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 JUNE 30, 1998
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: 333-35799
UNION COMMUNITY BANCORP
(Exact name of registrant specified in its charter)
Indiana 35-2025237
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
221 East Main Street
Crawfordsville, Indiana 47933
(Address of principal executive offices,
including Zip Code)
(765) 362-2400
(Registrant's telephone number, including area code)
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 report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's common stock, without par value,
outstanding as of June 30, 1998 was 3,041,750.
<PAGE>
Union Community Bancorp
Form 10-Q
Index
Page No.
FORWARD LOOKING STATEMENT ...................................................3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet ......................4
Consolidated Condensed Statement of Income.................5
Consolidated Condensed Statement of Changes in
Shareholders' Equity.......................................6
Consolidated Condensed Statement of Cash Flows.............7
Notes to Consolidated Condensed
Financial Statements.......................................8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................9
Item 3. Quantitative and Qualitative Disclosure about Market Risk.....12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................14
Item 2. Changes in Securities.........................................14
Item 3. Defaults Upon Senior Securities...............................14
Item 4. Submission of Matters to a Vote of Security Holders...........14
Item 5. Other Information.............................................14
Item 6. Exhibits and Reports on Form 8-K..............................14
SIGNATURES..................................................................15
<PAGE>
FORWARD LOOKING STATEMENT
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined in the notes to the
consolidated condensed financial statements), its directors or its officers
primarily with respect to future events and the future financial performance of
the Company. Readers of this Form 10-Q are cautioned that any such forward
looking statements are not guarantees of future events or performance and
involve risks and uncertainties, and that actual results may differ materially
from those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 10-Q identifies important
factors that could cause such differences. These factors include changes in
interest rates; loss of deposits and loan demand to other financial
institutions; substantial changes in financial markets; changes in real estate
values and the real estate market; or regulatory changes.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Balance Sheet
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------------------- --------------------
Assets
<S> <C> <C>
Cash and due from banks $ 52,084 $
22,424
Short-term interest-bearing deposits 7,412,888 44,758,403
-------------------- --------------------
Cash and cash equivalents 7,464,972 44,780,827
Investment securities held to maturity 9,862,388 5,820,069
Loans 88,180,255 78,687,999
Allowance for loan losses (350,258) (252,258)
-------------------- --------------------
Net Loans 87,829,997 78,435,741
Premises and equipment 353,049 367,360
Federal Home Loan Bank of Indianapolis stock 744,500 707,700
Investment in limited partnership 1,115,109 1,176,109
Interest receivable 622,017 581,526
Other assets 95,925 170,925
-------------------- --------------------
Total assets $108,087,957 $132,040,257
==================== ====================
Liabilities
Deposits
Noninterest-bearing $ 1,140,647 $ 1,532,647
Interest-bearing 60,737,577 60,725,398
-------------------- --------------------
Total deposits 61,878,224 62,258,045
Stock subscription refundable 22,687,104
Federal Home Loan Bank of Indianapolis advances 772,226 2,373,051
Note payable 1,020,642 1,200,042
Interest payable 94,813 118,867
Dividends payable 242,909
Other liabilities 541,818 497,271
-------------------- --------------------
Total liabilities 64,550,632 89,134,380
-------------------- --------------------
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, no-par value
Authorized and unissued - 2,000,000 shares
Common stock, no-par value
Authorized - 5,000,000 shares
Issued and outstanding - 3,041,750 shares 29,663,815 29,637,592
Retained earnings 15,658,878 15,108,285
Unearned employee stock ownership plan ("ESOP") shares (1,785,368) (1,840,000)
-------------------- --------------------
Total stockholders' equity 43,537,325 42,905,877
-------------------- --------------------
Total liabilities and stockholders' equity $ 108,087,957 $ 132,040,257
==================== ====================
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------- ----------------- ----------------- ------------------
1998 1997 1998 1997
---------------- ----------------- ----------------- ------------------
Interest and Dividend Income:
<S> <C> <C> <C> <C>
Loans $1,716,660 $1,507,899 $3,348,026 $ 2,994,235
Investment securities 72,549 104,337 179,389 206,070
Dividends on FHLB stock 14,825 13,740 28,785 24,969
