SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1993
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
December 31, 1993, was 350,690.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Annual Meeting of Stockholders to be
held April 20, 1994, is incorporated by reference into Part III of
this report.
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Table of Contents
PART I
ITEM PAGE
1 Business 2 - 4
2 Properties 4 - 5
3 Legal Proceedings 5
4 Submission of Matters to a Vote of Security Holders 5
PART II
5 Market for the Registrant's Common Stock and Related
Stockholder Matters 6
6 Selected Financial Data 6
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
8 Financial Statements and Supplementary Data 6
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
10 Directors and Executive Officers of the Registrant 7
11 Executive Compensation 7
12 Security Ownership of Certain Beneficial Owners and
Management 7
13 Certain Relationships and Related Transactions 7
PART IV
14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 8
Signatures 9
Financial Information Appendix A
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<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
PART I
Item 1. Business
Union Bancshares, Inc. (UBI) is a bank holding company formed
in 1982 under the laws of the State of Kansas. In connection with
this formation, UBI acquired all of the common stock of Union
National Bank of Wichita (UNB) by exchange for UBI Class A common
stock on a share for share basis. In 1987, UBI formed Union
Boulevard National Bank (UBNB), a wholly-owned subsidiary, to
acquire from the Federal Deposit Insurance Corporation certain
assets and liabilities previously owned by Boulevard State Bank.
UBNB was merged into UNB in 1989. In April 1990, UBI acquired
certain assets and liabilities from the Resolution Trust
Corporation (RTC) of the former First Federal Savings and Loan
Association of Hutchinson. UBI acquired two branch locations in
this purchase. One of these branches was closed on January 12,
1991. In November 1990, UBI acquired certain assets and
liabilities from the RTC of the former Valley Savings, A Federal
Savings and Loan Association of Hutchinson. UBI began operations
from two branch locations in this purchase. One branch location
was closed on January 12, 1991. The second branch was moved from
its initial operational site to a new site on June 30, 1992. On
February 16, 1991, UBI acquired from the RTC, certain assets and
liabilities of the Derby branch of the former Mid Kansas Savings
and Loan, F.A. of Wichita. UBI purchased the Derby branch location
from the RTC on June 21, 1991.
At December 31, 1993, UBI had three active, wholly-owned
subsidiaries: UNB, UBI Growth Capital, Inc. (UBIGC), a venture
capital company, and UBI Financial Services, Inc. (UBIFS), a
community development company. In addition, UNB owns all of the
outstanding common stock of Union Center, Inc. (UCI), a Kansas
corporation formed in 1956 to purchase and operate the building
mainly occupied by UNB. At December 31, 1993, UBI and its
subsidiaries had 352 FTE (full-time equivalent) employees.
UBI and its subsidiaries are engaged primarily in commercial
banking and related activities authorized by the Bank Holding
Company Act of 1956, as amended, or determined by the Board of
Governors of the Federal Reserve System to be so closely related to
the business of banking as to be proper incident thereto. UBI and
its subsidiaries, therefore, did not engage in material operations
in separate reportable industry segments for the last three years.<PAGE>
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 1. Business (Continued)
UBI offers a wide range of financial services in the Wichita
and Derby, Sedgwick County, and Hutchinson, Reno County, Kansas,
areas through UNB, its subsidiary bank. These services include
deposit accounts; commercial, installment and real estate loans;
trust, investment and escrow services; and a network of automated
teller machines. UNB has ten locations and 17 ATMs situated within
the city limits of Wichita, Hutchinson, and Derby. UNB is the
third largest bank in Wichita and the largest bank in Hutchinson
and Derby. In addition, customers may also access UNB services at
479 ATMs throughout the State of Kansas and at over 101,280 ATMs
throughout the United States and Canada through UNB participation
in Kansas Electronic Transfer Systems, Inc. (KETS), VIA, Cirrus,
and Plus ATM switching companies.
UNB faces competition from banks and other financial
institutions located in Sedgwick and Reno County, Kansas. There
are approximately 87 other financial institutions within the
Sedgwick and Reno County areas.
UBI and its subsidiary bank are principally affected by the
monetary policy of the Board of Governors of the Federal Reserve
System and other federal banking regulators. UBI, being a bank
holding company, is primarily regulated by the Federal Reserve
Bank. UNB, being a national bank, is primarily regulated by the
Comptroller of the Currency. UNB is also subject to regulation by
the Federal Deposit Insurance Corporation because of deposit
insurance. The bank operates under the guidance of its board and
officers, implementing policies as to lending practices, interest
rates, service charges, and other banking functions. These
policies guide the bank in serving the communities in which it
operates.
In 1989, Congress enacted the "Financial Institutions Reform,
Recovery, and Enforcement Act" (FIRREA), which allowed bank holding
companies to acquire savings and loan associations, either in or
outside of Kansas. It also allowed the acquisition of savings and
loan associations by out-of-state bank holding companies. The
FIRREA Act also abolished the Federal Savings and Loan Insurance
Corporation, making the Federal Deposit Insurance Corporation
(FDIC) the single insurer of deposits for financial institutions.
This resulted in higher insurance premium rates, which had a
negative impact on noninterest expense of UBI starting in 1991. An
analysis of noninterest expense is discussed in greater detail
starting on page A-38.
<PAGE>
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 1. Business (Continued)
Beginning July 1, 1992, bank holding companies located in
Arkansas, Colorado, Iowa, Missouri, Nebraska, and Oklahoma were
permitted to acquire banks and bank holding companies located in
Kansas after obtaining the approval of the Kansas State Banking
Board. No applications can be approved unless the laws of the
state, or jurisdiction in which the applicant bank holding company
is located, permit Kansas bank holding companies to acquire banks
and bank holding companies in that state or jurisdiction on
substantially the same terms as established under Kansas law. This
has brought greater competition to Kansas and potentially to the
communities in which UBI and its subsidiaries operate. There have
been several institutions that have made acquisitions in the state,
but none in the Wichita area.
UBI and its subsidiaries are evaluating these changes as well
as other legislation pending before the federal and state
governments which may have an effect on its business. At this time
it is difficult to predict what pending proposals might be adopted
and what, if any, effect they may have on UBI and its subsidiaries.
UBI is currently implementing changes as a result of Regulation DD,
Truth in Savings, which UBI believes will add costs beyond the
perceived benefits to its customers. The regulatory burden on
financial institutions continues without any sign of easing. The
regulatory burden has a negative impact on financial institutions'
ability to meet customers' needs. UBI is not currently aware of
any pending proposals that would have a materially adverse impact
on UBI and its subsidiaries.
The principal source of UBI's cash revenues is dividends from
UNB. The ability of UNB to pay such cash dividends is limited by
federal regulations. 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 December
31, 1993, dividends of approximately $7,839,000 were available from
the bank subsidiary without such approval.
Item 2. Properties
UBI uses the main offices of Union National Bank, 200 Union
Center Building, 150 North Main, Wichita, Kansas, for its offices.
Presently, UBI pays no rental to UNB, although UBI may pay to UNB
a fair and reasonable charge for all facilities and services
furnished by UNB at such time as UBI requires separate facilities.
<PAGE>
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 2. Properties (Continued)
The Union Center Building is a 10-story structure which was
completed and occupied by UNB in 1956. The building is owned by
UNB's subsidiary, UCI. Approximately 81,508 square feet, or 68.0%,
of the rentable space in the building is leased by UNB at a monthly
rent of $77,760 for 1993. UNB owns two of the thirteen lots
comprising the site of the Union Center Building, and leases two
others for a term expiring no earlier than the year 2053. UCI owns
three of the lots comprising the Union Center Building site, and
leases the remaining six lots for terms expiring no earlier than
2047. There are no mortgages or liens outstanding.
UNB owns nine separate bank facilities and the land on which
they are located. These are at the following locations in Wichita,
Hutchinson and Derby Kansas:
<TABLE>
<CAPTION>
Square
Branch Address Community Feet
<C> <C> <C> <C>
Boulevard 2300 E. Lincoln Wichita, Ks 28,088
Broadway 1701 S. Broadway Wichita, Ks 1,704
East 6424 E. 13th Wichita, Ks 4,800
Pavilion 456 N. Main Wichita, Ks 4,000
West 6920 W. Central Wichita, Ks 6,100
Woodlawn 1250 S. Woodlawn Wichita, Ks 3,394
Main at 9th 825 N. Main Hutchinson, Ks 11,420
30th Avenue 101 E. 30th Hutchinson, Ks 1,704
Madison 201 E. Madison Derby, Ks 2,400
</TABLE>
Aggregate annual rental paid during 1993 with respect to all
leased real estate to third party lessors amounted to $142,000.
Item 3. Legal Proceedings
There were no legal proceedings pending during the last fiscal
year to which UBI or its subsidiaries was a party, other than
ordinary routine litigation incidental to their business.
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 fourth quarter of 1993.
<PAGE>
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
There is no established public trading market for UBI Common
Stock, Class A. Therefore, the high and low bid prices for UBI
stock cannot be determined. The number of stockholders on record
for the Company as of December 31, 1993 was 347. Dividend
information for the stock is as follows:
<TABLE>
<CAPTION>
<C> <C> <C>
Quarter 1993 1992
1st $ .30 $ .30
2nd .30 .30
3rd .30 .30
4th .80 .80
</TABLE>
UNB, the principal subsidiary of UBI, must follow regulatory
guidelines on the payment of dividends. See the last paragraph of
Item 1. Business.
Item 6. Selected Financial Data
The information required by Item 301 of Regulation S-K is
contained on page A-51 of the attached Appendix under the caption
"Five-Year Summary of Operations".
