10-K 1 i00046_fubc-10k.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

ý ANNUAL FINANCIAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________

(Exact name of Registrant as specified in its charter)

Florida	001-34462	65-0925265
(State of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

One North Federal Highway, Boca Raton, Florida		33432
(Address of principal executive offices)		(Zip Code)

		(561) 362-3435
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on which Registered
Common Stock, $0.01 par value		The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer o	Accelerated filer x	Non-accelerated filer o	Smaller Reporting Company o

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

The aggregate market value of the registrant’s common stock, $0.01 par value per share, held by non-affiliates of the registrant on June 30, 2013, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $210 million (based on the sales price at which of the Registrant’s common stock was last sold on that date). Shares of the registrant’s common stock held by each officer and director and each person known to the registrant to own 10% or more of the outstanding voting power of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not a determination for other purposes.

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 January 31, 2014
Common Stock, $0.01 par value per share		34,288,841 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2014 are incorporated by reference in Part III.

1^ST UNITED BANCORP, INC.
For the year ended December 31, 2013

TABLE OF CONTENTS

			Page

PART I

	Item 1.	Business	3
	Item 1A.	Risk Factors	33
	Item 1B.	Unresolved Staff Comments	45
	Item 2.	Properties	46
	Item 3.	Legal Proceedings	47
	Item 4.	Mine Safety Disclosures	47

PART II

	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	47
	Item 6.	Selected Financial Data	48
	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50
	Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	74
	Item 8.	Financial Statements and Supplementary Data	74
	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	125
	Item 9A.	Controls and Procedures	125
	Item 9B.	Other Information	125

PART III

	Item 10.	Directors, Executive Officers and Corporate Governance	126
	Item 11.	Executive Compensation	126
	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	126
	Item 13.	Certain Relationships and Related Transactions and Director Independence	127
	Item 14.	Principal Accountant Fees and Services	127

PART IV

	Item 15.	Exhibits and Financial Statement Schedules	127

Signatures			131

INTRODUCTORY NOTE

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K 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. In addition to those risks discussed in this Annual Report under Item 1A Risk Factors, factors that could cause our actual results to differ materially from those in the forward-looking statements include, without limitation:

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

legislative or regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and Basel III;

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 past and future acquisitions;

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 and the FDIC loss share receivable;

the frequency and magnitude of foreclosure of our loans;

increased competition and its effect on pricing, including the impact on our net interest margin from repeal of Regulation Q; 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 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;

the effects of harsh weather conditions, including hurricanes, and man-made disasters;

our ability to comply with the extensive laws and regulations to which we are subject; the willingness of customers to accept third-party products and services rather than our products and services and vice versa;

technological changes;

negative publicity and the impact on our reputation;

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

changes in consumer spending and saving habits;

changes in accounting principles, policies, practices or guidelines;

the limited trading activity of our common stock;

the concentration of ownership of our common stock; our ability to retain key members of management;

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 in Item 1A Risk Factors or discussed in this 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.

PART I

Item 1. Business

About Us

General

We are a financial holding company headquartered in Boca Raton, Florida. Our principal subsidiary, 1^st United Bank, is a Florida-chartered commercial bank, which operates 21 banking centers in Florida, from Central Florida through the Treasure Coast to Southeast Florida, including Brevard, Broward, Hillsborough, Indian River, Miami-Dade, Orange, Palm Beach and Pinellas Counties. Over the past ten years, we have grown under the stewardship of our highly experienced executive management team. Specifically, we have:

▪

increased total assets from $66.8 million to $1.845 billion;

▪

increased total net loans from $39.6 million to $1.125 billion;

▪

grown non-interest bearing deposits from $4.6 million to $526 million; and

▪

expanded our branch network from one location to 21 locations.

In this report, the terms “Company,” “Bancorp,” “we,” “us,” or “our” mean 1^st United Bancorp, Inc. and all of its consolidated subsidiaries. “1^st United” or the “Bank” means 1^st United Bank, a Florida chartered commercial bank.

Our Competitive Advantage

We believe we distinguish ourselves from our competitors through the following competitive strengths:

Community Bank Philosophy. We operate with a community banking philosophy where we seek to develop broad customer relationships based on service and convenience while maintaining our conservative approach to lending and strong asset quality. We operate with a private bank ethic for our business, professional, and individual clients. Due to large banking organizations moving their focus to large corporate clients rather than customers in our local communities and the heightened level of consolidation activity among banks in Florida, we believe that our emphasis on personal service will enhance our ability to compete successfully and capitalize on dissatisfaction among customers of larger institutions.

Experienced Management. We believe our success has been built on the strength of our management team and board of directors. Our executive management team has extensive Florida banking experience, collectively over 128 years in the Florida banking market, as well as valuable community and business relationships in our core markets.

Growth Strategies. We have maintained our focus on a strategy of opportunistic expansion and have sought to enhance our franchise by increasing market share in our core markets. As a result, we have completed three FDIC-assisted transactions and two whole bank acquisitions since December 2009. Our executive management team has extensive merger and acquisition experience which we intend to leverage along with our favorable financial position to take advantage of acquisitions that may become available in our market areas. We will continue to be disciplined as it pertains to future acquisitions and only pursue those opportunities that meet our strategic objectives.

Market Opportunity. We operate in what we believe to be some of the most attractive markets in Florida. The community banking industry in these markets remains somewhat distressed. We believe that this distress will give us opportunities to acquire other institutions and increase our market share. We believe we are well-positioned to capitalize on these opportunities.

Focus on Asset Quality. We strive to maintain a high-quality loan portfolio and maintain the quality of our assets. As a result of what we believe to be conservative underwriting standards, prudent loan approval authority levels and procedures, experienced loan officers with an intimate knowledge of the local market, and diligent monitoring of the loan portfolio, our asset quality continues to compare favorably relative to industry and local peers.

Core Deposit Growth. A key source of our strong balance sheet growth has been the generation of a stable base of core deposits. It is our strategy to have a mix of core deposits, which favors non-interest deposits in the range of 15% to 30% of total deposits with time deposits comprising 50% or less of total deposits. As of December 31, 2013, approximately 34% and 19% of our total deposits were comprised of non-interest deposits and time deposits, respectively.

Net Interest Margin. Our stable funding base consisting primarily of core deposits, coupled with our credit quality, results in a higher net interest margin compared to our peer group of Florida-chartered commercial banks with assets between $500 million and $2 billion, based on data derived from the FDIC Call Reports. Our net interest margin for the fiscal year ended December 31, 2013 was 5.29%. Inclusive within the 5.29% was 1.13% related to the resolution and change in cash flows on acquired assets. Although the historical low interest rate environment has reduced the relative benefit of our low cost funding base, we believe the consistency and low cost nature of our deposits will prove to be more of a competitive advantage in a rising rate environment.

Our Business Strategy

Our business strategy has been to maintain a community bank philosophy, which we believe has been enhanced despite the prodigious growth we have experienced recently, of focusing on and understanding the individualized banking needs of the businesses, professionals and other residents of the local communities surrounding our banking centers. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service and differentiates us from larger competitors. As a locally managed institution with strong ties to the community, our core customers are primarily comprised of small-to medium-sized businesses, professionals and community organizations who prefer to build a banking relationship with a community bank that offers and combines high quality, competitively priced banking products and services with personalized service. Because of our identity and origin as a locally-owned and operated bank, we believe that our level of personal service provides a competitive advantage over the larger out-of-state banks, which tend to consolidate decision-making authority outside local communities.

A key aspect of our current business strategy is to foster a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We believe that with our focus on community banking needs and customer service, together with a comprehensive suite of deposit and loan products typically found at larger banks, a highly experienced management team and strategically located banking centers, we are well-positioned to be a strong competitor within our market area. A central part of our strategy is generating core deposits to support growth of a strong and stable loan portfolio.

Growth Through Acquisitions

We intend to continue to opportunistically expand and grow our business by building on our business strategy and increasing market share in our key Florida markets. We believe the demographics and growth characteristics within the communities we serve will provide significant franchise enhancement opportunities to leverage our core competencies while acquisitive growth will enable us to take advantage of the extensive infrastructure and scalable platform that we have assembled.

A significant portion of our growth has been through acquisitions. Under our current management team, we have consummated eight transactions since 2004:

Acquired Bank	Headquarters	Year Acquired
First Western Bank	Cooper City, Florida	2004
Equitable Bank	Fort Lauderdale, Florida	2008
Citrus Bank, N.A.⁽¹⁾	Vero Beach, Florida	2008
Republic Federal Bank, N.A.⁽²⁾	Miami, Florida	2009
The Bank of Miami, N.A.⁽²⁾	Miami, Florida	2010
Old Harbor Bank of Florida⁽²⁾	Clearwater, Florida	2011
Anderen Financial, Inc.	Palm Harbor, Florida	2012
Enterprise Bancorp, Inc.	North Palm Beach, Florida	2013

⁽¹⁾	Branch acquisition

⁽²⁾	FDIC-assisted transaction

Recent Developments

Acquisition of Enterprise Bancorp, Inc.

On July 1, 2013, we completed our acquisition of Enterprise Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of Florida, a Florida-chartered commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “EBI Merger Agreement”), dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. 1st United acquired approximately $159.2 million in loans, with an average yield of 5.08%, and approximately $177 million of deposits, with an average cost of 0.53%. Total consideration for the net assets acquired was $45.6 million (or 1.22 times tangible book value, as defined by the EBI Merger Agreement) which was comprised of $5.1 million in cash, $20.1 million in retained classified and non-performing loans, $18.3 million in retained non-investment grade and non-performing investments, other investments and derivatives and retained $1.7 million in OREO and other repossessed assets. The Company did not acquire any non-performing loans, OREO or non-investment grade investments due to the acquisition of EBI.

The former Enterprise provides 1st United continued expansion within the attractive northern Palm Beach County, Florida marketplace, providing opportunities for new loan and deposit growth. In addition, of the three banking centers acquired one EBI banking center was consolidated into an existing 1st United banking center during the third quarter 2013. In addition, one of 1^st United’s banking centers was consolidated into a banking center of the former Enterprise. The result was one net new 1st United banking center located in Jupiter, Florida. We incurred merger related expenses of $1.7 million primarily during the third quarter of 2013 related to the integration of operations and terminations of leases and contracts. Total goodwill recorded was $5.5 million. We integrated the EBI operations during the third quarter of 2013.

Acquisition of Anderen Financial, Inc.

On April 1, 2012, we completed our acquisition of Anderen Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank, a Florida-chartered commercial bank (collectively referred to herein as “AFI”), pursuant to the Agreement and Plan of Merger (Anderen Merger Agreement”), dated October 24, 2011. Pursuant to the terms of the Anderen Merger Agreement, each share of AFI common stock, $0.01 par value per share, was cancelled and automatically converted into the right to receive cash, common stock of the Company or a combination of cash and common stock of the Company. AFI shareholders could elect to receive cash, stock, or a combination of 50% cash and 50% stock, provided, however, that each such election was subject to mandatory allocation procedures to ensure the total consideration was approximately 50% cash and 50% stock. The value of the per share consideration was $7.73. The total value of the consideration paid to AFI shareholders was $38.3 million, which consisted of approximately $19.1 million in cash and 3,140,354 shares of our common stock. Our common stock was valued at $6.09 per share with a total value of $19.1 million. We recorded goodwill of $5.6 million as a result of the merger which is not deductible for tax purposes. Total net deferred tax assets acquired were $5.7 million, primarily related to loss carry forwards. We completed the integration of AFI in June 2012.

The acquisition of AFI is consistent with our plans to continue to enhance its footprint and competitive position within the state of Florida. This acquisition complemented the initial expansion into the Florida Gulf Coast markets with the acquisition of Old Harbor Bank of Florida (“Old Harbor”). We believe we are well-positioned to deliver superior customer service, achieve stronger financial performance and enhance shareholder value through the synergies of combined operations. All of these factors contributed to the resulting goodwill in the transaction.

Investment Activity

Our consolidated securities portfolio is managed to minimize interest rate risk, maintain sufficient liquidity, and optimize return. The portfolio includes U.S. treasuries, municipal securities, residential collateralized mortgage obligations and commercial and residential mortgage-backed securities. Our financial planning anticipates income streams generated by the securities portfolio based on normal maturity and reinvestment.

The following table sets forth the carrying amount of our investments portfolio, all of which were classified as available-for-sale as of December 31, 2013, 2012 and 2011:

	December 31,
(Dollars in thousands)	2013		2012		2011
Fair value of investment in:
U.S. Treasury	$	918	$	—	$	—
Municipal securities		5,604		469		—
Residential collateralized mortgage obligations		818		3,759		7,757
Commercial mortgage-backed		4,074		—		—
Residential mortgage-backed		316,547		255,894		193,965
	$	327,961	$	260,122	$	201,722

The following table sets forth the combined fair value and weighted average yield of our securities available for sale portfolio as of December 31, 2013. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Fair Value		Weighted Average Yield
(Dollars in thousands)
U.S. Treasury
One year or less	$	—		—	%
Over one year through five years		—		—
Over five through ten years		918		2.00
Over ten years		—		—
Total	$	918		2.00	%

Municipal Securities
One year or less	$	—		—	%
Over one year through five years		—		—
Over five through ten years		—		—
Over ten years		5,604		2.95
Total	$	5,604		2.95	%

Residential Collateralized Mortgage Obligations
One year or less	$	—		—	%
Over one year through five years		—		—
Over five through ten years		—		—
Over ten years		—		—
Residential collateralized mortgage obligations		818		1.08
Total	$	818		1.08	%

Commercial Mortgage-backed Securities
One year or less	$	—		—	%
Over one year through five years		—		—
Over five year through ten years		4,074		2.40
Over ten years		—		—
Total	$	4,074		2.40	%

Residential Mortgage-backed Securities
One year or less	$	—		—	%
Over one year through five years		—		—
Over five year through ten years		—		—
Over ten years		—		—
Residential mortgage-backed		316,547		2.49
Total	$	316,547		2.49	%

Total Fair Value	$	327,961		2.48	%
Total Amortized Cost	$	341,200		2.48	%

As of December 31, 2013, we did not hold any tax-exempt obligations or instruments from issuers where the amortized cost or market value represented more than ten percent of shareholders’ equity.

Lending Activity

We have adopted the strategy of presenting a robust and diverse series of lending channels and a suite of loan and loan-related products normally associated with larger banks. While this strategy demands an investment in experienced personnel and enabling systems, we believe it distinguishes us from competing community banks. We intend to continue to provide for the financing needs of the community we serve by offering a variety of loans, including:

▪

commercial loans, which will include collateralized loans for working capital (including inventory and receivables), business expansion (including real estate construction, acquisitions and improvements), and purchase of equipment and machinery;

▪

small business loans, including SBA lending;

▪

Export-Import Bank insured or guaranteed loans;

▪

residential real estate loans to enable borrowers to purchase, refinance, construct upon or improve real property, and home equity loans; and

▪

consumer loans, including collateralized and uncollateralized loans for financing automobiles, boats, home improvements, and personal investments.

We follow a lending policy that permits us to take prudent risks to assist consumers and businesses in our market area. We do not originate any subprime loans. Loan-related interest rates will vary depending on our cost of funds, the loan maturity, and the degree of risk. We are expected to meet the credit needs of customers in the communities we serve while allowing prudent liquidity through our securities portfolio. We expect this positive, community-oriented lending philosophy to translate into a sustainable volume of quality loans into the foreseeable future.

We also help enhance loan quality by staffing with experienced, well-trained lending officers capable of soliciting loan business. Our lending officers, as well as our credit officers and loan committees, recognize and appreciate the importance of exercising care and good judgment in underwriting loans, which supports our safety and profitability goals.

At December 31, 2013, 2012, 2011, 2010 and 2009, the composition of our loan portfolio was as follows:

	December 31,
	2013						2012						2011						2010						2009
(Dollars in thousands)	Amount			% of Total			Amount			% of Total			Amount			% of Total			Amount			% of Total			Amount			% of Total

Residential real estate	$	178,844			16	%	$	165,917			18	%	$	196,511			22	%	$	228,354			26	%	$	200,877			30	%

Commercial		210,264			18	%		179,498			20	%		170,183			20	%		165,203			19	%		115,781			17	%

Commercial real estate		699,851			62	%		514,574			56	%		457,276			52	%		434,855			50	%		282,783			43	%

Construction and land development		35,286			3	%		41,889			5	%		43,473			5	%		33,893			4	%		55,689			8	%

Consumer and others		9,735			1	%		11,290			1	%		12,093			1	%		13,626			1	%		11,873			2	%

Total loans	$	1,133,980			100	%	$	913,168			100	%	$	879,536			100	%	$	875,931			100	%	$	667,003			100	%

Allowance for loan losses		(9,648	)					(9,788	)					(12,836	)					(13,050	)					(13,282	)

Net deferred (fees) costs		239						220						53						(138	)					137

Net loans	$	1,124,571					$	903,600					$	866,753					$	862,743					$	653,858

The following charts illustrate the number of loans in our loan portfolio as of December 31, 2013 and December 31, 2012.

Loan Portfolio as of December 31, 2013

(Dollars in thousands)	Total Loans		Total		Percent of Loan Portfolio			Percent of Total Assets
Loan Types
Residential:
First mortgages		490	$	117,830		10.39	%		6.39	%
HELOCs and equity		400		61,014		5.38	%		3.31	%

Commercial:
Secured – non-real estate		697		145,298		12.81	%		7.87	%
Secured – real estate		91		57,052		5.03	%		3.09	%
Unsecured		57		7,914		0.70	%		0.43	%

Commercial Real Estate:
Owner occupied		268		209,467		18.47	%		11.35	%
Non-owner occupied		328		451,982		39.85	%		24.50	%
Multi-family		72		38,402		3.39	%		2.08	%

Construction and Land Development:
Construction		12		7,366		0.65	%		0.40	%
Improved land		24		16,538		1.46	%		0.90	%
Unimproved land		19		11,382		1.00	%		0.62	%

Consumer and other		178		9,735		0.87	%		0.53	%

Total December 31, 2013		2,636	$	1,133,980		100.00	%		61.47	%

Loan Portfolio as of December 31, 2012

(Dollars in thousands)	Total Loans		Total		Percent of Loan Portfolio			Percent of Total Assets
Loan Types
Residential:
First mortgages		461	$	109,562		12.00	%		6.99	%
HELOCs and equity		315		56,355		6.17	%		3.60	%

Commercial:
Secured – non-real estate		669		127,514		13.96	%		8.14	%
Secured – real estate		86		43,613		4.78	%		2.78	%
Unsecured		43		8,371		0.92	%		0.53	%

Commercial Real Estate:
Owner occupied		233		187,007		20.48	%		11.94	%
Non-owner occupied		268		290,858		31.85	%		18.56	%
Multi-family		71		36,709		4.02	%		2.34	%

Construction and Land Development:
Construction		6		3,481		0.38	%		0.22	%
Improved land		34		20,117		2.20	%		1.28	%
Unimproved land		25		18,291		2.00	%		1.17	%

Consumer and other		196		11,290		1.24	%		0.72	%

Total December 31, 2012		2,407	$	913,168		100.00	%		58.27	%

Of the loan portfolio as of December 31, 2013, 707 loans with a carrying value of $246.7 million (21.8%) are subject to loss sharing agreements with the FDIC ( “Loss Sharing Agreements”) as compared to 892 loans with a carrying value of $327.1 million (35.8%) which were subject to the Loss Sharing Agreements at December 31, 2012. In addition, at December 31, 2013, included in commercial non-real estate secured loans are approximately $12.6 million in Export -Import Bank (“EXIM”) loans which have either insurance or a guarantee of between 90% and 100% from the Export-Import Bank of the United States.

At December 31, 2013, our loan interest rate sensitivity was as follows:

	Maturity and/or Re-pricing Period
(Dollars in thousands)	Total		<1 year Fixed		<1 year Adjustable		1 to 5 years Fixed Rate		1 to 5 years Adjustable Rate		>5 years Fixed Rate		>5 years Adjustable Rate
Commercial	$	210,264	$	27,610	$	93,051	$	31,951	$	14,300	$	42,002	$	1,350
Residential real estate		117,830		5,362		53,347		9,688		14,924		34,038		471
Commercial real estate		699,851		16,558		138,728		178,499		147,206		209,395		9,465
Construction land development		35,286		1,545		24,588		7,373		148		953		679
Home equity lines of credit		61,014		28		55,511		4,242		91		1,142		—
Consumer and other		9,735		909		6,916		1,866		—		44		—
Total loans	$	1,133,980	$	52,012	$	372,141	$	233,619	$	176,669	$	287,574	$	11,965

As shown in the table above, a majority of our loan portfolio has either adjustable rates (approximately 49% of the loan portfolio) or shorter maturity terms.

Real Estate Loans

Real Estate Loans – Commercial

Through our lending division, our commercial real estate loan portfolio includes loans secured by office buildings, warehouses, retail stores and other properties, which are primarily located in or near our markets. Commercial real estate loans are generally originated in amounts up to 70% to 80% of the appraised value of the property securing the loan. In determining whether to originate or purchase multi-family or commercial real estate loans, we consider such factors as the financial condition of the borrower and the debt service coverage provided by the property, business enterprise, related borrowing entities, and guarantors.

Appraisals on properties securing commercial real estate loans originated by us are performed by an independent appraiser at the time the loan is made and are reviewed internally by our Credit and Risk Management division. In addition, our underwriting procedures generally require verification of the borrower’s credit history, income and financial condition, banking relationships, and income and expenses for the property. We generally obtain personal guarantees for our commercial real estate loans.

Real Estate Loans – Residential

We originate a mix of fixed rate and adjustable rate residential mortgage loans. Lending officers contact local builders, realtors, government officials, community leaders, and other groups to determine the residential credit needs of the communities we serve.

We offer adjustable rate mortgages, which are commonly referred to as ARMs, and maintain these ARMs in our portfolio or sell the ARMs in the secondary market. We also originate fixed rate loans from within our primary service area. The majority of fixed rate loans are either held in portfolio or sold in the secondary mortgage market.

Our ARMs generally have interest rates that adjust annually at a margin over the weekly average yield on U.S. Treasury securities published by the Federal Reserve, adjusted to a constant maturity of one year. The maximum interest rate adjustment of our ARMs are generally 2% annually and 6% over the life of the loan, above or below the initial rate on the loan.

We embrace written, non-discriminatory underwriting standards for use in the underwriting and review of every loan considered for origination or purchase. Our board of directors reviews and approves these underwriting standards annually.

Our underwriting standards for residential mortgage loans generally conform to standards established by Fannie Mae and Freddie Mac. Our underwriters and secondary market buyers obtain or review each loan application to determine the borrower’s ability to repay, and confirm significant information through the use of credit reports, financial statements, employment and other verifications.

When originating a residential real estate mortgage loan, we obtain a new appraisal of the property from an independent third party to determine the adequacy of the collateral, and the appraisal will be reviewed by one of the underwriters. Borrowers are required to obtain casualty insurance and, if applicable, flood insurance in amounts at least equal to the outstanding loan balance or the maximum amount allowed by law.

We require that a survey be conducted and title insurance be obtained, insuring the priority of our mortgage lien. Underwriters review all loans to ensure that guidelines are met or that waivers are obtained in limited situations where offsetting factors exist.

Construction - Residential and Commercial Real Estate Loans

The construction loan portfolio includes residential real estate, commercial real estate and homeowners’ association projects. Generally, construction loans have terms which match permanent financing offered by us. During the construction phase, the borrower may pay interest only.

Through our lending divisions, we originate real estate construction loans to individuals for the construction of their residences, to businesses and business owners primarily for owner-occupied commercial real estate, and to homeowners’ associations for general repair and/or improvements to the properties. Our construction loans typically have terms up to 18 months, and generally, the maximum loan-to-value ratio at origination is 80%. The loan-to-cost maximum ratio is generally 70% to 80% for residential and commercial construction and up to 100% for homeowners’ associations.

We provide construction loans on commercial real estate projects secured by industrial properties, office buildings or other property. We emphasize projects that are owner-occupied. Following the construction phase, loans will be converted to permanent financing.

Land Loans

Our portfolio includes exposure to land development, both residential and commercial. Typically, borrowers have or had preliminary plans for development and were waiting for final plans to be completed to submit for construction financing.

The following chart illustrates the composition of our construction and land development loan portfolio in relation to total loans as December 31, 2013, 2012 and 2011.

	December 31,
	2013					2012					2011
(Dollars in thousands)	Balance		% of Loans			Balance		% of Loans			Balance		% of Loans
Construction
Residential	$	272		0.02	%	$	2,721		0.30	%	$	3,135		0.36	%
Residential Spec		1,423		0.13	%		—		—	%		1,492		0.17	%
Commercial		5,671		0.50	%		760		0.08	%		263		0.03	%
Commercial Spec		—		0.00	%		—		—	%		3,283		0.37	%
Land Development
Residential		5,377		0.47	%		4,798		0.53	%		1,918		0.22	%
Residential Spec		5,223		0.45	%		11,829		1.28	%		18,473		2.11	%
Commercial		6,044		0.53	%		8,538		0.93	%		1,048		0.12	%
Commercial Spec		11,276		0.99	%		13,243		1.45	%		13,861		1.57	%
Total	$	35,286		3.09	%	$	41,889		4.57	%	$	43,473		4.95	%

Approximately $6.5 million or 18.4% of the construction and land development loan portfolio at December 31, 2013 is covered by the Loss Sharing Agreements. This compares to $8.4 million or 20.1% of the construction and land development loan portfolio at December 31, 2012 covered by the Loss Sharing Agreements.

Consumer Loans

We originate consumer loans bearing both fixed and prime-based variable interest rates. We originate our loans directly through our banking centers, business bankers and residential lenders. Residential real estate secured loans are originated through our lenders who are licensed to make these loans.

We focus our consumer lending on the origination of direct first or second mortgage loans and home equity loans (secured by a junior lien on residential real property), and home improvement loans. These loans are typically based on a maximum 60% to 80% loan-to-value ratio. Second mortgage and home improvement loans generally will originate on either a line of credit or a fixed term basis ranging from 5 to 30 years. We also extend personal loans, which may be secured by various forms of collateral, both real and personal, or to a minimal extent, on an unsecured basis.

Commercial Loans

We focus on the commercial loan market comprised of small to medium-sized businesses with combined borrowing needs generally up to $10.0 million. These businesses include professional associations (physicians, law firms, and accountants), medical services, retail trade, construction, transportation, wholesale trade, manufacturing, and tourism-related service industries.

Our commercial loans are primarily derived from our market area and underwritten on the basis of the borrowers’ ability to service such debt from recurring income. As a general practice, we will take as collateral a security interest in any available real estate, equipment, or other assets, although such loans may also be made on an uncollateralized, but guaranteed, basis. Short-term assets primarily secure collateralized working capital loans, whereas long-term assets primarily collateralize term loans.

In certain situations, we use various loan programs sponsored by the SBA. Properly utilized, SBA loans can help to reduce our loan portfolio risk and can generate non-interest income.

As part of the acquisition of Republic Federal Bank, N.A. (“Republic”), we obtained an EXIM lending operation. Our EXIM lending operation makes loans to companies that export U.S. goods and services to international markets and makes loans to foreign companies to facilitate the purchase of U.S. goods. Loans made under this program are insured or guaranteed between 90% and 100% by the Export Import Bank of the United States. At December 31, 2013, we had approximately $12.6 million in EXIM loans.

Loan Administration and Underwriting

Through our Credit and Risk Management division, we use our loan origination underwriting procedures to assess both the borrower’s ability to make principal and interest payments and the value of the collateral securing the loan. Our Credit and Risk Management division is responsible for a battery of management and board risk management monitoring and for reporting to various management and board committees. To manage risk, we have adopted written loan policies and procedures, and our loan portfolio is administered under a defined process. That process includes guidelines for loan underwriting standards and risk assessment, procedures for loan approvals, loan grading, ongoing identification and management of credit deterioration and portfolio reviews to assess loss exposure and to test compliance with our credit policies and procedures.

Our Board of Directors has approved set levels of lending authority to the Management Loan Committee, as well as limited authority for certain officers based on the loan type and amount. All use of delegated loan authorities is preceded by a determination of the worthiness of the loan request by the Credit and Risk Management division. Typically, the Management Loan Committee reviews loan requests and if a particular request exceeds the loan authority limits delegated to this committee, these requests, if approved, are presented to 1^st United’s Board Loan Committee for final approval.

Before and after loan closing, our loan operations personnel review all loans for adequacy of documentation and compliance with regulatory requirements. Our loan review personnel analyze loans over certain size thresholds, problem loans and loans with certain loan quality ratings to ensure that appropriate credit risk ratings are assigned and ultimately to assist in determining the adequacy of the allowance for loan losses.

Loan Quality

Management seeks to maintain a high quality portfolio of loans through sound underwriting and lending practices. As of December 31, 2013 and 2012, approximately 86% and 84%, 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 activities 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, 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 loans to borrowers engaged in similar business-related 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 December 31, 2013 and 2012, there was 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) that exceeded 10.0% of total loans, except that as of such dates loans collateralized with mortgages on real estate represented 86% and 84%, respectively, of the loan portfolio and were to borrowers in varying activities, businesses and geographic markets.

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. At December 31, 2013, we had $18.6 million of OREO property of which $10.8 million were a result of the Old Harbor, The Bank of Miami, N.A. (“TBOM”) and Republic acquisitions and are covered under their respective Loss Sharing Agreements. We had $19.5 million of OREO property as of December 31, 2012, of which $13.2 million were a result of the Old Harbor, TBOM and Republic acquisitions and covered under their respective Loss Sharing Agreements.

The following is a summary of other real estate owned as of December 31, 2013 and 2012:

	2013						2012
(Dollars in thousands)	Assets Not Subject to Loss Sharing Agreements		Assets Subject to Loss Sharing Agreements		Total		Assets Not Subject to Loss Sharing Agreements		Assets Subject to Loss Sharing Agreements		Total
Commercial real estate	$	5,761	$	8,979	$	14,740	$	5,708	$	10,372	$	16,080
Residential real estate		2,002		1,838		3,840		646		2,803		3,449
Total	$	7,763	$	10,817	$	18,580	$	6,354	$	13,175	$	19,529

As of December 31, 2013, we had approximately $1.1 million of the total of $18.6 million in other real estate under contract to sell at approximately the carrying value of the asset.

We have identified certain assets as risk elements. 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. These assets present more than the normal risk that we will be unable to eventually collect or realize their full carrying value.

Our risk elements at December 31, 2013, 2012, 2011, 2010 and 2009 were as follows:

	December 31, 2013									December 31, 2012
(Dollars in thousands)	Assets Not Subject to Loss Sharing Agreements			Assets Subject to Loss Sharing Agreements			Total			Assets Not Subject to Loss Sharing Agreements			Assets Subject to Loss Sharing Agreements			Total
Non-Accrual Loans
Residential real estate	$	48		$	3,137		$	3,185		$	2,019		$	4,085		$	6,104
Home equity lines		491			96			587			796			103			899
Commercial real estate		3,297			3,045			6,342			3,430			6,393			9,823
Construction and land development		3,688			35			3,723			3,440			288			3,728
Commercial		1,518			455			1,973			185			539			724
Consumer		26			—			26			29			—			29
Total	$	9,068		$	6,768		$	15,836		$	9,899		$	11,408		$	21,307

Accruing => 90 days past due
Residential real estate	$	—		$	—		$	—		$	—		$	—		$	—
Home equity lines		—			—			—			—			—			—
Commercial real estate		—			—			—			1,457			—			1,457
Construction and land development		—			—			—			—			—			—
Commercial		—			—			—			620			32			652
Consumer		—			—			—			—			—			—
Total	$	—		$	—		$	—		$	2,077		$	32		$	2,109

Total non-accruing loans	$	9,068		$	6,768		$	15,836		$	9,899		$	11,408		$	21,307
Accruing => 90 days past due		—			—			—			2,077			32			2,109
Foreclosed real estate		7,763			10,817			18,580			6,354			13,175			19,529
Total non-performing assets		16,831			17,585			34,416			18,330			24,615			42,945
Performing troubled debt restructured loans		17,281			1,365			18,646			23,844			429			24,273
Total non-performing assets and performing troubled debt restructured loans	$	34,112		$	18,950		$	53,062		$	42,174		$	25,044		$	67,218

Ratios
Total non-accruing and accruing => 90 days past due loans to total loans		0.80	%		0.60	%		1.40	%		1.31	%		1.25	%		2.56	%
Total non-performing assets to total assets		0.91	%		0.95	%		1.87	%		1.17	%		1.57	%		2.74	%
Total non-performing assets and performing troubled debt restructured loans to total assets		1.85	%		1.03	%		2.88	%		2.69	%		1.60	%		4.29	%

(Dollars in thousands)	December 31,
	2011			2010			2009
Non-Accrual Loans
Residential real estate	$	9,725		$	9,784		$	469
Home equity lines		967			1,638			—
Commercial real estate		18,650			8,885			8,566
Construction and land development		431			1,877			5,258
Commercial		13,053			314			1,277
Other		3			289			—
Total	$	42,829		$	22,787		$	15,570

Accruing => 90 days past due
Residential real estate	$	—		$	—		$	—
Home equity lines		—			—			—
Commercial real estate		647			—			—
Construction and land development		—			—			—
Commercial		—			—			54
Other		—			—			—
Total	$	647		$	—		$	54

Total non-accruing loans	$	42,829		$	22,787		$	15,570
Accruing => 90 days past due		647			—			54
Foreclosed real estate		13,512			7,409			635
Total non-performing assets		56,988			30,196			16,259

Performing troubled debt restructured loans		21,837			14,672			1,990
Total non-performing assets and performing troubled debt restructured loans	$	78,825		$	48,868		$	18,249

Ratios
Total non-accruing loans to total loans		4.94	%		2.60	%		2.34	%
Total non-performing assets to total assets		4.01	%		2.38	%		1.60	%
Total non-performing assets and performing troubled debt restructured loans to total assets		5.55	%		3.54	%		1.80	%

Included in non-accrual loans at December 31, 2013 are $2.8 million purchase credit impaired loans for which cash flows could not be reasonably estimated with $2.7 million of these loans subject to Loss Sharing Agreements. Additionally, included in non-accrual loans at December 31, 2013 and 2012 are $4.2 million and $2.2 million respectively, of loans performing in accordance with their contractual terms but which the Company has placed on non-accrual due to identified risks within the credits. Of the nonperforming assets and performing troubled debt restructuring at December 31, 2013, $19.0 million were acquired in the Old Harbor, TBOM and Republic transactions and are all covered under the Loss Sharing Agreements as compared to $25.0 million at December 31, 2012 for a decrease of $6.0 million. These assets were initially recorded at fair value and as such we do not expect to incur any significant future losses on these assets.

At December 31, 2013, we had approximately $1.1 million in other real estate owned approved for sale and pending closing for which no additional losses are expected.

During the year ended December 31, 2013, for nonperforming assets not subject to Loss Sharing Agreements, we had approximately $895,000 in non-accrual loans which were charged-off, $7.1 million were paid off or transferred to OREO, $7.2 million were added to non-accrual and $29,000 were returned to accrual status.

Past due loans, categorized by loans subject to Loss Sharing Agreements and those not subject to Loss Sharing Agreements, at December 31, 2013 and 2012 were as follows:

December 31, 2013

	Accruing 30 - 59				Accruing 60-89				Non-Accrual/Accrual 90 days and over				Total
(Dollars in thousands)	Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements		Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements		Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements		Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements
Residential real estate	$	333	$	1,085	$	162	$	24	$	3,233	$	539	$	3,728	$	1,648
Commercial		—		461		—		—		455		1,518		455		1,979
Commercial real estate		—		—		—		1,737		3,045		3,297		3,045		5,034
Construction and land development		—		—		—		—		35		3,688		35		3,688
Consumer and other		—		34		—		—		—		26		—		60
Total December 31, 2013	$	333	$	1,580	$	162	$	1,761	$	6,768	$	9,068	$	7,263	$	12,409

December 31, 2012

	Accruing 30 - 59				Accruing 60-89				Non-Accrual/accrual and 90 days and over				Total
(Dollars in thousands)	Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements		Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements		Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements		Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements
Residential real estate	$	1,013	$	292	$	1,207	$	—	$	4,188	$	2,815	$	6,408	$	3,107
Commercial		—		200		—		94		571		805		571		1,099
Commercial real estate		581		1,873		—		1,707		6,393		4,887		6,974		8,467
Construction and land development		—		2,767		—		—		288		3,440		288		6,207
Consumer and other		—		99		—		—		—		29		—		128
Total December 31, 2012	$	1,594	$	5,231	$	1,207	$	1,801	$	11,440	$	11,976	$	14,241	$	19,008

Total past due loans decreased $13.6 million from $33.2 million at December 31, 2012 to $19.7 million at December 31, 2013. Past due loans subject to Loss Sharing Agreements decreased by $6.9 from $14.2 million at December 31, 2012 to $7.3 million at December 31, 2013. The decrease was due to a reduction in loans past due 30-89 days of approximately $2.3 million and a reduction in loans past due greater than 90 days and nonaccrual of $4.7 million. Past due loans not subject to Loss Sharing Agreements decreased by $6.6 million from $19.0 million at December 31, 2012 to $12.4 million at December 31, 2013. The decrease was due to a reduction of loans past due 30-59 days of $3.7 million and nonaccrual loans over 90 days past due of $2.9 million due to resolutions during the year ended December 31, 2013. Loans not subject to Loss Sharing Agreements and past due 30-59 days at December 31, 2012 included $4.8 million in loans for which a renewal was pending and finalized and closed in early January 2013.

Modifications of terms for our loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled debt restructurings may involve a reduction of the stated interest rate on the loan, extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, deferral of principal payments and/or forgiveness of principal, regardless of the period of the modification. Generally, we will allow interest rate reductions for a period of less than two years after which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt restructurings at December 31, 2013 had either an interest rate modification ranging from 6 months to 2 years before reverting back to the original interest rate and/or a deferral of principal payments which can range from 6 to 12 months before reverting back to an amortizing loan. All of the loans were modified due to financial stress of the borrower. The following is a summary of our troubled debt restructurings as of December 31, 2013 and 2012, respectively, which are performing in accordance with their modification agreements.

(Dollars in thousands)	December 31, 2013		December 31, 2012
Residential real estate	$	834	$	605
Commercial real estate		15,341		17,315
Construction and land development		143		2,654
Commercial		2,328		3,699
Total	$	18,646	$	24,273

The decrease of $5.6 million in performing restructured loans to $18.6 million at December 31, 2013 from $24.3 million at December 31, 2012 was due to new performing modifications of $1.8 million offset by $3.8 million in repayments and resolutions of modified loans and $3.6 million in loans that defaulted under the terms of their modification agreement during the year and are included in nonaccrual loans at December 31, 2013

At December 31, 2013, there were 18 loans which were troubled debt restructured loans with a carrying amount of $7.5 million and specific reserves of $608,000 that were non-accrual and included in non-accrual loans. There were 12 loans classified as troubled debt restructured loans with a carrying value of $5.7 million and specific reserves of $66,000 that were non-accrual and included in non-accrual loans at December 31, 2012. Loans retain their accrual status at their time of modification. As a result, if the loan is on non-accrual at the time that it is modified, it stays on non-accrual, and if a loan is accruing at the time of modification, it generally stays on accrual. A loan on non-accrual will be individually evaluated based on sustained adherence to the terms of the modification agreement prior to being placed on accrual status. Troubled debt restructurings are considered impaired. The average yield on the loans classified as troubled debt restructurings was 4.38% and 4.76% at December 31, 2013 and 2012, respectively.

