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 financial institutions
balances serve as primary sources of liquidity for 1
st
United. At
March 31, 2012, we had approximately $355.0 million in cash and cash
equivalents and securities, of which $18.9 million of securities, at fair
value, were pledged.
At March 31,
2012, we had no short-term or long-term borrowings. At March 31, 2012, we had
commitments to originate loans totaling $8.5 million and commitments of $68.2
million in unused lines of credit. Scheduled maturities of certificates of
deposit during the twelve months following March 31, 2012 total $230.0 million,
and loans maturing in the next twelve months total approximately $203.2
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 March 31, 2012, we had short-term lines available from
correspondent banks totaling $51.0 million, FRB discount window availability of
$40.8 million, and borrowing capacity from the FHLB of $35.4 million based on
collateral pledged, for a total credit available of $127.2 million. In
addition, being well capitalized, the Bank can access wholesale deposits for
approximately $332.4 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 March 31,
2012, we had $8.5 million in commitments to originate loans, $68.2 million in
unused lines of credit and $4.8 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
Management
views critical accounting policies as accounting policies that are important to
the understanding of our financial statements and also involve estimates and
judgments about inherently uncertain matters. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the consolidated balance
55
sheets and
assumptions that affect the recognition of income and expenses on the
consolidated statements of income for the periods presented. Actual results
could differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change in subsequent periods are
described as follows.
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 for loan losses when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any,
are credited to the allowance for loan losses.
The allowance
for loan losses is evaluated on a regular basis by management and is based upon
managements 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 borrowers 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 individually evaluated for impairment. For such loans, an
allowance for loan losses is established based on either the present value of
expected future cash flows discounted at the loans effective interest rate,
the market price of the loan, or, if the loan is collateral dependent, the fair
value of the underlying collateral less estimated costs of sale.
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 (loan payments made
within 90 days of the due date) and payment shortfalls (which are tracked as
past due amounts) 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 borrowers prior payment record, and
the amount of the shortfall in relation to the principal and interest owed.
Management considers loan payments made within 90 days of the due date to be
insignificant payment delays. Payment shortfalls are traced as past due
amounts. Impairment is measured on a loan by loan basis for commercial and
construction and land development loans by either the present value of expected
future cash flows discounted at the loans effective interest rate, the loans
obtainable market price, or the fair value of the collateral less estimated
costs of sale if the loan is collateral dependent.
The general
component considers the actual historical charge-offs over a rolling two year
period by portfolio segment. The actual historical charge-off ratio is adjusted
for qualitative factors including delinquency trends, loss and recovery trends,
classified asset trends, non-accrual trends, economic and business conditions
and other external factors by portfolio segment of loans.
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, Citrus on August 15, 2008, Republic on
December 11, 2009, TBOM on December 17, 2010 and Old Harbor on October 21,
2011. 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, 2011, 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.
56
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. A valuation allowances is provided against
deferred tax assets which are not likely to be realized.
FDIC Loss Share
Receivable
.
The FDIC Loss
Share Receivable represents the estimated amounts due from the FDIC related to
the Loss Sharing Agreements which were booked as of the acquisition dates of
Republic, TBOM, and Old Harbor. The receivable represents the discounted value
of the FDICs reimbursed portion of estimated losses we expect to realize on
loans and other real estate owned (Covered Assets) acquired as a result of
these acquisitions. The range of discount rates on the FDIC Loss Share
Receivable was 2.12% to 3.97%. As losses are realized on Covered Assets, the
portion that the FDIC pays the Company in cash for principal and up to 90 days
of interest reduces the FDIC Loss Share Receivable.
The FDIC Loss
Share Receivable is reviewed quarterly and adjusted for any changes in expected
cash flows based on recent performance and expectations for future performance
of the Covered Assets. Any increases in cash flows of the Covered Assets will
be accreted into income over the life of the Covered Asset but will reduce
immediately the FDIC Loss Share Receivable. Any decreases in the expected cash
flows of the Covered Assets will result in the impairment to the Covered Asset
and an increase in the FDIC Loss Share Receivable to be reflected immediately.
Non-cash adjustments to the FDIC Loss Share Receivable are recorded to
non-interest income.
I
tem 3. Quantitative and Qualitative Disclosures about
Market Risk
Our net income
is largely dependent on net interest income. Net interest income is susceptible
to interest rate risk to the degree that interest-bearing liabilities mature or
reprice on a different basis than interest-earning assets. When
interest-bearing liabilities mature or reprice more quickly than
interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could result in a decrease in net interest
income. Net interest income is also affected by changes in the portion of
interest-earning assets that are funded by interest-bearing liabilities rather
than by other sources of funds, such as non-interest-bearing deposits and
shareholders equity.
