U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Quarterly period ended September 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from___________________ to____________________
Commission File Number: 0-20254
1st United Bancorp
-------------------------------------------------
(Exact name of Registrant)
Florida 65-0178023
- -------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
or incorporation of organization) Identification No.)
980 N. Federal Highway, Boca Raton, FL 33432
- ---------------------------------------------
(Address of principal executive offices)
(561) 392-4000
-------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO________
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of September 30, 1997.
10,150,806
-----------
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<CAPTION>
1st UNITED BANCORP
Index
PAGE
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<S> <C> <C>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income -
nine months ended September 30, 1997 and 1996 2
Condensed Consolidated Statements of Income -
three months ended September 30, 1997 and 1996 3
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Shareholders' Equity -
nine months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
Part II OTHER INFORMATION 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
This Form 10-Q contains forward-looking statements that involve risks and
uncertainties, and there are certain important factors that could cause actual
results to differ materially from those anticipated. These important factors
include, but are not limited to, economic conditions both generally and more
specifically in the markets in which 1st United Bancorp ("Bancorp") and 1st
United Bank ("1st United") operate, competition for Bancorp's and 1st United's
customers from other providers of financial services, government legislation and
regulation (which changes from time to time and over which Bancorp and 1st
United have no control), changes in interest rates, the impact of Bancorp's
rapid growth, and other risks detailed in the Annual Report on Form 10-K and in
Bancorp's other filings with the Securities and Exchange Commission, all of
which are difficult to predict and many of which are beyond the control of
Bancorp.
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1st UNITED BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
(UNAUDITED) (NOTE)
---------------- ----------------
(In thousands, except share data)
ASSETS
<S> <C> <C>
Cash and due from banks $ 39,048 $ 35,779
Interest bearing deposits 36,208 42,480
Federal funds sold 9,309 47,262
---------------- ----------------
Cash and cash equivalents 84,565 125,521
Investment securities available-for-sale 18,588 24,903
Investment securities held to maturity, market value of
$57,302 in 1997 and $42,778 in 1996 57,031 42,917
Loans, net of allowance for loan losses of $9,734 in 1997
and $9,826 in 1996 535,171 458,765
Premises and equipment, net 15,739 16,295
Accrued interest receivable 3,965 3,093
Other real estate owned 2,262 3,929
Intangible assets, net 11,507 8,272
Other assets 7,035 8,471
---------------- ----------------
$735,863 $692,166
================ ================
LIABILITIES
Deposits:
Demand deposits, non interest bearing $165,123 $168,715
NOW and money market accounts 226,652 257,639
Savings deposits 61,307 57,173
Time deposits of $100,000 or more 45,564 32,371
Time deposits of less than $100,000 150,682 107,227
---------------- ----------------
Total deposits 649,328 623,125
Federal funds purchased and securities sold under
agreements to repurchase 8,473 0
Other liabilities 6,440 6,976
---------------- ----------------
Total Liabilities 664,241 630,101
SHAREHOLDERS' EQUITY
Common Stock, par value $.01 per share -
authorized 20,000,000 shares, issued and outstanding
10,150,806 shares in 1997 and 9,801,189 shares in 1996 102 98
Additional paid-in capital 50,430 45,677
Retained earnings 21,143 16,400
Net unrealized losses on securities available-for-sale,
net of taxes (53) (110)
---------------- ----------------
Total Shareholders' Equity 71,622 62,065
---------------- ----------------
$735,863 $692,166
================ ================
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
supplementary audited financial statements, included in Form 8-K/A dated August
26, 1997.
See accompanying Notes.
