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 September 30, 1994
Commission file number 0-11114
Union Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Kansas 48-0936090
(State of incorporation) (I.R.S. Employer
Identification No.)
200 Union Center Building
150 North Main
Wichita, Kansas 67202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(316) 261-4700
Securities registered pursuant to Section 12(b) of the Act:
Common stock, Class A, $10 par value
(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Act of 1934 during the preceding 12 months and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
The aggregate market value of the voting stock held by non-
affiliates of the registrant cannot be determined since there is no
public trading market for the stock.
The number of shares of Class A common stock outstanding as of
September 30, 1994, was 358,190.
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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-18 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-19 to A-33 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 September 30, 1994, to which UBI or its subsidiaries
was a party, other than ordinary routine litigation incidental to
their business.
Item 2. Changes in Securities
There were no changes in securities during the fiscal quarter
ended September 30, 1994.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the
fiscal quarter ended September 30, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
No information is required in response to this Item as no
matters were submitted to a vote of UBI's security holders during
the third 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 September 30, 1994.
Item 6. Exhibits and Reports on Form 8-K
(1) Exhibits
None
(2) Reports on Form 8-K
None
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PAGE
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Union Bancshares, Inc. and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Union Bancshares, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNION BANCSHARES, INC.
/S/ WILLIAM G. WATSON /S/ STEVEN C. WORRELL
By: William G. Watson By: Steven C. Worrell
President & Chief Executive Vice President,
Executive Officer Treasurer & Chief
Financial Officer
(Principal Executive Officer) (Principal Accounting Officer)
November 2, 1994 November 2, 1994
Date Date
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Union Bancshares, Inc. and Subsidiaries
Financial Information
APPENDIX A
FINANCIAL INFORMATION
-A1-
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Union Bancshares, Inc. and Subsidiaries
Index to 1994 Financial Information
Page
Financial Statements
Condensed Consolidated Statement of Condition-
September 30, 1994 and December 31, 1993 A-3
Condensed Consolidated Statement of Income-
Three months ended September 30, 1994 and 1993
Nine months ended September 30, 1994 and 1993 A-4
Condensed Consolidated Statement of Cash Flows-
Nine months ended September 30, 1994 and 1993 A-5
Notes to Condensed Consolidated
Financial Statements A-6 to A-18
Management's Discussion and Analysis of Results of
Operations and Financial Condition A-19 to A-33
Condensed Consolidated Statement of Condition -
Average Balances and Interest Rates A-22 to A-23
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Union Bancshares, Inc. and Subsidiaries
Condensed Consolidated Statement of Condition
(In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
(Unaudited) *
<S> <C> <C>
Assets
Cash and due from banks $ 35,560 $ 26,819
Federal funds sold and securities
purchased under resale agreements -- --
Total cash and cash equivalents 35,560 26,819
Investment securities held to maturity 158,707 190,901
Investment securities available for sale 58,556 --
Total investment securities (market value -
$214,618 and $194,872) 217,263 190,901
Trading account securities 45 --
Loans 369,487 298,062
Less: Allowance for loan losses (5,334) (4,400)
Net loans 364,153 293,662
Premises and equipment 15,314 12,124
Other assets 20,676 9,351
Total assets $ 653,011 $ 532,857
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 84,419 $ 86,708
Interest bearing 425,837 347,108
Total deposits 510,256 433,816
Federal funds purchased and securities
sold under agreements to repurchase 23,356 24,493
Other short-term borrowings 3,125 4,034
FHLB advances 48,880 16,900
Long-term borrowings 13,742 8,000
Other liabilities 8,522 4,798
Total liabilities 607,881 492,041
Common stock,
Class A, par value $10 per share;
1,000,000 shares authorized,
358,190 and 350,690 shares outstanding 3,582 3,507
Capital surplus 3,789 3,527
Retained earnings 38,072 33,782
Unrealized gain (loss) on securities
available for sale, net (313) --
Total stockholders' equity 45,130 40,816
Total liabilities and
stockholders' equity $ 653,011 $ 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
(Unaudited)
<TABLE>
(In thousands except per share data)
<CAPTION>
Three months ended Nine months ended
September September
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 8,478 $ 6,752 $ 23,554 $ 20,504
Interest and dividends on
investment securities 3,014 2,840 8,391 8,750
Interest on trading account securities -- -- 1 2
Interest on Federal funds sold
and securities purchased
under resale agreements 27 19 76 92
Total interest income 11,519 9,611 32,022 29,348
Interest expense:
Interest on deposits 3,662 3,095 10,014 9,916
Interest on Federal funds purchased
and securities sold
under agreements to repurchase 255 140 613 423
Interest on other short-term borrowings 22 26 69 64
Interest on FHLB advances 702 145 1,587 331
Interest on long-term borrowings 264 190 697 596
Total interest expense 4,905 3,596 12,980 11,330
Net interest income 6,614 6,015 19,042 18,018
Provision for loan losses 605 625 1,815 1,875
Net interest income after
provision for loan losses 6,009 5,390 17,227 16,143
Other income 2,735 2,058 8,187 5,958
Other expense 6,909 5,582 18,960 16,749
Income before income tax expense 1,835 1,866 6,454 5,352
Income tax expense 545 537 1,846 1,565
Net income $ 1,290 $ 1,329 $ 4,608 $ 3,787
Earnings per share data:
Net income $3.60 $3.79 $12.86 $10.80
Dividends $.30 $.30 $.90 $.90
</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>
Nine months ended
September 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,608 $ 3,787
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,904 1,506
Amortization of purchase premiums 371 273
Provision for loan losses 1,815 1,875
Gain on sale of investment securities
available for sale (419) --
Gain on sale of trading account securities (18) (17)