Deposits with financial institutions 208,734 30,497 470,287 50,053
---------------- ----------------- ----------------- ------------------
Total interest income 2,012,768 1,656,473 4,026,487 3,275,327
---------------- ----------------- ----------------- ------------------
Interest Expense:
Deposits 823,252 834,410 1,627,775 1,653,754
FHLB advances 11,271 83,400 28,035 168,945
---------------- ----------------- ----------------- ------------------
Total interest expense 834,523 917,810 1,655,810 1,822,699
---------------- ----------------- ----------------- ------------------
Net Interest Income 1,178,245 738,663 2,370,677 1,452,628
Provision for loan losses 98,000 99,000 98,000 111,000
---------------- ----------------- ----------------- ------------------
Net Interest Income After Provision for Loan Losses 1,080,245 639,663 2,272,677 1,341,628
---------------- ----------------- ----------------- ------------------
Other Income (Losses)
Equity in losses of limited partnership (36,000) (40,303) (61,000) (113,730)
Other income 18,996 10,311 33,512 18,792
---------------- ----------------- ----------------- ------------------
Total other income (losses) (17,004) (29,992) (27,488) (94,938)
---------------- ----------------- ----------------- ------------------
Other Expenses
Salaries and employee benefits 162,230 116,031 380,414 252,272
Premises and equipment 16,449 15,131 28,812 27,303
Deposit insurance expense 11,466 9,782 21,177 12,068
Legal and professional fees 53,601 7,200 73,491 19,413
Other expense 88,865 79,213 168,359 137,677
---------------- ----------------- ----------------- ------------------
Total other expenses 332,611 227,357 672,253 448,733
---------------- ----------------- ----------------- ------------------
Income Before Income Tax 730,630 382,314 1,572,936 797,957
Income tax expense 259,721 113,633 565,103 234,856
---------------- ----------------- ----------------- ------------------
Net Income $ 470,909 $ 268,681 $ 1,007,833 $ 563,101
================ ================= ================= ==================
Basic earnings per share .16 .35
Diluted earnings per share .16 .35
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Shares Retained Unearned
Outstanding Amount Earnings ESOP Shares Total
---------------- --------------- --------------------- -------------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1998 3,041,750 $ 29,637,592 $ 15,108,285 (1,840,000) $ 42,905,877
Net income for the period 1,007,833 1,007,833
Cash dividends ($0.16 per share) (457,240) (457,240)
ESOP shares earned 26,223 54,632 80,855
---------------- --------------- --------------------- -------------------- ---------------
Balances, June 30, 1998 3,041,750 $ 29,663,815 $ 15,658,878 (1,785,368) $ 43,537,325
================ =============== ===================== ==================== ===============
</TABLE>
<PAGE>
UNION COMMUNITY BANCORP AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------------
1998 1997
-------------------- -------------------
Operating Activities:
<S> <C> <C>
Net income $ 1,007,833 $ 563,101
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Provision for loan losses 98,000 111,000
Depreciation 16,257 13,364
Deferred income tax 4,362
Investment securities accretion, net (4,691) (3,362)
Equity in losses of limited partnership 61,000 113,730
ESOP shares earned 80,855
Net change in:
Interest receivable (40,491) 34,330
Interest payable (24,054) 18,719
Other assets 29,440 (15,385)
Other liabilities 14,195 94,064
-------------------- -------------------
Net cash provided by operating activities 1,238,344 933,923
-------------------- -------------------
Investing Activities:
Purchases of investment securities held to maturity (5,903,586) (700,000)
Proceeds from paydowns and maturities of securities held to maturity 1,865,959 530,483
Purchases of loans (500,000)
Other net changes in loans (9,446,696) (162,591)
Purchase of FHLB of Indianapolis stock (36,800) (127,600)
Purchases of property and equipment (1,946) (7,410)
-------------------- -------------------
Net cash used by investing activities (13,523,069) (967,118)
-------------------- -------------------
Financing Activities:
Net change in:
Interest-bearing demand and savings deposits (793,169) 791,375
Certificates of Deposit 413,348 827,246
Stock subscription escrow accounts (22,687,104)
Proceeds from borrowings 1,000,000
Repayment of borrowings (1,780,225) (1,807,277)
Cash dividends paid (214,332)
Net change in advances by borrowers for taxes and insurance 30,352 14,957
-------------------- -------------------
Net cash provided (used) by financing activities (25,031,130) 826,301
-------------------- -------------------
Net Change in Cash and Cash equivalents (37,315,855) 793,106
Cash and Cash equivalents, Beginning of period 44,780,827 1,465,190
-------------------- -------------------
Cash and Cash equivalents, End of period $ 7,464,972 $ 2,258,296
==================== ===================
Supplemental cash flow disclosures:
Interest paid $ 1,679,864 $ 1,803,980
Income taxes paid 424,650 230,033
Loans transferred to foreclosed real estate 203,120
</TABLE>
See notes to consolidated condensed financial statements.
