SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
Commission file number 0-11114
Union Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Kansas 48-0936090
(State of incorporation) (I.R.S. Employer
Identification No.)
200 Union Center Building
150 North Main
Wichita, Kansas 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(316) 261-4700
Securities registered pursuant to Section 12(b) of the Act:
Common stock, Class A, $10 par value
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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 Act of 1934 during the preceding 12 months and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The aggregate market value of the voting stock held by non-
affiliates of the registrant cannot be determined since there is no
public trading market for the stock.
The number of shares of Class A common stock outstanding as of
June 30, 1994, was 350,690.
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Union Bancshares, Inc. and Subsidiaries
Table of Contents
PART I
ITEM PAGE
1 Financial Statements Appendix A
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations Appendix A
PART II
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 4
Signatures 5
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Union Bancshares, Inc. and Subsidiaries
PART I
Item 1. Financial Statements
Set forth below are the consolidated financial statements of
UBI and its subsidiaries appearing on pages A-3 to A-17 of the
attached Appendix.
a. Condensed Consolidated Statement of Condition
b. Condensed Consolidated Statement of Income
c. Condensed Consolidated Statement of Cash Flows
d. Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by Item 303 of Regulation S-K is
contained on pages A-18 to A-32 of the attached Appendix under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
PART II
Item 1. Legal Proceedings
There were no legal proceedings pending during the fiscal
quarter ended June 30, 1994, to which UBI or its subsidiaries was
a party, other than ordinary routine litigation incidental to their
business.
Item 2. Changes in Securities
There were no changes in securities during the fiscal quarter
ended June 30, 1994.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the
fiscal quarter ended June 30, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
No information is required in response to this Item as no
matters were submitted to a vote of UBI's security holders during
the second quarter of 1994.
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Union Bancshares, Inc. and Subsidiaries
Item 5. Other Information
There is no other information required to be disclosed under
this caption for the fiscal quarter ended June 30, 1994.
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits
None
(2) Reports on Form 8-K
During the period covered by this report, UBI
filed one Form 8-K/A No. 1 dated April 4,
1994, that was filed under Item 2.,
"Acquisition or Disposition of Assets" and
Item 7., "Financial Statements and Exhibits"
which provided the financial statements of
First Community and the pro forma financial
information of UBI not previously provided on
the first 8-K dated April 4, 1994.
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Union Bancshares, Inc. and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Union Bancshares, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNION BANCSHARES, INC.
/S/ WILLIAM G. WATSON /S/ STEVEN C. WORRELL
By: William G. Watson By: Steven C. Worrell
President & Chief Executive Vice President,
Executive Officer Treasurer & Chief
Financial Officer
(Principal Executive Officer) (Principal Accounting Officer)
August 10, 1994 August 10, 1994
Date Date
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THIS PAGE LEFT BLANK INTENTIONALLY
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Union Bancshares, Inc. and Subsidiaries
Financial Information
APPENDIX A
FINANCIAL INFORMATION
- A 1 -
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Union Bancshares, Inc. and Subsidiaries
Index to 1994 Financial Information
Page
Financial Statements
Condensed Consolidated Statement of Condition-
June 30, 1994 and December 31, 1993 A-3
Condensed Consolidated Statement of Income-
Six months ended June 30, 1994 and 1993 A-4
Condensed Consolidated Statement of Cash Flows-
Six months ended June 30, 1994 and 1993 A-5
Notes to Condensed Consolidated
Financial Statements A-6 to A-17
Management's Discussion and Analysis of Results of
Operations and Financial Condition A-18 to A-32
Condensed Consolidated Statement of Condition -
Average Balances and Interest Rates A-21 to A-22
- A 2 -
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Union Bancshares, Inc. an
Condensed Consolidated Statement of Condition
<TABLE>
(In thousands)
<CAPTION>
June 30, December 31,
1994 1993
(Unaudited) *
<S> <C> <C>
Assets
Cash and due from banks $ 28,302 $ 26,819
Federal funds sold and securities
purchased under resale agreements -- --
Total cash and cash equivalents 28,302 26,819
Investment securities held to maturity 143,284 190,901
Investment securities available for sale 73,541 --
Total investment securities (market value -
$215,151 and $194,872) 216,825 190,901
Trading account securities -- --
Loans 370,994 298,062
Less: Allowance for loan losses (5,106) (4,400)
Net loans 365,888 293,662
Premises and equipment 14,664 12,124
Other assets 27,577 9,351
Total assets $ 653,256 $ 532,857
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 78,932 $ 86,708
Interest bearing 434,575 347,108
Total deposits 513,507 433,816
Federal funds purchased and securities
sold under agreements to repurchase 19,839 24,493
Other short-term borrowings 4,000 4,034
FHLB advances 49,982 16,900
Long-term borrowings 14,300 8,000
Other liabilities 7,764 4,798
Total liabilities 609,392 492,041
Common stock,
Class A, par value $10 per share;
1,000,000 shares authorized,
350,690 shares outstanding 3,507 3,507
Capital surplus 3,527 3,527
Retained earnings 36,890 33,782
Unrealized gain on securities available for sale, net (60) --
Total stockholders' equity 43,864 40,816
Total liabilities and
stockholders' equity $ 653,256 $ 532,857
<FN>
* Condensed from audited financial statements
</TABLE>
The accompanying notes are an integral part of these financial statements.
- A 3 -
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Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Income
<TABLE>
(Unaudited)
(In thousands except per share data)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,417 $ 6,901 $ 15,076 $ 13,752
Interest and dividends on
investment securities 2,933 2,992 5,377 5,910
Interest on trading account securities 1 1 1 2
Interest on Federal funds sold
and securities purchased
under resale agreements 47 35 49 73
Total interest income 11,398 9,929 20,503 19,737
Interest expense:
Interest on deposits 3,597 3,297 6,352 6,821
Interest on Federal funds purchased
and securities sold
under agreements to repurchase 149 151 358 283
Interest on other short-term borrowings 25 17 47 38
Interest on FHLB advances 737 143 885 186
Interest on long-term borrowings 267 199 433 406
Total interest expense 4,775 3,807 8,075 7,734
Net interest income 6,623 6,122 12,428 12,003
Provision for loan losses 605 625 1,210 1,250
Net interest income after
provision for loan losses 6,018 5,497 11,218 10,753
Other income 3,030 1,997 5,452 3,900
Other expense 6,420 5,691 12,051 11,167
Income before income tax expense 2,628 1,803 4,619 3,486
Income tax expense 702 547 1,301 1,028
Net income $ 1,926 $ 1,256 $ 3,318 $ 2,458
Earnings per share data:
Net income $5.49 $3.58 $9.46 $7.01
Dividends $.30 $.30 $.60 $.60
</TABLE>
The accompanying notes are an integral part of these financial statements.
