SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1994
Commission file number 0-11114
Union Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Kansas 48-0936090
(State of incorporation) (I.R.S. Employer
Identification No.)
200 Union Center Building
150 North Main
Wichita, Kansas 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(316) 261-4700
Securities registered pursuant to Section 12(b) of the Act:
Common stock, Class A, $10 par value
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The aggregate market value of the voting stock held by non-
affiliates of the registrant cannot be determined since there is no
public trading market for the stock.
The number of shares of Class A common stock outstanding as of
March 31, 1994, was 350,690.
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Union Bancshares, Inc. and Subsidiaries
Table of Contents
PART I
ITEM PAGE
1 Financial Statements Appendix A
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations Appendix A
PART II
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 4
Signatures 5
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Union Bancshares, Inc. and Subsidiaries
PART I
Item 1. Financial Statements
Set forth below are the consolidated financial statements of
UBI and its subsidiaries appearing on pages A-3 to A-17 of the
attached Appendix.
a. Condensed Consolidated Statement of Condition
b. Condensed Consolidated Statement of Income
c. Condensed Consolidated Statement of Cash Flows
d. Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by Item 303 of Regulation S-K is
contained on pages A-18 to A-29 of the attached Appendix under the
caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
PART II
Item 1. Legal Proceedings
There were no legal proceedings pending during the fiscal
quarter ended March 31, 1994, to which UBI or its subsidiaries was
a party, other than ordinary routine litigation incidental to their
business.
Item 2. Changes in Securities
There were no changes in securities during the fiscal quarter
ended March 31, 1994.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the
fiscal quarter ended March 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
No information is required in response to this Item as no
matters were submitted to a vote of UBI's security holders during
the first quarter of 1994.
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Union Bancshares, Inc. and Subsidiaries
Item 5. Other Information
There is no other information required to be disclosed under
this caption for the fiscal quarter ended March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits
None
(2) Reports on Form 8-K
During the period covered by this report, UBI
filed one Form 8-K dated April 4, 1994, and
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 of Winfield, Kansas.
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Union Bancshares, Inc. and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Union Bancshares, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNION BANCSHARES, INC.
/S/ WILLIAM G. WATSON /S/ STEVEN C. WORRELL
By: William G. Watson By: Steven C. Worrell
President & Chief Vice President,
Executive Officer Treasurer & Chief
Financial Officer
(Principal Executive Officer) (Principal Accounting Officer)
May 13, 1994 May 13, 1994
Date Date
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Union Bancshares, Inc. and Subsidiaries
Financial Information
APPENDIX A
FINANCIAL INFORMATION
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Union Bancshares, Inc. Union Bancshares, Inc. and Subsidiaries
Index to 1994 Financial Information
Page
Financial Statements
Condensed Consolidated Statement of Condition-
March 31, 1994 and December 31, 1993 A-3
Condensed Consolidated Statement of Income-
Three months ended March 31, 1994 and 1993 A-4
Condensed Consolidated Statement of Cash Flows-
Three months ended March 31, 1994 and 1993 A-5
Notes to Condensed Consolidated
Financial Statements A-6 to A-17
Management's Discussion and Analysis of Results of
Operations and Financial Condition A-18 to A-29
Condensed Consolidated Statement of Condition -
Average Balances and Interest Rates A-20
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Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Condition
<TABLE>
(In thousands)
<CAPTION>
March 31, December 31,
1994 1993
(Unaudited) *
<S> <C> <C>
Assets
Cash and due from banks $ 32,708 $ 26,819
Federal funds sold and securities
purchased under resale agreements -- --
Total cash and cash equivalents 32,708 26,819
Investment securities held to maturity 133,755 190,901
Investment securities available for sale 35,465 --
Total investment securities (market value -
$169,239 and $194,872) 169,220 190,901
Trading account securities 100 --
Loans 299,011 298,062
Less: Allowance for loan losses (4,541) (4,400)
Net loans 294,470 293,662
Premises and equipment 12,528 12,124
Other assets 9,665 9,351
Total assets $ 518,691 $ 532,857
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 81,666 $ 86,708
Interest bearing 341,050 347,108
Total deposits 422,716 433,816
Federal funds purchased and securities
sold under agreements to repurchase 17,993 24,493
Other short-term borrowings 3,275 4,034
FHLB advances 19,900 16,900
Long-term borrowings 7,500 8,000
Other liabilities 5,151 4,798
Total liabilities 476,535 492,041
Common stock,
Class A, par value $10 per share;
1,000,000 shares authorized,
350,690 shares outstanding 3,507 3,507
Capital surplus 3,527 3,527
Retained earnings 35,069 33,782
Unrealized gain on securities available for sale, net 53 --
Total stockholders' equity 42,156 40,816
Total liabilities and
stockholders' equity $ 518,691 $ 532,857
<FN>
* Condensed from audited financial statements
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Income
<TABLE>
(Unaudited)
(In thousands except per share data)
<CAPTION>
Three months ended
March 31,
1994 1993
<S> <C> <C>
Interest income:
Interest and fees on loans $ 6,659 $ 6,851
Interest and dividends on
investment securities 2,444 2,918
Interest on trading account securities -- 1
Interest on Federal funds sold
and securities purchased
under resale agreements 2 38
Total interest income 9,105 9,808