Net (increase) decrease in trading account securities (27) 262
Gain on sale of loans (1,739) --
(Gain) loss on sale of premises and equipment (31) 4
Net increase in other assets
net of effects of purchase (265) (1,837)
Net (decrease) increase in other liabilities
net of effects of purchase (290) 2,779
Net cash provided by operating activities 5,909 8,632
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 40,190 --
Proceeds from maturities and paydowns
of investment securities available for sale 24,072 --
Purchases of investment securities available for sale
net of effects of purchase (9,448) --
Proceeds from maturities and paydowns
of investment securities held to maturity 26,610 93,404
Purchases of investment securities held to maturity
net of effects of purchase (45,077) (88,601)
Mark to market adjustment for securities
available for sale 479 --
Net increase in loans net of effects of purchase (6,572) (6,152)
Proceeds from sale of loans 13,577 --
Purchases of premises and equipment
net of effects of purchase (3,101) (1,024)
Proceeds from sales of premises and equipment 32 4
Purchase of institution, net of cash acquired (12,337) --
Net cash provided (used) by investing activities 28,425 (2,369)
Cash flows from financing activities:
Net decrease in demand deposits
and savings accounts net of effects of purchase (13,040) (15,339)
Net decrease in time deposits net of effects of purchase (9,900) (25,649)
Net (decrease) increase in Federal funds purchased
and securities sold under agreements to repurchase (1,137) 7,204
Net (decrease) increase in other short-term borrowings (909) 372
Net increase (decrease) in long-term borrowings 5,742 (1,550)
Net (decrease) increase in FHLB advances
net of effects of purchase (6,055) 14,800
Issuance of common stock 337 --
Adjustment to stockholders' equity for mark to market (313) --
Cash dividends paid (318) (316)
Net cash used by financing activities (25,593) (20,478)
Net increase (decrease) in cash and cash equivalents 8,741 (14,215)
Cash and cash equivalents at January 1 26,819 50,556
Cash and cash equivalents at September 30 $ 35,560 $ 36,341
Supplemental Disclosures:
Cash payments for: Interest $10,960 $9,729
Income taxes $2,510 $2,287
The accompanying notes are an integral part of these financial statements.
</TABLE>
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements in 1994 and 1993 include
Union Bancshares, Inc. (UBI) and its wholly-owned subsidiaries,
Union National Bank of Wichita (UNB), UBI Growth Capital, Inc.
(UBIGC) and UBI Financial Services, Inc. (UBIFS). All significant
intercompany accounts and transactions have been eliminated. In
addition, adjustments made to the unaudited interim financial
statements were of a normal recurring nature.
The 1993 condensed consolidated financial statements have been
reclassified to conform with 1994 presentation. Such
reclassifications have no effect on net income.
Statement of Cash Flows
For purposes of reporting cash flows, cash equivalents include
amounts due from banks, federal funds sold, and securities
purchased under resale agreements. Generally, federal funds are
sold for one-day periods.
Investment and Trading Account Securities
Effective January 1, 1994, UBI adopted Financial Accounting
Standard No. 115 (FAS 115) which relates to accounting for certain
investments in debt and equity securities. FAS 115 requires that
banks classify all securities as "held to maturity", "available for
sale" or "trading securities". Any new securities at time of
purchase must be placed in one of these three categories for
reporting purposes. Any security placed in the "available for
sale" or "trading securities" must be marked to its fair value at
that time. The fair value adjustment for "available for sale"
securities will flow through the equity section on the financial
reports. The fair value adjustment for the trading securities will
continue to flow through the income statement.
Management of UBI has done an extensive evaluation of all of its
securities to determine what securities will be placed in each of
these categories. Management has considered several factors to
determine these securities classifications including liquidity
needs, loan demand, tax issues, credit quality, regulatory issues
and asset/liability positioning.
For 1993, investment securities were stated at cost, adjusted
for amortization of premium and accretion of discount. Gains or
losses on security transactions were recognized upon realization
and were reported as a separate component of non-interest income.
The specific identification method was used in determining the cost
of investment securities sold.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
Investment and Trading Account Securities (Continued)
Trading account securities are classified as such primarily
based on the intent of management at the time the securities are
purchased. The securities are held for resale to customers.
Trading account securities are stated at market. Gains or losses
on the sale of trading account securities are considered a normal
part of operations and are included in other income.
Loans
Loans are stated at principal amount outstanding. Interest
income on loans is accrued as earned. Loans are placed on
nonaccrual status when principal or interest is due and has
remained unpaid for 90 days or more unless the loan is both well
secured and in the process of collection. Loans are also placed on
nonaccrual status when there is reasonable doubt as to the ability
of the borrower to pay interest or principal. At the time a loan
is classified as nonaccrual, interest previously recorded as income
but not collected is reversed. Interest payments received on such
loans are generally recorded as a reduction in carrying value
unless such carrying value is deemed to be collectible.
Allowance for Loan Losses
UBI's policy is to maintain a valuation allowance adequate to
provide for potential losses on loans currently outstanding. The
allowance for loan losses is determined by management on the basis
of a detailed review of the risk factors affecting the loan
portfolio, including changes in the portfolio size and mix, past
loan loss experience, the financial condition of the borrowers, and
the prevailing economic environment. The result of this review
enables management to establish the allowance at a level considered
adequate to absorb loan losses.
Loan losses are charged to the allowance and recoveries are
credited to the allowance. A provision for loan losses is made to
maintain the allowance at a level that, in management's judgment,
is adequate to absorb potential losses inherent in the loan
portfolio.
