- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 June 30, 2010

OR

o	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 001-34462

1ST UNITED BANCORP, INC.

(Exact Name of Registrant as specified in its charter)


FLORIDA		65-0925265

(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


One North Federal Highway, Boca Raton	33432

(Address of Principal Executive Offices)	(Zip Code)

(561) 362-3400

(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. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at July 15, 2010

Common stock, $.01 par value		24,781,660

1 ^ST UNITED BANCORP, INC.
June 30, 2010
INDEX


		PAGE NO.


PART I.	FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements (Unaudited)	5

	Consolidated Balance Sheets (Unaudited) as of June 30, 2010 and December 31, 2009	5

	Consolidated Statement of Operations (Unaudited) for the Three and Six Months Ended June 30, 2010 and 2009	6

	Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) for the three and six months ended June 30, 2010 and 2009	7

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2010 and 2009	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 4.	Controls and Procedures	36

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	37

Item 6.	Exhibits	38

SIGNATURES		39

INTRODUCTORY NOTE
Caution Concerning Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in the forward-looking statements. Our ability to achieve our financial objectives could be adversely affected by the factors discussed in detail in Part I, Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A., “Risk Factors” in this Quarterly Report on Form 10-Q, the following sections of our Annual Report on Form 10-K for the year ended December 31, 2009 (the “Annual Report”): (a) “Introductory Note” in Part I, Item 1. “Business;” (b) “Risk Factors” in Part I, Item 1A. as updated in our subsequent quarterly reports on Form 10-Q; and (c) “Introduction” in Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part II, Item 7, as well as:


	•	legislative or regulatory changes;

	•	the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

	•	the accuracy of our financial statement estimates and assumptions, including the estimate for our loan loss provision;

	•	the effects of the health and soundness of other financial institutions, including the FDIC’s need to increase Deposit Insurance Fund assessments;

	•	the loss of key personnel;

	•	our ability to comply with the terms of the loss sharing agreements with the FDIC;

	•	our customers’ willingness to make timely payments on their loans;

	•	changes in the securities and real estate markets;

	•	changes in monetary and fiscal policies of the U.S. Government;

	•	inflation, interest rate, market and monetary fluctuations;

	•	the frequency and magnitude of foreclosure of our loans;

	•	fluctuations in loan collateral values;

	•	the effects of our lack of a diversified loan portfolio, including the risks of geographic and industry concentrations;

	•	our need and our ability to incur additional debt or equity financing;

	•	our ability to integrate the business and operations of companies and banks that we have acquired, and those we may acquire in the future;

	•	the failure to achieve expected gains, revenue growth, and/or expense savings from future acquisitions;

	•	the effects of harsh weather conditions, including hurricanes;

	•	our ability to comply with the extensive laws, regulations, and directives to which we are subject;

	•	our customers’ perception of the safety of their deposits at 1 ^st United Bank;

	•	the willingness of clients to accept third-party products and services rather than our products and services and vice versa;

	•	increased competition and its effect on pricing;

	•	technological changes;

	•	the effects of security breaches and computer viruses that may affect our computer systems;

	•	changes in consumer spending and saving habits;

	•	growth and profitability of our noninterest income;

	•	changes in accounting principles, policies, practices or guidelines;


	•	anti-takeover provisions under federal and state law as well as our Articles of Incorporation and our Bylaws;

	•	other risks described from time to time in our filings with the Securities and Exchange Commission; and

	•	our ability to manage the risks involved in the foregoing.

However, other factors besides those listed above could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. These forward-looking statements are not guarantees of future performance, but reflect the present expectations of future events by our management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Any forward-looking statements made by us speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.


I TEM 1.	FINANCIAL STATEMENTS

1 ^ST UNITED BANCORP, INC.

C ONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	June 30, 2010 (unaudited)			December 31, 2009


ASSETS
Cash and due from financial institutions	$	145,060		$	134,504
Federal funds sold		389			737

Cash and cash equivalents		145,449			135,241
Time deposits in other financial institutions		75			75
Securities available for sale		98,591			88,843
Loans held for sale		151			151
Loans, net of allowance of $12,866 and $13,282 at June 30, 2010 and year end 2009		665,589			657,585
Nonmarketable equity securities		10,996			10,233
Premises and equipment, net		9,174			9,228
Other Real Estate Owned		—			635
Company-owned life insurance		4,649			4,566
FDIC loss share receivable		43,252			43,200
Goodwill		45,008			45,008
Core deposit intangible		2,824			3,045
Accrued interest receivable and other assets		20,046			17,757


	$	1,045,804		$	1,015,567


LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	221,015		$	194,185
Interest bearing		621,138			608,623

Total deposits		842,153			802,808
Federal funds purchased and repurchase agreements		14,235			22,343
Federal Home Loan Bank advances		5,000			5,000
Other borrowings		5,000			5,091
Accrued interest payable and other liabilities		4,732			8,031

Total liabilities		871,120			843,273

Shareholders’ equity
Undesignated preferred stock – no par; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock – $0.01 par value; 60,000,000 shares authorized; 24,781,660 issued and outstanding at June 30, 2010 and year end 2009		248			248
Additional paid-in capital		181,250			180,888
Accumulated deficit		(8,334	)		(8,887	)
Accumulated other comprehensive income		1,520			45


Total shareholders’ equity		174,684			172,294


	$	1,045,804		$	1,015,567

See accompanying notes to the consolidated financial statements.

1 ^ST UNITED BANCORP, INC.

C ONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands, except per share data)

(unaudited)


	Three months ended June 30,						Six months ended June 30,

	2010			2009			2010			2009

Interest income:
Loans, including fees	$	10,429		$	6,379		$	20,971		$	12,856
Securities		910			517			1,744			959
Federal funds sold and other		144			43			277			80


Total interest income		11,483			6,939			22,992			13,895
Interest expense:
Deposits		1,837			1,621			3,749			3,298
Federal funds purchased and repurchase agreements		5			10			12			22
Federal Home Loan Bank and Federal Reserve Bank borrowings		59			91			117			203
Other borrowings		59			77			136			164


Total interest expense		1,960			1,799			4,014			3,687


Net interest income		9,523			5,140			18,978			10,208
Provision for loan losses		1,500			2,800			2,750			2,905


Net interest income after provision for loan losses		8,023			2,340			16,228			7,303

Non interest income:
Service charges and fees on deposit accounts		756			309			1,545			651
Net gains (losses) on sales of securities		(4	)		467			(14	)		530
Losses on sales of OREO		(17	)		—			(86	)
Gains on sales of residential loans		30			56			35			68
Increase in cash surrender value of Company owned life insurance		41			22			83			66
Other		218			49			362			92

Total non-interest income		1,024			903			1,925			1,407


Non interest expense:
Salaries and employee benefits		3,993			2,375			8,073			4,812
Occupancy and equipment		1,536			1,751			3,232			3,173
Data processing		687			477			1,275			934
Telephone		176			154			359			289
Stationery and supplies		98			61			169			123
Amortization of Intangibles		106			77			220			161
Professional fees		360			271			743			366
Advertising		44			15			79			33
Merger reorganization expenses		270			—			630			—
FDIC Assessment		454			487			793			684
Other than temporary loss:								—
Total impairment losses		—			57			—			120
Loss recognized in other comprehensive income		—			—			—			—
Net impairment loss recognized in earnings		—			57			—			120
Other		970			489			1,664			896

Total non interest expense		8,694			6,214			17,237			11,591


Income (loss) before taxes		353			(2,971	)		916			(2,881	)
Income tax expense (benefit)		146			(1,052	)		363			(1,014	)

Net income (loss)	$	207			(1,919	)	$	553			(1,867	)
Preferred stock dividends earned		—			(225	)		—			(338	)

Net income (loss) available to common shareholders	$	207		$	(2,144	)		553		$	(2,205	)

Basic earnings (loss) per share	$	0.01		$	(0.25	)	$	0.02		$	(0.25	)
Diluted earnings (loss) per share	$	0.01		$	(0.25	)	$	0.02		$	(0.25	)

See accompanying notes to the consolidated financial statements

1 ^ST UNITED BANCORP, INC.
CO NDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Three months ended June 30, 2010 and 2009
(Dollars in thousands)
(unaudited)


	Shares of Series A Preferred Stock		Series A Preferred Stock		Shares of Series B Preferred Stock		Series B Preferred Stock		Shares of Series C Preferred Stock		Series C Preferred Stock			Shares of Series D Preferred Stock		Series D Preferred Stock			Shares of Common Stock		Common Stock		Additional Paid-In Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity

Balance at April 1, 2009			$			459,503	$	4,595		10,000	$	9,370			500	$	559			8,670,231	$	87	$	105,674	$	(12,288	)	$	618		$	108,615
Comprehensive income:
Net income (loss)																										(1,919	)					(1,919	)
Change in net unrealized gain (loss) on securities available for sale																													(780	)		(780	)

Total comprehensive income (loss)																																(2,699	)
Dividends declared on preferred stock												25					(3	)								(117	)					(95	)
Stock-based compensation expense																								94								94
Series C Preferred stock issuance cost												(100	)																			(100	)

Balance, June 30, 2009		—	$	—		459,503	$	4,595		10,000	$	9,295			500	$	556			8,670,231	$	87	$	105,768	$	(14,324	)	$	(162	)	$	105,815


Balance at April 1, 2010		—	$	—		—	$	—			$					$				24,781,660	$	248	$	181,067	$	(8,541	)	$	282		$	173,056
Comprehensive income:
Net income (loss)																										207						207
Change in net unrealized gain (loss) on securities available for sale																													1,238			1,238

Total comprehensive income (loss)																																1,445
Stock-based compensation expense																								183								183

Balance at June 30, 2010		—	$	—		—	$	—		—	$	—			—	$	—			24,781,660	$	248	$	181,250	$	(8,334	)	$	1,520		$	174,684

See accompanying notes to the consolidated financial statements.