Interest expense:
Interest on deposits 2,755 3,524
Interest on Federal funds purchased
and securities sold
under agreements to repurchase 209 132
Interest on other short-term borrowings 22 21
Interest on FHLB advances 148 43
Interest on long-term borrowings 166 207
Total interest expense 3,300 3,927
Net interest income 5,805 5,881
Provision for loan losses 605 625
Net interest income after
provision for loan losses 5,200 5,256
Other income 2,422 1,903
Other expense 5,631 5,476
Income before income tax expense 1,991 1,683
Income tax expense 599 481
Net income $ 1,392 $ 1,202
Earnings per share data:
Net income $3.97 $3.43
Dividends $.30 $.30
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
<TABLE>
(Unaudited) (in thousands)
<CAPTION>
Three months ended
March 31,
1994 1993
<S> <C> <C>
Cash lows from operating activities:
Net income $ 1,392 $ 1,202
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 626 199
Amortization of purchase premium 70 91
Provision for loan losses 605 625
Gain on sale of investment securities
available for sale (421) --
Gain on sale of trading account securities (4) (10)
Net (increase) decrease in trading account securities (95) 256
Gain on sale of premises and equipment (8) --
Net increase in other assets (231) (1,140)
Net increase in other liabilities 199 2,431
Net cash provided by operating activities 2,133 3,654
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 12,096 --
Proceeds from maturities and paydowns
of investment securities available for sale 4,478 --
Purchases of investment securities available for sale (1,676) --
Proceeds from sales of investment securities
held to maturity -- 100
Proceeds from maturities and paydowns
of investment securities held to maturity 12,950 43,654
Purchases of investment securities held to maturity (6,058) (54,967)
Mark to market adjustment for securities (100) --
Net increase in loans (1,282) (1,441)
Purchases of premises and equipment (750) (580)
Proceeds from sales of premises and equipment 8 --
Net cash provided (used) by investing activities 19,666 (13,234)
Cash flows from financing activities:
Net decrease in demand deposits
and savings accounts (6,666) (12,246)
Net decrease in time deposits (4,433) (11,171)
Net increase (decrease) in Federal funds purchased
and securities sold under agreements to repurchase (6,500) 1,649
Net decrease in other short-term borrowings (759) (1,567)
Net decrease in long-term borrowings (500) (500)
Net increase in FHLB advances 3,000 15,000
Adjustment to stockholders' equity for mark to market 53 --
Cash dividends paid (105) (105)
Net cash used by financing activities (15,910) (8,940)
Net increase (decrease) in cash and cash equivalents 5,889 (18,520)
Cash and cash equivalents at January 1 26,819 50,556
Cash and cash equivalents at March 31 $ 32,708 $ 32,036
Supplemental Disclosures:
Cash payments for:
Interest $2,683 $3,341
Income taxes $88 $4
</TABLE>
The accompanying notes are an integral part of these financial statements.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements in 1994 and 1993 include
Union Bancshares, Inc. (UBI) and its wholly-owned subsidiaries,
Union National Bank of Wichita (UNB), UBI Growth Capital, Inc.
(UBIGC) and UBI Financial Services, Inc. (UBIFS). All significant
intercompany accounts and transactions have been eliminated. In
addition, adjustments made to the unaudited interim financial
statements were of a normal recurring nature.
The 1993 condensed consolidated financial statements have been
reclassified to conform with 1994 presentation. Such
reclassifications have no effect on net income.
Statement of Cash Flows
For purposes of reporting cash flows, cash equivalents include
amounts due from banks, federal funds sold, and securities
purchased under resale agreements. Generally, federal funds are
sold for one-day periods.
Investment and Trading Account Securities
Effective January 1, 1994, UBI adopted Financial Accounting
Standard No. 115 (FAS 115) which relates to accounting for certain
investments in debt and equity securities. FAS 115 requires that
banks classify all securities as "held to maturity", "available for
sale" or "trading securities". Any new securities at time of
purchase must be placed in one of these three categories for
reporting purposes. Any security placed in the "available for
sale" or "trading securities" must be marked to its fair value at
that time. The fair value adjustment for "available for sale"
securities will flow through the equity section on the financial
reports. The fair value adjustment for the trading securities will
continue to flow through the income statement.
Management of UBI has done an extensive evaluation of all of its
securities to determine what securities will be placed in each of
these categories. Management has considered several factors to
determine these securities classifications including liquidity
needs, loan demand, tax issues, credit quality, regulatory issues
and asset/liability positioning.
For 1993, investment securities were stated at cost, adjusted
for amortization of premium and accretion of discount. Gains or
losses on security transactions were recognized upon realization
and were reported as a separate component of non-interest income.
The specific identification method was used in determining the cost
of investment securities sold.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
Investment and Trading Account Securities (Continued)
All investment securities were classified as "Investment
Securities" because management had the intent and ability to hold
the securities to maturity. Normal operations did not require the
sale of investment securities. However, on occasion, UBI decided
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 future liquidity needs, (c) to reposition the rate
cycle structure of the portfolio to meet projected asset/liability
requirements, and (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 three months ended March 31, 1993 due to some or all of
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. Gains or losses
on the sale of trading account securities are considered a normal
part of operations and are included in other income.
