UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File Number: 0-28846
UNIONBANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3145350
- --------------------------------- ---------------------------
(State or other jurisdiction (I.R.S. Employer ID Number)
of incorporation or organization)
122 West Madison Street, Ottawa, IL 61350
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (815) 434-3900
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 [ ] NO [ X* ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at September 30, 1996
- ----------------------------- ----------------------------------------
Common Stock, Par Value $1.00 3,119,666
* Registrant became subject to the periodic reporting requirements of the
Securities Exchange Act of 1934 on September 30, 1996, the effective
date of the Issuer's Form 8-A Registration Statement.
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION
Item I. Financial Statements
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Cash Flows
- Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
UNIONBANCORP, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Dollars in thousands, except per share data)
- -------------------------------------------------------------------------------
<TABLE>
September December
30, 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks ........................................................ $ 26,881 $ 16,167
Federal funds sold ............................................................. 9,567 2,265
Securities available for sale .................................................. 199,746 63,891
Securities held to maturity .................................................... 37,513 29,026
Loans, net ..................................................................... 336,593 178,805
Premises and equipment, net .................................................... 13,232 6,571
Intangible assets .............................................................. 11,036 943
Accrued interest and other assets .............................................. 9,658 5,865
-------- --------
Total assets ..................................................... $644,226 $303,533
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand ...................................................................... $116,412 $ 35,688
Savings and NOW ............................................................. 97,609 80,872
Other time .................................................................. 245,773 121,515
Time deposits of $100,000 or more ........................................... 80,474 23,652
-------- --------
Total deposits ................................................... 540,268 261,727
Federal funds purchased and securities sold under agreements to repurchase ..... 27,844 11,505
Short-term borrowings .......................................................... 10,921 4,346
Notes payable .................................................................. 25,330 - -
Accrued interest and other liabilities ......................................... 5,635 2,480
-------- --------
Total liabilities ................................................ 609,998 280,058
-------- --------
Minority Interest in Subsidiaries .............................................. 769 - -
Mandatory Redeemable Preferred Stock, Series B,no par value;
1,092 shares authorized; 857 shares issued ................................. 857 - -
Stockholders' Equity
Preferred stock, no par value; 191,643 shares authorized;
none issued and outstanding .............................................. - - - -
Series A convertible preferred stock, no par value; 2,765 shares
authorized;
2,762.24 shares issued and outstanding ................................... 500 - -
Series C preferred stock, no par value; 4,500 shares authorized,
none issued and outstanding
Common stock, $1.00 par value; 10,000,000 shares authorized; 3,119,666 and
2,400,000 shares issued and outstanding
in 1996 and 1995, respectively ........................................... 3,120 2,400
Paid-in capital ............................................................. 8,136 1,074
Retained earnings ........................................................... 22,365 20,568
Unrealized gain (loss) on securities available for sale, net ................ (900) 2
Deferred compensation - stock option plans .................................. (98) (48)
-------- --------
33,123 23,996
Less treasury stock, at cost: 268,263 shares ................................ 521 521
-------- --------
Total stockholders' equity ....................................... 32,602 23,475
-------- --------
Total liabilities and stockholders' equity ....................... $644,226 $303,533
======== ========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
Nine Months Ended
September 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Interest income:
Interest and fees on loans .................................... $ 14,291 $ 12,075
Interest on investments ....................................... 5,192 3,647
-------- --------
Total interest income .............................. 19,483 15,722
-------- --------
Interest expense:
Interest on deposits .......................................... 9,424 7,496
Interest on other borrowings .................................. 993 679
-------- --------
Total interest expense ............................. 10,417 8,175
-------- --------
Net interest income before provision for loan losses 9,066 7,547
Provision for loan losses ........................................ 696 513
-------- --------
Net interest income after provision for loan losses 8,370 7,034
-------- --------
Noninterest income:
Service charges ............................................... 284 212
Merchant fee income ........................................... 379 305
Trust income .................................................. 275 225
Gain on sale of loans ......................................... 188 95
Gain (loss) on sale of securities ............................. (15) 87
Other ......................................................... 1,015 946
-------- --------
Total noninterest income ........................... 2,126 1,870
-------- --------
Noninterest expense:
Salaries and employee benefits ................................ 4,309 3,267
Occupancy expense, net ........................................ 583 528
Furniture and equipment expense ............................... 577 417
FDIC deposit assessment ....................................... 5 247
Other ......................................................... 2,435 2,015
-------- --------
Total noninterest expense .......................... 7,909 6,474
-------- --------
Income before income taxes and minority interest ... 2,587 2,430
Minority interest ................................................ 9
-------- --------
Income before income taxes ......................... 2,578 2,430
Income taxes ..................................................... 662 658
-------- --------
Net income ......................................... $ 1,916 $ 1,772
======== ========
Net income available for common stock dividends .................. $ 1,876 $ 1,772
======== ========
Earnings per common share ........................................ $ 0.81 $ 0.82
======== ========
Weighted average common shares outstanding ....................... 2,305,488 2,147,892