- A 4 -
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Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
<TABLE>
(Unaudited) (in thousands)
<CAPTION>
Six months ended
June 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,318 $ 2,458
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,236 864
Amortization of purchase premium 221 182
Provision for loan losses 1,210 1,250
(Gain) loss on sale of investment securities
available for sale (416) 1
Gain on sale of trading account securities (9) (14)
Net decrease in trading account securities 9 209
Gain on sale of loans (1,005) --
(Gain) loss on sale of premises and equipment (19) 4
Net increase in other assets
net of effects of purchase (7,231) (985)
Net (decrease) increase in other liabilities
net of effects of purchase (834) 2,412
Net cash (used) provided by operating activities (3,520) 6,381
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 38,395 --
Proceeds from maturities and paydowns
of investment securities available for sale 10,730 --
Purchases of investment securities available for sale
net of effects of purchase (8,946) --
Proceeds from maturities and paydowns
of investment securities held to maturity 23,106 63,089
Purchases of investment securities held to maturity
net of effects of purchase (25,771) (62,072)
Mark to market adjustment for securities
available for sale 73 --
Net increase in loans net of effects of purchase (2,985) (7,331)
Proceeds from sale of loans 8,036 --
Purchases of premises and equipment
net of effects of purchase (2,018) (770)
Proceeds from sales of premises and equipment 19 3
Purchase of institution, net of cash acquired (12,337) --
Net cash provided (used) by investing activities 28,302 (7,081)
Cash flows from financing activities:
Net decrease in demand deposits
and savings accounts net of effects of purchase (11,954) (4,666)
Net decrease in time deposits net of effects of purchase (7,735) (17,588)
Net increase (decrease) in Federal funds purchased
and securities sold under agreements to repurchase (4,654) 5,404
Net (decrease) increase in other short-term borrowings (34) 380
Net (decrease) increase in long-term borrowings 6,300 (1,050)
Net (decrease) increase in FHLB advances
net of effects of purchase (4,953) 14,800
Adjustment to stockholders' equity for mark to market (59) --
Cash dividends paid (210) (210)
Net cash used by financing activities (23,299) (2,930)
Net increase (decrease) in cash and cash equivalents 1,483 (3,630)
Cash and cash equivalents at January 1 26,819 50,556
Cash and cash equivalents at June 30 $ 28,302 $ 46,926
Supplemental Disclosures:
Cash payments for: Interest $6,683 $6,613
Income taxes $1,635 $1,325
</TABLE>
The accompanying notes are an integral part of these financial statements.
- A 5 -
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements in 1994 and 1993 include
Union Bancshares, Inc. (UBI) and its wholly-owned subsidiaries,
Union National Bank of Wichita (UNB), UBI Growth Capital, Inc.
(UBIGC) and UBI Financial Services, Inc. (UBIFS). All significant
intercompany accounts and transactions have been eliminated. In
addition, adjustments made to the unaudited interim financial
statements were of a normal recurring nature.
The 1993 condensed consolidated financial statements have been
reclassified to conform with 1994 presentation. Such
reclassifications have no effect on net income.
Statement of Cash Flows
For purposes of reporting cash flows, cash equivalents include
amounts due from banks, federal funds sold, and securities
purchased under resale agreements. Generally, federal funds are
sold for one-day periods.
Investment and Trading Account Securities
Effective January 1, 1994, UBI adopted Financial Accounting
Standard No. 115 (FAS 115) which relates to accounting for certain
investments in debt and equity securities. FAS 115 requires that
banks classify all securities as "held to maturity", "available for
sale" or "trading securities". Any new securities at time of
purchase must be placed in one of these three categories for
reporting purposes. Any security placed in the "available for
sale" or "trading securities" must be marked to its fair value at
that time. The fair value adjustment for "available for sale"
securities will flow through the equity section on the financial
reports. The fair value adjustment for the trading securities will
continue to flow through the income statement.
Management of UBI has done an extensive evaluation of all of its
securities to determine what securities will be placed in each of
these categories. Management has considered several factors to
determine these securities classifications including liquidity
needs, loan demand, tax issues, credit quality, regulatory issues
and asset/liability positioning.
For 1993, investment securities were stated at cost, adjusted
for amortization of premium and accretion of discount. Gains or
losses on security transactions were recognized upon realization
and were reported as a separate component of non-interest income.
The specific identification method was used in determining the cost
of investment securities sold.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
Investment and Trading Account Securities (Continued)
Trading account securities are classified as such primarily
based on the intent of management at the time the securities are
purchased. The securities are held for resale to customers.
Trading account securities are stated at market. Gains or losses
on the sale of trading account securities are considered a normal
part of operations and are included in other income.
Loans
Loans are stated at principal amount outstanding. Interest
income on loans is accrued as earned. Loans are placed on
nonaccrual status when principal or interest is due and has
remained unpaid for 90 days or more unless the loan is both well
secured and in the process of collection. Loans are also placed on
nonaccrual status when there is reasonable doubt as to the ability
of the borrower to pay interest or principal. At the time a loan
is classified as nonaccrual, interest previously recorded as income
but not collected is reversed. Interest payments received on such
loans are generally recorded as a reduction in carrying value
unless such carrying value is deemed to be collectible.
Allowance for Loan Losses
UBI's policy is to maintain a valuation allowance adequate to
provide for potential losses on loans currently outstanding. The
allowance for loan losses is determined by management on the basis
of a detailed review of the risk factors affecting the loan
portfolio, including changes in the portfolio size and mix, past
loan loss experience, the financial condition of the borrowers, and
the prevailing economic environment. The result of this review
enables management to establish the allowance at a level considered
adequate to absorb loan losses.
Loan losses are charged to the allowance and recoveries are
credited to the allowance. A provision for loan losses is made to
maintain the allowance at a level that, in management's judgment,
is adequate to absorb potential losses inherent in the loan
portfolio.
- A 7 -
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
Loan Fees
Loan commitment and origination fees, net of the related direct
loan origination costs, are amortized over the life of the related
loans as an adjustment of yield. The unamortized balance of these
deferred fees are reported as a reduction of total loans. Annual
fees on bankcard loans are amortized on a straight-line basis over
a twelve month period and the unamortized balance of these fees is
included in other liabilities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by straight-line and
accelerated methods over the estimated useful lives of the assets.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is reflected in income for the period.
The cost of maintenance and repairs is charged to operating
expenses as incurred. Significant renewals and betterments are
capitalized.
Income Taxes
In January 1993, UBI adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109
is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in UBI's financial
statements or tax returns. In estimating future tax consequences,
FAS 109 generally considers all expected future events other than
enactments of changes in the tax law or rates. Previously, UBI
used the FAS 96 asset and liability approach that gave no
recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
2. Cash and Due From Banks
Federal Reserve Bank regulations require the subsidiary bank to
maintain certain reserve balances relating to deposits. The
reserves may be maintained in the form of vault cash or balances
maintained with a Federal Reserve Bank. For the two-week reserve
period inclusive of June 30, 1994, daily average reserves of
$9,757,000 were maintained. For the two-week reserve period
inclusive of December 31, 1993, daily average reserves of
$10,553,000 were maintained.
