SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 000-16931
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United National Bancorp
-----------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2894827
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
1130 Route 22 East, Bridgewater, New Jersey 08807-0010
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(Address of principal executive offices) (Zip Code)
(908) 429-2200
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(Registrant's telephone number, including area code)
N/A (Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
As of November 1, 2001, there were 14,928,541 shares of common stock, $1.25 par
value, outstanding.
UNITED NATIONAL BANCORP
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE(S)
ITEM 1 Consolidated Financial Statements and Notes to
Consolidated Financial Statements 1-8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-18
ITEM 3 Quantitative and Qualitative Disclosure About Market Risk 19
PART II - OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 21
Part I - Financial Information
Item 1 - Financial Statements
United National Bancorp
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Cash and Due from Banks $ 39,779 $ 49,414
Federal Funds Sold 800 1,000
Securities Available for Sale, at Market Value 585,087 608,388
Securities Held to Maturity 34,159 46,492
Loans, Net of Unearned Income 1,173,332 1,287,417
Less: Allowance for Loan Losses 12,325 12,419
----------- -----------
Loans, Net 1,161,007 1,274,998
Premises and Equipment, Net 26,408 27,596
Other Real Estate, Net 127 165
Intangible Assets, Primarily Core Deposit Premiums 5,590 6,400
Cash Surrender Value of Life Insurance Policies 56,099 53,755
Other Assets 34,568 43,973
----------- -----------
Total Assets $ 1,943,624 $ 2,112,181
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $ 251,073 $ 248,750
Savings 545,354 578,924
Time 638,300 699,742
----------- -----------
Total Deposits 1,434,727 1,527,416
Short-Term Borrowings 90,493 258,507
Other Borrowings 210,834 135,711
Other Liabilities 27,039 30,037
----------- -----------
Total Liabilities 1,763,093 1,951,671
Company-Obligated Mandatorily Redeemable Preferred Series B
Capital Securities of a Subsidiary Trust Holding Solely Junior
Subordinated Debentures of the Company 20,000 20,000
STOCKHOLDERS' EQUITY
Preferred Stock, authorized 1,000,000 shares in 2001 and 2000
None issued and outstanding -- --
Common Stock, $1.25 Par Value,
Authorized Shares 25,000,000 in 2001 and 2000
Issued Shares 16,190,764 in 2001 and 16,154,532 in 2000,
Outstanding Shares 15,029,541 in 2001 and 15,237,809 in 2000 20,238 20,193
Additional Paid-in Capital 129,889 129,342
Retained Earnings 27,405 18,210
Treasury Stock, at Cost - 1,161,223 shares in 2001 and
916,723 shares in 2000 (21,997) (17,202)
Restricted Stock (60) (73)
Accumulated Other Comprehensive Income (Loss) 5,056 (9,960)
----------- -----------
Total Stockholders' Equity 160,531 140,510
----------- -----------
Total Liabilities and Stockholders' Equity $ 1,943,624 $ 2,112,181
=========== ===========
See Accompanying Notes to Consolidated Financial Statements.
1
United National Bancorp
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
2001 2000 2001 2000
------- ------- -------- --------
INTEREST INCOME
Interest and Fees on Loans $23,668 $28,632 $ 74,858 $ 81,013
Interest and Dividends on Securities Available for
Sale:
Taxable 8,438 9,417 26,614 29,388
Tax-Exempt 1,055 1,005 3,107 2,977
Interest and Dividends on Securities Held to
Maturity:
Taxable 166 413 685 1,210
Tax-Exempt 274 275 818 879
Dividends on Trading Account Securities -- 7 -- 25
Interest on Federal Funds Sold and
Deposits with Federal Home Loan Bank 15 16 67 38
------- ------- -------- --------
Total Interest Income 33,616 39,765 106,149 115,530
------- ------- -------- --------
INTEREST EXPENSE
Interest on Savings Deposits 2,582 4,224 9,042 12,079
Interest on Time Deposits 7,111 10,076 26,199 29,184
Interest on Short-Term Borrowings 2,023 4,172 8,323 9,401
Interest on Other Borrowings 3,036 3,335 7,714 10,642
------- ------- -------- --------
Total Interest Expense 14,752 21,807 51,278 61,306
------- ------- -------- --------
Net Interest Income 18,864 17,958 54,871 54,224
Provision for Loan Losses 721 2,330 2,083 4,730
------- ------- -------- --------
Net Interest Income After Provision for Loan Losses 18,143 15,628 52,788 49,494
------- ------- -------- --------
NON-INTEREST INCOME
Trust Income 1,487 1,875 5,256 5,145
Service Charges on Deposit Accounts 1,099 1,020 2,948 3,081
Other Service Charges, Commissions and Fees 1,050 1,875 4,055 5,161
Net Gains from Securities Transactions 10 2,466 185 3,904
Income on Corporate Owned Life Insurance 781 581 2,344 1,809
Other Income 1,311 356 2,994 1,418
------- ------- -------- --------
Total Non-Interest Income 5,738 8,173 17,782 20,518
------- ------- -------- --------
NON-INTEREST EXPENSE
Salaries, Wages and Employee Benefits 6,181 6,042 18,711 17,650
Occupancy Expense, Net 1,330 1,348 4,300 4,028
Furniture and Equipment Expense 1,068 1,098 3,150 3,420
Data Processing Expense 1,545 2,028 5,058 5,662
Distributions of Series B Capital Securities 500 500 1,501 1,501
Amortization of Intangible Assets 370 335 1,088 998
Net Cost (Income) to Operate Other Real Estate 12 14 (39) 115
Non-Recurring Charges -- -- 792 --
Other Expenses 3,417 3,607 10,464 11,369
------- ------- -------- --------
Total Non-Interest Expense 14,423 14,972 45,025 44,743
------- ------- -------- --------
Income Before Provision for Income Taxes 9,458 8,829 25,545 25,269
Provision for Income Taxes 2,758 2,507 7,064 6,991
------- ------- -------- --------
NET INCOME $ 6,700 $ 6,322 $ 18,481 $ 18,278
======= ======= ======== ========
NET INCOME PER COMMON SHARE:
Basic $ 0.44 $ 0.41 $ 1.22 $ 1.18
======= ======= ======== ========
Diluted $ 0.44 $ 0.41 $ 1.22 $ 1.18
======= ======= ======== ========
Weighted Average Shares Outstanding:
Basic 15,075 15,308 15,087 15,431
Diluted 15,241 15,399 15,214 15,551
See Accompanying Notes to Consolidated Financial Statements.