1 ^ST UNITED BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Six months ended June 30, 2010 and 2009
(Dollars in thousands)
(unaudited)


	Shares of Series A Preferred Stock			Series A Preferred Stock			Shares of Series B Preferred Stock		Series B Preferred Stock		Shares of Series C Preferred Stock		Series C Preferred Stock		Shares of Series D Preferred Stock		Series D Preferred Stock			Shares of Common Stock		Common Stock		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity

Balance at January 1, 2009		459,503		$	4,595			—		—						—		—			8,670,231	$	87	$	105,581		$	(12,162	)	$	769		$	98,870
Comprehensive income:
Net income (loss)																												(1,867	)					(1,867	)
Change in net unrealized gain (loss) on securities available for sale																															(931	)		(931	)

Total comprehensive income (loss)																																		(2,798	)
Dividends declared on preferred stock													$	25			$	(3	)									(295	)					(273	)
Stock-based compensation expense																									187									187
Exchange of Series A Preferred Stock for Series B Preferred Stock		(459,503	)		(4,595	)		459,503	$	4,595
Issuance of Series C Preferred stock net of issuance cost of $171												10,000		9,270																				9,270
Issuance of Series D Preferred stock																500		559																559

Balance, June 30, 2009		—		$	—			459,503	$	4,595		10,000	$	9,295		500	$	556			8,670,231	$	87	$	105,768		$	(14,324	)	$	(162	)	$	105,815


Balance at January 1, 2010		—		$	—			—	$	—		—	$	—		—	$	—			24,781,660	$	248	$	180,888		$	(8,887	)	$	45		$	172,294
Comprehensive income:
Net income (loss)																												553						553
Change in net unrealized gain (loss) on securities available for sale																															1,475			1,475

Total comprehensive income (loss)																																		2,028

Stock-based compensation expense																									383									383
Registration cost on issuance of common stock																									(21	)								(21	)

Balance at June 30, 2010		—		$	—			—	$	—		—	$	—		—	$	—			24,781,660	$	248	$	181,250		$	(8,334	)	$	1,520		$	174,684

See accompanying notes to the consolidated financial statements.

1 ^ST UNITED BANCORP, INC.
C ONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2010 and 2009
(Dollars in thousands)
(unaudited)


	2010			2009

Cash flows from operating activities
Net income (loss)	$	553		$	(1,867	)
Adjustments to reconcile net income (loss) to net cash from operating activities
Provision for loan losses		2,750			2,905
Depreciation and amortization		966			1,053
Net accretion of purchase accounting adjustments		(3,016	)		—
Net amortization of securities		338			52
Impairment of available for sale securities		—			120
Increase in cash surrender value of Company-owned life insurance		(83	)		(68	)
Stock-based compensation expense		383			187
Net (gain) loss on sale of securities		14			(530	)
Net (gain) loss on foreclosed assets		86			—
Net (gain) loss on premises and equipment		3			1
Net (gain) loss on sale of loans held for sale		(35	)		(68	)
Loans originated for sale		(1,397	)		(4,330	)
Proceeds from sale of loans held for sale		1,432			5,298
Net change in:
Deferred income tax		(1,425	)		(580	)
Deferred loan fees		(624	)		30
Other assets		(2,156	)		2,697
Accrued expenses and other liabilities		(3,299	)		191

Net cash from (used for) operating activities		(5,510	)		5,091
Cash flows from investing activities
Proceeds from sales and calls of securities		7,892			17,457
Proceeds from security maturities, and prepayments		8,435			3,971
Purchases of securities		(24,062	)		(28,580	)
Loan originations and payments, net		(6,918	)		(20,061	)
Proceeds from sale of other real estate owned		549			—
Net change in nonmarketable equity securities		(763	)		302
Additions to premises and equipment, net		(540	)		(386	)
Proceeds from surrender of Company-owned life insurance		—			52

Net cash used for investing activities		(15,407	)		(27,245	)
Cash flows from financing activities
Net change in deposits		39,345			37,134
Net change in federal funds purchased and repurchase agreements		(8,108	)		(1,953	)
Net change in short term Federal Home Loan Bank and Federal Reserve Bank borrowings		—			(27,013	)
Net change in other borrowings		(91	)		—
Issuance of preferred stock		—			9,829
Stock issuance costs		(21	)		—
Dividends paid		—			(273	)

Net cash from financing activities		31,125			17,724


Net change in cash and cash equivalents		10,208			(4,430	)
Beginning cash and cash equivalents		135,241			19,102


Ending cash and cash equivalents	$	145,449		$	14,672


Supplemental cash flow information:
Interest paid		4,091			3,633
Income taxes paid		—			—

Supplemental noncash disclosures:
Transfers from loans to foreclosed assets	$	—		$	192

See accompanying notes to consolidated financial statements

1 ^ST UNITED BANCORP, INC.
N OTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1 – BASIS OF PRESENTATION

Nature of Operations and Principles of Consolidation : The consolidated financial statements include 1st United Bancorp, Inc. (“Bancorp”) and its wholly-owned subsidiaries, 1st United Bank (“1st United”) and Equitable Equity Lending (“EEL”), together referred to as “the Company.” Intercompany transactions and balances are eliminated in consolidation.

Bancorp’s primary business is the ownership and operation of 1st United. 1st United is a state chartered commercial bank that provides financial services through its four offices in Palm Beach County, four offices in Broward County, four offices in Miami-Dade County and one each in the cities of Vero Beach, Sebastian and Barefoot Bay, Florida. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial and residential mortgages, commercial, and installment loans. Substantially all loans are secured by specific items of collateral including commercial and residential real estate, business assets and consumer assets. Commercial loans are expected to be repaid from cash flow from operations of businesses. Other financial instruments, which potentially represent concentrations of credit risk, include deposit accounts in other financial institutions and federal funds sold.

EEL is a commercial finance subsidiary that from time to time will hold foreclosed assets or performing and non-performing loans transferred from 1 ^st United for disposal and resolution. At June 30, 2010 and December 31, 2009, EEL held $5.2 million in loans.

The accounting and reporting policies of the Company reflect banking industry practice and conform to generally accepted accounting principles in the United States of America. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported asset and liability balances and revenue and expense amounts and the disclosure of contingent assets and liabilities. Actual results could differ significantly from those estimates.

The financial information included herein as of and for the periods ended June 30, 2010 and 2009 is unaudited; however, such information reflects all adjustments which are, in the opinion of management, necessary for the fair statement presentation of the interim financial statements. The December 31, 2009 balance sheet was derived from the Company’s December 31, 2009 audited financial statements.

Earnings Per Common Share : Basic earnings per common share is net income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options and stock warrants.

The weighted average common shares outstanding for the three months ended June 30, 2010 and June 30, 2009 were 24,781,660 and 8,670,231, respectively, for computing basic earnings (loss) per share and 25,020,235 and 8,670,231, respectively, for computing diluted earnings (loss) per share. Stock options to acquire 845,035 and 1,032,223, respectively, shares of common stock were not considered in computing diluted earnings (loss) per share for the quarters ended June 30, 2010 and 2009 because consideration of those instruments would be antidilutive.

The weighted average common shares outstanding for the six months ended June 30, 2010 and June 30, 2009 were 24,781,660 and 8,670,231, respectively, for computing basic earnings (loss) per share and 24,970,480 and 8,670,231, respectively, for computing diluted earnings (loss) per share. Stock options to acquire 850,035 and 1,032,223, respectively, shares of common stock were not considered in computing diluted earnings (loss) per share for 2010 and 2009 because consideration of those instruments would be antidilutive.

NOTE 2 – ACQUISITION

On December 11, 2009, the Company announced that 1 ^st United, had entered into a purchase and assumption agreement (the “Republic Agreement”) with the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Republic Federal Bank, National Association (“Republic”), Miami, Florida. As previously disclosed, the fair values initially assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values became available. Preliminary valuation and purchase price allocation adjustments are reflected in the table below.


	December 11, 2009 (As initially reported)			Preliminary Measurement Period Adjustments			December 11, 2009 (As adjusted)

Cash and cash equivalents	$	25,026		$			$	25,026
Securities		33,637						33,637
Federal Reserve Bank and Federal Home Loan Bank Stock		5,266						5,266
Loans		198,562			(10,105	)		188,457
Core deposit intangible		1,248						1,248
FDIC Loss Share Receivable		32,900			10,300			43,200
Other assets		3,223			(200	)		3,023

TOTAL ASSETS ACQUIRED	$	299,862		$	(5	)	$	299,857


Deposits	$	349,647		$			$	349,647
Repurchase agreements		3,724						3,724
Federal Home Loan Bank Advances		78,823						78,823
Other		2,376			(5	)		2,371

TOTAL LIABILITIES ASSUMED	$	434,570		$	(5	)	$	434,565


Excess of liabilities over assets acquired		(134,708	)					(134,708	)
Cash received from FDIC		158,000						158,000

RECORDED GAIN ON ACQUISITION	$	23,292		$	—		$	23,292

NOTE 3 – SECURITIES

The amortized cost and fair value of available for sale securities and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

June 30, 2010
U.S. Government and federal agency	$	13,865	$	237	$	—		$	14,102
Mortgage-backed: residential		82,288		2,201		—			84,489
Municipal securities		—		—		—			—


	$	96,153	$	2,438	$	—		$	98,591


December 31, 2009
U.S. Government and federal agency	$	12,490	$	7	$	(80	)	$	12,417
Mortgage-backed: residential		74,292		648		(502	)		74,438
Municipal securities		1,988		—		—			1,988


	$	88,770	$	655	$	(582	)	$	88,843

At June 30, 2010 and year end 2009, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

The amortized cost and fair value of debt securities at June 30, 2010 by contractual maturity was as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.


	Amortized Cost		Fair Value

Due in one year or less	$	—	$	—
Due from one to five years		—		—
Due from five to ten years		9,868		10,061
Due after ten years		3,997		4,041
Residential Mortgage-backed		82,288		84,489

	$	96,153	$	98,591

Securities as of June 30, 2010 and December 31, 2009 with a carrying amount of $39,149 and $41,233, respectively, were pledged to secure public deposits and repurchase agreements.

Proceeds from sales and calls of securities available for sale were $2,725 and $11,523 for the three months ended June 30, 2010 and 2009, and $7,892 and $17,457 for the six months ended June 30, 2010 and 2009, respectively. Gross gains of $39 and $467 and gross losses of $43 and $0 were realized on these sales during the three months ended June 30, 2010 and 2009, respectively. Gross gains of $54 and $530 and gross losses of $68 and $0 were realized on these sales during the six months ended June 30, 2010 and 2009, respectively.