During the year ended December 31, 2013, we had approximately $6.6 million in loans on which we lowered the interest rate prior to maturity to competitively retain a loan. During the year ended December 31, 2012, we had approximately $11.8 million in loans on which we lowered the interest rate prior to maturity to competitively retain the loan. Due to the borrowers’ significant deposit balances and/or the overall quality of the loans, these loans were not included in troubled debt restructurings for the years ended December 31, 2012 and 2011, respectively. In addition, each of these borrowers was not considered to be in financial distress and the modified terms matched current market terms for borrowers with similar risk characteristics. We had no other loans where we extended the maturity or forgave principal that were not already included in troubled debt restructurings or otherwise impaired.

Impaired Loans

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2013:

	Recorded Investment in Impaired Loans
	With Allowance								With No Allowance
December 31, 2013	Loans Subject to Loss Sharing Agreements				Loans Not Subject to Loss Sharing Agreements				Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements
(Dollars in thousands)	Recorded Investment		Allowance for Loan Losses Allocated		Recorded Investment		Allowance for Loan Losses Allocated		Recorded Investment		Recorded Investment
Residential real estate	$	1,127	$	230	$	823	$	230	$	1,170	$	447
Commercial		409		105		1,537		730		—		1,991
Commercial real estate		603		99		5,332		314		1,374		12,316
Construction and land development		—		—		527		271		—		3,303
Consumer and other		—		—		—		—		—		—
Total December 31, 2013	$	2,139	$	434	$	8,219	$	1,545	$	2,544	$	18,057

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2012:

	Recorded Investment in Impaired Loans
	With Allowance								With No Allowance
December 31, 2012	Loans Subject to Loss Sharing Agreements				Loans Not Subject to Loss Sharing Agreements				Loans Subject to Loss Sharing Agreements		Loans Not Subject to Loss Sharing Agreements
(Dollars in thousands)	Recorded Investment		Allowance for Loan Losses Allocated		Recorded Investment		Allowance for Loan Losses Allocated		Recorded Investment		Recorded Investment
Residential Real Estate	$	1,454	$	395	$	549	$	79	$	1,065	$	2,757
Commercial		473		122		1,453		388		—		2,242
Commercial Real Estate		3,880		506		7,220		622		648		12,258
Construction and Land Development		—		—		2,654		1,002		—		3,440
Consumer and other		—		—		—		—		—		—
Total December 31, 2012	$	5,807	$	1,023	$	11,876	$	2,091	$	1,713	$	20,697

Overall, impaired loans decreased from $40.1 million at December 31, 2012 to $31.0 million at December 31, 2013, primarily due to resolutions, including sales, payoffs and transfers to other real estate owned, during the year ended December 31, 2013. Impaired loans subject to Loss Sharing Agreements decreased by $2.8 million due to our evaluation of the portfolio. Impaired loans not subject to Loss Sharing Agreement decreased by $6.3 million from $32.6 million at December 31, 2012 to $26.3 million at December 31, 2013, primarily due to transfers to other real estate owned and resolutions, including sales and payoffs of loans during the year ended December 31, 2013.

During the years ended December 31, 2013, 2012, 2011, 2010, and 2009, interest income not recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $970,000, $1.3 million, $1.5 million, $858,000 and $436,000, respectively. Excluded from impaired loans at December 31, 2013 are $2.7 million of purchase credit impaired loans subject to Loss Sharing Agreements in which cash flows could not be reasonably estimated which are included in non-accrual loans.

Allowance for Loan Losses

At December 31, 2013, the allowance for loan losses was $9.6 million or 0.85% of total loans. At December 31, 2012, the allowance for loan losses was $9.8 million or 1.07% of total loans. Included within total loans was $149.4 million in loans acquired from EBI on July 1, 2013 which are recorded at fair value and for which minimal allowance was allocated at December 31, 2013. Excluding these loans, the allowance for loan losses was approximately 0.98% of total loans.

The reduction in the allowance for loan losses at December 31, 2013 as compared to December 31, 2012 was approximately $140,000. The reduction was due to lower specific reserves of $1.1 million at December 31, 2013 as compared to December 31, 2012 due to lower impaired loans and classified assets year over year. The reduction in the specific portion of the allowance for loan losses was offset by an increase in the general portion of the allowance for loan losses of $1.0 million year over year. At December 31, 2012, we had $11.9 million of impaired loans not covered by Loss Sharing Agreements with an allocated allowance for loan loss of $2.1 million, as compared to $8.2 million of impaired loans not covered by Loss Sharing Agreements with an allocated allowance of $1.5 million at December 31, 2013. In addition, overall loans graded special mention not covered by Loss Sharing Agreements decreased by $20.0 million (or 55.9%) from December 31, 2012 to December 31, 2013 which had a positive impact on the general portion of the allowance for loan losses.

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 and guarantors over the term of the loan; insurance; whether the loan is covered by a Loss Sharing Agreement; 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 amount necessary to provide for probable incurred credit 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.

The allowance for loan losses is evaluated at the portfolio segment level using the same methodology for each segment. The historical net losses for a rolling two-year period is the basis for the general reserve for each segment which is adjusted for each of the same qualitative factors (i.e., nature and volume of portfolio, economic and business conditions, classification, past due and non-accrual trends) evaluated by each individual segment. Impaired loans and related specific reserves for each of the segments are also evaluated using the same methodology for each segment. The qualitative factors added approximately 7 and 11 basis points to the general reserve of the allowance for loan losses at December 31, 2013 and 2012, respectively.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans, for which the terms have been modified, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and generally classified as impaired.

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 (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked as past due amounts) 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, the borrower’s and guarantor’s financial condition and the amount of the shortfall in relation to the principal and interest owed.

Charge-offs of loans are made by portfolio segment at the time that the collection of the full principal, in management’s judgment, is doubtful. This methodology for determining charge-offs is consistently applied to each segment.

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 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. Third party appraisals are used to determine the fair value of underlying collateral. At a minimum, a new appraisal is obtained annually for all impaired loans based on an “as is” value. Generally no adjustments, other than a reduction for estimated disposal costs, are made by the Company to third party appraisals to determine the fair value of the assets. The impact on the allowance for loan losses of new appraisals are reflected in the period the appraisal is received. A loan may also be classified as substandard and not be classified as impaired by management. 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. The following is a summary of our loan classifications at December 31, 2013 and 2012:

			Loans Subject to Loss Sharing Agreements						Loans Not Subject to Loss Sharing Agreements
(Dollars in thousands)	Total		Pass		Special Mention		Substandard		Pass		Special Mention		Substandard
December 31, 2013
Residential real estate	$	178,844	$	63,712	$	1,152	$	3,395	$	99,259	$	4,661	$	6,665
Commercial		210,264		26,799		319		455		176,434		2,647		3,610
Commercial real estate		699,851		133,219		8,047		3,045		537,439		5,324		12,777
Construction and land development:		35,286		6,470		—		35		22,037		2,656		4,088
Consumer and other		9,735		2		—		—		9,135		480		118
Total December 31, 2013	$	1,133,980	$	230,202	$	9,518	$	6,930	$	844,304	$	15,768	$	27,258

			Loans Subject to Loss Sharing Agreements						Loans Not Subject to Loss Sharing Agreements
(Dollars in thousands)	Total		Pass		Special Mention		Substandard		Pass		Special Mention		Substandard
December 31, 2012
Residential Real Estate	$	165,917	$	80,215	$	2,578	$	4,188	$	65,484	$	7,927	$	5,525
Commercial		179,498		32,080		405		540		135,488		6,516		4,469
Commercial Real Estate		514,574		182,009		10,264		6,393		284,184		17,563		14,161
Construction and Land Development:		41,889		7,921		—		505		23,944		3,138		6,381
Consumer and other		11,290		11		—		—		10,552		584		143
Total December 31, 2012	$	913,168	$	302,236	$	13,247	$	11,626	$	519,652	$	35,728	$	30,679

Substandard loans totaled $34.2 million at December 31, 2013 (of which $6.9 million were subject to the Loss Sharing Agreements) and $42.3 million at December 31, 2012 (of which $11.6 million were subject to the Loss Sharing Agreements). The decrease of $8.0 million since December 31, 2012 was primarily due to the resolution, including charge-offs, sales, payoffs and transfers to other real estate owned. Of the decrease of $8 million, $3.4 million is related to loans not covered under loss sharing agreements. We regularly evaluate the classifications of loans and recommend either upgrades or downgrades to credits as events or circumstances warrant. In addition, at December 31, 2013, we had $31.0 million (or 2.7% of total loans) in loans we classified as impaired. This compares to $40.1 million or 4.4% of total loans at December 31, 2012. The decrease was primarily due to the resolution, including sales, payoffs and transfers to other real estate owned, of loans during the year. At December 31, 2013 and December 31, 2012, the specific credit allocation included in the allowance for loan losses for loans impaired was approximately $2.0 million and $3.1 million, respectively. The specific credit allocation for impaired loans is adjusted based on appraisals obtained at least annually. All loans classified as substandard that are collateralized by real estate are also re-appraised at a minimum on an annual basis.

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, or other weaknesses. At December 31, 2013, we had $25.3 million (2.2% of outstanding loans) of loans classified as Special Mention, which included $9.5 million in loans subject to Loss Sharing Agreements, which compares to $49.0 million (5.4% of outstanding loans) of which $13.2 million were subject to Loss Sharing Agreements, at December 31, 2012. Special Mention loans not subject to Loss Sharing Agreements decreased by $19.9 million to $15.8 million at December 31, 2013, as compared to $35.7 million at December 31, 2012. The decrease is attributable to the resolution, including sales, payoffs and transfers to other real estate owned, of loans and ongoing reviews of loans classified as special mention. If there is further deterioration on these loans, they may be classified substandard in the future, and depending on whether the loan is considered impaired, a specific credit allocation may be needed resulting in increased provisions for loan losses.

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.

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

During the years ended December 31, 2013 and 2012, we recorded $3.5 million and $6.4 million, respectively, in provision for loan losses primarily as a result of charge-offs during the period, changes within classified and impaired loans and new appraisals on the underlying collateral of impaired loans.

During the years ended December 31, 2013, 2012, 2011, 2010, and 2009, the activity in our allowance for loan losses was as follows:

	Year ended December 31,
(Dollars in thousands)	2013			2012			2011			2010			2009
Balance at beginning of period	$	9,788		$	12,836		$	13,050		$	13,282		$	5,799
Provision charged to expense		3,475			6,350			7,000			13,520			13,240
Charge-offs		(3,810	)		(9,826	)		(7,366	)		(13,933	)		(5,788	)
Recoveries		195			428			152			181			31
Balance at end of period	$	9,648		$	9,788		$	12,836		$	13,050		$	13,282

Net charge-offs /average total loans		0.35	%		1.01	%		0.87	%		2.01	%		1.14	%

The following table reflects the allowance allocation per loan category and percent of loans in each category to total loans for the periods indicated:

As of December 31, 2013:

(Dollars in thousands)	Commercial			Residential Real Estate			Commercial Real Estate			Construction and Land Development			Consumer and Other			Total
Specific Reserves:
Impaired loans	$	835		$	460		$	413		$	271		$	—		$	1,979
Purchase credit impaired loans		464			269			278			—			—			1,011
Total specific reserves		1,299			729			691			271			—			2,990
General reserves		1,785			1,708			2,859			214			92			6,658
Total	$	3,084		$	2,437		$	3,550		$	485		$	92		$	9,648

Total Loans	$	210,264		$	178,844		$	699,851		$	35,286		$	9,735		$	1,133,980

Allowance as percent of loans per category as of December 31, 2013		1.47	%		1.36	%		0.51	%		1.37	%		0.95	%		0.85	%

As of December 31, 2012:

(Dollars in thousands)	Commercial			Residential Real Estate			Commercial Real Estate			Construction and Land Development			Consumer and Other			Total
Specific Reserves:
Impaired loans	$	510		$	474		$	1,128		$	1,002		$	—		$	3,114
Purchase credit impaired loans		355			359			306			—			—			1,020
Total specific reserves		865			833			1,434			1,002			—			4,134
General reserves		1,870			1,036			1,964			743			41			5,654
Total	$	2,735		$	1,869		$	3,398		$	1,745		$	41		$	9,788

Total Loans	$	179,498		$	165,917		$	514,574		$	41,889		$	11,290		$	913,168

Allowance as percent of loans per category as of December 31, 2012		1.52	%		1.13	%		0.66	%		4.13	%		0.36	%		1.07	%

As of December 31, 2011:

(Dollars in thousands)	Commercial			Residential Real Estate			Commercial Real Estate			Construction and Land Development			Consumer and Other			Total
Specific Reserves:
Impaired loans	$	1,719		$	188		$	2,563		$	892		$	—		$	5,362
Purchase credit impaired loans		—			110			542			—			—			652
Total specific reserves		1,719			298			3,105			892			—			6,014
General reserves		1,392			1,647			2,197			1,517			69			6,822
Total	$	3,111		$	1,945		$	5,302		$	2,409		$	69		$	12,836

Total Loans	$	170,183		$	196,511		$	457,276		$	43,473		$	12,093		$	879,536

Allowance as percent of loans per category as of December 31, 2011		1.83	%		0.99	%		1.16	%		5.54	%		0.57	%		1.46	%

As of December 31, 2010:

(Dollars in thousands)	Commercial			Residential Real Estate			Commercial Real Estate			Construction and Land Development			Consumer and Other			Total
Specific Reserves:
Impaired loans	$	260		$	1,781		$	1,497		$	822		$	108		$	4,468
Purchase credit impaired loans		—			89			215			—			—			304
Total specific reserves		260			1,870			1,712			822			108			4,772
General reserves		3,572			1,156			2,433			1,073			44			8,278
Total	$	3,832		$	3,026		$	4,145		$	1,895		$	152		$	13,050

Total Loans	$	165,203		$	228,354		$	434,855		$	33,893		$	13,626		$	875,931

Allowance as percent of loans per category as of December 31, 2010		2.32	%		1.33	%		0.95	%		5.59	%		1.12	%		1.49	%

As of December 31, 2009:

(Dollars in thousands)	Amount		% of loans in each category
Commercial loans	$	3,415		17	%
Real estate loans		8,973		81	%
Consumer loans		232		2	%
Other		662		—
Total	$	13,282		100	%

The allowance for loan losses for construction and land development decreased from $1.7 million at December 31, 2012 to $485,000 at December 31, 2013. The decrease in the general reserves for construction and land development loans from $743,000 at December 31, 2012 to $214,000 at December 31, 2013 primarily related to the improvement in historical loss factors over the previous period and a decrease in these types of loans year over year. The decrease in the specific portion of the reserve related to the charge-off of one impaired construction and land development loan during the year ended December 31, 2013 for $896,000. The overall balance in loans held as construction and land development decreased from December 31, 2012 to December 31, 2013 by $6.6 million which was generally driven by resolutions and payments of $9.1 million during the year, offset by the addition of EBI balances of $2.5 million which did not have a general reserve at December 31, 2013.

The allowance for loan loss related to residential real estate increased from $1.9 million at December 31, 2012 to $2.4 million at December 31, 2013. The increase was due to an increase in the general portion of the reserve from $1.0 million at December 31, 2012 to $1.7 million at December 31, 2013. The increase was due to an increase in residential loans of approximately $7.1 million and an increase in the historical loss factors related to these loans.

The specific portion of the allowance for loan losses related to commercial real estate loans decreased $743,000 from $1.4 million at December 31, 2012 to $691,000 at December 31, 2013 due to the resolution and foreclosure of impaired loans during 2013 and the reduction in specific reserves due to improvements in the underlying collateral values.

The overall general reserve as a percentage of loans collectively evaluated for impairment was 0.64% at December 31, 2013 which compares to 0.72% at December 31, 2012 and 0.95% at December 31, 2011. Excluding loans acquired as a result of the EBI merger on July 1, 2013, which as of December 31, 2013 had a minimal general reserve allocated, the general reserve as a percentage of loans collectively evaluated for impairment would be 0.74%.Excluding loans acquired as a result of the AFI merger on April 1, 2012, the general reserve as a percentage of loans collectively evaluated for impairment would be 0.82%. The 8 basis point decrease in this general reserve ratio as compared to December 31, 2012 was primarily a result of a decrease of 48.4% ($23.7 million) in special mention loans from December 31, 2012 to December 31, 2013 which have a higher allocation of general reserve.

The following table reflects charge-offs and recoveries per loan category:

(Dollars in thousands)	December 31,
	2013				2012				2011				2010					2009
	Charge- offs		Recoveries		Charge- offs		Recoveries		Charge- offs		Recoveries			Charge- offs		Recoveries			Charge- offs	Recoveries
Commercial real estate	$	1,862	$	9	$	3,159	$	110	$	1,937	$	35		$	2,204	$	46	$	2,394	$	2
Residential real estate		309		10		1,019		189		2,829		13			2,069		26		—		—
Construction and land development		898		96		—		36		1,162		36			7,125		15		1,805		—
Commercial		724		66		5,648		43		1,306		63			1,617		80		1,549		27
Consumer and others		17		14		—		50		132		5			918		14		40		2
Total	$	3,810	$	195	$	9,826	$	428	$	7,366	$	152		$	13,933	$	181	$	5,788	$	31

Net charge-offs for the year ended December 31, 2013 were approximately $3.6 million compared to $9.4 million for the year ended December 31, 2012. During the year ended December 31, 2012, the Company strategically resolved an $11.4 million non-performing loan collateralized by 15 gas stations through acceptance of a bulk sale offer at below appraised values. The resolution resulted in a $5.4 million charge-off during the year.

Deposits

We maintain a full range of deposit products, accounts and services to meet the needs of the residents and businesses in our primary service area. Products include an array of checking account programs for individuals and small businesses, including money market accounts, certificates of deposit, IRA accounts, and sweep investment capabilities. We seek to make our services convenient to the community by offering 24-hour ATM access at some of our facilities, access to other ATM networks available at other local financial institutions and retail establishments, telephone banking services to include account inquiry and balance transfers, and courier service to certain customers who meet minimum qualifications. We also take advantage of the use of technology by allowing our customers banking access via the Internet and various advanced systems for cash management for our business customers. The rapid decline in the price of technology is now allowing smaller banks the ability to offer many of the sophisticated products previously only available to customers of large banks. It is our strategy to have a mix of core deposits, which favors non-interest bearing deposits in the range of 15% to 30% of total deposits with time deposits comprising 50% or less of total core deposits. This strategy, to be successful, requires high levels of relationship banking supported by strong distribution and product strategies. At December 31, 2013, we had approximately $333.1 million in deposits by foreign nationals banking in the United States which were primarily assumed as part of the TBOM and Republic transactions. At December 31, 2013, we had wholesale certificates of deposit of $64.3 million. 1^st United also participates in the Certification of Deposit Account Registration System (“CDARS”) and maintained $39.4 million of reciprocal deposits at December 31, 2013.

As of December 31, 2013, 2012, and 2011, the average distribution by type of our deposit accounts was as follows:

(Dollars in thousands)	December 31,
	2013					2012					2011
	Average Balance		Avg Rate			Average Balance		Avg Rate			Average Balance		Avg Rate
Noninterest bearing accounts	$	467,445		—		$	385,066		—		$	325,277		—

Interest bearing accounts
NOW accounts	$	206,527		0.13	%	$	154,687		0.15	%	$	125,267		0.18	%
Money market accounts		343,377		0.31	%		338,242		0.46	%		278,104		0.79	%
Savings accounts		62,792		0.26	%		63,736		0.30	%		44,696		0.53	%
Certificates of deposit		296,983		0.73	%		336,970		0.98	%		297,806		1.12	%
Average interest bearing deposits	$	909,679		0.40	%		893,695		0.59	%	$	745,873		0.80	%
Average total deposits	$	1,377,124		0.27	%	$	1,278,701		0.41	%	$	1,071,150		0.56	%

As of December 31, 2013, certificates of deposit of $100,000 or more mature as follows:

(Dollars in thousands)	Amount		Weighted Average Rate

Up to 3 months	$	55,092		0.56	%
3 to 6 months		41,660		0.70	%
6 to 12 months		41,956		0.65	%
Over 12 months		64,007		1.02	%
	$	202,715		0.75	%

Maturity terms, service fees and withdrawal penalties are established by us on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals and federal regulations.

Borrowings

The following tables reflect borrowing activity for the years ended December 31, 2013, 2012, and 2011:

(Dollars in thousands)	December 31, 2013										December 31, 2012
	Actual		Weighted Avg Rate			YTD Avg		Avg Rate Paid			Actual		Weighted Avg Rate			YTD Avg		Avg Rate Paid
Repurchase agreements	$	14,363		0.11	%	$	15,824		0.11	%	$	19,855		0.12	%	$	11,779		0.13	%
FHLB advances		35,000		0.50	%		18,623		0.50	%		—		4.68	%		137		4.60	%
Total	$	49,363				$	34,447				$	19,855				$	11,916

	December 31, 2011
	Actual		Weighted Avg Rate			YTD Avg		Avg Rate Paid
Repurchase agreements	$	8,746		0.13	%	$	11,998		0.13	%
FHLB advances		5,000		4.60	%		5,000		4.60	%
Other borrowings		—		—			4,053		2.80	%
Total	$	13,746				$	21,051

Maximum balance at any given month end during the periods of analysis is reflected in the following tables:

(Dollars in thousands)	December 31,
	2013			2012			2011
	Maximum Balance at any month-end			Maximum Balance at any month-end			Maximum Balance at any month-end
Repurchase agreements	$	18,956	Feb-13	$	20,201	Nov-12	$	17,405	Jan-11
FHLB advances		60,000	Sept-13		—	—		5,000	Jan-11
Other borrowings		—	—		—	—		4,750	Jan-11

Competition

Commercial banking in Florida, including our market, is highly competitive due in large part to Florida’s historical profile of population growth and wealth. Our markets contain not only community banks, but also significant numbers of the country’s largest commercial and wealth management/trust banks.

Interest rates, both on loans and deposits, and prices of fee-based services are significant competitive factors among financial institutions generally. Other important competitive factors include office location, office hours, the quality of customer service, community reputation, continuity of personnel and services, and, in the case of larger commercial customers, relative lending limits and the ability to offer sophisticated cash management and other commercial banking services. Many of our larger competitors have greater resources, broader geographic markets, more extensive branch networks, and higher lending limits than we do. They also can offer more products and services and can better afford and make more effective use of media advertising, support services and electronic technology than we can.

Our largest competitors in the market include Wells Fargo & Company, Bank of America Corporation, SunTrust Banks Inc., JPMorgan Chase & Co., Citigroup Inc., Regions Financial Corporation, BB&T Corporation, Raymond James Financial, Inc., and Bank United, Inc. These institutions capture the majority of the deposits in the market. According to data provided by the FDIC, as of June 30, 2013, the latest date for which data was publicly available, our market share, on a pro forma basis, was less than 1% in each county where we operate. As of June 30, 2013, there were a total of 165 depository institutions operating in our markets. We believe that community banks can compete successfully by providing personalized service and making timely, local decisions and thus draw business away from larger institutions in the market. We also believe that further consolidation in the banking industry is likely to create additional opportunities for community banks to capture deposits from affected customers who may become dissatisfied as their financial institutions change ownership. In addition, we believe that the continued growth of our banking markets affords us an opportunity to capture new deposits from new residents.

Seasonality

We do not believe our base of business to be seasonal in nature.

Marketing and Distribution

In order to market our deposit products, we use local print advertising, provide sales incentives for our employees and offer special events to generate customer traffic.

Our Board of Directors and management team realize the importance of forging partnerships within the community as a method of expanding our customer base and serving the needs of our community. In this regard, we are an active participant in various community activities and organizations. Participation in such events and organizations allows management to determine what additional products and services are needed in our community as well as assisting in our efforts to determine credit needs in accordance with the Community Reinvestment Act.

Regulatory Considerations

We must comply with state and federal banking laws and regulations that control virtually all aspects of our operations. These laws and regulations generally aim to protect our depositors, not necessarily our shareholders or our creditors. Any changes in applicable laws or regulations may materially affect our business and prospects. Proposed legislative or regulatory changes may also affect our operations. The following description summarizes some of the laws and regulations to which we are subject. References to applicable statutes and regulations are brief summaries, do not purport to be complete, and are qualified in their entirety by reference to such statutes and regulations.

The Company

We are registered with the Federal Reserve as a financial holding company under the Gramm-Leach-Bliley Act and are registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act of 1956. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley Act, the Bank Holding Company Act, and other federal laws subject financial holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Permitted Activities.

The Gramm-Leach-Bliley Act modernized the U.S. banking system by: (i) allowing bank holding companies that qualify as “financial holding companies” to engage in a broad range of financial and related activities; (ii) allowing insurers and other financial service companies to acquire banks; (iii) removing restrictions that applied to bank holding company ownership of securities firms and mutual fund advisory companies; and (iv) establishing the overall regulatory scheme applicable to bank holding companies that also engage in insurance and securities operations. The general effect of the law was to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers. Activities that are financial in nature are broadly defined to include not only banking, insurance, and securities activities, but also merchant banking and additional activities that the Federal Reserve, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to such financial activities, or complementary activities that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

In contrast to financial holding companies, bank holding companies are limited to managing or controlling banks, furnishing services to or performing services for its subsidiaries, and engaging in other activities that the Federal Reserve determines by regulation or order to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is permissible, the Federal Reserve must consider whether the performance of such an activity reasonably can be expected to produce benefits to the public that outweigh possible adverse effects. Possible benefits include greater convenience, increased competition, and gains in efficiency. Possible adverse effects include undue concentration of resources, decreased or unfair competition, conflicts of interest, and unsound banking practices. Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any activity or to terminate ownership or control of any subsidiary when the Federal Reserve has reasonable cause to believe that a serious risk to the financial safety, soundness or stability of any bank subsidiary of that bank holding company may result from such an activity.

Changes in Control.

Subject to certain exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with the applicable regulations, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company acquiring “control” of a bank or bank holding company. A conclusive presumption of control exists if an individual or company acquires the power, directly or indirectly, to direct the management or policies of an insured depository institution or to vote 25% or more of any class of voting securities of any insured depository institution. A rebuttable presumption of control exists if a person or company acquires 10% or more but less than 25% of any class of voting securities of an insured depository institution and either the institution has registered securities under Section 12 of the Securities Exchange Act of 1934 or as we will refer to as the Exchange Act, or no other person will own a greater percentage of that class of voting securities immediately after the acquisition. Our common stock is registered under Section 12 of the Exchange Act.

The Federal Reserve maintains a policy statement on minority equity investments in banks and bank holding companies, that generally permits investors to (i) acquire up to 33 percent of the total equity of a target bank or bank holding company, subject to certain conditions, including (but not limited to) that the investing firm does not acquire 15 percent or more of any class of voting securities, and (ii) designate at least one director, without triggering the various regulatory requirements associated with control.

As a bank holding company, we are required to obtain prior approval from the Federal Reserve before (i) acquiring all or substantially all of the assets of a bank or bank holding company, (ii) acquiring direct or indirect ownership or control of more than 5% of the outstanding voting stock of any bank or bank holding company (unless we own a majority of such bank’s voting shares), or (iii) merging or consolidating with any other bank or bank holding company. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act of 1977.

Under Florida law, a person or entity proposing to directly or indirectly acquire control of a Florida bank must also obtain permission from the Florida Office of Financial Regulation. Florida statutes define “control” as either (i) indirectly or directly owning, controlling or having power to vote 25% or more of the voting securities of a bank; (ii) controlling the election of a majority of directors of a bank; (iii) owning, controlling, or having power to vote 10% or more of the voting securities as well as directly or indirectly exercising a controlling influence over management or policies of a bank; or (iv) as determined by the Florida Office of Financial Regulation. These requirements will affect us because 1^st United is chartered under Florida law and changes in control of us are indirect changes in control of 1^st United.

Tying.

Bank holding companies and their affiliates are prohibited from tying the provision of certain services, such as extending credit, to other services or products offered by the holding company or its affiliates, such as deposit products.

Capital; Dividends; Source of Strength.

The Federal Reserve imposes certain capital requirements on bank holding companies under the Bank Holding Company Act, including a minimum leverage ratio and a minimum ratio of “qualifying” capital to risk-weighted assets. These requirements are described below under “Capital Regulations.” Subject to its capital requirements and certain other restrictions, we are able to borrow money to make a capital contribution to 1^st United, and such loans may be repaid from dividends paid from 1^st United to us.

The ability of 1^st United to pay dividends, however, is subject to regulatory restrictions that are described below under “Dividends.” We are also able to raise capital for contributions to 1^st United by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.

In accordance with Federal Reserve policy, which has been codified by the Dodd-Frank Act, we are expected to act as a source of financial strength to 1^st United and to commit resources to support 1^st United in circumstances in which we might not otherwise do so. In furtherance of this policy, the Federal Reserve may require a financial holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a financial holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

1^st United Bank

1^st United is a banking institution that is chartered by and headquartered in the State of Florida, and it is subject to supervision and regulation by the Florida Office of Financial Regulation. The Florida Office of Financial Regulation supervises and regulates all areas of 1^st United’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of 1^st United’s corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking centers. 1^st United is also a member bank of the Federal Reserve System, which makes 1^st United’s operations subject to broad federal regulation and oversight by the Federal Reserve. In addition, 1^st United’s deposit accounts are insured by the FDIC to the maximum extent permitted by law, and the FDIC has certain enforcement powers over 1^st United.

As a state-chartered banking institution in the State of Florida, 1^st United is empowered by statute, subject to the limitations contained in those statutes, to take and pay interest on, savings and time deposits, to accept demand deposits, to make loans on residential and other real estate, to make consumer and commercial loans, to invest, with certain limitations, in equity securities and in debt obligations of banks and corporations and to provide various other banking services for the benefit of 1^st United’s customers. Various consumer laws and regulations also affect the operations of 1^st United, including state usury laws, laws relating to fiduciaries, consumer credit and equal credit opportunity laws, and fair credit reporting. In addition, the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) prohibits insured state chartered institutions from conducting activities as principal that are not permitted for national banks. A bank, however, may engage in an otherwise prohibited activity if it meets its minimum capital requirements and the FDIC determines that the activity does not present a significant risk to the Deposit Insurance Fund.

Reserves.

The Federal Reserve requires all depository institutions to maintain reserves against some transaction accounts (primarily NOW and Super NOW checking accounts). The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. An institution may borrow from the Federal Reserve Bank “discount window” as a secondary source of funds, provided that the institution meets the Federal Reserve Bank’s credit standards.

Dividends.

1^st United is subject to legal limitations on the frequency and amount of dividends that can be paid to us. The Federal Reserve may restrict the ability of 1^st United to pay dividends if such payments would constitute an unsafe or unsound banking practice. These regulations and restrictions may limit our ability to obtain funds from 1^st United for our cash needs, including funds for acquisitions and the payment of dividends, interest, and operating expenses.

In addition, Florida law also places restrictions on the declaration of dividends from state chartered banks to their holding companies. Pursuant to the Florida Financial Institutions Code, the board of directors of state-chartered banks, after charging off bad debts, depreciation and other worthless assets, if any, and making provisions for reasonably anticipated future losses on loans and other assets, may quarterly, semi-annually or annually declare a dividend of up to the aggregate net profits of that period combined with the bank’s retained net profits for the preceding two years and, with the approval of the Florida Office of Financial Regulation and Federal Reserve, declare a dividend from retained net profits which accrued prior to the preceding two years. Before declaring such dividends, 20% of the net profits for the preceding period as is covered by the dividend must be transferred to the surplus fund of the bank until this fund becomes equal to the amount of the bank’s common stock then issued and outstanding. A state-chartered bank may not declare any dividend if (i) its net income (loss) from the current year combined with the retained net income (loss) for the preceding two years aggregates a loss or (ii) the payment of such dividend would cause the capital account of the bank to fall below the minimum amount required by law, regulation, order or any written agreement with the Florida Office of Financial Regulation or a federal regulatory agency.

Insurance of Accounts and Other Assessments.

We pay our deposit insurance assessments to the Deposit Insurance Fund, which is determined through a risk-based assessment system. Our deposit accounts are currently insured by the Deposit Insurance Fund generally up to a maximum of $250,000 per separately insured depositor.

Under the current assessment system, the FDIC assigns an institution to one of four risk categories designed to measure risk. Total base assessment rates currently range from 0.025% of deposits for an institution in the highest rated sub-category of the highest rated category to 0.45% of deposits for an institution in the lowest rated category. In addition, all FDIC insured institutions are required to pay assessments to the FDIC at an annual rate of approximately six tenths of a basis point of insured deposits to fund interest payments on bonds issued by the Financing Corporation, an agency of the federal government established to recapitalize the predecessor to the Savings Association Insurance Fund. These assessments will continue until the Financing Corporation bonds mature in 2017 through 2019.

Under the Federal Deposit Insurance Act (the “FDIA”), the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Transactions With Affiliates.

Pursuant to Sections 23A and 23B of the Federal Reserve Act and Regulation W, the authority of 1^st United to engage in transactions with related parties or “affiliates” or to make loans to insiders is limited. Loan transactions with an “affiliate” generally must be collateralized and certain transactions between 1^st United and its “affiliates”, including the sale of assets, the payment of money or the provision of services, must be on terms and conditions that are substantially the same, or at least as favorable to 1^st United, as those prevailing for comparable nonaffiliated transactions. In addition, 1^st United generally may not purchase securities issued or underwritten by affiliates.

Loans to executive officers, directors or to any person who directly or indirectly, or acting through or in concert with one or more persons, owns, controls or has the power to vote more than 10% of any class of voting securities of a bank, which we refer to as “10% Shareholders”, or to any political or campaign committee the funds or services of which will benefit those executive officers, directors, or 10% Shareholders or which is controlled by those executive officers, directors or 10% Shareholders, are subject to Sections 22(g) and 22(h) of the Federal Reserve Act and their corresponding regulations (Regulation O) and Section 13(k) of the Exchange Act relating to the prohibition on personal loans to executives (which exempts financial institutions in compliance with the insider lending restrictions of Section 22(h) of the Federal Reserve Act). Among other things, these loans must be made on terms substantially the same as those prevailing on transactions made to unaffiliated individuals and certain extensions of credit to those persons must first be approved in advance by a disinterested majority of the entire board of directors. Section 22(h) of the Federal Reserve Act prohibits loans to any of those individuals where the aggregate amount exceeds an amount equal to 15% of an institution’s unimpaired capital and surplus plus an additional 10% of unimpaired capital and surplus in the case of loans that are fully secured by readily marketable collateral, or when the aggregate amount on all of the extensions of credit outstanding to all of these persons would exceed 1^stUnited’s unimpaired capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which 1^st United is permitted to extend credit to executive officers.

Community Reinvestment Act.

The Community Reinvestment Act and its corresponding regulations are intended to encourage banks to help meet the credit needs of their service area, including low and moderate income neighborhoods, consistent with the safe and sound operations of the banks. These regulations provide for regulatory assessment of a bank’s record in meeting the credit needs of its service area. Federal banking agencies are required to make public a rating of a bank’s performance under the Community Reinvestment Act. The Federal Reserve considers a bank’s Community Reinvestment Act rating when the bank submits an application to establish banking centers, merge, or acquire the assets and assume the liabilities of another bank. In the case of a financial holding company, the Community Reinvestment Act performance record of all banks involved in the merger or acquisition are reviewed in connection with the filing of an application to acquire ownership or control of shares or assets of a bank or to merge with any other financial holding company. An unsatisfactory record can substantially delay or block the transaction. 1^st United received a satisfactory rating on its most recent Community Reinvestment Act assessment.

Capital Regulations.

The Federal Reserve has adopted risk-based capital adequacy guidelines for financial holding companies and their subsidiary state-chartered banks that are members of the Federal Reserve System. As described above, the federal banking regulators have issued final rules that are effective January 1, 2015 for community banks. These final rules are major changes to the current general risk-based capital rule, and are designed to substantially conform with the Basel III international standards.

Current Guidelines. The current guidelines require all financial holding companies and federally regulated banks to maintain a minimum risk-based total capital ratio equal to 8%, of which at least 4% must be Tier I Capital. Tier I Capital, which includes common shareholders’ equity, noncumulative perpetual preferred stock, and a limited amount of cumulative perpetual preferred stock and certain trust preferred securities, less certain goodwill items and other intangible assets, is required to equal at least 4% of risk-weighted assets. The remainder (“Tier II Capital”) may consist of (i) an allowance for loan losses of up to 1.25% of risk-weighted assets, (ii) excess of qualifying perpetual preferred stock, (iii) hybrid capital instruments, (iv) perpetual debt, (v) mandatory convertible securities, and (vi) subordinated debt and intermediate-term preferred stock up to 50% of Tier I Capital. Total capital is the sum of Tier I and Tier II Capital less reciprocal holdings of other banking organizations’ capital instruments, investments in unconsolidated subsidiaries and any other deductions as determined by the appropriate regulator (determined on a case by case basis or as a matter of policy after formal rule making).

In computing total risk-weighted assets, bank and financial holding company assets are given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance sheet items are given similar credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. Most loans will be assigned to the 100% risk category, except for performing first mortgage loans fully secured by 1- to 4-family and certain multi-family residential property, which carry a 50% risk rating. Most investment securities (including, primarily, general obligation claims on states or other political subdivisions of the United States) will be assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% risk-weight, and direct obligations of the U.S. Treasury or obligations backed by the full faith and credit of the U.S. Government, which have a 0% risk-weight. In covering off-balance sheet items, direct credit substitutes, including general guarantees and standby letters of credit backing financial obligations, are given a 100% conversion factor. Transaction-related contingencies such as bid bonds, standby letters of credit backing non-financial obligations, and undrawn commitments (including commercial credit lines with an initial maturity of more than one year) have a 50% conversion factor. Short-term commercial letters of credit are converted at 20% and certain short-term unconditionally cancelable commitments have a 0% factor.

The federal bank regulatory authorities have also adopted regulations that supplement the risk-based guidelines. These regulations generally require banks and financial holding companies to maintain a minimum level of Tier I Capital to total assets less goodwill of 4% (the “leverage ratio”). The Federal Reserve permits a bank to maintain a minimum 3% leverage ratio if the bank achieves a 1 rating under the CAMELS rating system in its most recent examination, as long as the bank is not experiencing or anticipating significant growth. The CAMELS rating is a non-public system used by bank regulators to rate the strength and weaknesses of financial institutions. The CAMELS rating is comprised of six categories: capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

Banking organizations experiencing or anticipating significant growth, as well as those organizations which do not satisfy the criteria described above, will be required to maintain a minimum leverage ratio ranging generally from 4% to 5%. The bank regulators also continue to consider a “tangible Tier I leverage ratio” in evaluating proposals for expansion or new activities.

The tangible Tier I leverage ratio is the ratio of a banking organization’s Tier I Capital, less deductions for intangibles otherwise includable in Tier I Capital, to total tangible assets.