Item 7. 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-29 thru A-31 of the attached Appendix under
the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Item 8. Financial Statements and Supplementary Data
Set forth below are the consolidated financial statements of
UBI and its subsidiaries appearing on pages A-4 to A-27 of the
attached Appendix A.
a. Consolidated Statement of Condition
b. Consolidated Statement of Income
c. Consolidated Statement of Stockholders' Equity
d. Consolidated Statement of Cash Flows
e. Notes to Consolidated Financial Statements
f. Independent Auditors' Reports
<PAGE>
-6-
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
UBI filed a Form 8-K dated October 20, 1993, under Item 4.,
"Change in Registrant's Certifying Accountants". This discussed
the change from Coopers & Lybrand as UBI's independent accountants
to Allen, Gibbs & Houlik effective for the fiscal year ending
December 31, 1993.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 401 of Regulation S-K appears
on pages 2 and 3 of the 1993 Proxy Statement under the caption
"Election of Directors" and is hereby incorporated by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K appears
on pages 7,8 and 9 of the 1993 Proxy Statement under the caption
"Compensation of Directors and Executive Officers" and is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Item 403 of Regulation S-K appears
on pages 6 and 7 of the 1993 Proxy Statement under the caption
"Security Ownership of Management" and is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 404 of Regulation S-K appears
on page 10 of the 1993 Proxy Statement under the caption
"Transactions with Management" and is hereby incorporated by
reference.
<PAGE>
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The financial statements, notes, and
accountant's report are described in
Item 8 to which reference is hereby
made.
(2) Financial Statement Schedules
None
(3) Exhibits
None
(b) Reports on Form 8-K
During the last quarter of the period covered
by this report, UBI filed two Form 8-K's. The
first one was dated October 20, 1993, and was
filed under Item 4., "Change in Registrant's
Certifying Accountants". This discussed the
change from Coopers & Lybrand as UBI's
independent accountants to Allen, Gibbs &
Houlik effective for the fiscal year ending
December 31, 1993.
The second 8-K dated October 13, 1993 was
filed under Item 2., "Acquisition or
Disposition of Assets" and discussed the
execution of a merger agreement between UBI,
UNB and First Community Federal Savings and
Loan Association (First Community). This 8-K
was later amended with 8-K/A No. 1 filed on
December 23, 1993. The amendment changed it
from an Item 2., "Acquisition or Disposition
of Assets" to an Item 5., "Other Events"
because this merger is not expected to be
consummated until April of 1994. At that time
UBI will file an 8-K with all the required
financial and pro forma information.<PAGE>
-8-
<PAGE>
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 Vice President,
Executive Officer Treasurer & Chief
Financial Officer
(Principal Executive Officer) (Principal Accounting Officer)
March 16, 1994 March 16, 1994
Date Date
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
/S/ JACK B. HINKLE March 16, 1994
Jack B. Hinkle, Director Date
/S/ RANDOLPH D. LOVE March 16, 1994
Randolph D. Love, Director Date
/S/ ROBERT D. LOVE March 16, 1994
Robert D. Love, Director Date
/S/ Derek L. Park March 16, 1994
Derek L. Park Date
/S/ DONALD H. PRATT March 16, 1994
Donald H. Pratt, Director Date
/S/ WILLIAM G. WATSON March 16, 1994
William G. Watson, Director Date
-9-
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
Financial Information
APPENDIX A
FINANCIAL INFORMATION
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<PAGE>
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
-A2-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Index to 1993 Financial Information
Page
Financial Statements
Consolidated Statement of Condition A-4
Consolidated Statement of Income A-5
Consolidated Statement of Stockholders' Equity A-6
Consolidated Statement of Cash Flows A-7
Notes to Consolidated Financial Statements A-8 to A-24
Independent Auditors' Reports A-26 to A-27
Management's Report on Financial Statements and
Internal Accounting Control A-28
Management's Discussion and Analysis of Financial
Condition and Results of Operations A-29 to A-51
Consolidated Statement of Condition - Average
Balances and Interest Rates A-32 to A-33
Five-Year Summary of Operations A-51
-A3-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Condition
<TABLE>
(In thousands)
<CAPTION>
At December 31,
1993 1992
<S> <C> <C>
Assets
Cash and due from banks $ 26,819 $ 39,856
Federal funds sold and securities
purchased under resale agreements -- 10,700
Total cash and cash equivalents 26,819 50,556
Investment securities:
U.S. Treasury 24,500 29,177
Federal agencies 85,899 63,091
Mortgage-backed securities 28,126 50,246
State and municipal 42,555 37,072
Corporate securities 4,107 6,710
Other investments 5,714 11,236
Total investment securities
(market value - $194,872 and $201,965) 190,901 197,532
Trading account securities -- 245
Loans 295,449 280,678
Less: Allowance for loan losses (4,400) (3,400)
Net loans 291,049 277,278
Premises and equipment 12,124 11,890
Other assets 11,964 10,808
Total assets $ 532,857 $ 548,309
Liabilities and Stockholders' Equity
Deposits:
Noninterest-bearing demand $ 86,708 $ 88,046
Interest-bearing demand 75,111 75,153
Interest-bearing savings 107,393 115,723
Interest-bearing time under $100,000 152,396 180,270
Interest-bearing time over $100,000 12,208 16,435
Total deposits 433,816 475,627
Federal funds purchased and securities
sold under agreements to repurchase 24,493 17,123
Other short-term borrowings 4,034 3,627
FHLB advances 16,900 2,300
Long-term borrowings 8,000 10,000
Other liabilities 4,798 3,412
Total liabilities 492,041 512,089
Preferred stock, Class A, par value $100 per share
100,000 shares authorized, no shares outstanding -- --
Preferred stock, Class B, par value $100 per share
100,000 shares authorized, no shares outstanding -- --
Common stock, Class A, par value $10 per share;
1,000,000 shares authorized, 350,690 shares outstanding 3,507 3,507
Common stock, Class B, par value $10 per share;
1,000,000 shares authorized, no shares outstanding -- --
Capital surplus 3,527 3,527
Retained earnings 33,782 29,186
Total stockholders' equity 40,816 36,220
Total liabilities and stockholders' equity $ 532,857 $ 548,309
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
-A4-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Income
<TABLE>
(In thousands except per share data)
<CAPTION>
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 27,181 $ 28,538 $ 30,064
Interest and dividends on investment securities:
U.S. Treasury 1,782 2,507 3,476
Federal agencies 3,752 1,928 2,476
Mortgage-backed securities 2,712 5,716 6,870
State and municipal 2,369 2,297 2,016
Corporate securities 299 450 1,213
Other investments 427 856 917
Interest on Federal funds sold and securities
purchased under resale agreements 113 445 1,355
Total interest income 38,635 42,737 48,387
Interest expense:
Interest on deposits 12,808 17,971 25,343
Interest on Federal funds purchased and
securities sold under agreements to repurchase 581 557 1,277
Interest on other short-term borrowings 80 86 369
Interest on capital notes -- -- 42
Interest on FHLB advances 477 77 --
Interest on long-term borrowings 776 819 4
Total interest expense 14,722 19,510 27,035
Net interest income 23,913 23,227 21,352
Provision for loan losses 2,412 2,569 2,647
Net interest income after
provision for loan losses 21,501 20,658 18,705
Other income 7,904 7,923 8,361
Other expense 22,163 22,566 22,152
Income before income tax expense 7,242 6,015 4,914
Income tax expense 2,050 1,715 1,412
Net income $ 5,192 $ 4,300 $ 3,502
Earnings per share data:
Net income $14.81 $12.28 $10.03
Dividends $1.70 $1.70 $1.20
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
-A5-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
<TABLE>
(In thousands except number of shares)
<CAPTION>
Common Stock
Number Capital Retained
of Shares Amount Surplus Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1990 348,690 $ 3,487 $ 3,487 $ 22,398 $ 29,372
Net income -- -- -- 3,502 3,502
Issuance of Common Stock 1,000 10 15 -- 25
Cash dividends (1.20 per share) -- -- -- (419) (419)
Balance, December 31, 1991 349,690 3,497 3,502 25,481 32,480
Net income -- -- -- 4,300 4,300
Issuance of Common Stock 1,000 10 25 -- 35
Cash dividends (1.70 per share) -- -- -- (595) (595)
Balance, December 31, 1992 350,690 3,507 3,527 29,186 36,220
Net income -- -- -- 5,192 5,192
Cash dividends (1.70 per share) -- -- -- (596) (596)
Balance, December 31, 1993 350,690 $ 3,507 $ 3,527 $ 33,782 $ 40,816
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
-A6-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
(In thousands)
<CAPTION>
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,192 $ 4,300 $ 3,502
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,148 1,871 1,599
Amortization of purchase premiums 364 486 642
Provision for loan losses 2,412 2,569 2,647
Provision for deferred income taxes (339) (398) (132)
Gain on sale of investment securities (20) (359) (212)
Gain on sale of trading account securities (24) (68) (152)
Loss on abandonment of premises
and equipment 28 84 9
Net decrease (increase) in trading account
securities 269 (55) 519
Net increase in other assets (1,127) (160) (452)
Net (decrease) increase in other liabilities 1,465 (626) (134)
Net cash provided by operating activities 10,368 7,644 7,836
Cash flows from investing activities:
Proceeds from sales of investment securities 121 13,441 39,911
Proceeds from maturities and paydowns of
investment securities 123,081 208,617 117,191
Purchases of investment securities (117,899) (211,531) (199,003)
Net increase in loans net of
effects of purchases (15,709) (6,578) (1,422)
Purchases of premises and equipment (1,622) (2,601) (1,633)
Proceeds from sales of premises and equipment 4 21 6
Excess cash received over purchase premium of
acquired institutions -- -- 15,209
Net cash provided (used) by
investing activities (12,024) 1,369 (29,741)
Cash flows from financing activities:
Net (decrease) increase in demand deposits and
savings accounts net of effects of purchases (9,711) 34,686 4,214
Net decrease in time deposits net of effects
of purchase (32,100) (48,806) (27,098)
Net increase (decrease) in Federal funds
purchased and securities sold under
agreements to repurchase 7,370 (2,568) (7,107)
Net increase (decrease) in other short-term
borrowings 356 (372) (2,237)
Net (decrease) increase in long-term borrowings (2,000) -- 10,000
Net increase in FHLB advances 14,600 2,300 --
Net decrease in receivable from RTC -- -- 37,272
Repayment of capital notes -- -- (600)
Issuance of common stock -- 35 25
Cash dividends paid (596) (596) (419)
Net cash (used) provided by financing
activities (22,081) (15,321) 14,050
Net decrease in cash and cash equivalents (23,737) (6,308) (7,855)
Cash and cash equivalents at January 1 50,556 56,864 64,719
Cash and cash equivalents at December 31 $ 26,819 $ 50,556 $ 56,864
Supplemental Disclosures:
Cash payments for:
Interest $15,002 $19,983 $27,535
Income taxes $3,022 $2,437 $1,350
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
-A7-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements in 1993, 1992 and 1991
include UBI and its wholly-owned subsidiaries, UNB, UBIGC and
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 1992 and 1991 consolidated financial statements have been
reclassified to conform with 1993 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
Investment securities are stated at cost, adjusted for
amortization of premium and accretion of discount. Gains or losses
on security transactions are recognized upon realization and are
reported as a separate component of noninterest income. The
specific identification method is used in determining the cost of
investment securities sold.
