- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
April 1, 1997
1ST UNITED BANCORP
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 0-20254 65-0178023
- ------- ------- ----------
State or other (Commission File (IRS Employer
jurisdiction of Number) Identification)
incorporation)
980 N. Federal Highway, Boca Raton, Florida 33432
- ------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (561) 392-4000
- --------------------------------------------------------------------------------
<PAGE>
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 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 is anticipated to be
accounted for as a "pooling of interests" under generally accepted accounting
principles.
As of March 31, 1997, Island had total assets of approximately $119
million, total deposits of $106 million and shareholders' equity of $11.2
million. Prior to the acquisition Island served the Town of Palm Beach with two
locations and northern Palm Beach County from its banking center in Palm Beach
Gardens.
<PAGE>
Item 7 FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
1. Audited financial statements for Island National Bank
and Trust Company for the years ended December 31,
1996 and 1995.
(b) Pro Forma Financial Information
(c) Exhibits
2.1 Acquisition Agreement between 1st United Bancorp, 1st United
Bank and Island National Bank and Trust Company dated
January 6, 1997 ("Acquisition Agreement").*
2.2 Amendment No. 1 to the Acquisition Agreement
* Incorporated by reference from the Form 8K filed January 6, 1997
announcing the signing of the Acquisition Agreement.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
1ST UNITED BANCORP
Date: April 1, 1997 By: /s/ WARREN S. ORLANDO
---------------------
Warren S. Orlando
President & CEO
<PAGE>
ISLAND NATIONAL BANK AND TRUST COMPANY
AND SUBSIDIARY
================================================================================
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<PAGE>
CONTENTS
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF INCOME 3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 6 - 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10 - 20
<PAGE>
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.
/s/ BDO SEIDMAN, LLP
--------------------------------
BDO Seidman, LLP
February 4, 1997 Certified Public Accountants
<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 $ 6,955,28 $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 $ 788,7777 $ 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 Weight $11,030,409 15.2% $5,798,000 8.0% $7,247,000 10.0%
Tier 1 Capital (to Risk Weigh 10,109,785 14.0% 2,899,000 4.0% 4,348,000 6.0%
Tier 1 Capital (to Average As 10,109,785 9.2% 4,405,000 4.0% 5,506,000 5.0%
======================================================================================================================
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
Total Capital (to Risk Weight $10,062,849 15.0% $5,132,000 8.0% $6,715,000 10.0%
Tier 1 Capital (to Risk Weigh 9,206,420 13.7% 2,686,000 4.0% 4,029,000 6.0%
Tier 1 Capital (to Average As 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.
<PAGE>
ITEM 7(b)
1ST UNITED BANCORP/ISLAND NATIONAL BANK AND TRUST COMPANY
PRO FORMA FINANCIAL STATEMENTS
The following Pro Forma Combined Condensed Balance Sheet as of December
31, 1996 gives effect to the acquisition of Island National on such date. The
Pro Forma Combined Condensed Statements of Income for the years ended December
31, 1996, 1995 and 1994 give effect to the acquisition of Island National.
The Pro Forma Combined Condensed Balance Sheet and Pro Forma Combined
Condensed Statements of Income give effect to the acquisition of Island National
by the issuance of approximately 1,365,000 shares of Bancorp Common Stock for
all of the issued and outstanding shares of Island National Common Stock.
The pro forma financial statements (and the assumptions and adjustments
in the accompanying notes to Pro Forma Combined Condensed Financial Statements)
have been prepared by management of Bancorp based upon the historical financial
statements of Bancorp and Island National giving effect to the transactions
using the pooling of interest method of accounting. These pro forma financial
statements may not be indicative of the results that actually would have
occurred if the transactions had been in effect on the dates indicated or which
may be obtained in the future. The pro forma financial statements should be read
in conjunction with the financial statements of Bancorp and Island National
included elsewhere herein or incorporated by reference herein.