<PAGE>
UNION COMMUNITY BANCORP AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
Note 1 Basis of Presentation
The consolidated financial statements include the accounts of Union Community
Bancorp (the "Company") and its wholly owned subsidiary, Union Federal Savings
and Loan Association, a federally chartered savings and loan association ("Union
Federal"). A summary of significant accounting policies is set forth in Note 1
of Notes to Financial Statements included in the December 31, 1997 Annual Report
to Shareholders. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The interim consolidated financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
The interim consolidated financial statements at June 30, 1998, and for the six
month and three month periods ended June 30, 1998 and 1997, have not been
audited by independent accountants, but reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows for
such periods.
Note 2 Earnings Per Share
Earnings per share have been computed based upon the weighted average common
shares outstanding during the period subsequent to Union Federal's conversion to
a stock savings and loan association on December 29, 1997. Unearned Employee
Stock Ownership Plan shares have been excluded from the computation of average
common shares outstanding. For the six month and three month periods ended June
30, 1998, weighted-average shares outstanding for basic and diluted earnings per
share were 2,860,482 and 2,861,847, respectively.
Note 3 Reporting Comprehensive Income
In 1998, the Company adopted Financial Accounting Standards No. 130, Reporting
Comprehensive Income. For the six months ended June 30, 1998 and 1997, the
Company had no items that were required to be recognized under accounting
standards as components of comprehensive income in the financial statements.
Note 4 Benefit Plans
On June 30, 1998, the stockholders of the Company approved a Stock Option Plan
and a Recognition and Retention Plan and Trust (RRP). These plans allow for the
purchase in the open market or through the issuance of authorized and unissued
shares of up to 304,175 shares of common stock for the Stock Option Plan and
121,670 shares of common stock for the RRP. Under the Stock Option Plan, stock
option rights covering 304,175 shares of stock may be granted to officers, key
employees, and directors of the Company and its subsidiaries and options for
186,000 of such shares have been granted effective June 30, 1998. The options
have an option price per share equal to the market value at date of grant, have
ten year terms, and become exercisable at the rate of 20% per year. Stock awards
covering 121,670 shares of common stock may be awarded to the directors and key
employees of the Company and its subsidiaries and awards of 78,900 of such
shares have been awarded effective June 30, 1998. These awards vest at the rate
of 20% per year.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
Union Community Bancorp, an Indiana corporation (the "Company"), was organized
in September, 1997. On December 29, 1997, it acquired the common stock of Union
Federal Savings and Loan Association ("Union Federal") upon the conversion of
Union Federal from a federal mutual savings and loan association to a federal
stock savings and loan association.
Union Federal was organized as a state-chartered savings and loan association in
1913. Since then, Union Federal has conducted its business from its full-service
office located in Crawfordsville, Indiana. Union Federal's principal business
consists of attracting deposits from the general public and originating
fixed-rate and adjustable-rate loans secured primarily by first mortgage liens
on one- to four-family residential real estate. Union Federal's deposit accounts
are insured up to applicable limits by the Savings Association Insurance Fund
("SAIF") of the Federal Deposit Insurance Corporation ("FDIC"). Union Federal
offers a number of financial services, including: (i) residential real estate
loans; (ii) multi-family loans; (iii) commercial real estate loans; (iv)
construction loans; (v) home improvement loans; (vi) money market demand
accounts ("MMDAs"); (vii) passbook savings accounts; and (viii) certificates of
deposit.