========= =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1996 and 1995
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
<TABLE>
Three Months Ended
September 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Interest income:
Interest and fees on loans .................................... $ 5,620 $ 4,275
Interest on investments ....................................... 2,585 1,254
-------- --------
Total interest income .............................. 8,205 5,529
-------- --------
Interest expense:
Interest on deposits .......................................... 4,035 2,709
Interest on other borrowings .................................. 532 249
-------- --------
Total interest expense ............................. 4,567 2,958
-------- --------
Net interest income before provision for loan losses 3,638 2,571
Provision for loan losses ........................................ 196 171
-------- --------
Net interest income after provision for loan losses 3,442 2,400
-------- --------
Noninterest income:
Service charges ............................................... 133 72
Merchant fee income ........................................... 139 121
Trust income .................................................. 92 75
Gain on sale of loans ......................................... 41 35
Gain (loss) on sale of securities ............................. (28) 26
Other ......................................................... 424 355
-------- --------
Total noninterest income ........................... 801 684
-------- --------
Noninterest expense:
Salaries and employee benefits ................................ 1,765 1,093
Occupancy expense, net ........................................ 216 192
Furniture and equipment expense ............................... 215 143
FDIC deposit assessment (refund) .............................. 3 (12)
Other ......................................................... 949 646
-------- --------
Total noninterest expense .......................... 3,148 2,062
-------- --------
Income before income taxes and minority interest ... 1,095 1,022
Minority interest ................................................ 9 - -
-------- --------
Income before income taxes ......................... 1,086 1,022
Income taxes ..................................................... 282 293
-------- --------
Net income ......................................... $ 804 $ 729
======== ========
Net income available for common stock dividends .................. $ 765 $ 729
======== ========
Earnings per common share ........................................ $ 0.29 $ 0.34
======== ========
Weighted average common shares outstanding ....................... 2,895,256 2,151,802
========= =========
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
Nine Months Ended
September 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income .................................................... $ 1,916 $ 1,772
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses .................................. 696 513
Provision for depreciation ................................. 660 505
Provision for deferred income taxes ........................ (155) 144
Amortization and accretion on securities ................... 392 332
Amortization of intangibles ................................ 157 85
Amortization of deferred compensation - stock option plans . 20 14
(Gain) loss on sale of securities .......................... (15) 87
Minority interest in net income of subsidiary .............. 9
Proceeds from sales of loans ............................... 7,962 5,946
Origination of loans for resale ............................ (7,773) (5,861)
Change in assets and liabilities:
Decrease in accrued interest receivable and other assets . 158 376
Increase in accrued interest payable and other liabilities 574 595
------- --------
Net cash provided by operating activities .......... 4,601 4,508
------- --------
Cash Flows from Investing Activities:
(Increase) decrease in federal funds sold ..................... 867 (2,330)
Purchase of securities available for sale ..................... (14,525) (17,355)
Proceeds from maturities of securities available for sale ..... 27,758 18,925
Purchase of securities held to maturity ....................... (7,864) (4,563)
Proceeds from maturities of securities held to maturity ....... 5,737 1,610
Increase in loans ............................................. (14,107) (17,748)
Purchase of premises and equipment, net ....................... (774) (932)
Purchase price paid, net of cash received ..................... (11,475)
------- --------
Net cash (used in) investing activities ............ (14,383) (22,393)
------- --------
Cash Flows from Financing Activities:
(Decrease) increase in deposits ............................... (6,029) 20,063
Increase in federal funds purchased and securities
sold under agreement to repurchase ......................... 8,508 1,355
Proceeds from short-term borrowings ........................... 1,200
Repayments of short-term borrowings ........................... (325) (530)
Proceeds from notes payable ................................... 17,359
Dividends paid ................................................ (217) (211)
------- --------
Net cash provided by financing activities .......... 20,496 20,677
------- --------
Increase in cash and due from banks ................ 10,714 2,792
Cash and due from banks, beginning of period ..................... 16,167 12,998
------- --------
Cash and due from banks, end of period ........................... $26,881 $ 15,790
======= ========
</TABLE>
(Continued)
<PAGE>
UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
Nine Months Ended
September 30,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Supplemental Disclosures:
Assets acquired:
Cash and due from banks ................................................. $ 5,191 $ - -
Federal funds sold ...................................................... 8,169 - -
Investment securities ................................................... 157,299 - -
Loans, net .............................................................. 144,566 - -
Premises and equipment .................................................. 6,547 - -
Intangible assets ....................................................... 10,250 - -
Accrued interest receivable and other assets ............................ 3,951 - -
Liabilities assumed:
Deposits ................................................................ (284,570) - -
Federal funds purchased and securities sold under agreement to repurchase (7,831) - -
Short-term borrowings ................................................... (9,721) - -
Notes payable ........................................................... (3,950) - -
Other liabilities ....................................................... (3,308) - -
Minority interest in subsidiaries ....................................... (760) - -
-------- -------
25,833 - -
-------- -------
Value of common stock issued ............................................... $ 7,810 $ - -
======== =======
Value of preferred stock issued ............................................ 1,357 - -
======== =======
Purchase price paid ........................................................ $ 16,666 $ - -
======== =======
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements.