Loans
Loans are stated at principal amount outstanding. Interest
income on loans is accrued as earned. Loans are placed on
nonaccrual status when principal or interest is due and has
remained unpaid for 90 days or more unless the loan is both well
secured and in the process of collection. Loans are also placed on
nonaccrual status when there is reasonable doubt as to the ability
of the borrower to pay interest or principal. At the time a loan
is classified as nonaccrual, interest previously recorded as income
but not collected is reversed. Interest payments received on such
loans are generally recorded as a reduction in carrying value
unless such carrying value is deemed to be collectible.
Allowance for Loan Losses
UBI's policy is to maintain a valuation allowance adequate to
provide for potential losses on loans currently outstanding. The
allowance for loan losses is determined by management on the basis
of a detailed review of the risk factors affecting the loan
portfolio, including changes in the portfolio size and mix, past
loan loss experience, the financial condition of the borrowers, and
the prevailing economic environment. The result of this review
enables management to establish the allowance at a level considered
adequate to absorb loan losses.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
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 are reported as a reduction of total loans. Annual
fees on bankcard loans are amortized on a straight-line basis over
a twelve month period and the unamortized balance of these fees is
included in other liabilities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by straight-line and
accelerated methods over the estimated useful lives of the assets.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is reflected in income for the period.
The cost of maintenance and repairs is charged to operating
expenses as incurred. Significant renewals and betterments are
capitalized.
Income Taxes
In January 1993, UBI adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109
is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in UBI's financial
statements or tax returns. In estimating future tax consequences,
FAS 109 generally considers all expected future events other than
enactments of changes in the tax law or rates. Previously, UBI
used the FAS 96 asset and liability approach that gave no
recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
2. Cash and Due From Banks
Federal Reserve Bank regulations require the subsidiary bank to
maintain certain reserve balances relating to deposits. The
reserves may be maintained in the form of vault cash or balances
maintained with a Federal Reserve Bank. For the two-week reserve
period inclusive of March 31, 1994, daily average reserves of
$10,329,000 were maintained. For the two-week reserve period
inclusive of December 31, 1993, daily average reserves of
$10,553,000 were maintained.
3. Investment Securities
Investment Securities Held To Maturity
The book value and estimated market values of investments in
securities being held to maturity are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 22,416 $ 113 $ (246) $ 22,283
U.S. government corporations
and agencies 65,247 143 (798) 64,592
Obligations of states
and political subdivisions 41,958 1,315 (526) 42,747
Corporate securities 4,084 18 -- 4,102
Mortgage-backed securities -- -- -- --
Other investments 50 -- -- 50
Total $ 133,755 $ 1,589 $ (1,570) $ 133,774
<CAPTION>
December 31, 1993
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 24,500 $ 236 $ (7) $ 24,729
U.S. government corporations
and agencies 85,899 662 (261) 86,300
Obligations of states
and political subdivisions 42,555 2,272 (16) 44,811
Corporate securities 4,107 51 -- 4,158
Mortgage-backed securities 28,126 1,098 (64) 29,160
Other investments 5,714 -- -- 5,714
Total $ 190,901 $ 4,319 $ (348) $ 194,872
</TABLE>
The book value and estimated market value of securities being
held to maturity, by contractual maturity, are shown below in
thousands. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities have been included in the schedule of
maturities based upon their expected estimated average life.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities (Continued)
<TABLE>
<CAPTION>
March 31, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 31,466 $ 31,518
Due after one year through five years 85,100 84,831
Due after five years through ten years 14,970 15,019
Due after ten years 2,219 2,406
Total $ 133,755 $ 133,774
</TABLE>
Investment Securities Available For Sale
The book value and estimated market values of investments in
securities available for sale are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ -- $ -- $ -- $ --
U.S. government corporations
and agencies 10,108 3 (11) 10,100
Obligations of states
and political subdivisions 2,503 35 (55) 2,483
Corporate securities -- -- -- --
Mortgage-backed securities 17,069 329 (202) 17,196
Other investments 5,686 -- -- 5,686
Total $ 35,366 $ 367 $ (268) $ 35,465
</TABLE>
The book value and estimated market value of securities
available for sale, by contractual maturity, are shown below in
thousands. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities have been included in the schedule of
maturities based upon their expected estimated average life.
<TABLE>
<CAPTION>
March 31, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 17,908 $ 18,022
Due after one year through five years 10,013 10,030
Due after five years through ten years 1,759 1,727
Due after ten years 5,686 5,686
Total $ 35,366 $ 35,465
</TABLE>
Gross realized gains and losses from the sale of investment
securities available for sale for the three months ended March 31,
1994 are as follows:
<TABLE>
<CAPTION>
March 31,
1994
<S> <C>
Realized gains $ 421
Realized losses (--)
</TABLE>
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities (Continued)
Investment securities being held to maturity with a book value
of $39,345,000 and $41,322,000 were pledged to secure deposits of
public funds at March 31, 1994, and December 31, 1993 respectively.
Investment securities available for sale with a book value of
$5,057,000 were pledged to secure deposits of public funds at March
31, 1994. Total pledgings required at March 31, 1994, and December
31, 1993, were $10,150,000 and $17,038,000, respectively.