-1-
<PAGE>
<TABLE>
<CAPTION>
1ST UNITED BANCORP AND SUBSIDIARIES/
ISLAND NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
December 31, 1996
(in thousands)
(unaudited)
ISLAND
NATIONAL BANK BANCORP AND
1ST UNITED AND TRUST CO. ISLAND
BANCORP (ISLAND NATIONAL
(BANCORP) NATIONAL) ADJUSTMENTS COMBINED
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and Due from Banks $ 30,247 $ 6,412 $ $ 36,659
Federal Funds Sold and Interest
Bearing Deposits 56,075 32,787 88,862
-------- -------- -------- --------
Cash and Cash Equivalents 86,322 39,199 0 125,521
Investment Securities Available
for Sale 21,650 2,486 24,136
Investment Securities Held to Maturity 38,324 5,359 43,683
Net Loans 379,411 79,354 458,765
Premises and Equipment 14,974 1,321 16,295
Other Real Estate 3,196 733 3,929
Goodwill 7,016 935 7,951
Other Assets 10,395 1,491 11,886
-------- -------- -------- --------
$561,288 $130,878 $ 0 $692,166
======== ======== ======== ========
Deposits:
Noninterest Demand Deposits $141,990 $ 26,725 $168,715
Now and Money Market Accounts 199,044 58,595 257,639
Savings Deposits 49,779 7,394 57,173
Time Deposits 114,207 25,392 139,599
-------- -------- -------- --------
Total Deposits 505,020 118,106 0 623,126
Other Liabilities 5,236 1,741 6,977
-------- -------- -------- --------
Total Liabilities 510,256 119,847 0 630,103
Shareholders' Equity:
Common Stock 84 3,075 (3,061)A 98
Additional Paid in Capital 33,851 8,767 3,061 A 45,679
Retained Earnings (Deficit) 17,194 (797) 16,397
Unrealized Loss on Available for
Sale Securities (97) (14) (111)
-------- -------- -------- --------
51,032 11,031 0 62,063
-------- -------- -------- --------
$561,288 $130,878 $ 0 $692,166
======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-2-
<PAGE>
<TABLE>
<CAPTION>
1ST UNITED BANCORP AND SUBSIDIARIES/
ISLAND NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Year Ended December 31, 1996
(in thousands, except per share data)
(unaudited)
ISLAND
NATIONAL BANK BANCORP AND
1ST UNITED AND TRUST CO. ISLAND
BANCORP (ISLAND NATIONAL
(BANCORP) NATIONAL) ADJUSTMENTS COMBINED
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 33,799 $ 6,955 $ $ 40,754
Investment securities 4,611 675 5,286
Other 1,961 420 2,381
-------- --------- ------ --------
40,371 8,050 0 48,421
Interest Expense:
Interest on deposits 10,738 2,780 13,518
Other 139 0 139
-------- --------- ------ --------
10,877 2,780 0 13,657
Net Interest Income 29,494 5,270 0 34,764
Provision for loan losses 170 85 255
-------- --------- ------ --------
29,324 5,185 0 34,509
Other Income:
Service charges on deposits 4,249 258 4,507
Net losses on securities (65) (7) (72)
Gain on sale of loans 880 0 880
Investment services 0 956 956
Trust services 0 833 833
Other 2,846 177 3,023
-------- --------- ------ --------
7,910 2,217 0 10,127
Other Expense:
Salaries and benefits 11,590 2,922 0 14,512
Occupancy, furniture and equipment 4,783 1,676 6,459
Other real estate expense 612 40 652
Professional fees 910 364 1,274
Amortization of intangible assets 620 115 735
Merger expenses 1,221 0 1,221
Other 5,737 1,433 7,170
-------- --------- ------ --------
25,473 6,550 0 32,023
-------- --------- ------ --------
Income Before Income Taxes (Benefit) 11,761 852 0 12,613
-------- --------- ------ --------
Income Taxes (Benefit) 4,326 63 4,389
-------- --------- ------ --------
Net Income $ 7,435 $ 789 $ 0 $ 8,224
-------- --------- ------ --------
Net Income Per Common Share $ 0.87 $ 1.28 $ 0.83
======== ========= ====== ========
Weighted average common shares and
common stock equivalents
outstanding $ 8,587 615 9,952
======== ========= ====== ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-3-
<PAGE>
<TABLE>
<CAPTION>