<PAGE>
UNIONBANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of UnionB ANCORP, INC. (the "Company") and its subsidiaries, UnionBank,
UnionBank/Sandwich, UnionData, Union Corporation, LaSalle County Collections,
Inc., Prairie Acquisition Corp. and Country Bancshares, Inc. All significant
intercompany accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions for Form 10-Q and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
condition, results of operations, or cash flows in conformity with generally
accepted accounting principles.
In the opinion of management of the Company, the unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
financial position of the Company at September 30, 1996 and December 31, 1995,
the results of operations for the nine months and three months ended September
30, 1996 and 1995, and the results of its operations and cash flows for the nine
months ended September 30, 1996 and 1995. All adjustments to the financial
statements were normal and recurring in nature.
Operating results for the three months and nine months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
Note 2. Business Acquisitions
On July 17, 1996, the Board of Directors established a Series C Preferred Stock
and authorized 4,500 shares with terms to be subsequently fixed by the Board of
Directors without further stockholder approval.
On August 1, 1996, the Company acquired LaSalle County Collections, Inc.
("LaSalle"), a collection agency located in Ottawa, Illinois. The purchase price
of $177,000 included the issuance of 9,019 shares of common stock, valued at $1
per share, and payment of $77,000 in cash. The Company recognized an intangible
asset of $169,618 for the excess of purchase price over total assets.
On August 6, 1996, the Company acquired six additional bank subsidiaries through
the purchase of Prairie Bancorp, Inc. ("Prairie"), a multi-bank holding company
headquartered in Princeton, Illinois. The main offices of Prairie's subsidiary
banks are located in the Illinois communities of Ferris, Hanover, Ladd, Manlius,
Tampico and Tiskilwa (the "Prairie Banks"). The Prairie Banks also have four
branch locations in the Illinois communities of Carthage, Elizabeth and
Princeton. At the date of acquisition, Prairie had approximately $224,285,000 in
total assets and $189,271,000 in total deposits. In conjunction with the
acquisition, the Company issued 2,762.24 of the 2,765 authorized shares of
Series A Convertible Preferred Stock, which were valued at $500,000. The no par
value stock earns cumulative dividends of $75 per share per year, payable in
four equal quarterly payments. In addition, the Company issued 857 of the 1,092
authorized shares of Series B Preferred Stock, which were valued at $857,000.
The no par value stock earns cumulative dividends of $60 per share per year,
payable in four equal quarterly payments. The total acquisition cost of
$14,302,000 resulted in goodwill of $2,749,000 and core deposit intangible
estimated at $1,857,000.
On September 25, 1996, the Company acquired an additional bank subsidiary
through the purchase of Country Bancshares, Inc. ("Country"), a one-bank holding
company headquartered in Hull, Illinois with offices in six western Illinois
communities. At the date of acquisition, Country had approximately $104,236,000
in total assets and $95,298,000 in total deposits. The cash purchase price of
$11,637,000 resulted in goodwill of $4,734,000 and core deposit intangible
estimated at $632,000.
<PAGE>
All acquisitions were recorded using the purchase method of accounting. As such,
the results of operations of the acquired entities are excluded from the
consolidated statements of income for the periods prior to the respective
acquisition dates. The purchase accounting adjustments will be accreted or
amortized over the lives of the respective assets. Core deposit intangibles will
be amortized on a straight line basis over ten years.
Goodwill will be amortized on a straight line basis over 15 years.
The unaudited pro forma results of operations which follow assume the
acquisitions had occurred at the beginning of the respective periods. In
addition to combining the historical results of operations of the companies, the
pro forma calculations include purchase accounting adjustments related to the
acquisitions and interest on borrowed funds.