Federal law and regulations establish a capital-based regulatory scheme designed to promote early intervention for troubled banks and require the FDIC to choose the least expensive resolution of bank failures. The capital-based regulatory framework contains five categories of compliance with regulatory capital requirements, including “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized.” To qualify as a “well-capitalized” institution, a bank must have a leverage ratio of no less than 5%, a Tier I Capital ratio of no less than 6%, and a total risk-based capital ratio of no less than 10%, and the bank must not be under any order or directive from the appropriate regulatory agency to meet and maintain a specific capital level. Generally, a financial institution must be “well capitalized” before the Federal Reserve will approve an application by a financial holding company to acquire or merge with a bank or bank holding company.

Under the regulations, the applicable agency can treat an institution as if it were in the next lower category if the agency determines (after notice and an opportunity for hearing) that the institution is in an unsafe or unsound condition or is engaging in an unsafe or unsound practice. The degree of regulatory scrutiny of a financial institution will increase, and the permissible activities of the institution will decrease, as it moves downward through the capital categories. Institutions that fall into one of the three undercapitalized categories may be required to (i) submit a capital restoration plan; (ii) raise additional capital; (iii) restrict their growth, deposit interest rates, and other activities; (iv) improve their management; (v) eliminate management fees; or (vi) divest themselves of all or a part of their operations. Financial holding companies controlling financial institutions can be called upon to boost the institutions’ capital and to partially guarantee the institutions’ performance under their capital restoration plans.

It should be noted that the minimum ratios referred to above are merely guidelines and the bank regulators possess the discretionary authority to require higher capital ratios.

As of December 31, 2013, we exceeded the requirements contained in the applicable regulations, policies and directives pertaining to capital adequacy to be classified as “well capitalized”, and are unaware of any material violation or alleged violation of these regulations, policies or directives. Rapid growth, poor loan portfolio performance, or poor earnings performance, or a combination of these factors, could change our capital position in a relatively short period of time, making additional capital infusions necessary.

Guidelines Effective January 1, 2015. In July 2013, the Federal Reserve Board released its final rules which will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule, minimum requirements will increase for both the quality and quantity of capital held by banking organizations. In this respect, the final rule implements strict eligibility criteria for regulatory capital instruments and improves the methodology for calculating risk-weighted assets to enhance risk sensitivity. Consistent with the international Basel framework, the rule includes a new minimum ratio of Common Equity Tier I Capital to Risk-Weighted Assets of 4.5% and a Common Equity Tier I Capital conservation buffer of 2.5% of risk-weighted assets. The conservation buffer will be phased in from 2016 through 2019. The rule also, among other things, raises the minimum ratio of Tier I Capital to Risk-Weighted Assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations.

Prompt Corrective Action.

Immediately upon becoming undercapitalized, a depository institution becomes subject to the provisions of Section 38 of the FDIA, which: (i) restrict payment of capital distributions and management fees; (ii) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (iii) require submission of a capital restoration plan; (iv) restrict the growth of the institution’s assets; and (v) require prior approval of certain expansion proposals. The appropriate federal banking agency for an undercapitalized institution also may take any number of discretionary supervisory actions if the agency determines that any of these actions is necessary to resolve the problems of the institution at the least possible long-term cost to the deposit insurance fund, subject in certain cases to specified procedures. These discretionary supervisory actions include: (i) requiring the institution to raise additional capital; (ii) restricting transactions with affiliates; (iii) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (iv) any other supervisory action that the agency deems appropriate. These and additional mandatory and permissive supervisory actions may be taken with respect to significantly undercapitalized and critically undercapitalized institutions.

Interstate Banking and Branching.

The Bank Holding Company Act was amended by the Interstate Banking Act. The Interstate Banking Act provides that adequately capitalized and managed financial and bank holding companies are permitted to acquire banks in any state.

State laws prohibiting interstate banking or discriminating against out-of-state banks are preempted. States are not permitted to enact laws opting out of this provision; however, states are allowed to adopt a minimum age restriction requiring that target banks located within the state be in existence for a period of years, up to a maximum of five years, before a bank may be subject to the Interstate Banking Act. The Interstate Banking Act, as amended by the Dodd-Frank Act, establishes deposit caps which prohibit acquisitions that result in the acquiring company controlling 30% or more of the deposits of insured banks and thrift institutions held in the state in which the target maintains a branch or 10% or more of the deposits nationwide. States have the authority to waive the 30% deposit cap. State-level deposit caps are not preempted as long as they do not discriminate against out-of-state companies, and the federal deposit caps apply only to initial entry acquisitions.

Under the Dodd-Frank Act, national banks and state banks are able to establish branches in any state if that state would permit the establishment of the branch by a state bank chartered in that state. Florida law permits a state bank to establish a branch of the bank anywhere in the state. Accordingly, under the Dodd-Frank Act, a bank with its headquarters outside the State of Florida may establish branches anywhere within Florida.

Anti-money Laundering.

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“USA PATRIOT Act”), provides the federal government with additional powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. By way of amendments to the Bank Secrecy Act (“BSA”), the USA PATRIOT Act puts in place measures intended to encourage information sharing among bank regulatory and law enforcement agencies. In addition, certain provisions of the USA PATRIOT Act impose affirmative obligations on a broad range of financial institutions.

Among other requirements, the USA PATRIOT Act and the related Federal Reserve regulations require banks to establish anti-money laundering programs that include, at a minimum:

internal policies, procedures and controls designed to implement and maintain the savings association’s compliance with all of the requirements of the USA PATRIOT Act, the BSA and related laws and regulations;

systems and procedures for monitoring and reporting of suspicious transactions and activities;

a designated compliance officer;

employee training;

an independent audit function to test the anti-money laundering program;

procedures to verify the identity of each customer upon the opening of accounts; and

heightened due diligence policies, procedures and controls applicable to certain foreign accounts and relationships.

Additionally, the USA PATRIOT Act requires each financial institution to develop a customer identification program (“CIP”) as part of our anti-money laundering program. The key components of the CIP are identification, verification, government list comparison, notice and record retention. The purpose of the CIP is to enable the financial institution to determine the true identity and anticipated account activity of each customer. To make this determination, among other things, the financial institution must collect certain information from customers at the time they enter into the customer relationship with the financial institution. This information must be verified within a reasonable time through documentary and non-documentary methods. Furthermore, all customers must be screened against any CIP-related government lists of known or suspected terrorists. We and our affiliates have adopted policies, procedures and controls to comply with the BSA and the USA PATRIOT Act.

Regulatory Enforcement Authority.

Federal and state banking laws grant substantial enforcement powers to federal and state banking regulators. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Federal Home Loan Bank System.

1^st United is a member of the FHLB of Atlanta, which is one of 12 regional Federal Home Loan Banks. Each FHLB serves as a reserve or central bank for its members within its assigned region. It is funded primarily from funds deposited by member institutions and proceeds from the sale of consolidated obligations of the FHLB system. It makes loans to members (i.e. advances) in accordance with policies and procedures established by the board of trustees of the FHLB.

As a member of the FHLB of Atlanta, 1^st United is required to own capital stock in the FHLB in an amount at least equal to 0.12% (or 12 basis points) of the 1^st United’s total assets at the end of each calendar year (with a dollar cap of $20 million), plus 4.5% of its outstanding advances (borrowings) from the FHLB of Atlanta under the activity-based stock ownership requirement. On December 31, 2013, 1^st United was in compliance with this requirement.

Privacy.

Under the Gramm-Leach-Bliley Act, federal banking regulators adopted rules limiting the ability of banks and other financial institutions to disclose nonpublic information about consumers to nonaffiliated third parties. The rules require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to nonaffiliated third parties.

Consumer Laws and Regulations.

1^st United is also subject to other federal and state consumer laws and regulations that are designed to protect consumers in transactions with banks. While the list set forth below is not exhaustive, these laws and regulations include the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Check Clearing for the 21st Century Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Fair and Accurate Credit Transactions Act, the Mortgage Disclosure Improvement Act, and the Real Estate Settlement Procedures Act, among others. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits or making loans to such customers. 1^st United must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.

Future Legislative Developments.

Various legislative acts are from time to time introduced in Congress and the Florida legislature. This legislation may change banking statutes and the environment in which our banking subsidiary and we operate in substantial and unpredictable ways. We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations with respect thereto, would have upon our financial condition or results of operations or that of our banking subsidiary.

Effect of Governmental Monetary Policies.

The commercial banking business in which 1^st United engages is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the “discount window,” open market operations, the imposition of changes in reserve requirements against member banks’ deposits and assets of foreign banking centers and the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to continue to do so in the future. The monetary policies of the Federal Reserve are influenced by various factors, including inflation, unemployment, and short-term and long-term changes in the international trade balance and in the fiscal policies of the U.S. Government. Future monetary policies and the effect of such policies on the future business and earnings of 1^st United cannot be predicted.

Income Taxes

We are subject to income taxes at the federal level and subject to state taxation in Florida. We file a consolidated federal income tax return with a fiscal year ending on December 31.

Employees

As of December 31, 2013, we had a total of approximately 304 employees, including approximately 290 full-time employees. The employees are not represented by a collective bargaining unit. We consider relations with employees to be good.

Segment Reporting

We have one reportable segment.

Website Access to Company’s Reports

Our Internet website is www.1stunitedbankfl.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, including any amendments to those reports filed or furnished pursuant to section 13(a) or 15(d), and reports filed pursuant to Section 16, 13(d), and 13(g) of the Exchange Act are available free of charge through our website as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission. The information on our website is not incorporated by reference into this report.

Item 1A. Risk Factors

An investment in our common stock contains a high degree of risk. You should consider carefully the following risk factors before deciding whether to invest in our common stock. Our business, including our operating results and financial condition, could be harmed by any of these risks. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained in our filings with the SEC, including our financial statements and related notes.

Risks Related to Our Business

Failure to comply with the terms of the Loss Sharing Agreements with the FDIC may result in significant losses.

On October 21, 2011, 1^st United entered into an Assumption Agreement – Whole Bank; All Deposits (“Old Harbor Purchase and Assumption Agreement”) with the FDIC, pursuant to which 1^st United assumed all deposits and certain identified assets and liabilities of Old Harbor Bank, a Florida-chartered commercial bank headquartered in Clearwater, Florida. 1^st United also entered into Loss Sharing Agreements with the FDIC. Under the Loss Sharing Agreements, 1^st United will share losses in the losses on assets covered under the Old Harbor Purchase and Assumption Agreement. The FDIC will reimburse 1^st United for 70% of up to $49 million of losses with respect to the acquired $116.7 million loan portfolio and the $2.3 million of other real estate owned, or “OREO” at fair value.

On December 17, 2010, 1^st United entered into an Assumption Agreement – Whole Bank; All Deposits (“Bank of Miami Purchase and Assumption Agreement”) with the FDIC, pursuant to which 1^st United assumed all deposits and certain identified assets and liabilities of The Bank of Miami, a national association headquartered in Miami, Florida. 1^st United also entered into Loss Sharing Agreements with the FDIC. Under the Loss Sharing Agreements, 1^st United will share in the losses on assets covered under the Bank of Miami Purchase and Assumption Agreement. The FDIC will reimburse 1^st United for 80% of losses with respect to the $218.2 million loan portfolio and the $8.2 million of OREO, at fair value on the date acquired.

On December 11, 2009, 1^st United entered into an Assumption Agreement – Whole Bank; All Deposits (“Republic Purchase and Assumption Agreement”) with the FDIC, pursuant to which 1^st United assumed all deposits (except certain broker deposits) and certain identified assets and liabilities of Republic Federal Bank, a national association headquartered in Miami, Florida. 1^st United also entered into Loss Sharing Agreements with the FDIC. Under the Loss Sharing Agreements, 1^st United will share in the losses on assets covered under the Republic Purchase and Assumption Agreement. The FDIC will reimburse 1^st United for 80% of losses of up to $36 million with respect to the entire $185 million acquired loan portfolio at fair value. The FDIC will reimburse 1^st United for 95% of losses in excess of $36 million with respect to the $238 million acquired loan portfolio.

The Old Harbor Purchase and Assumption Agreement, the Republic Purchase and Assumption Agreement and the Bank of Miami Purchase and Assumption Agreement and their respective Loss Sharing Agreements have specific, detailed and cumbersome compliance, servicing, notification and reporting requirements, including certain restrictions on our change of control. The Loss Sharing Agreements prohibit the assignment by 1^st United of its rights under the Loss Sharing Agreements and the sale or transfer of any subsidiary of 1^stUnited holding title to assets covered under the Loss Sharing Agreements without the prior written consent of the FDIC. An assignment would include (i) the merger or consolidation of 1^st United with or into another bank; (ii) our merger or consolidation with or into another company; (iii) the sale of all or substantially all of the assets of 1^st United to another company or person; (iv) a sale by any one or more shareholders of more than 9% of the outstanding shares of 1^st United Bancorp, Inc., 1^stUnited, or any subsidiary holding assets subject to the Loss Sharing Agreements or (v) the sale of shares by 1^st United Bancorp, Inc., 1^stUnited, or any subsidiary holding assets subject to the Loss Sharing Agreements, in a public or private offering, that increases the number of outstanding shares by more than 9%. 1^st United’s rights under the Loss Sharing Agreements will terminate if any assignment of the Loss Sharing Agreements occurs without the prior written consent of the FDIC.

Our failure to comply with the terms of the Loss Sharing Agreements or to properly service the loans and OREO under the requirements of the Loss Sharing Agreements may cause individual loans or large pools of loans to lose eligibility for loss sharing payments from the FDIC. This could result in material losses that are currently not anticipated.

We may incur losses if we are unable to successfully manage interest rate risk.

Our profitability depends to a large extent on 1^st United’s net interest income, which is the difference between income on interest-earning assets, such as loans and investment securities, and expense on interest-bearing liabilities such as deposits and borrowings. We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets. Our net interest income may be reduced if: (i) more interest-earning assets than interest-bearing liabilities reprice or mature during a time when interest rates are declining or (ii) more interest-bearing liabilities than interest-earning assets reprice or mature during a time when interest rates are rising.

Changes in the difference between short- and long-term interest rates may also harm our business. For example, short-term deposits may be used to fund longer-term loans. When differences between short-term and long-term interest rates shrink or disappear, as is likely in the current zero interest rate policy environment, the spread between rates paid on deposits and received on loans could narrow significantly, decreasing our net interest income.

If market interest rates rise rapidly, interest rate adjustment caps may limit increases in the interest rates on adjustable rate loans, thereby reducing our net interest income.

The required accounting treatment of troubled loans we acquired through acquisitions could result in higher net interest margins and interest income in current periods and lower net interest margins and interest income in future periods.

Under U.S. GAAP, we are required to record troubled loans acquired through acquisitions at fair value which may underestimate the actual performance of such loans. As a result, if these loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of the loan (the “discount”) is accreted into net interest income. Thus, our net interest margins may initially appear higher. In 2013 and 2012, our net interest margins were increased by 1.56% (which 1.13% was due to the resolution of and changes in cash flows on acquired assets) and 1.50% (which 0.81% was due to the resolution of and changes in cash flows on acquired assets), respectively, because of these discount accretions. We expect the yields on our loans to decline as our acquired loan portfolio pays down or matures and we expect downward pressure on our interest income to the extent that the runoff on our acquired loan portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest income in current periods and lower net interest rate margin and lower interest income in future periods.

We may face risks with respect to future expansion.

As a strategy, we have sought to increase the size of our operations by aggressively pursuing business development opportunities. We have made acquisitions of financial institutions and may continue to seek whole bank or branch acquisitions in the future. Acquisitions and mergers involve a number of risks, including:

the time and costs associated with identifying and evaluating potential acquisitions and merger partners;

the ability to finance an acquisition and possible ownership and economic dilution to existing shareholders;

diversion of management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the acquired institution;

the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on results of operations; and

the risk of loss of key employees and customers.

We may incur substantial costs to expand, and such expansion may not result in the levels of profits we seek. Integration efforts for any future mergers and acquisitions may not be successful and following any future merger or acquisition, after giving it effect, we may not achieve financial results comparable to or better than our historical experience.

Future acquisitions may dilute shareholder value.

We regularly evaluate opportunities to acquire other financial institutions. As a result, merger and acquisition discussions and, in some cases, negotiations may take place and future mergers or acquisitions involving cash, debt, or equity securities may occur at any time. Acquisitions typically involve the payment of a premium over book and market values, and, therefore, some dilution of our tangible book value and net income per common share may occur in connection with any future acquisitions.

Our business may be adversely affected by conditions in financial markets and economic conditions generally.

Our business is concentrated in the South and Central Florida market areas. As a result, our financial condition, results of operations and cash flows are subject to changes if there are changes in the economic conditions in these areas. A prolonged period of economic recession or other adverse economic conditions in these areas could have a negative impact on us. A significant decline in general economic conditions nationally, caused by inflation, recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in securities markets, declines in the housing market, a tightening credit environment or other factors could impact these local economic conditions and, in turn, have a material adverse effect on our financial condition and results of operations.

Economic conditions began deteriorating during the latter half of 2007 and have not fully recovered since that time. Although economic conditions are improving, business activity across a wide range of industries and regions, including South and Central Florida, has been greatly reduced. While unemployment in the U.S. and our market areas has begun to improve, unemployment remains elevated compared to recent historical levels prior to 2007. As a result of this economic crisis, many lending institutions, including us, have experienced declines in the performance of their loans, including construction, land development and land loans, commercial loans and consumer loans. Moreover, competition among depository institutions for deposits and quality loans has increased significantly. Loan demand has not returned to pre-recession levels. In addition, the values of real estate collateral supporting many commercial loans and home mortgages declined during the recession, and despite recent increasing property values in our markets, prices have not fully recovered. Overall, the general business environment has had an adverse effect on our business, and the environment may not improve in the near term. Accordingly, unless and until conditions improve, our business, financial condition and results of operations could continue to be adversely affected.

Our success is highly dependent upon our ability to retain the members of our senior management team and the loss of key personnel may adversely affect us.

Our success is, and expected to remain, highly dependent on our senior management team, including Messrs. Orlando, Schupp, Marino, Jacobson, and Ostermayer. As a community bank, it is our management’s extensive knowledge of and relationships in the community that generate business for us. Successful execution of our growth strategy will continue to place significant demands on our management and the loss of any such services may adversely affect our growth and profitability.

An inadequate allowance for loan losses would reduce our earnings.

We are exposed to the risk that our customers will be unable to repay their loans according to their terms and that any collateral securing the payment of their loans will not be sufficient to assure full repayment. This will result in credit losses that are inherent in the lending business. We evaluate the collectability of our loan portfolio and provide an allowance for loan losses that we believe is adequate based upon such factors as:

the risk characteristics of various classifications of loans;

previous loan loss experience;

specific loans that have loss potential;

delinquency trends;

estimated fair market value of the collateral;

current economic conditions; and

geographic and industry loan concentrations.

As of December 31, 2013, 1^st United’s allowance for loan losses was $9.6 million, which represented approximately 0.85% of its total amount of loans. 1^st United had $15.8 million in non-accruing loans as of December 31, 2013, of which approximately $6.8 million are covered by Loss Sharing Agreements. The allowance may not prove sufficient to cover future loan losses. Although management uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to 1^st United’s non-performing or performing loans. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans. Such agencies may require us to recognize additional losses based on their judgments about information available to them at the time of their examination. Accordingly, the allowance for loan losses may not be adequate to cover loan losses or significant increases to the allowance may be required in the future if economic conditions should worsen. Material additions to 1^st United’s allowance for loan losses would adversely impact our net income and capital.

If our nonperforming assets increase, our earnings will suffer.

At December 31, 2013, our nonperforming assets (which consist of non-accruing loans, accruing loans 90+ days delinquent, and foreclosed real estate assets) totaled $34.4 million, or 1.87 % of total assets, which is a decrease of $8.5 million or 19.9% over nonperforming assets at December 31, 2012. At December 31, 2012 and December 31, 2011, our nonperforming assets were $42.9 million or 2.74% of total assets and $57.0 million or 4.01%, respectively. Nonperforming assets included $17.6 million, $24.6 million, and $23.0 million assets covered by Loss Sharing Agreements as of December 31, 2013, December 31, 2012, and December 31, 2011, respectively. Our nonperforming assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or real estate owned. We must reserve for probable losses, which is established through a current period charge to the provision for loan losses as well as from time to time, as appropriate, write down the value of properties in our other real estate owned portfolio to reflect changing market values. Additionally, there are legal fees associated the resolution of problem assets as well as carrying costs such as taxes, insurance and maintenance related to our other real estate owned. Further, the resolution of nonperforming assets requires the active involvement of management, which can distract them from more profitable activity. Finally, if our estimate for the recorded allowance for loan losses proves to be incorrect and our allowance is inadequate, we will have to increase the allowance accordingly.

Our loan portfolio includes loans with a higher risk of loss which could lead to higher loan losses and nonperforming assets.

We originate commercial real estate loans, construction and development loans, consumer loans, and residential mortgage loans primarily within our market area. Commercial real estate, commercial, and construction and development loans tend to involve larger loan balances to a single borrower or groups of related borrowers and are most susceptible to a risk of loss during a downturn in the business cycle. These loans also have historically had greater credit risk than other loans for the following reasons:

Commercial Real Estate Loans. Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over a loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property. As of December 31, 2013, commercial real estate loans, including multi-family loans, comprised approximately 67% of our total loan portfolio.

Commercial Loans. Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business. As of December 31, 2013, commercial loans comprised approximately 14% of our total loan portfolio.

Construction and Development Loans. The risk of loss is largely dependent on our initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If our estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing our loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. As of December 31, 2013, construction and development loans comprised approximately 3% of our total loan portfolio.

The increased risks associated with these types of loans result in a correspondingly higher probability of default on such loans (as compared to single-family real estate loans). Loan defaults would likely increase our loan losses and nonperforming assets and could adversely affect our allowance for loan losses.

Confidential customer information transmitted through 1^st United’s online banking service is vulnerable to security breaches and computer viruses, which could expose 1^st United to litigation and adversely affect its reputation and ability to generate deposits.

1^st United provides its customers the ability to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking. 1^st United’s network or those of its customers could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems. 1^st United may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. To the extent that 1^st United’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose 1^st United to claims, litigation and other possible liabilities. Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in 1^stUnited’s systems and could adversely affect its reputation and its ability to generate deposits.

We may need additional capital resources in the future and these capital resources may not be available on acceptable terms or at all.

We may need to incur additional debt or equity financing in the future to make strategic acquisitions or investments, for future growth, to fund losses or additional provisions for loan losses in the future, or to maintain certain capital levels in accordance with banking regulations. Such financing may not be available to us on acceptable terms or at all. Our ability to raise additional capital may also be restricted by the Loss-Sharing Agreements we entered into with the FDIC if the capital raise would effect a change in control of 1^st United.

Further, in the event that we offer additional shares of our common stock in the future, our Articles of Incorporation do not provide shareholders with preemptive rights and such shares may be offered to investors other than our existing shareholders for prices at or below the then current market price of our common stock, all at the discretion of the Board. If we do sell additional shares of common stock to raise capital, the sale could reduce market price per share of common stock and dilute your ownership interest and such dilution could be substantial.

Since we engage in lending secured by real estate and may be forced to foreclose on the collateral property and own the underlying real estate, we may be subject to the increased costs associated with the ownership of real property, which could result in reduced net income.

Since we originate loans secured by real estate, we may have to foreclose on the collateral property to protect our investment and may thereafter own and operate such property, in which case we are exposed to the risks inherent in the ownership of real estate.

The amount that we, as mortgagee, may realize after a default is dependent upon factors outside of our control, including, but not limited to:

General or local economic conditions;

Environmental cleanup liability;

Neighborhood values;

Interest rates;

Real estate taxes;

Operating expenses of the mortgaged properties;

Supply and demand for rental units or properties;

Our ability to obtain and maintain adequate occupancy of the properties;

Zoning laws;

Governmental rules, regulations and fiscal policies; and

Acts of God.

Certain expenditures associated with the ownership of real estate, principally real estate taxes and maintenance costs, may adversely affect the income from the real estate. Therefore, the cost of operating real property may exceed the rental income earned from such property, and we may have to advance funds in order to protect our investment or we may be required to dispose of the real property at a loss.

Changing conditions in Latin America could adversely affect our business.

A substantial number of our customers have economic and cultural ties to Latin America and, as a result, we are likely to feel the effects of adverse economic and political conditions in Latin America. As of December 31, 2013, approximately $269.5 million of our deposits were from foreign nationals whose primary residence is Latin America. U.S. and global economic policies, political or political tension, and global economic conditions may adversely impact the Latin American economies. If economic conditions in Latin America change, we could experience an outflow of deposits by those of our customers with connections to Latin America.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, and other sources, could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could negatively impact our access to liquidity sources include:

a decrease in the level of our business activity as a result of an economic downturn in the markets in which our loans are concentrated;

adverse regulatory action against us; or

our inability to attract and retain deposits.

Our ability to borrow could be impaired by factors that are not specific to us or our region, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry and the unstable credit markets.

An impairment in the carrying value of our goodwill could negatively impact our earnings and capital.

Goodwill is initially recorded at fair value and is not amortized, but is reviewed for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may not be recoverable. Given the current economic environment and conditions in the financial markets, we could be required to evaluate the recoverability of goodwill prior to our normal annual assessment if we experience disruption in our business, unexpected significant declines in our operating results, or sustained market capitalization declines. These types of events and the resulting analyses could result in goodwill impairment charges in the future. These non-cash impairment charges could adversely affect our results of operations in future periods, and could also significantly impact certain financial ratios and limit our ability to obtain financing or raise capital in the future. A goodwill impairment charge does not adversely affect the calculation of our risk based and tangible capital ratios. As of December 31, 2013, we had $64.0 million in goodwill, which represented approximately 3.5% of our total assets.

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

We face vigorous competition from other banks and other financial institutions, including savings and loan associations, savings banks, finance companies and credit unions for deposits, loans and other financial services in our market area. A number of these banks and other financial institutions with whom we compete for business and deposits are significantly larger than we are and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. To a limited extent, we also compete with other providers of financial services, such as money market mutual funds, brokerage firms, consumer finance companies, insurance companies and governmental organizations which may offer more favorable financing than we can. Many of our non-bank competitors are not subject to the same extensive regulations that govern us.

As a result, these non-bank competitors have advantages over us in providing certain services. We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Our profitability depends upon our continued ability to compete successfully in our primary market area and our lending territory. Consolidation and increasing competition may reduce or limit our margins, net interest income and our market share which could adversely affect our results of operations and financial condition.

Consumers and businesses may decide not to use banks to complete their financial transactions.

Technology and other changes are allowing parties to complete financial transactions that historically have involved banks at one or both ends of the transaction. For example, consumers can now pay bills and transfer funds directly without banks. This could result in the loss of fee income as well as the loss of customer deposits and income generated from those deposits and could have a material adverse effect on our financial condition and results of operations.

Risks Related to Regulation and Legislation

Recently enacted legislation, particularly the Dodd-Frank Act, could materially and adversely affect us by increasing compliance costs, heightening our risk of noncompliance with applicable regulations, and changing the competitive landscape in the banking industry.

From time to time, the U.S. Congress and state legislatures consider changing laws and enact new laws to further regulate the financial services industry. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, into law. The Dodd-Frank Act has resulted in sweeping changes in the regulation of financial institutions. The Dodd-Frank Act contains numerous provisions that affect all banks and bank holding companies. Many of these provisions remain subject to regulatory rule-making and implementation, the effects of which are not yet known. Although we cannot predict the specific impact and long-term effects that the Dodd-Frank Act and the regulations promulgated thereunder will have on us and our prospects, our target markets and the financial industry more generally, we believe that the Dodd-Frank Act and the regulations promulgated thereunder are likely to impose additional administrative and regulatory burdens that will obligate us to incur additional expenses and will adversely affect our margins and profitability. We will also have a heightened risk of noncompliance with the additional regulations. Finally, the impact of some of these new regulations is not known and may affect our ability to compete long-term with larger competitors.

The new Basel III Capital Standards may have an adverse effect on us.

In July 2013, the Federal Reserve Board released its final rules which will implement in the United States the Basel III regulatory capital reforms from the Basel Committee on Banking Supervision and certain changes required by the Dodd-Frank Act. Under the final rule, minimum requirements will increase for both the quality and quantity of capital held by banking organizations. Consistent with the international Basel framework, the rule includes a new minimum ratio of Common Equity Tier I Capital to Risk-Weighted Assets of 4.5% and a Common Equity Tier I Capital conservation buffer of 2.5% of risk-weighted assets that will apply to all supervised financial institutions. The rule also, among other things, raises the minimum ratio of Tier I Capital to Risk-Weighted Assets from 4% to 6% and includes a minimum leverage ratio of 4% for all banking organizations. We must begin transitioning to the new rules effective January 1, 2015. The impact of the new capital rules is likely to require us to maintain higher levels of capital, which will lower our return on equity.

New regulations could adversely impact our earnings due to, among other things, increased compliance costs or costs due to noncompliance.

The Consumer Financial Protection Bureau has issued a rule, effective as of January 14, 2014, designed to clarify for lenders how they can avoid monetary damages under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a mortgage. Loans that satisfy this “qualified mortgage” safe-harbor will be presumed to have complied with the new ability-to-repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain specified features, including but not limited to:

excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points” for prime loans);

interest-only payments;

negative-amortization; and

terms longer than 30 years.

Also, to qualify as a “qualified mortgage,” a borrower’s total monthly debt-to-income ratio may not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify the borrower for the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate during the first five years, taking into account all applicable taxes, insurance and assessments. The Consumer Financial Protection Bureau’s rule on qualified mortgages could limit our ability or desire to make certain types of loans or loans to certain borrowers, or could make it more expensive and/or time consuming to make these loans, which could adversely impact our growth or profitability.

Additionally, on December 10, 2013, five financial regulatory agencies, including our primary federal regulator, the Federal Reserve, adopted final rules (the “Final Rules”) implementing the so-called Volcker Rule embodied in Section 13 of the Bank Holding Company Act, which was added by Section 619 of the Dodd-Frank Act. The Final Rules prohibit banking entities from, among other things, (1) engaging in short-term proprietary trading for their own accounts, and (2) having certain ownership interests in and relationships with hedge funds or private equity funds (“covered funds”). The Final Rules are intended to provide greater clarity with respect to both the extent of those primary prohibitions and of the related exemptions and exclusions. The Final Rules also require each regulated entity to establish an internal compliance program that is consistent with the extent to which it engages in activities covered by the Volcker Rule, which must include (for the largest entities) making regular reports about those activities to regulators. Community banks, such as 1^st United, have been afforded some relief under the Final Rules. If such banks are engaged only in exempted proprietary trading, such as trading in U.S. government, agency, state and municipal obligations, they are exempt entirely from compliance program requirements. Moreover, even if a community bank engages in proprietary trading or covered fund activities under the rule, they need only incorporate references to the Volcker Rule into their existing policies and procedures. The Final Rules are effective April 1, 2014, but the conformance period has been extended from its statutory end date of July 21, 2014 until July 21, 2015. We are currently evaluating the Final Rules, which are lengthy and detailed.

The Federal Reserve’s repeal of the prohibition against payment of interest on demand deposits (Regulation Q) and the elimination of the FDIC’s TAG program may increase competition for such deposits and ultimately increase interest expense.

A major portion of our net income comes from our interest rate spread, which is the difference between the interest rates paid by us on amounts used to fund assets and the interest rates and fees we receive on our interest-earning assets. Our interest-earning assets include outstanding loans extended to our customers and securities held in our investment portfolio. We fund assets using deposits and other borrowings. Our goal has been to maintain non-interest-bearing deposits in the range of 15% to 25% of total deposits, and, as of December 31, 2013 we maintained approximately 34% of deposits as non-interest bearing.

On July 14, 2011, the Federal Reserve issued final rules to repeal Regulation Q, which had prohibited the payment of interest on demand deposits by institutions that are member banks of the Federal Reserve System. The final rules implement Section 627 of the Dodd-Frank Act, which repealed Section 19(i) of the Federal Reserve Act in its entirety effective July 21, 2011. As a result, banks and thrifts are now permitted to offer interest-bearing demand deposit accounts to commercial customers, which were previously forbidden under Regulation Q. The repeal of Regulation Q may cause increased competition from other financial institutions for these deposits. If we decide to pay interest on demand accounts, we would expect our interest expense to increase. Although Regulation Q has been effective for over two years, the impact may not have been realized yet because of the current zero interest rate policy environment.

We are subject to extensive regulation that could restrict our activities and impose financial requirements or limitations on the conduct of our business and limit our ability to receive dividends from the 1^st United.

1^st United is subject to extensive regulation, supervision and examination by the Florida Office of Financial Regulation, the Federal Reserve, and the FDIC. Our compliance with these industry regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, access to capital and brokered deposits and locations of banking offices. If we are unable to meet these regulatory requirements, our financial condition, liquidity and results of operations would be materially and adversely affected.

1^st United must also meet regulatory capital requirements imposed by our regulators. An inability to meet these capital requirements would result in numerous mandatory supervisory actions and additional regulatory restrictions, and could have a negative impact on our financial condition, liquidity and results of operations.

In addition to the regulations of the Florida Office of Financial Regulation, the Federal Reserve, and the FDIC, as a member of the Federal Home Loan Bank, 1^st United must also comply with applicable regulations of the Federal Housing Finance Agency and the Federal Home Loan Bank.

1^st United’s activities are also regulated under consumer protection laws applicable to our lending, deposit and other activities. In addition, the Dodd-Frank Act imposes significant additional regulation on our operations. Regulation by all of these agencies is intended primarily for the protection of our depositors and the Deposit Insurance Fund and not for the benefit of our shareholders. Our failure to comply with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could subject us to restrictions on our business activities, fines and other penalties, any of which could adversely affect our results of operations, capital base and the price of our securities. Further, any new laws, rules and regulations could make compliance more difficult or expensive or otherwise adversely affect our business and financial condition. Please refer to the Section entitled “Business – Regulatory Considerations” in this Annual Report on Form 10-K.

Florida financial institutions, such as 1^stUnited, face a higher risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Since September 11, 2001, banking regulators have intensified their focus on anti-money laundering and Bank Secrecy Act compliance requirements, particularly the anti-money laundering provisions of the USA PATRIOT Act. There is also increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets Control. Since 2004, federal banking regulators and examiners have been extremely aggressive in their supervision and examination of financial institutions located in the State of Florida with respect to the institution’s Bank Secrecy Act/Anti-Money Laundering compliance. Consequently, numerous formal enforcement actions have been issued against financial institutions.

In order to comply with regulations, guidelines and examination procedures in this area, 1^st United has been required to adopt new policies and procedures and to install new systems. If 1^st United’s policies, procedures and systems are deemed deficient or the policies, procedures and systems of the financial institutions that it has already acquired or may acquire in the future are deficient, 1^st United would be subject to liability, including fines and regulatory actions. Such regulatory action may include restrictions on 1^st United’s ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of its business plan, including its acquisition plans. In addition, because 1^st United operates in Florida and because of the recent acquisitions of Old Harbor Bank and the acquisition of AFI and EBI, we expect that 1^st United will face a higher risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Our eligibility to continue to use a short form registration statement on Form S-3 may affect our ability to opportunistically access the capital markets.

The ability to conduct primary offerings under a registration statement on Form S-3 has benefits to issuers who are eligible to use this short form registration statement. Form S-3 permits an eligible issuer to incorporate by reference its past and future filings and reports made under the Securities Exchange Act of 1934, as amended, or the Exchange Act. In addition, Form S-3 enables eligible issuers to conduct primary offerings “off the shelf” under Rule 415 of the Securities Act of 1933, as amended, or the Securities Act. The shelf registration process under Form S-3, combined with the ability to incorporate information on a forward basis, allows issuers to avoid additional delays and interruptions in the offering process and to access the capital markets in a more expeditious and efficient manner than raising capital in a standard registered offering on Form S-1. One of the requirements for Form S-3 eligibility is for an issuer to have timely filed its Exchange Act reports (including Form 10-Ks, Form 10-Qs and certain Form 8-Ks) for the 12- month period immediately preceding either the filing of the Form S-3, or a subsequent determination date. If, in the future, we fail to meet the eligibility requirements for Form S-3 we will lose our ability for a period of time to efficiently and expeditiously access the capital markets which could adversely impact our financial condition and capital ratios.

Risks Related to Market Events

Our loan portfolio is heavily concentrated in mortgage loans secured by properties in South and Central Florida which heightens our risk of loss than if we had a more geographically diversified portfolio.

Our interest-earning assets are heavily concentrated in mortgage loans secured by properties located in South and Central Florida. As of December 31, 2013, 71.3% of our loans secured by real estate were secured by commercial and residential properties located in Palm Beach, Miami-Dade, Broward, Hillsborough, Orange and Pasco Counties, Florida. The concentration of our loans in this region subjects us to risk that a downturn in the area economy, such as the one the area is currently experiencing, could result in a decrease in loan originations and an increase in delinquencies and foreclosures. As a result of this concentration, we may face greater risk than if our lending were more geographically diversified. In addition, since a large portion of our portfolio is secured by properties located in South and Central Florida, the occurrence of a natural disaster, such as a hurricane, could result in a decline in loan originations, a decline in the value or destruction of mortgaged properties, and an increase in the risk of delinquencies, foreclosures or loss on loans originated by us. We may suffer further losses due to the decline in the value of the properties underlying our mortgage loans, which would have an adverse impact on our operations.

Our concentration in loans secured by real estate may increase our credit losses, which would negatively affect our financial results.

Due to the relatively close proximity of our geographic markets, we have both geographic concentrations as well as concentrations in the types of loans funded. Specifically, due to the nature of our markets, a significant portion of the portfolio has historically been secured with real estate. As of December 31, 2013, approximately 66.8% and 15.8% of our $1.1 billion loan portfolio was secured by commercial real estate and residential real estate (including home equity loans), respectively. As of December 31, 2013, approximately 3.1% of total loans were secured by property under construction and land development.

The recent downturn in the real estate market, the deterioration in the value of collateral, and the local and national economic recessions, had adversely affected our customers’ ability to repay their loans. If these conditions return, then our customers’ ability to repay their loans will be further eroded. In the event we are required to foreclose on a property securing one of our mortgage loans or otherwise pursue our remedies in order to protect our investment, we may be unable to recover funds in an amount equal to our projected return on our investment or in an amount sufficient to prevent a loss to us due to prevailing economic conditions, real estate values and other factors associated with the ownership of real property. As a result, the market value of the real estate or other collateral underlying our loans may not, at any given time, be sufficient to satisfy the outstanding principal amount of the loans, and consequently, we would sustain loan losses.

The fair value of our investments could decline which would adversely affect our shareholders’ equity.

Our investment securities portfolio as of December 31, 2013 has been designated as available-for-sale pursuant to U.S. GAAP relating to accounting for investments. Such principles require that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in shareholders’ equity (net of tax) as accumulated other comprehensive income.

Shareholders’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments. The fair value of our investment portfolio may decline, causing a corresponding decline in shareholders’ equity.

Management believes that several factors will affect the fair values of our investment portfolio. These include, but are not limited to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation, and the slope of the interest rate yield curve (the yield curve refers to the differences between shorter-term and longer-term interest rates; a positively sloped yield curve means shorter-term rates are lower than longer-term rates). These and other factors may impact specific categories of the portfolio differently, and we cannot predict the effect these factors may have on any specific category.

Risks Related to an Investment in our Common Stock

Limited trading activity for shares of our common stock may contribute to price volatility.

While our common stock is listed and traded on The NASDAQ Global Select Market, there has been limited trading activity in our common stock. The average daily trading volume of our common stock in 2013 was approximately 50,996 shares. Due to the limited trading activity of our common stock, relativity small trades may have a significant impact on the price of our common stock and thereby, the value of your investment in our common stock.