2
United National Bancorp
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
(Unaudited)
Accumulated
Additional Other Total
Common Paid-In Retained Treasury Restricted Comprehensive Stockholders'
Stock Capital Earnings Stock Stock Income (Loss) Equity
--------- ---------- ---------- -------- ---------- ------------- ------------
Balance-December 31, 2000 $ 20,193 $ 129,342 $ 18,210 $ (17,202) $ (73) $ (9,960) $ 140,510
Net Income -- -- 18,481 -- -- -- 18,481
Cash Dividends Declared
($0.20 Per Share) -- -- (9,024) -- -- -- (9,024)
Exercise of Stock Options
(36,232 Shares) 45 547 (262) -- -- -- 330
Change in Unrealized Loss on
Securities Available for
Sale, Net of Tax -- -- -- -- -- 15,016 15,016
Purchase of Treasury Stock
(244,500 shares) -- -- -- (4,795) -- -- (4,795)
Restricted Stock Activity, Net -- -- -- -- 13 -- 13
--------- --------- --------- --------- --------- --------- ---------
Balance-September 30, 2001 $ 20,238 $ 129,889 $ 27,405 (21,997) $ (60) $ 5,056 $ 160,531
========= ========= ========= ========= ========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
3
United National Bancorp
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30,
----------------------
2001 2000
--------- ---------
OPERATING ACTIVITIES
Net Income $ 18,481 $ 18,278
Adjustments to Reconcile Net Income to Net Cash Provided
By Operating Activities:
Depreciation and Amortization 3,591 3,344
Accretion of Securities Premiums, Net (212) (535)
Provision for Loan Losses 2,083 4,730
Provision (Benefit) for Deferred Income Taxes 680 (572)
Loss on Disposition of Premises and Equipment 3 65
Net Gains from Securities Transactions (185) (3,904)
Net Gain on the Sale of Loans Held for Sale (968) (263)
Net Gain on the Sale of Secured Credit Card Business (542) --
Trading Account Securities Activity, Net -- 743
Increase in Life Insurance (2,344) (1,809)
Decrease (Increase) in Other Assets 1,042 (6,329)
Decrease in Other Liabilities (3,678) (3,103)
Restricted Stock Activity, Net 13 24
--------- ---------
Net Cash Provided by Operating Activities 17,964 10,669
--------- ---------
INVESTING ACTIVITIES Securities Available for Sale:
Proceeds from Sales of Securities 22,537 116,403
Proceeds from Maturities of Securities 49,408 21,907
Purchases of Securities (25,231) (90,534)
Securities Held to Maturity:
Proceeds from Sale of Securities 15,052 --
Proceeds from Maturities of Securities 14,832 8,818
Purchases of Securities (17,466) (17,745)
Purchase of Corporate-Owned Life Insurance -- (15,000)
Net Decrease (Increase) in Loans 8,245 (66,497)
Increase in Loans Held for Sale -- (28,504)
Proceeds from Sale of Loans 82,204 52,574
Proceeds from the Sale of Secured Credit Card Business, net 1,798 --
Expenditures for Premises and Equipment (1,382) (1,587)
Proceeds from Sale of Premises and Equipment -- 223
Disposition of Premises and Equipment 64 --
Decrease (Increase) in Other Real Estate, Net 38 (351)
--------- ---------
Net Cash Provided by (Used in) Investing Activities 150,099 (20,293)
--------- ---------
FINANCING ACTIVITIES
Net (Decrease) Increase in Demand and Savings Deposits (10,076) 27,605
Net (Decrease) Increase in Time Deposits (61,442) 7,508
Net (Decrease) Increase in Short-Term Borrowings (168,014) 91,285
Advances on Other Borrowed Funds 137,300 55,170
Repayments in Other Borrowed Funds (62,177) (155,818)
Cash Dividends on Common Stock (9,024) (9,220)
Proceeds from Exercise of Stock Options 330 194
Treasury Stock Acquired, at Cost (4,795) (6,551)
--------- ---------
Net Cash (Used in) Provided by Financing Activities (177,898) 10,173
--------- ---------
Net (Decrease) Increase in Cash and Cash Equivalents (9,835) 549
Cash and Cash Equivalents at Beginning of Period 50,414 53,490
--------- ---------
Cash and Cash Equivalents at End of Period $ 40,579 $ 54,039
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Period:
Interest $ 54,783 $ 62,899
Income Taxes 3,788 11,392
See Accompanying Notes to Consolidated Financial Statements.
4
<Page>
United National Bancorp
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited Consolidated Financial Statements included herein
have been prepared by United National Bancorp (the "Company"), in accordance
with generally accepted accounting principles and pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements have been
condensed or omitted pursuant to such rules and regulations. These Consolidated
Financial Statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual report on Form
10-K.
In the opinion of the Company, all adjustments (consisting only of normal
recurring accruals), which are necessary for a fair presentation of the
operating results for the interim periods, have been included. The results of
operations for periods of less than a year are not necessarily indicative of
results for the full year.
Certain reclassifications have been made to the prior years' financial
statements to conform with the classifications used in 2001.
