10-K 1 i00051_1stunited-10k.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

 

 


 

 

 

 

FORM 10-K

 

 

 

x ANNUAL FINANCIAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended December 31, 2010

 

 

 

OR

 

 

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from ____________ to ____________

 

 

 

(1ST UNITED BANCORP LOGO)

(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 o 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. x

          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 x

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

          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, 2010, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $152 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 February 1, 2011

 


 


 

Common Stock, $0.01 par value per share

 

24,807,603 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of our Proxy Statement for the Annual Meeting of Shareholders to be held on May 24, 2011 are incorporated by reference in Part III.



1ST UNITED BANCORP, INC.
For the year ended December 31, 2010

TABLE OF CONTENTS

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

 


PART I

 

 

 

 

 

 

 

 

 

 

Item 1.

Business

 

3

 

 

Item 1A.

Risk Factors

 

33

 

 

Item 1B.

Unresolved Staff Comments

 

41

 

 

Item 2.

Properties

 

41

 

 

Item 3.

Legal Proceedings

 

42

 

 

Item 4.

[Removed and Reserved]

 

42

 

PART II

 

 

 

 

 

 

 

 

 

 

Item 5.

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

 

42

 

 

Item 6.

Selected Financial Data

 

43

 

 

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

45

 

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

 

58

 

 

Item 8.

Financial Statements and Supplementary Data

 

58

 

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

95

 

 

Item 9A.

Controls and Procedures

 

95

 

 

Item 9B.

Other Information

 

96

 

 

 

 

 

 

 

PART III

 

 

 

 

 

 

 

 

 

 

Item 10.

Directors, Executive Officers and Corporate Governance

 

96

 

 

Item 11.

Executive Compensation

 

96

 

 

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

97

 

 

Item 13.

Certain Relationships and Related Transactions and Director Independence

 

97

 

 

Item 14.

Principal Accountant Fees and Services

 

97

 

 

 

 

 

 

 

PART IV

 

 

 

 

 

 

 

 

 

 

Item 15.

Exhibits and Financial Statement Schedules

 

97

 

 

 

 

 

 

 

Signatures

 

100

 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

INTRODUCTORY NOTE

          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:

 

 

 

 

legislative or regulatory changes, including the Dodd-Frank Act;

 

 

 

 

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

 

 

 

 

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

 

 

 

 

the frequency and magnitude of foreclosure of our loans;

 

 

 

 

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

 

 

 

 

restrictions on our operations, including the inability to pay dividends without our regulators’ consent;

 

 

 

 

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

 

 

 

 

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

 

 

 

 

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

 

 

 

 

our ability to declare and pay dividends;

 

 

 

 

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 clients to accept third-party products and services rather than our products and services and vice versa;

 

 

 

 

increased competition and its effect on pricing;

 

 

 

 

technological changes;

 

 

 

 

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;

2



 

 

 

 

growth and profitability of our noninterest income;

 

 

 

 

changes in accounting principles, policies, practices or guidelines;

 

 

 

 

the limited trading activity of our common stock;

 

 

 

 

the concentration of ownership of our common stock;

 

 

 

 

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

1st United Bancorp, Inc. (“Bancorp”) is a financial holding company headquartered in Boca Raton, Florida. 1st United Bank, a Florida state chartered bank, is our wholly-owned subsidiary. Operations commenced on April 20, 2000 under the names Advantage Bankshares, Inc. and Advantage Bank, with a completely different management team and board of directors. Since December 31, 2003 (the year in which the current management team and Board of Directors replaced the previous management team and Board of Directors) to December 31, 2010, we have experienced strong growth through a combination of internal growth, de novo branching, and acquisitions. Specifically, we have:

 

 

 

 

§

increased total assets from $66.8 million to $1.268 billion;

 

 

 

 

§

increased net loans from $39.6 million to $847.7 million;

 

 

 

 

§

grew non-interest bearing deposits from $4.6 million to $281.1 million; and

 

 

 

 

§

increased our banking center network from one to fifteen locations (excluding the acquired banking centers of The Bank of Miami which will be closed) consisting of four banking centers in Palm Beach County, four banking centers in Broward County, four banking centers in Miami-Dade County, and one banking center each in Sebastian, Vero Beach and Barefoot Bay, Florida.

We operate under a community banking philosophy that seeks to develop broad customer relationships based on service and convenience while maintaining our commitment to a conservative approach to lending and strong asset quality. We offer our customers, primarily professionals, high net-worth individuals and small and medium-sized businesses, a variety of traditional loan, deposit and cash management products, which we apply to their specific needs. Making loans which result in a long-standing relationship with our borrowers will continue to be the cornerstone of our approach to business. We believe that our emphasis on personal service puts us at a competitive advantage relative to the other banks in our market area and has been an instrumental contributing factor to the growth that we have experienced to date. We believe our success has been built on the strength of our management team and board of directors, our credit culture, the attractive growth characteristics of the markets in which we operate and our ability to expand our franchise by attracting seasoned bankers with long-standing relationships in their communities. We have one reportable segment.

In this report, the terms “Company,” “we,” “us,” or “our” mean Bancorp and all of its consolidated subsidiaries.

3


Recent Developments

          Acquisition of The Bank of Miami, N.A. from FDIC as receiver

On December 17, 2010, 1st United Bank, our banking subsidiary, entered into a purchase and assumption agreement (the “Bank of Miami Agreement”) with the Federal Deposit Insurance Corporation (“FDIC”), as receiver for The Bank of Miami, National Association (“TBOM”), Miami, Florida. According to the terms of the Bank of Miami Agreement, 1st United Bank assumed all deposits (except certain brokered deposits) and borrowings, and acquired certain assets of TBOM. Assets acquired included $275.8 million in loans, and $12.8 million in other real estate owned based on TBOM’s carrying value and approximately $75 million in cash and investments. TBOM operated three banking centers in Miami-Dade County, Florida, and had 101 employees.

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

1st United Bank received a $38 million net discount on the assets acquired. The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations.” The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. Fair values are preliminary and subject to refinement for up to one year after the closing date of the acquisition as new information relative to closing date fair values becomes available. We recorded an estimated receivable from the FDIC in the amount of $48.7 million as of December 17, 2010, which represents the fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to us. The TBOM Loss Sharing Agreements are subject to certain servicing procedures as specified in the agreements.

An acquisition gain totaling $11 million resulted from the acquisition and is included as a component of noninterest income on the statement of income.

1st United Bank did not immediately acquire the furniture or equipment of TBOM as part of the Bank of Miami Agreement. However, 1st United Bank has the option to purchase the furniture and equipment and any owned facilities from the FDIC. The term of this option expires March 18, 2011. 1st United has until March 18, 2011, to request the FDIC to repudiate all leases entered into by the former TBOM or the leases will be assumed. Two of the former TBOM banking facilities are leased and one is owned. Two of the locations are approximately one mile from existing 1st United facilities and one location has less than $3 million in deposits. Management has determined that none of the TBOM branches would be retained and anticipates the deposits to be serviced from existing 1st United facilities.

The statement of net assets acquired as of December 17, 2010 and the resulting gain (as adjusted) are presented in the following table (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

As Recorded
By TBOM

 

Fair Value
Adjustments

 

 

As Recorded
by 1st United

 


 


 


 

 


 

Cash and Cash Equivalents

 

$

74,902

 

$

 

 

 

$

74,902

 

Securities

 

 

29,312

 

 

(252

)

(a)

 

29,060

 

Federal Reserve Bank and Federal Home Loan Bank stock

 

 

8,253

 

 

 

 

 

 

8,253

 

Loans

 

 

275,770

 

 

(72,585

)

(b)

 

203,185

 

Other real estate owned

 

 

12,846

 

 

(2,988

)

(b)

 

9,858

 

Core deposit intangible

 

 

 

 

677

 

(c)

 

677

 

FDIC Loss Share Receivable

 

 

 

 

48,690

 

(d)

 

48,690

 

Other assets

 

 

4,028

 

 

(337

)

(a)

 

3,691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 

 



 

Total Assets Acquired

 

$

405,111

 

$

(26,795

)

 

$

378,316

 

 

 










 

4



 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

As Recorded
By TBOM

 

Fair Value
Adjustments

 

 

As Recorded
by 1st United

 


 


 


 

 


 

Deposits

 

$

254,374

 

$

164

 

(e)

$

254,538

 

Repurchase Agreements

 

 

 

 

 

 

 

 

Advances from FHLB

 

 

 

 

 

 

 

 

Borrowings

 

 

71,016

 

 

 

 

 

71,016

 

Other

 

 

1,921

 

 

 

 

 

1,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 

 



 

Total Liabilities Assumed

 

$

327,311

 

$

164

 

 

$

327,475

 

 

 










 

 

 

 

 

 

 

 

 

 

 

 

 

Excess of assets acquired over liabilities assumed

 

 

 

 

 

 

 

 

 

50,841

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid to the FDIC

 

 

 

 

 

 

 

 

 

39,800

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Total Gain Recorded

 

 

 

 

 

 

 

 

$

11,041

 

 

 

 

 

 

 

 

 

 



 

Explanation of Fair Value Adjustments

 

 

(a)

Miscellaneous asset writedowns.

 

 

(b)

This estimated adjustment was necessary as of the acquisition date to write down TBOM’s book value of loans and other real estate owned to the estimated fair value.

 

 

(c)

This fair value adjustment represents the value of the core deposit base assumed in the acquisition based on a study performed by an independent consulting firm. This amount was recorded by us as an identifiable intangible asset and will be amortized as an expense over the average life of the core deposit base, which is estimated to be 8 years.

 

 

(d)

This adjustment was the estimated fair value of the amount that we will receive from the FDIC under the TBOM Loss Sharing Agreements as a result of future loan losses.

 

 

(e)

This fair value adjustment was recorded because the weighted average interest rate of TBOM’s time deposits exceeded the cost of similar wholesale funding at the time of the acquisition. This amount will be amortized to reduce interest expense on a declining basis over the average life of the deposit portfolio.


Our operating results for the twelve month period ended December 31, 2010, include the operating results of the acquired assets and assumed liabilities since the acquisition date of December 17, 2010. Due primarily to the significant amount of fair value adjustments and the TBOM Loss Share Agreements now in place, historical results of TBOM are not believed to be relevant to our results, and thus we are not presenting pro forma information.

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

          Cash and cash equivalents

The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

          Securities

Fair value for securities were based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market.

The following table sets forth the fair value and weighted average yield of the investments portfolio acquired in the TBOM transaction as of December 17, 2010:

5



 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Fair
Value

 

Weighted
Average
Yield

 

 

 


 


 

U.S. Treasury and Federal Agencies

 

 

 

 

 

 

 

Less than 12 months

 

$

 

 

%

Over one year through five years

 

 

 

 

%

Over five through ten years

 

 

2,440

 

 

2.88

%

Over ten years

 

 

9,675

 

 

3.52

%

 

 



 



 

Total

 

$

12,115

 

 

3.39

%

 

 

 

 

 

 

 

 

Corporate Obligations

 

 

 

 

 

 

 

Over ten years

 

$

 

 

%

 

 



 



 

Total

 

$

 

 

%

 

 

 

 

 

 

 

 

Mortgage-Backed Securities

 

 

 

 

 

 

 

Less than 12 months

 

$

 

 

%

Over one year through five years

 

 

 

 

%

Over five through ten years

 

 

 

 

%

Over ten years

 

 

4,402

 

 

1.93

%

 

 



 



 

Total

 

$

4,402

 

 

1.93

%

 

 

 

 

 

 

 

 

Collateralized Mortgage Obligations

 

 

 

 

 

 

 

Less than 12 months

 

$

 

 

%

Over one year through five years

 

 

 

 

%

Over five through ten years

 

 

 

 

%

Over ten years

 

 

12,543

 

 

2.62

%

 

 



 



 

 

 

 

 

 

 

 

 

Total

 

$

12,543

 

 

2.62

%

 

 

 

 

 

 

 

 

Municipal Securities

 

 

 

 

 

 

 

Over five year through ten years

 

$

 

 

%

Over ten years

 

 

 

 

%

 

 



 



 

Total

 

$

 

 

%

 

 



 



 

Grand Total

 

$

29,060

 

 

2.84

%

 

 



 



 

          Loans

Fair value for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification 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, and in part relied on a third party for the valuation of non-impaired loans at December 17, 2010.