1ST UNITED BANCORP AND SUBSIDIARIES/
ISLAND NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Year Ended December 31, 1995
(In thousands, except per share data)
(unaudited)
ISLAND
NATIONAL BANK BANCORP AND
1ST UNITED AND TRUST CO. ISLAND
BANCORP (ISLAND NATIONAL
(BANCORP) NATIONAL) ADJUSTMENTS COMBINED
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 25,002 $ 6,943 $ $ 31,945
Investment securities 3,789 902 4,691
Other 499 464 963
-------- -------- ------- --------
29,290 8,309 - 37,599
Interest Expense:
Interest on deposits 7,679 3,051 10,730
Other 339 - 339
-------- -------- ------- --------
8,018 3,051 - 11,069
Net Interest Income 21,272 5,258 - 26,530
Provision for loan losses 207 121 328
-------- -------- ------- --------
21,065 5,137 - 26,202
Other Income:
Service charges on deposits 2,116 305 2,421
Net losses on securities (13) - (13)
Gain on sale of loans 410 - 410
Investment services - 837 837
Trust services - 723 723
Other 1,462 115 1,577
-------- -------- ------- --------
3,975 1,980 - 5,955
Other Expense:
Salaries and benefits 7,881 1,980 - 9,861
Occupancy, furniture and equipment 3,505 1,555 5,060
Other real estate expense 515 39 554
Professional fees 858 360 1,218
Amortization of intangible assets 289 115 404
Other 4,174 2,367 6,541
-------- -------- ------- --------
17,222 6,416 - 23,638
-------- -------- ------- --------
Income Before Income Taxes (Benefit) 7,818 701 - 8,519
Income Taxes (Benefit) 2,793 (244) 2,549
-------- -------- ------- --------
Net Income $ 5,025 $ 945 $ - $ 5,970
======== ======== ======= ========
Net Income Per Common Share $ 0.66 $ 1.54 $ 0.67
======== ======== ======= ========
Weighted Average common shares and
common stock equivalents
outstanding 7,576 615 8,941
======== ======== ======= ========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-4-
<PAGE>
<TABLE>
<CAPTION>
1ST UNITED BANCORP AND SUBSIDIARIES/
ISLAND NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
For the Year Ended December 31, 1994
(In thousands, except per share data)
(unaudited)
ISLAND
NATIONAL BANK BANCORP AND
1ST UNITED AND TRUST CO. ISLAND
BANCORP (ISLAND NATIONAL
(BANCORP) NATIONAL) ADJUSTMENTS COMBINED
---------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 15,424 $ 5,791 $ $ 21,215
Investment securities 3,752 587 4,339
Other 284 305 589
-------- --------- ----- ---------
19,460 6,683 - 26,143
Interest Expense:
Interest on deposits 4,996 2,240 7,236
Other 214 214
-------- --------- ----- ---------
5,210 2,240 - 7,450
Net Interest Income 14,250 4,443 - 18,693
Provision for loan losses 356 - 356
-------- --------- ----- ---------
13,894 4,443 - 18,337
Other Income:
Service charges on deposits 1,733 274 2,007
Net losses on securities 14 - 14
Gain on sale of loans 392 - 392
Investment services - 805 805
Trust services - 669 669
Other 744 123 867
-------- --------- ----- ---------
2,883 1,871 - 4,754
Other Expense:
Salaries and benefits 5,609 2,761 - 8,370
Occupancy, furniture and equipment 2,656 1,272 3,928
Other real estate expense 333 - 333
Professional fees 394 299 693
Amortization of intangible assets 127 115 242
Other 3,236 1,448 4,684
-------- --------- ----- ---------
12,355 5,895 - 18,250
-------- --------- ----- ---------
Income Before Income Taxes (Benefit) 4,422 419 - 4,841
Income taxes (Benefit) 1,451 (150) 1,301
-------- --------- ----- ---------
Net Income $ 2,971 $ 569 $ - $ 3,540
======== ========= ===== =========
Net Income Per Common Share $ 0.50 $ 0.93 $ 0.48
======== ========= ===== =========
Weighted Average common shares and
common stock equivalents
outstanding 5,940 615 7,305
======== ========= ===== =========
</TABLE>
SEE ACCOMPANYING NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.