Gross unrealized losses at June 30, 2010 and December 31, 2009, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows.


	Less than 12 Months					12 Months or More				Total

	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss

June 30, 2010
U.S. Government and federal agency	$	1,945	$	—		$	—	$	—	$	1,945	$	—
Residential Mortgage-backed		15		—			—		—		15		—

	$	1,960	$	—		$	—	$	—	$	1,960	$	—


December 31, 2009
U.S. Government and federal agency	$	6,806	$	(80	)	$	—	$	—	$	6,806	$	(80	)
Residential Mortgage-backed		39,319		(502	)		—		—		39,319		(502	)

	$	46,125	$	(582	)	$	—	$	—	$	46,125	$	(582	)

NOTE 3 – SECURITIES (Continued)

In determining other than temporary impairment (“OTTI”) for debt securities, management considers many factors, including: (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security before its anticipated recovery. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

At December 31, 2009, securities with unrealized losses had depreciated 1.3% from the Company’s amortized cost basis. Based on the Company’s assessment, these differences at December 31, 2009 were determined to be temporary. No securities were in an unrealized loss position at June 30, 2010.

NOTE 4 - LOANS

Loans at June 30, 2010 and December 31, 2009 were as follows:


	June 30, 2010									December 31, 2009

	Loans Subject to Loss Share Agreements			Loans Not Subject to Loss Share Agreements			Total			Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Total


Commercial	$	12,596		$	92,539		$	105,135		$	35,876	$	79,905	$	115,781
Real estate:
Residential		77,384			101,237			178,621			87,625		114,941		202,566
Commercial		67,388			258,724			326,112			59,052		225,770		284,822
Construction		875			54,543			55,418			1,108		54,581		55,689
Consumer and other		1,385			12,272			13,657			266		11,607		11,873

	$	159,628		$	519,315		$	678,943		$	183,927	$	486,804	$	670,731

Add (deduct):
Unearned income and net deferred loan (fees) costs		(576	)		88			(488	)						136
Allowance for loan losses		—			(12,866	)		(12,866	)						(13,282	)

	$	159,052		$	506,537		$	665,589						$	657,585

At June 30, 2010 and December 31, 2009, the Company had approximately $159,628 and $183,927, respectively, in outstanding loans covered by Loss Share Agreements.

Included in commercial and commercial real estate loans above are loans originated through government guaranteed lending programs totaling $20,996 and $28,077 at June 30, 2010 and December 31, 2009, respectively. Of these amounts, $6,960 and $6,142 at June 30, 2010 and December 31, 2009, respectively, represent unguaranteed portions retained by the Company.

NOTE 4 - LOANS (continued)

Activity in the allowance for loan losses was as follows:


	Six Months Ended June 30,

	2010			2009

Beginning balance	$	13,282		$	5,799
Provision for loan losses		2,750			2,905
Loans charged-off		(3,293	)		(1,263	)
Recoveries		127			4


Ending balance	$	12,866		$	7,445

As part of the acquisition of Republic Federal Bank, National Association in 2009 from the Federal Deposit Insurance Corporation and of Equitable Financial Group, Inc. and Citrus Bank, N.A. in 2008, the Company acquired certain loans for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of these loans at June 30, 2010 was approximately $34.0 million, net of a discount of $30.9 million. During the three and six months ended June 30, 2010, approximately $1.1 million and $1.8 million, respectively was accreted into income on these loans and at June 30, 2010 the remaining accretable difference is $6.9 million. In addition, $29.2 million of the $34.0 million is covered by the Loss Share Agreements.

At June 30, 2010, $4.2 million of these loans were included in nonperforming loans, and considered impaired. Further, the Company has recorded no change in allowance for loan losses during the three and six months ended June 30, 2010, and $55 and $320 during the three and six months ended June 30, 2009 for these loans.

NOTE 5 – FAIR VALUES

Carrying amount and estimated fair values of financial instruments were as follows at June 30, 2010 and year end 2009.


	June 30 2010						December 31, 2009

	Carrying Amount			Fair Value			Carrying Amount			Fair Value

Financial assets
Cash and cash equivalents	$	145,449		$	145,449		$	135,241		$	135,241
Time deposits in other financial institutions		75			75			75			75
Securities available for sale		98,591			98,591			88,843			88,843
Loans, net, including loans held for sale		665,589			656,537			657,585			649,251
Nonmarketable equity securities		10,996			N/A			10,233			N/A
Bank owned life insurance		4,649			4,649			4,566			4,566
Accrued interest receivable		3,449			3,449			1,919			1,919

Financial liabilities
Deposits		(842,153	)		(843,574	)		(802,808	)		(804,377	)
Federal funds purchased and repurchase agreements		(14,235	)		(14,235	)		(22,343	)		(22,343	)
Federal Home Loan Bank advances		(5,000	)		(5,000	)		(5,000	)		(5,080	)
Other borrowings		(5,000	)		(5,000	)		(5,091	)		(5,055	)
Accrued interest payable		(782	)		(782	)		(2,021	)		(2,021	)

The methods and assumptions used to estimate fair value are described as follows.

NOTE 5 – FAIR VALUES (continued)

Carrying amount is the estimated fair value for cash and cash equivalents, time deposits in other financial institutions, accrued interest receivable and payable, demand deposits, federal funds purchased and repurchase agreements, and deposits that reprice frequently and fully. Fair value of loans is based on discounted future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, adjusted for the allowance for loan losses. For deposits with infrequent repricing or repricing limits, fair value is based on discounted cash flows using current market rates applied to the estimated life. Fair value of debt is based on current rates for similar financing. It was not practicable to determine the fair value of nonmarketable equity securities due to restrictions placed on their transferability. The fair value of off-balance-sheet items is not considered material (or is based on the current fees or cost that would be charged to enter into or terminate such arrangements).

Fair Value Option and Fair Value Measurements

ASC 820-10-65 establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:


	Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

	Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

	Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing and asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs) or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value.

Assets and liabilities measured at fair value on a recurring basis are summarized below.


	Fair value measurements at June 30, 2010 using:

	June 30, 2010		Quoted prices in active markets for identical assets (Level 1)	Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Available for sale securities	$	98,591	$	$	98,591	$

NOTE 5 – FAIR VALUES (continued)

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.


	Fair value measurements at June 30, 2010 using:

	June 30, 2010		Quoted prices in active markets for identical assets (Level 1)	Significant other observable Inputs (Level 2)	Significant unobservable inputs (Level 3)

Assets:
Impaired loans	$	19,350	$	$	$	19,350
Other real estate owned	$	—	$	$	$	—

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $23,159, with a valuation allowance of $3,809 resulting in additional provision for loan losses of $1,233 and $1,559 for the three and six months, respectively, ended June 30, 2010.


	Fair value measurements at December 31, 2009 using:

	December 31, 2009		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Available for sale securities	$	88,843	$	—	$	88,843	$	—

Assets and liabilities measured at fair value on a non-recurring basis are summarized below.


	Fair value measurements at December 31, 2009 using:

	December 31, 2009		Quoted prices in active markets for identical assets (Level 1)		Significant other observable Inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Impaired loans	$	8,489	$	—	$	—	$	8,489
Other real estate owned	$	635	$	—	$	—	$	635

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $11,100, with a valuation allowance of $2,611 resulting in an additional provision for loan losses of $3,938 for the year ended December 31, 2009.

NOTE 6 - RECENTLY ISSUED AND NOT YET EFFECTIVE ACCOUNTING STANDARDS

Recently Issued Accounting Standards :

In June 2009, the FASB amended previous guidance relating to transfers of financial assets and eliminates the concept of a qualifying special purpose entity. This guidance must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. This guidance must be applied to transfers occurring on or after the effective date. Additionally, on and after the effective date, the concept of a qualifying special-purpose entity is no longer relevant for accounting purposes. Therefore, formerly qualifying special-purpose entities should be evaluated for consolidation by reporting entities on and after the effective date in accordance with the applicable consolidation guidance. The disclosure provisions were also amended and apply to transfers that occurred both before and after the effective date of this guidance. Adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s results of operations or financial position.

NOTE 6 - RECENTLY ISSUED AND NOT YET EFFECTIVE ACCOUNTING STANDARDS (continued)

In June 2009, the FASB amended guidance for consolidation of variable interest entity guidance by replacing the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. Additional disclosures about an enterprise’s involvement in variable interest entities are also required. This guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Early adoption is prohibited. Adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s results of operations or financial position.


I TEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of certain significant factors that have affected our financial condition and operating results during the periods included in the accompanying consolidated financial statements, and should be read in conjunction with such financial statements. Management’s discussion and analysis is divided into subsections entitled “Business Overview,” “Operating Results,” “Financial Condition,” “Capital Resources,” “Cash Flows and Liquidity,” “Off Balance Sheet Arrangements,” and “Critical Accounting Policies.” Our financial condition and operating results principally reflect those of its wholly-owned subsidiaries, 1 ^st United Bank (“1 ^st United”) and Equitable Equity Lending (“EEL”). The consolidated entity is referred to as the “Company,” “Bancorp,” “we,” “us,” or “our.”

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including this MD&A section, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements about our beliefs, plans, objectives, goals, expectations, estimates and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “goal,” and similar expressions are intended to identify forward-looking statements.

All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the Introductory Note and Item 1A. Risk Factors of our Annual Report on Form 10-K, as updated from time to time, and in our other filings made from time to time with the SEC after the date of this report.

However, other factors besides those listed above, or in our Quarterly Report or in our Annual Report, also could adversely affect our results, and you should not consider any such list of factors to be a complete set of all potential risks or uncertainties. Any forward-looking statements made by us or on our behalf speak only as of the date they are made. We do not undertake to update any forward-looking statement, except as required by applicable law.

BUSINESS OVERVIEW

We are a financial holding company headquartered in Boca Raton, Florida.

On December 11, 2009, we announced that 1 ^st United Bank, our banking subsidiary, had entered into a purchase and assumption agreement (the “Republic Agreement”) with the Federal Deposit Insurance Corporation (“FDIC”), as receiver for Republic Federal Bank, National Association (“Republic”), Miami, Florida. According to the terms of the Republic Agreement, 1 ^st United Bank assumed all deposits (except certain brokered deposits)

and borrowings, and acquired certain assets of Republic. Assets acquired included $238 million in loans based on Republic’s carrying value and $64.2 million in cash and investments. All of Republic’s repossessed or foreclosed real estate and substantially all non-performing loans were retained by the FDIC. Republic operated four banking centers in Miami-Dade County, Florida, and had approximately 100 employees. We assumed approximately $349.6 million in deposits in this transaction.