- A 8 -
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities
Investment Securities Held To Maturity
The book value and estimated market values of investments in
securities being held to maturity are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 18,427 $ 62 $ (418) $ 18,071
U.S. government corporations
and agencies 77,602 38 (1,919) 75,721
Obligations of states
and political subdivisions 42,944 1,143 (568) 43,519
Corporate securities 4,061 -- (12) 4,049
Mortgage-backed securities -- -- -- --
Other investments 250 -- -- 250
Total $ 143,284 $ 1,243 $ (2,917) $ 141,610
<CAPTION>
December 31, 1993
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 24,500 $ 236 $ (7) $ 24,729
U.S. government corporations
and agencies 85,899 662 (261) 86,300
Obligations of states
and political subdivisions 42,555 2,272 (16) 44,811
Corporate securities 4,107 51 -- 4,158
Mortgage-backed securities 28,126 1,098 (64) 29,160
Other investments 5,714 -- -- 5,714
Total $ 190,901 $ 4,319 $ (348) $ 194,872
</TABLE>
The book value and estimated market value of securities being
held to maturity, by contractual maturity, are shown below in
thousands. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities have been included in the schedule of
maturities based upon their expected estimated average life.
<TABLE>
<CAPTION>
June 30, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 30,828 $ 30,585
Due after one year through five years 89,388 87,922
Due after five years through ten years 21,344 21,255
Due after ten years 1,724 1,848
Total $ 143,284 $ 141,610
</TABLE>
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Union Bancshares, Inc and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities (Continued)
Investment Securities Available For Sale
The book value and estimated market values of investments in
securities available for sale are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,060 $ -- $ (3) $ 2,057
U.S. government corporations
and agencies 11,972 2 (41) 11,933
Obligations of states
and political subdivisions 3,313 32 (79) 3,266
Corporate securities -- -- -- --
Mortgage-backed securities 46,945 404 (387) 46,962
Other investments 9,323 -- -- 9,323
Total $ 73,613 $ 438 $ (510) $ 73,541
</TABLE>
The book value and estimated market value of securities
available for sale, by contractual maturity, are shown below in
thousands. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities have been included in the schedule of
maturities based upon their expected estimated average life.
<TABLE>
<CAPTION>
June 30, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 23,605 $ 23,651
Due after one year through five years 28,132 28,026
Due after five years through ten years 7,157 7,112
Due after ten years 14,719 14,752
Total $ 73,613 $ 73,541
</TABLE>
Gross realized gains and losses from the sale of investment
securities available for sale for the six months ended June 30,
1994 are as follows:
<TABLE>
<CAPTION>
June 30,
1994
<S> <C>
Realized gains $ 421
Realized losses (5)
</TABLE>
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities (Continued)
Investment securities being held to maturity with a book value
of $37,869,270 and $41,322,000 were pledged to secure deposits of
public funds at June 30, 1994, and December 31, 1993 respectively.
Investment securities available for sale with a book value of
$7,000,000 were pledged to secure deposits of public funds at June
30, 1994. Total pledgings required at June 30, 1994, and December
31, 1993, were $10,710,000 and $17,038,000, respectively.
4. Allowance for Loan Losses
Changes in the allowance for loan losses were as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Balance at January 1 $ 4,400 $ 3,400
Provision charged to income 1,210 1,250
Recoveries of amounts charged off 254 249
Losses charged to the allowance (1,104) (943)
Allowance acquired through merger 346 --
Balance at June 30 $ 5,106 $ 3,956
</TABLE>
5. Premises and Equipment
Premises and equipment are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated Book
At June 30, 1994 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,287 $ -- $ 2,287
Building and improvements 17,722 8,628 9,094
Furniture and equipment 7,068 3,785 3,283
$ 27,077 $ 12,413 $ 14,664
<CAPTION>
Accumulated Book
At December 31, 1993 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,150 $ -- $ 2,150
Building and improvements 15,820 8,288 7,532
Furniture and equipment 5,804 3,362 2,442
$ 23,774 $ 11,650 $ 12,124
</TABLE>
6. Deposits
Interest bearing deposits at June 30, 1994 and December 31,
1993, were as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Demand deposits $ 81,398 $ 75,111
Savings deposits 125,655 107,393
Time deposits under $100,000 209,473 152,396
Time deposits $100,000 and over 18,049 12,208
$ 434,575 $ 347,108
</TABLE>
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. Short-term Borrowings
Short-term borrowings of Union Bancshares, Inc. consist of the
following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Demand note collateralized by stock of UNB at
lender's prime rate of 7.25% at June 30, 1994
and 5.50% at December 31, 1993 $ -- $ --
Treasury tax and loan demand note collateralized
by pledged U.S. Treasury securities 4,000 4,034
$ 4,000 $ 4,034
</TABLE>
8. FHLB Advances
Federal Home Loan Bank (FHLB) advances outstanding at June 30,
1994 for UBI are detailed below. The advances provide one of many
funding alternatives that are used by UBI in its asset/liability
management process for acquiring funds to meet customer loan needs
and as a source of funds for other asset/liability strategies.
Currently all FHLB advances are at a fixed rate to maturity.
Maturities and weighted average rates of the FHLB advances are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Rate Amount
<S> <C> <C>
1994 4.97 18,700
1995 7.46 9,700
1996 8.05 10,825
1997 6.69 7,175
1998 6.55 3,000
6.48% $ 49,400
</TABLE>
9. Long-term Borrowings
At June 30, 1994 and December 31, 1993 UBI had a note payable
to Harris Bank for $14,300,000 and $8,000,000, respectively, at a
fixed rate of 8.03% until March 31, 1995. After this date the rate
will float at LIBOR plus 1.75%. The note is collateralized by
stock of UNB. Principal payments of $528,571 per quarter began on
June 30, 1994 with the final payment on March 31, 2001. Interest
is payable quarterly.
On April 4, 1994, UBI borrowed $7,300,000 primarily to use in the
acquisition and merger of First Community Federal Savings and Loan
Association. This is detailed further in footnote 15.
- A 12 -
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Long-term Borrowings (Continued)
The note payable agreement with Harris Bank contains a
restriction on the amount of dividends that UBI can declare or pay
during any one calendar year without the prior written consent of
Harris Bank. Dividends declared or paid may not exceed 25% of
consolidated net income for the calendar year. Other restrictions
include minimum capital levels and maximum nonperforming asset
ratios. Maturities of this note payable are as follows (in
thousands):
<TABLE>
<CAPTION>
Remaining
Maturities for:
<S> <C>
1994 $ 1,087
1995 2,114
1996 2,114
1997 2,114
1998 2,114
1999 2,114
2000 2,114
2001 529
$ 14,300
</TABLE>
10. Financial Instruments with Off-Balance-Sheet Risk
UBI is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments
to extend credit and standby letters of credit.