1
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1st UNITED BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
1997 1996
---------------- ----------------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans, including fees $35,203 $29,931
Investment securities 3,303 4,076
Federal funds sold 967 1,275
Interest bearing deposits 2,873 513
---------------- ----------------
42,346 35,795
Interest expense:
Deposits 12,555 9,944
Federal funds purchased and securities sold under agreements
to repurchase 141 135
Other 16 0
---------------- ----------------
12,712 10,079
---------------- ----------------
Net interest income 29,634 25,716
Provision for loan losses 120 205
---------------- ----------------
Net interest income after provision for loan losses 29,514 25,511
Non interest income:
Service charges on deposit accounts 3,028 3,287
Investment securities brokerage fees 844 691
Estate and fiduciary fees 792 596
Gain on sale of loans 1,218 573
Gain on sale of other real estate owned 232 34
Gain on sale of assets 433 385
Other 1,263 1,848
---------------- ----------------
7,810 7,414
Non interest expense:
Salaries and employee benefits 10,954 10,943
Occupancy and furniture and equipment expense 4,709 4,750
Merger expense 1,383 0
Professional fees 843 907
Advertising and public relations 497 579
Other real estate owned 614 465
Goodwill amortization 615 551
Stationery, printing and supplies 542 537
Telephone 487 503
Postage 326 391
Other 3,966 3,613
---------------- ----------------
24,936 23,239
---------------- ----------------
Income before income taxes 12,388 9,686
Income taxes 4,596 3,445
================ ================
Net income $ 7,792 $ 6,241
================ ================
Income per common and common equivalent shares $ 0.76 $ 0.63
================ ================
Dividends per share $ 0.32 $ 0.11
================ ================
</TABLE>
See accompanying Notes.
2
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<TABLE>
<CAPTION>
1st UNITED BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
1997 1996
---------------- ----------------
(In thousands, except per share data)
<S> <C> <C>
Interest income:
Loans, including fees $12,822 $10,432
Investment securities 1,218 1,293
Federal funds sold 154 165
Interest bearing deposits 967 134
---------------- ----------------
15,161 12,024
Interest expense:
Deposits 4,687 3,250
Federal funds purchased and securities sold under agreements
to repurchase 92 21
Other 5 0
---------------- ----------------
4,784 3,271
---------------- ----------------
Net interest income 10,377 8,753
Provision for loan losses 40 54
---------------- ----------------
Net interest income after provision for loan losses 10,337 8,699
Non interest income:
Service charges on deposit accounts 1,022 1,073
Investment securities brokerage fees 294 251
Estate and fiduciary fees 275 213
Gain on sale of loans 576 229
Gain on sale of other real estate owned 178 17
Loss on sale of assets (28) 0
Other 444 401
---------------- ----------------
2,761 2,184
Non interest expense:
Salaries and employee benefits 3,830 3,483
Occupancy and furniture and equipment expense 1,518 1,518
Professional fees 67 326
Advertising and public relations 109 143
Other real estate owned 242 171
Goodwill amortization 247 184
Stationery, printing and supplies 178 163
Telephone 180 163
Postage 101 121
Other 1,715 1,304
---------------- ----------------
8,187 7,576
---------------- ----------------
Income before income taxes 4,911 3,307
Income taxes 1,779 1,160
================ ================
Net income $ 3,132 $ 2,147
================ ================
Income per common and common equivalent shares $ 0.30 $ 0.22
================ ================
Dividends per share $ 0.11 $ 0.04
================ ================
</TABLE>
See accompanying Notes.