Unaudited pro forma consolidated results of operations for the periods ending
September 30, 1995 and 1996 as though Prairie and Country had been acquired as
of December 31, 1994 follow:
Country
Union Prairie Banc
Bancorp, Bancorp, shares, Combined
Inc. Inc. Inc. Total*
-------- -------- ------- ---------
Nine months ending September 30, 1995
Net interest income ................. $7,547 $ 3,560 $2,020 $13,087
Net income .......................... 1,772 639 408 2,125
====== ======= ====== =======
Earnings per common share ........... $ 0.82 $445.06 $ 9.53 $ 0.68
====== ======= ====== =======
Nine months ending September 30, 1996
Net interest income ................. $8,049 $ 4,096 $2,134 $14,790
Net income .......................... 1,682 740 914 2,404
====== ======= ====== =======
Earnings per common share ........... $ 0.77 $546.06 $34.85 $ 0.77
====== ======= ====== =======
* The combined total reflects eliminating and other necessary adjustments and
therefore the totals of the individual entities are not intended to aggregate
to the combined total.
The effects of LaSalle are not material and therefore have not been included in
the above analysis.
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had the purchases actually been
made at the beginning of the respective periods, or of results which may occur
in the future.
Note 3. New Accounting Pronouncement
The Financial Accounting Standards Board has issued Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities", (Statement No. 125) which becomes effective for transactions
occurring after December 31, 1996. Statement No. 125 does not permit earlier or
retroactive application. Statement No. 125 distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. A transfer of
financial assets in which the transferor surrenders control over those assets is
accounted for as a sale to the extent that consideration other than beneficial
interests in the transferred assets is received in exchange. Statement No. 125
also establishes standards on the initial recognition and measurement of
servicing assets and other retained interests and servicing liabilities, and
their subsequent measurement.
<PAGE>
Statement No. 125 requires that debtors reclassify financial assets pledged as
collateral and that secured parties recognize those assets and their obligation
to return them in certain circumstances in which the secured party has taken
control of those assets. In addition, Statement No. 125 requires that a
liability be derecognized only if the debtor is relieved of its obligation
through payment to the creditor or by being legally released from being the
primary obligor under the liability either judicially or by the creditor.
Management does not believe the application of Statement No. 125 to transactions
of the Company's bank subsidiaries that have been typical in the past will
materially affect the Company's bank subsidiaries financial position and results
of operations.
Note 4. Earnings Per Common Share
Earnings per common share amounts are computed by subtracting from earnings the
dividend requirements on preferred stock to arrive at earnings applicable to
common stock and dividing this amount by the average number of common and common
equivalent shares outstanding during the period.
For the third quarters of 1996 and 1995 and the nine months ended September 30,
1996 and 1995, the average number of common and common equivalent shares
outstanding was the sum of the average number of shares of common stock
outstanding and the incremental number of shares issuable under outstanding
stock options that had a dilutive effect as computed under the treasury stock
method. Under this method, the number of incremental shares is determined by
assuming the issuance of the outstanding stock of options reduced by the number
of shares assumed to be repurchased from the issuance proceeds, using the market
price of the Company's common stock.
Note 5. Sale of Common Stock
On October 4, 1996, the Company completed its initial public offering which
consisted of the sale of 1,265,000 shares of common stock at an established
price of $11.50. The offering provided $14,547,500 of gross proceeds, less
underwriting discounts and offering costs of approximately $1,650,000, and
approximately $245,000 in other acquisition costs. Substantially all of the net
proceeds received were used to reduce debt incurred in connection with the
acquisitions.
<PAGE>
UNIONBANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The principal assets of the Company are its investments in the common stock of
its various subsidiaries. The Company's principal revenue source is dividends
from its subsidiaries. The principal business of the Company's subsidiary banks
consists of attracting deposits from the general public and using these funds to
originate mortgage, consumer and commercial loans primarily in northern, central
and western Illinois and areas surrounding subsidiary bank locations. The
Company's subsidiary banks engage in various forms of consumer and commercial
lending and invest in U.S. Government and federal agency securities, local
municipal issues, and interest-bearing deposits. The Company's subsidiary banks'
profitability depends primarily on their net interest income, which is the
difference between the interest income they earn on their loan and investment
portfolios, and their costs of funds, which consist mainly of interest paid on
deposits and borrowings. Net interest income is affected by the relative amounts
of interest-earning assets, interest-bearing liabilities, and the interest rates
earned or paid on these balances. The profitability of the Company's subsidiary
banks is also affected by the level of noninterest income and expense.
Noninterest income consists primarily of late charges and other fees.