UBI's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. UBI uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit
risk at June 30, 1994 and December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
At
June 30, December 31,
1994 1993
<S> <C> <C>
Commitments to extend credit:
Credit card lines $150,178 $208,695
Standby letters of credit 2,328 2,191
Other loan commitments 55,915 50,384
</TABLE>
- A 13 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
10. Financial Instruments with Off-Balance-Sheet Risk (Continued)
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. UBI evaluates
each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by UBI upon
extension of credit, is based on management's credit evaluation of
the customer. Collateral held varies but may include accounts
receivable, inventory, property, plant, equipment, and income-
producing commercial properties.
Standby letters of credit are a conditional commitment issued
by UBI to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers. Credit card lines represent the unused portion of
many different customers that have credit card loans.
UBI grants agribusiness, commercial, individual, bankcard, and
residential loans to customers throughout the State of Kansas and
bankcard loans in the States of Mississippi and Louisiana. UBI has
a diversified loan portfolio, without what it considers undue
concentration in any one economic sector.
11. Dividend Availability
Approval of the Comptroller of the Currency is required if
total dividends declared by a national bank in any calendar year
exceed the bank's net profits for that year combined with its
retained profits for the preceding two years. At June 30, 1994,
dividends of approximately $7,667,000 were available from the bank
subsidiary without the approval of the Comptroller of the Currency.
12. Retirement Plan
UBI's bank subsidiary has an employee thrift plan covering
substantially all of its employees after one year of service.
Contributions are made based on a percentage of each participant's
contribution. The total expense for the six months ended June 30,
1994 and 1993, was $120,000 and $95,000 respectively.
- A 14 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
13. Supplementary Income Statement Information
Items included on the Consolidated Statement of Income under
the captions of other income and other expense which exceed one
percent of gross income are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Other income:
Bankcard fees $ 668 $ 752 $ 1,332 $ 1,454
Service charges 673 632 1,296 1,193
Trust fees 340 336 752 698
Gain on sale of investment securities
available for sale (5) -- 416 (1)
Gain on sale of bankcard portfolio 1,005 -- 1,005 --
Other 349 277 651 556
$ 3,030 $ 1,997 $ 5,452 $ 3,900
Other expense:
Salaries and benefits $ 2,945 $ 2,563 $ 5,519 $ 5,000
Bankcard fees 508 546 1,015 1,043
Data processing 296 298 591 588
Equipment 496 435 925 824
Occupancy, net of revenues of
$108, $109, $215 and $219 400 355 756 711
Postage 144 148 292 312
Marketing 141 142 308 293
Supplies 201 219 421 412
Amortization of purchase premiums 151 91 221 182
FDIC insurance 302 265 544 529
Other 836 629 1,459 1,273
$ 6,420 $ 5,691 $ 12,051 $ 11,167
</TABLE>
14. Parent Company Only Financial Statements
Union Bancshares, Inc.
Statement of Condition (Parent Only)
(In thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Assets
Cash $ 1,365 $ 1,328
Investment in subsidiaries 57,025 47,910
Other assets 181 6
Total assets $ 58,571 $ 49,244
Liabilities and Stockholders' Equity
Short-term borrowings $ 20 $ 20
Long-term borrowings 14,300 8,000
Other liabilities 327 408
Total liabilities 14,647 8,428
Common stock,
Class A, par value $10 per share;
1,000,000 shares authorized,
350,690 shares outstanding 3,507 3,507
Capital surplus 3,527 3,527
Retained earnings 36,890 33,782
Total stockholders' equity 43,924 40,816
Total liabilities and
stockholders' equity $ 58,571 $ 49,244
</TABLE>
- A 15 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
14. Parent Company Only Financial Statements (Continued)
Union Bancshares, Inc.
Statement of Income (Parent Only)
(In thousands)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income:
Dividends from subsidiaries $ 870 $ 700 $ 1,620 $ 1,400
Interest income 9 10 16 24
Total income 879 710 1,636 1,424
Expenses:
Interest expense 267 199 433 406
Other expense 142 138 285 277
Total expenses 409 337 718 683
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 470 373 918 741
Income tax benefit 182 112 285 225
Income before equity in undistributed
net income of subsidiaries 652 485 1,203 966
Equity in undistributed net
income of subsidiaries 1,274 771 2,115 1,492
Net income $ 1,926 $ 1,256 $ 3,318 $ 2,458
</TABLE>
Union Bancshares, Inc.
Statement of Cash Flows (Parent Only)
(In thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,318 $ 2,458
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries (2,115) (1,492)
(Increase), decrease in other assets (48) 7
Decrease in short-tern borrowings -- (50)
(Decrease) increase in other liabilities (81) 254
Net cash provided by operating activities 1,074 1,177
Cash flows from investing activities:
Net (increase), decrease in loans (127) 304
Net cash provided by investing activities (127) 304
Cash flows from financial activities:
Increase, (decrease) in long-term borrowings 6,300 (1,000)
Purchase UNB stock (7,000) --
Cash dividends paid (210) (210)
Net cash used by financing activities (910) (1,210)
Net increase in cash 37 271
Cash at January 1 1,328 1,314
Cash at June 30 $ 1,365 $ 1,585
</TABLE>
- A 16 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
15. Acquisitions
On April 4, 1994, First Community Federal Savings and Loan
Association (First Community) of Winfield, Kansas, was merged into
Union National Bank of Wichita (UNB) in accordance with the merger
agreement between Union Bancshares, Inc. (UBI), UNB and First
Community dated October 13, 1993. Under the merger agreement, each
outstanding share of First Community common stock was converted
into $35.00 in cash.
The total cost of the transaction was $12,795,000. The
purchase price was determined by assessing the worth in dollars of
the ongoing income stream generation from First Community, taking
into consideration market value of assets and liabilities. The
transaction, which will be accounted for as a purchase, was
financed with a $7,000,000 loan from Harris Bank and Trust in
Chicago and the remaining $5,795,000 from internal funds.
First Community was a savings and loan institution with total
assets as of April 4, 1994 of $148,000,000, and offered full
service banking from three branches. These facilities are located
one each in Winfield, Arkansas City and Derby, Kansas. All three
of these offices were part of the merger and will be ran as
branches of UNB.
The following table presents supplementary information
regarding the cash paid for First Community (in thousands):
<TABLE>
<CAPTION>
1994
<S> <C>
Fair value of assets acquired $ 149,058
Fair value of liabilities assumed (141,111)
Cost in excess of net assets acquired 4,848
Cash paid 12,795
Cash acquired 458
Net cash paid $ 12,337
</TABLE>
For the transaction, accounted for as a purchase, the
consolidated statement of income includes only the income and
expenses of First Community since acquisition. The purchase price
has been allocated to the net assets acquired based on their fair
values with the excess allocated to cost in excess of net assets
acquired. The effect on results of operation for 1994, had the
purchase transaction occurred at the beginning of the year, is not
material.
- A 17 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the six months ended June 30, 1994, net income was
$3,318,000, an increase of $860,000 or 35.0% from the $2,458,000
earned during the same period in 1993. Annualized, this produced
a return on average assets of 1.13%, compared to .92% for the
preceding year. The increase in earnings for the first half of
1994 was due mainly to a gain from the sale of a bankcard
portfolio, gains from the sale of securities held for sale, and
from an increase in the net interest income in the second quarter
as the result of the merger acquisition of First Community Federal
Savings and Loan Association (First Community).