Union Federal currently owns one subsidiary, UFS Service Corp. ("UFS"), whose
sole asset is its investment in Pedcor Investments 1993-XVI, L.P. ("Pedcor"),
which is an Indiana limited partnership that was established to organize, build,
own, operate and lease a 48-unit apartment complex in Crawfordsville, Indiana
known as Shady Knoll II Apartments (the "Project"). Union Federal owns the
limited partner interest in Pedcor. The general partner is Pedcor Investments
LLC. The Project, operated as a multi-family, low- and moderate-income housing
project, is completed and is performing as planned. Because UFS engages
exclusively in activities that are permissible for a national bank, OTS
regulations permit Union Federal to include its investment in UFS in its
calculation of regulatory capital.
Union Federal's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and investments, and costs incurred with
respect to interest-bearing liabilities, primarily deposits and borrowings.
Results of operations also depend upon the level of Union Federal's non-interest
income, including fee income and service charges, and the level of its
non-interest expenses, including general and administrative expenses.
Financial Condition
Total assets decreased $24.0 million, or 18.1% at June 30, 1998, compared to
December 31, 1997. The decline was primarily in cash and cash equivalents which
decreased $37.3 million. The decrease in cash and cash equivalents, principally
in short-term interest-bearing deposits, resulted from the payment of the stock
subscriptions refundable of $22.7 million at December 31, 1997. The decrease in
cash and cash equivalents was offset by an increase in net loans and investment
securities held to maturity. Net loans increased by $9.4 million, or 12.0% due
to an increase in customer demand. Investment securities held to maturity
increase by $4.0 million, or 69.5%.
Deposits decreased $380,000 to $61.9 million during the six months ended June
30, 1998. Demand and savings deposits decreased $793,000, or 4.9%, between
December 31, 1997 and June 30, 1998. Certificates of deposits increased
$413,000, or .9%, during this period. This decrease in total deposits was
primarily a result of an outflow of existing accounts to different market
alternatives.
Borrowed funds decreased $1.8 million, or 49.8%, from December 31, 1997 to June
30, 1998. The decline in total borrowed funds was comprised of a decrease in
FHLB advances of $1.6 million, and a decrease in the note payable to a limited
partnership of $179,000.
Stockholders' equity increased $631,000 from $42.9 million at December 31, 1997
to $43.5 million at June 30, 1998. The increase was due to net income for the
six months ended June 30, 1998 of $1.0 million and Employee Stock Ownership Plan
("ESOP") shares earned of $81,000. These increases were offset by cash dividends
of $457,000.
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997
Net income increased $202,000, or 75.1%, from $269,000 for the three months
ended June 30, 1997 to $471,000 for the three months ended June 30, 1998. The
increase is primarily due to an increase in net interest income offset by
increases in other expenses. The return on average assets was 1.74% and 1.28%
for the three months ended June 30, 1998 and 1997, respectively.
Interest income increased $356,000, or 21.5%, from $1.7 million for the three
months ended June 30, 1997 to $2.0 million for the same period in 1998. Interest
expense decreased $83,000, or 9.0%, from $918,000 for the three months ended
June 30, 1997 to $835,000 for the same period in 1998. As a result, net interest
income for the three months ended June 30, 1998 amounted to $1.2 million an
increase of $439,000, or 59.4%, compared to the same period in 1997. The
increase in net interest income was due primarily to an increase in the volume
of loans and short-term interest-bearing deposits and a decrease in the volume
of Federal Home Loan Bank advances. The increase in interest-earning assets and
the decrease in interest-bearing liabilities were primarily attributable to the
proceeds received in conjunction with the Company's stock issuance. Net proceeds
of the Company's stock issuance, after costs and excluding the shares issued for
the ESOP, were $27.8 million.