(2) Comprehensive Income
Total comprehensive income amounted to the following for the periods indicated
(amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2001 2000 2001 2000
------- ------- ------- -------
Net Income $ 6,700 $ 6,322 $18,481 $18,278
Change In Market Value on Securities
Available for Sale, Net of Taxes 11,005 8,434 15,016 4,413
- -------------------------------------- ------- ------- ------- -------
Comprehensive Income $17,705 $14,756 $33,497 $22,691
====================================== ======= ======= ======= =======
(3) Net Income Per Common Share
Basic net income per common share is computed by dividing net income by the
weighted average number of shares outstanding during each period.
Diluted net income per common share is computed by dividing net income by the
weighted average number of shares outstanding, as adjusted for the assumed
exercise of potential common stock options, using the treasury stock method.
Potential shares of common stock resulting from stock option agreements totaled
127,000 and 120,000 for the nine months ended September 30, 2001 and September
30, 2000, respectively. Potential shares of common stock resulting from stock
option agreements totaled 166,000 and 91,000 for the three months ended
September 30, 2001 and September 30, 2000, respectively.
(4) Recent Accounting Pronouncements
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and
Other Intangible Assets. Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30, 2001
as well as all purchase method business combinations completed after June 30,
2001. Statement 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized
5
and reported apart from goodwill. Statement 142 will require that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that intangible
assets with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of.
Statement 142 requires that goodwill and any intangible asset determined to have
an indefinite useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue to be
evaluated for impairment in accordance with the appropriate pre-Statement 142
accounting literature. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized in the
same manner as they were prior to the adoption of Statement 142.
The initial adoption of Statement 141 had no impact on the Company's
consolidated financial statements. The Company is required to adopt Statement
142 effective January 1, 2002. The Company currently has no recorded goodwill
and does not anticipate that Statement 142 will significantly impact the
Company's accounting for currently recorded intangible assets, primarily core
deposit intangibles.
6
(5) Segment Reporting
The Company, for management purposes, is segmented into the following lines of
business: Retail Banking, Commercial Banking, Investments, and Trust and
Investment Services. Activities not included in these lines are reflected in
Corporate. Summary financial information on a fully taxable equivalent basis for
the lines of business is presented below.
Results of Operations for
The Three Months Ended September 30, 2001 Retail Commercial Investments Trust Corporate Consolidated
---------- ---------- ----------- ---------- ---------- ----------
Interest Income $ 12,001 $ 11,683 $ 10,664 $ -- $ -- $ 34,348
Interest Expense 9,487 -- 5,265 -- -- 14,752
Funds Transfer Pricing Allocation 8,187 (6,157) (3,761) -- 1,731 --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 10,701 5,526 1,638 -- 1,731 19,596
Provision for Loan Losses 1,057 (336) -- -- -- 721
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision for Loan Losses 9,644 5,862 1,638 -- 1,731 18,875
Non-Interest Income 2,782 219 946 1,699 92 5,738
Non-Interest Expense 10,703 1,753 576 1,391 -- 14,423
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Taxes $ 1,723 $ 4,328 $ 2,008 $ 308 $ 1,823 $ 10,190
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Average Balances:
Gross Funds Provided $1,381,348 $ -- $ 436,288 $ -- $ 192,396 $2,010,032
Funds Used: Interest-Earning Assets 638,976 583,664 624,390 -- -- 1,847,030
Non-Interest-Earning Assets 11,890 3,953 55,703 -- 91,456 163,002
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Funds Provided (Used) $ 730,482 $ (587,617) $ (243,805) $ -- $ 100,940 $ --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Results of Operations for
The Three Months Ended September 30, 2000 Retail Commercial Investments Trust Corporate Consolidated
---------- ---------- ----------- ---------- ---------- ----------
Interest Income $ 15,325 $ 13,349 $ 11,818 $ -- $ -- $ 40,492
Interest Expense 14,036 -- 7,771 -- -- 21,807
Funds Transfer Pricing Allocation 12,266 (9,473) (3,810) -- 1,017 --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 13,555 3,876 237 -- 1,017 18,685
Provision for Loan Losses 1,144 1,186 -- -- -- 2,330
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision for Loan Losses 12,411 2,690 237 -- 1,017 16,355
Non-Interest Income 2,777 96 3,047 2,085 168 8,173
Non-Interest Expense 11,452 1,747 584 1,188 1 14,972
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Taxes $ 3,736 $ 1,039 $ 2,700 $ 897 $ 1,184 $ 9,556
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Average Balances:
Gross Funds Provided $1,502,096 $ -- $ 415,797 $ -- $ 225,778 $2,143,671
Funds Used: Interest-Earning Assets 751,437 575,082 684,788 -- -- 2,011,307
Non-Interest-Earning Assets 13,445 2,904 51,770 -- 64,245 132,364
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Funds Provided (Used) $ 737,214 $ (577,986) $ (320,761) $ -- $ 161,533 $ --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
7
Results of Operations for
The Nine Months Ended September 30, 2001 Retail Commercial Investments Trust Corporate Consolidated
---------- ---------- ----------- ---------- ---------- ----------
Interest Income $ 39,108 $ 35,827 $ 33,405 $ -- $ -- $ 108,340
Interest Expense 34,275 -- 17,003 -- -- 51,278
Funds Transfer Pricing Allocation 28,986 (21,516) (10,802) -- 3,332 --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 33,819 14,311 5,600 -- 3,332 57,062
Provision for Loan Losses 1,502 581 -- -- -- 2,083
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision for Loan Losses 32,317 13,730 5,600 -- 3,332 54,979
Non-Interest Income 8,182 532 3,049 5,854 165 17,782
Non-Interest Expense 33,290 5,272 1,733 3,938 792 45,025
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Taxes $ 7,209 $ 8,990 $ 6,916 $ 1,916 $ 2,705 $ 27,736
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Average Balances:
Gross Funds Provided $1,435,649 $ -- $ 426,790 $ -- $ 187,695 $2,050,134
Funds Used: Interest-Earning Assets 675,774 570,211 647,751 -- -- 1,893,736
Non-Interest-Earning Assets 11,953 2,885 54,920 -- 86,640 156,398