The following are the fair value of loans recorded in the TBOM transaction as of December 17, 2010 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

Loan Types

 

Number of
Loans

 

Carrying
Value of
Acquired
Loans

 

% of
Acquired
Loan
Portfolio

 


 


 


 


 

Commercial Real Estate

 

 

125

 

$

102,088

 

 

50.2

%

Construction and Development Loans

 

 

11

 

 

6,032

 

 

3.0

%

Commercial and Industrial

 

 

112

 

 

20,819

 

 

10.3

%

Closed End First Lien 1-4 Family

 

 

230

 

 

42,574

 

 

21.0

%

Multi-family Loans

 

 

35

 

 

28,357

 

 

14.0

%

Consumer Loans

 

 

32

 

 

3,315

 

 

1.5

%

 

 



 



 



 

Total

 

 

545

 

$

203,185

 

 

100.0

%

 

 



 



 



 

6


The following table sets forth the loan interest rate sensitivity for loans acquired in the TBOM transaction at December 17, 2010 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Fixed and
Variable
<1 year
Maturity

 

1 year
Adjustable
Rate

 

1 to 5
years
Fixed Rate

 

1 to 5
years
Adjustable
Rate

 

>5 years
Fixed
Rate

 

>5 years
Adjustable
Rate

 

 

 


 


 


 


 


 


 


 

Commercial

 

$

20,819

 

$

12,159

 

$

4,738

 

$

3,922

 

$

 

$

 

$

 

Residential

 

 

42,574

 

 

850

 

 

27,143

 

 

3,426

 

 

8,833

 

 

2,322

 

 

 

Commercial real estate

 

 

130,445

 

 

7,077

 

 

41,626

 

 

23,561

 

 

55,552

 

 

2,629

 

 

 

Commercial and land development

 

 

6,032

 

 

122

 

 

4,884

 

 

926

 

 

33

 

 

67

 

 

 

Consumer and other

 

 

3,315

 

 

404

 

 

2,601

 

 

239

 

 

 

 

71

 

 

 

 

 



 



 



 



 



 



 



 

Total loans

 

$

203,185

 

$

20,612

 

$

80,992

 

$

32,074

 

$

64,418

 

$

5,089

 

$

 

 

 



 



 



 



 



 



 



 

The acquired loans at December 17, 2010 included loans accounted for in accordance with FASB ASC 310-30 (“ASC 310-30”). As defined by ASC 310-30 and subject to certain exceptions contained in that statement, ASC 310-30 loans are loans with evidence of deterioration of credit quality for which it is probable that the borrower will not be able to make all contractually required payments. We acquired loans with an aggregate face value on December 17, 2010 of $108.8 million, for which there was, at acquisition, evidence of deterioration in credit quality and which it was probable that the borrowers would not be able to make all contractually required payments. As a result, a discount of $57.3 million was recorded for these loans resulting in a net carrying amount of $51.5 million on December 17, 2010.

The fair value of other real estate acquired in the TBOM transaction was $9.9 million at December 17, 2010.

          Core deposit intangible

This intangible asset represents the value of the relationships that TBOM had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits. A third party provided the valuation for the core deposit intangible at December 17, 2010.

          FDIC loss share receivable

This loss sharing asset is measured separately from the related covered asset as it is not contractually embedded in the assets and is not transferable with the assets should 1st United Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the TBOM Loss Sharing Agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These expected reimbursements do not include reimbursable amounts related to future covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. A third party provided the valuation of the FDIC loss share indemnification asset at December 17, 2010.

          Deposits

The fair value used for the demand and savings deposits that comprise the transaction accounts acquired, by definition, equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the interest rates embedded on such time deposits. A third party provided the valuation of the deposits at December 17, 2010.

7


Deposit liabilities assumed are comprised of the following at December 17, 2010:

 

 

 

 

 

 

 

Acquired
Value

 

 

 


 

 

 

(in thousands)

 

Noninterest bearing

 

$

59,863

 

NOW

 

 

8,513

 

Money Market

 

 

43,366

 

Savings

 

 

3,197

 

Time deposits less than $100,000

 

 

46,985

 

Time deposits greater than $100,000

 

 

92,450

 

 

 



 

 

Acquired balance of deposits

 

 

254,374

 

Fair value adjustment

 

 

164

 

 

 



 

Total

 

$

254,538

 

 

 



 

Included in the above deposits are approximately $105.9 million in deposits by foreign nationals banking in the United States.

At December 17, 2010, the maturities schedule of certificates of deposit was as follows:

 

 

 

 

 

 

 

 

Maturing in

 

Under
$100,000

 

Over
$100,000

 

 

 




 

 

 

(in thousands)

 

Up to 3 months

 

$

15,600

 

$

23,087

 

3 to 6 months

 

 

16,072

 

 

27,988

 

6 to 12 months

 

 

10,855

 

 

31,497

 

Over 12 months

 

 

4,359

 

 

9,977

 

 

 



 



 

Total

 

$

46,886

 

$

92,549

 

 

 



 



 

          Advances from Federal Home Loan Bank

The fair value of Federal Home Loan Bank (FHLB) advances equaled the carrying value by TBOM. These advances were repaid prior to December 31, 2010 with no prepayment penalty assessed.

Republic Federal Acquisition

On December 11, 2009, 1st United Bank, entered into a purchase and assumption agreement (the “Republic Agreement”) with the FDIC, as receiver for Republic Federal Bank, National Association (“Republic”), Miami, Florida. According to the terms of the Republic Agreement, 1st United Bank assumed all deposits (except certain brokered deposits) and borrowings, and acquired certain assets of Republic. Assets acquired included $238 million in loans based on Republic’s carrying value and $64.2 million in cash and investments. All of Republic’s repossessed or foreclosed real estate and substantially all non-performing loans were retained by the FDIC. Republic operated four banking centers in Miami-Dade County, Florida, and had approximately 100 employees. We assumed approximately $349.6 million in deposits in this transaction.

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

1st United Bank received $34.2 million from the FDIC above the Republic carrying value of the net assets acquired. The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations.” The purchased assets and assumed liabilities were recorded at their respective acquisition date fair values,

8


and identifiable intangible assets were recorded at fair value. We recorded an estimated receivable from the FDIC in the amount of $43.3 million which represents the fair value of the FDIC’s portion of the losses that are expected to be incurred and reimbursed to us. The Republic Loss Sharing Agreements are subject to certain servicing procedures as specified in the agreements.

An acquisition gain of $20.5 million during 2009 resulted from the Republic Acquisition and is included as a component of noninterest income on the statement of income.

2008 Acquisitions

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

On February 29, 2008, we completed the merger and acquisition of Equitable Financial Group, Inc. (“Equitable”) and its wholly-owned subsidiaries Equitable Bank and Equitable Equity Lending, which we refer to as the Equitable Merger. We issued 1,928,610 shares of our common stock and paid cash of approximately $27.6 million to the Equitable shareholders and option holders. The Equitable Merger increased our banking centers from 8 to 11 locations at that time. In addition, we acquired approximately $146.9 million in net loans, $29.9 million in cash and securities, $136.0 million in deposits and $25.7 million in repurchase agreements and borrowings in the Equitable Merger. We recorded approximately $37.4 million in goodwill and $1.4 million in core deposit intangibles as a result of the Equitable Merger.

Investment Activity

Our consolidated securities portfolio is managed to minimize interest rate risk, maintain sufficient liquidity, and maximize return. The portfolio includes several callable agency debentures, mortgage-backed securities, adjustable rate mortgage pass-throughs, and collateralized mortgage obligations. 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 was classified as “available-for-sale.” as of December 31, 2010, 2009 and 2008:

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

 

 


 


 


 

Fair value of investment in:

 

 

 

 

 

 

 

 

 

 

U.S. Treasury and Federal agencies

 

$

4,038

 

$

12,417

 

$

18,800

 

Mortgage-backed securities

 

 

98,251

 

 

74,438

 

 

16,155

 

Corporate obligations

 

 

 

 

 

 

120

 

Municipal securities

 

 

 

 

1,988

 

 

 

 

 



 



 



 

 

 

$

102,289

 

 

88,843

 

$

35,075

 

 

 



 



 



 

9


The following table sets forth the combined fair value and weighted average yield of our investments portfolio as of December 31, 2010:

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Fair
Value

 

Weighted
Average
Yield

 

 

 


 


 

U.S. Treasury and Federal Agencies

 

 

 

 

 

 

 

One year or less

 

$

 

 

%

Over one year through five years

 

 

 

 

%

Over five through ten years

 

 

4,038

 

 

4.08

%

Over ten years

 

 

 

 

%

 

 



 



 

Total

 

$

4,038

 

 

4.08

%

 

 

 

 

 

 

 

 

Mortgage-Backed Securities

 

 

 

 

 

 

 

One year or less

 

$

 

 

%

Over one year through five years

 

 

1,302

 

 

4.66

%

Over five through ten years

 

 

4,256

 

 

3.49

%

Over ten years

 

 

77,998

 

 

4.24

%

 

 



 



 

Total

 

$

83,556

 

 

4.21

%

 

 

 

 

 

 

 

 

Collateralized Mortgage Obligations

 

 

 

 

 

 

 

One year or less

 

$

 

 

 

%

Over five year through ten years

 

 

 

 

 

%

Over ten years

 

 

14,695

 

 

3.6

%

 

 



 



 

Total

 

$

14,695

 

 

3.6

%

 

 



 



 

Total Fair Value

 

$

102,289

 

 

4.12

%

 

 



 



 

Total Amortized Cost

 

$

101,436

 

 

4.11

%

 

 



 



 

As of December 31, 2010, we held no tax-exempt obligations and we held no instruments from issuers (other than the U.S. government) 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, 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 prudent risks to assist consumers and businesses in our market area. We have no subprime loans. We sell loan participations to other banks. 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 while allowing prudent liquidity through our investment 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, also recognize and appreciate the importance of exercising care and good judgment in underwriting loans, which supports our safety and profitability goals.

10


At December 31, 2010, 2009, 2008, 2007 and 2006, the composition of our loan portfolio was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 


 

 

 

Amount

 

% of
Total

 

Amount

 

% of
Total

 

Amount

 

% of
Total

 

Amount

 

% of
Total

 

Amount

 

% of
Total

 

 

 




 




 




 




 




 

Commercial

 

$

129,673

 

15

%

$

115,781

 

17

%

$

90,968

 

19

%

$

57,574

 

20

%

$

50,361

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate

 

 

227,500

 

26

%

 

200,877

 

30

%

 

100,571

 

20

%

 

51,663

 

18

%

 

40,930

 

16

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial real estate

 

 

456,615

 

53

%

 

282,783

 

43

%

 

203,734

 

42

%

 

114,424

 

40

%

 

87,098

 

34

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Land Development

 

 

33,444

 

4

%

 

55,689

 

8

%

 

83,161

 

17

%

 

56,603

 

20

%

 

72,824

 

29

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer and others

 

 

13,645

 

2

%

 

11,873

 

2

%

 

7,865

 

2

%

 

5,125

 

2

%

 

3,650

 

1

%

 

 





 

 




 





 





 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loans

 

$

860,877

 

100

%

$

667,003

 

100

%

$

486,299

 

100

%

$

285,389

 

100

%

$

254,863

 

100

%

 

 

 

 

 


 

 

 

 


 

 

 

 


 

 

 

 


 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

 

(13,050

)

 

 

 

(13,282

)

 

 

 

(5,799

)

 

 

 

(2,070

)

 

 

 

(2,149

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred (fees) costs

 

 

(138

)

 

 

 

137

 

 

 

 

(52

)

 

 

 

34

 

 

 

 

(47

)

 

 

 

 



 

 

 

 


 

 

 



 

 

 



 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loans

 

$

847,689

 

 

 

$

653,858

 

 

 

$

480,448

 

 

 

$

283,353

 

 

 

$

252,667

 

 

 

 

 



 

 

 



 

 

 



 

 

 



 

 

 



 

 

 

The following charts illustrate the number of loans in our loan portfolio as of December 31, 2010 and December 31, 2009.