Securities are classified as "Investment Securities" when
management has the intent and ability to hold the securities for
the foreseeable future. Normal operations do not require the sale
of investment securities for liquidity purposes. However, on
occasion, UBI may decide to sell investment securities prior to
maturity for any of the following reasons: (a) to meet
unanticipated short-term liquidity needs, (b) to reposition the
maturity structure of the portfolio to meet projected liquidity
needs, (c) to reposition the rate cycle structure of the portfolio
to meet projected asset/liability requirements, or (d) to
reposition the relative portion of tax-exempt securities versus
taxable securities in response to projected levels of taxable
income. UBI sold investment securities during the years ended
December 31, 1993, and 1992, due to all the aforementioned reasons.
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 value. Gains or
losses on the sale of trading account securities are considered a
normal part of operations and are included in other income.
-A8-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Investment and Trading Account Securities (Continued)
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. Meeting the requirements of FAS
115 is not expected to have a significant effect on either the
balance sheet or equity of UBI.
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. 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 book value unless such book value is
deemed to be collectible.
-A9-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
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.
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 is 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 other income for the
period. The cost of maintenance and repairs is charged to
operating expenses as incurred. Significant renewals and
betterments are capitalized.
-A10-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
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 takes into consideration all
expected future events other than enactments of changes in the tax
law or rates. Previously, UBI used the Financial Accounting
Standards No. 96 asset and liability approach, which gave no
recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts. Management
has determined that there was no significant financial statement
impact to UBI with the implementation of FAS 109.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (FAS 107),
"Disclosures about Fair Value of Financial Instruments", became
effective for financial statements issued for fiscal years ending
after December 15, 1992. FAS 107 requires disclosure of fair value
information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates
of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. FAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of UBI.
The following methods and assumptions were used by UBI in
estimating the fair value of its financial instruments as noted in
Note 16:
Cash and cash equivalents: The book values reported in the balance
sheet for cash and short-term instruments approximate their fair
values.
Investment securities (including mortgage-backed securities): Fair
value for investment securities is based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
-A11-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
Trading account assets: Fair values for UBI's trading account
assets, which also are the amounts recognized in the balance sheet,
are based on quoted market prices where available. If quoted
market prices are not available, fair values are based on quoted
market prices of comparable instruments.
Loans receivable: For variable rate loans that reprice frequently
and with no significant change in credit risk, fair values
approximate their book value. The fair values for fixed rate
mortgage loans (primarily one-to-four family residential), are
based on quoted market prices of similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan
characteristics. The fair values for other loans (primarily
commercial real estate and rental property mortgage loans,
commercial and industrial loans, financial institution loans,
agricultural loans, and consumer loans) are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers with similar
credit quality. The fair value of credit card loans is estimated
to be the book value due to the short-term nature considered to
exist in this portfolio. The book value of accrued interest
receivable approximates its fair value.
Deposit liabilities: The estimated fair value of noninterest-
bearing deposits, NOW accounts, savings accounts and money market
accounts is equal to their book value, which represents the amount
payable on demand at the reporting date. The book value for
variable rate money market and savings accounts approximates their
fair values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates of similar remaining maturities to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term borrowings: The book value of federal funds purchased,
borrowings under repurchase agreements, and other short-term
borrowings approximates their fair values at the reporting date.
FHLB advances: The estimated fair value of variable rate FHLB
advances is the balance sheet book value. The estimated fair value
of fixed rate advances has been determined using rates currently
available to UNB for advances with similar terms and remaining
maturities.
-A12-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
Long-term borrowings: The fair values of UBI's long-term borrowings
(other than deposits) are estimated using discounted cash flow
analyses, based on UBI's current incremental borrowing rates for
similar types of borrowing arrangements.
2. Mergers and Acquisition
Mid Kansas Savings and Loan Association, F.A., of Wichita
On February 16, 1991, UBI assumed certain liabilities and
purchased certain assets of the Derby branch of the failed Mid
Kansas Savings and Loan Association, F.A., of Wichita, Kansas, from
the RTC. UBI paid a premium of $480,000 which was netted out of
the cash paid by the RTC to UBI to balance the difference in
liabilities assumed and assets purchased. The amount of deposits
assumed was $15,681,000.
This acquisition was accounted for as a purchase, with the
premium allocated to the acquired core deposit as well as other
intangibles.
First Community Federal Savings and Loan Association, Winfield, Ks.
On October 13, 1993, UBI announced the execution of a merger
agreement between UBI, UNB and First Community Federal Savings and
Loan Association (First Community) of Winfield, Kansas. Under the
merger agreement, First Community will be merged with UNB, and each
outstanding share of First Community common stock will be converted
into $35.00 in cash. The total cost of the transaction is
$12,646,520.
The transaction will be financed with a $6,800,000 loan from
Harris Bank and Trust in Chicago and the remaining $5,846,520 from
internal funds. The merger was approved by the First Community
shareholders in January 1994 but is still subject to final
regulatory approval. The transaction is expected to be completed
in the spring of 1994.
-A13-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Mergers and Acquisitions (Continued)
First Community is a savings and loan institution with total
assets at December 31, 1993, of $156,382,000, and offers full
service banking from three branches. These facilities are located
in Winfield, Arkansas City and Derby, Kansas. All three of these
offices will be part of the merger and will be operated as branches
of UNB.
This acquisition will be accounted for as a purchase, with the
premium allocated to various intangible assets.
3. 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 December 31, 1993, UNB maintained daily average
reserves of $10,553,000. For the two-week reserve period inclusive
of December 31, 1992, the daily average reserves maintained were
$11,009,000.
4. Investment Securities
The book value and estimated market values of investments in
debt securities are as follows (in thousands):
<TABLE>
<CAPTION>
At 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>
-A14-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Investment Securities (Continued)
<TABLE>
<CAPTION>
At December 31, 1992
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 29,177 $ 694 $ -- $ 29,871
U.S. government corporations
and agencies 63,091 301 (197) 63,195
Obligations of states
and political subdivisions 37,072 1,800 (6) 38,866
Corporate securities 6,710 31 (17) 6,724
Mortgage-backed securities 50,246 1,888 (61) 52,073
Other investments 11,236 -- -- 11,236
Total $ 197,532 $ 4,714 $ (281) $ 201,965
</TABLE>
The book value and estimated market value of debt securities,
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
estimated average life.
<TABLE>
<CAPTION>
At December 31, 1993
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 54,761 $ 56,024
Due after one year through five years 112,956 114,351
Due after five years through ten years 14,865 15,814
Due after ten years 8,319 8,683
Total $ 190,901 $ 194,872
</TABLE>
Proceeds from sales of investments in debt securities were
$121,000, $13,447,000 and $40,462,000 for 1993, 1992 and 1991
respectively. Gross gains of $21,000, $365,000 and $366,000 and
gross losses of $1,000, $6,000 and $154,000 for 1993, 1992 and 1991
were realized on those sales respectively. The sales generating
these gains and losses were due to adjustments made in the
investment portfolio to meet asset/liability management decisions.
The decisions were made for various reasons which were all within
those noted under Note 1, page A-8, under Investment and Trading
Account Securities.
Investment securities with a book value of $41,322,000 and
$42,136,000 were pledged to secure deposits of public funds at
December 31, 1993, and December 31, 1992, respectively. Total
pledgings required at December 31, 1993, and December 31, 1992,
were $17,038,000 and $7,910,000, respectively.
-A15-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Loans
Major classifications of loans are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
At December 31,
1993 1992
<S> <C> <C>
Commercial, financial, and agricultural $ 97,923 $ 87,256
Installment 101,866 89,572
Bankcard 46,375 52,656
Real estate:
Mortgage 47,523 50,500
Other 1,762 694
$ 295,449 $ 280,678
</TABLE>
Changes in the allowance for loan losses were as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Balance at January 1 $ 3,400 $ 3,050 $ 2,800
Provision charged to income 2,412 2,569 2,647
Recoveries of amounts charged off 528 885 423
Losses charged to the allowance (1,940) (3,104) (2,820)
Balance at December 31 $ 4,400 $ 3,400 $ 3,050
</TABLE>
In the ordinary course of business, UBI and its subsidiary
bank has, and expects to have, transactions, including borrowings
with its officers, directors, and their affiliates. Loans, net of
participations sold, made to such borrowers are summarized as
follows (in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1992 $ 6,805
Additions 531
Repayments (757)
Other changes (4,335)
Balance, December 31, 1993 $ 2,244
</TABLE>
The "Other changes" category are loans that were outstanding
to directors and their related parties as of December 31, 1992, but
who were no longer directors at December 31, 1993.
6. Premises and Equipment
Premises and equipment are summarized as follows (in
thousands):
<TABLE>
<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>
-A16-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Premises and Equipment (Continued)
<TABLE>
<CAPTION>
Accumulated Book
At December 31, 1992 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,150 $ -- $ 2,150
Building and improvements 14,702 7,528 7,174
Furniture and equipment 6,170 3,604 2,566
$ 23,022 $ 11,132 $ 11,890
</TABLE>
Depreciation expense amounted to $1,355,000 in 1993, $1,175,000 in
1992 and $1,058,000 in 1991.