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Funds Provided (Used) $ 747,922 $ (573,096) $ (275,881) $ -- $ 101,055 $ --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Results of Operations for
The Nine Months Ended September 30, 2000 Retail Commercial Investments Trust Corporate Consolidated
---------- ---------- ----------- ---------- ---------- ----------
Interest Income $ 44,237 $ 36,890 $ 36,563 $ -- $ -- $ 117,690
Interest Expense 41,388 -- 19,918 -- -- 61,306
Funds Transfer Pricing Allocation 36,170 (25,332) (14,548) (3) 3,713 --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income 39,019 11,558 2,097 (3) 3,713 56,384
Provision for Loan Losses 1,836 2,894 -- -- -- 4,730
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Interest Income
After Provision for Loan Losses 37,183 8,664 2,097 (3) 3,713 51,654
Non-Interest Income 8,045 480 5,884 5,718 391 20,518
Non-Interest Expense 34,360 4,704 1,736 3,655 288 44,743
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Before Taxes $ 10,868 $ 4,440 $ 6,245 $ 2,060 $ 3,816 $ 27,429
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Average Balances:
Gross Funds Provided $1,534,857 $ 10,418 $ 388,479 $ 117 $ 214,327 $2,148,198
Funds Used: Interest-Earning Assets 737,279 602,647 673,771 -- -- 2,013,697
Non-Interest-Earning Assets 14,248 10,671 56,089 -- 53,494 134,501
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
Net Funds Provided (Used) $ 783,330 $ (602,900) $ (341,381) $ 117 $ 160,833 $ --
- ------------------------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
8
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion of the operating results and financial condition at
September 30, 2001 is intended to help readers analyze the accompanying
financial statements, notes and other supplemental information contained in this
document. Results of operations for the three- and nine-month period ended
September 30, 2001 are not necessarily indicative of results to be attained for
any other period.
Forward-Looking Statements
This report contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and include expressions about our confidence and strategies and
our expectations about new and existing programs and products, relationships,
opportunities, technology and market conditions. These statements may be
identified by an "asterisk" ("*") or such forward-looking terminology as
"expect", "believe", "anticipate", or by expressions of confidence such as
"continuing" or "strong" or similar statements or variations of such terms. Such
forward-looking statements involve certain risks and uncertainties. These
include, but are not limited to, expected cost savings not being realized or not
being realized within the expected time frame; income or revenues being lower
than expected or operating costs higher; competitive pressures in the banking or
financial services industries increasing significantly; business disruption
related to program implementation or methodologies; weakening of general
economic conditions nationally or in New Jersey, especially as they have been
affected by the events of September 11th and the developments thereafter;
changes in legal or regulatory barriers and structures; and unanticipated
occurrences delaying planned programs or initiatives or increasing their costs
or decreasing their benefits. Actual results may differ materially from such
forward-looking statements. The Company assumes no obligation for updating any
such forward-looking statements at any time.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2001 and September 30, 2000:
OVERVIEW
The Company realized net income of $6.7 million for the three months ended
September 30, 2001, as compared to $6.3 million reported for the same period in
2000. Net income per diluted share was $0.44 for the three months ended
September 30, 2001 compared to $0.41 per diluted share for the prior year
period.
During the third quarter of 2001, net interest income increased $0.9 million,
the provision for loan losses decreased $1.6 million and non-interest expense
decreased $0.5 million compared to the prior year quarter. These favorable
factors were partially offset by a decrease in non-interest income of $2.4
million compared to the prior year quarter. The decrease in non-interest income
was primarily attributed to lower investment securities gains of $2.4 million
and trust income of $0.4 million offset by a gain on the sale of residential
mortgage loans. During the third quarter of 2001, the Company recognized a
$768,000 pre-tax gain from the sale of $55.2 million of residential mortgage
loans. The Company as part of its Asset/Liability Management strategy enters
into mortgage loan sales periodically. During the third quarter of 2000, the
Company recognized a pre-tax loss of $36,000 from the sale of $12.6 million of
residential mortgage loans.
EARNINGS ANALYSIS
Interest Income
Interest income for the quarter ended September 30, 2001 was $33.6 million
compared to $39.8 million for the same period of 2000. This 15.5% decrease was
attributable to a lower level of average interest-earning assets coupled with a
decline in the yield earned on such interest earning assets as market interest
rates have declined throughout 2001. For the three months ended September 30,
2001, average interest earning assets
9
were down $163.5 million or 8.1%, compared with the same period in 2000. Average
securities declined $62.0 million and average loans declined $102.6 million
while average Fed Funds increased $1.1 million. Average interest earning assets
were down primarily as a result of the rise in prepayment levels on loans and
mortgage-backed securities associated with the lower interest rate environment.
Also contributing to the decline in loans was the sale of the secured credit
card business and periodic residential mortgage loan sales during 2000 and 2001
conducted as part of the Company's Asset/Liability Management strategy. In
addition, sales of securities contributed to the decline in average securities.
For the three months ended September 30, 2001, the average yield on earning
assets declined 61 basis points to 7.42% from 8.03% for the same period last
year, reflecting the current lower interest rate environment.
Interest Expense
Interest expense for the quarter ended September 30, 2001 was $14.7 million, a
decrease of $7.1 million or 32.4% from $21.8 million reported in the same period
last year. The average cost of interest bearing liabilities decreased 124 basis
points to 3.77% for the current quarter of 2001 from 5.01% for the same period
last year, primarily as a result of a decrease in rates paid on deposits and
short-term borrowed funds. Total average interest bearing liabilities decreased
by $172.1 million for the current quarter of 2001 compared to the same period in
2000, while non-interest bearing deposits increased by $7.5 million.