4. Allowance for Loan Losses
Changes in the allowance for loan losses were as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Balance at January 1 $ 4,400 $ 3,400
Provision charged to income 605 625
Recoveries of amounts charged off 122 96
Losses charged to the allowance (586) (468)
Balance at March 31 $ 4,541 $ 3,653
</TABLE>
5. Premises and Equipment
Premises and equipment are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated Book
At March 31, 1994 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,150 $ -- $ 2,150
Building and improvements 16,196 8,447 7,749
Furniture and equipment 6,178 3,549 2,629
$ 24,524 $ 11,996 $ 12,528
<CAPTION>
Accumulated Book
At December 31, 1993 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,150 $ -- $ 2,150
Building and improvements 15,820 8,288 7,532
Furniture and equipment 5,804 3,362 2,442
$ 23,774 $ 11,650 $ 12,124
</TABLE>
6. Deposits
Interest bearing deposits at March 31, 1994 and December 31,
1993, were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Demand deposits $ 74,107 $ 75,111
Savings deposits 106,772 107,393
Time deposits under $100,000 147,714 152,396
Time deposits $100,000 and over 12,457 12,208
$ 341,050 $ 347,108
</TABLE>
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7. Short-term Borrowings
Short-term borrowings of Union Bancshares, Inc. consist of the
following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Demand note collateralized by
stock of UNB at lender's prime
rate of 6.25% at March 31, 1994
and 5.50% at December 31, 1993 $ -- $ --
Treasury tax and loan demand
note collateralized by pledged
U.S. Treasury securities 3,275 4,034
$ 3,275 $ 4,034
</TABLE>
8. FHLB Advances
Federal Home Loan Bank (FHLB) advances outstanding at March
31, 1994 for UBI are detailed below. The advances provide one of
many funding alternatives that are used by UBI in its
asset/liability management process for acquiring funds to meet
customer loan needs and as a source of funds for other
asset/liability strategies. Currently all FHLB advances are at a
fixed rate to maturity. Maturities and weighted average rates of
the FHLB advances are as follows (in thousands):
<TABLE>
<CAPTION>
Year Rate Amount
<S> <C> <C>
1994 3.82 $ 18,400
1995 6.00 1,500
3.98% $ 19,900
</TABLE>
9. Long-term Borrowings
At March 31, 1994 and December 31, 1993 UBI had a note payable
to Harris Bank for $7,500,000 and $8,000,000, respectively, at a
fixed rate of 8.28% until March 31, 1995. After this date the rate
will float at Harris Banks' base rate. The note is collateralized
by stock of Union National Bank. Principal payments of $500,000
per quarter began on March 31, 1993 with the final payment on
December 31, 1997. Interest is payable quarterly.
The note payable agreement with Harris Bank contains a
restriction on the amount of dividends that UBI can declare or pay
during any one calendar year without the prior written consent of
Harris Bank. Dividends declared or paid may not exceed 25% of
consolidated net income for the calendar year. Other restrictions
include minimum capital levels and maximum nonperforming asset
ratios. Maturities of this note payable are as follows (in
thousands):
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Long-term Borrowings (Continued)
<TABLE>
<CAPTION>
Remaining
Maturities for:
<S> <C>
1994 $ 1,500
1995 2,000
1996 2,000
1997 2,000
$ 7,500
</TABLE>
10. Financial Instruments with Off-Balance-Sheet Risk
UBI is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments
to extend credit and standby letters of credit.
UBI's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. UBI uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit
risk at March 31, 1994 and December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
At
March 31, December 31,
1994 1993
<S> <C> <C>
Commitments to extend credit:
Credit card lines $207,116 $208,695
Standby letters of credit 2,562 2,191
Other loan commitments 45,917 50,384
</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.
- A13 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
10. Financial Instruments with Off-Balance-Sheet Risk (Continued)
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.
11. Dividend Availability
Approval of the Comptroller of the Currency is required if
total dividends declared by a national bank in any calendar year
exceed the bank's net profits for that year combined with its
retained profits for the preceding two years. At March 31, 1994,
dividends of approximately $6,392,000 were available from the bank
subsidiary without the approval of the Comptroller of the Currency.
12. Retirement Plan
UBI's bank subsidiary has an employee thrift plan covering
substantially all of its employees after one year of service.
Contributions are made based on a percentage of each participant's
contribution. The total expense for the three months ended March
31, 1994 and 1993, was $52,000 and $44,000 respectively.
- A14 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
13. Supplementary Income Statement Information
Items included on the Consolidated Statement of Income under
the captions of other income and other expense which exceed one
percent of gross income are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
<S> <C> <C>
Other income:
Bankcard fees $ 664 $ 702
Service charges 623 561
Trust fees 412 362
Gain on sale of investment securities
available for sale 421 --
Other 302 278
$ 2,422 $ 1,903
Other expense:
Salaries and benefits $ 2,574 $ 2,437
Bankcard fees 507 497
Data processing 295 290
Equipment 429 389
Occupancy, net of revenues of
$107 and $110 356 356
Postage 148 164
Marketing 167 151
Supplies 220 193
Amortization of purchase premium 70 91
FDIC insurance 242 264
Other 623 644
$ 5,631 $ 5,476
</TABLE>
14. Parent Company Only Financial Statements
Union Bancshares, Inc.
Statement of Condition (Parent Only)
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Assets
Cash $ 1,122 $ 1,328
Investment in subsidiaries 48,751 47,910
Other assets 4 6
Total assets $ 49,877 $ 49,244
Liabilities and Stockholders' Equity
Short-term borrowings $ 20 $ 20
Long-term borrowings 7,500 8,000
Other liabilities 254 408
Total liabilities 7,774 8,428
Common stock,
Class A, par value $10 per share;
1,000,000 shares authorized,
350,690 shares outstanding 3,507 3,507
Capital surplus 3,527 3,527
Retained earnings 35,069 33,782
Total stockholders' equity 42,103 40,816
Total liabilities and
stockholders' equity $ 49,877 $ 49,244
</TABLE>
- A15 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
14. Parent Company Only Financial Statements (Continued)
Union Bancshares, Inc.