On October 13, 1993, UBI and its wholly owned subsidiary, UNB,
signed an Acquisition Merger Agreement with First Community. The
agreement was approved by stockholders and by regulators. The
actual merger of the two institutions took place on April 4, 1994.
The three locations of First Community became three new branches of
UNB on April 4, 1994. The completion of back room consolidations
are expected to be completed late third quarter to early fourth
quarter of 1994. UBI borrowed $7,000,000 from Harris Trust and
Savings Bank in Chicago to finance this transaction.
The bankcard sale resulted in a gain of approximately
$1,005,000. The sale occurred when an affinity card group put up
for bid the servicing that was being provided by UNB. Another
institution won the bid for servicing the card base and was
required to purchase the outstanding portfolio balance from UNB.
The total outstandings of the portfolio at the time of sale was
approximately $8,036,000. The total receivable from the acquiring
institution was included in other assets at June 30, 1994. UNB is
in negotiations with an institution for the sale of another
affinity card group that UNB is currently servicing. The sale is
anticipated to close sometime in the 4th quarter of 1994 or the
first quarter of 1995. The outstandings for this portfolio at June
30, 1994 was $7,000,000.
The security sales were made from the available for sale
portfolio in anticipation of the merger of First Community with and
into UNB. This was done to position the combined portfolio for
asset liability needs of the combined institutions. The gains
totaled approximately $416,000. UNB evaluates on an ongoing basis
its held for sale portfolio for sale opportunities to take
advantage of opportunities for repositioning its balance sheet to
enhance long term profitability.
- A 18 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The net interest income was up in the second quarter of 1994
after being down in the first quarter as compared to 1993. This
was due to increased volumes from the acquisition of First
Community. Interest spreads and margins continued to decline in
the second quarter as they had in the first quarter of 1994.
Interest rates on loans were repricing downward at a faster rate
than were deposit rates during the latter half of 1993 and into the
first half of 1994. Also, the spreads between rates paid on
deposits and borrowed funds and rates charged for loans has
continued to narrow due to market pressures. Management looks for
this pressure on margins to continue for the remainder of 1994.
While interest rates have increased in the first half of 1994, it
has not had any significant impact on increasing net interest
margins. The net interest income for the remainder of 1994 is
anticipated to be up due to the addition of First Community. First
Community added approximately $140,000,000 in assets to the balance
sheet.
Trust fees and service charge income were up in the first half
of 1994 compared to the same period last year due to increased
business. Trust fees were up some 7.7% while service charge income
was up 8.6%. UNB continues to look for increased fee income
business through new products, new markets and new sales.
Expenses in the first half of 1994 were up 7.9% over the same
period in 1993. This was higher than the 2.8% for the first
quarter of 1994 due to the added costs of merging in First
Community. Management continues to look for ways to reduce its
expenses through new technological advances, redesign of work flows
or lower cost providers of services. Salaries and benefits were
the largest dollar increase over 1993 at $519,000. This is from
the First Community merger and normal salary and benefit increases.
The balance sheet was up $50,277,000 on average in the first
half of 1994 compared to 1993 due to the merger acquisition of
First Community. UNB was experiencing a reduction in its deposit
totals, which management attributes to customers reducing debt
loads as well as investing in higher rate and higher risk products
in stocks and mutual funds. With the increase in rates during the
later part of the first quarter and on into the second quarter of
1994, management believes that deposits may stop their decline and
begin increasing. This has been an industry trend.
Management believes earnings will be up over 1993 levels from
increased business at UNB and also from the addition of First
Community. First Community will add new assets to UNB's existing
balance sheet. The addition of First Community will add mortgage
lending expertise to UNB's existing markets, while UNB will bring
commercial and consumer banking and trust expertise and products to
the First Community markets. The merger will also bring reduced
costs to the combined entities from back room consolidations.
- A 19 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Management continues to evaluate potential acquisition
candidates. It is the belief of management that growth through
acquisitions will help to provide increased future shareholder
value and assist in meeting competition through cost efficiencies.
UBI received approval from the Federal Reserve Bank on
September 16, 1993 to form a Community Development Corporation, UBI
Financial Services, Inc. (UBIFS). UBI in joint partnership with
Mennonite Housing Rehabilitation Services, Inc., (Mennonite
Housing), is assisting with the construction of a low to moderate
income elder housing project in south central Wichita near the
Broadway branch of UNB. UBI is also working with Mennonite Housing
to complete a low to moderate income elder housing project on 21st
Street of Wichita. UBI is also working with the City of Wichita,
Sedgwick County, State of Kansas and community individuals of the
area to help build a new commercial business center at the same
area on 21st Street. It is also working with the Federal National
Mortgage Association to provide lease purchase low income home
ownership for individuals in the area. In conjunction with 21st
street community leaders and residents, UBI is assisting to help
revitalize this low to moderate income area. UBI through its
subsidiary, UBIFS, will be looking for other projects with
Mennonite Housing or others to help fund low to moderate income
projects in all the communities it serves.
The significant elements of income and expense affecting net
income are detailed separately in the ensuing analyses.
- A 20 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Condition - Average Balances
and Interest Rates
(Taxable equivalent basis in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended June 30,
1994 1993
Average Average Average Average
Balance Rates Balance Rates
Assets
<S> <C> <C> <C> <C>
Loans (1)(2) $ 373,272 9.05% $ 285,800 9.69%
Investment securities:
Taxable 171,178 5.44 167,033 5.82
Nontaxable (2) 44,995 8.27 38,058 9.05
Trading account securities (2) 42 6.36 92 5.60
Federal funds sold and securities
purchased under resale agreements 4,541 4.13 4,573 3.01
Total earning assets 594,028 7.91 495,556 8.28
Cash and due from banks 32,082 30,914
Premises and equipment 14,926 12,062
Other assets 16,435 11,690
Allowance for loan losses (5,048) (3,832)
Total assets $ 652,423 $ 546,390
Liabilities & Stockholders' Equity
Interest bearing demand deposits $ 86,078 1.93 $ 75,212 2.17
Interest bearing savings deposits 127,928 2.00 112,537 2.37
Interest bearing time deposits
under $100,000 211,947 4.56 172,694 4.95
Interest bearing time deposits
over $100,000 13,345 4.00 9,364 3.95
Federal funds purchased and securities
sold under agreements to repurchase 17,425 3.44 23,879 2.53
Other short-term borrowings 2,635 3.78 2,472 2.78
FHLB advances 50,780 5.82 17,170 3.35
Long-term borrowings 14,578 7.36 9,295 8.58
Total costing liabilities 524,716 3.65 422,623 3.61
Non-interest bearing demand 79,194 80,036
Other liabilities 6,442 5,819
Total liabilities 610,352 508,478
Stockholders' equity 42,071 37,912
Total liabilities and
stockholders' equity $ 652,423 $ 546,390
Interest spread 4.26% 4.67%
Net interest margin (3) 4.69% 5.20%
<FN>
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $285 in 1994 and $242 in 1993.