Loan Portfolio as of December 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Total
Loans

 

Total

 

Percent of
Loan Portfolio

 

Percent of
Total Assets

 

 

 


 


 


 


 

Loan Types

Residential:

 

 

 

 

 

 

 

 

 

 

First mortgages

 

575

 

$

172,598

 

20.04

%

13.61

%

HELOCs and equity

 

284

 

 

54,902

 

6.38

%

4.33

%

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

Secured – non-real estate

 

478

 

 

106,802

 

12.41

%

8.43

%

Secured – real estate

 

54

 

 

37,012

 

4.30

%

2.92

%

Unsecured

 

99

 

 

22,872

 

2.66

%

1.80

%

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

181

 

 

157,653

 

18.31

%

12.44

%

Non-owner occupied

 

204

 

 

224,033

 

26.02

%

17.67

%

Multi-family

 

62

 

 

37,916

 

4.40

%

2.99

%

 

 

 

 

 

 

 

 

 

 

 

Construction and Land Development:

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

0.00

%

0.00

%

Improved land

 

36

 

 

21,757

 

2.53

%

1.72

%

Unimproved land

 

9

 

 

11,687

 

1.36

%

0.92

%

 

 

 

 

 

 

 

 

 

 

 

Consumer and other

 

200

 

 

13,645

 

1.59

%

1.08

%

 

 


 



 


 


 

 

 

 

 

 

 

 

 

 

 

 

Total December 31, 2010

 

2,182

 

$

860,877

 

100.00

%

67.92

%

 

 


 



 


 


 

Total December 31, 2009

 

1,784

 

$

667,003

 

100.00

%

65.88

%

 

 


 



 


 


 

11


Of the loan portfolio as of December 31, 2010, 908 loans with a carrying value of $355.5 million (41%) are subject to the TBOM Loss Share Agreements and the Republic Loss Share Agreements (collectively, the “Loss Sharing Agreements”) as compared to 620 loans with a carrying value of $180.2 million (27%) which were subject to the Republic Loss Share Agreements at December 31, 2009. In addition, at December 31, 2010, included in Commercial and Industrial loans are approximately $10.3 million in Export Import (“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, 2010, our loan interest rate sensitivity was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Maturity and/or Re-pricing Period

 

 

 


 

 

 

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

 

$

129,673

 

$

33,193

 

$

63,605

 

$

9,938

 

$

6,564

 

$

15,692

 

$

681

 

Residential real estate

 

 

172,598

 

 

30,137

 

 

92,076

 

 

5,914

 

 

33,786

 

 

10,685

 

 

 

Commercial real estate

 

 

456,615

 

 

65,769

 

 

150,967

 

 

108,010

 

 

87,706

 

 

44,163

 

 

 

Commercial and land development

 

 

33,444

 

 

14,414

 

 

17,082

 

 

1,847

 

 

33

 

 

68

 

 

 

Home Equity Lines of Credit

 

 

54,902

 

 

1,645

 

 

53,257

 

 

 

 

 

 

 

 

 

Consumer and other

 

 

13,645

 

 

4,813

 

 

6,328

 

 

2,422

 

 

 

 

82

 

 

 

 

 



 



 



 



 



 



 



 

Total loans

 

$

860,877

 

$

149,971

 

$

383,315

 

$

128,131

 

$

128,089

 

$

70,690

 

$

681

 

 

 



 



 



 



 



 



 



 

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

     Real Estate Loans

          Real Estate Loans – Commercial

Through our lending division and SBA 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 - 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 appraisers 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 primarily 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. The ability to retain ARMs in the portfolio will also from time to time allow us the opportunity to originate loans to borrowers who may not fully meet the underwriting criteria of strict secondary market standards but are still reasonable credit risks. We also originate fixed rate loans from within our primary service area. The majority of fixed rate loans are 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.

12


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 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 business 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 – 80% for residential and commercial construction and up to 100% for homeowners’ associations.

We have construction loans on commercial real estate projects secured by industrial properties, office buildings or other property. The majority of the projects 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. Due to current adverse market conditions, original development plans for some financed projects may now be altered or on hold.

The following chart illustrates the composition of our construction and land development loan portfolio in relation to total loans as December 31, 2010, 2009 and 2008.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

 

 


 


 


 

 

 

Balance

 

% of
Loans

 

Balance

 

% of
Loans

 

Balance

 

% of
Loans

 

 

 




 




 




 

Construction

Residential

 

$

 

 

%

$

 

 

%

$

3,586

 

 

0.70

%

Residential Spec

 

 

 

 

%

 

9,938

 

 

1.49

%

 

16,939

 

 

3.50

%

Commercial

 

 

 

 

%

 

1,108

 

 

0.17

%

 

20,349

 

 

4.20

%

Commercial Spec

 

 

 

 

%

 

3,259

 

 

0.49

%

 

3,185

 

 

0.70

%

Land Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

2,384

 

 

0.30

%

 

1,890

 

 

0.28

%

 

2,076

 

 

0.40

%

Residential Spec

 

 

12,997

 

 

1.50

%

 

24,922

 

 

3.74

%

 

17,561

 

 

3.60

%

Commercial

 

 

7,151

 

 

0.80

%

 

 

 

%

 

2,175

 

 

0.40

%

Commercial Spec

 

 

10,912

 

 

1.30

%

 

14,572

 

 

2.21

%

 

17,290

 

 

3.60

%

 

 






 






 






 

Total

 

$

33,444

 

 

3.90

%

$

55,689

 

 

8.34

%

$

83,161

 

 

17.10

%

 

 






 






 






 

Approximately $7.0 million or 21% of the construction and land development loan portfolio at December 31, 2010 is part of the Loss Share Agreements.

13


          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.

We focus our consumer lending on the origination of direct 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 15 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 $20.0 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, National Association (“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, 2010, we had approximately $10.3 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. Given our emphasis on business purpose lending, our loans may be viewed as involving a higher degree of credit risk than is the case with banks that might focus on long-term residential mortgage loans, where greater emphasis is placed on collateral values. To manage this 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 1st United Bank’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 of loans through sound underwriting and lending practices. As of December 31, 2010 and 2009, approximately 77.0% and 81.0%, respectively, of the total loan portfolio was collateralized by commercial and residential real estate mortgages.

14


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 amounts loaned to a number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. We, on a routine basis, monitor these concentrations in order to consider adjustments in our lending practices to reflect economic conditions, loan-to-deposit ratios, and industry trends. As of December 31, 2010 and 2009, no concentration of loans within any portfolio category to any group of borrowers engaged in similar activities or in a similar business (other than noted below) exceeded 10.0% of total loans, except that as of such dates loans collateralized with mortgages on real estate represented 77.0% and 81.0%, respectively, of the loan portfolio and were to borrowers in varying activities and businesses.

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, 2010, we had $9.1 million of OREO property of which $6.6 million were a result of the TBOM acquisition and are covered under the TBOM Loss Share Agreements. We had $635,000 of OREO property as of December 31, 2009, of which $270,000 was sold subsequent to December 31, 2009 at an $11,000 gain.

The following is a summary of other real estate owned as of December 31, 2010 and 2009:

15



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

 

 




 

 

 

Assets Not Subject
to Loss Share
Agreements

 

Assets Subject to
Loss Share
Agreements

 

Total

 

Assets Not Subject
to Loss Share
Agreements

 

Assets Subject
to Loss Share
Agreements

 

Total

 

 

 












 

Commercial Real Estate

 

$

2,147

 

$

5,461

 

$

7,608

 

$

598

 

$

 

$

598

 

Residential

 

 

302

 

 

1,175

 

 

1,477

 

 

37

 

 

 

 

37

 

 

 



 



 



 



 



 



 

Total

 

$

2,449

 

$

6,636

 

$

9,085

 

 

635

 

$

 

$

635

 

 

 


















 

As of December 31, 2010, we had approximately $1.1 million of the total of $2.4 million in other real estate owned not subject to Loss Share Agreements 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. All non-accruing loans and loans accruing 90 days or more and substantially all troubled debt restructurings are considered impaired and included in our substandard classification. These assets present more than the normal risk that we will be unable to eventually collect or realize their full carrying value. Our risk elements at December 31, 2010, 2009, 2008, 2007 and 2006 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31, 2010

 

December 31, 2009

 

 

 


 


 

 

 

Assets Not
Subject to
Loss Share
Agreements

 

Assets
Subject to
Loss Share
Agreements

 

Total

 

Assets Not
Subject to
Loss Share
Agreements

 

Assets
Subject to
Loss Share
Agreements

 

Total

 














 

Non-Accrual Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

6,062

 

$

263

 

$

6,325

 

$

469

 

$

 

$

469

 

Home Equity Lines

 

 

1,638

 

 

 

 

1,638

 

 

 

 

 

 

 

Commercial Real Estate

 

 

8,381

 

 

183

 

 

8,564

 

 

8,566

 

 

 

 

8,566

 

Construction and Land Development

 

 

1,759

 

 

 

 

1,759

 

 

5,258

 

 

 

 

5,258

 

Commercial and Industrial

 

 

241

 

 

73

 

 

314

 

 

717

 

 

560

 

 

1,277

 

Other

 

 

289

 

 

 

 

289

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 

Total

 

$

18,370

 

$

519

 

$

18,889

 

$

15,010

 

$

560

 

$

15,570

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing => 90 days past due

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

$

 

$

 

$

 

$

 

$

 

$

 

Home Equity Lines

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Land Development

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and Industrial

 

 

 

 

 

 

 

 

54

 

 

 

 

54

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 

Total

 

$

 

$

 

$

 

$

54

 

$

 

$

54

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-accruing and

 

$

18,370

 

$

519

 

$

18,889

 

$

15,010

 

$

560

 

$

15,570

 

Accruing => 90 days past due loans

 

 

 

 

 

 

 

 

54

 

 

 

 

54

 

Foreclosed real estate

 

 

2,449

 

 

6,636

 

 

9,085

 

 

635

 

 

 

 

635

 

 

 



 



 



 



 



 



 

Total non-performing assets

 

 

20,819

 

 

7,155

 

 

27,974

 

 

15,699

 

 

560

 

 

16,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trouble debt restructured loans

 

 

14,672

 

 

 

 

14,672

 

 

1,990

 

 

 

 

1,990

 

 

 



 



 



 



 



 



 

Total non-performing assets and restructured loans

 

$

35,491

 

$

7,155

 

$

42,646

 

$

17,689

 

$

560

 

$

18,249

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratios

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total non-accruing and accruing => 90 days past due loans to total loans

 

 

 

 

 

 

 

 

2.19

%

 

 

 

 

 

 

 

2.34

%

Total non-performing assets to total assets

 

 

 

 

 

 

 

 

2.21

%

 

 

 

 

 

 

 