Noninterest expense consists of salaries and employee benefits, occupancy
related expenses, deposit insurance premiums, and other operating expenses. The
operations of the Company's subsidiary banks are significantly influenced by
general economic conditions and related monetary and fiscal policies of
financial institutions' regulatory agencies. Deposit flows and the cost of funds
are influenced by interest rates on competing investments and general market
rates of interest. Lending activities are affected by the demand for financing
real estate and other types of loans, which in turn is affected by the interest
rates at which such financing may be offered and other factors affecting loan
demand and the availability of funds.
Financial Condition
Total assets increased $340,693,000 or 112.24% to $644,226,000 at September 30,
1996 from $303,533,000 at December 31, 1995, primarily as a result of the
acquisition of three subsidiaries. Internal loan growth also accounted for
approximately $13,918,000 of the increase.
Cash and cash equivalents increased $10,714,000 or 66.27%. Cash and cash
equivalents was higher at September 30, 1996 due primarily to the acquisitions.
The increase in loans of $157,788,000 or 88.24% since December 31, 1995 was
primarily a result of acquiring $144,566,000 in loans in connection with the
acquisitions. The remaining growth in loans was due to an active commercial loan
market in early 1996 and management's effort to increase the loan portfolios at
the Prairie Banks. In addition, the Company continues to see growth in the new
market areas obtained through acquisitions and expansion of existing
subsidiaries.
The increase in securities of $144,342,000 or 145.92% since December 31, 1995
was due to the acquisition of $157,299,000 in securities in connection with the
acquisitions and subsequent disposition of a portion of these securities in
order to fund loan originations at the Prairie Banks. The current interest rate
climate has had a negative impact on the investment portfolio. At September 30,
1996, stockholders' equity included an unrealized loss on securities available
for sale of $900,000, which is net of related income taxes of $572,000.
Total deposits increased $278,541,000 or 106.42% at September 30, 1996 due
primarily to the acquisition of $284,570,000 in deposits in connection with the
acquisitions. The Company also generally experienced an increase in deposits in
its subsidiary banks as a result of internally generated growth. The subsidiary
banks also experienced a shift of customer deposits to securities sold under
agreement to repurchase. The Company has thus far experienced minimal deposit
run off as a result of the acquisitions.
<PAGE>
Allowance for Loan Losses - The allowance for loan losses was $2,978,000 or .88%
of loans receivable at September 30, 1996, compared to $1,931,000, or 1.08% of
loans receivable at September 30, 1995. The level of nonperforming loans was
.86% of total loans at September 30, 1996 compared to .87% as of September 30,
1995. Based on a comparison of the allowance for loan losses in relation to
total loans and classified loans and the efforts put forth by management to
address problem loans in recent years, management believes its allowance for
loan losses is currently adequate.
Net charge-offs amounted to $1,012,000 for the nine months ended September 30,
1996 compared to net charge-offs of $286,000 for the nine months ended September
30, 1995. The increase of $726,000 is due to the charge off of one borrower's
accounts of approximately $690,000. Management had previously classified this
credit and established a specific reserve for it.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal and interest is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience. The
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers'
ability to pay. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions. In addition, regulatory agencies, as
an integral part of their examination process, periodically review the
subsidiary banks' allowance for loan losses, and may require the banks to make
additions to their allowances based on the agencies' judgment about information
available to them at the time of their examinations.
Nonperforming Assets
At September 30, 1996, the Company had $2,896,000 of nonperforming assets, of
which $1,015,000 were related to the acquisitions. On September 30, 1995, the
Company had $1,548,000 of nonperforming assets. Nonperforming assets to total
assets at September 30, 1996 and 1995 were .0004% and .51%, respectively.
Liquidity and Capital Resources
The Company manages its liquidity position with the objective of maintaining
sufficient funds to respond to the needs of depositors and borrowers and to take
advantage of earnings enhancement opportunities. In addition to the normal
inflow of funds from core deposit growth, together with repayments and
maturities of loans and investments, the Company utilizes other short-term
funding sources such as securities sold under agreements to repurchase,
overnight funds purchased from correspondent banks and the acceptance of
short-term deposits from public entities.
A portion of the Company's liquidity consists of cash and due from banks. The
level of these assets is dependent on the Company's operating, investing,
lending and financing activities during any given period. At September 30, 1996
and December 31, 1995, cash and due from banks totaled $26.9 million and $16.2
million, respectively.
Liquidity management is both a daily and long-term function of business
management. If the Company requires funds beyond its ability to generate them
internally, its subsidiary banks may borrow additional funds from the FHLB. At
September 30, 1996, the Company had $10,921,000 in outstanding advances from the
FHLB.