-5-
<PAGE>
1ST UNITED BANCORP AND SUBSIDIARIES/
ISLAND NATIONAL BANK AND TRUST COMPANY AND SUBSIDIARY
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(unaudited)
A. Assumes Bancorp will issue 1,365,000 (based on February 14, 1997 fair value
of Bancorp Common Stock) shares of its common stock to acquire all the
outstanding shares of Island National Common Stock.
The assets and liabilities of Island National will be recorded by Bancorp
at their book value in accordance with the pooling of interest method of
accounting. Island National Common Stock of $3,061,000 is being
reclassified as additional paid in capital, net of $14,000, the par value
of Bancorp Common Stock issued to Island National shareholders.
B. Net income per share is calculated using the weighted average number of
Bancorp Common Stock and stock equivalents for the periods adjusted as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
(SHARES IN THOUSANDS)
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Bancorp historical 8,587 7,576 5,940
Estimated shares issued to Island National
shareholders as of beginning of period 1,365 1,365 1,365
----- ----- -----
Pro forma weighted average common shares
and common stock equivalents 9,952 8,941 7,305
===== ===== =====
</TABLE>
C. The following reconciles the outstanding Bancorp Common Stock at December
31, 1996 to Pro forma outstanding Bancorp Common Stock (shares in
thousands):
Bancorp shares at December 31, 1996 8,435
Estimated shares issued to Island
National shareholders 1,365
-----
9,800
=====
D. The Pro forma combined condensed statement of income for each period
excludes the following non recurring charges directly attributable to the
transaction:
Severance/stay bonuses $283,000
Merger Costs 252,000
Other 65,000
--------
600,000
Tax effect (36%) 216,000
--------
$384,000
========
-6-
<PAGE>
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
2.2 Amendment No. 1 to the Acquisition Agreement
EXHIBIT 2.2
AMENDMENT NO. 1
This Amendment No. 1 (the "Amendment"), dated February __, 1997, is
hereby made to the Acquisition Agreement dated January 6, 1997 (the
"Agreement"), by and between 1st United Bank, a Florida chartered bank ("1st
United"), Island National Bank and Trust Company, a national banking association
("Island") and 1st United Bancorp, a Florida bank holding company ("Bancorp"),
(1st United, Island and Bancorp are collectively referred to herein as the
"Parties").
WHEREAS, the Agreement requires that, within 30 days after the Effective
Date, Island obtain agreements (the "Modification Agreements") in form
acceptable to Bancorp and 1st United pursuant to which each holder of each
Island Option agrees to surrender such optionholder's rights pursuant to Island
Options in return for the consideration set forth in Section 2.b(ii)(a) of the
Agreement and the Agreement provides a procedure pursuant to which the Merger
Consideration to be delivered to the holders of Island Options is to be
delivered; and
WHEREAS, the Parties have agreed that it is not appropriate to obtain
Modification Agreements from the holders of Island Options, other than existing
or former executive officers and directors of Island, prior to the distribution
of the Definitive Island Proxy Materials; and
WHEREAS, due to increases in the value of Bancorp Shares since the
execution of the Agreement, it is necessary to amend the formula for computation
of the portion of the Merger Consideration to be delivered to the holders of
Island Options to continue to reflect the original intent of the Parties.
WHEREAS, the Parties wish to modify the Agreement as provided herein;
NOW, THEREFORE, in consideration for the premises and mutual promises
contained herein, the Parties agree as follows:
1. The foregoing recitations are incorporated into and comprise a part of
this Amendment.
2. Unless otherwise defined herein, any capitalized term used herein shall
have the meaning ascribed to such term in the Agreement.