1.60

%

Total non-performing assets and troubled debt restructured loans to total assets

 

 

 

 

 

 

 

 

3.36

%

 

 

 

 

 

 

 

1.80

%

16



 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31

 

 

 


 

 

 

2008

 

2007

 

2006

 








 

Non-Accrual Loans

 

 

 

 

 

 

 

 

 

 

Residential

 

$

 

$

 

$

 

Home Equity Lines

 

 

324

 

 

 

 

 

Commercial Real Estate

 

 

6,792

 

 

 

 

27

 

Construction and Land Development

 

 

 

 

 

 

 

Commercial and Industrial

 

 

1,433

 

 

192

 

 

1,085

 

Other

 

 

 

 

 

 

 

 

 



 



 



 

Total

 

$

8,549

 

$

192

 

$

1,112

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Accruing => 90 days past due

 

 

 

 

 

 

 

 

 

 

Residential

 

$

2,059

 

$

87

 

 

 

Home Equity Lines

 

 

 

 

 

 

 

Commercial Real Estate

 

 

 

 

 

 

 

Construction and Land Development

 

 

 

 

 

 

 

Commercial and Industrial

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 



 



 



 

Total

 

$

2,059

 

$

87

 

$

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Total non-accruing loans

 

$

8,549

 

$

192

 

$

1,112

 

Accruing => 90 days past due

 

 

2,059

 

 

87

 

 

 

Foreclosed real estate

 

 

 

 

 

 

 

 

 



 



 



 

Total non-performing assets

 

 

10,608

 

 

279

 

 

1,112

 

 

 

 

 

 

 

 

 

 

 

 

Trouble debt restructured loans

 

 

 

 

 

 

 

 

 



 



 



 

Total non-performing assets and restructured loans

 

$

10,608

 

$

279

 

$

1,112

 

 

 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

Ratios

 

 

 

 

 

 

 

 

 

 

Total non-accruing loans to total loans

 

 

1.76

%

 

0.10

%

 

0.44

%

Total non-performing assets to total assets

 

 

1.72

%

 

0.07

%

 

0.33

%

Total non-performing assets and troubled debt restructured loans to total assets

 

 

1.72

%

 

0.07

%

 

0.33

%

During the year ended December 31, 2010, approximately $13.6 million in assets classified as non-performing assets were paid off or brought current. Approximately $8.4 million were charged off, and approximately $25.0 million were added (excluding assets acquired in the TBOM transaction) to non-accrual during the year. The $7.16 million in non-performing assets acquired in the TBOM and Republic transactions are all covered under the Loss Share Agreements and we do not expect any additional future losses on these assets. Significant loans included in non-accrual loans not covered by Loss Share Agreements at December 31, 2010 include: $2.7 million loan, net of a $406,000 specific reserve secured by a single family home in Palm Beach County (appraised September 2010, for $3 million); $2.0 million loan, net of a $220,000 specific reserve, secured by new commercial office/warehouse property in Broward County, Florida (appraised December, 2010 for $2.3 million); $1.6 million loan secured by a single family home in Broward County (appraised March 2010, for $4.2 million); $1.0 million loan, net of a $516,000 specific reserve secured by commercial real estate in Broward County (appraised December 2010, for $1.23 Million); $1.1 million participation loan secured by land in Orlando, Florida (appraised September 2010, for $1.3 million for pro rata portion); $810,00 loan, net of a $90,000 specific reserve, secured by a home in Palm Beach County (appraised September, 2010 for $900,000). The remaining non-accrual loans are each under $750,000. We have specific reserves (including those noted above) included in the allowance for loan losses of $4.8 million for probable incurred loan losses to non-accrual loans that are not covered by Loss Share Agreements. We continue to aggressively work to resolve each of these loans.

17


          Delinquent Loans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accruing 30 - 59

 

Accruing 60-89

 

Non-Accrual and
90 days and over past due
and accruing

 

Total

 

 

 


 


 


 


 

 

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

Number

 

Amount

 

 

 


 


 


 


 


 


 


 


 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgages

 

 

11

 

$

2,280

 

 

1

 

$

116

 

 

7

 

$

6,325

 

 

19

 

$

8,721

 

HELOCs and equity

 

 

1

 

 

136

 

 

 

 

 

 

4

 

 

1,638

 

 

5

 

 

1,774

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured – non-real estate

 

 

6

 

 

1,095

 

 

2

 

 

185

 

 

5

 

 

264

 

 

13

 

 

1,544

 

Secured – real estate

 

 

 

 

 

 

 

 

 

 

1

 

 

50

 

 

1

 

 

50

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

 

2

 

 

4,692

 

 

 

 

 

 

7

 

 

4,800

 

 

9

 

 

9,492

 

Non-owner occupied

 

 

4

 

 

1,029

 

 

3

 

 

2,635

 

 

3

 

 

3,764

 

 

10

 

 

7,428

 

Multi-family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Land Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Improved land

 

 

 

 

 

 

 

 

 

 

 

2

 

 

631

 

 

2

 

 

631

 

Unimproved land

 

 

 

 

 

 

 

 

 

 

 

1

 

 

1,128

 

 

1

 

 

1,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer and other

 

 

 

 

 

 

 

 

 

 

 

1

 

 

289

 

 

1

 

 

289

 

 

 



 



 



 



 



 



 



 



 

Total December 31, 2010

 

 

24

 

$

9,232

 

 

6

 

$

2,936

 

 

31

 

$

18,889

 

 

61

 

$

31,057

 

 

 



 



 



 



 



 



 



 



 

Total December 31, 2009

 

 

15

 

$

2,359

 

 

14

 

$

8,882

 

 

27

 

$

15,570

 

 

56

 

$

26,811

 

 

 



 



 



 



 



 



 



 



 

Included in the accruing 30-59 category are 14 loans with a carrying value of $3.2 million; in the accruing 60 - 89 category are 2 loans with a carrying value of $475,000; and in the non-accrual and 90 day and over category are 3 loans with a carrying value of $519,000, for a total of $4.2 million all of which are subject to the Loss Share Agreements.

The following is a summary of troubled debt restructurings as of December 31, 2010, which are performing in accordance with the restructured terms. The average yield on the loans classified as troubled debt restructurings is 4.8%. Troubled debt restructuring loans are considered impaired.

(Dollars in thousands)

 

 

 

 

 

 

 

Loan Amount

 

 

 


 

 

 

 

 

Residential

 

$

2,649

 

Commercial Real Estate

 

 

6,996

 

Construction and Land

 

 

4,750

 

Commercial and Industrial

 

 

277

 

 

 



 

Total

 

$

14,672

 

 

 



 

At December 31, 2010, there were no loans that did not perform in accordance with the restructured terms.

Impaired Loans

The following table presents loans individually evaluated for impairment by class of loan as of December 31, 2010.

18



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired Loans – With Allowance

 

Impaired Loans – With
no Allowance

 

 

 


 


 

 

 

Unpaid
Principal

 

Recorded
Investment

 

Allowance for
Loan Losses
Allocated

 

Unpaid
Principal

 

Recorded
Investment

 










 


 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgages

 

$

7,021

 

$

7,021

 

$

1,219

 

$

1,939

 

$

1,939

 

HELOCs and equity

 

 

1,513

 

 

1,513

 

 

650

 

 

139

 

 

139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured – non-real estate

 

 

311

 

 

311

 

 

210

 

 

73

 

 

73

 

Secured – real estate

 

 

50

 

 

50

 

 

50

 

 

 

 

 

Unsecured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

 

6,124

 

 

6,124

 

 

1,027

 

 

1,455

 

 

1,455

 

Non-owner occupied

 

 

6,512

 

 

6,512

 

 

685

 

 

1,629

 

 

1,629

 

Multi-family

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Land Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

Improved land

 

 

6,965

 

 

5,382

 

 

823

 

 

 

 

 

Unimproved land

 

 

 

 

 

 

 

 

1,557

 

 

1,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer and other

 

 

289

 

 

289

 

 

108

 

 

 

 

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

28,785

 

$

27,202

 

$

4,772

 

$

6,792

 

$

6,363

 

 

 



 



 



 



 



 

During the years ended December 31, 2010, 2009, 2008, 2007, and 2006, interest income not recognized on non-accrual loans (but would have been recognized if these loans were current) was approximately $858, $436, $338, $65, and $75, respectively (dollars in thousands).

          Allowance for Loan Losses

At December 31, 2010, the allowance for loan losses was $13.1 million or 1.52% of total loans and 2.07% of loans, excluding purchase credit impaired loans and the TBOM loans which at year ended December 31, 2010, did not have any allowance allocated due to the timing of the acquisition. At December 31, 2009, the allowance for loan losses was $13.3 million or 1.99% of total loans and 2.10% of loans, excluding purchase credit impaired loans. In originating loans, we recognize that credit losses will be experienced and the risk of loss will vary with, among other things: general economic conditions; the type of loan being made; the creditworthiness of the borrower over the term of the loan; insurance; whether covered by a Loss Share 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 losses in the loan portfolio. In making this determination, we analyze the ultimate collectability of the loans in our portfolio, feedback provided by internal loan staff, the independent loan review function and information provided by examinations performed by regulatory agencies.

On a quarterly basis, management reviews the adequacy of the allowance for loan losses. Commercial credits are graded by risk management and the loan review function validates the assigned credit risk grades. In the event that a loan is downgraded, it is included in the allowance analysis at the lower grade. To establish the appropriate level of the allowance, we review and classify a sample of loans (including all impaired and non-performing loans) as to potential loss exposure.

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

19


The specific credit allocation component of the allowance for loan losses is based on a regular analysis of loans where the internal credit rating is at or below the substandard classification and the loan is determined to be impaired as determined by management. The amount of impairment, if any, is determined based on either the present value of expected future cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less cost of sale. 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 for 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. The allowance for these loans is calculated based on historical charge-offs for the substandard loan categories combined with specifically evaluating the underlying credit and collateral of adversely classified loans. 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, 2010 and 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Pass Credits

 

Special
Mention

 

Substandard

 

Doubtful

 

 

 


 


 


 


 


 

Residential:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First mortgages

 

$

172,598

 

$

157,169

 

$

6,332

 

$

9,097

 

$

 

HELOCs and equity

 

 

54,902

 

 

50,803

 

 

1,764

 

 

2,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Secured – non-real estate

 

 

106,801

 

 

103,374

 

 

757

 

 

2,670

 

 

 

Secured – real estate

 

 

37,012

 

 

36,962

 

 

 

 

50

 

 

 

Unsecured

 

 

22,872

 

 

22,420

 

 

 

 

452

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Owner occupied

 

 

157,653

 

 

138,048

 

 

6,636

 

 

12,969

 

 

 

Non-owner occupied

 

 

224,033

 

 

201,021

 

 

5,955

 

 

17,057

 

 

 

Multi-family

 

 

37,916

 

 

37,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and Land Development:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

 

 

 

 

 

 

 

 

 

 

Improved land

 

 

21,758

 

 

15,292

 

 

1,084

 

 

5,382

 

 

 

Unimproved land

 

 

11,687

 

 

8,044

 

 

 

 

3,643

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer and other

 

 

13,645

 

 

13,317

 

 

39

 

 

289

 

 

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total December 31, 2010

 

$

860,877

 

$

784,366

 

$

22,567

 

$

53,944

 

$

 

 

 



 



 



 



 



 

Total December 31, 2009

 

$

667,003

 

$

585,391

 

$

24,371

 

$

57,241

 

$

 

 

 



 



 



 



 



 

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

The total of substandard loans, which include all non-accrual loans, totaled $53.9 million at December 31, 2010 (of which $609,000 is subject to the Loss Share Agreements) and $57.2 million at December 31, 2009. In addition, at December 31, 2010, we identified approximately $33.6 million (or 3.9% of total loans) in loans we have classified as impaired which are included in our substandard classification. This compares to $17.0 million or 2.5% of total loans at December 31, 2009. At December 31, 2010 and December 31, 2009, the specific credit allocation included in the allowance for loan losses for loans impaired was approximately $4.8 million and $2.6 million, respectively. All loans classified as substandard that are collateralized by real estate are re-appraised at a minimum on an annual basis. The specific credit allocation for loans impaired is adjusted based on the new appraisals.