(2) Income and rates are calculated using a marginal Federal tax rate of 34%.
(3) Net interest margin equals net interest income divided by average earning
assets.
</TABLE>
- A 21 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Condition - Average Balances
and Interest Rates
(Taxable equivalent basis in thousands of dollars)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1994 1993
Average Average Average Average
Balance Rates Balance Rates
Assets
<S> <C> <C> <C> <C>
Loans (1)(2) $ 334,809 9.09% $ 283,625 9.78%
Investment securities:
Taxable 155,775 5.41 163,800 5.90
Nontaxable (2) 43,216 8.45 37,087 9.20
Trading account securities (2) 22 6.53 101 6.60
Federal funds sold and securities
purchased under resale agreements 2,426 4.08 4,817 3.04
Total earning assets 536,248 7.95 489,430 8.37
Cash and due from banks 31,590 30,507
Premises and equipment 13,652 12,009
Other assets 13,062 11,249
Allowance for loan losses (4,809) (3,729)
Total assets $ 589,743 $ 539,466
Liabilities & Stockholders' Equity
Interest bearing demand deposits $ 80,740 1.95 $ 74,546 2.20
Interest bearing savings deposits 117,478 2.06 114,064 2.48
Interest bearing time deposits
under $100,000 183,039 4.59 175,870 5.06
Interest bearing time deposits
over $100,000 10,711 3.84 9,942 4.03
Federal funds purchased and securities
sold under agreements to repurchase 23,081 3.13 22,108 2.58
Other short-term borrowings 2,929 3.25 2,708 2.81
FHLB advances 34,083 5.24 10,522 3.57
Long-term borrowings 11,302 7.73 9,643 8.49
Total costing liabilities 463,363 3.51 419,403 3.72
Non-interest bearing demand 78,842 77,608
Other liabilities 5,686 5,171
Total liabilities 547,891 502,182
Stockholders' equity 41,852 37,284
Total liabilities and
stockholders' equity $ 589,743 $ 539,466
Interest spread 4.44% 4.65%
Net interest margin (3) 4.91% 5.19%
<FN>
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $446 in 1994 and $417 in 1993.
(2) Income and rates are calculated using a marginal Federal tax rate of 34%.
(3) Net interest margin equals net interest income divided by average earning
assets.
</TABLE>
- A 22 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Net Interest Income
Net interest income, the most significant element of UBI's
earnings, represents the difference between the interest earned on
loans and other investments, and the interest incurred for deposits
and other sources of funds. For purposes of the analysis below,
net interest income is adjusted to convert tax-exempt income to a
fully tax-equivalent basis. This adjustment does not affect net
income since a statement of income prepared on a tax-equivalent
basis includes an offsetting amount in income tax expense.
The following table reflects net interest income on a tax-
equivalent basis (1) for the three and six months ended June 30,
1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
1994 1993 Change
<S> <C> <C> <C>
Interest income $ 11,398 $ 9,929 $ 1,469
Tax-equivalent adjustment 320 296 24
Interest income--tax-equivalent basis 11,718 10,225 1,493
Interest expense 4,775 3,807 968
Net interest income $ 6,943 $ 6,418 $ 525
Average earning assets $ 594,028 $ 495,556 $(98,472)
Net interest margin 4.69% 5.20% (.51)%
<CAPTION>
Six Months Ended June 30,
1994 1993 Change
<S> <C> <C> <C>
Interest income $ 20,503 $ 19,737 $ 766
Tax-equivalent adjustment 625 585 40
Interest income--tax-equivalent basis 21,128 20,322 806
Interest expense 8,075 7,734 341
Net interest income $ 13,053 $ 12,588 $ 465
Average earning assets $ 536,248 $ 489,430 $ 46,818
Net interest margin 4.91% 5.19% (.28)%
</TABLE>
The increase in the net interest income in the second quarter
offsetting the $59,000 reduction in the first quarter is due to the
increased volume of assets from the merger acquisition of First
Community that took place on April 4, 1994. A more rapid downward
change in loan rates than deposit rates and market pressures on
spreads between rates charged on loans and paid on deposits and
other funding sources have caused a reduction in net interest
margin for 1994. Deposit rates had fallen early in 1993, but then
leveled off during the last half of 1993. Refinancing and early
pay offs of loans continued with new loans being booked at lower
yields. This trend continued in the first quarter of 1994. With
the slight rise in interest rates late in the first quarter of 1994
due to pressures from the Federal Reserve, the margin should
improve slightly. Loan growth in the latter half of 1993 and first
quarter of 1994 has helped to improve the margin. For the year
1994, it is anticipated that margins will be squeezed from the
levels of 1993. However, net interest income should be up due to
the addition of First Community as discussed on page A 18.
[FN]
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
- A 23 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income
The following table analyzes the increase in tax-equivalent
net interest income in terms of the respective amounts attributable
to changes in interest rate, changes in average balances, and
changes in both rate and balance.
<TABLE>
(In thousands)
<CAPTION>
Three Months Ended
June 30, 1994 vs 1993
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans (1) $ 1,516 $ (457) $ 2,113 $ (140)
Investment securities:
Taxable (104) (160) 60 (4)
Nontaxable (1) 69 (74) 156 (13)
Trading account securities (1) -- -- -- --
Federal funds sold and securities
purchased under resale agreements 12 12 -- --
Total 1,493 (679) 2,329 (157)
Interest expense:
Interest-bearing demand deposits 7 (45) 58 (6)
Interest-bearing savings deposits (27) (104) 91 (14)
Interest-bearing time deposits
under $100,000 279 (168) 485 (38)
Interest-bearing time deposits
over $100,000 41 1 40 --
Federal funds purchased and securities
sold under agreements to repurchase (1) 54 (41) (14)
Other short-term borrowings 7 6 1 --
FHLB advances 593 105 281 207
Long-term borrowings 69 (28) 113 (16)
Total 968 (179) 1,028 119
Increase in net interest income $ 525 $ (500) $ 1,301 $ (276)
<FN>
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
</TABLE>
- A 24 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income (Continued)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1994 vs 1993
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans (1) $ 1,325 $ (981) $ 2,483 $ (177)
Investment securities:
Taxable (610) (395) (235) 20
Nontaxable (1) 118 (139) 280 (23)
Trading account securities (1) (3) -- (3) --
Federal funds sold and securities
purchased under resale agreements (24) 24 (36) (12)
Total 806 (1,491) 2,489 (192)
Interest expense:
Interest-bearing demand deposits (33) (92) 67 (8)
Interest-bearing savings deposits (199) (234) 42 (7)
Interest-bearing time deposits
under $100,000 (243) (406) 180 (17)
Interest-bearing time deposits
over $100,000 5 (10) 15 --
Federal funds purchased and securities
sold under agreements to repurchase 76 61 12 3
Other short-term borrowings 9 6 3 --
FHLB advances 699 87 417 195
Long-term borrowings 27 (36) 70 (7)
Total 341 (624) 806 159
Increase in net interest income $ 465 $ (867) $ 1,683 $ (351)
<FN>
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
</TABLE>
- A 25 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-Interest Income
Non-interest income for the three months ended June 30, 1994,
was $3,030,000, representing an increase of $1,033,000, or 51.7%
from the same period in the preceding year. For the six months
ended June 30, 1994, non-interest income increased 39.8% from the
prior year. This increase resulted primarily from the gain on the
sale of a portion of the bankcard portfolio. See page A 18 for
further detail. Security gains were also up from the prior year.