The market price of our common stock may be highly volatile and subject to wide fluctuations in response to numerous factors, including, but not limited to, the factors discussed in other risk factors and the following:

actual or anticipated fluctuations in our operating results;

changes in interest rates;

changes in the legal or regulatory environment in which we operate;

press releases, announcements or publicity relating to us or our competitors or relating to trends in our industry;

changes in expectations as to our future financial performance, including financial estimates or recommendations by securities analysts and investors;

future sales of our common stock;

changes in economic conditions in our marketplace, general conditions in the U.S. economy, financial markets or the banking industry; and

other developments affecting our competitors or us.

Our share ownership is concentrated.

Our officers, directors and principal shareholders, together with their affiliates, beneficially own approximately 41% of our voting shares. As a result, these few shareholders, even if they do not act in concert, will exert significant influence over all matters requiring shareholder approval, including the election and removal of directors, any merger, consolidation or sale of all or substantially all of the assets, as well as any charter amendment and other matters requiring shareholder approval. This concentration of ownership may delay or prevent a change in control and may have a negative impact on the market price of the Company’s common stock by discouraging third party investors. In addition, the interests of these shareholders may not always coincide with the interests of the Company’s other shareholders.

Securities research analysts may not initiate coverage or continue to cover our common stock, and this may have a negative impact on its market price.

The trading market for our common stock will depend in part on the research and reports that securities analysts publish about us and our business. We do not have any control over these securities analysts and they may not cover our common stock. If securities research analysts do not cover our common stock, the lack of research coverage may adversely affect the market price of our common stock. If we are covered by securities analysts and our common stock is the subject of an unfavorable report, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, we could lose visibility in the financial markets, which would cause our stock price or trading volume to decline.

Our Articles of Incorporation, Bylaws, and certain laws and regulations may prevent or delay transactions you might favor, including our sale or merger.

We are registered with the Federal Reserve as a financial holding company under the Gramm-Leach-Bliley Act and are registered with the Federal Reserve as a bank holding company under the Bank Holding Company Act. As a result, we are subject to supervisory regulation and examination by the Federal Reserve. The Gramm-Leach-Bliley Act, the Bank Holding Company Act, and other federal laws subject financial holding companies to particular restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations.

Provisions of our Articles of Incorporation, Bylaws, certain laws and regulations and various other factors may make it more difficult and expensive for companies or persons to acquire control of us without the consent of our Board of Directors. It is possible, however, that you would want a takeover attempt to succeed because, for example, a potential buyer could offer a premium over the then prevailing price of our common stock.

For example, our Articles of Incorporation permit our Board of Directors to issue preferred stock without shareholder action. The ability to issue preferred stock could discourage a company from attempting to obtain control of us by means of a tender offer, merger, proxy contest or otherwise. We are also subject to certain provisions of the Florida Business Corporation Act and our Articles of Incorporation that relate to business combinations with interested shareholders. Other provisions in our Articles of Incorporation or Bylaws that may discourage takeover attempts or make them more difficult include:

Supermajority voting requirements to remove a director from office;

Requirement that only directors may fill a Board vacancy;

Requirement that a special meeting may be called only by a majority vote of our shareholders;

Provisions regarding the timing and content of shareholder proposals and nominations;

Supermajority voting requirements to amend our Articles of Incorporation;

Absence of cumulative voting; and

Inability for shareholders to take action by written consent.

We are subject to evolving and expensive corporate governance regulations and requirements. Our failure to adequately adhere to these requirements or the failure or circumvention of our controls and procedures could seriously harm our business.

As a publicly reporting company, we are subject to certain federal, state and other rules and regulations, including applicable requirements of the Dodd- Frank Act and Sarbanes-Oxley Act of 2002. Compliance with these evolving regulations is costly and requires a significant diversion of management time and attention, particularly with regard to disclosure controls and procedures and internal control over financial reporting. Although we have reviewed our disclosure and internal controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of the control system are met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.

We may be unable to declare and pay dividends in the future.

We declared a special dividend in December 2012 and December 2013 and also commenced a regular quarterly dividend in 2013. However, the payment of dividends to our shareholders depends largely upon the ability of 1^st United to declare and pay dividends to us, as the principal source of our revenue is from such dividends. Our ability to declare and pay dividends depend primarily upon earnings, financial condition and need for funds, as well as governmental policies and regulations applicable to us and 1^st United.

The Company’s ability to pay cash dividends is further limited by certain restrictions imposed generally on Florida corporations under the Florida Business Corporation Act, specifically, no cash dividends may be paid if, after payment, (a) the corporation would not be able to pay its debts as they become due in the usual course of business, or (b) the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.

As a result of the foregoing laws, regulations and restrictions, we may be unable to pay additional dividends to our shareholders in the future.

Shares of our common stock are not an insured deposit and may lose value.

The shares of our common stock are not a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.

Sales of a significant number of shares of our common stock in the public markets, or the perception of such sales, could depress the market price of our common stock.

Sales of a substantial number of shares of our common stock in the public markets and the availability of those shares for sale could adversely affect the market price of our common stock. In addition, future issuances of equity securities, including pursuant to outstanding options, could dilute the interests of our existing shareholders, including you, and could cause the market price of our common stock to decline. We may issue such additional equity or convertible securities to raise additional capital. The issuance of any additional shares of common or preferred stock or convertible securities could be substantially dilutive to shareholders of our common stock. Moreover, to the extent that we issue restricted stock units, phantom shares, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our shareholders may experience further dilution. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our shareholders. We cannot predict the effect that future sales of our common stock would have on the market price of our common stock.

We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.

In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is unsecured or secured by all or up to all of our assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or securities convertible into or exchangeable for equity securities. In the event of our liquidation, our lenders and holders of our debt and preferred securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of our securities in the future.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

At December 31, 2013, we operated 22 full service banking centers in Florida, which includes our principal office in Boca Raton, Florida. In addition, we have an Executive/Operations Center which we lease in West Palm Beach, Florida. The following table sets forth our banking centers, date opened and whether owned or leased:

Office Name	Date Opened/Acquired	Own/Lease

Boca Raton (Principal Office)	December 2003		Leased
Cooper City Banking Center	April 2004		Leased
West Palm Beach Banking Center	May 2004		Leased
Palm Beach Banking Center	January 2006		Leased
Coral Springs Banking Center	August 2007		Leased
Ft. Lauderdale Banking Center	February 1987 ⁽¹⁾		Leased
North Miami Banking Center	June 1992 ⁽¹⁾		Leased
Coral Ridge Banking Center	November 2004 ⁽¹⁾⁽⁷⁾		Leased
Vero Beach Banking Center	August 2008 ⁽²⁾		Owned
Sebastian Banking Center	August 2008⁽²⁾		Owned
Barefoot Bay Banking Center	August 2008⁽²⁾		Owned
Brickell Bay Banking Center	December 11, 2009⁽³⁾		Leased
Doral Banking Center	December 11, 2009⁽³⁾		Leased
Coral Way Banking Center	September 2010		Leased
Countryside Banking Center	October 2011⁽⁴⁾		Leased
Dunedin Banking Center	October 2011⁽⁴⁾		Owned
Palm Harbor Banking Center	October 2011⁽⁴⁾		Owned
Fort Harrison Banking Center	April 1, 2012⁽⁵⁾		Leased
Winter Park Banking Center	April 1, 2012⁽⁵⁾		Owned
Kennedy Blvd. Banking Center	April 1, 2012⁽⁵⁾		Owned
Palm Beach Gardens Banking Center	July 1, 2013⁽⁶⁾		Leased
Jupiter Banking Center	July 1, 2013⁽⁶⁾		Leased

	⁽¹⁾	Represents the original open date of the former Equitable Bank Banking Center. Effective with the Equitable Merger on February 29, 2008, these banking centers became 1^st United offices.

	⁽²⁾	Represents banking centers acquired as part of the Citrus acquisition consummated on August 15, 2008.

	⁽³⁾	Represents banking centers acquired as part of the Republic Federal acquisition consummated on December 11, 2009.

	⁽⁴⁾	Represents banking centers acquired as part of the Old Harbor acquisition consummated on October 21, 2011.

	⁽⁵⁾	Represents banking centers acquired as part of the AFI acquisition consummated on April 1, 2012.

	⁽⁶⁾	Represents banking centers acquired as part of the EBI acquisition consummated on July 1, 2013.

	⁽⁷⁾	The Coral Ridge Banking Center was closed on January 10, 2014.

Item 3. Legal Proceedings

We are periodically a party to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans, and other issues incident to our business. Management does not believe that there is any pending or threatened proceeding against us which, if determined adversely, would have a material adverse effect on our financial position, liquidity, or results of operations.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock has traded on The NASDAQ Global Market since September 18, 2009 under the symbol “FUBC”. Since January 1, 2012, our common stock has traded on the NASDAQ Global Select Market.

We have restrictions on our ability to pay dividends. Please see Item 1. Business-Regulatory Considerations-Dividends for a discussion of these additional restrictions. As of January 31, 2014, our common stock was held by approximately 454 shareholders of record.

	High		Low		Cash Dividend Per Share
2012
First Quarter	$	6.36	$	5.47	$	0.00
Second Quarter		6.39		5.31		0.00
Third Quarter		6.56		5.40		0.00
Fourth Quarter		6.83		5.30		0.10	^(a)

2013
First Quarter	$	6.57	$	6.04		0.00
Second Quarter		6.75		6.13		0.01
Third Quarter		8.15		7.10		0.01
Fourth Quarter		8.15		7.25		0.11	^(a)

^(a)

Includes a special dividend of $.10 per share.

The following graph and table provide a comparison of the cumulative total returns for our common stock, the NASDAQ Composite Index and the SNL Southeast Bank Index for the periods indicated. The graph assumes that an investor originally invested $100 in shares of our common stock at its closing price on September 18, 2009, the first day that our shares were traded. The stock price information below is not necessarily indicative of future price performance.

*Index*	09/18/09	12/31/09	12/31/10	12/31/11	12/31/12	12/31/13
1st United Bancorp, Inc.	100.00	125.26	121.23	97.37	111.41	136.20
NASDAQ Composite	100.00	106.69	126.05	125.05	147.25	206.39
SNL Southeast Bank	100.00	88.40	85.83	50.22	83.42	113.04

Item 6. Selected Financial Data

The following table presents our summary consolidated financial data. We derived our balance sheet and income statement data for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 from our audited financial statements. The summary consolidated financial data should be read in conjunction with, and are qualified in their entirety by, our financial statements and the accompanying notes and the other information included elsewhere in this Annual Report.

Use of Non-GAAP Financial Measures

The information set forth below contains certain financial information determined by methods other than in accordance with generally accepted accounting policies in the United States (“GAAP”). These non-GAAP financial measures are “tangible assets,” “tangible shareholders’ equity,” “tangible book value per common share,” and “tangible equity to tangible assets,” Our management uses these non-GAAP measures in its analysis of our performance because it believes these measures are material and will be used as a measure of our performance by investors.

“Tangible assets” is defined as total assets reduced by goodwill and other intangible assets. “Tangible shareholders’ equity” is defined as total shareholders’ equity reduced by goodwill and other intangible assets. “Tangible equity to tangible assets” is defined as tangible shareholders’ equity divided by tangible assets. These measures are important to many investors in the marketplace who are interested in the equity to assets ratio exclusive of the effect of changes in intangible assets on equity and total assets.

“Tangible book value per common share” is defined as tangible shareholders’ equity divided by total common shares outstanding. This measure is important to many investors in the marketplace who are interested in changes from period to period in book value per share exclusive of changes in intangible assets. Goodwill, an intangible asset that is recorded in a purchase business combination, has the effect of increasing total book value while not increasing our tangible book value.

These disclosures should not be considered in isolation or a substitute for results determined in accordance with GAAP, and are not necessarily comparable to non-GAAP performance measures which may be presented by other bank holding companies. Management compensates for these limitations by providing detailed reconciliations between GAAP information and the non-GAAP financial measures. A reconciliation table is set forth below following the selected consolidated financial data.

(Dollars in thousands, except per share data)

	As of and for the years ended December 31,
	2013(a)			2012(b)			2011(c)			2010(d)			2009
BALANCE SHEET DATA
Total assets	$	1,845,113		$	1,568,612		$	1,421,487		$	1,267,181		$	1,013,441
Tangible assets		1,777,315			1,506,845			1,365,722			1,218,884			965,388
Total loans		1,133,980			913,168			879,536			875,931			667,140
Allowance for loan losses		9,648			9,788			12,836			13,050			13,282
Securities available for sale		327,961			260,122			201,722			102,289			88,843
Goodwill and other intangible assets		67,798			61,767			55,765			48,297			48,053
Deposits		1,547,913			1,303,022			1,181,708			1,064,687			802,808
Non-interest bearing deposits		526,311			426,968			329,283			281,285			194,185
Shareholders’ equity		230,108			236,690			215,351			173,488			170,594
Tangible shareholders’ equity		162,310			174,923			159,586			125,191			122,541
INCOME STATEMENT DATA
Interest income	$	79,750		$	72,849		$	60,409		$	45,763		$	28,539
Interest expense		3,790			5,313			6,349			7,745			7,246
Net interest income		75,960			67,536			54,060			38,018			21,293
Provision for loan losses		3,475			6,350			7,000			13,520			13,240
Net interest income after provision for loan losses		72,485			61,186			47,060			24,498			8,053
Gain on acquisition		—			—			—			10,133			20,535
Other non-interest income		(8,250	)		(2,666	)		1,739			4,411			2,427
Non-interest expense		53,272			50,984			42,845			36,429			26,168
Income before income taxes		10,963			7,536			5,954			2,613			4,847
Income tax expense		4,092			2,808			2,282			1,015			1,827
Net income		6,871			4,728			3,672			1,598			3,020
Preferred stock dividends earned		—			—			—			—			(774	)
Net income available to common shareholders	$	6,871		$	4,728		$	3,672		$	1,598		$	2,246

PER SHARE DATA
Basic earnings (loss) per share	$	0.20		$	0.14		$	0.13		$	0.06		$	0.17
Diluted earnings (loss) per share	$	0.20		$	0.14		$	0.13		$	0.06		$	0.17
Cash dividends declared	$	0.13		$	0.10			—			—			—
Dividend payout ratio (f)		65.00	%		72.06	%		—			—			—
Book value per common share	$	6.71		$	6.95		$	7.04		$	7.00		$	6.88
Tangible book value per common share	$	4.73		$	5.13		$	5.22		$	5.05		$	4.94
SELECTED OPERATING RATIOS
Return on average assets		0.41	%		0.31	%		0.28	%		0.15	%		0.46	%
Return on average shareholders’ equity		2.91	%		2.03	%		1.80	%		0.91	%		2.44	%
Net interest margin (e)		5.29	%		5.13	%		4.76	%		4.06	%		3.69	%
SELECTED ASSET QUALITY DATA, CAPITAL AND ASSET QUALITY RATIOS
Equity/assets		12.47	%		15.09	%		15.15	%		13.69	%		16.83	%
Tangible equity/tangible assets		9.13	%		11.61	%		11.69	%		10.27	%		12.69	%
Non-performing loans/total loans		1.40	%		2.56	%		4.94	%		2.60	%		2.34	%
Non-performing assets/total assets		1.87	%		2.74	%		4.01	%		2.38	%		1.60	%
Allowance for loan losses/total loans		0.85	%		1.07	%		1.46	%		1.49	%		1.99	%
Allowance for loan losses/non-performing loans		60.92	%		41.80	%		29.52	%		57.27	%		85.0	%
Net charge-offs average total loans		0.35	%		1.01	%		0.87	%		2.01	%		1.14	%
REGULATORY CAPITAL RATIOS FOR THE COMPANY
Leverage Ratio		9.66	%		11.44	%		11.75	%		11.78	%		12.54	%
Tier 1 Risk-based Capital		14.61	%		21.21	%		23.90	%		21.02	%		23.23	%
Total Risk-based Capital		15.47	%		22.43	%		25.16	%		23.08	%		25.45	%
REGULATORY CAPITAL RATIOS FOR THE BANK:
Leverage Ratio		8.86	%		10.25	%		9.11	%		9.90	%		7.72	%
Tier 1 Risk-based Capital		13.40	%		19.07	%		18.61	%		17.67	%		14.36	%
Total Risk-based Capital		14.27	%		20.27	%		19.87	%		19.73	%		16.59	%

	(a)	Includes the acquisition of Enterprise Bancorp, Inc. of Florida effective July 1, 2013.
	(b)	Includes the acquisition of Anderen Financial, Inc. effective April 1, 2012.
	(c)	Includes the acquisition of Old Harbor Bank of Florida effective October 1, 2011.
	(d)	Includes the acquisition of The Bank of Miami, N.A. effective December 17, 2010.
	(e)	Includes 1.13%, 0.81%, 0.33%, 0.60% and 0%, respectively related to the resolution of and changes in cash flows on acquired assets.
	(f)	Calculated based on dividends declared in period regardless of period paid.

GAAP Reconciliation

(Dollar amounts in thousands, except per share amounts)

	As of and for the years ended December 31,
	2013			2012			2011			2010			2009
Total assets	$	1,845,113		$	1,568,612		$	1,421,487		$	1,267,181		$	1,013,441
Goodwill		(63,991	)		(58,499	)		(52,505	)		(45,008	)		(45,008	)
Intangible assets, net		(3,807	)		(3,268	)		(3,260	)		(3,289	)		(3,045	)
Tangible Assets	$	1,777,315		$	1,506,845		$	1,365,722		$	1,218,884		$	965,388

Shareholders’ equity	$	230,108		$	236,690		$	215,351		$	173,488		$	170,594
Goodwill		(63,991	)		(58,499	)		(52,505	)		(45,008	)		(45,008	)
Intangible assets, net		(3,807	)		(3,268	)		(3,260	)		(3,289	)		(3,045	)
Tangible shareholders’ equity	$	162,310		$	174,923		$	159,586		$	125,191		$	122,541

Book value per common share	$	6.71		$	6.95		$	7.04		$	7.00		$	6.88
Effect of intangible assets		(1.98	)		(1.82	)		(1.82	)		(1.95	)		(1.94	)
Tangible book value per common share	$	4.73		$	5.13		$	5.22		$	5.05		$	4.94

Equity to total assets		12.47	%		15.09	%		15.15	%		13.69	%		16.83	%
Effect of intangible assets		(3.34	)		(3.48	)		(3.46	)		(3.42	)		(4.14	)
Tangible equity/tangible assets		9.13	%		11.61	%		11.69	%		10.27	%		12.69	%

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and related notes included in the Annual Report on Form 10-K. The MD&A is divided into subsections entitled “Business Overview,” “Financial Overview,” “Financial Condition,” “Results of Operations,” “Interest Rate Risk Management,” “Liquidity and Capital Resources,” “Off-Balance Sheet Arrangements,” and “Critical Accounting Policies.” The following information should provide a better understanding of the major factors and trends that affect our earnings performance and financial condition, and how our performance during 2013 compared with prior years. Throughout this section, 1^stUnited Bancorp, Inc., and its subsidiaries, collectively, are referred to as “Company,” “we,” “us,” or “our.” Unless the context indicates otherwise, all dollar amounts in this MD&A are in thousands.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K, 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 this Annual Report for a discussion of factors that could cause our actual results to differ materially from those in the forward-looking statements.

Business Overview

We are a financial holding company headquartered in Boca Raton, Florida. Our principal subsidiary, 1^st United, is a Florida-chartered commercial bank, which operates 21 banking centers in Florida, from Central Florida through the Treasure Coast to South Florida, including Brevard, Broward, Hillsborough, Indian River, Miami-Dade, Orange, Palm Beach, and Pinellas Counties.

Over the past ten years, we have grown under the stewardship of our highly experienced executive management team. Specifically, we have:

▪

increased total assets from $66.8 million to $1.845 billion;

▪

increased total net loans from $39.6 million to $1.125 billion;

▪

grown non-interest bearing deposits from $4.6 million to $526.3 million; and

▪

expanded our branch network from one location to 21 locations.

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, 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.

We have experienced a high volume of bankruptcy filings in Florida during recent years. According to the most recent data available from the U.S. Federal Courts, Florida had the second highest number of bankruptcy filings in the United States through the first three quarters of 2013. Only California experienced more bankruptcy filings. The majority of the filings in Florida were non-business bankruptcies.

Based on data from the U.S. Census Bureau, from 2006 through the end of 2010, median household income decreased by 3.1% in Florida. Additionally, real estate property valuations have also been depressed during the recent economic downturn as evidenced by our higher level of problem assets and credit-related costs. According to the Federal Housing Finance Agency, Florida experienced negative trends in single-family home prices (as indicated by negative housing price indexes) in nearly every quarter beginning with the second quarter of 2007 through the end of 2011 with positive housing price indexes through the end of 2013. Economic conditions such a high unemployment, high volumes of non-business bankruptcy filings, decreased median household income, and depressed real estate values all affect the value of our loan portfolio and the associated risks. While general economic conditions have stabilized in the state of Florida, a relapse of the recession or an economic downturn in Florida would likely exacerbate the adverse effects of these difficult market conditions on our clients, which would likely have a negative impact on our financial results.

We intend to continue to opportunistically expand and grow our business by building on our business strategy and increasing market share in key Florida markets. We believe the demographics and growth characteristics within the communities we serve will provide significant franchise enhancement opportunities to leverage our core competencies while acquisitive growth will enable us to take advantage of the extensive infrastructure and scalable platform that we have assembled.

A significant portion of our growth has been through acquisitions. Under our current management team, we have consummated eight transactions since 2004:

Acquired Bank	Headquarters	Year Acquired
First Western Bank	Cooper City, Florida	2004
Equitable Bank	Fort Lauderdale, Florida	2008
Citrus Bank, N.A.⁽¹⁾	Vero Beach, Florida	2008
Republic Federal Bank, N.A.⁽²⁾	Miami, Florida	2009
The Bank of Miami, N.A.⁽²⁾	Miami, Florida	2010
Old Harbor Bank of Florida⁽²⁾	Clearwater, Florida	2011
Anderen Financial, Inc.	Palm Harbor, Florida	2012
Enterprise Bancorp, Inc.	North Palm Beach, Florida	2013

	⁽¹⁾	Branch acquisition
	⁽²⁾	FDIC-assisted transaction

Enterprise Bancorp, Inc.

On July 1, 2013, the Company completed its acquisition of Enterprise Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of Florida, a Florida-chartered commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “EBI Merger Agreement”), dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. In accordance with the EBI Merger Agreement, the Company acquired EBI through the merger of a wholly-owned subsidiary of the Company with and into EBI and 1st United Bank acquired Enterprise Bank through the merger of Enterprise Bank with and into 1st United Bank (collectively, the “EBI Merger”).

Pursuant to the terms of the EBI Merger Agreement, each share of EBI common stock issued and outstanding was converted into the right to receive consideration based on EBI’s total consolidated assets and the EBI Tangible Book Value (as defined in the EBI Merger Agreement) as of June 30, 2013. The total value of the consideration paid to EBI shareholders was approximately $45.6 million, which consisted of approximately $5.1 million in cash (less the $400,000 holdback described below), $22.1 million in loans (including all nonperforming loans), other real estate, and repossessed assets of Enterprise and $18.3 million in impaired and below investment grade securities and other investments of Enterprise. Each holder of a share of EBI common stock was entitled to consideration from the Company equal to approximately $6.01 per share (less their per share pro rata portion of the $400,000 holdback described below). The total consideration paid to all EBI shareholders in connection with the Merger was subject to a holdback amount of $400,000 to defray potential damages and related expenses incurred to defend or settle certain litigation. The Company does not anticipate the litigation and related costs will exceed the $400,000. The Company recorded goodwill associated with the transaction of approximately $5.5 million which is not deductible for tax purposes. The Company acquired a net deferred tax liability of $233,000 and recorded a deferred tax asset in other assets as a result of purchase accounting adjustments.

The Company accounted for the transaction under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. See Note 4 of the Notes to the Consolidated Financial Statements for additional information related to the fair value of loans acquired. The Company determined the fair value of core deposit intangibles, securities, and deposits with the assistance of third party valuations. The valuation of FHLB advances was based on current rates for similar borrowings. The estimated fair values are subject to refinement as additional information relative to the closing date fair values becomes available through the measurement period.

Anderen Financial, Inc.

On April 1, 2012, we completed our acquisition of Anderen Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank, a Florida-chartered commercial bank (collectively referred to herein as “AFI”), pursuant to the Agreement and Plan of Merger (Anderen Merger Agreement”), dated October 24, 2011. Pursuant to the terms of the Anderen Merger Agreement, each outstanding share of AFI common stock, $0.01 par value per share, was cancelled and automatically converted into the right to receive cash, common stock of the Company or a combination of cash and common stock of the Company. AFI shareholders could elect to receive cash, stock, or a combination of 50% cash and 50% stock, provided, however, that each election was subject to mandatory allocation procedures to ensure the total consideration was approximately 50% cash and 50% stock. The value of the AFI per share consideration was $7.73 calculated per the Anderen Merger Agreement. The total value of the consideration paid to AFI shareholders was $38.3 million which consisted of approximately $19.1 million in cash and 3,140,354 shares of the Company’s common stock. The Company’s common stock was valued at $6.09 per share with a total value of $19.1 million, net of approximately $61,000 of costs. The Company recorded goodwill of $5.8 million as a result of the merger which is not deductible for tax purposes. Total net deferred tax assets acquired was $5.9 million, primarily related to loss carry forwards. The Company completed the integration of AFI in June 2012.

The Company accounted for the transaction under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. See Note 4 of the Notes to the Consolidated Financial Statement for additional information related to the fair value of loans acquired. The Company uses third party valuations to determine the fair value of the core deposit intangible, securities, fixed assets and deposits. The fair value of other real estate owned was based on recent appraisals of the properties. The estimated fair value are subject to refinement as additional information relative to the closing date fair values. The Company updated the previously reported consolidated balance sheet for the year ended December 31, 2012 for the final measurement period adjustments.

Financial Overview

▪

Net earnings for the year ended December 31, 2013 were $6.9 million compared to net earnings of $4.7 million in 2012. Operating results for the year ended December 31, 2013 when compared to the year ended December 31, 2012 were impacted by the EBI Merger in July 2013 and net loan growth of $61.3 million for the year ended December 31, 2013.

▪

Net interest margin increased to 5.29% for the year ended December 31, 2013 compared to 5.13% for the year ended December 31, 2012. Excluding interest accretion related to the resolution of and changes in cash flows on acquired assets, our net interest margin would have been 4.16% and 4.32% for the years ended December 31, 2013 and 2012, respectively.

▪

The Company recorded provisions for loan losses of $3.5 million for the year ended December 31, 2013 as compared to $6.4 million for the year ended December 31, 2012.

▪

During the year ended December 31, 2013, we incurred approximately $1.7 million in personnel, IT and facilities costs and merger reorganization expense that related to the integration of EBI. During the year ended December 31, 2012, we incurred approximately $1.8 million in personnel, IT, facilities and merger reorganization expense related to the integrations of AFI and Old Harbor.

▪

Non-performing assets at December 31, 2013 represented 1.87% of total assets compared to 2.74% at December 31, 2012. Non-performing assets not covered by the Loss Sharing Agreements represented 0.91% of total assets at December 31, 2013 compared to 1.17% at December 31, 2012.

▪

Total assets increased to $1.845 billion at December 31, 2013 from $1.569 billion at December 31, 2012 primarily due to the EBI acquisition. In addition, at December 31, 2013 we had a short term deposit of approximately $128 million that was deposited in December 2013 and subsequently paid out in January, 2014.

▪

Securities available for sale increased by approximately $67.8 million from $260.1 million at December 31, 2012 to $328.0 million at December 31, 2013. The increase was a result of the Company investing excess liquidity of approximately $174.4 million primarily in residential mortgage backed securities during the year ended December 31, 2013, as well as the acquisition of $4.0 million of residential mortgage backed securities from EBI, which was offset by sales of $33.7 million, maturities and principal payments of $57.5 million and an increase in the unrealized loss on securities held of $16.9 million.

▪

Net loans increased by approximately $221.0 million to $1.125 billion at December 31, 2013 from $903.6 million at December 31, 2012. The change was due to the acquisition of $159.2 million of loans in connection with the acquisition of EBI as well as new loan production of $336.6 million which was offset by payoffs and resolutions of $275.3 million during the year.

▪

Other real estate owned decreased by $949,000 to $18.6 million from $19.5 million at December 31, 2012. The change was due to the foreclosure of $8.4 million of loans, OREO proceeds from sales of $9.4 million, net of a $1.1 million gain for the year ended December 31, 2013 and write-downs on properties due to updated fair values of $1.1 million. At December 31, 2013, we had $1.1 million in OREO under contract for sale.

▪

FDIC loss share receivable was reduced by approximately $19.2 million from $48.6 million at December 31, 2012 to $29.3 million at December 31, 2013. The decrease was due to cash receipts from the FDIC of approximately $6.5 million and approximately $15.8 million related to adjustments resulting from the disposition of acquired loans at above their discounted carrying values and the impact of changes in anticipated cash flows offset by accretion of income on the receivable of $574,000.

▪

Deposits increased by $244.9 million from $1.303 billion at December 31, 2012 to $1.548 billion at December 31, 2013 due primarily from the acquisition of $177.2 million in deposits from the EBI Merger and one customer deposit of $128.0 million received in December 2013 and withdrawn in January 2014, offset by anticipated runoff of acquired higher cost time deposits and money market accounts. The percentage of non-interest bearing deposits to total deposits was approximately 34% at December 31, 2013 compared to approximately 33% at December 31, 2012.

▪

Federal Home Loan Bank Advances were $35.0 million at December 31, 2013 and were assumed in connection with the EBI Merger. There were no Federal Home Loan Bank Advances at December 31, 2012.

▪

Total shareholders’ equity decreased to $230.1 million at December 31, 2013 from $236.7 million at December 31, 2012. The change was due to net unrealized losses on securities available for sale in accumulated other comprehensive income (loss) of $8.3 million at December 31, 2013 from a net unrealized gain on securities available for sale of $2.3 million at December 31, 2012. The decrease in accumulated other comprehensive income (loss) was partially offset by net income for the year ended December 31, 2013 of $6.9 million.

Financial Condition

At December 31, 2013, our total assets were $1.845 billion and our net loans were $1.125 billion or 61.0% of total assets. At December 31, 2012, our total assets were $1.569 billion and our net loans were $903.6 million or 57.7% of total assets. The increase in net loans from December 31, 2012 to December 31, 2013 was $221.0 million or 24.5%. These increases were attributed to the EBI Merger which added approximately $159.2 million in net loans. During the year ended December 31, 2013, we had new loan production and fundings of approximately $336.6 million which was offset by payoffs, sales, pay downs and charge-offs of $275.3 million.

At December 31, 2013, the allowance for loan losses was $9.6 million or 0.85% of total loans. At December 31, 2012, the allowance for loan losses was $9.8 million or 1.07% of total loans.

At December 31, 2013, our total deposits were $1.548 billion, an increase of $244.9 million (18.8%) over December 31, 2012 of $1.303 billion. The increase was mainly due to the EBI Merger in July 1, 2013, which added approximately $177.2 million in deposits as of December 31, 2013 and one customer deposit of $128.0 million received in December 2013 and withdrawn in January 2014 offset by anticipated runoff of acquired higher cost time deposits and money market accounts. Non-interest bearing deposits represented 34.0% of total deposits at December 31, 2013 compared to 32.8% at December 31, 2012.

There were $35.0 million in Federal Home Loan Bank advances as of December 31, 2013 which compares to no Federal Home Loan Bank advances as of December 31, 2012. The Federal Home Loan Bank advances were assumed as part of the EBI Merger.

Refer to Part 1, Item 1. Business for a discussion of our investment portfolio, loan portfolio, deposits and borrowings.

Results of Operations

We recorded net earnings of $6.9 million for the year ended December 31, 2013, compared to net earnings of $4.7 million for the year ended December 31, 2012. Income for the year ended December 31, 2013 was positively impacted by the EBI acquisition in July 2013, an increase in interest income due to net loan growth and purchases of securities available for sale and a reduction in the provision for loan losses year-over year offset by an increase in non-interest expense due to the disposal of two banking centers and equipment and write-downs to our other real estate owned portfolio due to updated appraisals received during 2013.

We recorded net earnings of $4.7 million for the year ended December 31, 2012, compared to net earnings of $3.7 million for the year ended December 31, 2011. Income for the year ended December 31, 2012 was impacted by the Old Harbor acquisition at the end of 2011 as well as the AFI acquisition in April 2012. Income for the year ended December 31, 2012 was also impacted by a reduction in the provision for loan losses year-over year of $650,000 as well as salary, occupancy, data processing and integration expenses of $1.8 million related to the Old Harbor and AFI acquisitions incurred in the year ended December 31, 2012 as compared to $1.1 million in such costs incurred in the year ending December 31, 2011 related to the TBOM and Old Harbor acquisitions. Overall operating expenses increased by $8.1 million in 2012 primarily as a result of the Old Harbor acquisition in October 2011 as well as the AFI acquisition in April 2012.

Net Interest Income

Net interest income, which constitutes the principal source of our income, represents the excess of interest income on interest-earning assets over interest expense on interest-bearing liabilities. The principal interest-earning assets are federal funds sold, investment securities, and loans. Interest-bearing liabilities primarily consist of time deposits, interest-bearing checking accounts (“NOW accounts”), savings deposits, money market accounts, FHLB borrowings, and repurchase agreements. Funds attracted by these interest-bearing liabilities are invested in interest-earning assets. Accordingly, 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.

The following table reflects the components of net interest income, setting forth for the periods presented, (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 years ended December 31, 2013 and 2012 are reflected in the following table:

(Dollars in thousands)	Year ended
	December 31, 2013								December 31, 2012
	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid
Assets
Interest-earning assets
Loans (a)	$	1,023,001		$	71,948		7.03	%	$	931,807		$	66,929		7.18	%
Investment securities		325,510			7,153		2.20	%		216,039			5,106		2.36	%
Federal funds sold and securities purchased under resale agreements		88,018			649		0.74	%		169,909			814		0.48	%
Total interest earning assets		1,436,529			79,750		5.55	%		1,317,755			72,849		5.53	%
Non-interest earning assets		229,978								225,917
Allowance for loan losses		(10,019	)							(11,381	)
Total Assets	$	1,656,488							$	1,532,291

Liabilities
Interest-bearing liabilities
NOW accounts	$	206,527		$	262		0.13	%	$	154,687		$	233		0.15	%
Money market accounts		343,377			1,073		0.31	%		338,242			1,569		0.46	%
Savings accounts		62,792			165		0.26	%		63,736			194		0.30	%
Certificates of deposit		296,983			2,180		0.73	%		336,970			3,296		0.98	%
Repos		15,824			17		0.11	%		11,779			14		0.12	%
Other borrowings		18,623			93		0.50	%		137			7		5.11	%
Total interest-bearing liabilities		944,126			3,790		0.40	%		905,551			5,313		0.59	%
Non-interest-bearing liabilities
Demand deposit accounts		467,445								385,066
Other liabilities		8,766								8,562
Total non-interest-bearing liabilities		476,211								393,628

Shareholders’ Equity		236,151								233,112

Total Liabilities and Shareholders’ Equity	$	1,656,488							$	1,532,291
Net interest spread				$	75,960		5.15	%				$	67,536		4.94	%
Net interest on average earning assets-Margin (b)							5.29	%							5.13	%

(a)

Average loans include non-performing loans. Interest on loans includes loan origination fees of $678,000 in 2013, and $490,000 in 2012.

(b)

Net interest margin is net interest income divided by average total interest-earning assets.

Our net interest income for the year ended December 31, 2013 was positively impacted by an increase in average earning assets of $118.8 million or 9.0% as compared to the year ended December 31, 2012 primarily due to increases in loans from the EBI acquisition as well as net organic loan growth and an increase in investment securities. Earnings were also positively impacted by the accretion of discounts related to acquired loans of approximately $22.3 million for the year ended December 31, 2013 as compared to $19.7 million for the same period in 2012. Included in the $22.3 million of accretion of discount in 2013 was approximately $16.2 million related to the disposition of assets acquired in the transactions above the discounted purchase price of the asset and accretion of discounts on purchased credit impaired loans due to increases in estimated cash flows. For the year ended December 31, 2013, we took a charge of approximately $15.8 million, including $1.0 million related to the resolution of other real estate owned, as an adjustment to the FDIC receivable. This charge was recorded in non-interest income in the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets. Included in the $19.7 million of accretion of discount in 2012 was approximately $10.7 million related to the disposition of assets acquired in the transactions above the discounted purchase price of the asset. For the year ended December 31, 2012, we took a charge of approximately $13.7 million, including $3.4 million related to the resolution of other real estate owned, as an adjustment to the FDIC receivable. This charge was recorded in non-interest income within the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets.

Net interest income was $76.0 million for year ended December, 2013, as compared to $67.5 million for the year ended December 31, 2012, an increase of $8.4 million or 12.5%. The increase resulted primarily from an increase in average earning assets of $118.8 million or 9.0% primarily a result of the EBI acquisition, net organic loan growth, an increase in accretion income on acquired loans and a reduction in our average cost of funds.

The net interest margin (i.e., net interest income divided by average earning assets) increased 16 basis points from 5.13% during the year ended December 31, 2012 to 5.29% during the year ended December 31, 2013, primarily due to a reduction in the yield on our interest bearing deposits. Our cost of funds was approximately 27 basis points for the year ended December 31, 2013, as compared to 41 basis points in 2012, primarily as a result of lower rates on money market and certificate of deposit accounts. Accretion of $22.3 million on acquired loans added approximately 156 basis points to the net interest margin for the year ended December 31, 2013; of this amount, $16.2 million or 113 basis points related to resolved loss share assets and changes in cash flows during the year ended December 31, 2013. This compares to accretion of loan discount of $19.7 million during the year ended December 31, 2012, which added approximately 150 basis points to the December 31, 2012 margin. Of this amount, $10.7 million or 81 basis points related to resolved loss share assets and changes in cash flows during the year ended December 31, 2012.

For the year ended December 31, 2013, average loans represented 71.2% of total average interest-earning assets and 73.4% of total average deposits and customer repurchase agreements, compared to average loans to total average interest-earning assets of 70.71% and average loans to total average deposits and customer repurchase agreements of 72.2% at December 31, 2012.