-A7-
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies (Continued)
Loan Fees
Loan commitment and origination fees, net of the related direct
loan origination costs, are amortized over the life of the related
loans as an adjustment of yield. The unamortized balance of these
deferred fees are reported as a reduction of total loans. Annual
fees on bankcard loans are amortized on a straight-line basis over
a twelve month period and the unamortized balance of these fees is
included in other liabilities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by straight-line and
accelerated methods over the estimated useful lives of the assets.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is reflected in income for the period.
The cost of maintenance and repairs is charged to operating
expenses as incurred. Significant renewals and betterments are
capitalized.
Income Taxes
In January 1993, UBI adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. FAS 109
is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in UBI's financial
statements or tax returns. In estimating future tax consequences,
FAS 109 generally considers all expected future events other than
enactments of changes in the tax law or rates.
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 September 30, 1994, daily average reserves of
$10,246,000 were maintained. For the two-week reserve period
inclusive of December 31, 1993, daily average reserves of
$10,553,000 were maintained.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities
Investment Securities Held To Maturity
The book value and estimated market values of investments in
securities being held to maturity are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 17,373 $ 34 $ (468) $ 16,939
U.S. government corporations
and agencies 86,581 9 (2,403) 84,187
Obligations of states
and political subdivisions 42,065 994 (624) 42,435
Corporate securities 4,039 -- (15) 4,024
Mortgage-backed securities 8,499 -- (172) 8,327
Other investments 150 -- -- 150
Total $ 158,707 $ 1,037 $ (3,682) $ 156,062
<CAPTION>
December 31, 1993
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 24,500 $ 236 $ (7) $ 24,729
U.S. government corporations
and agencies 85,899 662 (261) 86,300
Obligations of states
and political subdivisions 42,555 2,272 (16) 44,811
Corporate securities 4,107 51 -- 4,158
Mortgage-backed securities 28,126 1,098 (64) 29,160
Other investments 5,714 -- -- 5,714
Total $ 190,901 $ 4,319 $ (348) $ 194,872
</TABLE>
The book value and estimated market value of securities being
held to maturity, by contractual maturity, are shown below in
thousands. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Mortgage-backed securities have been included in the schedule of
maturities based upon their expected estimated average life.
<TABLE>
<CAPTION>
September 30, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 38,673 $ 38,436
Due after one year through five years 98,599 96,370
Due after five years through ten years 19,711 19,424
Due after ten years 1,724 1,832
Total $ 158,707 $ 156,062
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. Investment Securities (Continued)
Investment Securities Available For Sale
The book value and estimated market values of investments in
securities available for sale are as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
September 30, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 2,049 $ -- $ (10) $ 2,039
U.S. government corporations
and agencies 9,207 -- (34) 9,173
Obligations of states
and political subdivisions 3,179 10 (86) 3,103
Corporate securities -- -- -- --
Mortgage-backed securities 35,278 121 (481) 34,918
Other investments 9,323 -- -- 9,323
Total $ 59,036 $ 131 $ (611) $ 58,556
</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>
September 30, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $ 16,656 $ 16,554
Due after one year through five years 24,809 24,517
Due after five years through ten years 8,193 8,107
Due after ten years 9,378 9,378
Total $ 59,036 $ 58,556
</TABLE>
Gross realized gains and losses from the sale of investment
securities available for sale for the nine months ended September
30, 1994 are as follows:
<TABLE>
<CAPTION>
September 30,
1994
<S> <C>
Realized gains $ 526
Realized losses (107)
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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 $38,830,270 and $41,322,000 were pledged to secure deposits of
public funds at September 30, 1994, and December 31, 1993
respectively. No investment securities available for sale were
pledged to secure deposits of public funds at September 30, 1994.
Total pledgings required at September 30, 1994, and December 31,
1993, were $11,181,000 and $17,038,000, respectively.
4. Allowance for Loan Losses
Changes in the allowance for loan losses were as follows (in
thousands):
</TABLE>
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Balance at January 1 $ 4,400 $ 3,400
Provision charged to income 1,815 1,875
Recoveries of amounts charged off 390 356
Losses charged to the allowance (1,617) (1,358)
Allowance acquired through merger 346 --
Balance at September 30 $ 5,334 $ 4,273
</TABLE>
5. Premises and Equipment
Premises and equipment are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated Book
At September 30, 1994 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,317 $ -- $ 2,317
Building and improvements 18,354 8,806 9,548
Furniture and equipment 7,489 4,040 3,449
$ 28,160 $ 12,846 $ 15,314
<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 September 30, 1994 and December
31, 1993, were as follows (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Demand deposits $ 80,472 $ 75,111
Savings deposits 120,008 107,393
Time deposits under $100,000 206,166 152,396
Time deposits $100,000 and over 19,191 12,208
$ 425,837 $ 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>
September 30, December 31,
1994 1993
<S> <C> <C>
Demand note collateralized by stock of UNB at
lender's prime rate of 7.75% at September 30, 1994
and 5.50% at December 31, 1993 $ -- $ --
Treasury tax and loan demand note collateralized
by pledged U.S. Treasury securities 3,125 4,034
$ 3,125 $ 4,034
</TABLE>
8. FHLB Advances
Federal Home Loan Bank (FHLB) advances outstanding at
September 30, 1994 for UBI are detailed below. The advances
provide one of many funding alternatives that are used by UBI in
its asset/liability management process for acquiring funds to meet
customer loan needs and as a source of funds for other
asset/liability strategies. The advances are secured by assets of
UNB under a blanket pledge agreement with FHLB. 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 5.31 $ 18,180
1995 7.46 9,700
1996 8.05 10,825
1997 6.69 7,175
1998 6.55 3,000
6.48% $ 48,880
</TABLE>
9. Long-term Borrowings
At September 30, 1994 and December 31, 1993 UBI had a note
payable to Harris Bank for $13,742,000 and $8,000,000,
respectively, at a fixed rate of 8.03% until March 31, 1995. After
this date the rate will float at LIBOR plus 1.75%. The note is
collateralized by stock of UNB. Principal payments of $528,571 per
quarter began on June 30, 1994 with the final payment on March 31,
2001. Interest is payable quarterly.
On April 4, 1994, UBI borrowed $7,300,000 primarily to use in the
acquisition and merger of First Community Federal Savings and Loan
Association. This is detailed further in footnote 15.
