. 18 16
------- -------
18 55
Shareholders' equity................ 62,065 48,702
------- -------
$62,083 $48,757
======= =======
29
<PAGE>
Condensed Statements of Income
(In thousands)
YEAR ENDED DECEMBER 31,
---------------------------
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 (loss) 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................... 3,187 3,119 3,528
------ ------ ------
Net income.......................... $8,224 $5,969 $3,540
====== ====== ======
30
<PAGE>
Condensed Statements of Cash Flow
(In thousands)
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------ ------ -------
OPERATING ACTIVITIES
Net income.......................... $8,224 $5,969 $3,540
Adjustments to reconcile net
income to net cash provided
by operating activities:
Goodwill amortization............... 620 256 127
Increase in other assets............ (323) (78) ( 44)
Increase (decrease) in
other liabilities................ 2 (51) ( 3)
Equity in undistributed
income of subsidiaries........... (3,187) (3,119) (3,528)
------ ------ -------
Net cash provided by
operating activities............. 5,336 2,977 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) (1,090) (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) (4,387) 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
====== ====== ======
31
<PAGE>
0
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
1ST UNITED BANCORP
Date: 8/22/97 By:/s/ WARREN S. ORLANDO
------------ -----------------------------------------
Warren S. Orlando
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
23.1 Consent of Ernst & Young LLP
23.2 Consent of BDO Seidman, LLP
27.1 Financial Data Schedule for Period Ended December 31, 1996
27.2 Financial Data Schedule for Period Ended December 31, 1995
27.3 Financial Data Schedule for Period Ended December 31, 1994
Consent of Independent Certified Public Accountants
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 (except for the first and
fourth paragraphs of Note 2, as to which the date is April 1, 1997, the first
and second paragraphs of Note 15, as to which the date is July 1, 1997 and the
third paragraph of Note 15, as to which the date is August 7, 1997), with
respect to the supplementary consolidated financial statements of 1st United
Bancorp included in its Amendment No. 1 to Current Report on Form 8-K/A dated
April 1, 1997, filed with the Securities and Exchange Commission.
West Palm Beach, Florida ERNST & YOUNG LLP
August 21, 1997
1st United Bancorp
West Palm Beach, Florida
We hereby 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 February 4, 1997, relating to the
consolidated financial statements of Island National Bank and Trust Company
which is contained in Amendment No. 1 to the Current Report on Form 8-K/A dated
April 1, 1997 filed by 1st United Bancorp.
BDO Seidman, LLP
West Palm Beach, Florida
August 21, 1997
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