At September 30, 1996, the Company had $11,315,000 in outstanding commitments to
originate loans. In addition, the Company had unused commitments of $46,284,000
under revolving, open-end or similar type lines of credit. The Company
anticipates that it will have sufficient funds available to meet its current
loan commitments.
<PAGE>
On October 4, 1995, the Company completed the sale of 1,265,000 shares of its
common stock. The proceeds from the sale of common stock of $14,547,500, less
underwriting and acquisition expenses, were utilized to reduce debt incurred as
a result of the acquisitions.
Capital Resources
Bank regulatory agencies have adopted capital standards by which all banks and
bank holding companies will be evaluated. Under the risk-based method of
measurement, the resulting ratio is dependent upon not only the level of capital
and assets, but the composition of assets and capital and the amount of
off-balance sheet commitments. The Company's capital ratios were as follows for
the dates indicated:
<TABLE>
(Dollars in Thousands)
Pro Forma*
September 30, 1996 September 30, 1996 September 30, 1995
-----------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Risk-Based Capi-
tal Ratios:(1)
Tier 1 capital ............... $ 35,140 8.56% $ 22,487 5.48% $ 21,982 7.38%
Tier 1 capital minimum
requirement ............... 16,417 4.00% 16,417 4.00% 11,912 4.00%
------------------------------------------------------------------
Excess (deficiency) .......... $ 18,723 .56% $ 6,070 1.48% $ 10,07 3.38%
==================================================================
-----------
Total capital ................ $ 39,475 9.62% $ 26,822 6.54% $ 23,91 8.03%
Total capital minimum
requirement ............... 32,835 8.00% 32,835 8.00% 23,823 8.00%
------------------------------------------------------------------
Excess (deficiency) .......... $ 6,640 1.62% $ (6,013) (1.46)% $ 90 0.03%
==================================================================
Total risk adjusted assets ... $ 410,433 $ 410,433 $297,788
========= ========== ========
Leverage capital
ratio: (2)(3)
Tier 1 capital ............... $ 35,140 7.51% $ 22,487 4.81% $ 21,982 7.60%
Minimum requirement .......... 23,395 5.00% 23,395 5.00% 14,471 5.00%
------------------------------------------------------------------
Excess (deficiency) .......... $ 11,745 2.51% $ (908) (0.19)% $7511.00% 2.60%
==================================================================
Average adjusted assets ..... $ 467,890 $ 467,890 $ 289,415
========= =========== =========
<FN>
* Pro forma amounts and percentages assume the public stock offering was
consummated on September 30, 1996 instead of October 4, 1996.
(1) In accordance with the guidelines of the Federal Reserve System (the
"Federal Reserve"), unrealized net gains and losses net of deferred
income taxes, which are recorded as an adjustment to equity capital on
the financial statements, are not included in the calculation of these
capital ratios.
(2) Based on the risk-based capital guidelines of the Board of Governors of
the Federal Reserve, a bank holding company is required to maintain a
Tier 1 capital to risk-adjusted assets ratio of 4.00% and total capital
to risk-adjusted assets ratio of 8.00%.
(3) The leverage ratio is defined as the ratio of Tier 1 capital to average
total assets. Management of the Company has established a minimum
target leverage ratio of 5%. Based on Federal Reserve guidelines, a
bank holding company generally is required to maintain a leverage ratio
of 3% plus an additional cushion of at least 100 to 200 basis points.
</FN>
</TABLE>
<PAGE>
The capital ratios detailed above declined as a result of two factors. First,
although the level of stockholders' equity was not directly affected, intangible
assets are recorded as part of the required purchase accounting method.
Intangible assets are required to be deducted from capital during the
calculation of the capital ratios. Second, the level of total assets and risk
based assets increased significantly with the acquisition, thus reducing capital
in percentage terms.
Results of Operations
Three months ended September 30, 1996 and 1995
Net Interest Income - Net interest income for the three months ended September
30, 1996 increased by $1,067,000 or 41.50% to $3,638,000 from $2,571,000 for the
three months ended September 30, 1995. The increase is attributable to an
increase in interest earning assets as a result of the acquisitions. The Company
experienced some contraction in the net interest margin during the third
quarter, of which a majority was related to the acquisitions.
Interest Income - Interest income increased by $2,676,000 or 48.40% from
$5,529,000 to $8,205,000, during the third quarter of 1996 compared to the
respective period of 1995. This increase resulted from an increase in yields on
interest earning assets and an increase in interest earning assets.
Interest Expense - Interest expense increased $1,609,000 or 54.40%, to
$4,567,000 for the three months ended September 30, 1996 from $2,958,000 for the
same period in 1995. The increase was primarily attributable to the increase in
total deposits from $261,727,000 at September 30, 1995 to $540,268,000 at
September 30, 1996, which resulted from the acquisitions. In addition, interest
expense on borrowings increased $283,000 or 113.65% as a result of additional
borrowings required for the acquisition of subsidiaries.