Net interest earnings for the years ended December 31, 2012 and 2011 are reflected in the following table:

(Dollars in thousands)	Years ended
	December 31, 2012								December 31, 2011
	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid
Assets
Interest-earning assets
Loans (a)	$	931,807		$	66,929		7.18	%	$	831,830		$	55,311		6.65	%
Investment securities		216,039			5,106		2.36	%		147,608			4,362		2.96	%
Federal funds sold and securities purchased under resale agreements		169,909			814		0.48	%		156,842			736		0.47	%
Total interest earning assets		1,317,755			72,849		5.53	%		1,136,280			60,409		5.32	%
Non-interest earning assets		225,917								180,407
Allowance for loan losses		(11,381	)							(13,438	)
Total Assets	$	1,532,291							$	1,303,249

Liabilities
Interest-bearing liabilities
NOW accounts	$	154,687		$	233		0.15	%	$	125,267		$	222		0.18	%
Money market accounts		338,242			1,569		0.46	%		278,104			2,192		0.79	%
Savings accounts		63,736			194		0.30	%		44,696			238		0.53	%
Certificates of deposit		336,970			3,296		0.98	%		297,806			3,339		1.12	%
Repos		11,779			14		0.12	%		11,998			16		0.13	%
Other borrowings		137			7		5.11	%		9,053			342		3.78	%
Total interest-bearing liabilities		905,551			5,313		0.59	%		766,924			6,349		0.83	%
Non-interest-bearing liabilities
Demand deposit accounts		385,066								325,277
Other liabilities		8,562								7,187
Total non-interest-bearing liabilities		393,628								332,464

Shareholders’ Equity		233,112								203,861

Total Liabilities and Shareholders’ Equity	$	1,532,291							$	1,303,249
Net interest spread				$	67,536		4.94	%				$	54,060		4.49	%
Net interest on average earning assets-Margin (b)							5.13	%							4.76	%

(a)

Average loans include non-performing loans. Interest on loans includes loan fees of $490,000 in 2012 and $301,000 in 2011.

Our net interest income for the year ended December 31, 2012 was positively impacted by an increase in average earning assets of $181.5 million or 16.0% as compared to the year ended December 30, 2011 primarily due to increases in loans acquired in the AFI and Old Harbor acquisitions as well as increases in investments due to net purchases through 2012 and the acquisition of investments from our merger with AFI. Earnings were also positively impacted by the accretion of discounts related to acquired loans of approximately $19.7 million for the year ended December 31, 2012 as compared to $11.8 million for the same period in 2011. Included in the $19.7 million of accretion of discount in 2012 was approximately $10.7 million related to the disposition of assets acquired in the transactions above the discounted purchase price of the asset. For the year ended December 31, 2012, we took a charge of approximately $13.7 million, including $3.4 million related to the resolution of other real estate owned, as an adjustment to the FDIC receivable. This charge was recorded in non-interest income in within the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets.

Included in the $11.8 million of accretion of discount in 2011 was approximately $4.3 million related to the disposition of assets acquired in the transactions above the discounted purchase price of the asset. For the year ended December 31, 2011, we took a charge of approximately $3.8 million related to resolved loans as an adjustment to the FDIC receivable. This charge was recorded in non-interest income in within the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets.

Net interest income was $67.5 million for year ended December, 2012, as compared to $54.1 million for the year ended December 31, 2011, an increase of $13.5 million or 24.9%. The increase resulted primarily from an increase in average earning assets of $181.5 million or 16.0% primarily due to the AFI and Old Harbor acquisitions as well as a reduction in our average cost of funds.

The net interest margin (i.e., net interest income divided by average earning assets) increased 37 basis points from 4.76% during the year ended December 31, 2011 to 5.13% during the year ended December 31, 2012, due to an increase in the yield earned on assets of 21 basis point coupled with a decrease of our cost of funds during the year as well as an increase in accretion income during the year. Our cost of funds was approximately 41 basis points for the year ended December 31, 2012, as compared to 58 basis points in 2011, primarily as a result of lower rates in the renewal of time deposits. Accretion of $19.7 million on acquired loans added approximately 150 basis points to the net interest margin for the year ended December 31, 2012; of this amount, $10.7 million or 81 basis points related to resolved loss share assets and changes in cash flows during the year ended December 31, 2012. This compares to accretion of loan discount of $11.8 million during the year December 31, 2011, which added approximately 104 basis points to the December 31, 2011 margin. Of this amount, $4.3 million or 38 basis points related to resolved loss share assets and changes in cash flows during the year ended December 31, 2011.

For the year ended December 31, 2012, average loans represented 70.71% of total average interest-earning assets and 72.2% of total average deposits and customer repurchase agreements, compared to average loans to total average interest-earning assets of 73.21% and average loans to total average deposits and customer repurchase agreements of 76.80% at December 31, 2011.

Rate Volume Analysis

The following table sets forth certain information regarding changes in our interest income and interest expense for the year ended December 31, 2013, as compared to the year ended December 31, 2012, and the year ended December 31, 2012 as compared to the year ended December 31, 2011. 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 years ended December 31, 2013 and 2012 were as follows:

(Dollars in thousands)	Years ended December 31, 2013 and 2012
	Change in Interest Income/ Expense			Variance Due to Volume Changes			Variance Due to Rate Changes
Assets
Interest-earning assets
Loans	$	5,019		$	6,438		$	(1,419	)
Investment securities		2,047			2,428			(381	)
Federal funds sold and securities purchased under resale agreements		(165	)		(492	)		327
Total interest-earning assets	$	6,901		$	8,374		$	(1,473	)

Liabilities and Shareholders’ Equity
Interest-bearing liabilities
NOW accounts	$	29		$	70		$	(41	)
Money market accounts		(496	)		23			(519	)
Savings accounts		(29	)		(3	)		(26	)
Certificates of deposit		(1,116	)		(360	)		(756	)
Federal funds purchased and repos		3			4			(1	)
Other borrowings		86			98			(12	)
Total interest-bearing liabilities	$	(1,523	)	$	(168	)	$	(1,355	)

Net interest spread	$	8,424		$	8,542		$	(118	)

Changes in interest earnings for the years ended December 31, 2012 and 2011 were as follows:

(Dollars in thousands)	Years ended December 31, 2012 and 2011
	Change in Interest Income/ Expense			Variance Due to Volume Changes			Variance Due to Rate Changes
Assets
Interest-earning assets
Loans	$	11,618		$	6,968		$	4,650
Investment securities		744			1,739			(995	)
Federal funds sold and securities purchased under resale agreements		78			62			16
Total interest-earning assets	$	12,440		$	8,769		$	3,671

Liabilities and Shareholders’ Equity
Interest-bearing liabilities
NOW accounts	$	11		$	47		$	(36	)
Money market accounts		(623	)		407			(1,030	)
Savings accounts		(44	)		80			(124	)
Certificates of deposit		(43	)		411			(454	)
Federal funds purchased and repos		(2	)		—			(2	)
Other borrowings		(335	)		(424	)		89
Total interest-bearing liabilities	$	(1,036	)	$	521		$	(1,557	)

Net interest spread	$	13,476		$	8,248		$	5,228

Provision for Loan Losses

The provision for loan losses is charged to earnings to bring the allowance for loan losses to a level deemed adequate by management and is based upon anticipated experience, the volume and type of lending conducted by us, the amounts of past due and non-performing loans, general economic conditions, particularly as they relate to our market area, and other factors related to the collectability of our loan portfolio. For the year ended December 31, 2013, the provision for loan losses was $3.5 million as compared to $6.4 million for the year ended December 31, 2012 and $7.0 million for the year ended December 31, 2011. The decrease in the provision for loan losses between the years ended December 31, 2013 and 2012 was due to a reduction in charge-offs as a result of a decrease in impaired and classified loans period-over-period and continued stabilization in changes in the fair values on the underlying collateral on impaired loans. Total charge-offs for the year ended December 31, 2013 were $3.8 million as compared to $9.8 million for the year ended December 31, 2012. During the year ended December 31, 2012, the Company strategically resolved an $11.4 million non-performing loan collateralized by 15 gas stations through acceptance of a bulk sale offer at below appraised values. The resolution resulted in a $5.4 million charge-off during the year.

The decrease in the provision for loan losses between the years ended December 31, 2012 and December 31, 2011 was due to a decrease in special mention loans of $13.9 million since December 31, 2011 which have a higher allocation of general reserve, coupled with the improvement in the historic loss factor associated with construction and land development loans. Total charge-offs for the year ended December 31, 2012 were $9.8 million as compared to $7.4 million for the year ended December 31, 2011.

As of December 31, 2013 and 2012, the allowance for loan losses was 0.85% and 1.07%, respectively, of total loans. As of December 31, 2013 and 2012, the allowance for loan losses to non-accrual loans was 60.9% and 45.9%, respectively. The change in the allowance as a percentage of non-accrual loans over the prior year is primarily due to the continued timely charge-off of specific assets and resolution of impaired loans. The Company obtains new appraisals annually for all non-accruing loans and provides specific reserves when values less disposal costs are less than the carrying value of the loans. Specific reserves are generally charged off at the earlier of resolution or within one year.

Non-Interest Income

The following is a schedule of non-interest income for the years ended December 31, 2013, 2012, and 2011:

(Dollars in thousands)	Years ended December 31,
	2013			2012			2011
Service charges and fees on deposit accounts	$	3,332		$	3,451		$	3,581
Net gains (losses) on sales of other real estate owned		1,133			3,278			(264	)
Net gains on sales of securities		824			1,673			364
Net gains on sales of loans held for sale		58			106			58
Increase in cash surrender value of Company owned life insurance		618			498			151
Adjustment to FDIC loss share receivable		(15,250	)		(12,488	)		(3,236	)
Other		1,035			816			1,085
	$	(8,250	)	$	(2,666	)	$	1,739

Year Ended December 31, 2013, compared to Year Ended December 31, 2012

Non-interest income includes service charges and fees on deposit accounts, net gains on the sales of securities available for sale and other real estate owned and all other items of income, other than interest, resulting from our business activities.

Non-interest income decreased to a net charge of $8.3 million for the year ended December 31, 2013 from a net charge of $2.7 million for the year ended December 31, 2012. The change was due to an increase in adjustments to reduce the FDIC loss share receivable during the year ended December 31, 2013 as compared to the same period in 2012 due to increased resolutions, including sales, payoffs and transfers to other real estate owned, of acquired assets in excess of fair value and changes in cash flows of loss share assets, reduced gains on the sales of other real estate owned and securities available for sale offset by an increase in the earnings on Company owned life insurance.

Service charges on deposit accounts decreased by $119,000 or 3.4% for the year ended December 31, 2013, as compared to the year ended December 31, 2012. This decrease was due to the change in the mix and level of transactions on customer accounts year-over-year.

For the year ending December 31, 2013, the Bank sold OREO properties with a carrying value of $8.2 million and recorded net gains on the disposition of $1.1 million as compared to sales of OREO with a carrying value of $24.1 million for net gains of $3.3 million for the year ended December 31, 2012. Net gains related to the resolution of OREO covered under Loss Sharing Agreements was $1.1 million and $3.4 million for the years ended December 31, 2013 and 2012, respectively. Of this amount, approximately $1.0 million was recorded as an adjustment to FDIC loss share receivable due to the changes in estimated cash flows at December 31, 2013 as compared to $3.4 million at December 31, 2012.

During the year ended December 31, 2013, we sold approximately $33.7 million of securities resulting in a net gain of $824,000 as compared to 2012 when we sold $102.5 million of securities for a net gain of $1.7 million.

The increase in earnings on the cash surrender value of Company owned life insurance of $120,000 for the year ended December 31, 2013 as compared to the prior year was due to the purchase of $3.0 million in policies in 2013.

The adjustment to the FDIC loss share receivable during the years ended December 31, 2013 and 2012 represented $15.8 million and $13.7 million of expense, respectively, related to changes in cash flows on assets covered by Loss Sharing Agreement and the resolution of other real estate owned property which reduces the FDIC receivable. These amounts were partially offset by interest income earned on the FDIC receivable of $574,000 and $1.2 million during the years ended December 31, 2013 and 2012, respectively.

Year Ended December 31, 2012, compared to Year Ended December 31, 2011

Non-interest income decreased to a net charge of $2.7 million for the year ended December 31, 2012 from $1.7 million for the year ended December 31, 2011. The change was due to an increase in adjustments to reduce the FDIC loss share receivable during the year ended December 31, 2012 as compared to the same period in 2011 due to the resolution, including sales, payoffs and transfers to other real estate owned, of acquired in excess of fair value and changes in cash flows of loss share assets offset by an increase in gains on the sales of securities and resolution of OREO and an increase in the interest income received on Company owned life insurance.

Service charges on deposit accounts decreased by $130,000 or 3.6% for the year ended December 31, 2012, as compared to the year ended December 31, 2011. This decrease was primarily due to the change in the mix and level of individual customer accounts year-over-year offset by an increase in average deposits of 19.4% in 2012 as compared to 2011 due to the acquisition of $161.0 million in deposits from the AFI merger.

For the year ending December 31, 2012, the Bank sold OREO properties with a carrying value of $24.1 million and recorded net gains on the disposition of $3.3 million as compared to sales of OREO with a carrying value of $6.1 million for a net loss of $264,000 for the year ended December 31, 2011. Net gains related to the resolution of OREO covered under Loss Sharing Agreements was $3.4 million and $0 for the years ended December 31, 2012 and 2011, respectively. Of this amount, approximately $3.4 million was recorded as an adjustment to FDIC loss share receivable due to the changes in estimated cash flows.

During the year ended December 31, 2012, we sold approximately $102.5 million of securities resulting in a net gain of $1.7 million as compared to 2011 when we sold $20.3 million of securities for a net gain of $364,000.

The increase in earnings on the cash surrender value of Company owned life insurance of $347,000 for the year ended December 31, 2012 as compared to the prior year was due to the purchase of $15.5 million in policies in 2012.

The adjustment to the FDIC loss share receivable during the years ended December 31, 2012 and 2011 represented a $13.7 million and $3.8 million expense, respectively, related to increases in cash flows on assets covered by Loss Sharing Agreement which reduces the FDIC receivable. The $13.7 million for the year ended December 31, 2012 includes $3.2 million related to resolved OREO covered by loss share assets during the year and the related charges in estimated cash flows. This amount was partially offset by interest income earned on the FDIC receivable of $1.2 million and $566,000 during the years ended December 31, 2012 and 2011, respectively.

Non-Interest Expenses

The following is a schedule of non-interest expense for years ended December 31, 2013, 2012 and 2011:

(Dollars in thousands)	Years ended December 31,
	2013		2012		2011
Salaries and employee benefits	$	25,023	$	24,303	$	20,186
Occupancy and equipment		8,100		7,958		7,732
Data processing		3,903		3,686		3,481
Telephone		899		917		814
Stationary and supplies		382		480		387
Amortization of intangibles		745		684		514
Professional fees		1,675		1,631		1,131
Advertising		263		258		293
Merger reorganization expense		1,745		1,784		1,076
Disposal of banking centers and equipment		828		—		—
Regulatory assessment		1,595		1,482		1,395
Other real estate owned expense		2,040		1,245		323
Loan expense		1,448		2,307		1,900
Other		4,626		4,249		3,613
	$	53,272	$	50,984	$	42,845

Year Ended December 31, 2013, compared to Year Ended December 31, 2012

Non-interest expense is comprised of salaries and employee benefits, occupancy and equipment expense, and other operating expenses incurred in supporting our various business activities. During the year ended December 31, 2013, non-interest expense increased to $53.3 million compared to $51.0 million for the year ended December 31, 2012, an increase of $2.3 million or 4.5%. The increase was primarily due to the strategic decision to close two banking centers and the write-off of obsolete equipment as well as an increase in the write-downs to other real estate owned due to updated appraisals received during the year.

Salary and employee benefit costs were $25.0 million for the year ended December 31, 2013, an increase of $720,000 or 3.0%.The change was due primarily to the addition of 14 new employees related to the acquisition of EBI.

Occupancy and equipment increased by $142,000 or 1.8%. The increase was due to the addition of two new banking centers acquired from EBI offset by closures of two legacy banking centers. Of the two banking centers closed, one was located in South Florida and closed in January 2014 and the other was located on the west coast of Florida and closed in the third quarter of 2013. The total estimated annualized occupancy savings due to the closure of these banking centers is approximately $1.0 million per year.

Data processing increased $217,000 or 5.9% from $3.7 million for the year ended December 31, 2012 to $3.9 million for the year ended December 31, 2013 due to increased transactions related to the acquisition of EBI in July 2013.

Merger reorganization expenses were consistent year-over-year. The $1.7 million of expense for the year ended December 31, 2013 was due to the merger and integration of EBI which was completed during the third quarter of 2013. Merger reorganization expense for the year ended December 31, 2012 related to the integration of Old Harbor as well as the merger and integration of AFI. Merger reorganization expenses include legal and professional, IT integration and conversion, severance and lease termination expense.

Disposal of banking centers and equipment relates to the decision to strategically close one banking center in South Florida and close one banking center on the west coast of Florida. The Company recorded an expense of $632,000 for the remaining facility lease, write-off of leasehold improvements and other fixed assets and severance costs. Additionally, the Company disposed of computer storage related equipment which was determined to be obsolete during the quarter ended December 31, 2013 and recorded a charge of $178,000 related to the write-off of these fixed assets.

OREO expense increased by $795,000 to $2.0 million for the year ended December 31, 2013, as compared to $1.2 million for the year ended December 31, 2012. The change was due to an increase in write downs on OREO due to changes in estimated fair values during the year ended December 31, 2013 of $1.1 million as compared to $340,000 for the year ended December 31, 2012.

Loan expenses primarily include the costs associated with the collection of legacy as well as loss sharing assets. Loan expenses decreased by $859,000 from $2.3 million for the year ended December 31, 2012 compared to $1.4 million for the year ended December 31, 2013. The change was primarily due to a reduction in impaired and classified loans period-over-period and a reduction in loans covered under loss sharing agreements.

The increase in other non-interest expenses of $377,000 was due to the EBI Merger.

Year Ended December 31, 2012, compared to Year Ended December 31, 2011

Non-interest expense is comprised of salaries and employee benefits, occupancy and equipment expense, and other operating expenses incurred in supporting our various business activities. During the year ended December 31, 2012, non-interest expense increased to $51.0 million compared to $42.8 million for the year ended December 31, 2011, an increase of $8.1 million or 19.0%. A substantial portion of the increase in non-interest expense was due to the acquisition of Old Harbor in October 2011 as well as the AFI Acquisition in April 2012.

Salary and employee benefit costs were $24.3 million for the year ended December 31, 2012, an increase of $4.1 million or 20.4%. The increase was primarily a result of the salaries added in the acquisition of Old Harbor in October 2011 as well as the AFI Acquisition in April 2012.

Occupancy and equipment increased by $226,000 or 2.9% year-over-year. The Company integrated and closed four banking centers in May 2011, which were added as part of the TBOM acquisition in 2010. This cost was partially offset by the seven banking centers added from the AFI Acquisition in April 2012 and Old Harbor acquisition in October 2011.

Data processing costs were $3.7 million for the year ended December 31, 2012 or an increase of $205,000 compared to 2011, due to the increase in the number of transactions processed as a result of the acquisitions of Old Harbor in October of 2011 and AFI in April of 2012.

Professional fees were $1.6 million, or an increase of $500,000 compared to 2011 due to an increase in professional services related to audits and computer consulting due to the expansion of operations period-over-period.

Merger reorganization expenses increased by $708,000 to $1.8 million for the year ended December 31, 2012 as compared to $1.1 million for the year ended December 31, 2011, as a result of the integration of Old Harbor and the merger and integration of AFI during the year ended December 31, 2012. The $1.1 million of expense for the year ended December 31, 2011 was the result of the integration of TBOM. Costs include legal and professional, IT integration and conversion, severance and lease termination fees.

OREO expense increased by $922,000 to $1.2 million for the year ended December 31, 2012, as compared to $323,000 for the year ended December 31, 2011. The increase is due to an increase in the number of OREO properties (primarily a result of ORE acquired from the Old Harbor transaction in October 2011) period-over-period and the write down of properties held within the portfolio by $340,000 during the year ended December 31, 2012 to market values during the year.

Loan expenses primarily include the costs associated with the collection of legacy as well as loss sharing assets. Loan expenses increased by $407,000 from $1.9 million for the year ended December 31, 2011 to $2.3 million for the year ended December 31, 2012. The change was primarily due to foreclosure related expenses associated with the increase in loss share assets as a result of the Old Harbor acquisition.

Increases in other non-interest expenses of $636,000 were primarily due to the AFI merger and the acquisition of Old Harbor.

Income Tax Expense (Benefit)

During the year ended December 31, 2013, we recognized income tax expense of $4.1 million due to pre-tax earnings of $11.0 million. During the year ended December 31, 2012, we recognized income tax expense of $2.8 million due to pre-tax earnings of $7.5 million. During the year ended December 31, 2011, we recognized income tax expense of $2.3 million due to pre-tax earnings of $6.0 million. The effective tax rate for the years ended December 31, 2013 and 2012 was 37.3% and 38.1% for the year ended December 31, 2011.

Analysis for Three Month Periods ended December 31, 2013 and 2012

Results of Operations

We recorded net earnings of $2.6 million for the quarter ended December 31, 2013, compared to net earnings of $1.7 million for the quarter ended December 31, 2012. Income for the quarter ended December 31, 2013 was positively impacted by the EBI acquisition in July 2013, an increase in interest income due to net loan growth and purchases of securities available for sale and a reduction in the provision for loan losses quarter over quarter offset by an increase in non-interest expense due to the write-off of computer equipment and write-downs to our other real estate owned portfolio due to updated appraisals received.

Net Interest Income

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 and money market accounts. 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 three-month periods ended December 31, 2013 and 2012 are reflected in the following table:

	December 31, 2013								December 31, 2012
(Dollars in thousands)	Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid			Average Balance			Interest Income/ Expense		Average Rates Earned/ Paid
Assets
Interest-earning assets
Loans	$	1,132,668		$	19,682		6.89	%	$	924,306		$	17,321		7.43	%
Investment securities		337,525			2,125		2.52	%		224,747			1,070		1.90	%
Federal funds sold and securities purchased under resale agreements		65,825			157		0.95	%		182,199			221		0.48	%
Total interest-earning assets		1,536,018			21,964		5.67	%		1,331,252			18,612		5.55	%
Non interest-earning assets		236,583								232,102
Allowance for loan losses		(10,068	)							(9,618	)
Total assets	$	1,762,533							$	1,553,736

Liabilities and Shareholders’ Equity
Interest-bearing liabilities
NOW accounts	$	249,135		$	75		0.12	%	$	165,117		$	57		0.14	%
Money market accounts		354,508			265		0.30	%		335,112			293		0.35	%
Savings accounts		62,472			43		0.27	%		64,069			42		0.26	%
Certificates of deposit		291,623			546		0.74	%		320,394			725		0.90	%
Fed funds purchased and repurchase agreements		15,180			4		0.13	%		15,794			6		0.15	%
Federal Home Loan Bank advances and other borrowings		35,400			48		0.54	%		—			—		—	%
Total interest-bearing liabilities		1,008,318			981		0.39	%		900,486			1,123		0.49	%

Non-interest bearing liabilities
Demand deposit accounts		507,960								405,857
Other liabilities		10,541								7,115
Total non-interest-bearing liabilities		518,501								412,972
Shareholders’ equity		235,714								240,278
Total liabilities and shareholders’ equity	$	1,762,533							$	1,553,736
Net interest spread				$	20,983		5.29	%				$	17,489		5.06	%

Net interest on average earning assets - Margin							5.42	%							5.21	%

Our net interest income for the three months ended December 31, 2013 was impacted by an increase in total average earning assets of $204.8 million or 15.4% offset by an increase of $107.8 million or 12.0% in interest bearing liabilities as compared to the three months ended December 31, 2012. The increases were primarily due to the acquisition of EBI in July 2013.

Interest earnings for the current quarter were positively impacted by the accretion of discounts related to acquired loans of approximately $6.2 million as compared to $5.6 million for the same period in 2012. Included in the $6.2 million of accretion of discount for the quarter ended December 31, 2013 was approximately $5.0 million related to the disposition of assets acquired in the transactions above the discounted carrying value of the asset and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the quarter ended December 31, 2013, we took a charge of approximately $4.7 million, including $102,000 related to the resolution of other real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income within the consolidated statements of operations and was substantially related to changes in cash flows of loss share assets. Included in the $5.6 million of accretion discount for the quarter ended December 31, 2012 was approximately $3.4 million related to the disposition of assets above the discounted carrying values and accretion of discounts on purchase credit impaired loans due to increases in estimated cash flows. For the quarter ended December 31, 2012, we took a charge of approximately $3.6 million, including $297,000 related to the resolution of other real estate owned, as an adjustment to the FDIC loss share receivable. This charge was recorded in non-interest income within the consolidated statements of operations substantially related to changes in cash flows of loss share assets.

Net interest income was $21.0 million for the three months ended December 31, 2013, as compared to $17.5 million for the three months ended December 31, 2012, an increase of $3.5 million, or 20.0%. The change resulted from an increase in total average earning assets of $204.8 million offset by an increase of $107.8 million in interest bearing liabilities, an increase in accretion on acquired loans and a reduction in cost of funds.

The net interest margin (i.e., net interest income divided by average earning assets) increased 21 basis points from 5.21% during the three months ended December 31, 2012 to 5.42% during the three months ended December 31, 2013. Accretion of $6.2 million on acquired loans added approximately 159 basis points to the quarter ended December 31, 2013 net interest margin. Of the 159 basis points, 129 basis points related to resolved loss share assets and changes in cash flows during the quarter. This compares to accretion of loan discount of $5.6 million during the three months ended December 31, 2012, which added approximately 166 basis points to the December 31, 2012 margin. Of the 166 basis points for the quarter ended December 31, 2012, 101 basis points related to resolved loss share assets and changes in cash flows.

For the three months ended December 31, 2013, average loans represented 73.7% of total average interest-earnings assets and 76.5% of total average deposits and customer repurchase agreements, compared to average loans of 69.4% of total average interest-earning assets and average loans of 70.8% to total average deposits and customer repurchase agreements at December 31, 2012. Our cost of funds was approximately 8 basis points lower for the three months ended December 31, 2013, as compared to December 31, 2012, primarily as a result of lower rates offered on our deposit products.

Rate Volume Analysis

The following table sets forth certain information regarding changes in our interest income and interest expense for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012. 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 three months ended December 31, 2013 and 2012:

	December 31, 2013 and 2012
(Dollars in thousands)	Change in Interest Income/ Expense			Variance Due to Volume Changes			Variance Due to Rate Changes
Assets
Interest-earning assets
Loans	$	2,361		$	3,690		$	(1,329	)
Investment securities		1,055			642			413
Federal funds sold and securities purchased under resale agreements		(64	)		(195	)		131

Total interest-earning assets	$	3,352		$	4,137		$	(785	)
Liabilities
Interest-bearing liabilities
NOW accounts	$	18		$	26		$	(8	)
Money market accounts		(28	)		16			(44	)
Savings accounts		1			(1	)		2
Certificates of deposit		(179	)		(61	)		(118	)
Fed funds purchased and repurchase agreements		(1	)		—			(1	)
Other borrowings		48			48			—

Total interest-bearing liabilities		(141	)		28			(169	)

Net interest spread	$	3,493		$	4,109		$	(616	)

Non-interest Income, Non-interest Expense, Provision for Loan Losses, and Income Tax Expense

The following is a schedule of non-interest income for the three months ended December 31, 2013 and 2012:

	Three months ended
(Dollars in thousands)	December 31, 2013			December 31, 2012			Difference
Service charge and fees on deposit accounts	$	863		$	858		$	5
Net gains on sales of other real estate owned		120			305			(185	)
Net gains on sales of securities		—			—			—
Net gains on sales of loans held for sale		—			26			(26	)
Increase in cash surrender value of Company owned life insurance		167			155			12
Adjustment to FDIC loss share receivable		(4,673	)		(3,221	)		(1,452	)
Other		274			209			65
Total non-interest income	$	(3,249	)	$	(1,668	)	$	(1,581	)

Non-interest income includes service charges and fees on deposit accounts, net gains or losses on sales of securities, and all other items of income, other than interest, resulting from our business activities. Non-interest income decreased by $1.6 million for the quarter ended December 31, 2013 when compared to the quarter ended December 31, 2012. The decrease was the result of an increase in the adjustment to the FDIC loss share receivable due to a reduction in resolutions of assets above their carrying value and a reduction in gains on the sale of other real estate owned quarter over quarter.

During the three months ended December 31, 2013, we received proceeds from the sale of OREO properties of $1.1 million with a carrying value of $971,000 and recorded a net gain of $120,000 on the these dispositions as compared to sales of $4.1 million of OREO with a carrying value of $3.8 million resulting in a net gain of $305,000 for the three months ended December 31, 2012.

The adjustment to the FDIC loss share receivable during the quarter ended December 31, 2013 represented a $4.7 million expense related to changes in cash flows on assets covered by Loss Share Agreements and the resolution of OREO property which reduces the FDIC receivable. This compares to $3.6 million for the quarter ended December 31, 2012. These amounts were partially offset by interest income earned on the FDIC receivable of $21,000 and $344,000 for the quarters ended December 31, 2013 and 2012, respectively.

Non-interest expense is comprised of salaries and employee benefits, occupancy and equipment expense and other operating expenses incurred in supporting our various business activities. Non-interest expense increased by $581,000, or 4.8%, from $12.2 million for the three months ended December 31, 2012 to $12.8 million for the three months ended December 31, 2013, primarily due to the write-off of computer storage equipment that was deemed obsolete and write downs to other real estate owned quarter-over-quarter.

The following summarizes the changes in non-interest expense accounts for the three months ended December 31, 2013 compared to the three months ended December 31, 2012:

	Three months ended
(Dollars in thousands)	December 31, 2013		December 31, 2012		Difference
Salaries and employee benefits	$	6,195	$	6,199	$	(4	)
Occupancy and equipment		1,987		1,936		51
Data processing		1,008		896		112
Telephone		229		198		31
Stationery and supplies		97		94		3
Amortization of intangibles		202		178		24
Professional fees		402		455		(53	)
Advertising		63		56		7
Disposal of banking centers and equipment		178		—		178
Regulatory assessment		414		355		59
OREO expense		548		276		272
Loan expense		227		510		(283	)
Other		1,224		1,040		184
Total non-interest expense	$	12,774	$	12,193	$	581

Salaries and employee benefits was impacted in the fourth quarter 2013 by an increase in salaries due to the Enterprise acquisition offset by a reduction in contributions to our retirement plans as compared to the quarter ended December 31, 2012.

Data processing expenses increased by $112,000 from $896,000 for the quarter ended December 31, 2012 as compared to $1.0 million for the quarter ended December 31, 2012 due to an increase in the number of transactions resulting from the EBI acquisition.

Disposal of banking centers and equipment relates to the write-off of computer storage equipment which was deemed obsolete and replaced during the quarter ended December 31, 2013. We incurred a charge of $178,000 related to this disposal of fixed assets.

Other real estate owned (“OREO”) expense increased by approximately $272,000 to $548,000 for the three months ended December 31, 2013, as compared to $276,000 for the three months ended December 31, 2012. The change was primarily due to write downs of $359,000 on OREO properties due to changes in the estimated fair values during the quarter ended December 31, 2013 as compared to none for the quarter ended December 31, 2012.

Loan expense includes the costs associated with the collection of legacy as well as loss sharing assets. Loan expense decreased by $283,000 from $510,000 for the three months ended December 31, 2012 to $227,000 for the three months ended December 31, 2013. The change was primarily due to a reduction in non-performing assets and assets covered under Loss Sharing Agreements.

Other expense increased $184,000 from $1.0 million for the quarter ended December 31, 2012 to $1.2 million for the quarter ended December 31, 2013. The change was primarily due to increases in expenses due to increased transactions and volume as the result of the EBI acquisition.

We recorded income tax expense of $1.6 million for the three months ended December 31, 2013, compared to $1.0 million for the three months ended December 31, 2012. The change is due to higher pretax income for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012.

Inflation

The impact of inflation on the banking industry differs significantly from that of other industries in which a large portion of total resources are invested in fixed assets such as property, plant and equipment.

Assets and liabilities of financial institutions are virtually all monetary in nature, and therefore are primarily impacted by interest rates rather than changing prices. While the general level of inflation underlies most interest rates, interest rates react more to changes in the expected rate of inflation and to changes in monetary and fiscal policy. Net interest income and the interest rate spread are good measures of our ability to react to changing interest rates and are discussed in further detail in the section entitled “Results of Operations.”

Interest Rate Risk Management

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 re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price 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 re-price 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 interest rate risk through 1^st United’s Asset Liability Committee (“ALCO”) Board Committee which meets at least quarterly and through our internal management committee which meets more frequently. Management closely monitors 1^st United’s 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 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 and 200 basis points (“bp”) and plus 300 bp, although we may elect not to use particular scenarios that we determined are impractical in a current rate environment. It is management’s goal to structure the balance sheet so that net interest earnings at risk over a one-year and two-year period and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.

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 United’s gap position which has been slightly liability sensitive during a stable rate environment.

The following tables illustrate the above measurements at December 31, 2013:

Net Interest Margin Actual Change at (+ or -) hundred-basis point change in interest rates
(Dollars in thousands)	-300			-200			-100			0		100			200			300
Net interest income at one year	$	56,971		$	59,428		$	61,989		$	63,221	$	63,339		$	63,897		$	64,361
Interest change		(6,250	)		(3,793	)		(1,232	)		—		118			675			1,140
Percentage change		(9.89	)%		(6.00	)%		(1.95	)%		—		0.19	%		1.07	%		1.80	%
Net interest income at two years	$	50,439		$	55,147		$	59,777		$	62,402	$	63,434		$	64,748		$	66,006
Interest change		(11,963	)		(7,255	)		(2.625	)		—		1,032			2,346			3,604
Percentage change		(19.17	)%		(11.63	)%		(4.21	)%		—		1.65	%		3.76	%		5.78	%

Economic Value of Equity Actual Change at (+ or -) hundred-basis point change in interest rates
(Dollars in thousands)	-300			-200			-100			0		100			200			300
Equity value at one year	$	317,756		$	280,574		$	258,158		$	252,271	$	231,972		$	215,248		$	199,167
Value change at:		65,485			28,302			5,887			—		(20,299	)		(37,023	)		(53,104	)
Percent change at:		25.96	%		11.22	%		2.33	%		—		(8.05	)%		(14.68	)%		(21.05	)%

Rate Sensitive Assets over Rate Sensitive Liabilities

At December 31, 2013, the twelve-month gap position was at .78.

(Dollars in thousands)	Up to 3 months			>3 months <1 year			>1 year <3 years			>3 years <5 years		>5 years		Total
Interest-earning deposits	$	152,521		$	—		$	—		$	—	$	—	$	152,521
Federal funds sold		408			—		$	—		$	—		—		408
Securities available for sale		8,887			26,279			67,819			67,005		157,971		327,961
Nonmarketable equity securities		—			—			—			—		9,997		9,997
Loans		360,915			191,913			248,447			147,550		142,262		1,091,087
Total interest-earning assets	$	522,731		$	218,192		$	316,266		$	214,555	$	310,230	$	1,581,974

NOW accounts	$	158,661		$	—		$	—		$	—	$	—	$	158,661
IOTA accounts		186,199			—			—			—		—		186,199
Money market accounts		328,736			—			—			—		—		328,736
Regular savings accounts		60,338			—			—			—		—		60,338
Certificate of deposit		79,687			122,843			78,200			6,938		—		287,668
Repurchase agreements		14,363			—			—			—		—		14,363
Feds funds purchased & FHLB advances		—			—			35,018			—		—		35,018
Total interest-bearing liabilities	$	827,984		$	122,843		$	113,218		$	6,938	$	—	$	1,070,983
Gap	$	(305,253	)	$	95,349		$	203,048		$	207,617	$	310,230	$	510,991
Cumulative gap	$	(305,253	)	$	(209,904	)	$	(6,856	)	$	200,761	$	510,991
Cumulative gap ratio		0.63			0.78			0.99			1.19		1.48

Liquidity and Capital Resources

Liquidity

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 utilize other short-term funding sources such as securities sold under agreements to repurchase, overnight federal funds purchased from correspondent banks and the acceptance of short-term deposits from public entities, Federal Home Loan Bank advances and brokered time deposits.

We monitor and manage our liquidity position on several fronts, which vary depending upon the time period. As the time period is 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, thereby maintaining 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 cash flows are comprised of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows used in investing activities, offset by those provided by operating activities and financing activities, resulted in a net decrease in cash and cash equivalents of $8.9 million from December 31, 2012 to December 31, 2013. During the year ended December 31, 2013, we experienced net cash transferred from acquisitions of $39.9 million, proceeds from sales of securities and maturities and prepayments of $91.2 million and net increases in deposits of $68.2 million primarily due to a $128 million customer deposit in December 2013 which was withdrawn in early January 2014 offset by reductions in higher interest-bearing accounts. These increases were offset by purchases of securities of $174.4 million and proceeds and net loan originations of $51.9 million.

Our securities portfolio, federal funds sold, and cash and due from bank deposit balances serve as primary sources of liquidity for us. At December 31, 2013, we had cash and due from bank balances of $198.2 million and available to be pledged securities in the amount of $297.8 million.

In November 2013, we filed a shelf registration statement on Form S-3 with the SEC through which we may sell from time to time any combination of common stock, preferred stock, debt securities, warrants, subscription rights, and units, in one or more offerings. We may seek to obtain debt or equity financings in the future. Such financings, however, may not be available on terms acceptable to us, or at all. In addition, the Loss Sharing Agreements with the FDIC limit our ability to raise additional equity if a change of control would occur as defined in the Loss Sharing Agreements.

At December 31, 2013, we had borrowings from the FHLB of $35.0 million. At December 31, 2013, we had commitments to originate loans totaling $51.7 million. Scheduled maturities of certificates of deposit during the twelve months following December 31, 2013 totaled $202.5 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 December 31, 2013, we had short-term lines of credit available from correspondent banks totaling $73.0 million, Federal Reserve Bank discount window availability of $69.0 million and borrowing capacity from the FHLB of $60.4 million based on collateral pledged, for a total credit available of $202.4 million. In addition, being “well capitalized,” 1^st United can access the wholesale deposits for approximately $395.6 million based on current policy limits.

Contractual Obligations

Contractual agreements at December 31, 2013 were as follows:

(Dollars in thousands)			Payments Due by Period
Contractual Obligations	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years

Certificates of deposit	$	287,668	$	202,530	$	78,200	$	6,938	$	—
Federal Home Loan Bank Advances		35,000		—		35,000		—		—
Operating leases		19,055		3,444		5,659		3,555		6,397

Total	$	341,723	$	205,974	$	118,859	$	10,493	$	6,397

We discuss our securities portfolio, deposits and borrowings further in Item 1. Business.

Capital Resources

The following table summarizes the changes in our shareholders’ equity for the periods indicated:

(Dollars in thousands)	Years ended December 31,
	2013			2012

Balance at beginning of period	$	236,690		$	215,351
Issuance of common stock for acquisition, net of costs of $61		—			19,065
Exercise of stock options		11			—
Stock based compensation expense		1,508			1,258
Dividends paid		(1,029	)		(3,407	)
Dividends declared		(3,428	)		—
Net income		6,871			4,728
Change in unrealized gains (losses) on available for sale securities		(10,515	)		(305	)

Balance at end of period	$	230,108		$	236,690

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 I risk-based capital ratio of 6% or greater, and a Tier I 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 December 31, 2013, 1^st United met the capital ratios of a “well capitalized” financial institution with a total risk-based capital ratio of 15.47%, a Tier 1 risk-based capital ratio of 14.61%, and a Tier I leverage ratio of 9.66%. 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 Bancorp’s regulatory capital ratios for the respective periods:

				December 31,
	Well Capitalized Regulatory Requirement			2013			2012
Total capital to risk-weighted assets		10.00	%		15.47	%		22.43	%
Tier I capital to risk-weighted assets		6.00	%		14.61	%		21.21	%
Tier I capital to total average assets		5.00	%		9.66	%(a)		11.44	%

^(a) Tier I capital to year end assets was 9.21%.