All of the loans acquired are covered by two loss share agreements (the “Loss Share Agreements”) between the FDIC and 1st United Bank, which affords 1st United Bank significant loss protection. Under the Loss Share Agreements, the FDIC will cover 80% of covered loan and foreclosed real estate losses up to $36 million and 95% of losses in excess of that amount. The Loss Share Agreements also cover third party collection costs and 90 days of accrued interest on covered loans. The term for loss sharing and loss recoveries on residential real estate loans is ten years, while the term for loss sharing and loss recoveries on non-residential real estate loans is five years with respect to losses and eight years with respect to loss recoveries. The reimbursable losses from the FDIC are based on the book value of the relevant loan as determined by the FDIC at the date of the transaction. New loans made after that date are not covered by the Loss Share Agreements.

1st United Bank received a $34.2 million net discount on the assets acquired. The acquisition was accounted for under the purchase method of accounting in accordance with FASB ASC 805, “Business Combinations.” The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. We recorded an estimated receivable from the FDIC in the amount of $43.5 million which represents the fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to us. The Loss Sharing Agreements are subject to certain servicing procedures as specified in the agreements.

As previously disclosed, the fair value initially assigned to the assets acquired and liabilities assumed were preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values became available. The information included in this MD&A section reflects the affect of the preliminary valuation adjustments at December 31, 2009 and at and for the period ended June 30, 2010.

1 ^st United Bank did not immediately acquire the furniture or equipment of Republic as part of the Republic Agreement. However, 1 ^st United Bank had the option to purchase the furniture and equipment from the FDIC. The term of this option expired March 11, 2010. We agreed to purchase furniture and equipment from the FDIC at fair value for $495,000. 1 ^st United also had until March 11, 2010, to request the FDIC to repudiate all leases entered into by the former Republic or the leases will be assumed. Each of the four banking centers is leased. We assumed (in one case, on a negotiated basis) three banking center leases and requested the FDIC to repudiate all other leases including the lease for the Aventura banking center which was closed on April 23, 2010. This location was within two miles of our North Miami Beach banking center and we determined closing this banking center will have minimal impact on our customers.

As a result of this acquisition, we had 15 banking centers at June 30, 2010, as compared to 12 banking centers at June 30, 2009.

On August 15, 2008, we completed an acquisition of the banking center network, substantially all of the deposits, and selected loans of Citrus Bank, N.A., headquartered in Vero Beach, Florida. We refer to this as the Citrus Acquisition. The Citrus Acquisition resulted in the assumption and acquisition of approximately $87.5 million in deposits and $38 million in net loans. In addition, we expanded our banking centers to Vero Beach, Sebastian, and Barefoot Bay, Florida. As a condition of receiving regulatory approval of the acquisition, we committed not to enter into any additional acquisition agreements unless it is funded with common stock or until we have been profitable for four consecutive quarters.

On February 29, 2008, we completed the merger and acquisition of Equitable Financial Group, Inc. (“Equitable”) and its wholly-owned subsidiaries Equitable Bank and Equitable Equity Lending, which we refer to as the Equitable Merger. We issued 1,928,610 shares of our common stock and paid cash of approximately $27.6

million to the Equitable shareholders and option holders. The Equitable Merger increased our banking centers from 8 to 11 locations at that time. In addition, we acquired approximately $146.9 million in net loans, $29.9 million in cash and securities, $136.0 million in deposits and $25.7 million in repurchase agreements and borrowings in the Equitable Merger. We recorded approximately $37.4 million in goodwill and $1.4 million in core deposit intangibles as a result of the Equitable Merger.

We follow a business plan that emphasizes the delivery of commercial banking services to businesses and individuals in our geographic market who desire a high level of personalized service. The business plan includes business banking, professional market services, real estate lending and private banking, as well as full community banking products and services. The business plan also provides for an emphasis on our Small Business Administration lending program, Export/Import Bank lending programs, as well as on small business lending. We focus on the building of a balanced loan and deposit portfolio, with emphasis on low cost liabilities and variable rate loans.

As is the case with banking institutions generally, our operations are materially and significantly influenced by general economic conditions and by related monetary and fiscal policies of financial institution regulatory agencies, including the Federal Reserve Bank and the FDIC. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn is affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. We face strong competition in the attraction of deposits (our primary source of lendable funds) and in the origination of loans.

Financial Overview


	•	Net income for the quarter ended June 30, 2010 was $207,000 compared to a net loss of $1,919,000 for the quarter ended June 30, 2009. Net income for the six month period ended June 30, 2010 was $553,000 compared to a net loss of $1,867,000 for the six months ended June 30, 2009.

	•	Net interest margin increased to 4.13% for the quarter ended June 30, 2010, compared to 3.71% for the quarter ended June 30, 2009. Net interest margin increased to 4.20% for the six months ended June 30, 2010, compared to 3.75% for the six months ended June 30, 2010.

	•	During the three and six months ended June 30, 2010, we incurred approximately $530,000 and $1,390,000, respectively, in personnel related and facilities costs that related to the integration of Republic which were eliminated by June 30, 2010.

	•	Nonperforming assets at June 30, 2010 represented 2.76% of total assets compared to 1.60% at December 31, 2009.

	•	The changes in operating results for the three and six month periods ended June 30, 2010, when compared to the three and six month periods ended June 30, 2009, were substantially a result of the Republic transaction.

OPERATING RESULTS

For the quarter ended June 30, 2010, we reported a net income of $207,000 compared to a net loss of $1,919,000 for the second quarter of 2009.

For the six month period ended June 30, 2010, we reported a net income of $553,000 compared to a net loss of $1,867,000 for the six month period ended June 30, 2009. We have summarized the material variances between periods below.

Analysis of Quarters ended June 30, 2010 and 2009

Net Interest Income – Quarters Ended June 30, 2010 and 2009

The following table reflects the components of net interest income, setting forth for the three month periods ended June 30, 2010 and 2009, (1) average assets, liabilities and shareholders’ equity, (2) interest income earned on interest-earning assets and interest paid on interest-bearing liabilities, (3) average yields earned on interest-earning assets and average rates paid on interest-bearing liabilities, (4) our net interest spread (i.e., the average yield on interest-earning assets less the average rate on interest-bearing liabilities) and (5) our net interest margin (i.e., the net yield on interest earning assets).

Net interest earnings for the three month periods ended June 30, 2010 and 2009 are reflected in the following table:


	June 30, 2010								June 30, 2009

	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid

Assets
Interest earning assets
Loans	$	680,211		$	10,429		6.15	%	$	501,286		$	6,379		5.10	%
Investment securities		96,494			910		3.77	%		46,291			517		4.53	%

Federal funds sold and securities purchased under resale agreements and other		148,930			144		0.39	%		8,719			43		1.98	%

Total interest earning assets		925,635			11,483		4.98	%		556,296			6,939		5.00	%

Non interest earning assets		137,406								80,461
Allowance for loan losses		(13,753	)							(5,773	)

Total assets	$	1,049,288							$	630,984

Liabilities and Shareholders’ Equity
Interest bearing liabilities
NOW accounts	$	108,005		$	48		0.18	%	$	60,262		$	36		0.24	%
Money market accounts		170,935			421		0.99	%		99,566			230		0.93	%
Savings accounts		37,825			55		0.58	%		13,659			21		0.62	%
Certificates of deposit		302,595			1,313		1.74	%		184,925			1,334		2.89	%
Customer Repurchase Agreements		13,761			5		0.15	%		14,983			10		0.27	%
Other borrowings		10,008			118		4.73	%		38,110			168		1.77	%

Total interest bearing liabilities		643,129			1,960		1.22	%		411,505			1,799		1.75	%

Non interest bearing liabilities
Demand deposit accounts		225,350								108,712
Other liabilities		7,206								1,995

Total non interest bearing liabilities		232,556								110,707

Shareholders’ equity		173,603								108,772


Total liabilities and shareholders’ equity	$	1,049,288							$	630,984


Net interest spread				$	9,523		3.75	%				$	5,140		3.25	%


Net interest on average earning assets - Margin							4.13	%							3.71	%

Our net interest income for the 2 ^nd quarter of 2010 was positively impacted by the increase in average earning assets of $369 million as compared to 2009 due primarily as a result of the loans and investments acquired in the Republic transaction. Average loans increased by $179 million, or 35.7%, from $501.3 million for the three

month period ended June 30, 2009, to $680.2 million for the three month period ended June 30, 2010. At June 30, 2010, loans represented 65% of total average assets and 82% of total average deposits and customer repurchase agreements versus 79% of total average assets and 107% of total deposits and customer repurchase agreements at June 30, 2009.

Net interest income was $9.5 million for the three months ended June 30, 2010, as compared to $5.1 million for the three months ended June 30, 2009, an increase of $4.4 million or 85%. The increase resulted primarily from an increase in average earning assets of $369 million or 66.4% primarily due to the Republic acquisition. In addition, the net interest margin (i.e., net interest income divided by average earning assets) increased 42 basis points from 3.71% during the three months ended June 30, 2009 to 4.13% during the three months ended June 30, 2010, mainly the result of the accretion of a loan discount of $1.0 million during the quarter on acquired loans which added approximately 43 basis points to the June 30, 2010 margin. This amount was offset by the decrease of average loans as a percent of earning assets of 73% for the period ended June 30, 2010 compared to 90% for the period ended June 30, 2009.

Noninterest Income, Noninterest Expense, Provision for Loan Losses, and Income Taxes – Quarters Ended June 30, 2010 and 2009

Noninterest income includes service charges on deposit accounts, gains or losses on sales of securities and loans, and all other items of income, other than interest, resulting from our business activities. Noninterest income increased by $121,000, or 13%, when comparing the second quarter of 2010 to the same period last year. The increase is mainly due to an increase of $447,000 (145%) in service charges to $756,000 for the quarter ended June 30, 2010 as compared to $309,000 for the quarter ended June 30, 2009. The increase in service charges was primarily due to an increase of $386 million in average deposits when compairing the three months ended June 30, 2010, with the three months ended June 30, 2009. The increase was primarily a result of the Republic transaction.