7. Short-term Borrowings
Short-term borrowings of UBI consist of the following (in
thousands):
<TABLE>
<CAPTION>
At December 31,
1993 1992
<S> <C> <C>
Demand note collateralized by stock of UNB at
lender's prime rate of 5.50% at December 31, 1993
and 6.00% at December 31, 1992 $ -- $ --
Treasury tax and loan demand note collateralized
by pledged U.S. Treasury securities 4,034 3,627
$ 4,034 $ 3,627
</TABLE>
8. FHLB Advances
Federal Home Loan Bank (FHLB) advances outstanding at December
31, 1993, 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. One FHLB advance for $15,000,000
maturing March 23, 1994, is tied to the 1-month floating LIBOR rate
minus 20 basis points. All other 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 3.10 15,400
1995 6.00 1,500
3.36% $ 16,900
</TABLE>
9. Long-term Borrowings
At December 31, 1993, and 1992, UBI had a note payable to
Harris Bank for $8,000,000 and $10,000,000 respectively at a fixed
rate of 8.28% until March 31, 1995. After this date the rate will
float at Harris Bank's base rate. The note is collateralized by
stock of UNB. Principal payments of $500,000 per quarter began on
March 31, 1993, with final payment due on December 31, 1997.
Interest is payable quarterly. Proceeds of the note payable were
used to pay off short-term borrowings of UBI at Harris Bank and for
the purchase of $8,200,000 of stock in UNB.
-A17-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 to UBI call for a minimum capital level of
$31,500,000 through December 30, 1992, and consolidated
nonperforming assets not exceed 3% of consolidated tangible assets.
On December 31, 1992, and on the last day of each calendar year
thereafter the required minimum capital level will increase by 50%
of consolidated net income for the year then ended. Maturities of
this note payable are as follows (in thousands):
<TABLE>
<CAPTION>
Remaining
Maturities for:
<S> <C>
1994 2,000
1995 2,000
1996 2,000
1997 2,000
$ 8,000
</TABLE>
10. Income Taxes
Applicable income taxes include deferred income taxes arising
primarily from differences between financial and tax reporting of
the provision for loan losses, depreciation, and loan fees. The
consolidated provisions for income taxes applicable to net income
are as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Current: Federal $ 2,340 $ 1,617 $ 1,195
State 649 496 349
Total 2,989 2,113 1,544
Deferred: Federal (801) (348) (97)
State (138) (50) (35)
Total (939) (398) (132)
Total income tax expense $ 2,050 $ 1,715 $ 1,412
</TABLE>
The table at the top of the following page is a summary of
the source of differences between income tax expense and income
taxes computed at the statutory federal income tax rate of 34% (in
thousands):
-A18-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes (Continued)
<TABLE>
<CAPTION>
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Normal tax on income before
income tax expense $ 2,462 $ 2,045 $ 1,671
State income tax, net of federal
income tax benefit 337 294 207
Tax benefit from interest on
tax-exempt securities and loans (789) (763) (707)
Non-deductible interest for
carrying tax-exempt securities 68 79 107
Other (28) 60 134
Income tax expense $ 2,050 $ 1,715 $ 1,412
</TABLE>
Deferred income taxes arise from temporary differences in the
recognition of revenues, expenses, and tax credits for tax and
financial reporting purposes.
Cumulative temporary differences resulted in a net deferred
income tax asset of $339,000 at December 31, 1993. The gross
deferred tax asset and the gross deferred tax liability are
included in other assets and other liabilities respectively in the
1993 Consolidated Statement of Condition. At December 31, 1992,
a $514,000 net deferred tax liability is included in other
liabilities in the Consolidated Statement of Condition. Deferred
tax liabilities (assets) are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
At December 31, 1993
<S> <C>
Depreciation expense $ 862
Discount accretion 42
FHLB stock dividends 323
Gross deferred tax liability 1,227
Provision for loan losses (1,159)
Deferred loan fees (354)
Other (53)
Gross deferred tax asset (1,566)
Net deferred tax asset $ (339)
</TABLE>
For the years ended December 31, 1992, and 1991, deferred
income tax expense (benefit) results from timing differences in the
recognition of revenue and expense for income tax and financial
reporting purposes. The sources of these differences and the
related tax effects are as follows:
<TABLE>
<CAPTION>
Years ended
December 31,
1992 1991
<S> <C> <C>
Provision for loan losses $ (411) $ (214)
Depreciation expense (79) (111)
Discount accretion (3) 1
Deferred loan fees 25 (39)
FHLB stock dividends 65 238
Other 5 (7)
Total deferred taxes (benefit) $ (398) $ (132)
</TABLE>
-A19-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. 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 December 31, 1993, and 1992, include (in thousands):
<TABLE>
<CAPTION>
At December 31,
1993 1992
Commitments to extend credit:
<S> <C> <C>
Credit card lines $208,695 $234,470
Standby letters of credit 2,191 2,921
Other loan commitments 50,384 4,132
</TABLE>
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 Nebraska, Mississippi, and
Louisiana. UBI has a diversified loan portfolio, without what it
considers undue concentration in any one economic sector.
-A20-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
12. 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 December 31,
1993, dividends of approximately $7,839,000 were available from the
bank subsidiary without such approval.
13. 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 years ended December 31,
1993, 1992, and 1991, amounted to $201,000 ,$184,000, and $176,000
respectively.
14. Net Income per Share
Net income per share is computed by dividing net income by the
weighted average number of shares of stock outstanding during the
year. The weighted average number of shares was 350,690 in 1993,
350,190 in 1992 and 349,109 in 1991.
15. 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>
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Other income:
Bankcard fees $ 2,979 $ 3,004 $ 3,134
Service charges 2,452 2,271 2,462
Trust fees 1,352 1,188 1,095
Security gains 20 359 212
Other 1,101 1,101 1,458
$ 7,904 $ 7,923 $ 8,361
Other expense:
Salaries and benefits $ 10,119 $ 9,597 $ 9,359
Bankcard fees 2,137 2,024 1,978
Data processing 1,159 1,385 1,368
Equipment 1,621 1,395 1,305
Occupancy, net of revenues of
$432, $437 and $465 1,353 1,311 1,561
Postage 626 673 710
Marketing 421 862 599
Supplies 818 935 883
Amortization of purchase premium 364 486 642
FDIC insurance 1,034 1,097 997
Other 2,511 2,801 2,750
$ 22,163 $ 22,566 $ 22,152
</TABLE>
-A21-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
16. Disclosures About Fair Value of Financial Instruments
The estimated fair values of UNB's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
1993 1992
Book Fair Book Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 26,819 $ 26,819 $ 50,556 $ 50,556
Investment securities 190,901 194,872 197,532 201,965
Trading account assets -- -- 245 245
Loans, net 291,049 294,517 277,278 280,702
Financial liabilities:
Deposits 433,816 437,603 475,627 480,867
Short-term borrowings 28,527 28,527 20,750 20,750
FHLB advances 16,900 16,928 2,300 2,330
Long-term debt 8,000 8,258 10,000 10,131
</TABLE>
The item for "unrecognized financial instruments" was not
presented in the above table due to the amount of fees from
commitments to extend credit being insignificant in amount.
17. Parent Company Only Financial Statements
<TABLE>
<CAPTION>
Union Bancshares, Inc.
Statement of Condition (Parent Only)
(In thousands)
At December 31,
1993 1992
<S> <C> <C>
Assets
Cash $ 1,328 $ 1,314
Loans, net -- 304
Investment in subsidiaries 47,910 44,845
Other assets 6 9
Total assets $ 49,244 $ 46,472
Liabilities and Stockholders' Equity
Short-term borrowings $ 20 $ 70
Long-term borrowings 8,000 10,000
Other liabilities 408 182
Total liabilities 8,428 10,252
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 33,782 29,186
Total stockholders' equity 40,816 36,220
Total liabilities and
stockholders' equity $ 49,244 $ 46,472
</TABLE>
-A22-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Only Financial Statements (Continued)
<TABLE>
<CAPTION>
Union Bancshares, Inc.
Statement of Income (Parent Only)
(In thousands)
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 3,000 $ 2,500 $ 1,570
Interest income 40 53 45
Total income 3,040 2,553 1,615
Expenses:
Interest expense 776 819 210
Other expense 569 397 318
Total expenses 1,345 1,216 528
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 1,695 1,337 1,087
Income tax benefit 443 409 127
Income before equity in undistributed
net income of subsidiaries 2,138 1,746 1,214
Equity in undistributed net
income of subsidiaries 3,054 2,554 2,288
Net income $ 5,192 $ 4,300 $3,502
<FN>
Note: Parent company only Statement of Stockholders' Equity is the same as
the Consolidated Statement of Stockholders' Equity.
</TABLE>
-A23-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Only Financial Statements (Continued)
<TABLE>
<CAPTION>
Union Bancshares, Inc.
Statement of Cash Flows (Parent Only)
(In thousands)
Years ended December 31,
1993 1992 1991
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,192 $ 4,300 $ 3,502
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in undistributed earnings
of subsidiaries (3,054) (2,554) (2,288)
Decrease in other assets 2 -- 32
Increase (decrease) in other liabilities 226 (197) 116
Net cash provided by operating activities 2,366 1,549 1,362
Cash flows from investing activities:
Net decrease in loans 304 127 18
Net cash provided by investing activities 304 127 18
Cash flows from financial activities:
Net decrease in short-term borrowings (50) -- (2,700)
(Decrease) increase in long-term borrowings (2,000) -- 10,000
Issuance of common stock -- 35 25
Purchase of UNB stock -- -- (8,200)
Purchase of UBI Financial Services stock (10) -- --
Cash dividends paid (596) (596) (419)
Net cash used by financing activities (2,656) (561) (1,294)
Net increase in cash 14 1,115 86
Cash at Beginning of year 1,314 199 113
Cash at end of year $ 1,328 $ 1,314 $ 199
</TABLE>
-A24-
<PAGE>
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
-A25-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Independent Auditor's Report
ALLEN, GIBBS & HOULIK, L.C.