3
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1st UNITED BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------------
1997 1996
---------------- ----------------
(In thousands)
<S> <C> <C>
Operating Activities:
Net income $ 7,792 $ 6,241
Adjustments to reconcile net income to net cash provided by
operating activities, net of effects of acquisitions accounted
for as purchases 1,046 2,652
---------------- ----------------
Net cash provided by operating activities 8,838 8,893
Investing Activities:
Net cash received in acquisition 4,651 26,298
Purchase of investment securities held to maturity (6,951) (2,342)
Maturities of investment securities held to maturity 8,006 6,826
Purchase of investment securities available for sale (5,427) (7,701)
Maturities and sales of investment securities available for sale 8,608 35,329
Increase in loans, net (26,310) (36,239)
Proceeds from sale of other real estate 4,671 0
Purchase of bank premises and equipment (1,109) 0
Other 2,784 2,334
---------------- ----------------
Net cash (used in) provided by investing activities (11,077) 24,505
Financing Activities:
Decrease in deposits (42,894) (13,204)
Increase in federal funds purchased and securities sold
under agreements to repurchase 8,473 5,993
Payments on long term debt 0 (2,782)
Issuance of notes payable, related parties 0 2,168
Repayment of notes payable, related parties 0 (2,168)
Proceeds from exercise of stock options 660 0
Purchase of treasury stock by pooled company 0 (267)
Payment of dividends (3,049) (807)
Payment of dividends by pooled company 0 (69)
Other (1,907) 1,354
---------------- ----------------
Net cash used in financing activities (38,717) (9,782)
---------------- ----------------
(Decrease) increase in cash and cash equivalents (40,956) 23,616
Cash and cash equivalents at beginning of period 125,521 51,318
---------------- ----------------
Cash and cash equivalents at end of period $84,565 $74,934
================ ================
</TABLE>
See accompanying Notes.
4
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1st UNITED BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 1997 and 1996
(Unaudited)
NET
UNREALIZED
GAINS
(LOSSES) ON
SECURITIES
ADDITIONAL AVAILABLE- TOTAL
COMMON STOCK PAID-IN RETAINED FOR-SALE, SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS NET OF TAXES EQUITY
------------- ----------- ------------- ------------- ------------- -----------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 8,811,189 $ 88 $38,608 $ 9,904 $ 102 $48,702
Stock issued for
acquisition of American 820,000 8 6,364 6,372
Retirement of stock by
pooled company (267) (267)
Change in net unrealized
gains (losses) on
securities (261) (261)
available-for-sale
Cash dividends -
$0.11 per share (807) (807)
Cash dividends of pooled
company (69) (69)
Net income 6,241 6,241
------------- ----------- ------------- ------------- ------------- -----------------
Balance, Sept. 30, 1996 9,631,189 $ 96 $44,705 $15,269 ($ 159) $59,911
============= =========== ============= ============= ============= =================
Balance, January 1, 1997 9,801,189 $ 98 $45,677 $16,400 ($ 110) $62,065
Proceeds from exercise of
stock options 88,975 1 659 660
Change in net unrealized
gains (losses) on
securities 57 57
available-for-sale
Stock issued for
acquisition of Seaboard 260,642 3 4,094 4,097
Cash dividends -
$0.32 per share (3,049) (3,049)
Net income 7,792 7,792
------------- ----------- ------------- ------------- ------------- -----------------
Balance, Sept. 30, 1997 10,150,806 $ 102 $50,430 $21,143 ($ 53) $71,622
============= =========== ============= ============= ============= =================
</TABLE>
See accompanying Notes.
5
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1st UNITED BANCORP AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, (consisting
of normal recurring accruals) except for expenses associated with the
acquisition of Island National Bank and Trust Company as discussed in Note C,
considered necessary for a fair presentation have been included. Operating
results for the three and nine month periods ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to the supplemental
consolidated financial statements and footnotes thereto for the year ended
December 31, 1996, included in 1st United Bancorp's ("Bancorp") report on Form
8-K/A dated August 26, 1997.