Net Interest Income
The net effect of the changes in interest income and interest expense for the
three months ended September 30, 2001 compared to the prior year period was an
increase of $0.9 million in net interest income. For the three months ended
September 30, 2001, the net interest margin and net interest spread, on a fully
taxable equivalent basis, increased 52 basis points and 64 basis points,
respectively, from the same period last year. The increase in the net interest
margin and spread were the result of interest bearing liabilities re-pricing
faster than interest earning assets. This was partially offset by the Company's
stock repurchase program and investment in cash surrender value of life
insurance policies, both of which reduce the net interest margin, as these
investments reduce investable interest-earning funds. The increase in cash
surrender value of life insurance policies has positively impacted non-interest
income, generating $0.8 million of income in the current quarter of 2001 as
compared to $0.6 million in 2000.
Provision for Loan Losses
For the three months ended September 30, 2001, the provision for loan losses was
$0.7 million compared to $2.3 million for the same period last year. The
decrease in the provision reflects the decrease in loan portfolio outstandings
coupled with a decline in non-performing loans and Management's view that
overall credit quality has improved. The amount of the loan loss provision and
the level of the allowance for loan losses are based upon a number of factors
including Management's evaluation of potential losses in the portfolio, after
consideration of appraised collateral values, financial condition and past
credit history of the borrowers as well as prevailing and anticipated economic
conditions.
Non-Interest Income
Non-interest income for the three months ended September 30, 2001 was $5.7
million, a decline of $2.5 million or 29.8% compared to the $8.2 million in the
same period of 2000, which was primarily attributed to lower investment
securities gains. Other service charges, commissions and fees were down $0.8
million due to lower credit card fees. During the second quarter of 2001, the
Company sold $22.0 million of credit card receivables. Trust income declined
$388,000 from the prior year period reflecting lower managed assets values.
Offsetting these declines were increases of $955,000 in other income, $79,000 in
service charges on deposit accounts and $200,000 in income on corporate-owned
life insurance. Other income increased primarily from the $768,000 gain recorded
on the sale of $55.0 million in residential mortgage loans.
10
Non-Interest Expense
For the three months ended September 30, 2001, non-interest expense decreased
3.7% or $0.6 million to $14.4 million compared to $15.0 million for the same
period last year. This resulted from a $483,000 decrease in data processing
expense coupled with a decline of $190,000 in other expenses. The previously
mentioned credit card sale contributed to these reductions in expenses compared
to the prior year. Salaries, wages and employee benefits increased $139,000.
Furniture and equipment and occupancy expenses decreased $48,000 from the prior
year period. Amortization of intangible assets increased $35,000 from the prior
year as a result of an increase in mortgage servicing rights associated with
those residential mortgage loans sold with servicing retained.
Income Taxes
The provision for income taxes increased by $251,000 to $2.8 million for the
three months ended September 30, 2001 as compared to $2.5 million for the same
period in 2000 due primarily to the increase in pre-tax income.
Segment Reporting
The Company, for management purposes, is segmented into the following lines of
business: Retail Banking, Commercial Banking, Investments, and Trust and
Investment Services. Activities not included in these lines are reflected in
Corporate. Retail Banking includes the branches and ATMs, consumer and mortgage
lending, and credit card operations. Commercial Banking includes commercial and
construction lending, commercial credit and the operations of United Commercial
Capital Group, Inc. Summary financial information on a fully taxable equivalent
basis for the lines of business is presented in Note 5.
The following table shows the percentage contribution of the reportable segment
to consolidated net income before taxes on a fully taxable equivalent basis:
Retail Commercial Investments Trust Corporate Consolidated
Three Months Ended Sept. 30, 2001 16.9% 42.5% 19.7% 3.0% 17.9% 100.0%
Three Months Ended Sept. 30, 2000 39.1% 10.8% 28.3% 9.4% 12.4% 100.0%
Income before taxes for the Retail Banking segment fell $2.0 million from the
third quarter of 2000 due to a $2.9 million decline in net interest income,
partially offset by a $0.8 million reduction in non-interest expense. The
reduction in net interest income was primarily related to an 8.0% decline in
average deposits and narrowed spreads on such deposits after funds credits.
Commercial Banking pretax income increased $3.3 million due to a $1.7 million
increase in net interest income and a $1.5 million decrease in the loan loss
provision allocation. The growth in net interest income was largely due to
widening loan spreads after funds charges. The decrease in the allocation of the
loan loss provision was due to an increase in the credit quality of the
Commercial portfolio. Pretax income for the Investments segment decreased $0.7
million due to a decline in non-interest income related to lower investment
securities gains offset by higher net interest income resulting from higher
spreads after funds charges on the securities portfolio and on borrowed funds.
Income before taxes for the Trust segment decreased $0.6 million due to a 18.5%
decline in revenue caused by a decline in market values and a 17.1% increase in
expenses. Income before taxes for the Corporate segment increased $0.6 million
from the third quarter of 2000 due to a $0.7 million increase in mismatch
profits for the current quarter resulting from declining interest rates.
11
Nine Months Ended September 30, 2001 and September 30, 2000:
OVERVIEW
The Company realized net income of $18.5 million for the nine months ended
September 30, 2001, as compared to $18.3 million reported for the same period in
2000. Net income per diluted share was $1.22 for the nine months ended September
30, 2001 compared to $1.18 per diluted share for the prior year period. For the
nine months ended September 30, 2001, net income before the after-tax
non-recurring charge of $468,000 recognized in the second quarter of 2001 was
$18.9 million or $1.25 per diluted share, compared with net income of $18.3
million or $1.18 per diluted share in 2000.