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Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Long-term Borrowings (Continued)
The note payable agreement with Harris Bank contains a
restriction on the amount of dividends that UBI can declare or pay
during any one calendar year without the prior written consent of
Harris Bank. Dividends declared or paid may not exceed 25% of
consolidated net income for the calendar year. Other restrictions
include minimum capital levels and maximum nonperforming asset
ratios. Maturities of this note payable are as follows (in
thousands):
<TABLE>
<CAPTION>
Remaining
Maturities for:
<S> <C>
1994 $ 529
1995 2,114
1996 2,114
1997 2,114
1998 2,114
1999 2,114
2000 2,114
2001 529
$ 13,742
</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 September 30, 1994 and December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
At
September 30, December 31,
1994 1993
<S> <C> <C>
Commitments to extend credit:
Credit card lines $125,913 $208,695
Standby letters of credit 1,833 2,191
Other loan commitments 53,891 50,384
</TABLE>
-A13-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
10. Financial Instruments with Off-Balance-Sheet Risk (Continued)
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. UBI evaluates
each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by UBI upon
extension of credit, is based on management's credit evaluation of
the customer. Collateral held varies but may include accounts
receivable, inventory, property, plant, equipment, and income-
producing commercial properties.
Standby letters of credit are a conditional commitment issued
by UBI to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers. Credit card lines represent the unused portion of
many different customers that have credit card loans.
UBI grants agribusiness, commercial, individual, bankcard, and
residential loans to customers throughout the State of Kansas. 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 September 30,
1994, dividends of approximately $8,557,000 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 nine months ended
September 30, 1994 and 1993, was $177,000 and $140,000
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 Nine months ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Other income:
Bankcard fees $ 598 $ 799 $ 1,930 $ 2,253
Service charges 663 637 1,959 1,830
Trust fees 410 322 1,162 1,020
Gain on sale of investment securities
available for sale 3 1 419 --
Gains on sale of bankcard portfolios 713 -- 1,718 --
Other 348 299 999 855
$ 2,735 $ 2,058 $ 8,187 $ 5,958
Other expense:
Salaries and benefits $ 3,343 $ 2,535 $ 8,862 $ 7,535
Bankcard fees 533 565 1,548 1,608
Data processing 328 285 919 873
Equipment 513 416 1,438 1,240
Occupancy, net of revenues of
$110, $108, $325 and $327 436 374 1,192 1,085
Postage 159 164 451 476
Marketing 121 136 429 429
Supplies 219 186 640 598
Amortization of purchase premiums 150 91 371 273
FDIC insurance 289 253 833 782
Other 818 577 2,277 1,850
$ 6,909 $ 5,582 $ 18,960 $ 16,749
</TABLE>
-A15-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
14. Parent Company Only Financial Statements
Union Bancshares, Inc.
Statement of Condition (Parent Only)
<TABLE>
(In thousands)
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Assets
Cash $ 31 $ 1,328
Loans 1,282 --
Investment in subsidiaries 57,959 47,910
Other assets 48 6
Total assets $ 59,320 $ 49,244
Liabilities and Stockholders' Equity
Short-term borrowings $ 20 $ 20
Long-term borrowings 13,742 8,000
Other liabilities 115 408
Total liabilities 13,877 8,428
Common stock,
Class A, par value $10 per share;
1,000,000 shares authorized,
358,190 and 350,690 shares outstanding 3,582 3,507
Capital surplus 3,789 3,527
Retained earnings 38,072 33,782
Unrealized gain (loss) on securities
available for sale, net (313) --
Total stockholders' equity 45,130 40,816
Total liabilities and stockholders' equity $ 59,320 $ 49,244
</TABLE>
Union Bancshares, Inc.
Statement of Income (Parent Only)
<TABLE>
(In thousands)
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income:
Dividends from subsidiaries $ 825 $ 800 $ 2,445 $ 2,200
Interest income 7 8 23 32
Total income 832 808 2,468 1,424
Expenses:
Interest expense 264 190 697 596
Other expense 480 141 765 418
Total expenses 744 331 1,462 1,014
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 88 477 1,006 1,218
Income tax benefit 313 109 598 334
Income before equity in undistributed
net income of subsidiaries 401 586 1,604 1,552
Equity in undistributed net
income of subsidiaries 889 743 3,004 2,235
Net income $ 1,290 $ 1,329 $ 4,608 $ 3,787
</TABLE>
-A16-
<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 Cash Flows (Parent Only)
<TABLE>
(In thousands)
<CAPTION>
Nine months ended
September 30,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,608 $ 3,787
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed net income of
subsidiaries (3,004) (2,235)
Net (increase) decrease in other assets (42) 9
Decrease in short-tern borrowings -- (50)
Net (decrease) increase in other liabilities (293) 311
Net cash provided by operating activities 1,269 1,822
Cash flows from investing activities:
Net (increase) decrease in loans (1,282) 304
Net cash provided (used) by
investing activities (1,282) 304
Cash flows from financial activities:
Net increase (decrease) in long-term borrowings 5,742 (1,500)
Issuance of common stock 337 --
Purchase UNB stock (7,000) --
Purchase UBIFS stock (45) --
Cash dividends paid (318) (316)
Net cash used by financing activities (1,284) (1,816)
Net (decrease) increase in cash (1,297) 310
Cash at January 1 1,328 1,314
Cash at September 30 $ 31 $ 1,624
</TABLE>
15. Acquisitions
On April 4, 1994, First Community Federal Savings and Loan
Association (First Community) of Winfield, Kansas, was merged into
Union National Bank of Wichita (UNB) in accordance with the merger
agreement between Union Bancshares, Inc. (UBI), UNB and First
Community dated October 13, 1993. Under the merger agreement, each
outstanding share of First Community common stock was converted
into $35.00 in cash.