NOTE B - INCOME PER COMMON SHARE
Income per common share is calculated by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding during each period. Common stock equivalents represent the
potentially dilutive effect of the assumed exercise of certain outstanding stock
options. Average shares outstanding after the dilutive effect of common stock
equivalents for the nine months ended September 30, 1997 and 1996 were
10,198,000 and 9,924,000, respectively, and for the three months ended September
30, 1997 and 1996 were 10,453,000 and 9,958,000, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share, which changes the way earnings per share is calculated
and disclosed. Under Statement No. 128, companies are required to disclose BASIC
and DILUTED earnings per share as compared to the present requirement to
disclose PRIMARY and FULLY DILUTED earnings per share. Basic earnings per share
differs from primary earnings per share in that common stock equivalents,
currently included in the calculation of primary earnings per share, are not
included in the determination of basic earnings per share. Diluted earnings per
share differs from fully diluted earnings per share in that common stock
equivalents are currently included in calculating fully diluted earnings per
share, based on the average market price or period ending market price,
whichever is higher, however, they are only based on average market price in
calculating diluted earnings per share. The Statement is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Early adoption is prohibited. Adoption of the statement is not expected to have
a material impact upon Bancorp's reported earnings per share.
NOTE C - MERGERS AND ACQUISITIONS
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.
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.
6
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NOTE C - MERGERS AND ACQUISITIONS - CONTINUED
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 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 acquired
and the liabilities assumed in connection with the American acquisition:
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
=================
On November 1, 1996, Bancorp 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, Bancorp issued approximately
816,000 of its common shares to Park shareholders.
On April 1, 1997, Bancorp completed its merger with Island National Bank and
Trust Company ("Island"). 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 nine months ended September 30, 1997.
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
Island. In connection with the transaction, Bancorp issued approximately
1,365,000 of its common shares to Island shareholders.
Separate results of operations of the combined entities for the three and nine
month periods ended September 30, 1996, were as follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
---------------- -----------------
Net interest income:
Bancorp $6,716 $19,602
Park 727 2,198
Island 1,310 3,916
---------------- -----------------
$8,753 $25,716
================ =================
Non interest income:
Bancorp $1,474 $5,273
Park 154 481
Island 556 1,660
---------------- -----------------
$2,184 $7,414
================ =================
7
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NOTE C - MERGERS AND ACQUISITIONS - CONTINUED
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1996
---------------- -----------------
Net income:
Bancorp $1,771 $5,268
Park 227 555
Island 149 418
---------------- -----------------
$2,147 $6,241
================ =================
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% stock.
Approximately 261,000 shares (value per share of $15.72 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 $3.8
million in goodwill was recorded and is being 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 office
located in Stuart, Florida was acquired.
NOTE D - MERGER AGREEMENT
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 approximately $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 for each share of
Bancorp 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.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Bancorp's net income increased from $6,241,000 during the nine months ended
September 30, 1996, to $7,792,000 during the same period in 1997, an increase of
24.85%. Bancorp's net income increased from $2,147,000 during the three months
ended September 30, 1996, to $3,132,000 during the same period in 1997, an
increase of 45.88%. Net income for the nine months ended September 30, 1997, was
affected by merger costs incurred in connection with the acquisition of Island
National Bank and Trust Company, which was consummated on April 1, 1997, and
accounted for as a pooling of interests. These costs amounted to $885,000 on an
after tax basis. The following summarizes Bancorp's profitability ratios for the
nine and three month periods ended September 30, 1997 and 1996, both including
and excluding the merger costs referred to above:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest income as a % of average earning assets 5.88% 6.32% 5.91% 6.12%
Efficiency ratio (Non interest expenses as a % of net
interest income plus non interest income):
Including merger expenses 62.32% 69.27% 66.60% 70.14%
Excluding merger expenses 62.32% 69.27% 62.90% 70.14%
Return on average assets:
Including merger expenses 1.62% 1.41% 1.41% 1.34%
Excluding merger expenses 1.62% 1.41% 1.57% 1.34%
Return on average equity:
Including merger expenses 17.74% 14.46% 15.69% 14.43%
Excluding merger expenses 17.74% 14.46% 17.47% 14.43%
</TABLE>
NET INTEREST INCOME
Bancorp's results of operations depend, to a large extent, on the level of its
net interest income, which is the difference between the interest income it
receives on its interest-earning assets and the interest expense it pays on its
interest-bearing liabilities.