Statement of Income (Parent Only)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
<S> <C> <C>
Income:
Dividends from subsidiaries $ 750 $ 700
Interest income 7 14
Total income 757 714
Expenses:
Interest expense 166 207
Other expense 143 139
Total expenses 309 346
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 448 368
Income tax benefit 103 113
Income before equity in undistributed
net income of subsidiaries 551 481
Equity in undistributed net
income of subsidiaries 841 721
Net income $ 1,392 $ 1,202
</TABLE>
Union Bancshares, Inc.
Statement of Cash Flows (Parent Only)
(In thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,392 $ 1,202
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of subsidiaries (841) (721)
Decrease in other assets 2 5
Decrease in other liabilities (154) (66)
Net cash provided by operating activities 399 420
Cash flows from investing activities:
Net decrease in loans -- 304
Net cash provided by investing activities -- 304
Cash flows from financial activities:
Decrease in long-term borrowings (500) (500)
Cash dividends paid (105) (105)
Net cash used by financing activities (605) (605)
Net increase in cash 206 119
Cash at January 1 1,328 1,314
Cash at March 31 $ 1,122 $ 1,433
</TABLE>
- A 16 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
15. Acquisitions
On April 4, 1994, First Community Federal Savings and Loan
Association (First Community) of Winfield, Kansas, was merged into
Union National Bank of Wichita (UNB) in accordance with the merger
agreement between Union Bancshares, Inc. (UBI), UNB and First
Community dated October 13, 1993. Under the merger agreement, each
outstanding share of First Community common stock was converted
into $35.00 in cash. Stock options of First Community were
converted into $35.00 in cash less the strike price of the options.
The total cost of the transaction was $12,646,520. The purchase
price was determined by assessing the worth in dollars of the
ongoing income stream generation from First Community, taking into
consideration market value of assets and liabilities. The
transaction, which will be accounted for as a purchase, was
financed with a $7,000,000 loan from Harris Bank and Trust in
Chicago and the remaining $5,646,520 from internal funds. The
merger passed all regulatory approvals and the approval of First
Community shareholders.
First Community was a savings and loan institution with total
assets as of April 4, 1994 of $148,000,000, and offered full
service banking from three branches. These facilities are located
one each in Winfield, Arkansas City and Derby, Kansas. All three
of these offices were part of the merger and will be ran as
branches of UNB.<PAGE>
- A17 -
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the three months ended March 31, 1994, net income was
$1,392,000, an increase of $190,000 or 15.8% from the $1,202,000
earned during the same period in 1993. Annualized, this produced
a return on average assets of 1.07%, compared to .90% for the
preceding year.
The increase in earnings for the first quarter of 1994 was due
to security gains from investment sales. The sales were made from
the available for sale portfolio in anticipation of the merger of
First Community Federal Savings and Loan Association (First
Community) with and into UNB. This was done to position the
combined portfolio for asset liability needs of the combined
institutions. The gains after income taxes increased net income
approximately $295,000.
The net interest margin was down slightly from a year ago due
to reducing spreads. Interest rates on loans were repricing
downward at a faster rate than were deposit rates during the later
half of 1993 and into the first quarter of 1994. While there were
increases in interest rates late in the first quarter of 1994, this
did not have any significant impact on increasing net interest
margins. The net interest margin for the remainder of 1994 is
anticipated to be up due the addition of First Community. First
Community will add approximately $150,000,000 in assets to the
balance sheet.
Trust fees and service charge income were up in the first
quarter of 1994 due to increased business. Trust fees were up some
13% while service charge income was up 11%. UNB continues to look
for increased fee income business through new products, new markets
and new sales.
Expenses in the first quarter of 1994 were up only 2.8% over the
same period in 1993. Management continues to look for ways to
reduce its expenses through new technological advances, redesign of
work flows or lower cost providers of services. Salaries and
benefits were the largest dollar increase over 1993 at $137,000.
This is from normal salary and benefit increases.
The balance sheet was down $6,098,000 on average in the first
quarter of 1994. This is smaller than the $10,034,000 decrease in
the first quarter of 1993. The reduction is attributable to lower
deposit levels. It is managements belief that customers have used
their deposits to reduce debt loads as well as investing in higher
rate and higher risk products in stocks and mutual funds. With the
increase in rates during the later part of the first quarter of
1994, management believes that deposits may stop their decline and
begin increasing.<PAGE>
- A18 -
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Management believes earnings will be up over 1993 levels from
increased business at UNB and also from the addition of First
Community. First Community will add new assets to UNB's existing
balance sheet. The addition of First Community will add mortgage
lending expertise to UNB's existing markets, while UNB will bring
commercial and consumer banking and trust expertise and products to
the First Community markets. The merger will also bring reduced
costs to the combined entities from back room consolidations.
On October 13, 1993, UBI and its wholly owned subsidiary, UNB,
signed an Acquisition Merger Agreement with First Community. The
agreement has been approved by stockholders and by regulators. The
actual merger of the two institutions took place on April 4, 1994.