EARNINGS ANALYSIS
Interest Income
Interest income for the nine months ended September 30, 2001 was $106.1 million
compared to $115.5 million for the same period of 2000. This 8.1% decrease was
attributable to a lower level of average interest-earning assets coupled with a
decline in the yield earned on interest earning assets as market rates have
declined throughout 2001. For the nine months ended September 30, 2001, average
interest earning assets were down $98.8 million or 5.0%, compared with the same
period in 2000. For the nine months ended September 30, 2001, the average yield
on earning assets decreased 25 basis points to 7.63% from 7.88% for the same
period last year, reflecting the current lower rate environment.
Interest Expense
Interest expense for the nine months ended September 30, 2001 was $51.3 million,
a decrease of $10.0 million or 16.4% from $61.3 million reported in the same
period last year. The average cost of interest bearing liabilities decreased 52
basis points to 4.28% for the nine months ended September 30, 2001 from 4.80%
for the same period last year, primarily as a result of decreases in rates paid
on deposits and short-term borrowed funds. Total average interest bearing
liabilities decreased by $107.7 million for the nine months ended September 30,
2001 compared to the same period in 2000, while non-interest bearing deposits
increased by $5.8 million.
Net Interest Income
The net effect of the changes in interest income and interest expense for the
nine months ended September 30, 2001 compared to the prior year period was an
increase of $0.6 million in net interest income. For the nine months ended
September 30, 2001, the net interest margin and net interest spread, on a fully
taxable equivalent basis, increased 25 basis points and 27 basis points,
respectively, from the same period last year. The increase in the net interest
margin and spread were the result of a more rapid decline on rates paid on
interest bearing liabilities than on interest earning assets. Additionally, the
Company's stock repurchase program and investment in cash surrender value of
life insurance policies have had an impact on net interest margin, as these
investments reduce investable interest-earning funds. The increase in cash
surrender value of life insurance policies has positively impacted non-interest
income, generating $2.3 million of income for the nine months ended September
30, 2001 as compared to $1.8 million in 2000.
Provision for Loan Losses
For the nine months ended September 30, 2001, the provision for loan losses was
$2.1 million compared to $4.7 million for the same period last year. The
decrease in the provision reflects the decrease in loan portfolio outstandings
coupled with a decline in non-performing loans and Management's view that
overall credit quality has improved. The amount of the loan loss provision and
the level of the allowance for loan losses are based upon a number of factors
including Management's evaluation of potential losses in the portfolio, after
12
consideration of appraised collateral values, financial condition and past
credit history of the borrowers as well as prevailing and anticipated economic
conditions.
Non-Interest Income
For the nine months ended September 30, 2001, total non-interest income
decreased $2.7 million or 13.3%, to $17.8 million compared to $20.5 million
recorded in the same period of 2000. Contributing to the overall decline were
decreases of $3.7 million in net security gains, $133,000 in service charges on
deposit accounts, and $1.1 million in other service charges, commissions and
fees. These declines were partly offset by increases of $111,000 in trust
income, $535,000 in income on corporate owned life insurance and $1,576,000 in
other income. Other income for the first nine months of 2001 included a $542,000
gain on the sale of credit card receivables and a $968,000 gain on the sale of
$81.2 million in residential mortgage loans. For the first nine months of 2000,
other income included a $251,000 gain on the sale of residential mortgage loans.
Non-Interest Expense
For the nine months ended September 30, 2001, non-interest expense increased
0.6% or $282,000 from the same period last year. During the second quarter of
2001, the Company recognized a pre-tax non-recurring charge of $792,000,
resulting from the change in the Bank's charter and its name change. Excluding
the non-recurring charge, non-interest expense decreased 1.1% or $510,000 from
the prior year period. For the nine months ended September 30, 2001, salaries,
wages and employee benefits increased $1.1 million or 6.0% and occupancy expense
increased $272,000. These increases were partially offset by declines of
$604,000 in data processing expense, $154,000 in net cost to operate other real
estate and $905,000 in other expenses. The reduction in data processing and
other expenses were mainly due to reduced credit card expenses.
Income Taxes
The provision for income taxes increased by $73,000 to $7.1 million for the nine
months ended September 30, 2001 as compared to $7.0 million for the same period
in 2000 due primarily to the increase in pre-tax income.
Segment Reporting
The Company, for management purposes, is segmented into the following lines of
business: Retail Banking, Commercial Banking, Investments, and Trust and
Investment Services. Activities not included in these lines are reflected in
Corporate. Retail Banking includes the branches and ATMs, consumer and mortgage
lending, and credit card operations. Commercial Banking includes commercial and
construction lending, commercial credit and the operations of United Commercial
Capital Group, Inc. Summary financial information on a fully taxable equivalent
basis for the lines of business is presented in Note 5.
The following table shows the percentage contribution of the reportable segment
to consolidated net income before taxes on a fully taxable equivalent basis:
Retail Commercial Investments Trust Corporate Consolidated
Nine Months Ended Sept. 30, 2001 26.0% 32.4% 24.9% 6.9% 9.8% 100.0%
Nine Months Ended Sept. 30, 2000 39.6% 16.2% 22.8% 7.5% 13.9% 100.0%
Income before taxes for the Retail Banking segment declined $3.7 million from
the first nine months of 2000 due to a $5.2 million decline in net interest
income, partially offset by a $0.3 million reduction in the loan loss provision
allocation and a $1.1 million decrease in non-interest expense. The reduction in
net interest income was primarily related to a 6.5% decline in average deposits
and narrowed spreads on such deposits after funds credits. Commercial Banking
pretax income grew $4.6 million due to a $2.7 million increase in net interest
income resulting from wider loan spreads after funds charges. A $2.3 million
reduction in the loan loss provision allocation to Commercial Banking was
partially offset by a $0.5 million increase in this segment's non-interest
expense. Pretax income for the Investments segment increased $0.7 million due to
a
13
$3.5 million rise in net interest income resulting from higher spreads after
funds charges on the securities portfolio and on borrowed funds. This was offset
by a $2.8 million decline in non-interest income related to lower investment
securities gains. Income before taxes for the Trust segment increased $0.1
million due to a 2.4% growth in revenue, offset by a 7.7% increase in expenses.