3. Section 2.6(i) and Section 2.6(ii)(a) are hereby amended to read as
follows:
(i) At and as of the Effective Time, each Island Share, issued and
outstanding immediately prior to the Effective Time other than the Dissenting
Shares, and each Island Option as to which the holder has entered into an
agreement as contemplated by Section 5.2(iv) shall, by virtue of the Merger and
without any action on the part of the Island Stockholders, be converted into and
represent the right to receive a portion of the Merger Consideration calculated
as
<PAGE>
provided in ss.2.6(ii) and deliverable to the holder of record of the Island
Option as provided hereinafter and of the Certificate, without interest thereon,
upon surrender of the Certificate representing such Island Share.
(ii) Subject to any adjustments made to the amount of the Merger
Consideration pursuant to ss. 2.6(iv), each holder of:
a. Island Options as of the Effective Time, with respect to each
group of Island Options held by such holder which are exercisable on the same
terms, (and as to which that holder has entered into an agreement as
contemplated by Section 5.2(iv)) shall receive a portion of the Merger
Consideration equal to: (i) the Aggregate Consideration (as hereinafter defined)
divided by the Total Equities; (ii) minus the Option Price for such Island
Options held by that holder; (iii) multiplied by the number of Island Shares
issuable on the exercise of the Island Options in each group of Island Options
held by that holder; (iv) divided by the Actual Value; and (v) multiplied by the
number of Bancorp Shares comprising the Bancorp Purchase Stock. Aggregate
Consideration shall mean the Actual Value plus the aggregate exercise price for
all Island Options. The foregoing is expressed as a formula as follows:
[GRAPHIC OMITTED]
4. Section 2.10 of the Agreement is hereby amended to read as follows:
SECTION 2.10 EXCHANGE OF SHARES.
(i) Within three (3) business days after the Effective Time, Bancorp
and/or 1st United shall deposit cash and transmit instructions to the Transfer
Agent to issue and deliver the Bancorp Purchase Stock and cash in amounts
necessary to make delivery of the Merger Consideration pursuant to Section 2.6
hereof to holders of Island Shares that are issued and outstanding immediately
prior to the Effective Time and to the holders of Island Options who have
executed the agreements contemplated by Section 5.2(iv) hereof, and, to the
extent ascertainable under applicable law, to make the appropriate cash
payments, if any, to holders of Dissenting Shares (such amounts being
hereinafter referred to as the "Exchange Fund"). The Transfer Agent shall,
pursuant to such instructions given by Bancorp, promptly make the payments and
delivery provided for in the preceding sentence out of the Exchange Fund to the
holders of Certificates upon surrender of the Certificates and letters of
transmittal from the holders of Island Shares and to the holders of Island
Options who have executed the agreements contemplated by Section 5.2(iv) hereof
in accordance with Section 2.10(ii). Payments to the holders of Dissenting
Shares shall be made as required by Chapter 658, Florida Statutes, and the
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<PAGE>
National Bank Act. Subject to holding sufficient cash to make prompt payments to
holders of Island Shares and/or Island Options, the Transfer Agent shall invest
the Exchange Fund in a money market account with 1st United. Bancorp shall bear
the risk of any investment losses by the Transfer Agent and shall contribute
additional funds if necessary to pay all of the Merger Consideration and the
payments due to the holders of Dissenting Shares. The Exchange Fund shall not be
used for any other purpose, except as provided in this Agreement.