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, 2010, we had $22.6 million (2.6% of outstanding loans), which includes $3.5 million in loans subject to Loss Share Agreements, which compares to $24.4 million (4.8% of outstanding loans) at December 31, 2009. If there is further deterioration on these loans, they may be classified substandard in the future, and depending on the fair value of the loan a specific credit allocation may be needed resulting in increased provisions for loan losses.

At December 31, 2010, we had a total of $88.8 million in loans which were acquired in the TBOM transaction, the Republic transaction and the Equitable merger which at the time of acquisition we assessed that it would be improbable of collecting all contractually required payments. Included in the $88.8 million loans is $2.5 million in loans, which are included in non-

20


accrual loans as we cannot reasonably estimate cash flows. For the remaining loans we estimate remaining cash flows quarterly and if they are determined to be less than originally estimated, impairment is determined and included in the allowance for loan loss analysis. At December 31, 2010, none of these remaining loans were impaired.

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

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

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

During the years ended December 31, 2010, 2009, 2008, 2007, and 2006, the activity in our allowance for loan losses was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Year ended December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 


 

Balance at beginning of period

 

$

13,282

 

$

5,799

 

$

2,070

 

$

2,149

 

$

1,893

 

Provision charged to expense

 

 

13,520

 

 

13,240

 

 

1,910

 

 

145

 

 

181

 

Effect of acquisition

 

 

 

 

 

 

2,731

 

 

 

 

 

Charge-offs

 

 

(13,933

)

 

(5,788

)

 

(915

)

 

(502

)

 

(73

)

Recoveries

 

 

181

 

 

31

 

 

3

 

 

278

 

 

148

 

 

 



 



 



 



 



 

Balance at end of period

 

$

13,050

 

$

13,282

 

$

5,799

 

$

2,070

 

$

2,149

 

 

 



 



 



 



 



 

 

Net charge-offs (recoveries) /average total loans

 

 

2.00

%

 

1.14

%

 

0.21

%

 

0.08

%

 

(0.03

)%

          Allowance for Loan Losses Allocation

As of December 31, 2010:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

434

 

$

10,612

 

$

15,720

 

$

6,510

 

$

289

 

$

33,565

 

Purchase credit impaired loans

 

 

2,856

 

 

24,977

 

 

50,122

 

 

3,880

 

 

1,129

 

 

82,964

 

Loans collectively evaluated for impairment

 

 

126,383

 

 

191,911

 

 

390,773

 

 

23,054

 

 

12,227

 

 

744,348

 

 

 



 



 



 



 



 



 

 

 

$

129,673

 

$

227,500

 

$

456,615

 

$

33,444

 

$

13,645

 

$

860,877

 

 

 



 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance as percent of loans per category

 

 

2.96

%

 

1.33

%

 

0.91

%

 

5.67

%

 

1.11

%

 

1.52

%

 

 



 



 



 



 



 



 

21


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31,

 

 

 


 

 

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 

 

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

Amount

 

%

 

 

 


 


 


 


 


 


 


 


 

Commercial loans

 

$

3,415

 

 

17

%

$

1,870

 

 

19

%

$

636

 

 

20

%

$

1,101

 

 

20

%

Real estate loans

 

 

8,973

 

 

81

%

 

3,807

 

 

79

%

 

1,165

 

 

77

%

 

1,012

 

 

79

%

Consumer loans

 

 

232

 

 

2

%

 

16

 

 

2

%

 

48

 

 

3

%

 

36

 

 

1

%

Other

 

 

662

 

 

 

 

106

 

 

 

 

221

 

 

 

 

 

 

 

 

 



 



 



 



 



 



 



 



 

Total

 

$

13,282

 

 

100

%

$

5,799

 

 

100

%

$

2,070

 

 

100

%

$

2,149

 

 

100

%

 

 



 



 



 



 



 



 



 



 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 


 

 

 

Charge-
offs

 

Recoveries

 

Charge-
offs

 

Recoveries

 

Charge-
offs

 

Recoveries

 

Charge-
offs

 

Recoveries

 

Charge-
offs

 

Recoveries

 

 

 


 


 


 


 


 


 


 


 


 


 

Commercial real estate

 

$

2,204

 

$

46

 

$

2,394

 

$

2

 

$

671

 

$

 

$

 

$

263

 

$

 

$

18

 

Residential real estate

 

 

2,069

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction and land development

 

 

7,125

 

 

15

 

 

1,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,617

 

 

80

 

 

1,549

 

 

27

 

 

244

 

 

3

 

 

502

 

 

15

 

 

62

 

 

119

 

Consumer and others

 

 

918

 

 

14

 

 

40

 

 

2

 

 

 

 

 

 

 

 

 

 

11

 

 

11

 

 

 



 



 



 



 



 



 



 



 



 



 

Total

 

$

13,933

 

$

181

 

$

5,788

 

$

31

 

$

915

 

$

3

 

$

502

 

$

278

 

$

73

 

$

148

 

 

 



 



 



 



 



 



 



 



 



 



 

Net charge-offs for the year ended December 31, 2010 were approximately $13.9 million compared to $5.8 million for the year ended December 31, 2009.

Deposits

We maintain and enhance a full range of deposit accounts 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 25% 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, 2010, we had approximately $309.5 million in deposits by foreign nationals banking in the United States which were assumed as part of the TBOM and Republic transactions. At December 31, 2010, we had approximately $70 million in wholesale certificates of deposit which were assumed as part of the TBOM acquisition which were repriced and we expect not to renew.

22


As of December 31, 2010, 2009, and 2008, the distribution by type of our deposit accounts was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

 

 


 


 


 

 

 

Average
Balance

 

Avg
Rate

 

Average
Balance

 

Avg
Rate

 

Average
Balance

 

Avg
Rate

 

 

 




 




 




 

Noninterest bearing accounts

 

$

222,970

 

 

 

$

108,716

 

 

 

$

93,451

 

 

 

 

 






 






 






 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOW accounts

 

$

108,275

 

 

0.18

%

$

63,150

 

 

0.24

%

$

47,851

 

 

0.95

%

Money market accounts

 

 

180,999

 

 

0.95

%

 

105,755

 

 

1.00

%

 

92,959

 

 

1.94

%

Savings accounts

 

 

37,270

 

 

0.61

%

 

14,842

 

 

0.65

%

 

9,585

 

 

0.72

%

Certificates of deposit

 

 

301,428

 

 

1.70

%

 

183,550

 

 

2.84

%

 

157,601

 

 

3.72

%

 

 






 






 






 

Total interest bearing deposits

 

$

627,972

 

 

1.16

%

$

367,297

 

 

1.77

%

$

307,996

 

 

2.66

%

 

 






 






 






 

Average total deposits

 

$

850,942

 

 

0.86

%

$

476,013

 

 

1.37

%

$

401,447

 

 

2.04

%

 

 






 






 






 

As of December 31, 2010, certificates of deposit of $100,000 or more mature as follows:

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

Amount

 

Weighted
Average Rate

 

 

 


 


 

 

 

 

 

 

 

 

 

Up to 3 months

 

$

75,441

 

 

1.28

%

3 to 6 months

 

 

64,934

 

 

1.53

%

6 to 12 months

 

 

87,306

 

 

1.48

%

Over 12 months

 

 

24,586

 

 

2.08

%

 

 



 



 

 

 

$

252,267

 

 

1.49

%

 

 



 



 

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, 2010, 2009, and 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31, 2010

 

December 31, 2009

 

 

 


 


 

 

 

Actual

 

Weighted
Avg Rate

 

YTD
Avg

 

Avg
Rate
Paid

 

Actual

 

Weighted
Avg Rate

 

YTD
Avg

 

Avg
Rate
Paid

 

 

 


 


 


 


 


 


 


 


 

Repurchase agreements

 

$

12,886

 

 

0.16

%

$

14,277

 

 

0.16

%

$

22,343

 

 

0.23

%

$

13,563

 

 

0.23

%

Fed Funds purchased

 

 

 

 

 

 

1

 

 

%

 

 

 

 

 

768

 

 

0.91

%

FHLB advances

 

 

5,000

 

 

4.60

%

 

5,000

 

 

4.68

%

 

5,000

 

 

4.60

%

 

28,751

 

 

1.30

%

Other borrowings

 

 

4,750

 

 

2.75

%

 

4,968

 

 

4.40

%

 

5,091

 

 

6.59

%

 

5,181

 

 

6.32

%

 

 



 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 

Total

 

$

22,636

 

 

 

 

$

24,246

 

 

 

 

$

32,434

 

 

 

 

$

48,263

 

 

 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 



 

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008

 

 

 


 

 

 

Actual

 

Weighted
Avg Rate

 

YTD
Avg

 

Avg
Rate
Paid

 

 

 









Repurchase agreements

 

$

18,129

 

 

0.29

%

$

19,038

 

 

0.92

%

Fed Funds purchased

 

 

 

 

%

 

1,023

 

 

2.74

%

FHLB advances

 

 

56,013

 

 

1.08

%

 

37,654

 

 

2.50

%

Other borrowings

 

 

5,250

 

 

6.49

%

 

3,899

 

 

6.49

%

 

 



 

 

 

 



 

 

 

 

Total

 

$

79,392

 

 

 

 

$

61,614

 

 

 

 

 

 



 

 

 

 



 

 

 

 

23


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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

 


 

(Dollars in thousands)

 

2010

 

2009

 

2008

 

 

 


 


 


 

 

 

Maximum Balance at
any month-end

 

Maximum Balance at
any month-end

 

Maximum Balance
at any month-end

 

 

 


 


 


 

Repurchase agreements

 

$

22,849

 

 

Dec-10

 

$

22,343

 

 

Dec-09

 

$

23,438

 

 

Jan-08

 

Fed Funds purchased

 

 

100

 

 

Aug-10

 

 

6,032

 

 

Aug-09

 

 

6,301

 

 

Aug-08

 

FHLB advances

 

 

5,000

 

 

Mar-10

 

 

40,000

 

 

Mar-09

 

 

56,013

 

 

Dec-08

 

Other borrowings

 

 

5,036

 

 

Jan-10

 

 

5,500

 

 

Jan-09

 

 

5,500

 

 

Jul-08

 

Competition

Commercial banking in Florida, including our market, is highly competitive, due in large part to Florida’s profile of population growth and wealth. Our market contains 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 Bank of America, SunTrust Bank, Wells Fargo, JP Morgan Chase & Co., BB&T, PNC, Citigroup, and BankUnited, Inc., and these institutions capture the majority of the deposits. According to data provided by the FDIC, as of June 30, 2010, the latest date for which data was publicly available, our market share, on a pro forma basis, was less than 2% in each county where we operate. 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 Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

          On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 ( the “Dodd-Frank Act”). The Dodd-Frank Act will have a broad impact on the financial services industry,

24


including significant regulatory and compliance changes including, among other things, (i) enhanced resolution authority of troubled and failing banks and their holding companies; (ii) increased capital and liquidity requirements; (iii) increased regulatory examination fees; (iv) changes to assessments to be paid to the FDIC for federal deposit insurance; and (v) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC. A summary of certain provisions of the Dodd-Frank Act is set forth below, along with information set forth in applicable sections of this “Regulatory Considerations” section.