Income before taxes for the Corporate segment fell $1.1 million from the first
nine months of 2000 due to a $0.4 million decline in mismatch profits and the
recognition of $0.8 million of expenses related to the change in the Bank's
charter and its name change.
FINANCIAL CONDITION
September 30, 2001 as compared to December 31, 2000:
Total assets decreased $168.5 million, or 8.0% from December 31, 2000. The
decreases were $114.0 million in loans, net of allowance, $9.8 million in cash
and cash equivalents, $35.6 million in securities, and $11.4 million in other
assets, including premises and equipment, intangible assets and other real
estate. Cash surrender value of life insurance policies increased by $2.3
million.
Total loans at September 30, 2001, net of unearned income, decreased $114.1
million, or 8.9% to $1.2 billion from year-end 2000. Real estate loans decreased
by $76.7 million or 10.7% compared with year-end 2000 primarily due to the
residential mortgage loan sales. Lease financing declined by $2.5 million or
10.1% compared with December 31, 2000. Installment loans increased $10.9 million
or 4.7% from December 31, 2000. Credit card loans declined $28.2 million or
64.5% from December 31, 2000, due to the sale of the secured credit card
business. Commercial loans decreased $17.5 million or 6.4% from December 31,
2000.
The following schedule presents the components of loans outstanding by type, for
each period presented.
(In Thousands) September 30, 2001 December 31, 2000
Real Estate:
Commercial and Residential $ 580,149 $ 665,491
Construction 57,465 48,818
Commercial Loans 254,254 271,761
Lease Financing 22,473 25,009
Installment Loans 243,429 232,539
Retail Credit Card Plan 15,562 43,799
---------- ----------
Total Loans Outstanding,
Net of Unearned Income 1,173,332 1,287,417
Less: Allowance for Loan Losses 12,325 12,419
---------- ----------
Loans, Net $1,161,007 $1,274,998
========== ==========
14
Within the securities portfolio, the majority of the decrease was due to the
maturities and calls of debt securities. The amortized cost and approximate
market value of securities are summarized as follows:
September 30, 2001 December 31, 2000
------------------ -------------------
Amortized Market Amortized Market
Securities Available for Sale Costs Value Costs Value
- ----------------------------- --------- -------- -------- --------
(in thousands)
U.S. Treasury Securities $ 1,992 $ 2,080 $ -- $ --
Obligations of U.S. Government
Agencies and Corporations 75,640 76,122 95,535 92,544
Obligations of States and
Political Subdivisions 90,493 92,906 84,739 85,162
Mortgage-Backed Securities 339,549 347,916 371,357 365,499
Corporate Debt Securities 47,868 44,333 47,888 41,211
Equity Securities 21,765 21,730 24,192 23,972
-------- -------- -------- --------
Total Securities Available for Sale 577,307 585,087 623,711 608,388
-------- -------- -------- --------
Securities Held to Maturity
U.S. Treasury Securities 996 1,040 3,000 2,996
Obligations of U.S. Government
Agencies and Corporations -- -- 19,927 19,898
Obligations of States and
Political Subdivisions 24,036 24,370 21,464 21,524
Mortgage-Backed Securities 8,902 8,967 1,901 1,885
Other Securities 225 225 200 200
-------- -------- -------- --------
Total Securities Held to Maturity 34,159 34,602 46,492 46,503
-------- -------- -------- --------
Total Securities $611,466 $619,688 $670,203 $654,891
======== ======== ======== ========
Total deposits decreased $92.7 million or 6.1%. Savings deposits decreased $33.6
million, or 5.8%; demand deposits increased $2.3 million, or 0.9%. Time deposits
decreased $61.4 million, or 8.8%. The decrease in time deposits was a result of
the Bank's ability to reduce wholesale Certificates of Deposits and replace them
with lower cost other borrowings. Short-term borrowings decreased by $168.0
million, or 65.0% and other borrowings increased by $75.1 million, or 55.4%. In
an effort to help minimize interest rate risk, the Company continues to look for
opportunities to extend the maturities of both its deposits and borrowings.
Management continues to monitor the shift of deposits and level of borrowings
through its Asset/Liability Management Committee.
15
Asset Quality
The following table provides an analysis of non-performing assets as of
September 30, 2001 and December 31, 2000, 1999, 1998, and 1997:
September 30, December 31, December 31, December 31, December 31,
(Dollars in Thousands) 2001 2000 1999 1998 1997
------------- ------------ ----------- ------------ ------------
Total Assets $1,943,624 $2,112,181 $2,090,383 $1,916,809 $1,789,426
Total Loans (Net of Unearned Income) $1,173,332 $1,287,417 $1,261,343 $1,057,081 $931,266
Allowance for Loan Losses $12,325 $12,419 $10,386 $11,174 $11,739
% of Total Loans 1.05% 0.96% 0.82% 1.06% 1.26%
Total Non-Performing Loans (1) $5,079 $6,751 $8,142 $8,615 $9,973
% of Total Assets 0.26% 0.32% 0.39% 0.45% 0.56%
% of Total Loans 0.43% 0.52% 0.65% 0.81% 1.07%
Allowance for Loan Losses
to Non-Performing Loans 242.67% 183.96% 127.56% 129.70% 117.71%
Total of Non-Performing Assets $5,232 6,944 $8,251 $9,170 $11,650
% of Total Assets 0.27% 0.33% 0.39% 0.48% 0.65%
(1) Non-performing loans consist of:
a) impaired loans, which includes non-accrual and renegotiated loans, and
b) loans which are contractually past due 90 days or more as to principal
or interest, but are still accruing interest at previously negotiated
rates to the extent that such loans are both well secured and in the
process of collection.