The three locations of First Community became three new branches of
UNB on April 4, 1994. The completion of back room consolidations
are expected to be completed late third quarter to early fourth
quarter of 1994. UBI borrowed $7,000,000 from Harris Bank and
Trust in Chicago to finance this transaction.
Management continues to evaluate potential acquisition
candidates. It is the belief of management that growth through
acquisitions will help to provide increased future shareholder
value and assist in meeting competition through cost efficiencies.
UBI received approval from the Federal Reserve Bank on September
16, 1993 to form a Community Development Corporation, UBI Financial
Services, Inc. (UBIFS). UBI in joint partnership with Mennonite
Housing Rehabilitation Services, Inc., (Mennonite Housing), is
assisting with the construction of a low to moderate income elder
housing project in south central Wichita near the Broadway branch
of UNB. UBI is also working with Mennonite Housing to complete a
low to moderate income elder housing project on 21st Street of
Wichita. UBI is also working with the City of Wichita, Sedgwick
County, State of Kansas and community individuals of the area to
help build a new commercial business center at the same area on
21st Street. It is also working with the Federal National Mortgage
Association to provide lease purchase low income home ownership for
individuals in the area. In conjunction with 21st street community
leaders and residents UBI is assisting to help revitalize this low
to moderate income area. UBI through its subsidiary, UBIFS, will
be looking for other projects with Mennonite Housing or others to
help fund low to moderate income projects in all the communities it
serves.
The significant elements of income and expense affecting net
income are detailed separately in the ensuing analyses.
- A19 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Condition - Average Balances
and Interest Rates
(Taxable equivalent basis in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993
Average Average Average Average
Balance Rates Balance Rates
<S> <C> <C> <C> <C>
Assets
Loans (1)(2) $ 295,919 9.13% $ 283,662 9.80%
Investment securities:
Taxable 140,201 5.38 160,531 5.98
Nontaxable (2) 41,416 8.64 36,106 9.37
Trading account securities (2) 1 13.09 109 7.44
Federal funds sold and securities
purchased under resale agreements 288 3.21 5,063 3.07
Total earning assets 477,825 7.99 485,471 8.43
Cash and due from banks 31,093 30,095
Premises and equipment 12,364 11,956
Other assets 9,652 8,569
Allowance for loan losses (4,567) (3,626)
Total assets $ 526,367 $ 532,465
Liabilities & Stockholders' Equity
Interest bearing demand deposits $ 75,343 1.97 $ 73,873 2.22
Interest bearing savings deposits 106,912 2.13 115,609 2.58
Interest bearing time deposits
under $100,000 153,809 4.63 179,081 5.16
Interest bearing time deposits
over $100,000 8,048 3.56 10,526 4.11
Federal funds purchased and securities
sold under agreements to repurchase 28,800 2.94 20,317 2.64
Other short-term borrowings 3,226 2.82 2,946 2.83
FHLB advances 17,200 3.49 3,800 4.55
Long-term borrowings 7,989 8.41 9,995 8.40
Total costing liabilities 401,327 3.33 416,147 3.83
Non-interest bearing demand 78,485 75,152
Other liabilities 4,925 4,516
Total liabilities 484,737 495,815
Stockholders' equity 41,630 36,650
Total liabilities and
stockholders' equity $ 526,367 $ 532,465
Interest spread 4.66% 4.60%
Net interest margin (3) 5.19% 5.15%
<FN>
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $161 in 1994 and $175 in 1993.
(2) Income and rates are calculated using a marginal Federal tax rate of 34%.
(3) Net interest margin equals net interest income divided by average earning
assets.<PAGE>
</TABLE>
- A20 -
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Net Interest Income
Net interest income, the most significant element of UBI's
earnings, represents the difference between the interest earned on
loans and other investments, and the interest incurred for deposits
and other sources of funds. For purposes of the analysis below,
net interest income is adjusted to convert tax-exempt income to a
fully tax- equivalent basis. This adjustment does not affect net
income since a statement of income prepared on a tax-equivalent
basis includes an offsetting amount in income tax expense.
The following table reflects net interest income on a tax-
equivalent basis (1) for the three months ended March 31, 1994, and
1993 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1994 1993 Change
<S> <C> <C> <C>
Interest income $ 9,105 $ 9,808 $ (703)
Tax-equivalent adjustment 305 289 16
Interest income--tax-equivalent basis 9,410 10,097 (687)
Interest expense 3,299 3,927 (628)
Net interest income $ 6,111 $ 6,170 $ (59)
Average earning assets $ 477,825 $ 485,471 $ (7,646)
Net interest margin 5.19% 5.15% (.04)%
</TABLE>
The $59,000 reduction in net interest income was due mainly to
a more rapid downward change in loan rates than deposit rates that
began in the latter half of 1993. Deposit rates had fallen early
in 1993, but then leveled off during the last half of 1993.
Refinancing and early pay offs of loans continued with new loans
being booked at lower yields. This trend continued in the first
quarter of 1994. With the slight rise in interest rates late in
the first quarter of 1994 due to pressures from the Federal
Reserve, the margin should improve slightly. Loan growth in the
latter half of 1993 and first quarter of 1994 has helped to improve
the margin. For the year 1994, it is anticipated that margins will
be squeezed from the levels of 1993, reducing net interest income
levels. However, net interest income should be up due to the
addition of First Community as discussed on page A 18.