Net interest income increased from $25,716,000 during the nine months ended
September 30, 1996, to $29,634,000 during the same period in 1997, an increase
of 15.24%. Net interest income increased from $8,753,000 during the three months
ended September 30, 1996, to $10,377,000 during the same period in 1997, an
increase of 18.55%. The increase in net interest income for both periods was
primarily due to an increase in average earning assets. Average earning assets
increased from $559,732,000 during the nine months ended September 30, 1996, to
$667,652,000 during the same period in 1997, an increase of 19.28%. Average
earning assets increased from $554,231,000 during the three months ended
September 30, 1996, to $704,802,000 during the same period in 1997, an increase
of 27.17%. Of the $150,571,000 increase in average earning assets during the
three months ended September 30, 1997 as compared to the three months ended
September 30, 1996, $73,503,000 was due to the Seaboard acquisition. Similarly,
of the $107,920,000 increase in average earning assets for the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996,
$24,501,000 was due to the Seaboard acquisition and $10,865,000 was due to
temporary deposits during the second quarter of 1997. The remainder of the
increase in average earning assets in both periods was primarily due to normal
asset growth.
As indicated in the table below, there was a considerable change in the mix of
the Company's earning assets, in thousands, for both the nine and three month
periods ended September 30, 1997, as compared to the same periods in 1996:
9
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<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- ----------------------------------------
1997 1996 1997 1996
-------------------- ------------------- -------------------- -------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
----------- -------- ---------- -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $548,188 78% $449,593 81% $503,334 75% $428,329 77%
Investment securities 76,397 11% 81,999 15% 69,617 10% 85,835 15%
Interest bearing deposits 69,150 10% 10,152 2% 70,783 11% 13,488 2%
Federal funds sold 11,067 1% 12,487 2% 23,918 4% 32,080 6%
----------- -------- ---------- -------- ----------- -------- ---------- --------
$704,802 100% $554,231 100% $667,652 100% $559,732 100%
=========== ======== ========== ======== =========== ======== ========== ========
</TABLE>
As a result of this change in mix of assets, the Company's yield on average
earning assets decreased from 8.51% during the nine months ended September 30,
1996 to 8.44% during the same period in 1997 and from 8.68% during the three
months ended September 30, 1996 to 8.60% during the same period in 1997.
Inasmuch as the increase in average earning assets was funded to a significant
extent by higher cost NOW and money market accounts, the Company's cost of
funds, as a percentage of average earning assets, increased from 2.39% during
the nine months ended September 30, 1996 to 2.53% during the same period in 1997
and from 2.36% during the three months ended September 30, 1996 to 2.72% during
the same period in 1997. The combination of the decrease in the yield on earning
assets and the increase in the cost of funds resulted in the decrease in net
interest income as a percentage of average earning assets, as indicated above.
NON INTEREST INCOME
Non interest income increased from $7,414,000 during the nine months ended
September 30, 1996, to $7,810,000 during the same period in 1997, an increase of
5.34%. Non interest income increased from $2,184,000 during the three months
ended September 30, 1996, to $2,761,000 during the same period in 1997, an
increase of 26.42%. The increase in non interest income in both periods was
primarily due to increases in gains on the sale of loans, gains on the sale of
other real estate owned, investment securities brokerage fees and estate and
fiduciary fees which were partially offset by decreases in service charges on
deposit accounts. The increase in gains on the sale of loans was due to a higher
level of loans sold during the nine and three month periods ended September 30,
1997. The increase in gains on the sale of other real estate owned was due to
the continuing strength of the economy in the Company's service area. The
increase in investment securities brokerage fees was related to the performance
of the stock market in general, whereas the increase in estate and fiduciary
fees was related to both the performance of the stock market and the expansion
of the number of customers served by 1st United's Trust Division. The decrease
in service charges on deposit accounts was due to decreases in both customer
overdraft charges and account maintenance charges. The decrease in customer
overdraft charges was due to fewer customers being overdrawn whereas the
decrease in account maintenance charges was due to customers maintaining higher
balances in their accounts.