The provision for loan losses for the three months ended June 30, 1998 was
$98,000 as compared to $99,000 for the same period in 1997. The 1998 provision
and the allowance for losses were considered adequate, based on size, condition
and components of the loan portfolio. While management estimates loan losses
using the best available information, no assurance can be given that future
addition to the allowance will not be necessary based on changes in economic and
real estate market conditions, further information obtained regarding problem
loans, identification of additional problem loans and other factors, both within
and outside of management's control.
Other losses decreased $13,000, or 43.3%, for the three months ended June 30,
1998 compared to the same period in 1997.
Salaries and employee benefits were $162,000 for the three months ended June 30,
1998 compared to $116,000 for the 1997 period, an increase of $46,000, or 39.7%.
This increase resulted primarily from $27,000 of compensation expense related to
the ESOP and normal increases in employee compensation and related payroll
taxes. Legal and professional fees were $54,000 for the three months ended June
30, 1998 compared to $7,000 for the 1997 period, an increase of $47,000. This
increase was a result of the additional expenses incurred as a public company.
Income tax expense increased $146,000, or 128.1%, for the three months ended
June 30, 1998 compared to the same period in 1997. The increase was directly
related to the increase in taxable income for the period.
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997
Net income increased $445,000, or 79.0%, from $563,000 for the six months ended
June 30, 1997 to $1 million for the six months ended June 30, 1998. The increase
is primarily due to an increase in net interest income offset by increases in
other expenses. The return on average assets was 1.87% and 1.35% for the six
months ended June 30, 1998 and 1997, respectively.
Interest income increased $751,000, or 22.9%, from $3.3 million for the six
months ended June 30, 1997 to $4.0 million for the same period in 1998. Interest
expense decreased $167,000, or 9.2%, from $1.8 million for the six months ended
June 30, 1997 to $1.7 million for the same period in 1998. As a result, net
interest income for the six months ended June 30, 1998 increased $918,000, or
63.2%, compared to the same period in 1997. The increase in net interest income
was due primarily to an increase in the volume of loans and short-term
interest-bearing deposits and a decrease in the volume of Federal Home Loan Bank
advances. The increase in interest-earning assets and the decrease in
interest-bearing liabilities were primarily attributable to the proceeds
received in conjunction with the Company's stock issuance.
The provision for loan losses for the six months ended June 30, 1998 was $98,000
as compared to $111,000 for the same period in 1997.
Other losses decreased $67,000, or 71.0%, for the six months ended June 30, 1998
compared to the same period in 1997 primarily due to decreased losses of $53,000
from the investment in a low-income housing income tax credit limited
partnership. The investment in the limited partnership represents a 99% equity
in Pedcor. In addition to recording the equity in the losses of Pedcor, a
benefit of low income housing income tax credits in the amount of $89,000 was
recorded for the six months ended June 31, 1998 and 1997.
Salaries and employee benefits were $380,000 for the six months ended June 30,
1998 compared to $252,000 for the 1997 period, an increase of $128,000, or
50.8%. This increase resulted primarily from $81,000 of compensation expense
related to the ESOP and normal increases in employee compensation and related
payroll taxes. Legal and professional fees were $73,000 for the six months ended
June 30, 1998 compared to $19,000 for the 1997 period, an increase of $54,000.
This increase was a result of the additional expenses incurred as a public
company.
Income tax expense increased $330,000, or 140.4%, for the six months ended June
30, 1998 compared to the same period in 1997. The increase was directly related
to the increase in taxable e income for the period.
Asset Quality
Union Federal currently classifies loans as special mention, substandard,
doubtful and loss to assist management in addressing collection risks and
pursuant to regulatory requirements which are not necessarily consistent with
generally accepted accounting principles. Special mention loans represent
credits that have potential weaknesses that deserve management's close
attention. If left uncorrected, these potential weaknesses may result in
deterioration of the repayment prospects or Union Federal's credit position at
some future date. Substandard loans represent credits characterized by the
distinct possibility that some loss will be sustained if deficiencies are not
corrected. Doubtful loans possess the characteristics of substandard loans, but
collection or liquidation in full is doubtful based upon existing facts,
conditions and values. A loan classified as a loss is considered uncollectible.