Net Income - The Company's net income for the three months ended September 30,
1996 was $804,000 compared to $729,000 for the three months ended September 30,
1995. The increase of $75,000 or 10.29% in net earnings resulted primarily from
the acquisition of additional income producing subsidiaries.
Provision for Loan Losses - The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors, including general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. During the three months ended September 30,
1996 and 1995, the provision for loan losses was $196,000 and $171,000,
respectively.
Noninterest Income - Noninterest income was $801,000 for the three months ended
September 30, 1996 compared to $684,000 for the nine months ended September 30,
1995. The increase of $69,000 in other noninterest income was a result of the
acquisitions .
Noninterest Expense - The increase in noninterest expense of $1,086,000 or 53.0%
was attributable to an increase of $672,000 in salaries and employee benefits as
a result of acquiring additional subsidiaries, and $303,000 in other noninterest
expense. The increase in other nonoperating expenses was attributable to
approximately $220,000 in other noninterest expense from Prairie and
approximately $26,000 from the other two acquisitions. No individually
significant balances were included in those totals.
<PAGE>
The Company's effective tax rate for the three months ended September 30, 1996
and 1995 was approximately 25.97% and 28.67%, respectively.
Nine months ended September 30, 1996 and 1995
Net Interest Income - Net interest income for the nine months ended September
30, 1996 was $9,066,000 compared to $7,547,000 for the nine months ended
September 30, 1995. This was caused by an increase in interest earning assets as
a result of the acquisitions, as well as internal growth of the subsidiary
banks. The increase was partially offset by the rise in interest bearing
liabilities which also increased as a result of the acquisitions and internal
growth.
Interest Income - Interest income increased by $3,761,000 or 23.92% from
$15,722,000 to $19,483,000, during the first nine months of 1996 compared to the
same period in 1995. This increase resulted from an increase in yields on
interest earning assets and the increase in interest earning assets.
Interest Expense - Interest expense increased $2,242,000 or 27.43%, to
$10,417,000 for the nine months ended September 30, 1996 from $8,175,000 for the
same period in 1995. The increase was primarily attributable to the increase in
total deposits from $261,727,000 at September 30, 1995 to $540,268,000 at
September 30, 1996. In addition, interest expense on borrowings increased
$314,000 or 46.24% as a result of additional borrowings required for the
acquisition of subsidiaries.
Net Income - The Company's net income for the nine months ended September 30,
1996 was $1,916,000 compared to $1,772,000 for the nine months ended September
30, 1995. The net income for Prairie is included from August 6, 1996 and for
Country from September 25, 1996.
Provision for Loan Losses - The allowance for loan losses is established through
a provision for loan losses based on management's evaluation of the risk
inherent in its loan portfolio and the general economy. Such evaluation
considers numerous factors, including general economic conditions, loan
portfolio composition, prior loss experience, the estimated fair value of the
underlying collateral and other factors that warrant recognition in providing
for an adequate loan loss allowance. During the nine months ended September 30,
1996 and 1995, the provision for loan losses was $696,000 and $513,000,
respectively.
Noninterest Income - Noninterest income was $2,126,000 for the nine months ended
September 30, 1996 compared to $1,870,000 for the nine months ended September
30, 1995. The increase of $69,000 in other noninterest income was a result of
the acquisitions. The $93,000 increase in gain on sale of loans was offset by
the $102,000 decrease in gain on sale of securities.
Noninterest Expense - Noninterest expense increased $1,453,000 for the nine
months ended September 30, 1996 to $7,909,000 from $6,474,000 for the nine
months ended September 30, 1995. This increase resulted from increases of
$1,042,000 or 31.89% in compensation expense. The increase in compensation
expense was attributable to the execution of an early retirement plan by an
existing subsidiary and the acquisition of additional subsidiaries. The $420,000
increase in other nonoperating expenses was attributable to approximately
$246,000 in other noninterest expense from the acquired subsidiaries. The
remainder of the increase is attributable to the Holding Company and existing
subsidiaries. No individually significant balances were included in those
totals.
<PAGE>
The Company's effective tax rate for the nine months ended September 30, 1996
and 1995 was approximately 25.68% and 27.08%, respectively.