Certified Public Accountants & Consultants
Epic Center, 301 N. Main, Suite 1700
Wichita, Kansas 67202-4868
(316) 267-7231, Fax (316) 267-0339
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Union Bancshares, Inc.
We have audited the consolidated statement of condition of Union
Bancshares, Inc. and Subsidiaries as of December 31, 1993, and the
related consolidated statements of income, stockholders' equity and
cash flows for the period then ended, and the separate financial
statements of Union Bancshares, Inc., which are included in Note 17
to the consolidated financial statements. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial positions of Union
Bancshares, Inc. and Subsidiaries and Union Bancshares, Inc. as of
December 31, 1993, and the results of their respective operations
and their respective cash flows for the period ended December 31,
1993, in conformity with generally accepted accounting principles.
/S/ Allen, Gibbs & Houlik, L.C.
Wichita, Kansas
January 28, 1993
AGH Member: The McGladrey Network and RSM International
-A26-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Independent Auditor's Report
Coopers certified public accountants
&Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Union Bancshares, Inc.
We have audited the consolidated statement of condition of Union
Bancshares, Inc. and Subsidiaries as of December 31, 1992, and the
related consolidated statements of income, stockholders' equity and
cash flows for each of the two years in the period ended December
31, 1992, and the separate financial statements of Union
Bancshares, Inc., which are included in Note 17 to the consolidated
financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial positions of Union
Bancshares, Inc. and Subsidiaries and Union Bancshares, Inc. as of
December 31, 1992, and the results of their respective operations
and their respective cash flows for each of the two years in the
period ended December 31, 1992, in conformity with generally
accepted accounting principles.
/S/ Coopers & Lybrand
Omaha, Nebraska
January 29, 1993
-A27-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Report on Financial Statements and Internal Accounting
Control
The financial statements, management's discussion and
analysis, and statistical data of UBI and subsidiaries contained
herein have been prepared in conformity with generally accepted
accounting principles at the direction of management, which has the
responsibility for these representations. In preparing the
financial information, management makes informed judgments and
estimates of the expected effects of events and transactions that
are currently being accounted for and is cognizant of the
materiality of those events and transactions.
In meeting its responsibility for the reliability of the
financial statements, management depends on UBI's system of
internal accounting control. This system is designed to provide
reasonable assurance that transactions are executed in accordance
with management's authorization and recorded properly to permit the
preparation of financial statements in accordance with generally
accepted accounting principles and that assets are safeguarded.
Such a system includes the communication of policies and procedures
to appropriate personnel, the careful selection and training of
qualified personnel, the assignment of authority and
responsibility, the accountability for performance, and a strong
program of internal audits. The concept of reasonable assurance is
based on the recognition that the cost of a system of internal
accounting control should not exceed the benefits expected to be
derived and that the evaluation of those factors requires estimates
and judgments by management.
Management has confidence that the internal accounting
controls currently in place, along with its strong audit programs,
provide reasonable assurance that the financial statements
presented herein and transactions underlying such statements are in
accordance with management's authorization and generally accepted
accounting principles.
-A28-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For 1993, UBI's net income was $5,192,000, up 20.7% from the
$4,300,000 earned in 1992. The earnings for 1993 produced a return
on average assets of .97% compared to .79% the prior year. The
return on average equity of 13.50% was up from the 12.45% of the
preceding year.
The increase in earnings was the result of a higher net
interest margin, a lower loan loss provision and lower expenses.
The improvement in the net interest margin was the result of
liabilities repricing faster than assets in a lowering interest
rate environment in 1993. In the fourth quarter the margin leveled
out. Management does not see continued improvement in the margin
in 1994 as liabilities have appeared to reach a low, while asset
rates are still falling. The change in the asset mix of the
balance sheet also contributed to the improved margin in 1993.
Management anticipates a continued change in the mix of assets
during 1994 as more assets are deployed to loans from investments.
This should further help the margin in 1994. Overall, management
anticipates the net interest margin to be flat in 1994.
The reduction in the loan loss provision was directly related
to the lowest net charge-off level (.50% of average loans) since
1982. While management believes its systems for monitoring,
reviewing and analyzing credits contributed to this low number, it
also believes an improved economic environment assisted in holding
this number down. Management believes that this number will
continue to remain low in 1994.
Expenses in 1993 were down from 1992 levels, almost to 1991
levels. This resulted from reduced marketing expenditures, data
processing expenses, supply costs and other overhead expenses. A
change in UBI's advertising agency and marketing programs helped in
reducing marketing expenses for 1993. Management anticipates
marketing costs to be up in 1994 from new marketing programs being
implemented during 1994. Data processing expenses were down in
1993 as the result of reduced data processing projects. This
savings was offset somewhat by increased equipment costs from new
systems. These systems are reducing supply costs and helping to
position UBI for greater expansion of business without major staff
additions.
Management anticipates slight increases in other expenses for
1994 as UBI looks to have additional system requirements to meet
the demand for products and services of its customers. It also
anticipates further pressure on expenses from increased regulatory
burdens and the potential for increased employee benefit costs from
health care reform.<PAGE>
-A29-
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
On October 13, 1993, UBI announced the execution of a merger
agreement between UBI, UNB and First Community. Under the merger
agreement, First Community will be merged with UNB and each
outstanding share of First Community common stock will be converted
into $35.00 in cash. The total cost of the transaction is
$12,646,520. First Community, with total assets of $156,382,000 at
December 31, 1993, offers full service banking from three branches
located in Winfield, Arkansas City and Derby, Kansas.
First Community brings new markets and product offerings to
UNB. It has a very strong mortgage banking business that UNB can
utilize in its Sedgwick and Reno County markets. UNB will be able
to take its commercial and consumer products to the markets served
by First Community. Management perceives this as a positive
benefit to customers of both institutions. Management believes
that this will bring increased profitability to UNB through
increased markets, increased sales of products and cost savings
from operational efficiencies.
In 1992, UBI earned $4,300,000, an increase of 22.8% over the
$3,502,000 earned in 1991. This was a .79% return on average
assets and a 12.45% return on average equity. This compares to a
.63% return on average assets and a 11.59% return on average equity
in 1991. The increased earnings in 1992 resulted from a higher net
interest margin and some higher noninterest income levels. The net
interest margin was up 8.8% in 1992 over 1991 due to increased
volumes of earning assets and a change in the mix of assets from
investments to loans.
Net income for 1991 of $3,502,000 was up 21.4% over the
$2,885,000 in 1990. Return on average assets was .63% in 1991
compared to .59% in 1990. Return on average equity was 11.59%
compared to 10.25% in the prior year. An increase in the net
interest margin of $21,352,000, or 13.8%, was the major contributor
to the increased earnings. There were also some higher levels of
noninterest income.
In 1990 and 1991, UBI acquired certain assets and assumed
certain liabilities of three failed savings and loan associations
in transactions with the Resolution Trust Corporation (RTC). The
liabilities assumed in these transactions consisted mainly of
deposits, in particular, certificates of deposit. The assets
acquired consisted primarily of performing 1-4 family mortgages.
UBI's balance sheet increased by some $170 million from these
acquisitions. While the impact to the balance sheet was considered
significant, the resulting effect in the initial years to the
income statement was not. The effect to the income statement has
come over the past three years through the improved net interest
margin as identified above and back room operational efficiencies.
-A30-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The improved margin is the result of repricing of liabilities and
the change in the asset mix from investments to loans.
Management anticipates 1994 to be a very competitive year.
Margins will continue to flatten causing management to rely on
further deployment of investment assets to loan assets to maintain
margins. Management will look to increased sales of products and
services in 1994 to improve earnings over 1993. They will also
continue to look for technological improvements and efficiencies to
take on additional volumes at current costs or to reduce costs
where applicable.
Management has implemented the new rules on marking to market
of securities under FAS 115. It is management's belief that there
will not be any major impact to UBI's balance sheet or income
statement from this change in accounting procedure. Management is
also trying to assess what, if any, effect health care reform may
have on earnings in 1994. It cannot be determined at this time
what the effect will be, but management believes it will have a
negative impact on earnings as costs will most likely increase.
Management also has under review various other regulatory issues.
It is too early to determine the effect these pending issues might
have on UBI and/or its bank subsidiary, UNB.
Management continues to look for acquisition opportunities in
South Central Kansas. Management believes growth through
acquisition will help provide future shareholder value and assist
in meeting competition through cost efficiencies.
The significant elements of income and expense affecting net
income are detailed separately and in greater detail in the ensuing
analyses.
-A31-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Condition - Average Balances and Interest
Rates
(Tax-equivalent basis in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
Interest
Average Income/ Average
Balance Expense Rates
<S> <C> <C> <C>
Assets
Loans (1)(2) $ 284,565 $ 27,197 9.56%
Investment securities:
Taxable 159,120 9,038 5.68
Nontaxable (2) 39,070 3,486 8.92
Trading account securities 50 3 6.59
Federal funds sold and securities
purchased under resale agreements 3,734 113 3.01
Total earning assets 486,539 39,837 8.19
Cash and due from banks 31,353
Premises and equipment 11,983
Other assets 11,588
Allowance for loan losses (4,019)
Total assets $ 537,444
Liabilities & Stockholders' Equity
Interest-bearing demand deposits $ 75,234 1,579 2.10
Interest-bearing savings deposits 111,182 2,581 2.32
Interest-bearing time deposits under $100,000 168,883 8,289 4.91
Interest-bearing time deposits over $100,000 9,347 359 3.84
Federal funds purchased and securities
sold under agreements to repurchase 22,792 581 2.55
Other short-term borrowings 2,841 80 2.82
FHLB advances 13,826 477 3.45
Long-term borrowings 9,154 776 8.48
Capital notes -- -- --
Total costing liabilities 413,259 14,722 3.56
Noninterest-bearing demand 79,718
Other liabilities 6,010
Total liabilities 498,987
Stockholders' equity 38,457
Total liabilities and
stockholders' equity $ 537,444
Interest spread $ 25,115 4.63%
Net interest income 5.16%
<FN>
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $739 in 1993, $566 in 1992, and $412 in
1991.