The increase in service charges was partially offset by the decrease in gains on securities. During the quarter ended June 30, 2010, we sold $2.7 million in securities for a net loss of $4,000. During the quarter ended June 30, 2009, we sold approximately $10 million of securities for a net gain of $467,000. The sales of these available for sale securities in 2009 were made to take advantage of market conditions and to partially offset the one-time costs associated with a lease termination and special FDIC assessment during the quarter.

Other income increased $169,000 to $218,000 for the quarter ended June 30, 2010 as compared to the quarter ended June 30, 2009 primarily as a result of fees received for letter of credits, loan servicing and miscellaneous other income resulting from operations acquired in the Republic transaction.

Our noninterest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting our various business activities. Noninterest expense increased by $2,480,000, or 39.9%, from $6,214,000 for the second quarter of 2009 to $8,694,000 for the current quarter of 2010.

The following summarizes the changes in Non-Interest Expense accounts for the three months ended June 30, 2010 compared to the three months ended June 30, 2009:


	Three months ended
	June 30, 2010		June 30, 2009		Difference

Salaries and employee benefits	$	3,993	$	2,375	$	1,618
Occupancy and equipment		1,536		1,751		(215	)
Data processing		687		477		210
Telephone		176		154		22
Stationery and supplies		98		61		37
Amortization of Intangibles		106		77		29
Professional fees		360		271		89
Advertising		44		15		29
Merger reorganization expenses		270		—		270
FDIC Assessment		454		487		(33	)
Impairment of available for sale securities		—		57		(57	)
Other		970		489		481

Total non-interest expense	$	8,694	$	6,214	$	2,480

Salary and employee benefits increased by approximately $1,618,000 to $3,993,000 for the quarter ended June 30, 2010 as compared to the quarter ended June 30, 2009 of $2,375,000 primarily as a result of the acquisition of the Republic operation, including four banking centers at the end of 2009. Included in this amount is approximately $160,000 of personnel related costs that were eliminated by June 30, 2010 due to the integration of Republic. Full time equivalents at the end of June 30, 2010 were 208 compared to 133 at June 30, 2009.

Occupancy and Equipment decreased by approximately $215,000 to $1,536,000 for the three month period ended June 30, 2010 as compared to the three month period ended June 30, 2009 of $1,751,000. In the quarter ended June 30, 2009, we terminated a lease resulting in a one time expense for lease termination of $300,000. This decrease was partially offset by the addition of the three banking centers acquired and retained in December 2009 in the Republic transaction. Included in the $1,536,000 of Occupancy and Equipment expense for the quarter ended June 30, 2010 is approximately $100,000 of expense related to space acquired from the Republic transaction which was eliminated effective July 1, 2010.

The Merger reorganization expense represents the accrual during the quarter of stay bonuses for employees whose positions have been eliminated by June 30, 2010. No additional expense for these employees is expected after June 30, 2010.

Professional fees increased by $89,000 to $360,000 for the quarter ended June 30, 2010 primarily a result of costs related to the increase in non-performing assets during this period as compared to 2009.

FDIC Assessment expense decreased by $33,000 to $454,000 for the quarter ended June 30, 2010 as compared to $487,000 for the quarter ended June 30, 2009. The quarter ended June 30, 2009 included an accrual of $300,000 for an FDIC special assessment. The increase of $267,000 for the quarter ended June 30, 2010 was a result of the overall increase in deposits resulting from the Republic transaction and an overall increase in the FDIC assessment rate as compared to 2009.

The other increases in other expenses were primarily due to the Republic acquisition.

We recorded a $1.5 million loan loss provision for the three months ended June 30, 2010, compared to $2,800,000 for the three months ended June 30, 2009.

We recorded an income tax expense of $146,000 for the three months ended June 30, 2010, compared to a $1,052,000 tax benefit for the three months ended June 30, 2009 based on the effective tax rate of our Company.

Analysis for Six Month Periods ended June 30, 2010 and 2009

Net Interest Income – Six Month Periods ended June 30, 2010 and 2009

Net interest income, which constitutes our principal source of income, represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities. Our principal interest-earning assets are federal funds sold, investment securities and loans. Our interest-bearing liabilities primarily consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits, money market accounts, repurchase agreements and borrowings from the Federal Home Loan and Federal Reserve Banks. We invest the funds attracted by these interest-bearing liabilities in interest-earning assets. Accordingly, our net interest income depends upon the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned or paid on them.

Net interest earnings for the six month periods ended June 30, 2010 and 2009 are reflected in the following table:


	June 30, 2010								June 30, 2009

	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid

Assets
Interest earning assets
Loans	$	673,949		$	20,971		6.27	%	$	496,342		$	12,856		5.19	%
Investment securities		91,839			1,744		3.80	%		40,847			959		4.70	%

Federal funds sold and securities purchased under resale agreements and other		145,923			277		0.38	%		9,447			80		1.70	%

Total interest earning assets		911,711			22,992		5.09	%		546,636			13,895		5.10	%

Non interest earning assets		138,865								81,832
Allowance for loan losses		(13,548	)							(5,780	)

Total assets	$	1,037,028							$	622,688

Liabilities and Shareholders’ Equity
Interest bearing liabilities
NOW accounts	$	107,053		$	98		0.18	%	$	58,665		$	73		0.25	%
Money market accounts		161,978			800		1.00	%		101,879			470		0.93	%
Savings accounts		36,893			123		0.67	%		13,667			41		0.60	%
Certificates of deposit		307,946			2,728		1.79	%		179,882			2,714		3.02	%
Customer Repurchase Agreements		15,350			12		0.16	%		15,692			22		0.29	%
Other borrowings		10,023			253		5.09	%		41,435			367		1.78	%

Total interest bearing liabilities		639,243			4,014		1.27	%		411,220			3,687		1.80	%

Non interest bearing liabilities
Demand deposit accounts		217,578								103,562
Other liabilities		7,151								3,221

Total non interest bearing liabilities		224,729								106,783

Shareholders’ equity		173,056								104,685

Total liabilities and shareholders’ equity	$	1,037,028							$	622,688


Net interest spread				$	18,978		3.82	%				$	10,208		3.30	%


Net interest on average earning assets - Margin							4.20	%							3.75	%

Rate Volume Analysis

The following table sets forth certain information regarding changes in our interest income and interest expense for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to changes in interest rate and changes in the volume. Changes in both volume and rate have been allocated based on the proportionate absolute changes in each category.

Changes in interest earnings for the six-month periods ended June 30, 2010 and 2009 (dollars in thousands):


	June 30, 2010 and 2009

	Change in Interest Income/ Expense			Variance Due to Volume Changes			Variance Due to Rate Changes

Earning Assets
Loans	$	8,115		$	5,193		$	2,922
Investment securities		785			999			(214	)
Interest earning assets

Federal funds sold and securities purchased under resale agreements and
other		197			305			(108	)

Total interest earning assets	$	9,097		$	6,497		$	2,600


Liabilities and Shareholders’ Equity
Interest bearing liabilities
NOW accounts	$	25		$	48		$	(23	)
Money market accounts		330			295			35
Savings accounts		82			77			5
Certificates of deposit		14			1,427			(1,413	)
Customer Repos		(10	)		—			(10	)
Other borrowings		(114	)		(428	)		314

Total interest bearing liabilities	$	327		$	1,419		$	(1,092	)


Net interest spread	$	8,770		$	5,078		$	3,692

Our net interest income for the six months ended June 30, 2010 was positively impacted by the increase in average earning assets of $365 million as compared to 2009 due primarily as a result of the loans and investments acquired in the Republic transaction. Average loans increased by $177.7 million, or 36%, from $496.3 million at June 30, 2009 to $674 million at June 30, 2010. At June 30, 2010, average loans represented 65% of total average assets and 80% of total average deposits and customer repurchase agreements versus 80% of total average assets and 108% of total average deposits and customer repurchase agreements at June 30, 2009.

Net interest income was $19.0 million for the six months ended June 30, 2010, as compared to $10.2 million for the six months ended June 30, 2009, an increase of $8.8 million or 86%. The increase resulted primarily from an increase in average earning assets of $365 million or 67% primarily due to the Republic acquisition. In addition, the net interest margin (i.e., net interest income divided by average earning assets) increased 45 basis points from 3.75% during the six months ended June 30, 2009 to 4.20% during the six months ended June 30, 2010, mainly the result of the accretion of a loan discount of $2.2 million during the six month period on acquired loans which added approximately 48 basis points to the June 30, 2010 margin of 4.20%. This amount was offset by the decrease of average loans as a percent of earning assets of 74% for the six month period ended June 30, 2010 compared to 91% for the period ended June 30, 2009.

Noninterest Income, Noninterest Expense, Provision for Loan Losses, and Income Taxes – Six Month Periods Ended June 30, 2010 and June 30, 2009

The increase in service charges was primarily due to the increase in average deposits of $373.8 million when comparing the six months ending June 30, 2010 to the six months ending June 30, 2009. This increase was primarily a result of the Republic transaction.

The increase in service charges was partially offset by the decrease in gains (losses) on securities. During the six months ended June 30, 2010, we sold $7.9 million in securities resulting in a net loss of $14,000. During the six months ended June 30, 2009, we sold approximately $14 million in securities for a net gain of $530,000

Other income increased $270,000 to $362,000 for the six months ended June 30, 2010 as compared to the six months ended June 30, 2009 primarily as a result fees received for letter of credits, loan servicing and miscellaneous other income resulting from operations acquired in the Republic transaction.

Non-interest expense is comprised of salaries, employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting our various business activities. Noninterest expense increased by $5,646,000, or 49%, from $11,591,000 for the first two quarters of 2009 to $17,237,000 for the same period in 2010.