Impact on Inflation and Changing Prices
The unaudited consolidated financial statements and related data presented
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and results of
operations in terms of historical dollars without considering changes in the
relative purchasing power of money over time because of inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a more significant
impact on the Company's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
Recent Regulatory Developments
On September 30, 1996, President Clinton signed into law the "Economic Growth
and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory Reduction
Act"). Subtitle G of the Regulatory Reduction Act consists of the "Deposit
Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a one-time
special assessment on each depository institution holding deposits subject to
assessment by the FDIC for the Savings Association Insurance Fund (the "SAIF")
in an amount which, in the aggregate, will increase the designated reserve ratio
of the SAIF (i.e., the ratio of the insurance reserves of the SAIF to total
SAIF-insured deposits) to 1.25% on October 1, 1996. Subject to certain
exceptions, the special assessment is payable in full on November 27, 1996. None
of the Company's bank subsidiaries holds any SAIF-assessable deposits and,
therefore, none of the Company's bank subsidiaries is subject to the special
assessment.
Prior to the enactment of the DIFA, a substantial amount of the SAIF assessment
revenue was used to pay the interest due on bonds issued by the FICO, the entity
created in 1987 to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the SAIF's predecessor insurance fund. Pursuant to the
DIFA, the interest due on outstanding FICO bonds will be covered by assessments
against both SAIF and BIF member institutions beginning January 1, 1997. Between
January 1, 1997 and December 31, 1999, FICO assessments against BIF-member
institutions, such as the Company's bank subsidiaries, cannot exceed 20% of the
FICO assessments charged SAIF-member institutions. From January 1, 2000 until
the FICO bonds mature in 2019, FICO assessments will be shared by all
FDIC-insured institutions on a pro rata basis. The FDIC estimates that the FICO
assessments for the period January 1, 1997 through December 31, 1999 will be
approximately 0.013% of deposits for BIF members versus approximately 0.064% of
deposits for SAIF members, and will be less than 0.025% of deposits thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January 1, 1999,
provided there are no state or federally chartered, FDIC-insured savings
associations existing on that date. To facilitate the merger of the BIF and the
SAIF, the DIFA directs the Treasury Department to conduct a study on the
development of a common charter and to submit a report, along with appropriate
legislative recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new nonbanking
activities by bank holding companies, eliminates the need for national banks to
obtain OCC approval to establish an off-site ATM, excludes ATM closures and
certain branch office relocations from the prior notice requirements applicable
to branch closings, significantly expands the authority of well-capitalized and
well-managed national banks to invest in office premises without prior
regulatory approval, establishes time frames within which the FDIC must act on
applications by state banks to engage in activities which, although permitted
for the state bank under applicable state law, are not permissible activities
for national banks, and excludes ATM closures and certain branch office
relocations from the requirements applicable to branch closings. The Regulatory
Reduction Act also clarifies the liability of a financial institution, when
acting as a lender or in a fiduciary capacity, under the federal environmental
clean-up laws. Although the full impact of the Regulatory Reduction Act on the
operations of the Company and its bank subsidiaries cannot be determined at this
time, management believes that the legislation will reduce compliance costs to
some extent and allow the Company and its bank subsidiaries somewhat greater
operating flexibility.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company or
its subsidiaries is a party other than ordinary routine litigation
incidental to their respective businesses.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8K
Exhibits:
None.
Reports on Form 8K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNIONBANCORP, INC.
Date: ______________________ /s/ R. Scott Grigsby
------------------------------------------
R. Scott Grigsby
Chairman of the Board, President and Chief
Executive Officer
Date: ______________________ /s/ Charles J. Grako
------------------------------------------
Charles J. Grako
Executive Vice President and Chief
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 10-Q FOR UNIONBANCORP, INC. AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 26,881
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 9,567
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 199,746
<INVESTMENTS-CARRYING> 37,513
<INVESTMENTS-MARKET> 36,013
<LOANS> 339,571
<ALLOWANCE> 2,978
<TOTAL-ASSETS> 644,226
<DEPOSITS> 540,268
<SHORT-TERM> 38,765
<LIABILITIES-OTHER> 5,635
<LONG-TERM> 25,330
857
500
<COMMON> 3,120
<OTHER-SE> 28,982
<TOTAL-LIABILITIES-AND-EQUITY> 644,226
<INTEREST-LOAN> 14,291
<INTEREST-INVEST> 5,192
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 19,483
<INTEREST-DEPOSIT> 9,424
<INTEREST-EXPENSE> 10,417
<INTEREST-INCOME-NET> 9,066
<LOAN-LOSSES> 696
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 2,141
<INCOME-PRETAX> 2,578
<INCOME-PRE-EXTRAORDINARY> 1,916
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,916
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
<YIELD-ACTUAL> 6.02
<LOANS-NON> 1,022
<LOANS-PAST> 279
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,014
<CHARGE-OFFS> 1,064
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 2,978
<ALLOWANCE-DOMESTIC> 2,218
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 760
</TABLE>