(2) Income and rates are calculated using a marginal federal tax rate of 34%.
</TABLE>
-A32-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Condition - Average Balances and Interest
Rates
<TABLE>
<CAPTION>
1992 1991
Interest Interest
Average Income\ Average Average Income/ Average
Balance Expense Rates Balance Expense Rates
<C> <C> <C> <C> <C> <C>
$ 276,233 $ 28,559 10.34% $ 264,924 $ 30,102 11.36%
171,990 11,536 6.71 186,773 15,024 8.04
34,194 3,352 9.80 28,448 2,914 10.24
121 9 7.32 325 30 9.33
12,793 445 3.48 22,838 1,355 5.93
495,331 43,901 8.86 503,308 49,425 9.82
33,897 34,409
11,502 10,052
11,147 13,830
(4,128) (2,781)
$ 547,749 $ 558,818
$ 71,804 2,141 2.98 $ 62,649 2,762 4.41
107,330 3,514 3.27 97,353 4,762 4.89
196,188 11,317 5.77 224,629 15,732 7.00
22,778 999 4.39 33,679 2,087 6.20
17,717 557 3.14 24,150 1,277 5.29
2,562 86 3.35 5,878 369 6.28
1,361 77 5.66 -- -- --
10,000 819 8.19 55 4 6.50
-- -- -- 454 42 9.20
429,740 19,510 4.54 448,847 27,035 6.02
77,544 72,601
5,936 7,152
513,220 528,600
34,529 30,218
$547,749 $ 558,818
$24,391 4.32% $ 22,390 3.80%
4.92% 4.45%
</TABLE>
-A33-
<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 taxable equivalent basis. This adjustment does not affect
net income since a statement of income prepared on a taxable
equivalent basis includes an offsetting amount in income tax
expense.
The following table reflects net interest income on a taxable
equivalent basis (1) for the years 1991 to 1993 (in thousands):
<TABLE>
<CAPTION>
Net Interest Income
Change
1993 1992 1991 1993/92 1992/91
<S> <C> <C> <C> <C> <C>
Interest income $ 38,635 $ 42,737 $ 48,387 $ (4,102) $ (5,650)
Taxable equivalent adjustment 1,202 1,164 1,038 38 126
Interest income--
tax-equivalent basis (1) 39,837 43,901 49,425 (4,064) (5,524)
Interest expense 14,722 19,510 27,035 (4,788) (7,525)
Net interest income (1) $ 25,115 $ 24,391 $ 22,390 $ 724 $ 2,001
Average earning assets $486,539 $495,331 $503,308 $(8,792) $(7,977)
Net interest income on
average earning assets (1) 5.16% 4.92% 4.45% .24% .47%
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
On a tax-equivalent basis, net interest income for 1993 was
$25,115,000, representing an increase over the previous year of
$724,000 or 3.0%. The improvement in net interest income was the
result of an increase in interest rate spreads and the mix of
earning assets. Average loans in 1993 totaled $284,565,000, an
increase of $8,332,000, or 3.0%, over the prior year. This
increase contributed to the improved margin, in addition to the
interest costing liabilities repriced faster in 1993 at lower rates
than did interest earning assets.
Interest expense in 1993 decreased by $4,788,000, or 24.5%,
from 1992. This decrease was due mainly from lower rates paid on
deposits. Average interest costing liabilities were $413,259,000
representing a decrease of $16,481,000, or 3.8%, below 1992.
Average time deposits less than $100,000 fell $27,305,000, or
13.9%, in the current year.
In 1992, net interest income increased 8.9% over 1991. This
increase was primarily the result of an improvement in the mix of
interest earning assets. Lower yielding investments were replaced
with higher yielding loans.
-A34-
PAGE
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
-A35-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income
The following table analyzes the increase in taxable
equivalent net interest income in terms of the respective amounts
attributable to changes in interest rates, changes in average
balances, and changes in both rates and balances.
<TABLE>
<CAPTION>
(In thousands)
1993 vs. 1992
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase <decrease> in:
Interest income:
Loans (1) $ (1,362) $ (2,159) $ 862 $ (65)
Investment securities:
Taxable (2,498) (1,767) (863) 132
Nontaxable (1) 134 (301) 478 (43)
Trading account securities (1) (6) (1) (5) --
Federal funds sold and securities
purchased under resale agreements (332) (59) (315) 42
Total (4,064) (4,287) 157 66
Interest expense:
Interest-bearing demand deposits (562) (634) 102 (30)
Interest-bearing savings deposits (933) (1,022) 126 (37)
Interest-bearing time deposits
under $100,000 (3,028) (1,688) (1,575) 235
Interest-bearing time deposits
over $100,000 (640) (124) (589) 73
Federal funds purchased and securities
sold under agreements to repurchase 24 (105) 159 (30)
Other short-term borrowings (6) (14) 9 (1)
FHLB advances 400 (30) 705 (275)
Long-term borrowings (43) 28 (69) (2)
Capital notes -- -- -- --
Total (4,788) (3,589) (1,132) (67)
Increase in net interest income $ 724 $ (698) $ 1,289 $ 133
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
-A36-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income (Continued)
<TABLE>
<CAPTION>
1992 vs. 1991
Change attributable to
Total Rate/
Change Rate Volume Volume
<C> <C> <C> <C>
$ (1,543) $ (2,712) $ 1,285 $ (116)
(3,489) (2,497) (1,189) 197
439 (124) 588 (25)
(21) (6) (19) 4
(910) (561) (596) 247
(5,524) (5,900) 69 307
(621) (894) 404 (131)
(1,248) (1,575) 488 (161)
(4,415) (2,774) (1,992) 351
(1,088) (610) (675) 197
(720) (518) (340) 138
(283) (172) (208) 97
77 -- -- 77
815 1 646 168
(42) (42) (42) 42
(7,525) (6,584) (1,719) 778
$ 2,001 $ 684 $ 1,788 $ (471)
</TABLE>
-A37-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Noninterest Income
Noninterest income in 1993 was $7,904,000, representing a
decrease of $19,000, or .2%, under the preceding year. The largest
decrease came from the security gains category which decreased
$339,000 from 1992. This was due to the 1992 sale of
collateralized mortgage obligations discussed in the next
paragraph. Increases in service charges and trust fees categories
for 1993 helped offset the decreases in noninterest income caused
by the security gains category. All other categories remained
relatively unchanged.
Noninterest income in 1992 was $7,923,000, representing a
decrease of $438,000, or 5.2%, under the preceding year. This
decrease resulted primarily from other income. In 1991 and 1990
there were items of income received from the RTC in the settlement
of the acquisition transactions of failed savings and loans from
the RTC that did not repeat themselves in 1992. Bankcard fees and
service charges were also down in 1992 due to changes in customer
uses of these services. During 1992, UNB sold collateralized
mortgage obligations because of accelerated repayments and small
principal sums remaining in certain issues. This accounted for
almost all of the investment sales in 1992, and the security gains
noted in the table below. The total par value sold represented
approximately 6.6% of the entire investment portfolio. All other
categories remained relatively unchanged.
Each major category of noninterest income is analyzed in the
following table (in thousands):
<TABLE>
<CAPTION>
Noninterest Income
Percent Change
1993 1992 1991 1993/92 1992/91
<S> <C> <C> <C> <C> <C>
Bankcard fees $ 2,979 $ 3,004 $ 3,134 (.8)% (4.1)%
Service charges 2,452 2,271 2,462 8.0 (7.7)
Trust fees 1,352 1,188 1,095 13.8 8.5
Security gains 20 359 212 (94.4) 69.3
Other 1,101 1,101 1,458 0.0 (24.5)
Total noninterest income $ 7,904 $ 7,923 $ 8,361 (.2)% (5.2)%
</TABLE>
Analysis of Noninterest Expense
Noninterest expense in 1993 totaled $22,163,000, a decrease of
$403,000, or 1.8%, under 1992. The largest decrease in noninterest
expense occurred in marketing expenses. In 1992 there was
extensive media advertising that took place that did not occur in
1993. Several other noninterest expense categories decreased in
1993 due to efforts to control costs in UBI. The largest dollar
increase in noninterest expense came from salaries and benefits
expenses. The increase of $522,000 was due to normal salary and
benefits increases.
-A38-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Noninterest Expense (Continued)
Noninterest expense in 1992 totaled $22,566,000, an increase
of $414,000, or 1.9%, over 1991. This increase was significantly
less than the increase from 1990 to 1991. There were various
increases and decreases in the expense categories resulting in the
small 1.9% increase overall. Management continues to look for ways
to cut costs.
Each major category of noninterest expense is detailed in the
following table (in thousands):
<TABLE>
<CAPTION>
Noninterest Expense
Percent Change
1993 1992 1991 1993/92 1992/91
<S> <C> <C> <C> <C> <C>
Salaries and benefits $ 10,119 $ 9,597 $ 9,359 5.4% 2.5%
Bankcard fees 2,137 2,024 1,978 5.6 2.3
Data processing 1,159 1,385 1,368 (16.3) 1.2
Equipment 1,621 1,395 1,305 16.2 6.9
Occupancy, net of revenues of
$432, $437 and $465 1,353 1,311 1,561 3.2 (16.0)
Postage 626 673 710 (7.0) (5.2)
Marketing 421 862 599 (51.2) 43.9
Supplies 818 935 883 (12.5) 5.9
Amortization of purchase premium 364 486 642 (25.1) (24.3)
FDIC insurance 1,034 1,097 997 (5.7) 10.0
Other 2,511 2,801 2,750 (10.4) 1.8
Total noninterest expense $ 22,163 $ 22,566 $ 22,152 (1.8)% 1.9%
</TABLE>
Analysis of Investment Securities
The book value of investment securities at December 31, 1993,
1992, and 1991, is presented below (in thousands):
<TABLE>
<CAPTION>
Investment Securities
1993 1992 1991
<S> <C> <C> <C>
U.S. Treasury securities $ 24,500 $ 29,177 $ 41,115
U.S. government corporations
and agencies 85,899 63,091 30,868
Obligations of states and
political subdivisions 42,555 37,072 34,383
Corporate securities 4,107 6,710 8,285
Mortgage-backed securities 28,126 50,246 89,425
Other investments 5,714 11,236 4,961
Total $ 190,901 $ 197,532 $ 209,037
</TABLE>
-A39-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Investment Securities (Continued)
It is the initial intent of UBI to hold securities to
maturity. It may, from time to time, sell securities for reasons
as defined in Note 1, page A-9 (Investment and Trading Account
Securities) of the Notes to Consolidated Financial Statements.