The following summarizes the changes in Non-Interest Expense accounts for the six months ended June 30, 2010 compared to the six months ended June 30, 2009:


	Six months ended
	June 30, 2010		June 30, 2009		Difference

Salaries and employee benefits	$	8,073	$	4,812	$	3,261
Occupancy and equipment		3,232		3,173		59
Data processing		1,275		934		341
Telephone		359		289		70
Stationery and supplies		169		123		46
Amortization of Intangibles		220		161		59
Professional fees		743		366		377
Advertising		79		33		46
Merger reorganization expenses		630		—		630
FDIC Assessment		793		684		109
Impairment of available for sale securities		—		120		(120	)
Other		1,664		896		768

Total non-interest expense	$	17,237	$	11,591	$	5,646

Salaries and employee benefits increased by approximately $3,261,000 to $8,073,000 for the six month period ended June 30, 2010 as compared to the six month period ended June 30, 2009 of $4,812,000 primarily as a result of the acquisition of the Republic operation, including four banking centers at the end of 2009. Included in this amount is approximately $510,000 of personnel related costs that were eliminated by June 30, 2010 due to the integration of Republic. Full time equivalents at the end of June 30, 2010 were 208 compared to 133 at June 30, 2000.

Occupancy and Equipment increased by approximately $59,000 to $3,232,000 for the six month period ended June 30, 2010 as compared to the period ended June 30, 2009 of $3,173,000. In the period ended June 30, 2009, we terminated a lease resulting in a one time expense for lease termination of $300,000. This decrease was offset by the addition of the three banking centers acquired in December 2009 in the Republic transaction. Included in the $3,232,000 of Occupancy and Equipment expense for the six months ended June 30, 2010 is approximately

$250,000 of semi-annual expense related to space acquired from the Republic transaction which was eliminated effective July 1, 2010.

The Merger reorganization expense represents the accrual during the six month period ended June 30, 2010 of stay bonuses for employees whose positions have been eliminated by June 30, 2010. No additional expense for these employees is expected after June 30, 2010.

We recorded an impairment amount of $120,000 in 2009 which represented the remaining balance of a corporate investment, based on our review of the issuer’s financial condition.

We recorded a $2.8 million loan loss provision for the six months ended June 30, 2010, compared to $2.9 million for the six months ended June 30, 2009. The $2.8 million provision for the six months ended June 30, 2010 was primarily a result of the increase in classified assets and the continuing deterioration of values of underlying collateral on these assets.

We recorded a $363,000 tax expense (based on an effective tax rate of approximately 39%) for the six months ended June 30, 2010, compared to a tax benefit of $1,014,000 for the same period in 2009.

FINANCIAL CONDITION

At June 30, 2010, our total assets were $1.05 billion and our net loans were $666 million or 64% of total assets. At December 31, 2009, our total assets were $1.02 billion and our net loans were $658 million or 65% of total assets. The growth rate of the loan portfolio has slowed. This is generally a result of an overall slowdown in commercial loan production in the markets served by 1 ^st United Bank, as well as an increased level of commercial loan payoffs.

At June 30, 2010, the allowance for loan losses was $12.9 million or 1.90% of total loans. At December 31, 2009, the allowance for loan losses was $13.3 million or 1.98% of total loans.

At June 30, 2010, our total deposits were $842.2 million, an increase of $39.3 million (5%) over December 31, 2009 of $802.8 million. Non-interest bearing deposits represented 26% of total deposits at June 30, 2010 compared to 24% at December 31, 2009. These increases are due to our overall business development efforts.

Loan Quality

Management seeks to maintain a high quality loans through sound underwriting and lending practices. As of June 30, 2010 and December 31, 2009, approximately 85% and 81%, respectively, of the total loan portfolio was collateralized by commercial and residential real estate mortgages.

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to repay from employment and other income and which are collateralized by real property whose value tends to be more readily ascertainable, non-real estate secured commercial loans typically are underwritten on the basis of the borrower’s ability to make repayment from the cash flow of its business and generally are collateralized by a variety of business assets, such as accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial loans may be substantially dependent on the success of the business itself, which is subject to adverse conditions in the economy. Commercial loans are generally repaid from operational earnings, the collection of rent or conversion of assets. Commercial loans also entail certain additional risks since they usually involve large loan balances to single borrowers or a related group of borrowers, resulting in a more concentrated loan portfolio. Further, the collateral underlying the loans may depreciate over time, cannot be appraised with as much precision as residential real estate, and may fluctuate in value based on the success of the business.

Loan concentrations are defined as amounts loaned to a number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. We, on a routine basis, monitor these concentrations in order to consider adjustments in our lending practices to reflect economic conditions, loan-to-deposit ratios, and industry trends. As of June 30, 2010 and December 31, 2009, no concentration of loans within any portfolio category to any group of borrowers engaged in similar activities or in a similar business

(other than noted below) exceeded 10% of total loans, except that as of such dates loans collateralized with mortgages on real estate represented 85% and 81%, respectively, of the loan portfolio and were to borrowers in varying activities and businesses. Business banking provides loan facilities ranging from commercial purpose non-real estate secured loans and commercial purpose real estate secured loans, to guidance lines of credit, EXIM bank loans and SBA loans. From time to time, Business Banking also provides commercial and residential real estate acquisition and construction loans to qualified builders and developers, although this line of business is subdued at this time in the business cycle.

The following charts illustrate the composition of our loan portfolio as of June 30, 2010 and December 31, 2009.

Loan Portfolio as of June 30, 2010


(Dollars in thousands)

Loan Types	Total Loans		Balance Outstanding		% of Loan Portfolio			% of Total Assets

Commercial Real Estate and Farm Loans		310	$	310,739		45.77	%		29.71	%
Construction and Development Loans		46		55,419		8.16	%		5.30	%
Commercial and Industrial		487		105,178		15.49	%		10.06	%
Closed End First Lien 1-4 Family		363		125,918		18.55	%		12.04	%
Home Equity Line of Credit		258		52,123		7.68	%		4.98	%
Multi-family Loans		34		14,735		2.17	%		1.41	%
Consumer Loans		195		13,548		2.00	%		1.30	%
Closed-End Junior Lien 1-4 Family		11		1,170		0.17	%		0.11	%
Other		0		113		0.01	%		0.01	%

Total		1,704	$	678,943		100.00	%		64.92	%


Loan Portfolio as of December 31, 2009

(Dollars in thousands)

Loan Types	Total Loans		Balance Outstanding		% of Loan Portfolio			% of Total Assets

Commercial Real Estate and Farm Loans		257	$	264,248		39.40	%		26.02	%
Construction and Development Loans		44		55,689		8.30	%		5.48	%
Commercial and Industrial		552		115,781		17.26	%		11.40	%
Closed End First Lien 1-4 Family		437		151,582		22.60	%		14.93	%
Home Equity Line of Credit		251		50,127		7.47	%		4.94	%
Multi-family Loans		39		20,574		3.07	%		2.03	%
Consumer Loans		188		11,736		1.75	%		1.16	%
Closed-End Junior Lien 1-4 Family		16		857		0.13	%		0.08	%
Other		0		137		0.02	%		0.01	%

Total		1,784	$	670,731		100.00	%		66.04	%

The following chart illustrates the composition of our construction and land development loan portfolio as of June 30, 2010, and year-end 2009.


(Dollars in thousands)

	June 30, 2010					December 31, 2009

	Balance		% of Total Loans			Balance		% of Total Loans

Construction
Residential	$	157		0.02	%	$	—		0.00	%
Residential Spec		21,408		3.15	%		20,309		3.03	%
Commercial		—		0.00	%		1,108		0.17	%
Commercial Spec		3,468		0.51	%		3,259		0.49	%
Land Development
Residential		2,197		2.02	%		1,890		0.28	%
Residential Spec		13,715		3.52	%		14,551		2.17	%
Commercial		1,292		0.19	%		—		0.00	%
Commercial Spec		13,182		1.94	%		14,572		2.16	%

Total	$	55,419		8.16	%	$	55,689		8.30	%

Generally, interest on loans accrues and is credited to income based upon the principal balance outstanding. It is management’s policy to discontinue the accrual of interest income and classify a loan as non-accrual when principal or interest is past due 90 days or more unless, in the determination of management, the principal and interest on the loan are well collateralized and in the process of collection. Consumer installment loans are generally charged-off after 90 days of delinquency unless adequately collateralized and in the process of collection. Loans are not returned to accrual status until principal and interest payments are brought current and future payments appear reasonably certain. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income.

Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned (“OREO”). OREO properties are recorded at the lower of cost or fair value less estimated selling costs, and the estimated loss, if any, is charged to the allowance for credit losses at the time it is transferred to OREO. Further write-downs in OREO are recorded at the time management believes additional deterioration in value has occurred and are charged to non-interest expense. We had no OREO property as of June 30, 2010, as compared to $635,000 at December 31, 2009.

We have identified certain assets as non performing and troubled debt restructuring assets. These assets include non-accruing loans, foreclosed real estate, loans that are contractually past due 90 days or more as to principal or interest payments and still accruing, and troubled debt restructurings. All non-accruing loans and loans accruing 90 days or more are considered impaired and included in our substandard classification. These assets present more than the normal risk that we will be unable to eventually collect or realize their full carrying value. Our non performing and troubled debt restructuring assets at June 30, 2010 and December 31, 2009 are as follows:


(Dollars in thousands)

	June 30, 2010							December 31, 2009

	Assets Not Subject to Loss Share Agreements		Assets Subject to Loss Share Agreements		Total			Assets Not Subject to Loss Share Agreements		Assets Subject to Loss Share Agreements		Total

Non-Accrual Loans
Residential	$	6,581	$	149	$	6,730		$	469	$	—	$	469
Home Equity Lines		1,679		—		1,679			—		—		—
Commercial Real Estate		10,831		—		10,831			8,566		—		8,566
Construction and Land
Development		9,330		—		9,330			5,258		—		5,258
Commercial and Industrial		341		—		341			717		560		1,277
Other		—		—		—			—		—		—

Total	$	28,762	$	149	$	28,911		$	15,010	$	560	$	15,570


Accruing => 90 days past due
Residential	$	—	$	—	$	—		$	—	$	—	$	—
Home Equity Lines		—		—		—			—		—		—
Commercial Real Estate		—		—		—			—		—		—
Construction and Land
Development		—		—		—			—		—		—
Commercial and Industrial		—		—		—			54		—		54
Other		—		—		—			—		—		—

Total	$	—	$	—	$	—		$	54	$	—	$	54


Total non-accruing loans	$	28,762	$	149	$	28,911		$	15,010	$	560	$	15,570
Accruing => 90 days past due		—		—		—			54		—		54
Foreclosed real estate		—		—		—			635		—		635