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 December 31, 2013, we had $51.7 million in commitments to originate loans and $8.0 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 fixed expiration dates or other 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 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 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 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 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 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 borrower’s 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 loan’s effective interest rate, the loan’s 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, Old Harbor on October 21, 2011, AFI in April of 2012 and EBI in July 2013. 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, 2013, 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. A valuation allowances is provided against deferred tax assets which are not likely to be realized.

Purchased Credit Impaired Loans

We account for acquisitions under the purchase accounting method. All identifiable assets acquired and liabilities assumed are recorded at fair value. We review each loan or loan pool acquired to determine whether there is evidence of a deterioration in credit quality since inception and if it is probable that the Company will be unable to collect all amounts due under the contractual loan agreements. We consider expected prepayments and estimated cash flows including principal and interest payments at the date of acquisition. The amount in excess of the estimated future cash flows is not accreted into earnings. The amount in excess of the estimated future cash flows over the book value of the loan is accreted into interest income over the remaining life of the loan (accretable yield). The Company records these loans on the acquisition date at their net realizable value. Thus, an allowance for estimated future losses is not established on the acquisition date. We refine our estimates of the fair value of loans acquired for up to one year from the date of acquisition. Subsequent to the date of acquisition, we update the expected future cash flows on loans acquired. Losses or a reduction in cash flow which arise subsequent to the date of acquisition are reflected as a charge through the provision for loan losses. An increase in the expected cash flows adjusts the level of the accretable yield recognized on a prospective basis over the remaining life of the loan.

FDIC Loss Share Receivable

We have entered into agreements with the FDIC for reimbursement of losses within certain acquired loan portfolios. The FDIC loss share receivable is recorded at fair value on the date of acquisition based upon the expected reimbursements to be received from the FDIC adjusted by a discount rate which reflects counter party credit risk and other uncertainties. Changes in the underlying credit quality of the loans covered by the FDIC loss share receivable result in either an increase or a decrease in the FDIC loss share receivable. Deterioration in loan credit quality increases the FDIC loss share receivable; increases in credit quality decrease the FDIC loss share receivable. Proceeds received for reimbursement of incurred losses reduce the FDIC loss share receivable.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of economic loss from adverse changes in the fair value of financial instruments due to changes in (a) interest rates, (b) foreign exchange rates, or (c) other factors that relate to market volatility of the rate, index, or price underlying the financial instrument. Our market risk is composed primarily of interest rate risk. 1^st United has an Asset/Liability Committee (“ALCO”) which is responsible for reviewing the interest rate sensitivity position, and establishing policies to monitor and limit the exposure to interest rate risk.

The primary objective of asset/liability management is to provide an optimum and stable net interest margin, after-tax return on assets and return on equity capital, as well as adequate liquidity and capital. Interest rate risk is measured and monitored through gap analysis, which measures the amount of re-pricing risk associated with the balance sheet at specific points in time. See “Interest Rate Risk Management” and “Liquidity and Capital Resources” presented in Item 7 above for quantitative disclosures in tabular format, as well as additional qualitative disclosures.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
1^st United Bancorp, Inc.
Boca Raton, Florida

We have audited the accompanying consolidated balance sheets of 1^st United Bancorp, Inc. as of December 31, 2013 and 2012 and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2013. We also have audited the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting contained in Item 9A. of the accompanying Form 10-K. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As permitted, the Company has excluded the current year acquisition of Enterprise Bancorp, Inc. from the scope of management’s report on internal control over financial reporting. As such, this acquired institution has also been excluded from the scope of our audit of internal control over financial reporting.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 1^st United Bancorp, Inc. as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

	/s/ Crowe Horwath LLP
	Crowe Horwath LLP

Fort Lauderdale, Florida
February 10, 2014

1^st UNITED BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2013 and 2012
(Dollar amounts in thousands, except per share data)


	2013			2012

ASSETS
Cash and due from financial institutions	$	197,813		$	206,871
Federal funds sold		408			246
Cash and cash equivalents		198,221			207,117
Securities available for sale		327,961			260,122
Loans held for sale		—			524
Loans, net of allowance of $9,648 and $9,788 at year ends 2013 and 2012, respectively		1,124,571			903,600
Nonmarketable equity securities		9,977			8,625
Premises and equipment, net		16,944			17,780
Other real estate owned		18,580			19,529
Company-owned life insurance		24,710			21,092
FDIC loss share receivable		29,331			48,568
Goodwill		63,991			58,499
Core deposit intangible		3,807			3,268
Accrued interest receivable and other assets		27,020			19,888
Total assets	$	1,845,113		$	1,568,612

LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-interest bearing	$	526,311		$	426,968
Interest bearing		1,021,602			876,054
Total deposits		1,547,913			1,303,022
Federal funds purchased and repurchase agreements		14,363			19,855
Federal Home Loan Bank advances		35,018			—
Accrued interest payable and other liabilities		17,711			9,045
Total liabilities		1,615,005			1,331,922

Commitments and contingencies (Note 18)

Shareholders’ equity
Preferred stock – no par, 5,000,000 shares authorized and undesignated at year end, respectively; no shares issued or outstanding		—			—
Common stock – $0.01 par value; 60,000,000 shares authorized; 34,288,841 and 34,070,270 issued and outstanding at year end 2013 and 2012, respectively		343			341
Additional paid-in capital		239,606			238,089
Accumulated deficit		(1,584	)		(3,998	)
Accumulated other comprehensive income (loss)		(8,257	)		2,258
Total shareholders’ equity		230,108			236,690
Total liabilities and shareholders’ equity	$	1,845,113		$	1,568,612

See accompanying notes to the consolidated financial statements

1^st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2013, 2012, and 2011
(Dollar amounts in thousands, except per share data)

	Years ended December 31,
	2013			2012			2011

Interest income:
Loans, including fees	$	71,948		$	66,929		$	55,311
Securities		7,153			5,106			4,362
Federal funds sold and other		649			814			736
Total interest income		79,750			72,849			60,409
Interest expense:
Deposits		3,680			5,292			5,991
Federal funds purchased and repurchase agreements		17			14			16
Federal Home Loan Bank advances		93			7			230
Other borrowings		—			—			112
Total interest expense		3,790			5,313			6,349

Net interest income		75,960			67,536			54,060

Provision for loan losses		3,475			6,350			7,000

Net interest income after provision for loan losses		72,485			61,186			47,060

Non-interest income:
Service charges and fees on deposit accounts		3,332			3,451			3,581
Net gains (losses) on sales of other real estate owned		1,133			3,278			(264	)
Net gains on sales of securities		824			1,673			364
Net gains on sales of loans held for sale		58			106			58
Increase in cash surrender value of Company owned life insurance		618			498			151
Adjustment to FDIC loss share receivable		(15,250	)		(12,488	)		(3,236	)
Other		1,035			816			1,085
Total non-interest income		(8,250	)		(2,666	)		1,739
Non-interest expense:
Salaries and employee benefits		25,023			24,303			20,186
Occupancy and equipment		8,100			7,958			7,732
Data processing		3,903			3,686			3,481
Telephone		899			917			814
Stationery and supplies		382			480			387
Amortization of intangibles		745			684			514
Professional fees		1,675			1,631			1,131
Advertising		263			258			293
Merger reorganization expense		1,745			1,784			1,076
Disposal of banking centers and equipment		828			—			—
Regulatory assessment		1,595			1,482			1,395
Other real estate owned expense		2,040			1,245			323
Loan expense		1,448			2,307			1,900
Other		4,626			4,249			3,613
Total non-interest expense		53,272			50,984			42,845

Income before income taxes		10,963			7,536			5,954
Income tax expense		4,092			2,808			2,282

Net income	$	6,871		$	4,728		$	3,672

Basic earnings per common share	$	0.20		$	0.14		$	0.13
Diluted earnings per common share	$	0.20		$	0.14		$	0.13

See accompanying notes to the consolidated financial statements

1st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2013, 2012, and 2011
(Dollar amounts in thousands, except per share data)

	Years ended December 31,
	2013			2012			2011
Net income	$	6,871		$	4,728		$	3,672
Other comprehensive income (loss):
Unrealized gains (losses) on securities available for sale		(16,035	)		1,181			3,623
Reclassification adjustment for securities gains (losses) included in net income		(824	)		(1,673	)		(364	)
Income tax benefit (expense)		6,344			187			(1,228	)
Other comprehensive income (loss)		(10,515	)		(305	)		2,031
Comprehensive income (loss)	$	(3,644	)	$	4,423		$	5,703

⁽¹⁾

Amounts are included in net gains on sales of securities on the Consolidated Statements of Operations in total non-interest income. Income tax expense associated with the reclassification adjustment for the years ended December 31, 2013, 2012 and 2011 was $310, $630 and $137, respectively.

1^st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Years ended December 31, 2013, 2012 and 2011
(Dollar amounts in thousands, except per share data)

	Shares of Common Stock		Common Stock		Additional Paid-In Capital			Accumulated Deficit			Accumulated Other Comprehensive Income (loss)			Total Shareholders’ Equity
Balance at December 31, 2010		24,793,089	$	248	$	181,697		$	(8,991	)	$	532		$	173,486
Net income		—		—		—			3,672			—			3,672
Other comprehensive income		—		—		—			—			2,031			2,031
Stock-based compensation expense		—		—		1,072			—			—			1,072
Restricted stock grants		25,943		1		(1	)		—			—			—
Issuance of common stock, net of cost of $2,285		5,750,000		58		35,032			—			—			35,090
Balance at December 31, 2011		30,569,032	$	307	$	217,800		$	(5,319	)	$	2,563		$	215,351
Net income		—		—		—			4,728			—			4,728
Other comprehensive loss		—		—		—			—			(305	)		(305	)
Stock-based compensation expense		—		—		1,258			—			—			1,258
Restricted stock grants		360,884		3		(3	)		—			—			—
Dividends paid ($0.10 per share)		—		—		—			(3,407	)		—			(3,407	)
Issuance of common stock, net of costs of $61		3,140,354		31		19,034			—			—			19,065
Balance at December 31, 2012		34,070,270	$	341	$	238,089		$	(3,998	)	$	2,258		$	236,690
Net income		—		—		—			6,871			—			6,871
Other comprehensive loss		—		—		—			—			(10,515	)		(10,515	)
Dividends paid ($0.03 per share)		—		—		—			(1,029	)		—			(1,029	)
Dividends declared ($0.10 per share)		—		—		—			(3,428	)		—			(3,428	)
Stock-based compensation expense		—		—		1,508			—			—			1,508
Exercise of stock options		1,785		—		11			—			—			11
Restricted stock grants		216,786		2		(2	)		—			—			—
Balance at December 31, 2013		34,288,841	$	343	$	239,606		$	(1,584	)	$	(8,257	)	$	230,108

See accompanying notes to the consolidated financial statements

1^st UNITED BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2013, 2012 and 2011
(Dollar amounts in thousands, except per share data)


	2013			2012			2011
Cash flows from operating activities
Net income	$	6,871		$	4,728		$	3,672
Adjustments to reconcile net income to net cash provided by (used in) operating activities
Provision for loan losses		3,475			6,350			7,000
Depreciation and amortization		3,745			3,377			2,741
Net accretion of purchase accounting adjustments		(22,281	)		(19,101	)		(8,863	)
Net amortization of securities		3,318			2,636			1,423
Adjustment to FDIC receivable		15,250			12,488			3,236
Increase in cash surrender value of company-owned life insurance		(618	)		(498	)		(151	)
Stock-based compensation expense		1,508			1,258			1,072
Net (gains) losses on sales of securities		(824	)		(1,673	)		(364	)
Net (gains) losses on other real estate owned		(1,133	)		(3,278	)		264
Net loss on premises and equipment		—			11			32
Disposal of banking centers and equipment		828			—			—
Net gain on sales of loans held for sale		(58	)		(106	)		(58	)
Write downs on other real estate owned property		1,143			340			—
Loans originated for sale		(3,107	)		(6,483	)		(3,422	)
Proceeds from sales of loans held for sale		3,689			6,165			8,180
Net change in:
Deferred income taxes		(195	)		(6,441	)		1,692
Deferred loan fees		(19	)		(63	)		(164	)
Accrued interest receivable and other assets		(603	)		9,210			(4,826	)
Accrued interest payable and other liabilities		1,472			(1,464	)		2,979
Net cash provided by (used in) operating activities		12,461			7,456			14,443
Cash flows from investing activities
Proceeds from sales and calls of securities		33,705			102,521			20,288
Proceeds from security maturities and prepayments		57,495			69,688			38,975
Purchases of securities		(174,421	)		(194,322	)		(125,522	)
Loan originations and payments, net		(51,866	)		79,262			105,877
Proceeds from sale of other real estate owned		9,377			27,350			6,405
Cash received from FDIC loss sharing agreements		6,460			11,559			14,095
Redemption of nonmarketable equity securities		1,784			3,078			7,728
Purchase of nonmarketable equity securities		(1,281	)		—			—
Proceeds from maturity of time deposit		—			—			75
Cash transferred in connection with acquisitions		39,861			(11,188	)		33,833
Additions to premises and equipment, net		(1,135	)		(1,727	)		(4,206	)
Purchase of company-owned life insurance		(3,000	)		(15,500	)		(215	)
Net cash provided by (used in) investing activities		(83,021	)		70,721			97,333
Cash flows from financing activities
Net change in deposits		68,174			(39,186	)		(92,304	)
Net change in federal funds purchased and repurchase agreements		(5,492	)		11,109			(4,140	)
Net change in short-term Federal Home Loan Bank advances		—			(5,000	)		—
Net change in other borrowings		—			—			(4,750	)
Issuance of common stock, net of expense		—			—			35,090
Exercise of stock options		11			—			—
Dividends paid		(1,029	)		(3,407	)		—
Net cash provided by (used in) financing activities		61,664			(36,484	)		(66,104	)
Net change in cash and cash equivalents		(8,896	)		41,693			45,672
Beginning cash and cash equivalents		207,117			165,424			119,752
Ending cash and cash equivalents	$	198,221		$	207,117		$	165,424
Supplemental cash flow information:
Interest paid	$	3,822		$	5,429		$	6,701
Income taxes paid		2,910			357			—

Supplemental disclosures of noncash activities:
Transfer of loans to other real estate owned		8,438			29,952			10,503
Dividends declared		3,428			—			—

See accompanying notes to the consolidated financial statements

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations and Principles of Consolidation: The consolidated financial statements include 1^st United Bancorp, Inc. (“Bancorp” or “Company”) and its wholly-owned subsidiaries, 1^st United Bank (“1^st United”) and Equitable Equity Lending, Inc. (“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 1^st United. 1^st 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, one office each in the cities of Vero Beach, Sebastian and Barefoot Bay, four offices in Pinellas and one office each in Pasco, Orange and Hillsborough Counties. 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. However, the customers’ ability to repay their loans is dependent on the real estate and general market conditions. 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, performing loans or non-performing loans. At December 31, 2013, EEL held $2,388 in performing loans.

Operating Segments: While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications: Certain amounts in the prior year financial statements were reclassified to conform to the current year’s presentation. These reclassifications had no impact on the prior periods’ net income or shareholders’ equity.

Use of Estimates: To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses, carrying value of goodwill and intangible assets, carrying value of deferred tax assets, FDIC loss share receivable, and fair values of financial instruments are particularly subject to change.

Cash and Cash Equivalents: Cash and cash equivalents includes cash, deposits with other financial institutions with original maturities under 90 days, and federal funds sold. Net cash flows are reported within the statement of cash flows for loan and deposit transactions, and federal funds purchased and repurchase agreements.

Securities Available for Sale: Debt securities are classified as available for sale when they might be sold before maturity. Equity securities with readily determinable fair values are classified as available for sale. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income net of tax.

Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates securities for other-than-temporary impairment (“OTTI”) at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. Consideration is given to (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 including an evaluation of credit ratings, (3) the impact of changes in market interest rates, (4) the intent of the Company to sell a security, and (5) whether it is more likely than not the Company will have to sell the security before recovery of its cost basis. If the Company intends to sell an impaired security, or if it is more likely than not the Company will have to sell the security before recovery of its cost basis, the Company records an other-than-temporary loss in an amount equal to the entire difference between fair value and amortized cost. Otherwise, only the credit portion of the estimated loss is recognized in earnings, with the other portion of the loss recognized in other comprehensive income.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Concentration of Credit Risk: Most of the Company’s business activity is with customers located within Brevard, Broward, Hillsborough, Indian River, Miami-Dade, Hillsborough, Orange, Palm Beach, Pinellas Counties. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy in these counties.

Loans Held for Sale: Loans held for sale are carried at the lower of aggregate cost or market. Net unrealized losses, if any, are recorded as a valuation allowance and charged to earnings.

Residential real estate loans held for sale are sold with servicing released. Gains and losses on sales of residential real estate loans held for sale are based on the difference between the selling price and the carrying value of the related loan sold.

The guaranteed portion of loans originated through certain government guaranteed lending programs are sold while retaining the unguaranteed portion and servicing. Gains and losses on sales of the guaranteed portion are based on the difference between the selling price and the allocated carrying value of the portion of the loan being sold. Additionally, the Company periodically refers government guaranteed loans to third parties. Fees for such referrals are recognized into income at the time of referral.

Loans: Loans, excluding certain purchased loans which have shown evidence of deterioration since origination, that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of unearned interest, deferred loan fees and costs, and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments. The recorded investment in a loan excludes accrued interest receivable and unearned income as well as net deferred loan fees or cost which are not significant.

Interest income on commercial, residential and consumer loans is discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on cost-recovery method with cash payments applied as a principle reduction, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Certain Acquired Loans: As part of business acquisitions, the Company evaluated each of the acquired loans under ASC 310-30 to determine whether (1) there was evidence of credit deterioration since origination, and (2) it was probable that we would not collect all contractually required payment receivable. The Company determined the best indicator of such evidence was an individual loan’s payment status and/or whether a loan was determined to be classified by us based on our review of each individual loan. Therefore, generally each individual loan that should have been or was on nonaccrual at the acquisition date, loans contractually past due 60 days or more, and each individual loan that was classified as either special mention, substandard or loss were subject to ASC 310-30.

Loans which were evaluated under ASC 310-30, and where the timing and amount of cash flows can be reasonably estimated, were accounted for in accordance with ASC 310-30-35. The Company applies the interest method for these loans under this subtopic and the loans are excluded from non-accrual. If at acquisition we identified loans that we could not reasonably estimate cash flows or if subsequent to acquisition such cash flows could not be estimated, such loans would be included in non-accrual. These acquired loans are recorded at the allocated fair value, such that there is no carryover of the seller’s allowance for loan losses. Such acquired loans are accounted for individually. The Company estimates the amount and timing of expected cash flows for each purchased loan, and the expected cash flows in excess of the allocated fair value is recorded as interest income over the remaining life of the loan (accretable yield). The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (non-accretable difference). Over the life of the loan, expected cash flows continue to be estimated. If the present value of expected cash flows is less than the carrying amount, a loss is recorded through the allowance for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Troubled Debt Restructurings. A loan is considered a troubled debt restructured loan based on individual facts and circumstances. A modification may include either an increase or reduction in interest rate or deferral of principal payments or both. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings. The Company classifies troubled debt restructured loans as impaired and evaluates the need for an allowance for loan losses on a loan-by-loan basis. An allowance for loan losses is based on either the present value of estimated future cash flows or the estimated fair value of the underlying collateral. Loans retain their interest accrual status at the time of modification.

Allowance for Loan Losses: 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 credit 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.

The allowance for loan losses is evaluated at the portfolio segment level using the same methodology for each segment. The historical net losses for a rolling two year period is the basis for the general reserve for each segment which is adjusted for each of the same qualitative factors (i.e., nature and volume of portfolio, economic and business conditions, classification, past due and non-accrual trends) evaluated by each individual segment. Impaired loans and related specific reserves for each of the segments are also evaluated using the same methodology for each segment. The qualitative factors added approximately 7 and 11 basis points to the general reserve of the allowance for loan losses at December 31, 2013 and 2012, respectively.

A loan is considered impaired when, based on current information and events, it is probable 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 (loan payments made within 90 days of the due date) and payment shortfalls (which are tracked as past due amounts) generally are not classified as impaired. The Company determines the past due status of a loan based on the number of days contractually past due. 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.

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. Our analysis of the allowance for loan losses consists of three components: (i) specific credit allocations on individual loans where a loss is expected based on the underlying collateral value or a cash flow analysis; (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 loan is determined to be impaired as determined by management.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The impairment, if any, is determined based on either the present value 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 estimated cost of sale. The Company may classify a loan as substandard; however, it may not be classified as impaired. 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. For troubled debt restructured loans that subsequently default, the Company determines the amount of specific reserve in accordance with our allowance for loan loss policy.

Transfers of Financial Assets: Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Nonmarketable Equity Securities: Nonmarketable equity securities include Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock.

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest on additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery par value. Both cash and stock dividends are reported as income.

The Bank is a member of its regional Federal Reserve Bank. FRB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on the ultimate recovery par value. Both cash and stock dividends are reported as income.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on a straight line basis over the assets’ useful lives, which range from 3 to 10 years. Amortization of leasehold improvements is computed utilizing the straight-line method over the shorter of the lease term or the useful life of the asset. Land is carried at cost.

Premises and equipment and other long-term assets are reviewed for impairment when events indicate their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value and a charge is recorded in the consolidated statement of operations in the current period.

Other Real Estate Owned: Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less the estimated cost to sell the asset. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs after acquisition are expensed.

Company-Owned Life Insurance: The Company has purchased life insurance policies on certain key executives. Company-owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Goodwill and Core Deposit Intangible: Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any non-controlling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate the necessity for such impairment tests to be performed. The Company has selected December 31 as the date to perform the annual impairment test. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Goodwill is the only intangible asset with an indefinite life on our balance sheet.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 FDIC’s 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. Prior to October 1, 2012, any increases in cash flows of Covered Assets would be accreted into income over the life of the Covered Asset and would reduce immediately the FDIC Loss Share Receivable. Subsequent to October 1, 2012, due to the adoption of new guidance by the Financial Accounting Standards Board (“FASB”) any increases in cash flows of Covered Assets will be accreted into income over the life of the covered asset with a reduction to the FDIC Loss Share Receivable over the shorter of the life of the loan or the remaining term of the respective Loss Share Agreements. 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.

Loan Commitments and Related Financial Instruments: Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.

Income Taxes: Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if any, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

The Company recognizes interest and/or penalties related to income tax matters in income tax expense.

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 restricted stock grants. Earnings per common share is restated for all stock splits and stock dividends through the date of issue of the consolidated financial statements.

Stock-Based Compensation: Compensation cost is recognized for stock options and restricted stock awards issued to employees and directors, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.

Comprehensive Income Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale, net of related taxes, which are also recognized as separate components of shareholders’ equity.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there now are such matters that will have a material effect on the financial statements.

Fair Value of Financial Instruments: Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.

Recently Adopted Accounting Standards

In February 2013, the Financial Accounting Standards Board (FASB) issued updated guidance related to disclosure of reclassification amounts out of other comprehensive income. The standard requires that companies present either in a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. The new requirements became effective for public companies in fiscal years, and interim periods within those years, beginning after December 15, 2012. The Company adopted this standard on January 1, 2013. The effect of adopting this standard increased our disclosure surrounding reclassification items out of accumulated other comprehensive income.

NOTE 2 –ACQUISITIONS

Enterprise Bancorp Inc.

On July 1, 2013, the Company completed its acquisition of Enterprise Bancorp, Inc., a Florida corporation (“EBI”), and its wholly-owned subsidiary Enterprise Bank of Florida, a Florida-chartered commercial bank (“Enterprise”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”), dated March 22, 2013, as amended, by and among the Company, 1st United Bank, EBI and Enterprise. In accordance with the Merger Agreement, the Company acquired EBI through the merger of a wholly-owned subsidiary of the Company with and into EBI and 1st United Bank acquired Enterprise Bank through the merger of Enterprise Bank with and into 1st United Bank (collectively, the “Merger”).

Pursuant to the terms of the Merger Agreement, each share of EBI common stock issued and outstanding was converted into the right to receive consideration based on EBI’s total consolidated assets and the EBI Tangible Book Value (as defined in the Merger Agreement) as of June 30, 2013. The total value of the consideration paid to EBI shareholders was approximately $45,565, which consisted of approximately $5,115 in cash(less the $400 holdback described below), $22,138 in loans (including all nonperforming loans), other real estate, and repossessed assets of Enterprise and $18,312 in impaired and below investment grade securities and other investments of Enterprise. Each holder of a share of EBI common stock was entitled to consideration from the Company equal to approximately $6.01 per share (less their per share pro rata portion of the $400 holdback described below). The total consideration paid to all EBI shareholders in connection with the Merger was subject to a holdback amount of $400 to defray potential damages and related expenses incurred to defend or settle certain litigation. The Company does not anticipate the litigation and related costs will exceed the $400. The Company recorded goodwill associated with the transaction of approximately $5,492 which is not deductible for tax purposes. The Company acquired a net deferred tax liability of $233 and recorded a deferred tax asset in other assets as a result of purchase accounting adjustments.

The Company accounted for the transaction under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. See Note 4 for additional information related to the fair value of loans acquired. The Company determined the fair value of core deposit intangibles, securities, and deposits with the assistance of third party valuations. The valuation of FHLB advances was based on current rates for similar borrowings. The estimated fair values over loans are subject to refinement as additional information relative to the closing date fair values becomes available through the measurement period.

The acquisition of EBI is consistent with the Company’s plans to continue to enhance its market area and competitive position within the state of Florida. This acquisition expands the Company’s existing presence in the Northern Palm Beach County marketplace and adds one new banking center. The Company believes it is well-positioned to deliver superior customer service, achieve stronger financial performance and enhance shareholder value through the synergies of combined operations. All of these contributed to the resulting goodwill in the transaction. The fair value of assets acquired and liabilities assumed on July 1, 2013 were as follows:

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 2 –ACQUISITIONS (continued)

	July 1, 2013 (as initially reported)		Measurement Period Adjustments			July 1, 2013 (As adjusted)
Cash	$	44,576	$	—		$	44,576
Securities available for sale		3,972		—			3,972
Federal Home Loan Bank stock		1,855		—			1,855
Loans		159,168		—			159,168
Core deposit intangible		1,283		—			1,283
Fixed assets		421		—			421
Other assets		1,039		—			1,039
TOTAL ASSETS ACQUIRED	$	212,314	$	—		$	212,314

Deposits	$	177,160	$	—		$	177,160
Federal Home Loan Bank advances		35,025		—			35,025
Other		1,143		(237	)		906
TOTAL LIABILITIES ASSUMED	$	213,328	$	(237	)	$	213,091

Excess of liabilities assumed over assets acquired	$	1,014	$	(237	)	$	777
Cash paid		4,715		—			4,715
Goodwill	$	5,729	$	(237	)	$	5,492

The following summarizes the net interest and other income, net income and earnings per share as if the merger with EBI was effective as of January 1, 2012, the beginning of the annual period prior to acquisition. With the integration of operations during the year ended December 31, 2013, the income associated with the merger of EBI is impractical to determine. There were no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:

	Years ended December 31,
	2013⁽¹⁾		2012⁽¹⁾
Net interest and non-interest income	$	67,514	$	69,036

Net income		6,477		6,499

Basic earnings per share		0.19		0.19

Diluted earnings per share		0.19		0.19

⁽¹⁾	The merger was effective July 1, 2013. There were no proforma adjustments subsequent to July 1, 2013.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 2 –ACQUISITIONS (continued)

Anderen Financial Inc.

On April 1, 2012, the Company completed its acquisition of Anderen Financial, Inc., a Florida corporation and its wholly-owned subsidiary Anderen Bank, a Florida-chartered commercial bank (Anderen Financial, Inc. and Anderen Bank are subsequently referred to herein collectively as “AFI”), pursuant to the Agreement and Plan of Merger, dated October 24, 2011 (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, each share of AFI common stock, $0.01 par value per share, was cancelled and automatically converted into the right to receive cash, common stock of the Company or a combination of cash and common stock of the Company. AFI shareholders could elect to receive cash, stock, or a combination of 50% cash and 50% stock, provided, however, that each such election was subject to mandatory allocation procedures to ensure the total consideration was approximately 50% cash and 50% stock. The total value of the consideration paid to AFI shareholders was $38,250 which consisted of approximately $19,125 in cash and 3,140,354 shares of the Company’s common stock. The Company’s common stock was valued at $6.09 per share, which was determined to be the fair value of the stock on the date of acquisition, with a total value of $19,065. The Company incurred $1,309 in merger reorganization expense during the year ended December 31, 2012 related to this acquisition. The Company recorded goodwill of $5,994 as a result of the merger which is not deductible for tax purposes. Total net deferred tax assets acquired was $5,651, primarily related to loss carry forwards. Additionally, the Company recorded $4,251 in deferred tax assets, which are included in other assets, as a result of purchase accounting adjustments. The Company completed the integration of AFI in June 2012.

The Company accounted for the transaction under the acquisition method of accounting which requires purchased assets and liabilities assumed to be recorded at their respective fair values at the date of acquisition. See Note 4 for additional information related to the fair value of loans acquired. The Company determined the fair value of core deposit intangibles, securities, fixed assets and deposits with the assistance of third party valuations. The fair value of other real estate owned (“OREO”) was based on recent appraisals of the properties. The estimated fair values were subject to refinement as additional information relative to the closing date fair values became available through the measurement period. As a result, the Company updated the previously reported consolidated balance sheet for the year ended December 31, 2012 for the final measurement period adjustments.

The acquisition of AFI is consistent with the Company’s plans to continue to enhance its footprint and competitive position within the state of Florida. This acquisition complemented the initial expansion into the Florida Gulf Coast markets with the acquisition of Old Harbor. The Company believes it is well-positioned to deliver superior customer service, achieve stronger financial performance and enhance shareholder value through the synergies of combined operations. All of these factors contributed to the resulting goodwill in the transaction. The fair value of the assets acquired and liabilities assumed on April 1, 2012 was as follows:

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 2 – ACQUISITIONS (continued)

	April 1, 2012 (as initially reported)		Final Measurement Period Adjustments			April 1, 2012 (As adjusted)
Cash	$	1,444	$	—		$	1,444
Federal Funds sold		6,500		—			6,500
Securities available for sale		37,742		—			37,742
Federal Home Loan Bank stock		496		—			496
Loans		131,986		(373	)		131,613
Other real estate owned		527		—			527
Core deposit intangible		692		—			692
Fixed assets		5,595		—			5,595
Other assets		10,911		(50	)		10,861
TOTAL ASSETS ACQUIRED	$	195,893	$	(423	)	$	195,470

Deposits	$	160,979	$	—		$	160,979
Other		2,124		111			2,235
TOTAL LIABILITIES ASSUMED	$	163,103	$	111		$	163,214

Excess of assets acquired over liabilities assumed	$	32,790	$	534		$	32,256
Purchase price		38,250		—			38,250
Goodwill	$	5,460	$	534		$	5,994

The operating results of the Company for the year ending December 31, 2013 includes the operating results of AFI since the acquisition date of April 1, 2012. The following summarizes the net interest and other income, net income and earnings per share as if the merger with AFI was effective as of the beginning of the comparable prior annual reporting period presented. There was no material, nonrecurring adjustments to the pro forma net interest and other income, net income and earnings per share presented below:

(Dollars in thousands, except per share data)	Years ended December 31,
	2013		2012⁽¹⁾
Net interest and other income	$	67,710	$	66,903

Net income		6,871		4,846

Basic earnings per share		0.20		0.13

Diluted earnings per share		0.20		0.13

⁽¹⁾	The merger was effective April 1, 2012. There were no proforma adjustments subsequent to April 1, 2012.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 3 – SECURITIES

The amortized cost and fair value of securities available for sale 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
2013
U.S. Treasury	$	935	$	—	$	(17	)	$	918
Municipal Securities		6,368		—		(764	)		5,604
Commercial mortgaged-backed		4,469		—		(395	)		4,074
Residential collateralized mortgage obligations		826		—		(8	)		818
Residential mortgage-backed		328,602		442		(12,497	)		316,547

	$	341,200	$	442	$	(13,681	)	$	327,961

2012
Municipal Securities	$	500	$	—	$	(31	)	$	469
Residential collateralized mortgage obligations		3,793		—		(34	)		3,759
Residential mortgage-backed		252,208		3,831		(145	)		255,894

	$	256,501	$	3,831	$	(210	)	$	260,122

At December 31, 2013 and 2012, there were no holdings of securities of any one issuer, other than the U.S. Government agencies, in an amount greater than 10% of shareholders’ equity. All of the residential collateralized mortgage obligations and commercial and residential mortgage-backed securities at December 31, 2013 and 2012 were issued or sponsored by U.S. Government agencies.

The amortized cost and fair value of debt securities at December 31, 2013 by contractual maturity were 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		935		918
Due after ten years		6,368		5,604
Commercial mortgage-backed		4,469		4,074
Residential mortgage-backed and residential collateralized mortgage obligations		329,428		317,365
	$	341,200	$	327,961

Securities available for sale at December 31, 2013 and 2012 with a fair value of $30,208 and $28,891, respectively, were pledged to secure public deposits and repurchase agreements.

Securities purchased during the years ended December 31, 2013, 2012, and 2011 were $174,421, $194,322 and $125,522, respectively. We purchase securities using excess cash reserves.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 3 – SECURITIES (continued)

Proceeds and gross gains and (losses) from the sale of securities available for sales for the years ended December 31, 2013, 2012 and 2011, respectively, were as follows:

	December 31,
	2013			2012		2011
Proceeds from sale	$	33,705		$	102,521	$	20,288
Gross gain	$	856		$	1,673	$	364
Gross loss		(32	)		—		—
Net gains on sales of securities	$	824		$	1,673	$	364

The income tax expense related to these net gains on sales of securities was $310, $630 and $140, respectively, for the years ended December 31, 2013, 2012 and 2011.

Gross unrealized losses at December 31, 2013 and 2012, respectively, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows.

	Less than 12 Months					12 Months or More					Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
2013
U.S. Treasury	$	918	$	(17	)	$	—	$	—		$	918	$	(17	)
Municipal Securities		5,190		(678	)		413		(86	)		5,603		(764	)
Residential collateralized mortgage obligations		—		—			818		(8	)		818		(8	)
Commercial mortgaged-backed		—		—			4,073		(395	)		4,073		(395	)
Residential mortgage-backed		277,291		(12,353	)		3,644		(144	)		280,935		(12,497	)

	$	283,399	$	(13,048	)	$	8,948	$	(633	)	$	292,347	$	(13,681	)
2012
Municipal Securities		469	$	(31	)	$	—	$	—		$	469	$	(31	)
Residential collateralized mortgage obligations	$	3,759		(34	)		—		—			3,759		(34	)
Residential mortgage-backed		35,838		(145	)		14		—			35,852		(145	)

	$	40,066	$	(210	)	$	14	$	—		$	40,080	$	(210	)

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 OTTI 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, 2013, 100% of the residential and commercial mortgage mortgage-backed securities as well as residential collateralized mortgage obligations held by the Company were issued by the U.S. government and U.S. government sponsored entities and agencies, primarily Fannie Mae, Freddie Mac, and Ginnie Mae, institutions which the government has affirmed its commitment to support.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 3 – SECURITIES (continued)

At December 31, 2013, there were 92 available for sale securities with unrealized losses of which one was a U.S. Treasury security, eight were municipal securities, three were residential collateralized mortgage obligations, one was a commercial mortgage-backed security and 79 were residential mortgage backed securities. At December 31, 2012, there were 15 available for sale securities with unrealized losses of which one was a municipal security, three were residential collateralized mortgage obligations, one was a commercial mortgage-backed security, and 10 were residential mortgage backed securities. At December 31, 2013 and 2012, securities with unrealized losses had depreciated 4.68% and 0.52%, respectively, from the Company’s amortized cost basis. The decline in fair value is attributable to changes in interest rates and liquidity, and not credit quality. The Company does not have the intent to sell these mortgage backed securities and it is likely that it will not be required to sell these securities prior to their anticipated recovery. The Company does not consider these securities to be other–than–temporarily impaired at December 31, 2013.

NOTE 4 - LOANS

Loans at year end were as follows:

	December 31, 2013							December 31, 2012
	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	$	27,573	$	182,691	$	210,264		$	33,025	$	146,473	$	179,498
Real estate:
Residential		68,259		110,585		178,844			86,981		78,936		165,917
Commercial		144,311		555,540		699,851			198,666		315,908		514,574
Construction and land development		6,505		28,781		35,286			8,426		33,463		41,889
Consumer and other		2		9,733		9,735			11		11,279		11,290
Total loans	$	246,650	$	887,330		1,133,980		$	327,109	$	586,059		913,168

Add (deduct):
Unearned income and net deferred loan (fees) costs						239							220
Allowance for loan losses						(9,648	)						(9,788	)
Loans, net of allowance					$	1,124,571						$	903,600

The Company has segregated and evaluates its loan portfolio through five portfolio segments. The five segments are commercial, residential real estate, commercial real estate, construction and land development, consumer and other. Most of the Company’s business activity is with customers located in Brevard, Broward, Hillsborough, Indian River, Miami-Dade, Orange, Hillsborough, Palm Beach and Pinellas Counties. Therefore, the Company’s exposure to credit risk is significantly affected by changes in these counties.

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

Residential real estate loans are a mixture of fixed rate and adjustable rate residential mortgage loans. As a policy, the Company holds adjustable rate loans and sells fixed rate loans into the secondary market. Changes in interest rates or market conditions may impact a borrower’s ability to meet contractual principal and interest payments. Residential real estate loans are secured by real property.

Commercial loans borrowers consist of small-to medium-sized businesses including professional associations, medical services, retail trade, construction, transportation, wholesale trade, manufacturing and tourism. Commercial loans are derived from our market areas and underwritten based on the borrower’s ability to service debt from the business’s underlying cash flows. As a general practice, we obtain collateral such as real estate, equipment or other assets although other commercial loans may be uncollateralized but guaranteed.

Commercial real estate loans include loans secured by office buildings, warehouses, retail stores and other property located in or near our markets. These loans are originated based on the borrower’s ability to service the debt and secondarily based on the fair value of the underlying collateral.

Construction loans include residential and commercial real estate loans and are typically for owner-occupied or pre-sold / pre-leased properties. The terms of these loans are generally short-term with permanent financing upon completion. Land development loans include loans to develop both residential and commercial properties.

Consumer and other loans include second mortgage loans, home equity loans secured by junior and senior liens on residential real estate and home improvement loans. These loans are originated based primarily on credit scores, debt-to-income ratios and loan-to-value ratios.

The initial fair value for loans acquired in the EBI and AFI Acquisition without specifically identified credit deficiencies was based primarily on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification and accrual status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans were based on current market rates for new originations of comparable loans and included adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows. Management prepared the purchase price allocations for EBI loans, and in part relied on a third party for the valuation of loans at July 1, 2013. The aggregate contractual balance was $161,078 with purchase accounting discounts of $1,910 for a net carrying value of $159,168. The fair value adjustment of $1,910 will be accreted into interest income over the average life of the loans. Management prepared the purchase price allocations for AFI loans, and in part relied on a third party for the valuation of covered non-impaired loans at April 1, 2012. The aggregate contractual balance was $125,988 with purchase accounting discounts of $3,650 for a net carrying value of $122,338. The fair value adjustment of $3,650 will be accreted into interest income over the average life of the loans.