NON INTEREST EXPENSE
Included in non interest expense for the nine months ended September 30, 1997,
were merger costs incurred in connection with the acquisition of Island National
Bank and Trust Company of $1,383,000. Excluding these costs, non interest
expense increased from $23,239,000 during the nine months ended September 30,
1996, to $23,553,000 during the same period in 1997, an increase of 1.35%. Non
interest expense increased from $7,576,000 during the three months ended
September 30, 1996, to $8,187,000 during the same period in 1997, an increase of
8.06%. The increase in non interest expense during the three months ended
September 30, 1997 was partially related to the Seaboard acquisition as well as
the Company's prospective merger with Wachovia Corporation. In addition, other
real estate owned expense also increased as a result of costs incurred in
connection with the ownership of such assets as well as additional provisions
for losses thereon. The increase in non interest expense during the nine months
ended September 30, 1997 was less influenced by the Seaboard acquisition as well
as the Company's prospective merger with Wachovia Corporation. However, the
factors which affected the comparability of other real estate owned expense
during the three months ended September 30, 1997 also affected the comparability
during the nine months ended September 30, 1997. Excluding the impact of the
Seaboard acquisition and the Company's prospective merger with Wachovia
Corporation, salaries and employee benefits expense in both periods decreased as
a result of the operating efficiencies that were attained as a result of the
Park and Island acquisitions. Similarly, occupancy expenses decreased in both
periods as a result of the closure of two branches formerly owned by Park that
were closed upon the acquisition of Park.
10
<PAGE>
FINANCIAL CONDITION
The following table presents, in thousands, the growth of Bancorp's major
categories of assets, liabilities and shareholders' equity:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, INCREASE (DECREASE)
1997 1996 AMOUNT %
----------------- ---------------- ----------------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $84,565 $125,521 $(40,956) (33%)
Investment securities 75,619 67,820 7,799 11%
Loans 535,171 458,765 76,406 17%
Total assets 735,863 692,166 43,697 6%
Deposits 649,328 623,125 26,203 4%
Shareholders' equity 71,622 62,065 9,557 15%
</TABLE>
Excluding the deposits assumed as a result of the Seaboard acquisition, deposits
decreased from December 31, 1996, to September 30, 1997, by approximately $43
million, primarily due to seasonal factors. Excluding the loans acquired as a
result of the Seaboard acquisition, loans increased from December 31, 1996, to
September 30, 1997, by approximately $24 million. The increase in loans, which
is largely unaffected by seasonal factors, was due to normal growth. The
decrease in deposits and the increase in loans were primarily funded by
decreases in cash and cash equivalents.
LIQUIDITY
As indicated above, the total of cash and cash equivalents, Bancorp's primary
source of liquidity, decreased from $125,521,000 at December 31, 1996, to
$84,565,000 at September 30, 1997, primarily as a result of seasonal decreases
in deposits and normal growth in loans. Bancorp's second source of liquidity,
its investment securities, increased from $67,820,000 at December 31, 1996, to
$75,619,000 at September 30, 1997, as a result of the Seaboard acquisition.
Excluding the investment securities acquired as a result of the Seaboard
acquisition, investment securities decreased by approximately $4 million,
primarily due to maturities and paydowns on available-for-sale securities being
used to fund reductions in deposits and increases in loans.
An additional external source of liquidity is two unsecured federal fund lines
of credit that 1st United has established with two of its correspondent banks
totaling $12 million. In addition, 1st United has entered into master repurchase
agreements with two financial institutions. 1st United is also a member of the
Federal Home Loan Bank of Atlanta and has a borrowing capability of
approximately $58 million under a blanket security agreement.
At September 30, 1997, net cash and due from banks, interest bearing deposits,
federal funds sold, investments available for sale and investments held to
maturity which are due within one year totaled $120 million versus potentially
volatile liabilities (temporary deposits, certificates of deposit of $100,000 or
more, Federal funds purchased and securities sold under repurchase agreements
and public funds) of $53 million.