Total non-performing assets		28,762		149		28,911			15,699		560		16,259
						—
Trouble debt restructured loans		6,533		—		6,533			1,990		—		1,990

Total non-performing assets and restructured loans	$	35,295	$	149	$	35,444		$	17,689	$	560	$	18,249


Ratios
Total non-accruing loans to total loans						4.26	%						2.32	%
Total non-performing assets to total assets						2.76	%						1.60	%
Total non-performing assets and troubled debt restructured loans to total assets						3.39	%						1.80	%

Since December 31, 2009, approximately $2.4 million in non-accrual loans was charged off, and approximately $21.7 million was added (excluding assets acquired in the Republic transaction) to non-accrual and $6.0 million in previously non-accrual loans paid off or were placed back on accrual, during the quarter. The $149,000 in non-performing assets acquired in the Republic transaction are all covered under the Loss Share Agreements and we do not expect any additional future losses on these assets. Four loans made up a substantial portion of the additions to non-accrual during the year: a $7.1 million (net of a specific reserve of $330,000), seven-unit water front home project in Broward County which was appraised in November 2009 for approximately $8.0 million; a loan of $4.0 million (net of a specific reserve of $160,000) secured by a single family home in Palm Beach County appraised in February 2010 for $4.5 million; a $2.2 million loan on a day care in Palm Beach County which was appraised in September 2009 for $2.9 million; and a loan of $1.7 million on a single family home in Broward county which was appraised in March 2010 for $4.2 million. Significant loans included in non-accrual loans not covered by Loss Share Agreements, in addition to those noted above, at June 30, 2010 include: $1.7 million (net of a specific reserve of $500,000) secured by new commercial office/warehouse property in Broward County, Florida (appraised January 2010 at $2.5 million), $1.6 million participation loan secured by land in Orlando, Florida (pro rata portion appraised November 2009 at $1.8 million), $1.4 million secured by receivables and commercial building in Broward County, Florida (building appraised at April 2010 at $1.3 million), $1.5 million (net of a specific reserve of $200,000) secured by an office building in Boca Raton, Florida (appraised January 2010 at $1.8 million), and a $810,000 loan (net of a specific reserve of $90,000) on a home in Palm Beach County (appraised April 2010 at $900,000). The remaining 21 non-accrual loans are each under $750,000. We have specific reserves included in the allowance for loan losses of $2.4 million for potential loan losses to non-accrual loans that are not covered by Loss Share Agreements. We continue to aggressively work to resolve each of these loans. The total allowance for loan losses to non-performing loans is 45% at June 30, 2010 compared to 85% at December 31, 2009. The decrease in allowance to non performing loans is primarily due to charge-offs during the period ended June 30, 2010 and the collateral value coverage on non-performing assets at June 30, 2010.

Delinquent Loans


(Dollars in thousands)

					Non-Accrual and 90 day accruing and Over

	Accruing 60-89								Total

	Number		Amount		Number		Amount		Number		Amount

As of June 30, 2010
Residential		—	$	—		6	$	6,730		6	$	6,730
Home Equity Lines		—		—		4		1,679		4		1,679
Commercial Real Estate		4		2,391		14		10,831		18		13,222
Construction and Land		1		315		3		9,330		4		9,645
Commercial and Industrial		5		1,312		4		341		9		1,653
Other		—		—		—		—		—		—

Total		10	$	4,018		31	$	28,911		41	$	32,929

Included in the table above as of June 30, 2010 in the non-accrual and 90 day and over category is one loan with a carrying value of $149,000, which is subject to the Loss Share Agreement.

(Dollars in thousands)


	Accruing 60-89				Non-Accrual and 90 day accruing and Over				Total

	Number		Amount		Number		Amount		Number		Amount

As of December 31, 2009
Residential		3	$	241		1	$	469		4	$	710
Home Equity Lines		—		—		—		—		—		—
Commercial Real Estate		7		5,384		12		8,566		19		13,950
Construction and Land		1		2,150				5,258		4		7,408
Commercial and Industrial		3		1,047		11		1,277		14		2,324
Other		—		—		—		—		—		—

Total		14	$	8,822		27	$	15,570		41	$	24,392

Included in the table above as of December 31, 2009 in the accruing 60 - 89 category are 8 loans with a carrying value of $3.9 million, and in the non-accrual and 90 day and over category are 3 loans with a carrying value of $560,000, which are subject to the Loss Share Agreements.

Impaired Loans


	June 30, 2010		December 31, 2009

Loans with no allocated allowance for loan losses	$	9,042	$	5,900
Loans with allocation for loan losses		29,691		11,100

Total Impaired	$	38,733	$	17,000


Amount of allowance for loan losses allocated	$	3,391	$	1,522

All non-accrual loans and troubled debt restructurings are included in impaired loans.

At June 30, 2010 and December 31, 2009, we had approximately $6.5 million and $2.0 million, respectively, of loans classified as troubled debt restructurings that are performing in accordance with the restructured terms.

During the quarters ended June 30, 2010 and 2009, interest income not recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $201,000, and $181,000, respectively.

For the six months ended June 30, 2010 and 2009, interest income not recognized on non accrual loans (but would have been recognized if these loans were current) was approximately $318,000 and $225,000, respectively.

Allowance for Loan Losses

At June 30, 2010, the allowance for loan losses was $12.9 million or 1.90% of total loans. At June 30, 2010, no portion of the allowance for loan losses related to the approximately $159.6 million of loans covered under the Loss Share Agreements. At December 31, 2009, the allowance for loan losses was $13.3 million or 1.98% of total loans. In originating loans, we recognize that credit losses will be experienced and the risk of loss will vary with, among other things: general economic conditions; the type of loan being made; the creditworthiness of the borrower over the term of the loan; and, in the case of a collateralized loan, the quality of the collateral for such a loan. The allowance for loan losses represents our estimate of the allowance necessary to provide for probable incurred losses in the loan portfolio. In making this determination, we analyze the ultimate collectability of the loans in our portfolio, feedback provided by internal loan staff, the independent loan review function and information provided by examinations performed by regulatory agencies.

On a quarterly basis, management reviews the adequacy of the allowance for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned credit risk grades. In the event

that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish the appropriate level of the allowance, we review and classify a sample of loans (including all impaired and nonperforming loans) as to potential loss exposure.

Our analysis of the allowance for loan losses consists of three components: (i) specific credit allocation established for expected losses resulting from analysis developed through specific credit allocations on individual loans for which the recorded investment in the loan exceeds the fair value; (ii) general portfolio allocation based on historical loan loss experience for each loan category; and (iii) qualitative reserves based on general economic conditions as well as specific economic factors in the markets in which we operate.

The specific credit allocation component of the allowance for loan losses is based on a regular analysis of loans where the internal credit rating is at or below the substandard classification and the loan is determined to be impaired as determined by management. The amount of impairment, if any, is determined based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less cost of sale. A loan may also be classified as substandard and not be classified as impaired by management. The allowance for these loans is calculated based on historical charge-offs for the substandard loan categories combined with specifically evaluating the underlying credit and collateral of each loan. A loan may be classified as substandard by management if, for example, the primary source of repayment is insufficient, the financial condition of the borrower and/or guarantors has deteriorated or there are chronic delinquencies.

Substandard loans


	June 30, 2010

	Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Total

Substandard – Impaired	$	38,733	$	—	$	38,733

Substandard – Not Impaired		26,652		4,321		30,973

Total Loans Classified as Substandard	$	65,385	$	4,321	$	69,706


Substandard loans

	December 31, 2009

	Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Total

Substandard – Impaired	$	17,000	$	—	$	17,000

Substandard – Not Impaired		38,296		1,945		42,186

Total Loans Classified as Substandard	$	55,296	$	1,945	$	59,186

All non-accrual loans and troubled debt restructurings are included in substandard loans.

The total of substandard loans, which include all impaired loans, non-accrual loans, and troubled debt restructurings totaled $69.7 million at June 30, 2010 (of which $4.3 million are subject to the Loss Share Agreement) and $59.2 million at December 31, 2009. In addition, at June 30, 2010, we identified approximately $38.7 million (or 5.8% of total loans) in loans we have classified as impaired which are included in our substandard classification. This compares to $17.0 million or 2.5% of total loans at December 31, 2009. At June 30, 2010 and December 31, 2009, the specific credit allocation included in the allowance for loan losses for loans impaired was approximately $4.8 million and $1.5 million, respectively.

We also have loans classified as Special Mention. We classify loans as Special Mention if there are declining trends in the borrower’s business, questions regarding condition or value of the collateral and other weaknesses. At June 30, 2010, we had $17.3 million (2.6% of outstanding loans) in the Special Mention category which compares to $24.0 million (4.8% of outstanding loans) at December 31, 2009. If there is further deterioration on

these loans, they may be classified substandard in the future, and depending on the fair value of the loan a specific credit allocation may be needed resulting in increased provisions for loan losses.

At June 30, 2010, we had $34.0 million in loans (net of an accretable difference of $6.9 million and non-accretable difference of $24.0 million) which were acquired in the Republic Transaction and the Equitable Merger which at the time of acquisition we assessed that it would be improbable of collecting all contractually required payments. Included in the $34.0 million loans is $4.2 million in loans which are included in non-accrual loans as we cannot reasonably estimate cash flows. For the remaining loans we estimate remaining cash flows quarterly and if they are determined to be less than originally estimated, impairment is determined and included in the allowance for loan loss analysis. At June 30, 2010, none of these remaining loans were impaired.

We determine the general portfolio allocation component of the allowance for loan losses statistically using a loss analysis that examines historical loan loss experience adjusted for current environmental factors. We perform the loss analysis quarterly and update loss factors regularly based on actual experience. The general portfolio allocation element of the allowance for loan losses also includes consideration of the amounts necessary for concentrations and changes in portfolio mix and volume.

We base the allowance for loan losses on estimates and ultimate realized losses may vary from current estimates. We review these estimates quarterly, and as adjustments, either positive or negative, become necessary, we make a corresponding increase or decrease in the provision for loan losses. The methodology used to determine the adequacy of the allowance for loan losses is consistent with prior years and there were no reallocations.