In the first quarter of 1994, UBI sold $11,593,000 of U.S. Agency
and mortgage-backed securities from the "available for sale"
category with the proceeds being partially reinvested in nontaxable
municipal securities. This was done in anticipation of the merger
that occurred on April 4, 1994 with First Community Federal, which
had no nontaxable investment securities. Trust fees and service
charge income was up over 1993 due to new and additional business.
All other categories remained relatively unchanged.
Each major category of non-interest income is analyzed in the
following table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Bankcard fees $ 668 $ 752 $ (84) (11.2)%
Service charges 673 632 41 6.5
Trust fees 340 336 4 1.2
Gain on sale of investment securities
available for sale (5) -- (5) 0.0
Gain on sale of loans 1,005 -- 1,005 0.0
Other 349 277 72 26.0
Total non-interest income $ 3,030 $ 1,997 $ 1,033 51.7%
<CAPTION>
Six Months Ended
June 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Bankcard fees $ 1,332 $ 1,454 $ (122) (8.4)%
Service charges 1,296 1,193 103 8.6
Trust fees 752 698 54 7.7
Gain on sale of investment securities
available for sale 416 (1) 417 417.0
Gain on sale of loans 1,005 -- 1,005 0.0
Other 651 556 95 17.1
Total non-interest income $ 5,452 $ 3,900 $ 1,552 39.8%
</TABLE>
- A 26 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-Interest Expense
Non-interest expense for the three months ended June 30, 1994
totaled $6,420,000, an increase of $729,000 or 12.8% from the
second quarter of 1993. For the six months ended June 30, 1994,
non-interest expense increased by 7.9% from $11,167,000 to
$12,051,000 or $884,000. The one category that made up a
significant dollar portion of this increase was salaries and
benefits. This increase was the result of the merger acquisition
of First Community, normal pay increases and the increasing costs
of employee benefits and training. Equipment and occupancy
expenses were up and also effected by the merger acquisition.
Also, equipment expense was up due to new systems put in place to
improve customer service. Other expenses were up due to many one
time expenses resulting from the merger acquisition with First
Community. All other categories remained relatively unchanged.
Each major category of non-interest expense is detailed in the
following table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
June 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Salaries and benefits $ 2,945 $ 2,563 $ 382 14.9%
Bankcard fees 508 546 (38) (6.9)
Data processing 296 298 (2) (.7)
Equipment 496 435 61 14.0
Occupancy, net of revenues of
$108 and $109 400 355 45 12.7
Postage 144 148 (4) (2.7)
Marketing 141 142 (1) (.7)
Supplies 201 219 (18) (8.2)
Amortization of purchase premium 151 91 60 65.9
FDIC insurance 302 265 37 14.0
Other 836 629 207 32.9
Total non-interest expense $ 6,420 $ 5,691 $ 729 12.8%
<CAPTION>
Six Months Ended
June 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Salaries and benefits $ 5,519 $ 5,000 $ 519 10.4%
Bankcard fees 1,015 1,043 (28) (2.7)
Data processing 591 588 3 .5
Equipment 925 824 101 12.2
Occupancy, net of revenues of
$215 and $219 756 711 45 6.3
Postage 292 312 (20) (6.4)
Marketing 308 293 15 5.1
Supplies 421 412 9 2.2
Amortization of purchase premium 221 182 39 21.4
FDIC insurance 544 529 15 2.8
Other 1,459 1,273 186 14.6
Total non-interest expense $ 12,051 $ 11,167 $ 884 7.9%
</TABLE>
- A 27 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Under-Performing Assets
UBI continues to place strong emphasis on the close monitoring
of under-performing assets. It is UBI's policy to treat as under-
performing assets (a) loans that are accounted for on a nonaccrual
basis, (b) loans, the terms of which have been renegotiated to
provide for a reduction or deferral of interest or principal
because of a deterioration in the financial position of the
borrower, (c) other real estate, and (d) loans which are past due
90 days or more and still accruing interest.
Under-performing assets at June 30 1994, were $2,954,000, an
increase of $741,000 from $2,213,000 at December 31, 1993.
Nonaccrual loans increased $579,000, while loans 90 days past due
remained relatively unchanged. Other real estate held increased
due to assets acquired in the merger with First Community.
Loans are placed on nonaccrual status when principal or
interest is due and has remained unpaid for 90 days or more unless
the loan is both well secured and in the process of collection.
Loans are also placed on nonaccrual status when there is reasonable
doubt as to the ability of the borrower to pay interest or
principal. At the time a loan is classified as nonaccrual,
interest previously recorded but not collected is reversed.
Interest payments received on such loans are generally recorded as
a reduction in carrying value unless such carrying value is deemed
to be collectible.
Under-performing assets at June 30 1994 and December 31, 1993,
are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
<S> <C> <C>
Nonaccrual loans $ 1,264 $ 685
Past due loans (90 days or more) 1,439 1,469
2,703 2,154
Other real estate held 251 59
Total $ 2,954 $ 2,213
</TABLE>
- A 28 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses
In the normal course of business, banks recognize that a
relatively small percentage of the loans they make will eventually
be charged off. These future charge-offs are currently provided
for through the allowance for loan losses. Additions made to this
allowance are charged to operating expenses as the provision for
loan losses. Loans are charged against the allowance when they are
deemed to be uncollectible. Recoveries are credited directly to
the allowance.
The required level for the allowance for loan losses is
determined by management on the basis of a detailed review of the
risk factors affecting the loan portfolio. In addition to
evaluating the financial condition of individual borrowers,
management assesses the entire portfolio as to past loan loss
experience, volumes, mix and maturity, concentration of credit,
prevailing economic conditions both locally and nationally, and
off-balance sheet risk. Management specifically reviews all under-
performing assets of $100,000 or more for loan loss adequacy as
well as for potential partial or complete charge-off. The results
of these reviews along with the other above factors enable
management to establish the allowance at a level considered
adequate to absorb loan losses.
At June 30, 1994, the allowance for loan losses was
$5,106,000, or 1.38% of outstanding loans. This compares with
$4,400,000, or 1.48%, reported at December 31, 1993. The reduction
in the percentage between December 31, 1993 and June 30, 1994, is
due to the increased portfolio size from the merger acquisition of
First Community. A majority of the loans acquired in the merger
were 1-4 performing first mortgage real estate loans which require
a smaller allowance. Net charge-offs for the first six months of
1994 were $850,000, or .25% of average net loans. This compares
with net charge-offs of $694,000, or .24% of average net loans for
the same period in the preceding year.