Union Federal had $1.2 million of loans classified as special mention as of June
30, 1998 while there were no special mention loans at December 31, 1997. In
addition, Union Federal had $846,000 and $98,000 of loans classified as
substandard at June 30, 1998 and December 31, 1997, respectively. At June 30,
1998 and December 31, 1997, no loans were classified as doubtful or loss. At
June 30, 1998, and December 31, 1997, respectively, $353,000 and $98,000 of the
substandard loans were non-accrual loans. The allowance for loan losses was
$350,000 or .4% of net loans at June 30, 1998 and $252,000 or .3% of net loans
at December 31, 1997. The increase in classified loans is primarily a result of
a regulatory examination. As a result of the examination, the examiners
requested that an additional general reserve of approximately $98,000 be
recorded for these newly classified loans in the second quarter of 1998. Union
Federal does not believe that at this time any loss exists on these loans. In
addition, the loans are not considered impaired under Statement of Financial
Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan.
Liquidity and Capital Resources
The standard measure of liquidity for savings associations is the ratio of cash
and eligible investments to a certain percentage of net withdrawable savings
accounts and borrowings due within one year. The minimum required ratio is
currently set by the Office of Thrift Supervision regulation at 4%. As of June
30, 1998, Union Federal had liquid assets of $12.0 million and a liquidity ratio
of 16.9%.
Other
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy information statements, and other information regarding
registrants that file electronically with the Commission, including the Company.
The address is (http://www.sec.gov).
<PAGE>
Year 2000 Compliance
Because computer memory was so expensive on early mainframe computers, some
computer programs used only the final two digits for the year in the date field
and assumed that the first two digits were "19." As a result, some computer
applications may be unable to interpret the change from year 1999 to year 2000.
The Holding Company is actively monitoring its year 2000 computer compliance
issues. The bulk of the Holding Company's computer processing is provided under
contract by On-Line Financial Services, Inc., Oak Brook, IL. ("On-Line") On-Line
expects to be in year 2000 compliance by June 1999. The Holding Company's loan
documentation system is provided by Banker's Systems and is also expected to be
in year 2000 compliance within the next year. The Holding Company has also
appointed the three executive officers to address all aspects of year 2000
compliance. The Holding Company's expense in connection with year 2000
compliance is not expected to be material to its overall financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
An important component of Union Federal's asset/liability management policy
includes examining the interest rate sensitivity of its assets and liabilities
and monitoring the expected effects of interest rate changes on its net
portfolio value.
An asset or liability is interest rate sensitive within a specific time period
if it will mature or reprice within that time period. If Union Federal's assets
mature or reprice more quickly or to a greater extent than its liabilities,
Union Federal's net portfolio value and net interest income would tend to
increase during periods of rising interest rates but decrease during periods of
falling interest rates. Conversely, if Union Federal's assets mature or reprice
more slowly or to a lesser extent than its liabilities, its net portfolio value
and net interest income would tend to decrease during periods of rising interest
rates but increase during periods of falling interest rates.
Management believes it is critical to manage the relationship between interest
rates and the effect on Union Federal's net portfolio value ("NPV"). This
approach calculates the difference between the present value of expected cash
flows from assets and the present value of expected cash flows from liabilities,
as well as cash flows from off-balance sheet contracts. Union Federal manages
assets and liabilities within the context of the marketplace, regulatory
limitations and within limits established by its Board of Directors on the
amount of change in NPV which is acceptable given certain interest rate changes.
The OTS issued a regulation, which uses a net market value methodology to
measure the interest rate risk exposure of savings associations. Under this OTS
regulation, an institution's "normal" level of interest rate risk in the event
of an assumed change in interest rates is a decrease in the institution's NPV in
an amount not exceeding 2% of the present value of its assets. Savings
associations with over $300 million in assets or less than a 12% risk-based
capital ratio are required to file OTS Schedule CMR. Data from Schedule CMR is
used by the OTS to calculate changes in NPV (and the related "normal" level of
interest rate risk) based upon certain interest rate changes (discussed below).