At September 30, 2001, there were $483,000 of loans that are considered to be
impaired under SFAS No. 114. There was one troubled debt restructuring of
$4,000, which is performing in accordance with the restructure agreement.
For the nine months ended September 30, 2001, the Company did not recognize any
interest income on impaired loans.
Allowance for Loan Losses
The allowance is increased by provisions charged to expense and reduced by
charge-offs, net of recoveries. At September 30, 2001, the allowance for loan
losses was $12.3 million, down $0.1 million compared to $12.4 million at
year-end 2000. Net charge-offs for the nine months ended September 30, 2001 were
$2.2 million compared to $2.0 million for the prior year period.
The level of the allowance for loan losses is based upon a number of factors
including Management's evaluation of potential losses in the portfolio, after
consideration of appraised collateral values, financial condition and past
credit history of the borrowers as well as prevailing and anticipated economic
conditions.
At September 30, 2001, the ratio of the allowance for loan losses to
non-performing loans was 242.67% as compared to 183.96% at December 31, 2000,
while the allowance for loan losses to total loans was 1.05% at September 30,
2001 as compared to 1.01% at September 30, 2000. In the opinion of Management,
the allowance for loan losses at September 30, 2001 was adequate to absorb
probable future losses on existing loans and commitments based upon currently
available information.*
16
Liquidity Management
At September 30, 2001, the amount of liquid assets remained at a level
Management believed adequate to ensure that contractual liabilities, depositors'
withdrawal requirements, and other operational and customer credit needs could
be satisfied.* This liquidity was maintained at the same time the Company was
managing the interest rate sensitivity of interest earning assets and interest
bearing liabilities so as to improve profitability.
Liquidity is generated from maturities and principal payments in the investment
portfolio. Scheduled maturities and anticipated principal payments of the
investment portfolio will approximate $129.0 million throughout the next twelve
months.* In addition, all or part of the investment securities available for
sale could be sold to provide liquidity. These sources can be used to meet the
funding needs during periods of loan growth. Liquidity is also available through
additional lines of credit and the ability to incur additional debt. At
September 30, 2001, the Company had $331.9 million of lines of credit with the
Federal Home Loan Bank and correspondent banks under which $168.1 million was
readily available. Additionally, at September 30, 2001, the Company had $610.0
million of repurchase lines with investment brokers and FHLB, of which $486.0
million was available contingent upon available collateral.
Capital
Total stockholders' equity increased $20.0 million to $160.5 million at
September 30, 2001 from $140.5 million at December 31, 2000. The increase during
the nine-month period was due to net income of $18.5 million, an increase of
$15.0 million (net of tax) in the September 30, 2001 market value of the
Company's available for sale securities portfolio from the valuation at December
31, 2000, the exercise of stock options of $0.3 million, and restricted stock
activity of $13,000. Partially offsetting these increases were the three
quarterly cash dividends declared totaling $9.0 million, and the repurchase of
244,500 shares of the Company's common stock amounting to $4.8 million.
17
The following table reflects the Company's capital ratios, as of September 30,
2001 and December 31, 2000 in accordance with current regulatory guidelines.
(Dollars in Thousands) September 30, 2001 December 31, 2000
------------------ ------------------
Amount Ratio Amount Ratio
-------- ------ -------- ------
Risk-Based Capital
Tier I Capital
Actual $170,559 11.55% $164,583 10.87%
Regulatory Minimum Requirements 59,066 4.00 60,550 4.00
For Classification as Well Capitalized 88,599 6.00 90,825 6.00
Combined Tier I and Tier II Capital
Actual $182,884 12.38% $177,002 11.69%
Regulatory Minimum Requirements 118,133 8.00 121,099 8.00
For Classification as Well Capitalized 147,666 10.00 151,374 10.00
Leverage
Actual $170,559 8.50% $164,583 7.81%
Regulatory Minimum Requirements 80,268 4.00 84,269 4.00
For Classification as Well Capitalized 100,335 5.00 105,336 5.00
The Company's risk-based capital ratios (Tier I and Combined Tier I and Tier II
Capital) and Tier I leverage ratio continue to exceed the minimum requirements
set forth by the Company's regulators.
18
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
MARKET RISK - ASSET/LIABILITY MANAGEMENT.
The primary market risk faced by the Company is interest rate risk. The
Company's Asset/Liability Committee ("ALCO") monitors the changes in the
movement of funds and rate and volume trends to enable appropriate management
response to changing market and rate conditions.
The Company's income simulation model analyzes interest rate sensitivity by
projecting net interest income over the next 24 months in a flat rate scenario
versus net interest income in alternative interest rate scenarios. Management
reviews and refines its interest rate risk management process in response to the
changing economic climate. Currently, the Company's model projects a 200 basis
point change in rates during the first year, in even monthly increments, with
rates held constant in the second year. The Company's ALCO has established that
interest income sensitivity will be considered acceptable if net interest income
in the above interest rate scenario is within 10% of net interest income in the
flat rate scenario in the first year. Additionally, the Company's ALCO policy
states that income sensitivity will be considered acceptable if the change in
net income in the above interest rate scenario is within 20% of net income from
the flat rate scenario in the first year. At September 30, 2001, the Company's
income simulation model indicates an acceptable level of interest rate risk and
is materially consistent with the year-end disclosure.*
Computation of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and duration of deposits, and should not be relied upon
as indicative of actual results.
19
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED NATIONAL BANCORP
-----------------------
(Registrant)
Dated: November 14, 2001 By: THOMAS C. GREGOR
----------------
Thomas C. Gregor, Chairman
President and CEO
Dated: November 14, 2001 By: ALFRED J. SOLES
---------------
Alfred J. Soles
Vice President & Treasurer
(Principal Financial Officer)
21