(1) Tax-equivalent basis is calculated using a marginal Federal tax
rate of 34%.<PAGE>
- A21 -
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income
The following table analyzes the increase in tax-equivalent
net interest income in terms of the respective amounts attributable
to changes in interest rate, changes in average balances, and
changes in both rate and balance.
<TABLE>
(In thousands)
<CAPTION>
Three Months Ended
March 31, 1994 vs 1993
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans (1) $ (191) $ (467) $ 296 $ (20)
Investment securities:
Taxable (507) (237) (300) 30
Nontaxable (1) 49 (64) 122 (9)
Trading account securities (1) (2) 2 (2) (2)
Federal funds sold and securities
purchased under resale agreements (36) 2 (36) (2)
Total (687) (764) 80 (3)
Interest expense:
Interest-bearing demand deposits (40) (47) 8 (1)
Interest-bearing savings deposits (172) (126) (55) 9
Interest-bearing time deposits
under $100,000 (522) (233) (321) 32
Interest-bearing time deposits
over $100,000 (36) (14) (25) 3
Federal funds purchased and securities
sold under agreements to repurchase 76 15 55 6
Other short-term borrowings 2 -- 2 --
FHLB advances 105 (10) 150 (35)
Long-term borrowings (41) -- (41) --
Total (628) (415) (227) 14
Increase in net interest income $ (59) $ (349) $ 307 $ (17)
<FN>
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
</TABLE>
- A22 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-Interest Income
Non-interest income for the three months ended March 31, 1994,
was $2,422,000, representing an increase of $519,000, or 27.3% from
the same period in the preceding year. This increase resulted
primarily from the security gains category. In the first quarter
of 1994, UBI sold $11,593,000 of U.S. Agency and mortgage-backed
securities from the "available for sale" category with the proceeds
being partially reinvested in nontaxable municipal securities.
This was done in anticipation of the merger that occurred on April
4, 1994 with First Community Federal, which had no nontaxable
investment securities. All other categories remained relatively
unchanged.
Each major category of non-interest income is analyzed in the
following table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Bankcard fees $ 664 $ 702 $ (38) (5.4)%
Service charges 623 561 62 11.1
Trust fees 412 362 50 13.8
Gain on sale of investment securities
available for sale 421 -- 421 0.0
Other 302 278 24 8.2
Total non-interest income $ 2,422 $ 1,903 $ 519 27.3%
</TABLE>
- A23 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-Interest Expense
Non-interest expense for the three months ended March 31, 1994
totaled $5,631,000, an increase of $155,000 or 2.8% from the first
quarter of 1993. The one category that made up a significant
dollar portion of this increase was salaries and benefits. This
increase was the result of normal pay increases and the increasing
costs of employee benefits and training. Also, equipment expense
was up due to new systems put in place to improve customer service.
All other categories remained relatively unchanged.
Each major category of non-interest expense is detailed in the
following table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Salaries and benefits $ 2,574 $ 2,437 $ 137 5.6%
Bankcard fees 507 497 10 2.0
Data processing 295 290 5 1.7
Equipment 429 389 40 10.3
Occupancy, net of revenues of
$107 and $110 356 356 -- 0.0
Postage 148 164 (16) (9.8)
Marketing 167 151 16 10.6
Supplies 220 193 27 14.0
Amortization of purchase premium 70 91 (21) (23.1)
FDIC insurance 242 264 (22) (8.3)
Other 623 644 (21) (3.3)
Total non-interest expense $ 5,631 $ 5,476 $ 155 2.8%
</TABLE>
- A24 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Under-Performing Assets
UBI continues to place strong emphasis on the close monitoring
of under-performing assets. It is UBI's policy to treat as under-
performing assets (a) loans that are accounted for on a nonaccrual
basis, (b) loans, the terms of which have been renegotiated to
provide for a reduction or deferral of interest or principal
because of a deterioration in the financial position of the
borrower, (c) other real estate, and (d) loans which are past due
90 days or more and still accruing interest.
Under-performing assets at March 31, 1994, were $2,278,000, a
slight increase of $65,000 from $2,213,000 at December 31, 1993.
Nonaccrual loans decreased $51,000, while loans 90 days past due
increased $114,000.
Loans are placed on nonaccrual status when principal or
interest is due and has remained unpaid for 90 days or more unless
the loan is both well secured and in the process of collection.
Loans are also placed on nonaccrual status when there is reasonable
doubt as to the ability of the borrower to pay interest or
principal. At the time a loan is classified as nonaccrual,
interest previously recorded but not collected is reversed.
Interest payments received on such loans are generally recorded as
a reduction in carrying value unless such carrying value is deemed
to be collectible.
Under-performing assets at March 31, 1994 and December 31,
1993, are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Nonaccrual loans $ 634 $ 685
Past due loans (90 days or more) 1,583 1,469
2,217 2,154
Other real estate held 61 59
Total $ 2,278 $ 2,213
</TABLE>
- A25 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses
In the normal course of business, banks recognize that a
relatively small percentage of the loans they make will eventually
be charged off. These future charge-offs are currently provided
for through the allowance for loan losses. Additions made to this
allowance are charged to operating expenses as the provision for
loan losses. Loans are charged against the allowance when they are
deemed to be uncollectible. Recoveries are credited directly to
the allowance.