The total cost of the transaction was $12,795,000. The
purchase price was determined by assessing the worth in dollars of
the ongoing income stream generation from First Community, taking
into consideration market value of assets and liabilities. The
transaction, which will be accounted for as a purchase, was
financed with a $7,000,000 loan from Harris Bank and Trust in
Chicago and the remaining $5,795,000 from internal funds.
-A17-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
15. Acquisitions (Continued)
First Community was a savings and loan institution with total
assets as of April 4, 1994 of $148,000,000, and offered full
service banking from three branches. These facilities are located
one each in Winfield, Arkansas City and Derby, Kansas. All three
of these offices were part of the merger and will be ran as
branches of UNB.
The following table presents supplementary information
regarding the cash paid for First Community (in thousands):
<TABLE>
<CAPTION>
1994
<S> <C>
Fair value of assets acquired $ 149,058
Fair value of liabilities assumed (141,111)
Cost in excess of net assets acquired 4,848
Cash paid 12,795
Cash acquired 458
Net cash paid $ 12,337
</TABLE>
For the transaction, accounted for as a purchase, the
consolidated statement of income includes only the income and
expenses of First Community since acquisition. The purchase price
has been allocated to the net assets acquired based on their fair
values with the excess allocated to cost in excess of net assets
acquired. The effect on results of operation for 1994, had the
purchase transaction occurred at the beginning of the year, is not
material.
16. Subsequent events.
UBI is in negotiations with Commerce Bancshares, Inc. of
Kansas City, Missouri ("Commerce") about the potential merger of
UBI with Commerce. A merger agreement was signed by both
institutions on November 1, 1994. The transaction is subject to
UBI Stockholder and Regulatory approvals. Commerce is an $8.0
billion bank holding company headquartered in Missouri. Commerce
has operations in Missouri, Illinois and Kansas.
UBI has also been in negotiations to acquire a small financial
institution in south central Kansas. The negotiations may be
completed in November 1994.
-A18-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the nine months ended September 30, 1994, net income was
$4,608,000, an increase of $821,000 or 21.7% from the $3,787,000
earned during the same period in 1993. Annualized, this produced
a return on average assets of 1.01%, compared to .94% for the
preceding year. The increase in earnings for the first nine months
of 1994 was due mainly to gains from the sale of two bankcard
portfolios, gains from the sale of securities available for sale,
and from an increase in the net interest income beginning in the
second quarter as the result of the merger acquisition of First
Community Federal Savings and Loan Association (First Community).
On October 13, 1993, UBI and its wholly owned subsidiary, UNB,
signed an Acquisition Merger Agreement with First Community. The
agreement was approved by stockholders and by regulators. The
actual merger of the two institutions took place on April 4, 1994.
The three locations of First Community became three new branches of
UNB on April 4, 1994. The completion of back room consolidations
is expected to be completed in the fourth quarter of 1994. UBI
borrowed $7,000,000 from Harris Trust and Savings Bank in Chicago
to finance this transaction.
The bankcard portfolio sales resulted in pretax gains of
approximately $1,005,000 in June, and $713,000 in September. The
sales occurred when an affinity card group put up for bid the
servicing that was being provided by UNB for these portfolios.
Another institution won the bid for servicing and was required to
purchase the outstanding portfolio balances from UNB. The total
outstandings of the portfolio at the time of sale was approximately
$8,036,000 for the portfolio sold in June and $5,541,000 for the
portfolio sold in September.
The security sales were made from the available for sale
portfolio in anticipation of the merger of First Community with and
into UNB. This was done to position the combined portfolio for
asset liability needs of the combined institutions. The gains
totaled approximately $416,000. UNB evaluates on an ongoing basis
its available for sale portfolio for sale opportunities to take
advantage of opportunities for repositioning its balance sheet to
enhance long term profitability.
-A19-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The net interest income was up in the second and third quarter
of 1994 when compared to 1993. This was due to increased volumes
of net interest income from the acquisition of First Community.
Interest spreads and margins continue to decline in the second and
third quarter of 1994 as they had in the first quarter of 1994.
Interest rates on loans were repricing downward at a faster rate
than were deposit rates during the latter half of 1993 and into the
first half of 1994. Also, the spreads between rates paid on
deposits and borrowed funds and rates charged for loans has
continued to narrow due to market pressures. Management looks for
this pressure on margins to continue for the remainder of 1994.
While interest rates have increased in the first three quarters of
1994, it has not had any significant impact on increasing net
interest margins. Net interest income for the remainder of 1994 is
anticipated to be up due to the addition of First Community. First
Community added approximately $140,000,000 in assets to the balance
sheet.
Trust fees and service charge income are up in 1994 compared
to the same period last year due to increased business. Trust fees
were up some 13.9% while service charge income was up 7.0%. UNB
continues to look for increased fee income business through new
products, new markets and new sales.