We manage our
assets and liabilities through 1
st
Uniteds Asset Liability
Committee (ALCO) Board Committee which meets quarterly and through our
internal management committee which meets more frequently. Management closely
monitors 1
st
Uniteds interest at risk calculations through model
simulations and reports the results of its rate stress testing to ALCO on a
quarterly basis.
We have
established policy limits of risk, which are quantitative measures of the
percentage change in net interest income (a measure of net interest income at
risk) and the fair value of equity capital (a measure of economic value of
equity (EVE) at risk) resulting from a hypothetical change in interest rates
for maturities from one day to 30 years. We measure the potential adverse
impacts that changing interest rates may have on our short-term earnings,
long-term value, and liquidity by employing simulation analysis through the use
of computer modeling. The simulation model captures optionality factors such as
call features and interest rate caps and floors imbedded in investment and loan
portfolio contracts. As with any method of gauging interest rate risk, there
are certain shortcomings inherent in the interest rate modeling methodology
used by us. When interest rates change, actual movements in different
categories of interest-earning assets and interest-bearing liabilities, loan
prepayments, and withdrawals of time and other deposits, may deviate
significantly from assumptions used in the model. Finally, the methodology does
not measure or reflect the impact that higher rates may have on adjustable-rate
loan customers ability to service their debts, or the impact of rate changes
on demand for loan, lease, and deposit products. Our interest rate risk
management goal is to avoid unacceptable variations in net interest income and
capital levels due to fluctuations in market rates. Management attempts to
achieve this goal by balancing, within policy limits, the volume of
floating-rate liabilities with a similar volume of floating-rate assets, by
keeping the average maturity of
57
fixed-rate
asset and liability contracts reasonably matched, by maintaining a pool of
administered core deposits, and by adjusting pricing rates to market conditions
on a continuing basis.
The balance
sheet is subject to testing for interest rate shock possibilities to indicate
the inherent interest rate risk. Average interest rates are shocked by plus or
minus 100, 200 and 300 basis points (bp), although we may elect not to use
particular scenarios that we determined are impractical in a current rate
environment. 1
st
United has been consistently within policy limits
on rates stress test up and down 100, 200, and 300 bp, both for net interest
margin and EVE. Management has closely monitored 1
st
Uniteds gap
position which has been liability sensitive during a stable rate environment.
Variations on EVE have consistently shown low volatility.
|
|
|
|
|
|
|
|
|
Interest
rate scenarios
|
|
|
Percent change
of net interest
income
|
|
Percentage
change of
EVE
|
|
Up 300 basis
points
|
|
|
9.00
|
%
|
|
(21.00
|
)%
|
Up 200 basis
points
|
|
|
5.00
|
%
|
|
(14.00
|
)%
|
Up 100 basis
points
|
|
|
2.00
|
%
|
|
(6.00
|
)%
|
Base
|
|
|
|
|
|
|
|
Down 100
basis points
|
|
|
(2.00
|
)%
|
|
8.00
|
%
|
Down 200
basis points
|
|
|
(6.00
|
)%
|
|
18.00
|
%
|
Down 300
basis points
|
|
|
(10.00
|
)%
|
|
30.00
|
%
|
We had a
positive gap position based on contractual and prepayment assumptions for the
next 12 months, with a positive cumulative interest rate sensitivity gap as a
percentage of total earning assets of 0.91%.
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 Exchange
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 Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Securities and Exchange Commissions
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 Exchange 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.
58
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 2011
Form 10-K, as updated in our subsequent quarterly reports. The risks described
in our 2011 Form 10-K 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.
I
TEM 5. OTHER
INFORMATION
On April 26,
2012, we announced via press release our financial results for the three-month
period ended March 31, 2012. 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.
|
|
|
|
32.1
|
|
Certification
Pursuant to 18 U.S.C. Section 1350
|
|
|
|
99.1
|
|
Press
release to announce earnings, dated April 26, 2012.
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
59
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: April
26, 2012
|
|
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)
|
60
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.
|
|
|
|
32.1
|
|
Certification
Pursuant to 18 U.S.C. Section 1350
|
|
|
|
99.1
|
|
Press
release to announce earnings, dated April 26, 2012
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
61
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