The required level for the allowance for loan losses is
determined by management on the basis of a detailed review of the
risk factors affecting the loan portfolio. In addition to
evaluating the financial condition of individual borrowers,
management assesses the entire portfolio as to past loan loss
experience, volumes, mix and maturity, concentration of credit,
prevailing economic conditions both locally and nationally, and
off-balance sheet risk. Management specifically reviews all under-
performing assets of $100,000 or more for loan loss adequacy as
well as for potential partial or complete charge-offs. 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 March 31, 1994, the allowance for loan losses was
$4,541,000, or 1.52% of outstanding loans. This compares with
$4,400,000, or 1.48%, reported at December 31, 1993. Net charge-
offs for the first three months of 1994 were $464,000, or .16% of
average net loans. This compares with net charge-offs of $372,000,
or .13% of average net loans for the same period in the preceding
year.
Management believes that the allowance for loan losses of
$4,541,000 is adequate to cover the potential losses which may be
present in the loan portfolio at March 31, 1994.
- A26 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Capital Resources
Stockholders' equity increased $1,340,000, or 3.2%, to
$42,156,000 at March 31, 1994, from the $40,816,000 reported at
December 31, 1993. The ratio of equity capital to total assets was
8.1 % at March 31, 1994, compared to 7.7% for December 31, 1993.
This increase was the result of reinvested earnings and lower
levels of total assets. The dividend payout ratio was 7.6% for the
first quarter of 1994. It is UBI's policy to maintain an
appropriate balance between earnings returned to stockholders in
the form of dividends and earnings retained to provide internal
capital growth.
Risk-based capital guidelines established by the Federal
Reserve Bank (FRB), UBI's primary regulator, started in 1991.
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
March 31, 1994, UBI had a 11.9% Tier I capital ratio, a 13.2% Tier
II capital ratio, and a 7.8% 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.
- A27 -
<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 March 31, 1994, loan repayments and scheduled loan
maturities within one year or less totaled $88,242,000. At March
31, 1994, investment securities, federal funds sold, FHLB overnight
deposits, securities purchased under resale agreements and other
investments, all of which are maturing within one year or less,
totaled $49,373,000. These short term investment funds equaled
10.5% 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 March
31, 1994, dividends of approximately $6,392,000 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 March 31, 1994 the line-of-
credit had a $0 balance.
- A28 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Interest Sensitivity
Interest sensitivity is the cornerstone of UBI's
asset/liability margin management system. Key asset and liability
decisions are reviewed in the framework of this system with the
objective of optimizing long-term profitability at an acceptable
level of risk.
The tables that follow summarize the asset/liability margin
management status at March 31, 1994 (in thousands). Yields and
rates shown in the table are interest income and expense only.
Factors such as loan fees are not included in the summary.
<TABLE>
<CAPTION>
0-3 3-6 6-12 1-5 5+ Non-Rate
Repricing Maturity Months Months Months Years Years Sensitive Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $127,034 $ 47,436 $20,235 $85,743 $15,726 $ 0 $296,174
Securities-Taxable 14,837 7,896 20,782 74,978 6,841 0 125,334
Securities-Nontaxable 1,543 1,793 2,892 19,996 17,762 0 43,986
Fed Funds Sold 0 0 0 0 0 0 0
Nonearning Assets 0 0 0 0 0 53,197 53,197
Total Assets 143,414 57,125 43,909 180,717 40,329 53,197 518,691
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 11,628 62,479 0 0 0 0 74,107
Savings Deposits 24,754 82,019 0 0 0 0 106,773
Other Time Deposits 31,857 28,005 29,476 53,989 16,844 0 160,171
Short-term Borrowings 21,268 0 0 0 0 0 21,268
Long-term Borrowings 18,700 500 1,200 7,000 0 0 27,400
Noncosting Liabilities 0 0 0 0 0 86,816 86,816
Stockholders' Equity 0 0 0 0 0 42,156 42,156
Total Liabilities and
Stockholders' Equity 108,207 173,003 30,676 60,989 16,844 128,972 518,691
Repricing Gap $ 35,207 $(115,878) $13,233 $119,728 $23,485 $(75,775) $ 0
Cumulative Repricing Gap $ 35,207 $(80,671) $(67,438) $52,290 $75,775 $ 0 $ 0
<CAPTION>
0-3 3-6 6-12 1-5 5+ Non-Rate
Interest Rate Analysis Months Months Months Years Years Sensitive Total
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans 7.64% 12.24% 7.63% 7.82% 8.84% 8.49%
Securities-Taxable 5.27 5.20 6.06 5.25 7.85 5.53
Securities-Nontaxable (1) 5.98 7.68 8.30 8.86 8.39 8.49
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Nonearning Assets 0.00 0.00
Total Assets 7.38 11.12 6.93 6.87 8.47 0.00 6.90
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 1.97 1.97 0.00 0.00 0.00 1.97
Savings Deposits 2.09 2.15 0.00 0.00 0.00 2.16
Other Time Deposits 3.51 3.53 3.89 5.59 6.16 4.56
Short-term Borrowings 3.17 0.00 0.00 0.00 0.00 3.17
Long-term Borrowings 3.92 8.28 7.87 7.79 0.00 5.16
Noncosting Liabilities 0.00 0.00
Stockholders' Equity 0.00 0.00
Total Liabilities and
Stockholders' Equity 3.02 2.33 4.05 5.84 6.16 0.00 2.54
Net Yield 4.36% 8.79% 2.88% 1.03% 2.31% 0.00% 4.36%
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
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