The Company has purchased loans as part of its acquisitions AFI in 2012, Old Harbor from the FDIC in 2011, TBOM from the FDIC in 2010, and Republic from the FDIC in 2009, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at the time of acquisition that all contractually required payments would not be collected. The carrying amount of those loans at December 31, 2013, 2012 and 2011 was as follows:

	2013		2012		2011
Commercial	$	21,930	$	27,603	$	22,173
Real estate		86,533		126,819		161,947
Construction and land development		4,964		12,761		19,411
Consumer		64		64		—

Unpaid principal balance	$	113,491	$	167,247	$	203,531

Carrying amount	$	65,215	$	84,186	$	104,767

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

For those purchased credit impaired loans disclosed above, the Company increased the allowance for loan losses by $107, $368, and $432 during 2013, 2012 and 2011, respectively. The allowance for loan losses related to these loans was $1,011, $1,020 and $652 at year end 2013, 2013 and 2011, respectively. No allowance for loan losses was reversed during the years ended 2013, 2012 or 2011.

During the years ended December 31, 2013 and 2012, the Company accreted $14,701 and $11,837, respectively, into interest income on acquired loans. The remaining accretable discount was $19,453 at December 31, 2013. In addition, $62,881 of the $65,215 in loans are covered by the FDIC loss share agreements.

Loans purchased during the year for which it was probable at acquisition that all contractually required payments would not be collected were as follows:

	2013		2012		2011
Contractually required payments receivable of loans purchased during the year:	$	—	$	15,339	$	55,651

Cash flows expected to be collected at acquisition	$	—	$	9,077	$	29,936
Fair value of acquired loans at acquisition	$	—	$	7,927	$	24,178

Accretable yield, or income expected to be collected, was as follows.

Balance at January 1, 2011	$	20,887
New loans purchased		5,758
Accretion of income		(6,421	)
Reclassifications from non-accretable difference		217
Balance at December 31, 2011		20,441
New loans purchased		1,150
Accretion of income		(7,720	)
Reclassifications from non-accretable difference		22,583
Resolution of covered assets		(4,117	)
Balance at December 31, 2012	$	32,337
New loans purchased		—
Accretion of income		(8,632	)
Reclassifications from non-accretable difference		1,817
Resolution of covered assets		(6,069	)
Balance at December 31, 2013	$	19,453

Resolutions of covered assets includes sales, payoffs and transfers to (and sales of) other real estate owned in an amount in excess of the amount expected.

Income is not recognized on certain purchased credit impaired loans if the Company cannot reasonably estimate cash flows expected to be collected. The carrying amounts of such loans were as follows:

	2013		2012		2011
Loans purchased during the year	$	—	$	1,559	$	4,778
Loans at end of year		2,764		5,487		6,435

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

Activity in the allowance for loan losses for the years ended December 31, 2013, 2012 and 2011 was as follows:

	Commercial			Residential Real Estate			Commercial Real Estate	Construction and Land Development			Consumer and Other	Total
Beginning balance, January 1, 2013	$	2,735		$	1,869		$3,398	$	1,745		$41	$	9,788
Provisions for loan losses		1,007			867		2,005		(458	)	54		3,475
Loans charged off		(724	)		(309	)	(1,862)		(898	)	(17)		(3,810	)
Recoveries		66			10		9		96		14		195
Ending Balance, December 31, 2013	$	3,084		$	2,437		$3,550	$	485		$92	$	9,648

	Commercial			Residential Real Estate			Commercial Real Estate	Construction and Land Development			Consumer and Other	Total
Beginning balance, January 1, 2012	$	3,111		$	1,945		$5,302	$	2,409		$69	$	12,836
Provisions for loan losses		5,229			754		1,145		(700	)	(78)		6,350
Loans charged off		(5,648	)		(1,019	)	(3,159)		—		—		(9,826	)
Recoveries		43			189		110		36		50		428
Ending Balance, December 31, 2012	$	2,735		$	1,869		$3,398	$	1,745		$41	$	9,788

	Commercial			Residential Real Estate			Commercial Real Estate	Construction and Land Development			Consumer and Other	Total
Beginning balance, January 1, 2011	$	3,832		$	3,026		$4,145	$	1,895		$152	$	13,050
Provisions for loan losses		522			1,735		3,059		1,640		44		7,000
Loans charged off		(1,306	)		(2,829	)	(1,937)		(1,162	)	(132)		(7,366	)
Recoveries		63			13		35		36		5		152
Ending Balance, December 31, 2011	$	3,111		$	1,945		$5,302	$	2,409		$69	$	12,836

The allocation of the allowance for loan losses by portfolio segment at December 31, 2013 and 2012 was as follows:

As of December 31, 2013:	Commercial		Residential Real Estate		Commercial Real Estate		Construction and Land Development		Consumer and Other		Total
Specific Reserves:
Impaired loans	$	835	$	460	$	413	$	271	$	—	$	1,979
Purchase credit impaired loans		464		269		278		—		—		1,011
Total specific reserves		1,299		729		691		271		—		2,990
General reserves		1,785		1,708		2,859		214		92		6,658
Total	$	3,084	$	2,437	$	3,550	$	485	$	92	$	9,648

Loans individually evaluated for impairment	$	3,937	$	3,567	$	19,625	$	3,830	$	—	$	30,959
Purchase credit impaired loans		7,426		16,556		38,854		2,354		25		65,215
Loans collectively evaluated for impairment		198,901		158,721		641,372		29,102		9,710		1,037,806
Total	$	210,264	$	178,844	$	699,851	$	35,286	$	9,735	$	1,133,980

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

As of December 31, 2012:	Commercial		Residential Real Estate		Commercial Real Estate		Construction and Land Development		Consumer and Other		Total
Specific Reserves:
Impaired loans	$	510	$	474	$	1,128	$	1,002	$	—	$	3,114
Purchase credit impaired loans		355		359		306		—		—		1,020
Total Specific Reserves		865		833		1,434		1,002		—		4,134
General reserves		1,870		1,036		1,964		743		41		5,654
Total	$	2,735	$	1,869	$	3,398	$	1,745	$	41	$	9,788

Loans individually evaluated for impairment	$	4,168	$	5,825	$	24,006	$	6,094	$	—	$	40,093
Purchase credit impaired loans		8,923		18,363		52,276		4,221		30		83,813
Loans collectively evaluated for impairment		166,407		141,729		438,292		31,574		11,260		789,262
	$	179,498	$	165,917	$	514,574	$	41,889	$	11,290	$	913,168

The following table represents loans individually evaluated for impairment by class of loan as of December 31, 2013:

	Recorded Investment in Impaired Loans With Allowance
December 31, 2013	Loans Subject to Loss Share Agreements						Loans Not Subject to Loss Share Agreements
(Dollars in thousands)	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated
Residential Real Estate:
First mortgages	$	1,254	$	1,089	$	192	$	632	$	632	$	171
HELOCs and equity		39		38		38		191		191		59

Commercial:
Secured – non-real estate		359		357		53		3,719		1,537		730
Secured – real estate		54		52		52		—		—		—
Unsecured		—		—		—		—		—		—

Commercial Real Estate:
Owner occupied		302		274		23		1,469		1,049		41
Non-owner occupied		466		329		76		4,291		4,283		273
Multi-family		—		—		—		—		—		—

Construction and Land Development:
Construction		—		—		—		—		—		—
Improved land		—		—		—		527		527		271
Unimproved land		—		—		—		—		—		—

Consumer and other		—		—		—		—		—		—

Total December 31, 2013	$	2,474	$	2,139	$	434	$	10,829	$	8,219	$	1,545

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 – LOANS (continued)

	Recorded Investment in Impaired Loans
	With No Allowance
December 31, 2013	Loans Subject to Loss Share Agreements				Loans Not Subject to Loss Share Agreements
(Dollars in thousands)	Unpaid Principal		Recorded Investment		Unpaid Principal		Recorded Investment
Residential Real Estate:
First mortgages	$	1,451	$	1,170	$	106	$	—
HELOCs and equity		59		—		447		447

Commercial:
Secured – non-real estate		—		—		1,126		810
Secured – real estate		—		—		1,181		1,181
Unsecured		—		—		—		—

Commercial Real Estate:
Owner occupied		—		—		5,437		5,287
Non-owner occupied		1,597		1,374		7,144		7,029
Multi-family		—		—		—		—

Construction and Land Development:
Construction		—		—		—		—
Improved land		—		—		7,597		3,303
Unimproved land		—		—		—		—

Consumer and other		—		—		—		—

Total December 31, 2013	$	3,107	$	2,544	$	23,038	$	18,057

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2012:

	Recorded Investment in Impaired Loans With Allowance
December 31, 2012	Loans Subject to Loss Share Agreements						Loans Not Subject to Loss Share Agreements
(Dollars in thousands)	Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal		Recorded Investment		Allowance for Loan Losses Allocated
Residential Real Estate:
First mortgages	$	1,823	$	1,414	$	355	$	393	$	393	$	62
HELOCs and equity		40		40		40		156		156		17

Commercial:
Secured – non-real estate		473		473		122		2,337		1,453		388
Secured – real estate		—		—		—		—		—		—
Unsecured		—		—		—		—		—		—

Commercial Real Estate:
Owner occupied		2,538		2,277		233		2,973		2,540		185
Non-owner occupied		470		353		25		4,680		4,680		437
Multi-family		1,250		1,250		248		—		—		—

Construction and Land Development:
Construction		—		—		—		—		—		—
Improved land		—		—		—		148		148		42
Unimproved land		—		—		—		2,506		2,506		960

Consumer and other		—		—		—		—		—		—

Total December 31, 2012	$	6,594	$	5,807	$	1,023	$	13,193	$	11,876	$	2,091

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

	Recorded Investment in Impaired Loans
	With No Allowance
December 31, 2012	Loans Subject to Loss Share Agreements				Loans Not Subject to Loss Share Agreements
(Dollars in thousands)	Unpaid Principal		Recorded Investment		Unpaid Principal		Recorded Investment
Residential Real Estate:
First mortgages	$	1,682	$	1,065	$	2,638	$	1,961
HELOCs and equity		59		—		796		796

Commercial:
Secured – non-real estate		—		—		3,791		1,012
Secured – real estate		397		—		1,530		1,230
Unsecured		3		—		—		—

Commercial Real Estate:
Owner occupied		—		—		6,363		6,151
Non-owner occupied		757		648		5,867		5,792
Multi-family		—		—		315		315

Construction and Land Development:
Construction		—		—		—		—
Improved land		—		—		7,865		3,440
Unimproved land		—		—		—		—

Consumer and other		—		—		1		—

Total December 31, 2012	$	2,898	$	1,713	$	29,166	$	20,697

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

Average recorded investment in impaired loans and related interest income and cash-based interest income for the years ended December 31, 2013, 2012 and 2011 were as follows:

	Year ended December 31, 2013						Year ended December 31, 2012
	Average Recorded Investment		Interest Income		Cash Basis		Average Recorded Investment		Interest Income		Cash Basis
Residential Real Estate
First mortgages	$	2,554	$	27	$	28	$	7,981	$	85	$	102
HELOC and equity		699		6		7		1,481		18		18

Commercial
Secured non real estate		3,196		69		71		3,375		185		183
Secured real estate		1,255		48		48		6,511		55		57
Unsecured		—		—		—		—		—		—

Commercial Real Estate
Owner occupied		8,199		322		303		12,304		593		599
Non-owner occupied		11,260		343		342		14,425		489		474
Multifamily		—		—		—		1,625		12		12

Construction and Land Development
Construction		—		—		—		—		—		—
Improved land		3,893		8		8		3,724		59		59
Unimproved land		—		—		—		2,829		109		114

Consumer and Other		—		—		—		29		—		—

Total	$	31,056	$	823	$	807	$	54,284	$	1,605	$	1,618

100

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

	Year ended December 31, 2011
	Average Recorded Investment		Interest Income		Cash Basis
Residential Real Estate
First mortgages	$	9,088	$	29	$	81
HELOC and equity		630		1		12

Commercial
Secured non real estate		8,392		116		77
Secured real estate		3,769		67		430
Unsecured		—		—		—

Commercial Real Estate
Owner occupied		9,437		161		167
Non-owner occupied		15,512		429		153
Multifamily		1,659		—		6

Construction and Land Development
Construction		—		—		—
Improved land		4,387		264		12
Unimproved land		2,516		111		—

Consumer and Other		—		—		—

Total	$	55,390	$	1,178	$	938

Generally, interest accrued on loans 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 plus days past due 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. During the years ended December 31, 2013, 2012 and 2011, interest income not recognized on non-accrual loans was approximately $970, $1,346, and $1,545 respectively.

Non-accrual loans represent loans which are 90 days and over past due and loans for which management believes collection of contractual amounts due are uncertain of collection. Nonperforming loans represent loans which are not performing in accordance with the contractual loan agreements. Included in the tables that follow are loans in non-accrual and 90 plus days past due categories with a carrying value of $15,836 and $23,416 as of December 31, 2013 and 2012, respectively. Loans which are 90 days or greater past due and accruing interest income were $0 and $2,109 at December 31, 2013 and 2012, respectively. Nonperforming loans and impaired loans are defined differently. As such, some loans may be included in both categories, whereas other loans may only be included in one category.

Loans accounted for under ASC 310-30 at December 31, 2013 and 2012 which were contractually accruing 30 to 59 days past due were $6,508 and $2,720, respectively; 30 to 59 days contractually past due and non-accrual were $0 and $274, respectively; contractually 60 to 89 days past due and accruing were $0 and $0, respectively; contractually 60 to 89 days past due and non-accrual were $0 and $805, respectively; contractually 90 plus days past due and accruing were $0 and $1,804, respectively and contractually 90 plus days past due and non-accrual were $28,815 and $20,666, respectively. These amounts are excluded from the disclosures of loans past due and on non-accrual. Loans which are 90 days or greater past due and accruing interest income were $0 and $2,109 at December 31, 2013 and 2012, respectively.

101

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

The following tables summarize past due and non-accrual loans by the number of days past due as of December 31, 2013 and 2012:

December 31, 2013

(Dollars in thousands)	Accruing 30 - 59				Accruing 60-89				Non-Accrual/Accrual and 90 days and over past due				Total
	Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements
Residential Real Estate:
First mortgages	$	306	$	1,085	$	—	$	24	$	3,137	$	48	$	3,443	$	1,157
HELOCs and equity		27		—		162		—		96		491		285		491

Commercial:
Secured – non-real estate		—		461		—		—		39		1,518		39		1,979
Secured – real estate		—		—		—		—		416		—		416		—
Unsecured		—		—		—		—		—		—		—		—

Commercial Real Estate:
Owner occupied		—		—		—		1,737		722		1,115		722		2,852
Non-owner occupied		—		—		—		—		2,261		2,182		2,261		2,182
Multi-family		—		—		—		—		62		—		62		—

Construction and Land Development:
Construction		—		—		—		—		—		—		—		—
Improved land		—		—		—		—		—		3,688		—		3,688
Unimproved land		—		—		—		—		35		—		35		—

Consumer and other		—		34		—		—		—		26		—		60
Total December 31, 2013	$	333	$	1,580	$	162	$	1,761	$	6,768	$	9,068	$	7,263	$	12,409

102

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

December 31, 2012

(Dollars in thousands)	Accruing 30 - 59				Accruing 60-89				Non-Accrual/Accrual and 90 days and over past due				Total
	Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements		Loans Subject to Loss Share Agreements		Loans Not Subject to Loss Share Agreements
Residential Real Estate:
First mortgages	$	1,013	$	95	$	1,207	$	—	$	4,085	$	2,019	$	6,305	$	2,114
HELOCs and equity		—		197		—		—		103		796		103		993

Commercial:
Secured – non-real estate		—		200		—		94		147		805		147		1,099
Secured – real estate		—		—		—		—		424		—		424		—
Unsecured		—		—		—		—		—		—		—		—

Commercial Real Estate:
Owner occupied		—		1,873		—		—		2,820		2,487		2,820		4,360
Non-owner occupied		581		—		—		1,707		2,242		2,085		2,823		3,792
Multi-family		—		—		—		—		1,331		315		1,331		315

Construction and Land Development:
Construction		—		—		—		—		—		—		—		—
Improved land		—		—		—		—		—		3,440		—		3,440
Unimproved land		—		2,767		—		—		288		—		288		2,767

Consumer and other		—		99		—		—		—		29		—		128
Total December 31, 2012	$	1,594	$	5,231	$	1,207	$	1,801	$	11,440	$	11,976	$	14,241	$	19,008

Modifications of terms for the Company’s loans and their inclusion as troubled debt restructurings are based on individual facts and circumstances. Loan modifications that are included as troubled debt restructurings may involve a reduction of the stated interest rate of the loan, an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk, or deferral of principal payments, regardless of the period of the modification. Generally, the Company will allow interest rate reductions for a period of less than two years after which the loan reverts back to the contractual interest rate. Each of the loans included as troubled debt restructurings at December 31, 2013 had either an interest rate modification from 6 months to 2 years before reverting back to the original interest rate or a deferral of principal payments which can range from 6 to 12 months before reverting back to an amortizing loan. All of the loans were modified due to financial stress of the borrower. In order to determine if a borrower is experiencing financial difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its debt in the foreseeable future with the modification. This evaluation is performed under the Company’s internal underwriting policy.

Loans retain their accrual status at the time of their modification. As a result, if a loan is on non-accrual at the time it is modified, it stays as non-accrual, and if a loan is on accrual at the time of the modification, it generally stays on accrual. A loan on non-accrual will be individually evaluated based on sustained adherence to the terms of the modification agreement prior to being reclassified to accrual status. The Company monitors the performance of loans modified on a monthly basis. A modified loan will be reclassified to non-accrual and is in default if the loan is not performing in accordance with the modification agreement, the loan becomes contractually past due in accordance with the modification agreement or other weaknesses are observed which makes collection of principal and interest unlikely. The Company’s policy is to evaluate and potentially return a troubled debt restructured loan from a non-accrual to accrual status upon the receipt of all past due principal and/or interest payments since the date of and in accordance with the terms of the modification agreement and when future payments are reasonable assured. The average yield on the performing loans classified as troubled debt restructurings were 4.38% and 4.76% as of December 31, 2013 and 2012, respectively. Troubled debt restructuring loans are considered impaired.

103

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 – LOANS (continued)

During the year ended December 31, 2013, the Company modified $1,980 in commercial real estate loans, $90 in commercial loans, $299 in residential real estate loans. During the year ended December 31, 2012, the Company modified $6,391 in commercial real estate loans, $1,831 in commercial loans, $450 in residential real estate loans and $149 in land loans. During the year ended December 31, 2011, the Company modified $5,992 in commercial real estate loans, $1,527 in commercial loans, $1,894 in residential real estate loans and $2,516 in land loans. All troubled debt restructurings are classified as either special mention or substandard by the Company.

The following is a summary of the Company’s performing troubled debt restructurings as of December 31, 2013 and 2012, respectively, all of which were performing in accordance with the restructured terms:

	December 31, 2013		December 31, 2012
Residential real estate	$	834	$	605
Commercial real estate		15,341		17,315
Construction and land development		143		2,654
Commercial		2,328		3,699
Total	$	18,646	$	24,273

Of the $18,646 of performing troubled debt restructurings at December 31, 2013, $11,062 was classified as special mention and $7,584 was classified as substandard. Of the $24,273 of performing troubled debt restructurings at December 31, 2012, $12,416 was classified as special mention and $11,857 was classified as substandard.

Total non-accruing troubled debt restructurings as of December 31, 2013 and 2012, respectively, were as follows:

	December 31, 2013		December 31, 2012
Residential real estate	$	330	$	1,885
Commercial real estate		3,307		166
Construction and land development		3,303		3,440
Commercial		536		185
Total	$	7,476	$	5,676

These loans had a specific reserve in the allowance for loan losses at December 31, 2013 and 2012 of $608 and $66, respectively. There were three loans for $833 which were modified within the year ended December 31, 2013 that defaulted within the year ending December 31, 2013. There were no loans modified within the year ended December 31, 2012 which defaulted within the year ended December 31, 2012. Loans modified within the twelve months ended December 31, 2011 and defaulted during that period are comprised of one residential real estate loan for $1,752, two commercial real estate loans for $4,781, one commercial loan for $285 and one land development loan for $264.

During the year ended December 31, 2013, the Company lowered the interest rate on $10,618 of loans prior to maturity which the Company did not consider to be troubled debt restructurings. During the year ended December 31, 2012, we had approximately $11,800 in loans on which we lowered the interest rate prior to maturity to competitively retain the loan. Due to the borrowers’ significant deposit balances and/or overall quality of the loans, these loans were not included in troubled debt restructurings during the years ended December 31, 2013 and 2012, respectively. In addition, each of these borrowers were not considered to be in financial distress and the modified terms matched current market terms for borrowers with similar risk characteristics. The Company had no other loans where we extended the maturity or forgave principal that were not already included in troubled debt restructurings or otherwise impaired.

The Company had no commitments to lend additional funds for loans classified as troubled debt restructurings at December 31, 2013. The Company has allocated $1,243 and $2,096 of specific reserves to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2013 and 2012, respectively.

Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. During the years ended December 31, 2013, 2012 and 2011 interest income not recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $970, $1,346, and $1,545, respectively.

104

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 – LOANS (continued)

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. Loans classified as substandard or special mention are reviewed quarterly by the Company for further deterioration or improvement to determine if appropriately classified and impairment. All other loans greater than $1,000, commercial and personal lines of credit greater than $100, and unsecured loans greater than $100 are specifically reviewed at least annually to determine the appropriate loan grading. In addition, during the renewal process of any loan, as well if a loan becomes past due, the Company will evaluate the loan grade.

Loans excluded from the scope of the annual review process above are generally classified as pass credits until: (a) they become past due; (b) management becomes aware of deterioration in the credit worthiness of the borrower; or (c) the customer contacts the Company for a modification. In these circumstances, the loan is specifically evaluated for potential classification as to special mention, substandard or doubtful. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

105

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

			Loans Subject to Loss Share Agreements						Loans Not Subject to Loss Share Agreements
(Dollars in thousands)	Total		Pass		Special Mention		Substandard		Pass		Special Mention		Substandard

December 31, 2013
Residential Real Estate:
First mortgages	$	117,830	$	56,000	$	1,121	$	3,137	$	52,822	$	4,032	$	718
HELOCs and equity		61,014		7,712		31		258		46,437		629		5,947

Commercial:
Secured – non-real estate		145,298		17,555		319		39		123,168		1,733		2,484
Secured – real estate		57,052		9,168		—		416		45,955		800		713
Unsecured		7,914		76		—		—		7,311		114		413

Commercial Real Estate:
Owner occupied		209,467		26,129		7,638		722		167,238		315		7,425
Non-owner occupied		451,982		93,010		409		2,261		345,941		5,009		5,352
Multi-family		38,402		14,080		—		62		24,260		—		—

Construction and Land Development:
Construction		7,366		—		—		—		7,366		—		—
Improved land		16,538		2,943		—		—		6,851		2,656		4,088
Unimproved land		11,382		3,527		—		35		7,820		—		—

Consumer and other		9,735		2		—		—		9,135		480		118

Total December 31, 2013	$	1,133,980	$	230,202	$	9,518	$	6,930	$	844,304	$	15,768	$	27,258

106

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 4 - LOANS (continued)

			Loans Subject to Loss Share Agreements						Loans Not Subject to Loss Share Agreements
(Dollars in thousands)	Total		Pass		Special Mention		Substandard		Pass		Special Mention		Substandard

December 31, 2012
Residential Real Estate:
First mortgages	$	109,562	$	71,487	$	2,547	$	4,085	$	26,304	$	2,552	$	2,587
HELOCs and equity		56,355		8,728		31		103		39,180		5,375		2,938

Commercial:
Secured – non-real estate		127,514		19,801		405		115		99,537		4,346		3,310
Secured – real estate		43,613		12,199		—		425		28,227		2,030		732
Unsecured		8,371		80		—		—		7,724		140		427

Commercial Real Estate:
Owner occupied		187,007		37,696		7,943		2,820		123,106		6,285		9,157
Non-owner occupied		290,858		123,224		2,321		2,242		147,104		11,278		4,689
Multi-family		36,709		21,089		—		1,331		13,974		—		315

Construction and Land Development:
Construction		3,481		—		—		—		3,481		—		—
Improved land		20,117		4,033		—		—		9,071		3,138		3,875
Unimproved land		18,291		3,888		—		505		11,392		—		2,506

Consumer and other		11,290		11		—		—		10,552		584		143

Total December 31, 2012	$	913,168	$	302,236	$	13,247	$	11,626	$	519,652	$	35,728	$	30,679

NOTE 5 – OTHER REAL ESTATE OWNED

The following is a summary of other real estate owned as of December 31, 2013 and 2012:

	December 31, 2013						December 31, 2012
(Dollars in thousands)	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
Commercial real estate	$	5,761	$	8,979	$	14,740	$	5,708	$	10,372	$	16,080
Residential real estate		2,002		1,838		3,840		646		2,803		3,449
Total	$	7,763	$	10,817	$	18,580	$	6,354	$	13,175	$	19,529

At December 31, 2013, other real estate owned measured at fair value less costs to sell, had a carrying amount of $18,580 net of the valuation allowance of $0. At December 31, 2012, other real estate owned had a carrying amount of $19,529, net of the valuation of $0.

107

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 6 - PREMISES AND EQUIPMENT

At December 31, 2013 and 2012, premises and equipment were as follows:

	2013		2012

Land	$	3,600	$	3,600
Buildings		7,798		7,798
Buildings and leasehold improvements		6,622		6,406
Furniture, fixtures and equipment		8,870		8,983
		26,890		26,787

Less accumulated depreciation		9,946		9,007

Premises and equipment, net	$	16,944	$	17,780

Depreciation expense was $2,039, $1,914, and $1,614, for the years ended 2013, 2012, and 2011, respectively.

The Company leases several of its office facilities under operating leases. Rent expense was $3,364, $3,354, and $3,596 for the years ended 2013, 2012, and 2011, respectively.

Rent commitments under these non-cancelable operating leases were as follows, before considering renewal options that generally are present.

2014	$	3,443
2015		3,131
2016		2,528
2017		1,944
2018		1,612
Thereafter		6,397
	$	19,055

NOTE 7 – FDIC LOSS SHARE RECEIVABLE

The activity in the FDIC Loss Share Receivable which resulted from the acquisition of financial institutions covered under loss sharing agreements with the FDIC is as follows:

	2013			2012

Beginning of year	$	48,568		$	72,895
Cash received		(6,460	)		(11,559	)
Discount accretion		574			1,224
Reduction for changes in cash flow estimate		(15,824	)		(13,712	)
Other		2,473			(280	)
End of year	$	29,331		$	48,568

As of the years ended December 31, 2013 and 2012, the Company has determined that the FDIC loss share receivable is collectible. The reduction for changes in cash flow estimates is primarily due to resolutions of covered assets in excess of the amount expected, which includes sales, payoffs and transfers to (and sales of) other real estate owned as well as a reduction due to changes in expected cash flows of the remaining covered assets.

Pursuant to each loss share agreement, the Bank calculates an estimated amount due to the FDIC related to losses on acquired assets. An amount due is payable at the end of the year of each respective loss share agreement and is generally based on actual losses incurred. At December 31, 2013 and 2012, the Company calculated $4,218 and $1,833 due to the FDIC pursuant to these contracts and recorded these amounts in other liabilities on the consolidated balance sheets.

108

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 8 - GOODWILL AND CORE DEPOSIT INTANGIBLE

Goodwill: The change in the balance for goodwill during the years ended December 31, 2013, 2012 and 2011 was as follows:

	2013		2012		2011
Beginning of year	$	58,499	$	52,505	$	45,008
Effect of acquisitions		5,492		5,994		7,497
Impairment		—		—		—
End of year	$	63,991	$	58,499	$	52,505

Impairment exists when the carrying value of goodwill exceeds its fair value, which is determined through a two-step impairment test. The first step includes the determination of the carrying value of the Company’s single reporting unit, including the existing goodwill and intangible assets, and estimating the fair value of the reporting unit. The Company performed a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill at December 31, 2013. Qualitative factors that were considered included, but not limited to, business strategy, customer base, financial performance and market and regulatory dynamics. The results of the qualitative assessment indicated that the fair value of the reporting unit exceeded its carrying amount. Consequently, no additional impairment test was necessary.

The amount of goodwill remaining to be deducted for tax purposes was $14,321 at December 31, 2013.

Core Deposit Intangible: The gross carrying amount and accumulated amortization for core deposit intangible was as follows as of December 31, 2013 and 2012:

	2013				2012
	Gross Cost		Accumulated Amortization		Gross Cost	Accumulated Amortization

Core deposit intangible	$	7,217	$	3,410	$5,934	$	2,666

Amortization expense was $745, $684, and $514 for the years ended December 31, 2013, 2012, and 2011, respectively.

Estimated amortization expense for each of the next five years is as follows.

2014	$	745
2015		685
2016		624
2017		570
2018		409
Thereafter		774
	$	3,807

NOTE 9 - DEPOSITS

Time deposits of $100 or more were $202,715 and $207,843 at December 31, 2013 and 2012, respectively.

Scheduled maturities of time deposits for the next five years are as follows.

2014	$	202,530
2015		52,069
2016		26,131
2017		5,020
2018		1,918
	$	287,668

109

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 10 - FEDERAL HOME LOAN BANK ADVANCES

The Company has a credit line with the Federal Home Loan Bank (“FHLB”). This credit line is collateralized by $164,066 of residential first mortgage and commercial real estate loans under a blanket lien arrangement. At December 31, 2013, the Bank had borrowing capacity from the FHLB of $60,401 based on eligible pledged collateral. At December 31, 2013, maturities and interest rates on FHLB advances were as follows:

Maturity	Amount	Interest Rate
February 2015	$10,000	0.54%
March 2015	$10,000	0.43%
July 2015	$10,000	0.62%
September 2015	$ 5,000	0.58%

There were no FHLB advances outstanding at December 31, 2012.

NOTE 11 – OTHER BORROWINGS

On July 7, 2008, 1^stUnited entered into a Subordinated Capital Note Purchase Agreement (“Note Purchase Agreement”) with a correspondent bank (“Lender”). Pursuant to the Note Purchase Agreement, 1^st United issued to Lender an unsecured Subordinated Capital Note (the “Debenture”) in the principal amount of $5,000. The Debenture bore interest at a fixed rate of 5.69% until May 16, 2010, after which time the fluctuating interest rate is equal to the three month British Bankers Association LIBOR Daily Floating Rate (“LIBOR”) plus 245 basis points per annum. 1^stUnited began repaying principal of $125 each quarter on September 15, 2010. In November 2011, 1^st United repaid the Debenture in full and in conjunction with this transaction received a two percent discount. The Company recorded a gain on the extinguishment of the debt of $87, which was recorded as other income in the consolidated statement of operations. 1^st United paid $112 in interest during the year ended December 31, 2011.

The Company has a credit line with the Federal Reserve Bank of Atlanta. The line is collateralized by $104,622 of commercial loans under a blanket lien arrangement as of December 31, 2013. There were no amounts outstanding under this line at December 31, 2013 and 2012.

NOTE 12 - BENEFIT PLANS AND EMPLOYMENT AGREEMENTS

401(k) Plan: A 401(k) benefit plan allows employee contributions up to 15% of their compensation, which are matched equal to 33% of the first 6.0% of the compensation contributed. The Company increased the amount matched to 50% of the first 6% of compensation contributed, effective January 2014. Employee benefit expense related to this plan was $233, $211, and $115 for the years ended December 31, 2013, 2012 and 2011, respectively.

Employment Agreements: The Company has entered into rolling three-year employment agreements with three of its executive officers. The agreements provide for a base salary, supplemental retirement benefits and cash and equity bonuses, which are tied to certain growth and/or profitability targets. Expense under the associated supplemental retirement plans is allocated over years of service and totaled $955, $961, and $301 for the years ended December 31, 2013, 2012 and 2011, respectively.

110

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 13 - INCOME TAXES

Income tax expense was as follows:

	Years ended December 31,
	2013		2012		2011

Current Provision
Federal	$	3,298	$	176	$	209
State		528		—		—

Total		3,826		176		209

Deferred Provision
Federal		227		2,247		1,740
State		39		385		333

Total		266		2,632		2,073

Total Provision
Federal		3,525		2,423		1,949
State		567		385		333

Income tax expense	$	4,092	$	2,808	$	2,282

The balance of deferred tax assets and liabilities at December 31, 2013 and 2012 follows:

	2013			2012

Deferred tax assets:
Net operating loss and credit carryforward	$	3,872		$	4,943
Allowance for loan losses		3,747			3,800
Fair value adjustment of loans and other real estate owned		9,164			16,923
Accrued expenses		731			505
Deferred and stock compensation		2,832			2,131
Unrealized loss on securities available for sale		4,982			—
Other		132			357
		25,460			28,659
Deferred tax liabilities:
Deferred gain		(1,184	)		(2,175	)
FDIC loss share receivable		(9,450	)		(17,586	)
Tax deductible goodwill and other intangibles		(1,724	)		(954	)
Depreciation		(192	)		(493	)
Prepaid expenses		(189	)		(169	)
Unrealized gain on securities available for sale		—			(1,362	)
		(12,739	)		(22,739	)

Net deferred tax asset (liability)	$	12,721		$	5,920

111

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 13 - INCOME TAXES (continued)

The deferred tax liability related to the gain on the Republic and TBOM transactions will reverse ratably over six years. The remainder will be realized as the applicable assets are recovered, sold or mature.

The Company continues to assess its earnings history, its estimate of future earnings, the expected reversal of differences in book and taxable income, and the expiration dates of its net operating loss carryforwards to determine that it was more likely than not that the deferred tax assets will be realized. The Company has determined that the realization of the deferred tax assets continues to be more likely than not and no valuation allowance was recorded for at December 31, 2013 and 2012.

Also, due to the issuance of additional stock in September of 2009, the Company underwent a “change of ownership” as that term is defined in the Internal Revenue Code. This change of ownership also resulted in a limitation of the amount of net operating losses that can be utilized by the Company, annually, under Internal Revenue Code Section 382. As of December 31, 2013, the Company has utilized all of the federal net operating loss and credit carryforwards which were subject to this limitation. However, $13,153 of the Company’s state net operating loss carry forwards remain subject to this limitation.

As part of the merger with AFI, the Company acquired federal and state net operating loss carryforwards of $10,928 which begin to expire starting in 2028. The use of these net operating loss carryforwards are also subject to an annual limitation by Internal Revenue Code Section 382.

At December 31, 2013, the Company has State net operating loss carryforwards of approximately $25,983, which begin to expire in 2028. Inclusive within these amounts is $8,747 of remaining federal and state net operating loss carryforwards which were acquired as part of the merger with AFI. It is anticipated that these carryforwards, both Federal and State, will be utilized prior to their expiration, and the limitations under Internal Revenue Code Section 382 will not materially impact the Company.

Effective tax rates differ from federal statutory rate of 34% applied to income before income taxes due to the following:

	2013			2012			2011
Federal statutory rate times financial statement income	$	3,728		$	2,562		$	2,024
Effect of:
State taxes		395			250			219
Earnings from company owned life insurance		(210	)		(169	)		(51	)
Incentive stock option expense		100			74			49
Other, net		79			91			41

Total	$	4,092		$	2,808		$	2,282

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax within the State of Florida. The Company is no longer subject to examination by taxing authorities for years before 2010. The Company is currently under examination by the Internal Revenue Service. The examination is currently in the information gathering phase. While there is no assurance as to the results of the audit, the Company does not currently anticipate any material adjustments in connection with this examination. The Company believes that it has properly reported its taxable income and that any adjustments would not have a material impact on the financial results of the Company.

There were no significant unrecognized tax benefits at December 31, 2013, and the Company does not expect any significant increase in unrecognized tax benefits in the next twelve months.

112

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 14 – RELATED-PARTY TRANSACTIONS

Loans to principal officers, directors, and their affiliates for the years ended December 31, 2013 and 2012 were as follows

	Year ended December 31,
	2013			2012
Beginning balance	$	12,976		$	9,693
New loans and advances		2,507			4,549
Repayments		(2,779	)		(1,266	)

Ending balance	$	12,704		$	12,976

Deposits held within our banking subsidiary from principal officers, directors, and their affiliates at December 31, 2013 and 2012 were $32,399 and $19,217, respectively.

Additionally, the Company paid $67, $456, and $892, for the years ended December 31, 2013, 2012 and 2011, respectively, to various entities owned by directors of the Company or 1^st United Bank for architectural design services and furniture related to its office facilities, insurance services and legal services. The Company entered into a lease that commenced in 2006 and can be renewed every 5 years on a property owned by a director, for which it has made lease payments of $136, $133, and $136 during the years ended December 31, 2013, 2012 and 2011, respectively.

NOTE 15 – STOCK-BASED COMPENSATION

The Company had a non-executive officer stock option plan (the “2003 Plan”) whereby up to 5% of the outstanding shares of the Company’s common stock may be issued under the plan. At December 31, 2013 and 2012, 62,712 shares had been issued and no options were available to be issued under the plan. No additional shares can be issued under the 2003 Plan.

In May 2008, the Company’s shareholders approved a new Stock Incentive Plan (the “2008 Incentive Plan”). The 2008 Incentive Plan allows for up to 5% of outstanding shares to be issued to employees, executive officers or Directors in the form of stock options, restricted stock, Phantom Stock units, stock appreciation rights or performance share units. At December 31, 2013, there were 1,556,358 awards issued and outstanding under the 2008 Incentive Plan. No additional shares can be issued under the 2008 Plan.

In May 2013, the Company’s shareholders approved a new Stock Incentive Plan (the “2013 Incentive Plan”). The 2013 Incentive Plan allows for up to 5% of outstanding common shares, but no more than 1,703,513 to be issued to employees, executive officers or Directors in the form of stock options, restricted stock, Phantom Stock units, stock appreciation rights or performance share units. At December 31, 2013, 25,000 awards were issued and outstanding under the 2013 Incentive Plan. Up to an additional 1,678,513 awards may be issued under the 2013 Incentive Plan.

Additionally, 3,219,322 and 3,059,322 options to purchase the Company’s common stock were outstanding at December 31, 2013 and December 31, 2012, respectively, to executive officers under employment agreements.

Lastly, the Company has entered into separate agreements with its non-executive directors and executive council members whereby these individuals have been granted options to purchase the Company’s common stock. At December 31, 2013 and 2012, 170,900 options and 107,800 options, respectively, were outstanding under these agreements.

Under each of the above plans and agreements, the exercise price is the market price at date of grant. The maximum option term is ten years and the vesting period ranges from immediate vesting to up to ten years. The Company issues new shares to satisfy share option exercises. Total compensation costs that have been charged against income for these plans and agreements were $1,088, $964, and $816, respectively, for the years ended December 31, 2013, 2012 and 2011.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of an appropriate bank peer group. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted represents the period of time that options granted are expected to be

113

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 15 – STOCK-BASED COMPENSATION (continued)

outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted during 2013, 2012 and 2011 was determined using the following weighted-average assumptions as of grant date.