Except for total U.S. Treasury and U.S. Agency Obligations, no
investment in a single issuer exceeds 10% of stockholders' equity.
State and municipal securities make up approximately 22.3% of
the total investment portfolio. UNB's investment policy states
that out-of-state municipal securities purchased shall have an A
rating or better by either Standard & Poor's or Moody's rating
service or be approved by the Investment Committee if municipal
securities with less than an A rating are considered. The quality
ratings on Kansas municipal bonds shall be left to the investment
officer.
At December 31, 1993, $10,443,000, or 24.5%, of the state and
municipal securities were nonrated with $6,833,000, or 65.4%, of
the nonrated municipal securities being Kansas issues. The
majority of the nonrated municipal securities are smaller bond
issues that are not rated by Standard & Poors or Moody's but are
considered to be of appropriate investment quality and actively
traded in a liquid market.
A complete breakout of the ratings for state and municipal
securities at December 31, 1993, is shown below (in thousands):
<TABLE>
<CAPTION>
Book % of
Value Rating Total
<C> <C> <C>
$ 11,611 AAA 27.3%
6,688 AA 15.7
13,813 A 32.5
10,443 NR 24.5
$ 42,555 100.0%
</TABLE>
-A40-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Investment Securities (Continued)
The maturity distribution of UBI's investment securities at
December 31, 1993, is presented below. In addition, the weighted
average yield of each maturity range of 1993 is presented on a
fully taxable equivalent basis.
<TABLE>
<CAPTION>
Maturity Distribution of Investment Securities
(In thousands)
After After
One But Five But
Within Within Within After
One Five Ten Ten
Year Years Years Years Total
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 13,065 $ 11,435 $ -- $ -- $ 24,500
U.S. government corporations
and agencies 20,431 63,969 1,499 -- 85,899
Obligations of states and
political subdivisions 8,008 18,791 13,151 2,605 42,555
Corporate securities 1,031 3,076 -- -- 4,107
Mortgage-backed securities 12,226 15,685 215 -- 28,126
Other investments -- -- -- 5,714 5,714
Total $ 54,761 $ 112,956 $ 14,865 $ 8,319 $ 190,901
Percent of total portfolio 29% 59% 8% 4% 100%
Weighted average yield
(fully taxable equivalent) 5.90% 5.54% 6.98% 6.91% 5.82%
</TABLE>
Analysis of Loans
Outstanding loans distinguished by selected categories at
December 31 for each of the last five years, their maturities, and
interest sensitivity of those loans categories at year-end December
31, 1993, are set forth in the following analyses (in thousands):
<TABLE>
<CAPTION>
Loans by Category
At December 31, 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 97,923 $ 87,256 $ 88,114 $ 94,267 $ 92,880
Installment 101,866 89,572 70,679 58,239 67,327
Bankcard 46,375 52,656 55,379 55,882 52,279
Lease financing -- -- -- -- 143
Real estate:
Construction -- -- -- 562 138
Mortgage 47,523 50,500 60,438 67,431 8,986
Other 1,762 694 1,033 378 304
Total $ 295,449 $ 280,678 $ 275,643 $ 276,759 $ 222,057
</TABLE>
-A41
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Loans (Continued)
<TABLE>
<CAPTION>
Maturity Distribution of Loans
(In thousands)
After
One But
Within Within After
One Five Five
At December 31, 1993 Year Years Years Total
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 53,757 $ 35,287 $ 8,879 $ 97,923
Installment 30,707 63,456 7,703 101,866
Bankcard -- 46,375 -- 46,375
Real estate:
Mortgage 1,639 7,362 38,522 47,523
Other 1,762 -- -- 1,762
Total $ 87,865 $ 152,480 $ 55,104 $ 295,449
Loans with fixed interest rates $ 27,869 $ 106,017 $ 26,072 $ 159,958
Loans with floating interest rates 59,996 46,463 29,032 135,491
Total $ 87,865 $ 152,480 $ 55,104 $ 295,449
</TABLE>
UBI has had a significant increase in installment loans
starting in 1991 through 1993. UBI has been aggressively pursuing
indirect dealer loan business during this period. UBI will
continue to emphasize this area of the retail market in the future
because of the potential to generate additional loan growth for
UBI.
UBI shows a significant increase in mortgage loans in 1990
from prior years. This increase is the result of acquisitions of
two failed savings and loans during 1990 from the RTC. Prior to
these acquisitions, UBI's bank subsidiary, UNB, began emphasizing
home mortgage lending in the latter part of 1988. Prior to that
time UNB did not actively promote mortgage loans.
In 1988, when UNB began emphasizing mortgage loans, Sedgwick
County, Kansas was defined as the market area. The acquisitions in
1990 expanded the mortgage lending market to Reno County, Kansas
with a few loans in counties adjacent to Sedgwick and Reno
counties. UNB continues to consider Sedgwick and Reno counties as
its primary mortgage loan markets. The majority of these loans are
1-4 family residential mortgage loans. At December 31, 1993,
approximately 55% are adjustable rate mortgages with the remaining
45% being fixed rate.
-A42-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Underperforming Assets
UBI continues to place strong emphasis on the close monitoring
of underperforming assets. It is UBI's policy to treat as
underperforming 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.
Underperforming assets at December 31, 1993, were $2,213,000,
an increase of $156,000 from $2,057,000 at December 31, 1992.
Nonaccrual loans decreased $402,000, while loans 90 days past due
increased $530,000 over the prior year. At December 31, 1992,
underperforming assets were $544,000 higher than the $1,513,000
reported at December 31, 1991. The increase at December 31, 1992,
was not substantial and the level of underperforming assets to
total loans and the allowance for loan losses remain at very
acceptable levels. The decrease in 1991, was attributable to
reduced levels of past due loans and charge-offs of loans
classified as underperforming in 1990. All underperforming loans
of $100,000 or more are specifically reviewed by management in
analyzing the adequacy of the allowance for loan losses. This is
discussed further on page A-10 under Allowance for Loan Losses.
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 well secured and/or 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 book value unless such book value is deemed to be
collectible.
Loans on which the accrual of interest has been discontinued
amounted to $685,000 at December 31, 1993. If interest on these
loans had been accrued, such income would have approximated $66,000
in 1993. No interest was recognized on these loans after
transferring them to non-accrual status.
Underperforming assets for five-year period ended December 31,
1993, are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
Underperforming Assets
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 685 $ 1,087 $ 613 $ 1,347 $ 3,549
Past due loans
(90 days or more) 1,469 939 568 402 302
2,154 2,026 1,181 1,749 3,851
Other real estate held 59 31 332 803 43
Total $ 2,213 $ 2,057 $ 1,513 $ 2,552 $ 3,894
</TABLE>
-A43-
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 under 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
underperforming 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 December 31, 1993, the allowance for loan losses was
$4,400,000, or 1.49%, of outstanding loans. This compares with
$3,400,000, or 1.21%, of outstanding loans reported at the end of
1992. The provision for loan losses totaled $2,412,000 in the
current year, a decrease of $157,000 from the $2,569,000 reported
a year earlier. Net charge-offs during 1993 amounted to
$1,412,000, or .50%, of average net loans. This compares with net
charge-offs of $2,219,000, or .80%, of average net loans for the
preceding year.
Based upon managements detailed review and analysis of the
loan portfolio at December 31, 1993, the allowance for loan losses
was set at a level of $4,400,000 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.
-A44-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses (Continued)
The activity in the allowance for loan losses during each of
the past five years is presented in the following analysis: (In
thousands)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Total net loans at
end of year $ 295,449 $ 280,678 $ 275,643 $ 276,759 $ 222,057
Average of total net loans $ 284,565 $ 276,233 $ 264,924 $ 251,448 $ 223,908
Allowance for loan losses:
Balance at beginning of year $ 3,400 $ 3,050 $ 2,800 $ 2,750 $ 2,695
Provision charged to expense 2,412 2,569 2,647 2,495 2,520
Charge-offs:
Commercial, financial,
and agricultural -- 1,525 609 860 940
Real estate -- 13 8 -- --
Installment 832 700 1,251 1,004 724
Bankcard 1,108 866 952 764 1,015
Other -- -- -- -- 5
1,940 3,104 2,820 2,628 2,684
Recoveries:
Commercial, financial,
and agricultural 212 118 136 33 76
Real estate -- -- -- -- --
Installment 165 676 190 76 40
Bankcard 151 91 97 68 101
Other -- -- -- 6 2
528 885 423 183 219
Net charge-offs 1,412 2,219 2,397 2,445 2,465
Balance at end of year $ 4,400 $ 3,400 $ 3,050 $ 2,800 $ 2,750
Net charge-offs to:
Average net loans .50% .80% .90% .97% 1.10%
Provision for loan losses 58.54% 86.38% 90.56% 98.00% 97.81%
Allowance for loan losses to:
Year-end net loans 1.49% 1.21% 1.11% 1.01% 1.24%
Net charge-offs 3.12x 1.53x 1.27x 1.15x 1.12x
Underperforming assets 1.99x 1.65x 2.02x 1.10x .71x
</TABLE>
-A45-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses (Continued)
The following tables allocate UBI's allowance for loan losses
in dollars and percentages among the various loan categories based
upon managements review and analysis of the potential risk in the
loan portfolio at year-end.