 

 

 

 

Increased Capital Standards and Enhanced Supervision. The federal banking agencies are required to establish minimum leverage and risk-based capital requirements for banks and bank holding companies. These new standards will be no lower than current regulatory capital and leverage standards applicable to insured depository institutions and may, in fact, be higher when established by the agencies. The Dodd-Frank Act also increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency.

 

 

The Consumer Financial Protection Bureau (“Bureau”). The Dodd-Frank Act creates the Bureau within the Federal Reserve. The Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank consumers. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are more stringent than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against state- chartered institutions.

 

 

Deposit Insurance. The Dodd-Frank Act makes permanent the $250,000 deposit insurance limit for insured deposits. Amendments to the Federal Deposit Insurance Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the Deposit Insurance Fund (“DIF”) will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity during the assessment period. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF, increasing the minimum from 1.15 percent to 1.35 percent of the estimated amount of total insured deposits and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. In December 2010, the FDIC increased the reserve ratio to 2.0 percent. The Dodd- Frank Act also provides that, effective one year after the date of enactment, depository institutions may pay interest on demand deposits.

 

 

Transactions with Affiliates. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B of the Federal Reserve Act, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

 

 

Transactions with Insiders. Insider transaction limitations are expanded through the strengthening of loan restrictions to insiders and the expansion of the types of transactions subject to the various limits, including derivative transactions, repurchase agreements, reverse repurchase agreements and securities lending or borrowing transactions. Restrictions are also placed on certain asset sales to and from an insider to an institution, including requirements that such sales be on market terms and, in certain circumstances, approved by the institution’s board of directors.

 

 

Enhanced Lending Limits. The Dodd-Frank Act strengthens the existing limits on a depository institution’s credit exposure to one borrower. Current banking law limits a depository institution’s ability to extend credit to one person (or group of related persons) in an amount exceeding certain thresholds. The Dodd-Frank Act expands the scope of these restrictions to include credit exposure arising from derivative transactions, repurchase agreements, and securities lending and borrowing transactions.

 

 

Compensation Practices. The Dodd-Frank Act provides that the appropriate federal regulators must establish standards prohibiting as an unsafe and unsound practice any compensation plan of a bank holding company or other “covered financial institution” that provides an insider or other employee with “excessive compensation” or could lead to a material financial loss to such firm. In June 2010, prior to the Dodd-Frank Act, the bank regulatory agencies promulgated the Interagency Guidance on Sound Incentive Compensation Policies, which requires that financial institutions establish metrics for measuring the impact of activities to achieve incentive compensation with the related risk to the financial institution of such behavior. Together, the Dodd-Frank Act and the recent guidance on compensation may impact the current compensation policies at 1st United Bank.

25



 

 

 

 

Holding Company Capital Levels. The Dodd-Frank Act requires bank regulators to establish minimum capital levels for holding companies that are at least of the same nature as those applicable to financial institutions. All trust preferred securities, or TRUPs, issued by bank or thrift holding companies after May 19, 2010 will be counted as Tier II Capital (with an exception for certain small bank holding companies). Bank holding companies with at least $15 billion in assets as of December 31, 2009 will have five years to comply with this provision, and starting on January 1, 2013, these holding companies will phase in the requirement by deducting one-third of TRUPs per year for the following three years from Tier 1 capital. TRUPs issued prior to May 19, 2010 by bank holding companies with less than $15 billion in assets as of December 31, 2009 are exempt from these capital deductions entirely.

          We expect that many of the requirements called for in the Dodd-Frank Act will be implemented over time, and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions’ operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of our business activities, require changes to certain of our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.

The Company

          We are registered with the Board of Governors of the Federal Reserve System (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. Except for the activities relating to financial holding companies permissible under the Gramm-Leach-Bliley Act, these restrictions will apply to us. 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

26


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 Board maintains a policy statement on minority equity investments in banks and bank holding companies, that permits investors to (1) 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 (2) 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 (a) indirectly or directly owning, controlling or having power to vote 25% or more of the voting securities of a bank; (b) controlling the election of a majority of directors of a bank; (c) 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 (d) as determined by the Florida Office of Financial Regulation. These requirements will affect us because 1st United Bank is chartered under Florida law and changes in control of us are indirect changes in control of 1st United Bank.

          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 1st United Bank, and such loans may be repaid from dividends paid from 1st United Bank to us.

          The ability of 1st United Bank to pay dividends, however, will be subject to regulatory restrictions that are described below under “Dividends.” We are also able to raise capital for contributions to 1st United Bank 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 1st United Bank and to commit resources to support 1st United Bank 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.

1st United Bank

          1st United Bank 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 1st United Bank’s operations including, without limitation, the making of loans, the issuance of securities, the conduct of 1st United Bank’s corporate affairs, the satisfaction of capital adequacy requirements, the payment of dividends, and the establishment or closing of banking centers. 1st United Bank is also a member bank of the Federal Reserve System, which makes 1st United Bank’s operations subject to broad federal regulation and oversight by the Federal Reserve. In addition, 1st United Bank’s deposit accounts are insured by the FDIC to the

27


maximum extent permitted by law, and the FDIC has certain enforcement powers over 1st United Bank.

          As a state chartered banking institution in the State of Florida, 1st United Bank 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 1st United Bank’s customers. Various consumer laws and regulations also affect the operations of 1st United Bank, 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.

          1st United Bank 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 1st United Bank 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 1st United Bank 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.

          In addition, in November 2008, the FDIC issued a final rule under its Transaction Account Guarantee Program (“TAGP”), pursuant to which the FDIC fully guarantees all non-interest bearing transaction deposit accounts, including all personal and business checking deposit accounts that do not earn interest, lawyer trust accounts where interest does not accrue to the account owner (IOLTA), and NOW accounts with interest rates no higher than 0.50% until June 30, 2010 and 0.25% beginning July 1, 2010. Thus, under TAGP, all money in these accounts are fully insured by the FDIC regardless of dollar amount. This second increase to coverage was originally in effect through December 31, 2009, but was extended until June 30, 2010 and then again until December 31, 2010, unless we elected to “opt out” of participating, which we did not do. The Dodd-Frank Act extended full deposit coverage for non-interest bearing transaction deposit accounts for two years beginning on December 31, 2010, and all financial institutions are required to participate in this extended program.

          Under the current assessment system, the FDIC assigns an institution to one of four risk categories, with the first category having two sub-categories based on the institution’s most recent supervisory and capital evaluations, designed to measure risk. Total base assessment rates currently range from 0.07% of deposits for an institution in the highest sub-category of the highest category to 0.775% of deposits for an institution in the lowest category. On May 22, 2009, the FDIC imposed a special assessment of five basis points on each FDIC-insured depository institution’s assets, minus its Tier 1 capital, as of June 30, 2009. This special assessment was collected on September 30, 2009. Finally, on November 12, 2009, the FDIC adopted a new rule requiring insured institutions to prepay on December 30, 2009, estimated quarterly risk-based

28


assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. We prepaid an assessment of $3.3 million, which incorporated a uniform 3.00 basis point increase effective January 1, 2011 and assumed 5% annual deposit growth.

          In addition, all FDIC insured institutions are required to pay assessments to the FDIC at an annual rate of approximately one 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, or 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 1st United Bank 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 1st United Bank 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 1st United Bank, as those prevailing for comparable nonaffiliated transactions. In addition, 1st United Bank 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 1st United Bank’s unimpaired capital and unimpaired surplus. Section 22(g) identifies limited circumstances in which 1st United Bank 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. 1st United Bank 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. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and financial holding companies, to account for off-balance sheet exposure, to minimize disincentives for holding liquid assets, and to achieve greater consistency in evaluating the capital adequacy of major banks throughout the world. Under these guidelines, assets and off-balance sheet items are assigned to broad risk categories each with designated weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

          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 trust preferred securities, less certain goodwill items and other intangible assets, is required to equal at least 4% of risk-

29


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, 2010, 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

30


performance, or a combination of these factors, could change our capital position in a relatively short period of time, making additional capital infusions necessary.

          Prompt Corrective Action.

          Immediately upon becoming undercapitalized, a depository institution becomes subject to the provisions of Section 38 of the FDIA, which: (a) restrict payment of capital distributions and management fees; (b) require that the appropriate federal banking agency monitor the condition of the institution and its efforts to restore its capital; (c) require submission of a capital restoration plan; (d) restrict the growth of the institution’s assets; and (e) 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: (a) requiring the institution to raise additional capital; (b) restricting transactions with affiliates; (c) requiring divestiture of the institution or the sale of the institution to a willing purchaser; and (d) 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.

          Basel III.

          On December 17, 2009, the Basel Committee proposed significant changes to bank capital and liquidity regulation, including revisions to the definitions of Tier I Capital and Tier II Capital applicable to Basel III.

          The short-term and long-term impact of the new Basel III capital standards and the forthcoming new capital rules to be proposed for non-Basel III U.S. banks is uncertain. As a result of the recent deterioration in the global credit markets and the potential impact of increased liquidity risk and interest rate risk, it is unclear what the short-term impact of the implementation of Basel III may be or what impact a pending alternative standardized approach to Basel III option for non-Basel III U.S. banks may have on the cost and availability of different types of credit and the potential compliance costs of implementing the new capital standards.

          On September 12, 2010, the oversight body of the Basel Committee announced a package of reforms which will increase existing capital requirements substantially over the next four years. These capital reforms were endorsed by the G20 at the summit held in Seoul, South Korea in November 2010.

          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:

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§

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.

          1st United Bank 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, 1st United Bank is required to own capital stock in the FHLB in an amount at least equal to 0.18% (or 18 basis points) of the 1st United Bank’s total assets at the end of each calendar year, plus 4.5% of its outstanding advances (borrowings) from the FHLB of Atlanta under the activity-based stock ownership requirement. On December 31, 2010, 1st United Bank 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.

          1st United Bank 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 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. 1st United Bank must comply with the applicable provisions of these consumer protection laws and regulations as part of its ongoing customer relations.

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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 1st United Bank 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 1st United Bank 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, 2010, we had a total of approximately 301 employees (includes 89 employees added as part of the TBOM acquisition), including approximately 292 full-time employees. The employees are not represented by a collective bargaining unit. We consider relations with employees to be good.

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. In addition to the other information contained in, or incorporated by reference into, this Form 10-K, including the matters addressed under the caption “Cautionary Statement Regarding Forward-Looking Information,” you should carefully consider the risks described below before deciding whether to invest in our common stock. If any of the events highlighted in the following risks actually occurs, or if additional risks and uncertainties not presently known to us or that we do not currently believe to be important to you, materialize, our business, results of operations or financial condition would likely suffer. In such an event, the trading price of our common stock could decline and you could 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 December 17, 2010, 1st United Bank entered into an Assumption Agreement – Whole Bank; All Deposits (“Bank of Miami Purchase and Assumption Agreement”) with the FDIC, pursuant to which 1st United Bank assumed all deposits and certain identified assets and liabilities of The Bank of Miami, a national association headquartered in Miami, Florida. 1st United Bank also entered into loss sharing agreements with the FDIC. Under the loss sharing agreements, 1st United Bank will share in the losses on assets covered under the Bank of Miami Purchase and Assumption Agreement. The FDIC will reimburse 1st United Bank for 80% of losses with respect to the entire acquired $276 million loan portfolio and the $12.8 million other real estate owned.

          On December 11, 2009, 1st United Bank entered into an Assumption Agreement – Whole Bank; All Deposits

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(“Republic Purchase and Assumption Agreement”) with the FDIC, pursuant to which 1st United Bank assumed all deposits and certain identified assets and liabilities of Republic Federal Bank, a national association headquartered in Miami, Florida. 1st United Bank also entered into loss sharing agreements with the FDIC. Under the loss sharing agreements, 1st United Bank will share in the losses on assets covered under the Purchase and Assumption Agreement. The FDIC will reimburse 1st United Bank for 80% of losses of up to $36 million with respect to the entire $238 million acquired loan portfolio. The FDIC will reimburse 1st United Bank for 95% of losses in excess of $36 million with respect to the $238 million acquired loan portfolio.