	2013			2012			2011

Risk-free interest rate		1.25	%		1.77	%		2.17	%
Expected term		7.0 years			8.5 years			5.5 years
Expected stock price volatility		40	%		40	%		30	%
Dividend yield		1.0	%		—			—

A summary of stock option activity for the year ended December 31, 2013 follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at beginning of year		3,983,571		$	7.40		6.4 years	$	1,053,745
Granted		335,100			6.16
Exercised		(1,785	)		6.70
Forfeited, exchanged or expired		(63,299	)
Outstanding at end of year		4,253,587			7.30		5.71 years		5,813,650
Fully vested and expected to vest		4,250,183			7.30		5.71 years		5,811,120
Exercisable at end of year		1,943,251			8.53		4.41 years		2,021,591

Information related to stock options granted during each year follows:

	2013		2012		2011
Intrinsic value of options exercised	$	2	$	—	$	—
Cash received from option exercises	$	11		—		—
Tax benefit realized from option exercises		—		—		—
Weighted average fair value of options granted	$	1.98	$	2.86		2.12

As of December 31, 2013 and 2012, there were $4,781 and $5,038, respectively, of total unrecognized compensation cost related to non-vested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 5.35 years.

In 2009, the Company granted 84,000 shares of its common stock to non-employee directors pursuant to the terms of the 2008 Incentive Plan. The grant price was $7.15 per share. Under the terms of the agreement, the restricted shares will vest one-seventh immediately and one-seventh equally at the end of the next six years, subject to accelerated vesting upon a change of control. The fair value of restricted stock award at the grant date was $601, which one-seventh immediately vested with the remaining being amortized into expense over the six-year vesting period on the straight-line method. Amortization expense was $86, $86 and $81 for the years ended December 31, 2013, 2012 and 2011. At December 31, 2013, 60,000 shares had vested and 24,000 shares were non-vested.

In 2011, the Company granted 101,600 shares of its common stock to non-employee directors of the Company and 1^stUnited. The fair value of the stock award was $640, which vest one-seventh at the date of grant and one-seventh each year thereafter over the following six years. The grant price at the date of grant was $6.30. Amortization expense for the years ended

114

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 15 – STOCK-BASED COMPENSATION (continued)

December 31, 2013, 2012 and 2011 was $91, $91 and $175. At December 31, 2013, 43,542 shares had vested and 58,058 shares were non-vested.

In 2012, the Company granted 208,335 shares of its common stock to non-employee directors and executive officers of the Company and 1^stUnited. The fair value of the stock award was $1,230, which vest one-tenth each year over a ten year period. The grant price at the date of grant was $5.90. Amortization expense for the years ended December 31, 2013 and 2012 was $122 and $102. At December 31, 2013, 20,834 shares had vested and 187,501 shares were non-vested.

In 2012, the Company granted 15,750 shares of its common stock to new directors of the Company and 1^stUnited. The fair value of the stock award was $95, which vest one-tenth each year over a ten year period. The grant price at the date of grant was $6.05. Amortization expense for the years ended December 31, 2013 and 2012 was $10 and $7. At December 31, 2013, 1,575 shares had vested and 14,175 shares were non-vested.

In 2013, the Company granted 216,786 shares of its common stock to non-employee directors and executive officers of the Company and 1^stUnited. The fair value of the stock award was $1,318, which vest one-tenth each year over a ten year period. The grant price at the date of grant was $6.08. Amortization expense for the years ended December 31, 2013 was $110. At December 31, 2013, none of the shares were vested.

NOTE 16 – COMMON STOCK OFFERING

In April 2012, the Company completed the acquisition of AFI and issued 3,140,354 in common stock. See Note 2.

NOTE 17 – CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet times 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.

Management believes as of December 31, 2013, the Company and 1^st United meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2013 and 2012, the most recent regulatory notifications categorized 1^st United as well capitalized under the regulatory notifications framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

115

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 17 – CAPITAL REQUIREMENTS AND RESTRICTIONS ON RETAINED EARNINGS (continued)

The Company’s and 1^st United’s actual and required capital amounts and ratios at year end are presented.

	Actual					Minimum Capital Adequacy					Minimum for Well Capitalized
	Amount		%			Amount		%			Amount		%
As of December 31, 2013
Total Capital to risk-weighted assets
Consolidated	$	172,709		15.47	%	$	89,287		8.00	%	$	111,608		10.00	%
1^st United		158,884		14.27	%		89,084		8.00	%		111,355		10.00	%
Tier I capital to risk-weighted assets
Consolidated		163,061		14.61	%		44,643		4.00	%		66,965		6.00	%
1^st United		149,236		13.40	%		44,542		4.00	%		66,813		6.00	%
Tier I capital to total average assets
Consolidated		163,061		9.66	%		67,489		4.00	%		84,361		5.00	%
1^st United		149,236		8.86	%		67,388		4.00	%		84,235		5.00	%

As of December 31, 2012
Total Capital to risk-weighted assets
Consolidated	$	180,143		22.43	%	$	64,241		8.00	%	$	80,301		10.00	%
1^st United		162,884		20.27	%		63,883		8.00	%		79,854		10.00	%
Tier I capital to risk-weighted assets
Consolidated		170,355		21.21	%		32,120		4.00	%		48,180		6.00	%
1^st United		152,280		19.07	%		31,942		4.00	%		47,912		6.00	%
Tier I capital to total average assets
Consolidated		170,355		11.44	%		59,586		4.00	%		74,483		5.00	%
1^st United		152,280		10.25	%		59,402		4.00	%		74,252		5.00	%

Dividend Restrictions—The Company’s principal source of funds for dividend payments is dividends received from 1^st United. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net profits, combined with the retained net profits of the preceding two years, subject to the capital requirements described above. During the year ended December 31, 2013, 1^st United declared and paid dividends of $5,250 to the Company. At December 31, 2013, 1^st United could have, without prior approval, declared additional net dividends of $5,553.

The Company paid quarterly cash dividends of $0.01 per share on May 8, 2013, August 15, 2013 and November 15, 2013. Additionally, the board of directors declared a $0.10 per share special cash dividend on December 23, 2013 of $3,428 which was paid January 2014. During December 2012, the Company paid a $0.10 special cash dividend of $3,407 to holders of common shares as of the record date.

NOTE 18 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer’s financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments to make loans are generally made for periods of 60 days or less and may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

116

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 18 – LOAN COMMITMENTS AND OTHER RELATED ACTIVITIES (continued)

The contractual amount of financial instruments with off-balance-sheet risk was as follows at year end.

	2013				2012
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate

Commitments to make loans	$	29,104	$	22,557	$	23,661	$	2,958
Unused lines of credit		9,283		98,035		664		72,103
Stand-by letters of credit		7,205		782		5,349		1,610

Commitments to make loans are generally made for periods of 60 days or less. The fixed rate loan commitments have interest rates ranging from 3.0% to 6.0% and the underlying loans have maturities ranging from four months to 30 years.

NOTE 19 – FAIR VALUES

Fair Value Measurements

Fair value is defined as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance 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 I: 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 II: Significant other observable inputs other than Level I 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 III: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair values of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges (Level I 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 II inputs).

Assets measured at fair value on a recurring basis at December 31, 2013 and 2012, are summarized below.

	Fair value measurements at December, 2013 using
	December 31, 2013		Quoted prices in active markets for identical assets (Level I)		Significant other observable inputs (Level II)		Significant unobservable inputs (Level III)
Securities Available for Sale:
U.S. Treasury	$	918	$	—	$	918	$	—
Municipal Securities		5,604		—		5,604		—
Residential collateralized mortgage obligations		818		—		818		—
Commercial mortgage-backed		4,074		—		4,074		—
Residential mortgage-backed		316,547		—		316,547		—
	$	327,961	$	—	$	327,961	$	—

117

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 19 – FAIR VALUES (continued)

	Fair value measurements at December 31, 2012 using
	December 31, 2012		Quoted prices in active markets for identical assets (Level I)		Significant other observable inputs (Level II)		Significant unobservable inputs (Level III)
Securities available for sale:
Municipal Securities	$	469	$	—	$	469	$	—
Residential collateralized mortgage obligations		3,759		—		3,759	$	—
Residential mortgage-backed		255,894		—		255,894		—
	$	260,122	$	—	$	260,122	$	—

There were no liabilities measured at fair value on a recurring basis at December 31, 2013 and December 31, 2012.

The fair value of impaired loans with specific allocations of the allowance for loan losses and other real estate owned is based on recent real estate appraisals less estimated costs of sale. For residential real estate impaired loans and other real estate owned, appraised values are based on the comparative sales approach. For commercial and commercial real estate impaired loans and other real estate owned, appraisers may use either a single valuation approach or a combination of approaches such as comparative sales, cost or the income approach. A significant unobservable input in the income approach is the estimated income capitalization rate for a given piece of collateral. Adjustments to appraisals may be made by the appraiser to reflect local market conditions or other economic factors and may result in changes in the fair value of a given assets over time. As such, the fair value of impaired loans and other real estate owned are considered a Level III in the fair value hierarchy.

The Company recovers the carrying value of other real estate owned through the sale of the property. The ability to affect future sales prices is subject to market conditions and factors beyond our control and may impact the estimated fair value of a property.

Appraisals for impaired loans and other real estate owned are performed by certified general appraisers whose qualifications and licenses have been reviewed and verified by the Company. Once reviewed, a member of the appraisal department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparisons to independent data sources such as recent market data or industry wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustments, if any, should be made to the appraisal value to arrive at fair value. Based on our most recent analysis, no discounts to current appraisals have been warranted.

118

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 19 – FAIR VALUES (continued)

The significant unobservable inputs used in the fair value measurements for Level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2013 and 2012 are as follows:

Impaired Loans	Valuation Techniques	Range of Unobservable Inputs

Residential	Appraisals of collateral value	Adjustment for sales comparatives related to physical features including gross living area, site size, location and condition, generally an decline of 10% to an increase of 25%
Commercial	Discounted cash flow model	Discount rate from 0% to 6%
Commercial Real Estate	Appraisals of collateral value	Market capitalization rates between 8% and 12%. Market rental rates for similar properties
Construction and land development	Appraisals of collateral value	Adjustment for age of comparable sales, generally a decline of 35% to no change

Other real estate

Residential	Appraisals of collateral value	Adjustment for sales comparatives related to physical features including gross living area, site size, location and condition, generally an decline of 10% to an increase of 25%
Commercial	Appraisals of collateral value	Adjustment for age and physical conditions of comparable sales, generally a decline of 20% to an increase of 30%

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

	Fair value measurements at December 31, 2013 using
	December 31, 2013		Quoted prices in active markets for identical assets (Level I)		Significant other observable Inputs (Level II)		Significant unobservable inputs (Level III)
Assets:
Impaired loans
Residential	$	1,490	$	—	$	—	$	1,490
Commercial		1,111		—		—		1,111
Commercial real estate		5,522		—		—		5,522
Construction and land development		256		—		—		256
Consumer and other		—		—		—		—
	$	8,379	$	—	$	—	$	8,379
Other real estate:
Commercial	$	14,740	$	—	$	—	$	14,740
Residential		3,840		—		—		3,840
	$	18,580	$	—	$	—	$	18,580

At December 31, 2013, impaired loans, which had a specific allowance for loan losses allocated, had a carrying amount of $10,358, with a valuation allowance of $1,979 resulting in an additional provision of loan losses of $2,466 during the year December 31, 2013.

Other real estate owned, which are measured for impairment using the fair value of the collateral less estimated cost to sell, had a carrying amount of $18,580, and had no valuation allowance at December 31, 2013. During the year ended December 31, 2013, the Company recorded write-downs to other real estate owned of $1,143 due to reductions in the estimated fair value of properties.

119

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 19 – FAIR VALUES (continued)

	Fair value measurements at December 31, 2012 using
	December 31, 2012		Quoted prices in active markets for identical assets (Level I)		Significant other observable inputs (Level II)		Significant unobservable inputs (Level III)
Assets:
Impaired loans
Residential	$	1,529	$	—	$	—	$	1,529
Commercial		1,416		—		—		1,416
Commercial real estate		9,972		—		—		9,972
Construction and land development		1,652		—		—		1,652
Consumer and other		—		—		—		—
	$	14,569	$	—	$	—	$	14,569
Other real estate owned:
Commercial real estate	$	16,080	$	—	$	—	$	16,080
Residential real estate		3,449		—		—		3,449
	$	19,529	$	—	$	—	$	19,529

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying amount of $17,683, with a valuation allowance of $3,114 resulting in an additional provision for loan losses of $3,778 for the year ended December 31, 2012.

Other real estate owned, which are measured for impairment using the fair value of the collateral less estimated cost to sell, had a carrying amount of $19,529, with no valuation allowance for the year ended December 31, 2012. During the year ended December 31, 2012, the Company recorded write-downs to other real estate owned of $340 due to reductions in the estimated fair value of properties.

Transfers of assets and liabilities between levels within the fair value hierarchy are recognized when an event or change in circumstances occurs. There have been no transfers between fair value levels for 2013 and 2012.

Carrying amount and estimated fair values of financial instruments were as follows at December 31, 2013 and 2012,respectively.

	2013				2012
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	198,221	$	198,221	$	207,117	$	207,117
Securities available for sale		327,961		327,961		260,122		260,122
Loans, net, including loans held for sale		1,124,571		1,130,355		904,124		910,761
Nonmarketable equity securities		9,977		N/A		8,625		N/A
Company owned life insurance		24,710		24,710		21,092		21,092
FDIC loss share receivable		29,331		29,331		48,568		48,568
Accrued interest receivable		3,991		3,991		3,428		3,428

Financial liabilities
Deposits	$	1,547,913	$	1,548,743	$	1,303,022	$	1,299,140
Federal funds purchased and repurchase agreements		14,363		14,364		19,855		19,855
Federal Home Loan Bank advances		35,018		35,167		—		—
Accrued interest payable		282		282		314		314

120

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 19 – FAIR VALUES (continued)

Fair value methods and assumptions are periodically evaluated by the Company. The methods and assumptions used to estimate fair value are described as follows:

Cash and cash equivalents

The carrying amounts of cash and cash equivalents approximate the fair value and are classified as Level I in the fair value hierarchy.

Loans, net

The fair value of variable rate loans that re-price frequently and with no significant change in credit risk is based on the carrying value and results in a classification of Level III within the fair value hierarchy. Fair value for other loans are estimated using discounted cash flows analysis using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level III classification in the fair value hierarchy. The methods used to estimate the fair value of loans do not necessarily represent an exit price.

Nonmarketable equity securities

Nonmarketable equity securities include Federal Home Loan Bank Stock and Federal Reserve Bank Stock. It is not practicable to determine the fair value of nonmarketable equity securities due to restrictions placed on their transferability.

FDIC Loss Share Receivable

The fair value of the FDIC Loss Share Receivable represents the discounted value of the FDIC’s reimbursed portion of estimated losses the Company expects to realize on loans and other real estate owned covered under Loss Sharing Agreements. As a result, the fair value is considered a Level III classification in the fair value hierarchy.

Deposits

The fair value of non-interest bearing demand deposits is equal to the amount payable at the reporting date (i.e. carrying value) resulting in a Level 1 classification in the fair value hierarchy. The fair value of interest bearing demand deposits (e.g. interest bearing, savings and certain types of money market accounts) are, by definition, equal to the amount payable in demand at the reporting date (i.e. carrying value) resulting in a Level II classification in the fair value hierarchy. The carrying amounts of variable rate, fixed-term money market accounts and certificate of deposits approximates their fair value at the reporting date in a Level II classification in the fair value hierarchy. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level II classification.

Federal Funds purchased and repurchase agreements

The carrying amounts of federal funds and repurchase agreements generally mature within ninety days and approximate their fair value resulting in a Level II classification in the fair value hierarchy.

Federal Home Loan Advances

The fair value of Federal Home Loan Bank Advances are estimated using a discounted cash flow analysis based on the current borrowing rates for similar types of borrowings and are classified as a Level II in the fair value hierarchy.

Accrued interest receivable/payable

The carrying amounts of accrued interest receivable approximate fair value resulting in a Level III classification. The carrying amounts of accrued interest payable approximate fair value resulting in a Level II classification.

121

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 19 – FAIR VALUES (continued)

Off-balance sheet instruments

The fair value of off-balance-sheet instruments is based on the current fees that would be charged to enter into or terminate such arrangements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

NOTE 20 – EARNINGS PER SHARE

The factors used in the earnings per share computation follow:

	2013		2012		2011
Basic
Net Income	$	6,871	$	4,728	$	3,672

Weighted average common shares outstanding		33,777,792		32,947,752		29,240,932

Basic earnings per common share	$	0.20	$	0.14	$	0.13

Diluted
Net Income	$	6,871	$	4,728	$	3,672

Weighted average common shares outstanding for basic earnings per common share		33,777,792		32,947,752		29,240,932

Add: Dilutive effects of assumed exercise of stock options and vesting of restricted stock		351,293		5,311		14,990
Average shares and dilutive potential common shares		34,129,086		32,953,063		29,255,922

Diluted earnings per common share	$	0.20	$	0.14	$	0.13

Stock options for 1,986,488, 3,983,571, and 3,568,975 shares of common stock were not considered in computing diluted earnings per share for 2013, 2012, and 2011, respectively, because they were antidilutive.

NOTE 21 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION

Condensed financial information of Bancorp follows:

CONDENSED BALANCE SHEETS
December 31

	2013		2012
ASSETS
Cash and cash equivalents	$	14,522	$	10,028
Investment in subsidiaries		216,466		223,378
Other assets		3,972		3,298

	$	234,960	$	236,704
LIABILITIES AND EQUITY
Other liabilities	$	1,424	$	14
Dividends payable		3,428		—
Shareholders’ equity		230,108		236,690
	$	234,960	$	236,704

122

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 21 – PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION (continued)

CONDENSED STATEMENTS OF INCOME
Years ended December 31

	2013			2012			2011

Interest income	$	14		$	30		$	210
Equity in subsidiary income		7,571			5,373			4,036
Other income		9			—			—
Professional fees		(228	)		(173	)		(206	)
Other non-interest expense		(917	)		(891	)		(588	)

Income before income taxes		6,449			4,339			3,452
Income tax benefit		(422	)		(389	)		(220	)
Net income	$	6,871		$	4,728		$	3,672

CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31,

	2013			2012			2011
Cash flows from operating activities
Net income	$	6,871		$	4,728		$	3,672
Adjustments:
Equity in undistributed subsidiary income		(7,571	)		(5,373	)		(4,036	)
Stock based compensation expense		1,508			1,258			1,072
Net change in other assets and liabilities		336			(783	)		(291	)
Net cash provided by (used in) operating activities		1,144			(170	)		417

Cash flows from investing activities
Investment in subsidiaries		133			4,902			(20,815	)
Distributions from subsidiaries		8,950			—			—
Cash paid in connection with merger, net		(4,715	)		(19,125	)		—
Net cash provided by (used in) investing activities		4,368			(14,223	)		(20,815	)

Cash flows from financing activities

Dividends paid		(1,029	)		(3,407	)		—
Exercise of stock options		11			—			—
Issuance of common stock		—			—			(35,090	)
Net cash provided by (used in) financing activities		(1,018	)		(3,407	)		(35,090	)

Net change in cash and cash equivalents		4,494			(17,800	)		14,692
Beginning cash and cash equivalents		10,028			27,828			13,136

Ending cash and cash equivalents	$	14,522		$	10,028		$	27,828

123

1^st UNITED BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

NOTE 22 – QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

	First Quarter			Second Quarter			Third Quarter^(a)			Fourth Quarter^(a)
Year ended December 31, 2013
Total interest income	$	17,720		$	20,546		$	19,520		$	21,964
Total interest expense		991			898			920			981
Net interest income		16,729			19,648			18,600			20,983
Provision for loan losses		650			1,300			745			780
Net interest income after provision for loan losses		16,079			18,348			17,855			20,203
Net gain on other real estate owned		441			393			179			120
Gain on sale of securities		122			609			93			—
Adjustment to FDIC loss share receivable		(2,820	)		(4,922	)		(2,835	)		(4,673	)
Other noninterest income		1,274			1,211			1,254			1,304
Merger reorganization expense		—			127			1,618			—
Disposal of banking centers and equipment		—			404			246			178
Noninterest expense (b)		12,481			12,307			13,315			12,596
Income before income taxes		2,615			2,801			1,367			4,180
Income tax expense		995			1,034			487			1,576
Net income	$	1,620		$	1,767		$	880		$	2,604

Earnings per share – basic	$	0.05		$	0.05		$	0.03		$	0.08
Earnings per share – diluted		0.05			0.05			0.03			0.08

^(a)	includes acquisition of EBI
^(b)	Noninterest expense for the second and third quarters were impacted by additional expenses incurred as a result of EBI acquisition.

	First Quarter^(c)			Second Quarter^(c)			Third Quarter			Fourth Quarter
Year ended December 31, 2012
Total interest income	$	15,888		$	19,166		$	19,183		$	18,612
Total interest expense		1,437			1,476			1,277			1,123
Net interest income		14,451			17,690			17,906			17,489
Provision for loan losses		1,300			3,100			1,050			900
Net interest income after provision for loan losses		13,151			14,590			16,856			16,589
Net gain on other real estate owned		735			1,218			1,020			305
Gain on sale of securities		498			1,175			—			—
Adjustment to FDIC loss share receivable		(2,075	)		(3,042	)		(4,150	)		(3,221	)
Other noninterest income		1,122			1,240			1,261			1,248
Merger reorganization expense		451			1,309			24			—
Noninterest expense (d)		11,725			12,853			12,429			12,193
Income before income taxes		1,255			1,019			2,534			2,728
Income tax expense		475			372			960			1,001
Net income	$	780		$	647		$	1,574		$	1,727

Earnings per share – basic	$	0.03		$	0.02		$	0.05		$	0.05
Earnings per share – diluted		0.03			0.02			0.05			0.05

^(c)	includes acquisition of AFI

^(d)	Noninterest expense for the first and second quarters were impacted by additional expenses incurred as a result of the Old Harbor and AFI acquisitions.

124

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. As of December 31, 2013, the end of the period covered by this Annual Report on Form 10-K, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer each concluded that as of December 31, 2013, the end of the period covered by this Annual Report on Form 10-K, we maintained effective disclosure controls and procedures.

Management’s Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining effective internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework established in the 1992 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the framework in Internal Control-Integrated Framework, our management has concluded we maintained effective internal control over financial reporting, as such term is defined in Securities Exchange Act of 1934 Rule 13a-15(f), as of December 31, 2013.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting can also be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. As permitted, the Company has excluded the current year acquisition of EBI (represents approximately 8% of total assets at December 31, 2013) from the scope of management’s report on internal control over financial reporting.

Management is also responsible for the preparation and fair presentation of the consolidated financial statements and other financial information contained in this report. The accompanying consolidated financial statements were prepared in conformity with U.S. generally accepted accounting principles and include, as necessary, best estimates and judgments by management.

The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Crowe Horwath LLP, an independent registered public accounting firm, and the firm’s attestation report on this matter is included in Item 8 of this Annual Report on Form 10-K.

Changes in Internal Control. Our management, including the Chief Executive Officer and Chief Financial Officer, has reviewed our internal control. There have been no significant changes in our internal control during our most recently completed fiscal quarter that materially affected, or is likely to materially affect our internal control over financial reporting.

Item 9B. Other Information

On February 10, 2014, we announced via press release our financial results for the quarter and fiscal year ended December 31, 2013. 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 9B of this Annual 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.

125

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 of Form 10-K with respect to identification of directors and officers is incorporated by reference from the information contained in the sections captioned “Proposal –1 - Election of Directors,” “Executive Officers,” and “Corporate Governance – Codes of Ethics and Code of Conduct” in our Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2014 (the “Proxy Statement”), a copy of which we intend to file with the SEC within 120 days after the end of the year covered by this Annual Report on Form 10-K.

Section 16 Compliance

Information appearing under the captions “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference.

Item 11. Executive Compensation

The information required by Item 11 of the Form 10-K is incorporated by reference from the information contained in the sections captioned “Executive Compensation” and “Election of Directors - Directors’ Fees” in the Proxy Statement.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

EQUITY COMPENSATION PLAN INFORMATION

Our shareholders approved the 2003 Officers’ and Employees’ Stock Option Plan at the 2003 Annual Meeting, the 2008 Incentive Plan at the 2008 Annual Meeting and the 2013 Incentive Plan at the 2013 Annual Meeting. We no longer grant equity compensation pursuant to the 2003 Officers’ and Employees’ Stock Option Plan or the 2008 Inventive Plan. The following table provides certain information regarding our equity compensation plans as of December 31, 2013.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)

Equity Compensation Plans Approved by Securities Holders		1,132,265	$	6.31		1,678,513	⁽²⁾

Equity Compensation Plans Not Approved by Securities Holders		3,121,322	$	7.65		―	⁽¹⁾

Total		4,253,587	$	7.30		1,678,513

(1) Messrs. Orlando, Schupp, and Marino were granted stock options from time to time pursuant to written employment agreements. Please see section captioned “Executive Compensation” in our Proxy Statement.

(2) Total securities available for future issuance includes the impact of issuance of 626,471 common shares which vest over either a 7 or 10 year period to its directors.

126

For further information, see Note 15 to the Notes to Consolidated Financial Statements. The other information required by Item 12 of Form 10-K is incorporated by reference from the information contained in the sections captioned “Security Ownership of Certain Beneficial Owners and Management” in our Proxy Statement.

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 of Form 10-K is incorporated by reference from the information contained in the sections captioned “Transactions with Management and Related Persons” and “Proposal 1 Election of Directors – Committees of the Board of Directors” in the Proxy Statement.

Item 14. Principal Accountant Fees and Services

The information required by Item 14 of Form 10-K is incorporated by reference from the information in the section captioned “Audit Fees and Related Matters” in the Proxy Statement.

PART IV

Item 15. Exhibits and Financial Statement Schedules

The following documents are filed as part of this report

Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at the end of Fiscal Years 2013 and 2012

Consolidated Statements of Operations for Fiscal Years 2013, 2012, and 2011

Consolidated Statement of Comprehensive Income for Fiscal Years 2013, 2012, and 2011

Consolidated Statements of Changes in Shareholders’ Equity for Fiscal Years 2013, 2012, and 2011

Consolidated Statements of Cash Flows for Fiscal Years 2013, 2012, and 2011

Notes to Consolidated Financial Statements

Financial Statement Schedules

Other schedules and exhibits are omitted because the required information either is not applicable or is shown in the financial statements or the notes thereto.

Exhibits Required to be Filed by Item 601 of Regulation S-K

127

EXHIBIT NO.		DESCRIPTION

2.1		Purchase and Assumption Agreement – Whole Bank; All Deposits, among the Federal Deposit Insurance Corporation, receiver of Republic Federal Bank, N.A., Miami, Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, dated as of December 11, 2009 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 12/17/09) (No. 001-34462)

2.2		Amendment to Purchase and Assumption Agreement, among the Federal Deposit Insurance Corporation, receiver of Republic Federal Bank, N.A., Miami, Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, effective as of December 17, 2010 – incorporated herein by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K (filed 12/17/09) (No. 001- 34462)

2.3		Purchase and Assumption Agreement – Whole Bank; All Deposits, among the Federal Deposit Insurance Corporation, receiver of The Bank of Miami, N.A., Miami, Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, dated as of December 17, 2010 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 12/20/10) (No. 001-34462)

2.4		Purchase and Assumption Agreement – Whole Bank; All Deposits, among the Federal Deposit Insurance Corporation, receiver of Old Harbor Bank, Clearwater Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, dated as of October 21, 2011 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 10/24/11) (No. 001-34462)

2.5		Agreement and Plan of Merger, By and among Anderen Financial, Inc., Anderen Bank, and 1^st United Bancorp, Inc., dated as of October 24, 2011 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 10/24/11) (No. 001-34462)

2.6		Plan of Merger and Merger Agreement by and among 1^st United Bancorp, Inc., 1^st United bank, Enterprise Bancorp, Inc. and Enterprise Bank of Florida, dated as of March 23, 2013 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 3/25/13) (No. 001-34962)

3.1		Amended and Restated Articles of Incorporation of the Registrant - incorporated herein by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/22/08) (No. 001-34462)

3.2		Amendment to the 1^st United Bancorp, Inc. Amended and Restated Articles of Incorporation – incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (filed 5/28/09) (No. 001-34462)

3.3		Amendment to the 1^st United Bancorp, Inc. Amended and Restated Articles of Incorporation– incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (filed 12/9/09) (No. 001-34462)

3.4		Amended and Restated Bylaws of the Registrant – incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (filed 1/30/12) (No. 001-34462)

4.1		See Exhibits 3.1 through 3.4 for provisions of the Articles of Incorporation and Bylaws of the Registrant defining rights of the holders of common stock of the Registrant

4.2		Form of Indenture – incorporated herein by reference to Exhibit 4.3 of the Registrant’s Registration Statement of Form S-3 (filed 10/30/13) (No. 333-191990)

10.1		Third Amended and Restated Employment Agreement with Warren S. Orlando, dated as of January 24, 2012 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K (filed 1/30/12) (No. 001-34462)

10.2		Third Amended and Restated Employment Agreement with Rudy E. Schupp, dated as of January 24, 2012 – incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 8-K (filed 1/30/12) (No. 001-34462)

128

EXHIBIT NO.		DESCRIPTION

10.3		Third Amended and Restated Employment Agreement with John Marino, dated as of January 24, 2012 – incorporated herein by reference to Exhibit 10.3 of the Registrant’s Form 8-K (filed 1/30/12) (No. 001-34462)

10.4		Second Amended and Restated Supplemental Executive Retirement Plan Agreement for Warren S. Orlando, dated as of December 20, 2011 – incorporated herein by reference to Exhibit 10.4 of the Registrant’s Form 8-K (filed 12/23/11) (No. 001-34462)

10.5		Second Amended and Restated Supplemental Executive Retirement Plan Agreement for Rudy E. Schupp, dated as of December 20, 2011 – incorporated herein by reference to Exhibit 10.5 of the Registrant’s Form 8-K (filed 12/23/11) (No. 001-34462)

10.6		Second Amended and Restated Supplemental Executive Retirement Plan Agreement for John Marino, dated as of December 20, 2011 – incorporated herein by reference to Exhibit 10.6 of the Registrant’s Form 8-K (filed 12/23/11) (No. 001-34462)

10.7		2008 Incentive Plan – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 5/30/08) (No. 001-34462)

10.8		2013 Incentive Plan – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 5/30/13) (No. 001-34462).

10.9		Employment Agreement by and between the Registrant and Wade A. Jacobson, effective as of December 22, 2009 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 12/23/09) (No. 001-34462)

10.10		Amendment No. 1 to the Third Amended and Restated Employment Agreement with Warren S. Orlando, dated as of July 23, 2013 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/23/13) (No. 001-34462).

10.11		Amendment No. 1 to the Third Amended and Restated Employment Agreement with Rudy E. Schupp, dated as of July 23, 2013 – incorporated herein by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/23/13) (No. 001-34462).

10.12		Amendment No. 1 to the Third Amended and Restated Employment Agreement with John Marino, dated as of July 23, 2013 – incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/23/13) (No. 001-34462).

10.13		Amendment No. 2 to Third Amended and Restated Employment Agreement with Warren S. Orlando, dated as of November 12, 2013 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 11/12/13) (No. 001-34462).

10.14		Amendment No. 2 to Third Amended and Restated Employment Agreement with Rudy E. Schupp, dated as of November 12, 2013 – incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (filed 11/12/13) (No. 001-34462).

10.15		Amendment No. 2 to Third Amended and Restated Employment Agreement with John Marino, dated as of November 12, 2013 – incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (filed 11/12/13) (No. 001-34462).

11.1		Statement re Computation of Per Share Earnings*

12.1		Statement re Computation of Ratios**

21.1		Subsidiaries of the Registrant**

23.1		Consent of Crowe Horwath LLP, independent registered public accounting firm**

31.1		Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002**

129

EXHIBIT NO.		DESCRIPTION

31.2		Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002**

32.1		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

99.1		Press release to announce earnings, dated February 10, 2014**

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**

*		Information required to be presented in Exhibit 11.1 is provided in Note 20 to the consolidated financial statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally accepted accounting principles.

**		Filed electronically herewith.

130

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on February 10, 2014, its behalf by the undersigned thereunto duly authorized.

1^ST UNITED BANCORP, INC.
(Registrant)

By:	/s/ John Marino
	JOHN MARINO PRESIDENT AND CHIEF FINANCIAL OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on February 10, 2014, by the following persons on behalf of the Registrant and in the capacities indicated.

/s/ Rudy E. Schupp
Rudy E. Schupp Chief Executive Officer (Principal Executive Officer)

/s/ John Marino
John Marino President and Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Paula Berliner		/s/ Thomas E. Lynch
Paula Berliner, Director		Thomas E. Lynch, Director

/s/ Derek C. Burke		/s/ Carlos Morrison
Derek C. Burke, Director		Carlos Morrison, Director

/s/ Jeffery L. Carrier		/s/ Joseph W. Veccia, Jr.
Jeffery L. Carrier, Director		Joseph W. Veccia, Jr., Director

/s/ Ronald A. David		/s/ John Marino
Ronald A. David, Director		John Marino, Director

/s/ James D. Evans		/s/ Warren S. Orlando
James D. Evans, Director		Warren S. Orlando, Director

/s/ Arthur S. Loring		/s/ Rudy E. Schupp
Arthur S. Loring, Director		Rudy E. Schupp, Director

131

EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION

2.1		Purchase and Assumption Agreement – Whole Bank; All Deposits, among the Federal Deposit Insurance Corporation, receiver of Republic Federal Bank, N.A., Miami, Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, dated as of December 11, 2009 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 12/17/09) (No. 001-34462)

2.2		Amendment to Purchase and Assumption Agreement, among the Federal Deposit Insurance Corporation, receiver of Republic Federal Bank, N.A., Miami, Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, effective as of December 17, 2010 – incorporated herein by reference to Exhibit 2.2 of the Registrant’s Current Report on Form 8-K (filed 12/17/09) (No. 001- 34462)

2.3		Purchase and Assumption Agreement – Whole Bank; All Deposits, among the Federal Deposit Insurance Corporation, receiver of The Bank of Miami, N.A., Miami, Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, dated as of December 17, 2010 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 12/20/10) (No. 001-34462)

2.4		Purchase and Assumption Agreement – Whole Bank; All Deposits, among the Federal Deposit Insurance Corporation, receiver of Old Harbor Bank, Clearwater Florida, the Federal Deposit Insurance Corporation, and 1^st United Bank, dated as of October 21, 2011 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 10/24/11) (No. 001-34462)

2.5		Agreement and Plan of Merger, By and among Anderen Financial, Inc., Anderen Bank, and 1^st United Bancorp, Inc., dated as of October 24, 2011 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 10/24/11) (No. 001-34462)

2.6		Plan of Merger and Merger Agreement by and among 1^st United Bancorp, Inc., 1^st United Bank, Enterprise Bancorp, Inc. and Enterprise Bank of Florida, dated as of March 23, 2013 – incorporated herein by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K (filed 3/25/13) (No. 001-34962)

3.1		Amended and Restated Articles of Incorporation of the Registrant - incorporated herein by reference to Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/22/08) (No. 001-34462)

3.2		Amendment to the 1^st United Bancorp, Inc. Amended and Restated Articles of Incorporation – incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (filed 5/28/09) (No. 001-34462)

3.3		Amendment to the 1^st United Bancorp, Inc. Amended and Restated Articles of Incorporation– incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (filed 12/9/09) (No. 001-34462)

3.4		Amended and Restated Bylaws of the Registrant – incorporated herein by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K (filed 1/30/12) (No. 001-34462)

4.1		See Exhibits 3.1 through 3.4 for provisions of the Articles of Incorporation and Bylaws of the Registrant defining rights of the holders of common stock of the Registrant

4.2		Form of Indenture – incorporated herein by reference to Exhibit 4.3 of the Registrant’s Registration Statement of Form S-3 (filed 10/30/13) (No. 333-191990)

10.1		Third Amended and Restated Employment Agreement with Warren S. Orlando, dated as of January 24, 2012 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K (filed 1/30/12) (No. 001-34462)

10.2		Third Amended and Restated Employment Agreement with Rudy E. Schupp, dated as of January 24, 2012 – incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 8-K (filed 1/30/12) (No. 001-34462)

132

EXHIBIT NO.		DESCRIPTION

10.3		Third Amended and Restated Employment Agreement with John Marino, dated as of January 24, 2012 – incorporated herein by reference to Exhibit 10.3 of the Registrant’s Form 8-K (filed 1/30/12) (No. 001-34462)

10.4		Second Amended and Restated Supplemental Executive Retirement Plan Agreement for Warren S. Orlando, dated as of December 20, 2011 – incorporated herein by reference to Exhibit 10.4 of the Registrant’s Form 8-K (filed 12/23/11) (No. 001-34462)

10.5		Second Amended and Restated Supplemental Executive Retirement Plan Agreement for Rudy E. Schupp, dated as of December 20, 2011 – incorporated herein by reference to Exhibit 10.5 of the Registrant’s Form 8-K (filed 12/23/11) (No. 001-34462)

10.6		Second Amended and Restated Supplemental Executive Retirement Plan Agreement for John Marino, dated as of December 20, 2011 – incorporated herein by reference to Exhibit 10.6 of the Registrant’s Form 8-K (filed 12/23/11) (No. 001-34462)

10.7		2008 Incentive Plan – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 5/30/08) (No. 001-34462)

10.8		2013 Incentive Plan – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 5/30/13) (No. 001-34462).

10.9		Employment Agreement by and between the Registrant and Wade A. Jacobson, effective as of December 22, 2009 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 12/23/09) (No. 001-34462)


10.10		Amendment No. 1 to the Third Amended and Restated Employment Agreement with Warren S. Orlando, dated as of July 23, 2013 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/23/13) (No. 001-34462).

10.11		Amendment No. 1 to the Third Amended and Restated Employment Agreement with Rudy E. Schupp, dated as of July 23, 2013 – incorporated herein by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/23/13) (No. 001-34462).

10.12		Amendment No. 1 to the Third Amended and Restated Employment Agreement with John Marino, dated as of July 23, 2013 – incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q (filed 7/23/13) (No. 001-34462).

10.13		Amendment No. 2 to Third Amended and Restated Employment Agreement with Warren S. Orlando, dated as of November 12, 2013 – incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (filed 11/12/13) (No. 001-34462).

10.14		Amendment No. 2 to Third Amended and Restated Employment Agreement with Rudy E. Schupp, dated as of November 12, 2013 – incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K (filed 11/12/13) (No. 001-34462).

10.15		Amendment No. 2 to Third Amended and Restated Employment Agreement with John Marino, dated as of November 12, 2013 – incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K (filed 11/12/13) (No. 001-34462).
11.1		Statement re Computation of Per Share Earnings*

133

EXHIBIT NO.		DESCRIPTION

12.1		Statement re Computation of Ratios**

21.1		Subsidiaries of the Registrant**

23.1		Consent of Crowe Horwath LLP, independent registered public accounting firm**

31.1		Certification of CEO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002**

31.2		Certification of CFO pursuant to Securities and Exchange Act Section 302 of the Sarbanes-Oxley Act of 2002**

32.1		Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

99.1		Press release to announce earnings, dated February 10, 2014**

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**

*		Information required to be presented in Exhibit 11.1 is provided in Note 20 to the consolidated financial statements under Part II, Item 8 of this Form 10-K in accordance with the provisions of U.S. generally accepted accounting principles.

**		Filed electronically herewith.

134