Based upon managements detailed review and analysis of the
loan portfolio at June 30, 1994, the allowance for loan losses was
set at a level of $5,106,000 as managements best estimate of the
potential losses which might be present in the loan portfolio at
that point in time. Management believes it is important to take a
conservative approach in evaluating the risk profile of the
company.
- A 29 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Capital Resources
Stockholders' equity increased $3,048,000, or 7.5%, to
$43,864,000 at June 30, 1994, from the $40,816,000 reported at
December 31, 1993. The ratio of equity capital to total assets was
6.7 % at June 30, 1994, compared to 7.7% for December 31, 1993.
This decrease was the result of increased levels of total assets
from the merger acquisition of First Community on April 4, 1994.
The dividend payout ratio was 6.3% for the first six months of
1994. It is UBI's policy to maintain an appropriate balance
between earnings returned to stockholders in the form of dividends
and earnings retained to provide internal capital growth.
Risk-based capital guidelines established by the Federal
Reserve Bank (FRB), UBI's primary regulator, started in 1991. Under
these guidelines, the FRB will monitor three ratios for capital
levels. They are Tier I capital, Tier II capital and a Leverage
ratio. Currently the FRB is requiring a minimum Tier I capital
guideline of 4.00%, a Tier II capital guideline of 8.00%, and a
Leverage ratio of 3.00%. At June 30, 1994, UBI had a 9.3% Tier I
capital ratio, a 10.6% Tier II capital ratio, and a 5.9% Leverage
ratio. All of UBI's capital ratios are above the regulatory
guidelines and placed UBI in the "well capitalized" category
currently defined by regulators. Well capitalized institutions are
defined as those institutions having a Tier I capital level of
6.0%, a Tier II capital level of 10.0% and a Leverage ratio of
5.0%. This is the highest capital level category defined by
regulators.
- A 30 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Liquidity
Liquidity for UBI's bank subsidiary, UNB, is represented by
UNB's ability to generate a continuing stream of funds to satisfy
its financial needs and the credit and deposit demands of its
customers. Liquidity and interest sensitivity are managed in a
coordinated asset/liability management program within the bank.
Asset liquidity is derived from loan repayments and scheduled
maturities of loans and other assets, primarily investment
securities. At June 30, 1994, loan repayments and scheduled loan
maturities within one year or less totaled $96,214,000. At June
30, 1994, investment securities, federal funds sold, FHLB overnight
deposits, securities purchased under resale agreements and other
investments, all of which are maturing within one year or less,
totaled $54,433,000. These short term investment funds equaled
9.3% of aggregate interest-earning assets. This liquidity provides
UNB with a substantial capacity to fund customers' new credit
demands, internal financial needs, deposit payouts and to take
advantage of other attractive market conditions as they arise.
On the liability side, the most significant sources of
liquidity for UNB consist of customers' new savings and time
deposits under $100,000 and the renewal of customers' maturing
deposits. Other sources of liquidity include customers'
certificates of deposit of $100,000 or more, FHLB advances, and the
purchase of federal funds and securities sold under agreements to
repurchase.
UBI relies on dividends and tax benefit payments from its
subsidiaries and borrowings from unaffiliated banks to generate
cash flow. Federal regulations restrict the payment of dividends
by national banks by requiring approval of the Comptroller of the
Currency if total dividends declared by a national bank in any
calendar year exceed the bank's net profits for that year combined
with its retained profits for the preceding two years. At June 30,
1994, dividends of approximately $7,667,000 were available from the
bank subsidiary without such approval. UBI also has available for
cash flow needs a $1,000,000 line-of-credit with Harris Trust and
Savings Bank of Chicago. As of June 30, 1994 the line-of-credit
had a $0 balance.
- A 31 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Interest Sensitivity
Interest sensitivity is the cornerstone of UBI's
asset/liability margin management system. Key asset and liability
decisions are reviewed in the framework of this system with the
objective of optimizing long-term profitability at an acceptable
level of risk.
The tables that follow summarize the asset/liability margin
management status at June 30, 1994 (in thousands). Yields and
rates shown in the table are interest income and expense only.
Factors such as loan fees are not included in the summary.
<TABLE>
<CAPTION>
0-3 3-6 6-12 1-5 5+ Non-Rate
Repricing Maturity Months Months Months Years Years Sensitive Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $ 131,382 $ 39,434 $ 22,489 $ 97,181 $ 80,508 $ 0 $ 370,994
Securities-Taxable 9,812 13,459 24,836 97,452 25,521 0 171,080
Securities-Nontaxable 1,941 2,933 1,504 19,792 19,575 0 45,745
Fed Funds Sold 0 0 0 0 0 0 0
Nonearning Assets 0 0 0 0 0 65,437 65,437
Total Assets 143,135 55,826 48,829 214,425 125,604 65,437 653,256
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 12,909 68,488 0 0 0 0 81,397
Savings Deposits 28,459 97,196 0 0 0 0 125,655
Other Time Deposits 48,899 34,110 47,112 79,158 18,243 0 227,522
Short-term Borrowings 23,838 0 0 0 0 0 23,838
Long-term Borrowings 16,546 3,275 6,345 33,332 4,804 0 64,302
Noncosting Liabilities 0 0 0 0 0 86,678 86,678
Stockholders' Equity 0 0 0 0 0 43,864 43,864
Total Liabilities and
Stockholders' Equity 130,651 203,069 53,457 112,490 23,047 130,542 653,256
Repricing Gap $ 12,484 $(147,243) $ (4,628) $101,935 $102,557 $(65,105) $ 0
Cumulative Repricing Gap $ 12,484 $(134,759) $(139,387) $(37,452) $ 65,105 $ 0 $ 0
0-3 3-6 6-12 1-5 5+ Non-Rate
Interest Rate Analysis Months Months Months Years Years Sensitive Total
Assets:
Loans 8.52% 12.13% 7.76% 7.83% 8.51% 8.67%
Securities-Taxable 4.84 6.21 4.97 5.18 5.27 5.22
Securities-Nontaxable (1) 7.79 7.96 8.48 8.72 8.33 8.46
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Nonearning Assets 0.00 0.00
Total Assets 8.26 10.48 6.37 6.70 7.81 0.00 6.85
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 1.92 1.92 0.00 0.00 0.00 1.92
Savings Deposits 2.28 2.33 0.00 0.00 0.00 2.35
Other Time Deposits 3.51 3.79 4.08 5.41 6.03 4.53
Short-term Borrowings 4.11 0.00 0.00 0.00 0.00 4.11
Long-term Borrowings 4.61 7.61 7.58 7.41 8.03 6.76
Noncosting Liabilities 0.00 0.00
Stockholders' Equity 0.00 0.00
Total Liabilities and
Stockholders' Equity 3.34 2.52 4.49 6.00 6.45 0.00 3.08
Net Yield 4.92% 7.96% 1.88% 0.70% 1.36% 0.00% 3.77%
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
- A 32 -
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