          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 1st United Bank of its rights under the loss sharing agreements and the sale or transfer of any subsidiary of 1st United Bank 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 1st United Bank with or into another bank, if we will own less than 66.66% of the equity of the resulting bank; (ii) our merger or consolidation with or into another company, if our shareholders will own less than 66.66% of the equity of the resulting company; (iii) the sale of all or substantially all of the assets of 1st United Bank to another company or person; or (iv) a sale of shares by any one or more shareholders of the Company or 1st United Bank that would effect a change in control of 1st United Bank. 1st United Bank’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 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 share payments from the FDIC. This could result in material losses that are currently not anticipated.

We may have difficulties integrating The Bank of Miami’s operations into our own or may fail to realize the anticipated benefits of the acquisition.

          Our acquisition of The Bank of Miami involves the integration of two companies that have previously operated independently of each other. Successful integration of The Bank of Miami’s operations will depend primarily on our ability to consolidate The Bank of Miami’s operations, systems and procedures into those of ours to eliminate redundancies and costs. We may not be able to integrate the operations without encountering difficulties, including, without limitation:

 

 

 

 

§

the loss of key employees and customers;

 

 

 

 

§

possible inconsistencies in standards, control procedures and policies; and

 

 

 

 

§

unexpected problems with costs, operations, personnel, technology or credit.

          In addition, any enhanced earnings or cost savings that we expect to result from the acquisition, including by reducing costs, improving efficiencies, and cross-marketing, may not be fully realized or may take longer to be realized than expected.

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, and Jacobson. 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.

          Our success depends to a significant extent upon the quality of our assets, particularly loans. In originating loans, there is a substantial likelihood that credit losses will be experienced. 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 the loan. Management maintains an allowance for loan losses based on, among other things, experience, an evaluation of economic conditions, and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for probable loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered questionable.

          As of December 31, 2010, 1st United Bank’s allowance for loan losses was $13.1 million, which represented approximately 1.52% of its total amount of loans. 1st United Bank had $18.9 million in non-accruing loans as of December 31, 2010. The allowance may not prove sufficient to cover future loan losses. Although management uses the best

34


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 1st United Bank’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 1st United Bank’s allowance for loan losses would adversely impact our net income and capital.

If our non-performing assets increase, our earnings will suffer.

          At December 31, 2010, our non-performing assets (which consist of non-accruing loans, loans 90+ days delinquent, and foreclosed real estate assets) totaled $28.0 million, or 2.2% of total assets, which is an increase of $11.7 or 72% over non-performing assets at December 31, 2009. At December 31, 2008, our non-performing assets were $15.6 million, or 1.60% of total assets. Our non-performing 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 non-performing 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.

          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:

 

 

 

 

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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, 2010, commercial real estate loans, including multi-family loans, comprised approximately 53% of our total loan portfolio.

 

 

 

 

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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, 2010, commercial loans comprised approximately 15% of our total loan portfolio.

 

 

 

 

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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, 2010, construction and development loans comprised approximately 4% of our total loan portfolio.

 

 

 

 

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Consumer Loans. Consumer loans (such as personal lines of credit) are collateralized, if at all, with assets that may not provide an adequate source of payment of the loan due to depreciation, damage, or loss. As of December 31, 2010, consumer loans comprised approximately 2% of our total loan portfolio.

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;

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§

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

 

 

 

 

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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.

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 Share Agreements we entered into with the FDIC if the capital raise would effect a change in control of 1st United Bank.

          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.

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

          Our profitability depends to a large extent on 1st United Bank’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.

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

 

 

 

 

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general or local economic conditions;

 

 

 

 

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environmental cleanup liability;

 

 

 

 

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neighborhood values;

 

 

 

 

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interest rates;

 

 

 

 

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real estate tax rates;

 

 

 

 

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operating expenses of the mortgaged properties;

 

 

 

 

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supply of and demand for rental units or properties;

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§

ability to obtain and maintain adequate occupancy of the properties;

 

 

 

 

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zoning laws;

 

 

 

 

§

governmental rules, regulations and fiscal policies; and

 

 

 

 

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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.

Adverse 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, 2010, approximately $309.5 million of our deposits are held by foreign nationals whose primary residence is Latin America. U.S. and global economic policies, political tensions, and unfavorable global economic conditions may adversely impact the Latin American economies. If economic conditions in Latin America deteriorate, 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 a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of recent turmoil faced by banking organizations and the unstable credit markets.

Due to conditions imposed upon us by the Federal Reserve to gain their approval for the Citrus Bank acquisition, we may enter into an agreement to acquire an existing bank, branch, or company only if the transaction is funded entirely with our common stock, or proceeds from the issuance of our common stock, or until 1st United Bank has reported four consecutive quarters of net income, and as a result we may not be able to take advantage of certain acquisition opportunities in the future.

          Our ability to continue to expand and grow our business by increasing market share in our core markets through external acquisitions may be hindered by conditions imposed upon us by the Federal Reserve. As a condition of receiving regulatory approval of the Citrus Bank acquisition, we committed not to enter into any agreement to acquire an existing bank, branch, or company unless the transaction is funded entirely with our common stock, or proceeds from the issuance of our common stock, or until 1st United Bank has reported four consecutive quarters of net income. As a result, until this condition is lifted, we must fund future acquisitions entirely with our common stock or the proceeds raised through offerings of our common stock.

Potential 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.

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

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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, 2010, we had $45.1 million in goodwill, which represented approximately 3.6% of our total assets.

The banking industry is very competitive.

          The banking industry is highly competitive and 1st United Bank competes directly with financial institutions that are more established and have significantly greater resources and lending limits. As a result of those greater resources, the larger financial institutions may be able to provide a broader range of products and services to their customers than us and may be able to afford newer and more sophisticated technology than us. Our long-term success will be dependent on the ability of 1st United Bank to compete successfully with other financial institutions in its service areas.

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

          1st United Bank provides its customers the ability to bank online. The secure transmission of confidential information over the Internet is a critical element of online banking. 1st United Bank’s network could be vulnerable to unauthorized access, computer viruses, phishing schemes and other security problems. 1st United Bank 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 1st United Bank’s activities or the activities of its customers involve the storage and transmission of confidential information, security breaches and viruses could expose 1st United Bank 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 1st United Bank’s systems and could adversely affect its reputation and its ability to generate deposits.

Risks Related to Regulation and Legislation

We may be required to pay significantly higher FDIC deposit insurance premiums and assessments in the future.

          Recent insured depository institution failures, as well as deterioration in banking and economic conditions, have significantly increased the loss provisions of the FDIC, resulting in a decline in the designated reserve ratio of the Deposit Insurance Fund to historical lows. The FDIC recently increased the designated reserve ratio from 1.25 to 2.00. In addition, the deposit insurance limit on FDIC deposit insurance coverage generally has increased to $250,000, which may result in even larger losses to the Deposit Insurance Fund. These developments have caused an increase to our assessments, and the FDIC may be required to make additional increases to the assessment rates and levy additional special assessments on us. Higher assessments increase our non-interest expense.

          Since 2009, our assessment rates, which also include our assessment for participating in the FDIC’s Transaction Account Guarantee Program, increased from 6.25 to 14.50 basis points. Additionally, on May 22, 2009, the FDIC announced a final rule imposing a special 5.00 basis points emergency assessment as of June 30, 2009, payable September 30, 2009, based on assets minus Tier 1 Capital at June 30, 2009, but the amount of the assessment was capped at 10.00 basis points of domestic deposits. Finally, on November 12, 2009, the FDIC adopted a new rule requiring insured institutions to prepay on December 30, 2009, estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. We prepaid an assessment of $3.3 million, which incorporated a uniform 3.00 basis point increase effective January 1, 2011.

          These higher FDIC assessment rates and special assessments have had and will continue to have an adverse impact on our results of operations. Our FDIC insurance related cost was $1,659,000 and $1,140,000 for the years ended December 31, 2010 and December 31, 2009, respectively, compared to $327,000 for the year ended December 31, 2008. We are unable to predict the impact in future periods, including whether and when additional special assessments will occur.

          Higher insurance premiums and assessments increase our costs and may limit our ability to pursue certain business opportunities. We also may be required to pay even higher FDIC premiums than the recently increased level, because financial institution failures resulting from the depressed market conditions have depleted and may continue to deplete the deposit insurance fund and reduce its ratio of reserves to insured deposits.

We are subject to extensive governmental regulation.

          We are subject to extensive governmental regulation. 1st United Bancorp, Inc., as a financial holding company, is regulated primarily by the Federal Reserve. 1st United Bank is a commercial bank chartered by the State of Florida and regulated by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Florida Office of Financial Regulation. As a member of the Federal Home Loan Bank (“FHLB”), 1st United Bank must also comply with applicable regulations of the Federal Housing Finance Board and the Federal Home Loan Bank. These federal and state bank regulators have the ability, should the situation require, to place significant regulatory and operational restrictions upon us. 1st United Bank’s

38


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.

          Banking regulations are primarily intended to protect depositors, deposit insurance funds, and the banking system as a whole, and not shareholders and creditors. A sufficient claim against us under these laws could have a material adverse effect on our results. Please refer to the section entitled “Regulatory Considerations” in this Form 10-K.

Florida financial institutions, such as 1st United Bank, 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 (“OFAC”). 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, 1st United Bank has been required to adopt new policies and procedures and to install new systems. If 1st United Bank’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, 1st United Bank would be subject to liability, including fines and regulatory actions such as restrictions on its 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 1st United Bank operates in Florida, we expect that 1st United Bank will face a higher risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes and regulations.

Risks Related to Market Events

Our loan portfolio is heavily concentrated in mortgage loans secured by commercial and residential properties in South Florida.

          Our interest-earning assets are heavily concentrated in mortgage loans secured by properties located in South Florida. As of December 31, 2010, a significant portion of our loans secured by real estate are secured by commercial and residential properties, including properties under construction, located in Palm Beach, Miami-Dade, and Broward 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 increases in delinquencies and foreclosures, which would more greatly affect us than if our lending were more geographically diversified. In addition, since a large portion of our portfolio is secured by properties located in South 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.

Future economic growth in our Florida market area is likely to be slower compared to previous years.

          The State of Florida’s population growth has historically exceeded national averages. Consequently, the state has experienced substantial growth in population, new business formation, and public works spending. Due to the moderation of economic growth and migration into our market area and the downturn in the real estate market, management believes that growth in our market area will be restrained in the near-term. We have experienced an overall slow down in the origination of residential mortgage loans for sale recently due to the slowing in residential real estate sales activity in our markets. A decrease in existing and new home sales decreases lending opportunities and negatively affects our income. We do not anticipate that the housing market will improve in the near-term, and, accordingly, this could lead to additional valuation adjustments on our loan portfolios.

The soundness of other financial institutions could adversely affect us.

          Our ability to engage in routine funding and other transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial institutions are interrelated as a result of trading, clearing, counterparty, lending, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial institutions, or the financial services industry generally, have led to market-wide liquidity problems, losses of depositor, creditor or counterparty confidence, and could lead to losses or defaults by us or by other institutions. We could experience increases in deposits and assets as a result of other banks’ difficulties or failures, which would increase the capital we need to support such growth.

39


The fair value of our investments could decline.

          Our investment securities portfolio as of December 31, 2010 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 over the past twelve months was approximately 62,924 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.