Expenses for 1994 are up 13.2% over the same period in 1993.
This is mainly due to the added costs of merging in First
Community. Management continues to look for ways to reduce its
expenses through new technological advances, redesign of work flows
or lower cost providers of services. Salaries and benefits were
the largest dollar increase over 1993 at $1,327,000. This is from
the First Community merger and normal salary and benefit increases.
The balance sheet was up $71,308,000 on average in the first
nine months of 1994 compared to 1993 due to the merger acquisition
of First Community. UNB was experiencing a reduction in its
deposit totals, which management attributes to customers reducing
debt loads as well as investing in higher rate and higher risk
products in stocks and mutual funds. With the increase in rates
during the later part of the first quarter and on into the second
and third quarters of 1994, management believes that deposits may
stop their decline and begin increasing. This has been an industry
trend.
Management believes earnings will be up over 1993 levels from
increased business at UNB and also from the addition of First
Community. First Community will add new assets to UNB's existing
balance sheet. The addition of First Community will add mortgage
lending expertise to UNB's existing markets, while UNB will bring
commercial and consumer banking and trust expertise and products to
the First Community markets. The merger will also bring reduced
costs to the combined entities from back room consolidations.
-A20-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Management continues to evaluate potential acquisition
candidates. It is the belief of management that growth through
acquisitions will help to provide increased future shareholder
value and assist in meeting competition through cost efficiencies.
UBI received approval from the Federal Reserve Bank on
September 16, 1993 to form a Community Development Corporation, UBI
Financial Services, Inc. (UBIFS). UBI in joint partnership with
Mennonite Housing Rehabilitation Services, Inc., (Mennonite
Housing), is assisting with the construction of a low to moderate
income elder housing project in south central Wichita near the
Broadway branch of UNB. UBI is also working with Mennonite Housing
to complete a low to moderate income elder housing project on 21st
Street of Wichita. UBI is also working with the City of Wichita,
Sedgwick County, State of Kansas and community individuals of the
area to help build a new commercial business center at the same
area on 21st Street. It is also working with the Federal National
Mortgage Association to provide lease purchase low income home
ownership for individuals in the area. In conjunction with 21st
street community leaders and residents, UBI is assisting to help
revitalize this low to moderate income area. UBI through its
subsidiary, UBIFS, will be looking for other projects with
Mennonite Housing or others to help fund low to moderate income
projects in all the communities it serves.
UBI is also in discussions with Commerce Bancshares, Inc. of
Kansas City, Missouri for the potential merger of UBI into
Commerce. A merger agreement was signed between the institutions
on November 1, 1994. The merger agreement is subject to UBI
Stockholder and Regulatory approvals. This merger will bring
additional products, services and capabilities to UBI for its
customer base in south central Kansas. The merger will also allow
UBI under the Commerce umbrella to grow and serve more markets in
Kansas. Commerce is an $8.0 billion institution with operations in
Missouri, Illinois, and Kansas.
The significant elements of income and expense affecting net
income are detailed separately in the ensuing analyses.
-A21-
<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 September 30,
1994 1993
Average Average Average Average
Balance Rates Balance Rates
<S> <C> <C> <C> <C>
Assets
Loans (1)(2) $ 371,591 9.06% $ 287,124 9.33%
Investment securities:
Taxable 172,523 5.49 158,678 5.61
Nontaxable (2) 45,235 8.31 41,222 8.71
Trading account securities (2) 47 4.62 -- 0.00
Federal funds sold and securities
purchased under resale agreements 2,261 4.82 2,622 2.99
Total earning assets 591,657 7.94 489,646 8.04
Cash and due from banks 30,505 31,824
Premises and equipment 14,899 11,916
Other assets 19,363 9,196
Allowance for loan losses (5,328) (4,168)
Total assets $ 651,096 $ 538,414
Liabilities & Stockholders' Equity
Interest bearing demand deposits $ 82,334 1.90 $ 75,378 2.04
Interest bearing savings deposits 123,291 2.30 108,039 2.22
Interest bearing time deposits
under $100,000 212,036 4.44 165,990 4.82
Interest bearing time deposits
over $100,000 13,400 5.29 9,156 3.71
Federal funds purchased and securities
sold under agreements to repurchase 23,435 4.30 23,022 2.42
Other short-term borrowings 2,039 4.28 3,675 2.88
FHLB advances 49,235 5.65 17,100 3.36
Long-term borrowings 14,245 7.37 8,922 8.47
Total costing liabilities 520,015 3.74 411,282 3.47
Non-interest bearing demand 77,827 81,437
Other liabilities 8,860 6,667
Total liabilities 606,702 499,386
Stockholders' equity 44,394 39,028
Total liabilities and
stockholders' equity $ 651,096 $ 538,414
Interest spread 4.20% 4.57%
Net interest margin (3) 4.65% 5.12%
<FN>
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $305 in 1994 and $138 in 1993.
(2) Income and rates are calculated using a marginal Federal tax rate of 34%.
(3) Net interest margin equals net interest income divided by average earning
assets.