CAPITAL RESOURCES
The Federal Reserve Board has adopted supervisory risk based capital ratios of
capital to risk weighted assets which require Bancorp and its subsidiaries to
maintain a minimum 8.00% total risk based capital ratio, at least half of which
must be Tier 1 capital. Bancorp's total risk based capital ratio was 11.93% at
September 30, 1997.
At September 30, 1997, Bancorp had total shareholders' equity, of $71,622,000,
an increase of $9,557,000 over that at December 31, 1996. The increase was
primarily the result of net income for the nine months ended September 30, 1997,
of $7,792,000 less dividends declared of $3,049,000, the value of the stock
issued in connection with the Seaboard acquisition of $4,097,000 and the
proceeds from the exercise of stock options of $660,000.
11
<PAGE>
The components of capital resources, in thousands, and Bancorp's capital ratios,
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ----------------
<S> <C> <C>
Risk adjusted assets $563,114 $504,353
Total assets 735,863 692,166
Tier 1 Capital:
Common shareholders' equity $71,622 $62,065
Unrealized losses on investment securities available-for-sale 53 110
Goodwill and other excludable intangibles (11,507) (8,289)
----------------- ----------------
60,168 53,886
Tier 2 Capital:
Includable portion of allowance for loan losses 7,039 6,304
================= ================
Total regulatory capital $67,207 $60,190
================= ================
Tier 1 risk adjusted capital ratio 10.68% 10.68%
================= ================
Total risk adjusted capital ratio 11.93% 11.93%
================= ================
Leverage ratio 7.79% 8.03%
================= ================
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND NON-PERFORMING ASSETS
At September 30, 1997, Bancorp's allowance for loan losses was approximately $10
million. Although management believes the allowance for loan losses is adequate,
their evaluation of possible losses is a continuing process which may
necessitate adjustments to the allowance in future periods.
The following summarizes the activity in the allowance for loan losses, in
thousands, and the related ratios for the nine month periods ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Balance at beginning of period $9,826 $8,014
Charge-offs (1,210) (513)
Recoveries 231 346
----------------- ----------------
Net charge-offs ( 979) (167)
Provision for loan losses 120 205
Allowance of purchased bank at date acquired 767 2,568
----------------- ----------------
Balance at end of period $9,734 $10,620
================= ================
Charge-off ratio 0.26% 0.05%
================= ================
</TABLE>
Although Bancorp's charge-off ratio for the nine months ended September 30,
1996, of 0.05% was considerably below that experienced for all of 1996 of 0.29%,
a significant portion of the 1996 charge-offs were attributable to a few loans
which were incurred in the fourth quarter. The Company's charge off ratio for
the nine months ended September 30, 1997, was consistent with that incurred for
all of 1996.
12
<PAGE>
Bancorp's non-performing assets, in thousands, and related ratios are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ----------------
<S> <C> <C>
Restructured loans $ 1,102 $ 900
================= ================
Loans 90 days or more past due and still accruing interest $ 0 $ 347
Non-accrual loans 8,090 12,116
----------------- ----------------
8,090 12,463
Other real estate owned 2,262 3,929
----------------- ----------------
Total non-performing assets $ 10,352 $ 16,392
================= ================
Ratio of non-performing loans to total loans 1.48% 2.65%
================= ================
Ratio of non-performing assets to total loans plus
other real estate owned 1.89% 3.47%
================= ================
Ratio of allowance for loan losses to total loans 1.79% 2.10%
================= ================
Ratio of allowance for loan losses to non performing loans 120% 79%
================= ================
</TABLE>
Management has developed an internal system for evaluating and grading loans on
a quarterly basis. Watch list assets are those loans that have been graded
substandard or worse by management, regulators, or the independent loan review
consultant, due to potential weaknesses in the borrowers' ability to repay the
loans, weakness in collateral, the borrowers' financial condition or other
factors. Loans included in the watch list are reviewed and evaluated bi-weekly
by senior management. At September 30, 1997, $25.0 million in loans were
included on 1st United's internal watch list of which $14.0 million were
performing loans. Watch list loans totaled approximately $24.3 million at
December 31, 1996, of which $11.8 million were performing loans.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to General Instruction 1 of Item 305 of Regulation S-K, the response to
this item has been omitted.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
1. Exhibit 11 Computation of per share earnings*
2. Exhibit 27 Financial Data Schedule*
b. Reports on Form 8-K:
1. On July 11, 1997, Bancorp filed a Form 8-K reporting the closing of
the acquisition of Seaboard Savings Bank, F.S.B.