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 our business and our Company. 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 its market price. 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 our Company 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;

40



 

 

 

 

§

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 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 have not paid cash dividends to our shareholders and currently have no plans to pay future cash dividends.

          We plan to retain earnings to finance future growth and have no current plans to pay cash dividends to shareholders. Because we have not paid cash dividends, holders of our securities will experience a gain on their investment in our securities only in the case of an appreciation of value of our securities. You should neither expect to receive dividend income from investing in our common stock nor an appreciation in value.

Your shares of common stock will not be an insured deposit.

          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.

 

 

Item 1B.

Unresolved Staff Comments

None

 

 

Item 2.

Properties

We currently operate 18 full service banking centers in Florida (which includes the three banking centers acquired from TBOM which will be closed effective April 30, 2011), 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

North Palm Beach Banking Center

 

April 2000

 

 

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)

 

 

Leased

Vero Beach Banking Center

 

August 2008 (2)

 

 

Own

Sebastian Banking Center

 

August 2008(2)

 

 

Own

Barefoot Bay Banking Center

 

August 2008(2)

 

 

Own

Brickell Bay Banking Center

 

December 11, 2009(3)

 

 

Leased

Doral Banking Center

 

December 11, 2009(3)

 

 

Leased

Coral Way Banking Center

 

September 2010(3)

 

 

Leased

Alhambra Banking Center

 

December 17, 2010(4)

 

 

Leased

West Doral Banking Center

 

December 17, 2010(4)

 

 

Leased

Medley Banking Center

 

December 17, 2010(4)

 

 

Leased

41



 

 

 


 

(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 1st United Bank 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 Bank acquisition consummated on December 11, 2009.

 

 

 

 

(4)

Represents banking centers acquired as part of the TBOM acquisition consummated on December 17, 2010. Each of the banking centers are being leased from the FDIC and will be closed effective April 30, 2011, at no further cost to the Company.


 

 

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.

[Removed and Reserved]

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”. Prior to that date, our common stock was quoted on the Pink Sheets. The following table sets forth the range of high and low sales prices reported on the NASDAQ Global Market or the range of high and low bid quotations on the Pink Sheets, as applicable. Quotations as reported by the Pink Sheets reflect inter-dealer prices without retail mark-up, mark-down, or commissions and may not necessarily represent actual transactions.

We have never declared a cash dividend on our common stock, and we currently have no plans to declare or pay any dividends on the common stock in the foreseeable future. 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 14, 2011, our common stock was held by approximately 458 shareholders of record.

 

 

 

 

 

 

 

 

 

 

High

 

Low

 

 

 

 


 

 


 

2009

 

 

 

 

 

 

 

First Quarter

 

$

8.00

 

$

1.56

 

Second Quarter

 

 

5.00

 

 

3.65

 

Third Quarter

 

 

6.30

 

 

4.00

 

Fourth Quarter

 

 

7.90

 

 

5.46

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

First Quarter

 

$

8.65

 

$

7.10

 

Second Quarter

 

 

9.32

 

 

7.35

 

Third Quarter

 

 

8.00

 

 

5.75

 

Fourth Quarter

 

 

7.10

 

 

5.63

 

42



 

 

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, 2010, 2009, 2008, 2007 and 2006 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,” “return on average tangible equity,” “tangible equity to tangible assets,” “tangible common equity to tangible assets,” and “return on average tangible common equity.” 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. “Tangible common equity to tangible assets,” is defined as total shareholders’ equity reduced by preferred equity and intangible assets 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.

43


(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the years ended December 31,

 

 

 


 

 

 

2010 (c)

 

2009 (b)

 

2008 (a)

 

2007

 

2006

 

 

 


 


 


 


 


 

BALANCE SHEET DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

1,267,752

 

$

1,013,441

 

$

617,821

 

$

375,834

 

$

332,244

 

Tangible assets

 

 

1,219,455

 

 

965,388

 

 

570,703

 

 

371,124

 

 

327,438

 

Total loans

 

 

860,739

 

 

667,140

 

 

486,247

 

 

285,423

 

 

254,816

 

Allowance for loan losses

 

 

13,050

 

 

13,282

 

 

5,799

 

 

2,070

 

 

2,149

 

Securities available for sale

 

 

102,289

 

 

88,843

 

 

35,075

 

 

35,546

 

 

32,867

 

Goodwill and other intangible assets

 

 

48,297

 

 

48,053

 

 

47,118

 

 

4,710

 

 

4,806

 

Deposits

 

 

1,064,687

 

 

802,808

 

 

436,269

 

 

272,235

 

 

240,210

 

Non-interest bearing deposits

 

 

281,285

 

 

194,185

 

 

100,785

 

 

59,539

 

 

83,598

 

Shareholders’ equity

 

 

174,050

 

 

170,594

 

 

98,870

 

 

54,498

 

 

50,912

 

Tangible shareholders’ equity

 

 

125,753

 

 

122,541

 

 

51,752

 

 

49,788

 

 

46,106

 

INCOME STATEMENT DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

45,763

 

$

28,539

 

$

30,250

 

$

24,699

 

$

19,948

 

Interest expense

 

 

7,745

 

 

7,246

 

 

9,584

 

 

9,474

 

 

6,233

 

 

 



 



 



 



 



 

Net interest income

 

 

38,018

 

 

21,293

 

 

20,666

 

 

15,225

 

 

13,715

 

Provision for loan losses

 

 

13,520

 

 

13,240

 

 

1,910

 

 

145

 

 

181

 

 

 



 



 



 



 



 

Net interest income after provision for loan losses

 

 

24,498

 

 

8,053

 

 

18,756

 

 

15,080

 

 

13,534

 

Gain on acquisition

 

 

11,041

 

 

20,535

 

 

 

 

 

 

 

Other non-interest income

 

 

4,411

 

 

2,427

 

 

2,037

 

 

1,911

 

 

1,418

 

Non-interest expense

 

 

36,429

 

 

26,168

 

 

22,904

 

 

16,989

 

 

14,887

 

 

 



 



 



 



 



 

Income (loss) before income taxes

 

 

3,521

 

 

4,847

 

 

(2,111

)

 

2

 

 

65

 

Income tax expense (benefit)

 

 

1,361

 

 

1,827

 

 

(752

)

 

(3,391

)

 

 

 

 



 



 



 



 



 

Net income (loss)

 

 

2,160

 

 

3,020

 

 

(1,359

)

 

3,393

 

 

65

 

Preferred stock dividends earned

 

 

 

 

(774

)

 

(368

)

 

 

 

 

 

 



 



 



 



 



 

Net income (loss) available to common shareholders

 

$

2,160

 

$

2,246

 

$

(1,727

)

$

3,393

 

$

65

 

 

 



 



 



 



 



 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share

 

$

0.09

 

$

0.17

 

$

(0.25

)

$

0.72

 

$

0.01

 

Diluted earnings (loss) per share

 

$

0.09

 

$

0.17

 

$

(0.25

)

$

0.71

 

$

0.01

 

Book value per common share

 

$

7.02

 

$

6.88

 

$

10.87

 

$

11.61

 

$

10.78

 

Tangible book value per common share

 

$

5.07

 

$

4.94

 

$

5.44

 

$

10.61

 

$

9.76

 

SELECTED OPERATING RATIOS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets

 

 

0.20

%

 

0.46

%

 

(0.25

)%

 

0.97

%

 

0.02

%

Return on average shareholders’ equity

 

 

1.24

%

 

2.44

%

 

(1.63

)%

 

6.64

%

 

0.13

%

Net interest margin

 

 

4.06

%

 

3.69

%

 

4.23

%

 

4.72

%

 

5.20

%

SELECTED ASSET QUALITY DATA, CAPITAL AND ASSET QUALITY RATIOS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity/assets

 

 

13.73

%

 

16.83

%

 

16.00

%

 

14.50

%

 

15.32

%

Tangible equity/tangible assets

 

 

10.31

%

 

12.69

%

 

9.07

%

 

13.42

%

 

14.08

%

Non-performing loans/total loans

 

 

2.19

%

 

2.34

%

 

2.18

%

 

0.10

%

 

0.44

%

Non-performing assets/total assets

 

 

2.21

%

 

1.80

%

 

1.72

%

 

0.07

%

 

0.33

%

Allowance for loan losses/total loans

 

 

1.52

%

 

1.99

%

 

1.19

%

 

0.73

%

 

0.84

%

Allowance for loan losses/non-performing loans

 

 

69.1

%

 

85.3

%

 

55

%

 

742

%

 

193

%

Net charge-offs (recoveries)/average loans

 

 

2.01

%

 

1.14

%

 

0.21

%

 

0.08

%

 

(0.03

)%

REGULATORY CAPITAL RATIOS FOR THE COMPANY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage Ratio

 

 

11.78

%(d)

 

12.54

%

 

8.15

%

 

14.71

%

 

14.98

%

Tier 1 Risk-based Capital

 

 

21.62

%

 

23.23

%

 

9.46

%

 

14.71

%

 

16.36

%

Total Risk-based Capital

 

 

23.71

%

 

25.45

%

 

11.69

%

 

15.37

%

 

17.11

%

REGULATORY CAPITAL RATIOS FOR THE BANK:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leverage Ratio

 

 

9.90

%(d)

 

7.72

%

 

6.91

%

 

9.69

%

 

11.02

%

Tier 1 Risk-based Capital

 

 

18.18

%

 

14.36

%

 

8.03

%

 

10.93

%

 

12.04

%

Total Risk-based Capital

 

 

20.26

%

 

16.59

%

 

10.26

%

 

11.59

%

 

12.79

%


 

 

(a)

Includes Equitable Merger and Citrus Acquisition

(b)

Includes Republic transaction

(c)

Includes TBOM transaction

(d)

Based on year end total assets, the Leverage Ratio of the Company is 10.27% and for 1st United Bank is 8.61%.

44


GAAP Reconciliation

(Dollar amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the Years Ended December 31,

 

 

 


 

 

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 


 


 


 


 


 

Total assets

 

$

1,267,752

 

$

1,013,441

 

$

617,821

 

$

375,834

 

$

332,244

 

Goodwill

 

 

(45,008

)

 

(45,008

)

 

(45,008

)

 

(4,553

)

 

(4,553

)

Intangible assets, net

 

 

(3,289

)

 

(3,045

)

 

(2,110

)

 

(157

)

 

(253

)

 

 



 



 



 



 



 

Tangible Assets

 

$

1,219,455

 

$

965,388

 

$

570,703

 

$

371,124

 

$

327,438

 

 

 



 



 



 



 



 

Shareholders’ equity

 

$

174,050

 

$

170,594

 

$

98,870

 

$

54,498

 

$

50,912

 

Goodwill

 

 

(45,008

)

 

(45,008

)

 

(45,008

)

 

(4,553

)

 

(4,553

)

Intangible assets, net

 

 

(3,289

)

 

(3,045

)

 

(2,110

)

 

(157

)

 

(253

)

 

 



 



 



 



 



 

Tangible shareholders’ equity

 

$

125,753

 

$

122,541

 

$

51,752

 

$

49,788

 

$

46,106

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value per common share

 

$

7.02

 

$

6.88

 

$

10.87

 

$

11.61

 

$

10.78

 

Effect of intangible assets

 

 

(1.95

)

 

(1.94

)

 

(5.43

)

 

(1.00

)

 

(1.02

)

 

 



 



 



 



 



 

Tangible book value per common share

 

$

5.07

 

$

4.94

 

$

5.44

 

$

10.61

 

$

9.76

 

 

 



 



 



 



 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity to total assets

 

 

13.73

%

 

16.83

%

 

16.00

%

 

14.50

%

 

15.32

%

Effect of intangible assets

 

 

(3.42

)

 

(4.14

)

 

(6.93

)

 

(1.25

)

 

(1.24

)