</TABLE>
-A22-
<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>
Nine Months Ended September 30,
1994 1993
Average Average Average Average
Balance Rates Balance Rates
<S> <C> <C> <C> <C>
Assets
Loans (1)(2) $ 347,205 9.07% $ 286,349 9.58%
Investment securities:
Taxable 161,419 5.44 162,074 5.80
Nontaxable (2) 43,896 8.40 38,481 9.02
Trading account securities (2) 30 5.53 67 6.60
Federal funds sold and securities
purchased under resale agreements 2,370 4.32 4,077 3.03
Total earning assets 554,920 7.94 491,048 8.23
Cash and due from banks 31,225 30,951
Premises and equipment 14,072 11,978
Other assets 15,186 9,011
Allowance for loan losses (4,984) (3,877)
Total assets $ 610,419 $ 539,111
Liabilities & Stockholders' Equity
Interest bearing demand deposits $ 81,277 1.93 $ 74,826 2.14
Interest bearing savings deposits 119,437 2.15 112,034 2.39
Interest bearing time deposits
under $100,000 192,811 4.54 172,540 4.98
Interest bearing time deposits
over $100,000 11,617 4.40 9,677 3.93
Federal funds purchased and securities
sold under agreements to repurchase 23,201 3.53 22,416 2.52
Other short-term borrowings 2,629 3.52 3,034 2.83
FHLB advances 39,189 5.41 12,739 3.47
Long-term borrowings 12,293 7.58 9,400 8.48
Total costing liabilities 482,454 3.60 416,666 3.64
Non-interest bearing demand 78,500 78,898
Other liabilities 6,757 5,675
Total liabilities 567,711 501,239
Stockholders' equity 42,708 37,872
Total liabilities and
stockholders' equity $ 610,419 $ 539,111
Interest spread 4.34% 4.59%
Net interest margin (3) 4.82% 5.15%
<FN>
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $751 in 1994 and $555 in 1993.
(2) Income and rates are calculated using a marginal Federal tax rate of 34%.
(3) Net interest margin equals net interest income divided by average earning
assets.
</TABLE>
-A23-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Net Interest Income
Net interest income, the most significant element of UBI's
earnings, represents the difference between the interest earned on
loans and other investments, and the interest incurred for deposits
and other sources of funds. For purposes of the analysis below,
net interest income is adjusted to convert tax-exempt income to a
fully tax-equivalent basis. This adjustment does not affect net
income since a statement of income prepared on a tax-equivalent
basis includes an offsetting amount in income tax expense.
The following table reflects net interest income on a tax-
equivalent basis (1) for the three and nine months ended September
30, 1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
1994 1993 Change
<S> <C> <C> <C>
Interest income $ 11,519 $ 9,611 $ 1,908
Tax-equivalent adjustment 325 311 14
Interest income--tax-equivalent basis 11,844 9,922 1,922
Interest expense 4,905 3,596 1,309
Net interest income $ 6,939 $ 6,326 $ 613
Average earning assets $ 591,657 $ 489,646 $102,011
Net interest margin 4.65% 5.12% (.47)%
<CAPTION>
Nine Months Ended September 30,
1994 1993 Change
<S> <C> <C> <C>
Interest income $ 32,022 $ 29,348 $ 2,674
Tax-equivalent adjustment 950 896 54
Interest income--tax-equivalent basis 32,972 30,244 2,728
Interest expense 12,980 11,330 1,650
Net interest income $ 19,992 $ 18,914 $ 1,078
Average earning assets $ 554,920 $ 491,048 $ 63,872
Net interest margin 4.82% 5.15% (.33)%
</TABLE>
The increase in net interest income in 1994 from 1993 is due
mainly to the increased volume of assets from the merger
acquisition of First Community that took place on April 4, 1994.
Refinancing and early pay offs of loans continued with new loans
being booked at lower yields. This trend continued in the first
and second quarter of 1994. The rise in interest rates in 1994 due
to pressures from the Federal Reserve, should help to improve
margins slightly. Loan growth in the latter half of 1993 and first
three quarter of 1994 has also helped to improve the margin. For
the year 1994, it is anticipated that margins will be squeezed from
the levels of 1993. However, net interest income should be up due
to the loan growth and the addition of First Community as discussed
on page A 19.
[FN]
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
-A24-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income
The following table analyzes the increase in tax-equivalent
net interest income in terms of the respective amounts attributable
to changes in interest rate, changes in average balances, and
changes in both rate and balance.
<TABLE>
(In thousands)
<CAPTION>
Three Months Ended
September 30, 1994 vs 1993
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans (1) $ 1,726 $ (202) $ 1,987 $ (59)
Investment securities:
Taxable 145 (47) 196 (4)
Nontaxable (1) 42 (42) 88 (4)
Trading account securities (1) 1 -- 1 --
Federal funds sold and securities
purchased under resale agreements 8 12 (3) (1)
Total 1,922 (279) 2,269 (68)
Interest expense:
Interest-bearing demand deposits 6 (27) 36 (3)
Interest-bearing savings deposits 110 21 85 4
Interest-bearing time deposits
under $100,000 359 (156) 559 (44)
Interest-bearing time deposits
over $100,000 93 36 40 17
Federal funds purchased and securities
sold under agreements to repurchase 114 109 3 2
Other short-term borrowings (4) 13 (12) (5)
FHLB advances 557 99 272 186
Long-term borrowings 74 (25) 114 (15)
Total 1,309 70 1,097 142
Increase in net interest income $ 613 $ (349) $ 1,172 $ (210)
<FN>
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
</TABLE>
-A25-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income (Continued)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1994 vs 1993
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans (1) $ 3,051 $ (1,079) $ 4,360 $ (230)
Investment securities:
Taxable (465) (439) (28) 2
Nontaxable (1) 160 (180) 365 (25)
Trading account securities (1) (2) -- (2) --
Federal funds sold and securities
purchased under resale agreements (16) 39 (39) (16)
Total 2,728 (1,659) 4,656 (269)
Interest expense:
Interest-bearing demand deposits (27) (120) 103 (10)
Interest-bearing savings deposits (89) (208) 133 (14)
Interest-bearing time deposits
under $100,000 116 (571) 755 (68)
Interest-bearing time deposits
over $100,000 98 34 57 7
Federal funds purchased and securities
sold under agreements to repurchase 190 169 15 6
Other short-term borrowings 5 16 (9) (2)
FHLB advances 1,256 185 687 384
Long-term borrowings 101 (63) 183 (19)
Total 1,650 (558) 1,924 284
Increase in net interest income $ 1,078 $ (1,101) $ 2,732 $ (553)
<FN>
(1) Tax-equivalent basis is calculated using a marginal Federal tax rate of 34%.