Associations which do not meet either of the filing requirements are not
required to file OTS Schedule CMR, but may do so voluntarily. As Union Federal
does not meet either of these requirements, it is not required file Schedule
CMR, although it does so voluntarily. Under the regulation, associations which
must file are required to take a deduction (the interest rate risk capital
component) from their total capital available to calculate their risk based
capital requirement if their interest rate exposure is greater than "normal."
The amount of that deduction is one-half of the difference between (a) the
institution's actual calculated exposure to a 200 basis point interest rate
increase or decrease (whichever results in the greater pro forma decrease in
NPV) and (b) its "normal" level of exposure which is 2% of the present value of
its assets.
Presented below, as of June 30, 1998, is an analysis performed by the OTS of
Union Federal's interest rate risk as measured by changes in NPV for
instantaneous and sustained parallel shifts in the yield curve, in 100 basis
points increments, up and down 400 basis points. At June 30, 1998, 2% of the
present value of Union Federal's assets was approximately $2.2 million. Because
the interest rate risk of a 200 basis point increase in market rates (which was
greater than the interest rate risk of a 200 basis point decrease) was $4.7
million at June 30, 1998. Union Federal would have been required to deduct $1.25
million from its total capital available to calculate its risk based capital
requirement if it had been subject to the OTS" reporting requirements under this
methodology. This amount represents an increase of $400,000 over the $850,000
calculated at December 31, 1997. Union Federal's exposure to interest rate risk
results from a concentration of fixed rate mortgage loans in its portfolio.
<PAGE>
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of PV of Assets
Change
in Rates $ Amount $ Change % Change NPV Ratio Change
- -------- -------- -------- -------- --------- ------
<S> <C> <C> <C> <C> <C>
+400 bp 24,714 -9,951 -29% 24.66% -654 bp
+300 bp 27,307 -7,358 -21% 26.50% -470 bp
+200 bp 29.940 -4,724 -14% 28.26% -294 bp
+100 bp 32,460 -2,204 -6% 29.87% -133 bp
0 bp 34,664 31.20%
-100 bp 36,322 1,658 5% 32.15% +95 bp
-200 bp 37,524 2,860 8% 32.80% +161 bp
-300 bp 38,888 4,224 12% 33.54% +234 bp
-400 bp 40,522 5,857 17% 34.42% +322 bp
</TABLE>
This chart illustrates, for example, that a 200 basis point (or 2%) increase in
interest rates would result in a $4.7 million, or 14%, decrease in the net
portfolio value of Union Federal's assets compared to a $3.9 million, or 12%
decrease, at December 31, 1997. This hypothetical increase in interest rates
would also result in a 294 basis point, or 2.94%, decrease in the ratio of the
net portfolio value to the present value of Union Federal's assets compared to a
246 basis point, or 2.46%, decrease at December 31, 1997.
As with any method of measuring interest rate risk, certain shortcomings are
inherent in the methods of analysis presented above. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates on a short-term basis and over the life of the asset. Further, in
the event of a change in interest rates, expected rates of prepayments on loans
and early withdrawals from certificates could likely deviate significantly from
those assumed in calculating the table.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to Vote of Security Holders.
On June 30, 1998, the Company held its annual meeting of the
shareholders. A total of 2,854,107 shares were represented in
person or by proxy at the meeting. Philip L. Boots was elected to
the Board of Directors for a three-year term expiring in 2001.
2,817,138 shares were voted in favor of the election of the
nominee and there were 36,969 votes withheld. Marvin L Burkett was
elected to the Board of Directors for a one-year term expiring in
1999. 2,811,938 shares were voted in favor of the election of the
nominee and there were 42,169 votes withheld. Phillip E. Grush was
elected to the Board of Directors for a one-year term expiring in
1999. 2,817,138 shares were voted in favor of the election of the
nominee and there were 36,969 votes withheld. Samuel H. Hildebrand
was elected to the Board of Directors for a two-year term expiring
in 2000. 2,817,138 shares were voted in favor of the election of
the nominee and there were 36,969 votes withheld. John M. Horner
was elected to the Board of Directors for a three-year term
expiring in 2001. 2,817,138 shares were voted in favor of the
election of the nominee and there were 36,969 votes withheld.