Allocation of the allowance for loan losses between loan
categories is shown in the following table (in thousands). This
allocation is not fixed, and UBI considers the entire allowance
available to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 1,000 $ 1,100 $ 1,000 $ 1,000 $ 1,300
Real estate 100 100 100 150 --
Installment 1,600 1,100 850 650 500
Bankcard 1,700 1,100 1,100 1,000 950
$ 4,400 $ 3,400 $ 3,050 $ 2,800 $ 2,750
</TABLE>
The following tables compare the percentage of loans in each
loan category to total loans and the allocation of the allowance
for loan losses by type expressed as a percentage of the total
allowance for loan losses:
<TABLE>
<CAPTION>
Percent of loans in each category to total loans
At December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 33.14% 31.09% 31.97% 34.06% 41.89%
Real estate 16.08 17.99 21.93 24.57 4.11
Installment 34.48 31.91 25.64 21.04 30.32
Bankcard 15.70 18.76 20.09 20.19 23.54
Other .60 .25 .37 .14 .14
100.00% 100.00% 100.00% 100.00% 100.00%
<CAPTION>
Allocation of allowance for loan losses as a percentage
of total allowance for loan losses
At December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 22.73% 32.35% 32.79% 35.71% 47.27%
Real estate 2.27 2.95 3.28 5.36 0.00
Installment 36.36 32.35 27.87 23.22 18.18
Bankcard 38.64 32.35 36.06 35.71 34.55
100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
-A46-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Deposits
Deposits at December 31, 1993, were $433,816,000, representing
a decrease of $41,811,000, or 8.8%, below 1992. On average for the
year, deposits were $444,364,000, down $31,280,000 over 1992. Most
of the decrease in deposits during 1993 occurred in time deposits.
This decrease was the result of lower interest rates in 1993 and
1992, which has caused customers to look for alternative
investments at higher yields outside the banking industry.
The maturity of time deposits of $100,000 or more is set forth
in the following table (in thousands):
<TABLE>
<CAPTION>
Maturities of Domestic
Time Deposits of
$100,000 or more
At December 31,
1993 1992
<S> <C> <C>
Three months or less $ 4,102 $ 7,398
Over three through six months 1,369 2,766
Over six through twelve months 1,431 2,023
Over twelve months 5,306 4,248
Total $ 12,208 $ 16,435
</TABLE>
Analysis of Short-term Borrowings
Information for each category of short-term borrowings for
which the average balance outstanding for the period was at least
30 percent of stockholders' equity at the end of the period is
presented below (in thousands):
<TABLE>
<CAPTION>
Short-term Borrowings
1993 1992 1991
<S> <C> <C> <C>
Federal funds purchased:
Outstanding at year-end $ 12,543 $ 5,357 $ 8,123
Average interest rate at year-end 2.88% 3.00% 3.62%
Average outstanding for the year $ 9,946 $ 6,694 $ 13,401
Weighted average interest rate 2.81% 3.24% 5.58%
Highest outstanding balance at any month-end $ 17,237 $ 7,148 $ 17,805
Securities sold under agreements to repurchase:
Outstanding at year-end $ 11,950 $ 11,766 $ 11,568
Average interest rate at year-end 2.48% 2.58% 3.40%
Average outstanding for the year $ 12,846 $ 11,024 $ 11,109
Weighted average interest rate 2.35% 3.08% 4.95%
Highest outstanding balance at any month-end $ 15,061 $ 13,316 $ 14,903
FHLB advances:
Outstanding at year-end $ 16,900 $ 2,300 $ --
Average interest rate at year-end 3.40% 5.76% --
Average outstanding for the year $ 13,826 $ 1,361 $ --
Weighted average interest rate 3.45% 5.66% --
Highest outstanding balance at any month-end $ 17,300 $ 2,400 $ --
</TABLE>
-A47-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Capital Resources
Stockholders' equity increased $4,596,000, or 12.7%, to
$40,816,000 at December 31, 1993, from the $36,220,000 reported at
December 31, 1992. The ratio of equity capital to total assets was
7.7 % at December 31, 1993, compared to 6.6% for the same period in
1992. This increase was the result of reinvested earnings, which
amounted to $4,596,000, or 88.5%, of net income compared with
$3,705,000, or 86.2%, of net income a year earlier. The dividend
payout ratio of 11.5% is consistent with UBI's policy of
maintaining 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.
These guidelines began phase in on January 1, 1991, with final
implementation on December 31, 1992. 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
December 31, 1993, UBI had a 11.8% Tier I capital ratio, a 13.1%
Tier II capital ratio, and a 7.4% 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.
-A48-
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 December 31, 1993, loan repayments and scheduled
loan maturities within one year or less totaled $86,142,000. At
December 31, 1993, 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 $54,761,000. These short-term investment funds
equaled 11.3% 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 December
31, 1993, dividends of approximately $7,839,000 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 Bank
and Trust Company of Chicago. As of December 31, 1993, the line of
credit had a $0 balance.
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.
-A49-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Interest Sensitivity (Continued)
The tables that follow summarize the asset/liability margin
management status at December 31, 1993. Yields and rates shown in
the table are interest income and expense only. Other 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 $129,783 $ 50,149 $20,842 $80,594 $14,081 $ 0 $295,449
Securities-Taxable 11,907 16,108 22,149 91,424 7,213 0 148,801
Securities-Nontaxable 920 1,543 5,289 18,842 15,506 0 42,100
Fed Funds Sold 0 0 0 0 0 0 0
Nonearning Assets 0 0 0 0 0 46,507 46,507
Total Assets 142,610 67,800 48,280 190,860 36,800 46,507 532,857
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 11,856 63,255 0 0 0 0 75,111
Savings Deposits 24,775 82,586 0 0 32 0 107,393
Other Time Deposits 38,084 25,651 30,434 54,754 15,681 0 164,604
Short-term Borrowings 28,527 0 0 0 0 0 28,527
Long-term Borrowings 15,000 200 1,700 8,000 0 0 24,900
Noncosting Liabilities 0 0 0 0 0 91,506 91,506
Stockholders' Equity 0 0 0 0 0 40,816 40,816
Total Liabilities and
Stockholders' Equity 118,242 171,692 32,134 62,754 15,713 132,322 532,857
Repricing Gap $ 24,368 $(103,892) $16,146 $128,106 $21,087 $(85,815) $ 0
Cumulative Repricing Gap $ 24,368 $(79,524) $(63,378) $64,728 $85,815 $ 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 7.73% 12.43% 7.70% 7.96% 9.04% 8.65%
Securities-Taxable 5.89 5.40 6.34 5.43 7.37 5.69
Securities-Nontaxable (1) 8.42 5.97 7.46 8.84 8.88 8.56
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Nonearning Assets 0.00 0.00
Total Assets 7.58 10.61 7.05 6.84 8.65 0.00 7.07
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 1.97 1.97 0.00 0.00 0.00 1.97
Savings Deposits 2.07 2.15 0.00 0.00 2.43 2.16
Other Time Deposits 3.71 3.69 3.93 5.61 6.44 4.64
Short-term Borrowings 2.80 0.00 0.00 0.00 0.00 2.80
Long-term Borrowings 3.03 5.45 5.98 8.28 0.00 4.94
Noncosting Liabilities 0.00 0.00
Stockholders' Equity 0.00 0.00
Total Liabilities and
Stockholders' Equity 2.89 2.32 4.03 5.95 6.43 0.00 2.53
Net Yield 4.69% 8.29% 3.02% .89% 2.22% 0.00% 4.54%
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
-A50-
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Five-Year Summary of Operations
(In Thousands of Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Condensed Statement of Income
Interest income $ 38,635 $ 42,737 $ 48,387 $ 45,534 $ 38,975
Interest expense 14,722 19,510 27,035 26,765 21,699
Net interest income 23,913 23,227 21,352 18,769 17,276
Provision for loan losses 2,412 2,569 2,647 2,495 2,520
Other income 7,904 7,923 8,361 8,289 8,682
Other expense 22,163 22,566 22,152 20,735 20,286
Income before income tax expense 7,242 6,015 4,914 3,828 3,152
Income tax expense 2,050 1,715 1,412 943 543
Net income $ 5,192 $ 4,300 $ 3,502 $ 2,885 $ 2,609
Per Share Data
Net income $14.81 $12.28 $10.03 $8.27 $7.48
Cash dividends declared 1.70 1.70 1.20 1.20 1.20
Dividend payout ratio 11.48% 13.85% 12.00% 14.51% 16.04%
Financial Ratios
Net income as a percent
of average assets .97% .79% .63% .59% .65%
Net income as a percent
of average equity 13.50 12.45 11.59 10.25 10.15
Average equity as a percent
of average assets 7.16 6.30 5.41 5.76 6.37
Average primary capital as
a percent of average assets 7.90 7.06 5.91 6.32 7.03
Average total capital as
a percent of average assets 7.90 7.06 5.99 6.44 7.29
Tier I Capital to risk-based assets 11.79 10.44 9.61 8.53 N.A.
Tier II Capital to risk-based assets 13.10 11.46 10.57 9.43 N.A.
Leverage ratio-Tier I Capital
to total assets 7.40 6.39 5.48 4.83 N.A.
Balance Sheet Items
Average assets $ 537,444 $ 547,749 $ 558,818 $ 488,657 $ 403,418
Average investment securities 198,190 206,184 215,221 132,889 104,541
Average loans, net 284,565 276,233 264,924 251,448 223,908
Average deposits 444,364 475,644 490,911 422,600 337,209
Average capital notes -- -- 454 750 1,050
Average long-term borrowings 9,154 10,000 55 -- --
Average stockholders' equity 38,457 34,529 30,218 28,145 25,695
Year-end assets 532,857 548,309 560,259 564,983 414,495
Year-end investment securities 190,901 197,532 209,037 167,753 105,758
Year-end loans, net 291,049 277,278 272,593 273,959 219,307
Year-end deposits 433,816 475,627 489,747 496,951 349,275
Year-end capital notes -- -- -- 600 900
Year-end long-term borrowings 8,000 10,000 10,000 -- --
Year-end stockholders' equity 40,816 36,220 32,480 29,373 26,906
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