Management remains watchful of credit quality issues. Should the economic climate deteriorate from current levels, borrowers may experience difficulty repaying loans and the level of non-performing loans, charge-offs and delinquencies could rise and require further increases in loan loss provisions.

Investment Securities

We manage our consolidated securities portfolio, which represented 9.4% of our earning asset base for the period ended June 30, 2010, as compared to 8.7% at year ended December 31, 2009, to minimize interest rate risk, maintain sufficient liquidity, and maximize return. The portfolio includes callable agency bonds, US Treasury Securities, mortgage-backed securities, and collateralized mortgage obligations. Corporate obligations consist of investment grade obligations of public corporations. Our financial planning anticipates income streams generated by the securities portfolio based on normal maturity, pay downs and reinvestment.

Deposits

Total deposits increased by $39.3 million from December 31, 2009 to total deposits of $842.2 million at June 30, 2010, due primarily to business development efforts. Broker deposits at June 30, 2010 were $17.5 million, or 2% of deposits. At June 30, 2010, non-interest bearing deposits represented approximately 26.2% of deposits compared to 24.2% at December 31, 2009.

CAPITAL RESOURCES

We are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

The Federal banking regulatory authorities have adopted certain “prompt corrective action” rules with respect to depository institutions. The rules establish five capital tiers: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” The various federal banking regulatory agencies have adopted regulations to implement the capital rules by, among other things, defining the relevant capital measures for the five capital categories. An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or

greater, and a Tier 1 leverage ratio of 5% or greater and is not subject to a regulatory order, agreement, or directive to meet and maintain a specific capital level. At June 30, 2010, 1st United Bank met the capital ratios of a “well capitalized” financial institution with a total risk-based capital ratio of 16.7%, a Tier 1 risk-based capital ratio of 14.5%, and a Tier 1 leverage ratio of 7.8%. Depository institutions which fall below the “adequately capitalized” category generally are prohibited from making any capital distribution, are subject to growth limitations, and are required to submit a capital restoration plan. There are a number of requirements and restrictions that may be imposed on institutions treated as “significantly undercapitalized” and, if the institution is “critically undercapitalized,” the banking regulatory agencies have the right to appoint a receiver or conservator.

The following represents 1 ^st United Bancorp’s and 1 ^st United Bank’s regulatory capital ratios for the respective periods:


	Actual					Minimum for Capital Adequacy					Minimum for Well Capitalized

(Dollars in thousands)	Amount		%			Amount		%			Amount		%

As of June 30, 2010
Total Capital to risk-weighted assets Consolidated	$	137,082		25.41	%	$	43,163		8.00	%	$	53,953		10.00	%
1st United		89,431		16.71	%		42,812		8.00	%		53,515		10.00	%
Tier I capital to risk-weighted assets Consolidated		125,268		23.22	%		21,581		4.00	%		32,372		6.00	%
1st United		77,677		14.53	%		21,406		4.00	%		32,109		6.00	%
Tier I capital to total average assets Consolidated		125,268		12.51	%		40,046		4.00	%		50,057		5.00	%
1st United		75,939		7.80	%		39,848		4.00	%		49,809		5.00	%

As of December 31, 2009
Total Capital to risk-weighted assets Consolidated	$	134,518		25.76	%	$	41,777		8.00	%	$	52,221		10.00	%
1st United		87,486		16.91	%		41,400		8.00	%		51,750		10.00	%
Tier I capital to risk-weighted assets Consolidated		122,907		23.54	%		20,888		4.00	%		31,333		6.00	%
1st United		75,939		14.67	%		20,700		4.00	%		31,050		6.00	%
Tier I capital to total average assets Consolidated		122,907		17.33	%		28,367		4.00	%		35,459		5.00	%
1st United		75,939		10.70	%		28,383		4.00	%		35,479		5.00	%

CASH FLOWS AND LIQUIDITY

Our primary sources of cash are deposit growth, maturities and amortization of loans and investment securities, operations, and borrowing. We use cash from these and other sources to first fund loan growth. Any remaining cash is used primarily to purchase a combination of short, intermediate, and longer-term investment securities.

We manage our liquidity position with the objective of maintaining sufficient funds to respond to the needs of depositors and borrowers and to take advantage of earnings enhancement opportunities. In addition to the normal inflow of funds from core-deposit growth together with repayments and maturities of loans and investments, we use other short-term funding sources such as brokered time deposits, securities sold under agreements to repurchase, overnight federal funds purchased from correspondent banks and the acceptance of short-term deposits from public entities, and Federal Home Loan Bank advances.

We monitor, stress test and manage our liquidity position on several bases, which vary depending upon the time period. As the time period is stress test expanded, other data is factored in, including estimated loan funding requirements, estimated loan payoffs, investment portfolio maturities or calls, and anticipated depository buildups or runoffs.

We classify all of our securities as available-for-sale to maintain significant liquidity. Our liquidity position is further enhanced by structuring our loan portfolio interest payments as monthly, complemented by retail credit

and residential mortgage loans in our loan portfolio, resulting in a steady stream of loan repayments. In managing our investment portfolio, we provide for staggered maturities so that cash flows are provided as such investments mature.

Our securities portfolio, federal funds sold, and cash and due from bank deposit balances serve as primary sources of liquidity for 1 ^st United Bank. At June 30, 2010, we had approximately $145.4 million in cash and cash equivalents.

At June 30, 2010, we had no short-term borrowings and long-term borrowings of $5 million from the FHLB. At June 30, 2010, we had commitments to originate loans totaling $72.7 million. Scheduled maturities of certificates of deposit during the twelve months following June 30, 2010 totaled $250.6 million, and maturing loans totaled approximately $184.3 million.

Management believes that we have adequate resources to fund all of our commitments, that substantially all of our existing commitments will be funded in the subsequent twelve months and, if so desired, that we can adjust the rates on certificates of deposit and other deposit accounts to retain deposits in a changing interest rate environment. At June 30, 2010, we had short-term lines available from correspondent banks totaling $26 million. FRB discount window availability of $33.7 million, and borrowing capacity from the FHLB of $63.6 million based on collateral pledged, for a total credit available of $123.3 million. In addition, being “well capitalized,” the Bank can access the wholesale deposits for approximately $242.7 million based on current policy limits.

OFF-BALANCE SHEET ARRANGEMENTS

We do not currently engage in the use of derivative instruments to hedge interest rate risks. However, we are a party to financial instruments with off-balance sheet risks in the normal course of business to meet the financing needs of our clients.

At June 30, 2010, we had $72.7 million in commitments to originate loans and $4.6 million in standby letters of credit. Commitments to extend credit are agreements to lend to a customer so long as there is no violation of any condition established in the contract. Commitments generally have termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by us to guarantee the performance of a client to a third party. We use the same credit policies in establishing commitments and issuing letters of credit as we do for on-balance sheet instruments.

If commitments arising from these financial instruments continue to require funding at historical levels, management does not anticipate that such funding will adversely impact our ability to meet on-going obligations. In the event these commitments require funding in excess of historical levels, management believes current liquidity, available lines of credit from the FHLB, investment security maturities and our revolving credit facility provide a sufficient source of funds to meet these commitments.

CRITICAL ACCOUNTING POLICIES

Allowance for Loan Losses

The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components. The specific component relates to loans that are classified as either loss, doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market

price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical industry loss experience adjusted for qualitative factors.

A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial and commercial real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment disclosures.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over fair value of assets of business acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually. Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values. We acquired First Western Bank, on April 7, 2004, Equitable on February 29, 2008 and Citrus on August 15, 2008. Consequently, we were required to record the assets acquired, including identified intangible assets, and liabilities assumed at their fair value, which involves estimates based on third party valuations, such as appraisals, internal valuations based on discounted cash flow analyses or other valuation techniques. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization period for such intangible assets. In addition, purchase acquisitions typically result in recording goodwill, which is subject to ongoing periodic impairment tests based on the fair value of the reporting unit compared to its carrying amount, including goodwill. As of December 31, 2009, the required annual impairment test of goodwill was performed and no impairment existed as of the valuation date. If for any future period we determine that there has been impairment in the carrying value of our goodwill balances, we will record a charge to our earnings, which could have a material adverse effect on our net income, but not to our risk based capital ratios.

Income Taxes

Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statements and those reported for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances are provided against assets which are not likely to be realized.


I TEM 4.	CONTROLS AND PROCEDURES


(a)	Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, Rudy E. Schupp, and Chief Financial Officer, John Marino, have evaluated our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”), as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each have concluded that our disclosure controls and procedures are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Such controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our

management, including our principal executive and principal financial officers, to allow timely decisions regarding disclosure.


(b)	Changes in Internal Control Over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, has reviewed our internal control over financial reporting, as defined in Rule 13a-15 (f) under the Act. There were no changes in internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


P ART II.	OTHER INFORMATION

I TEM 1.	LEGAL PROCEEDINGS

From time-to-time we may be involved in litigation that arises in the normal course of business. As of the date of this Form 10-Q, we are not a party to any litigation that management believes could reasonably be expected to have a material adverse effect on our financial position or results of operations for an annual period.


I TEM 1A.	RISK FACTORS

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report, as updated in our subsequent quarterly reports. The risks described in our Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.


ITEM 5.	OTHER INFORMATION

On July 27, 2010, we announced via press release our financial results for the three and six-month period ended June 30, 2010. A copy of our press release is included herein as Exhibit 99.1 and incorporated herein by reference.

The information furnished under Part II, Item 5 of this Quarterly Report, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing.


I TEM 6.	EXHIBITS


(a)	The following exhibits are included herein:


Exhibit No.			Name


31.1			Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.2			Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32			Certification Pursuant to 18 U.S.C. Section 1350

99.1			Press release to announce earnings, dated July 27, 2010.

S IGNATURES

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.


	1 ^ST UNITED BANCORP, INC.
	(Registrant)

Date: July 27, 2010	By: /s/ John Marino

	JOHN MARINO
	PRESIDENT AND CHIEF FINANCIAL OFFICER
	(Mr. Marino is the principal financial officer and has been duly authorized to sign on
	behalf of the Registrant)


EXHIBIT INDEX

EXHIBIT		DESCRIPTION


31.1		Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

31.2		Certification Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended.

32		Certification Pursuant to 18 U.S.C. Section 1350

99.1		Press release to announce earnings, dated July 27, 2010