Harry A. Siamas was elected to the Board of Directors for a
two-year term expiring in 2000. 2,817,138 shares were voted in
favor of the election of the nominee and there were 36,969 votes
withheld. Joseph E Timmons was elected to the Board of Directors
for a one-year term expiring in 1999. 2,816,885 shares were voted
in favor of the election of the nominee and there were 37,222
votes withheld. The shareholders approved and ratified the Union
Community Bancorp Stock Option Plan (Plan). 1,624,432 shares were
voted in favor of the Plan, 284,246 were voted against the Plan
and there were 45,551 abstentions. The shareholders approved and
ratified the Union Federal Savings and Loan Association
Recognition and Retention Plan & Trust (Trust). 1,599,097 shares
were voted in favor of the Trust, 326,620 were voted against the
Trust and there were 51,328 abstentions.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 to the
Registation Statement on Form S-1 (Registration No.
333-35799)
3.2 The Code of Bylaws of the Registrant are incorporated
by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 (Registration No. 333-35799)
10.1 The Union Community Bancorp Stock Option Plan is
incorporated by reference to Exhibit A of the
Registrant's Proxy Statement filed with the
Commission May 15, 1998
10.2 Union Federal Savings and Loan Association
Recognition and Retention Plan and Trust is
incorporated by reference to Exhibit B of the
Registrant's Proxy Statement filed with the
Commission May 15, 1998
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNION COMMUNITY BANCORP
Date: August 13, 1998 By: /s/ Joseph E. Timmons
--------------- -------------------------
Joseph E. Timmons
President and
Chief Executive Officer
Date: August 13, 1998 By: /s/ Denise E. Swearingen
--------------- ----------------------------
Denise E. Swearingen
Treasurer
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
3.1 The Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 to the
Registation Statement on Form S-1 (Registration No.
333-35799)
3.2 The Code of Bylaws of the Registrant are incorporated
by reference to Exhibit 3.2 to the Registration
Statement on Form S-1 (Registration No. 333-35799)
10.1 The Union Community Bancorp Stock Option Plan is
incorporated by reference to Exhibit A of the
Registrant's Proxy Statement filed with the Commission
May 15, 1998
10.2 Union Federal Savings and Loan Association Recognition
and Retention Plan and Trust is incorporated by
reference to Exhibit B of the Registrant's Proxy
Statement filed with the Commission May 15, 1998
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
the registrant's unaudited consolidated financial statements for the six months
ended June 30, 1998 and is qualified in its entirety by reference to such
statements.
</LEGEND>
<CIK> 0001046183
<NAME> Union Community Bancorp
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.000
<CASH> 7,465
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 9,862
<INVESTMENTS-MARKET> 10,054
<LOANS> 88,180
<ALLOWANCE> 350
<TOTAL-ASSETS> 108,087
<DEPOSITS> 61,878
<SHORT-TERM> 0
<LIABILITIES-OTHER> 880
<LONG-TERM> 1,793
<COMMON> 29,664
0
0
<OTHER-SE> 13,874
<TOTAL-LIABILITIES-AND-EQUITY> 108,087
<INTEREST-LOAN> 3,348
<INTEREST-INVEST> 179
<INTEREST-OTHER> 499
<INTEREST-TOTAL> 4,026
<INTEREST-DEPOSIT> 1,628
<INTEREST-EXPENSE> 1,656
<INTEREST-INCOME-NET> 2,371
<LOAN-LOSSES> 98
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 672
<INCOME-PRETAX> 1,573
<INCOME-PRE-EXTRAORDINARY> 1,008
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
<YIELD-ACTUAL> 4.48
<LOANS-NON> 353
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 350
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 350
<ALLOWANCE-DOMESTIC> 350
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