2. On August 26, 1997, Bancorp filed a Form 8-K/A amending Form 8-K
dated April 11, 1997, related to the acquisition of Island National
Bank and Trust Company to include audited supplementary consolidated
financial statements.
* Filed herewith
14
<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: October 23, 1997 /s/ Warren S. Orlando
-------------------------------
Warren S. Orlando, President
and Chief Executive Officer
Date: October 23, 1997 /s/ John Marino
-------------------------------
John Marino, Treasurer
(Principal Financial Officer)
15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
11 Computation of per share earnings
27 Financial Data Schedule
Exhibit 11 - Statement Re: Computation of per share earnings
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------- ------------ ------------
(Amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 10,151 9,631 9,935 9,615
Net effect of the assumed exercise of stock
options, based on the treasury stock
method using average market price 302 327 263 309
------------ ------------- ------------ ------------
10,453 9,958 10,198 9,924
============ ============= ============ ============
Net income $ 3,132 $ 2,147 $ 7,792 $ 6,241
============ ============= ============ ============
Income per common share $ 0.30 $ 0.22 $ 0.76 $ 0.63
============ ============= ============ ============
Fully Diluted:
Average shares outstanding 10,151 9,631 9,935 9,615
Net effect of the assumed exercise of stock
options, based on the treasury stock
method using average market price or
period ending market price, whichever
is higher
328 379 280 380
------------ ------------- ------------ ------------
10,479 10,010 10,215 9,995
============ ============= ============ ============
Net income $ 3,132 $ 2,147 $ 7,792 $ 6,241
============ ============= ============ ============
Income per common share $ 0.30 $ 0.21 $ 0.76 $ 0.62
============ ============= ============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 39,048
<INT-BEARING-DEPOSITS> 36,208
<FED-FUNDS-SOLD> 9,309
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,588
<INVESTMENTS-CARRYING> 57,031
<INVESTMENTS-MARKET> 57,302
<LOANS> 544,905
<ALLOWANCE> 9,734
<TOTAL-ASSETS> 735,863
<DEPOSITS> 649,328
<SHORT-TERM> 8,473
<LIABILITIES-OTHER> 6,440
<LONG-TERM> 0
0
0
<COMMON> 102
<OTHER-SE> 71,520
<TOTAL-LIABILITIES-AND-EQUITY> 735,863
<INTEREST-LOAN> 35,203
<INTEREST-INVEST> 3,303
<INTEREST-OTHER> 3,840
<INTEREST-TOTAL> 42,346
<INTEREST-DEPOSIT> 12,555
<INTEREST-EXPENSE> 12,712
<INTEREST-INCOME-NET> 29,634
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 24,936
<INCOME-PRETAX> 12,388
<INCOME-PRE-EXTRAORDINARY> 7,792
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,792
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 5.91
<LOANS-NON> 8,090
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,102
<LOANS-PROBLEM> 17,828
<ALLOWANCE-OPEN> 9,826
<CHARGE-OFFS> 1,210
<RECOVERIES> 231
<ALLOWANCE-CLOSE> 9,734
<ALLOWANCE-DOMESTIC> 9,734
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