(ii) Within five (5) business days after the Effective Time the
Transfer Agent shall mail to each record holder of an outstanding Certificate or
Certificates, a form letter of transmittal approved by Island and Bancorp (which
as to the Certificates shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon proper delivery of
the Certificates to the Transfer Agent) and instructions for use in effecting
the surrender of the Certificates. Upon the delivery of a transmittal letter by
each holder of Certificates duly executed and properly completed in full and, if
required by Bancorp signature medallion guaranteed, and surrender to the
Transfer Agent of the Certificate, the holder of such Certificates shall be
entitled to receive in exchange therefor Bancorp Purchase Stock in the amount
and proportions provided in Section 2.6(ii), and such Certificate shall
forthwith be canceled. As soon as practicable after the Effective Time the
Transfer Agent shall transfer to each holder of an Island Option who has
executed an agreement as contemplated in Section 5.2(iv) the amount and portion
of the Merger Consideration provided in Section 2.6(ii). No interest will be
paid or accrued on the cash payable upon surrender of the Island Option or
Certificate. If payment or delivery of Merger Consideration is to be made to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment and delivery of Merger Consideration to
a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of Bancorp that such tax has been paid or is not
applicable. Until surrendered in accordance with the provisions of this Section
2.10, each Island Option the holder of which has executed an agreement as
contemplated in Section 2.6(ii) and Certificate (other than Certificates
representing Dissenting Shares) shall represent for all purposes the right to
receive the Merger Consideration without any interest thereon. From and after
the Effective Time, no Certificates or Island Options shall represent any right
or interest in Island and shall represent only the right to receive Bancorp
Stock in accordance with the provisions of this Agreement.
(iii) Bancorp shall not pay any dividend or make any distribution on
Bancorp Purchase Stock to any Island Stockholder until the Island Stockholder
surrenders for exchange its Certificates. Bancorp shall instead pay the dividend
or make the distribution to the Transfer Agent in trust for the benefit of the
Island Stockholder to be distributed to the Island Stockholder on surrender of
the Certificates and such dividends or distributions shall become a part of the
Exchange Fund. In no event shall a Island Stockholder or holder of Island
Options be entitled to interest or earnings on the dividends or distributions
held by the Transfer Agent. Any such interest or earnings shall be paid to
Bancorp.
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<PAGE>
(iv) After the Effective Time, the stock transfer ledger of Island
shall be closed and there shall be no transfers on the stock transfer books of
Island of the Island Shares which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to
Bancorp or 1st United, they shall be promptly presented to the Transfer Agent
and exchanged as provided above.
(v) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of Island for
six months after the Effective Time shall be paid to Bancorp, and the holders of
Island Shares not theretofore presented to the Transfer Agent shall look to
Bancorp as a general creditor only, and not to the Transfer Agent, for the
payment of any portion of the Exchange Fund in respect of such Island Shares.
5. Section 5.2(iv) of the Agreement is hereby amended to read as
follows:
(iv) within sixty (60) days after the Effective Date, agreements in
form and substance reasonably acceptable to Bancorp pursuant to which E. Anthony
Newton, Gustave T. Broberg, Donald Carmichael, Paul L. Maddock, Jr., E. Rodman
Titcomb, Jr. and each other present or former executive officer or director of
Island who is the holder of Island Options, other than William Watson, agrees to
accept the consideration provided in Section 2.6(ii)(a) in exchange for all of
the rights of that holder of Island Options under the agreements pursuant to
which those Island Options were granted, including, without limitation, all
rights to Island Stock or Bancorp Shares other than Bancorp Purchase Shares
allocated pursuant to Section 2.6(ii)(a). Island shall exert best efforts to
obtain such an agreement from William Watson within sixty (60) days after the
Effective Date. Within ten (10) days after the date the Definitive Island Proxy
Materials are mailed to the Island Stockholders, Island shall obtain such
agreements from each of the other holders of Island Options.
6. Except as expressly provided herein, nothing in this Amendment shall
be construed to modify or supersede any of the Parties' rights and obligations
previously set forth in the Agreement. In the event the terms of the Agreement
and this Amendment conflict, the terms of this Amendment shall control. The
Agreement, in conjunction with this Amendment, shall represent the Parties
complete understanding on the subject matters contained therein.
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<PAGE>
7. This Agreement may be executed in any number of counterparts, each
of which, when so executed, shall constitute an original copy hereof, but all of
which together shall constitute but one and the same document.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first provided above.
1ST UNITED BANCORP
By: /s/ JOHN MARINO
-------------------------------
Title: Treasurer
Date: 2/25/97
1ST UNITED BANK
By: /s/ JOHN MARINO
-------------------------------
Title:Executive Vice President
Date: 2/25/97
ISLAND NATIONAL BANK AND TRUST COMPANY
By: /s/ E. ANTHONY NEWTON
-------------------------------
Title: President
Date: 2/25/97
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