</TABLE>
-A26-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-Interest Income
Non-interest income for the three months ended September 30,
1994, was $2,735,000, representing an increase of $677,000, or
32.9% from the same period in the preceding year. For the nine
months ended September 30, 1994, non-interest income increased
37.4% from the prior year. This increase resulted primarily from
the gain on the sales of a two bankcard portfolios. See page A 19
for further detail. Security gains were also up from the prior
year. In the first quarter of 1994, UBI sold $11,593,000 of U.S.
Agency and mortgage-backed securities from the "available for sale"
category with the proceeds being partially reinvested in nontaxable
municipal securities. This was done in anticipation of the merger
that occurred on April 4, 1994 with First Community Federal, which
had no nontaxable investment securities. Trust fees and service
charge income was up over 1993 due to new and additional business.
Bankcard fees decreased 25.2% and 14.3% for the three and nine
month periods ended September 30, 1994, respectively. This is a
result of the two bankcard portfolio sales in 1994 and from reduced
fees charged to card holders as competition has eliminated annual
fees. 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
September 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Bankcard fees $ 598 $ 799 $ (201) (25.2)%
Service charges 663 637 26 4.1
Trust fees 410 322 88 27.3
Gain on sale of investment securities
available for sale 3 1 2 200.0
Gain on sale of loans 713 -- 713 0.0
Other 348 299 49 16.4
Total non-interest income $ 2,735 $ 2,058 $ 677 32.9%
<CAPTION>
Nine Months Ended
September 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Bankcard fees $ 1,930 $ 2,253 $ (323) (14.3)%
Service charges 1,959 1,830 129 7.0
Trust fees 1,162 1,020 142 13.9
Gain on sale of investment securities
available for sale 419 -- 419 0.0
Gain on sale of loans 1,718 -- 1,718 0.0
Other 999 855 144 16.8
Total non-interest income $ 8,187 $ 5,958 $ 2,229 37.4%
</TABLE>
-A27-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-Interest Expense
Non-interest expense for the three months ended September 30,
1994 totaled $6,909,000, an increase of $1,327,000 or 23.8% from
the third quarter of 1993. For the nine months ended September 30,
1994, non-interest expense increased by 13.2% from $16,749,000 to
$18,960,000 or $2,211,000. The one category that made up a
significant dollar portion of this increase was salaries and
benefits. This increase was the result of the merger acquisition
of First Community, normal pay increases and the increasing costs
of employee benefits and training. Equipment and occupancy
expenses were up and also effected by the merger acquisition.
Also, equipment expense was up due to new systems put in place to
improve customer service. Other expenses were up due to one time
expenses resulting from the merger acquisition with First
Community. All other categories remained relatively unchanged.
Each major category of non-interest expense is detailed in the
following table (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Salaries and benefits $ 3,343 $ 2,535 $ 808 31.9%
Bankcard fees 533 565 (32) (5.7)
Data processing 328 285 43 15.1
Equipment 513 416 97 23.3
Occupancy, net of revenues of
$110 and $108 436 374 62 16.6
Postage 159 164 (5) (3.0)
Marketing 121 136 (15) (11.0)
Supplies 219 186 33 17.7
Amortization of purchase premium 150 91 59 64.8
FDIC insurance 289 253 36 14.2
Other 818 577 241 41.8
Total non-interest expense $ 6,909 $ 5,582 $ 1,327 23.8%
<CAPTION>
Nine Months Ended
September 30,
Change
1994 1993 $ %
<S> <C> <C> <C> <C>
Salaries and benefits $ 8,862 $ 7,535 $ 1,327 17.6%
Bankcard fees 1,548 1,608 (60) (3.7)
Data processing 919 873 46 5.3
Equipment 1,438 1,240 198 16.0
Occupancy, net of revenues of
$325 and $327 1,192 1,085 107 9.9
Postage 451 476 (25) (5.2)
Marketing 429 429 -- 0.0
Supplies 640 598 42 7.0
Amortization of purchase premium 371 273 98 35.9
FDIC insurance 833 782 51 6.5
Other 2,277 1,850 427 23.1
Total non-interest expense $ 18,960 $ 16,749 $ 2,211 13.2%
</TABLE>
-A28-
<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 September 30 1994, were $2,392,000,
an increase of $179,000 from $2,213,000 at December 31, 1993.
Nonaccrual loans increased $545,000, while loans 90 days past due
decreased $494,000. Other real estate held increased due to assets
acquired in the merger with First Community.
Loans are placed on nonaccrual status when principal or
interest is due and has remained unpaid for 90 days or more unless
the loan is both well secured and in the process of collection.
Loans are also placed on nonaccrual status when there is reasonable
doubt as to the ability of the borrower to pay interest or
principal. At the time a loan is classified as nonaccrual,
interest previously recorded but not collected is reversed.
Interest payments received on such loans are generally recorded as
a reduction in carrying value unless such carrying value is deemed
to be collectible.
Under-performing assets at September 30 1994 and December 31,
1993, are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
<S> <C> <C>
Nonaccrual loans $ 1,230 $ 685
Past due loans (90 days or more) 975 1,469
2,205 2,154
Other real estate held 187 59
Total $ 2,392 $ 2,213
</TABLE>
-A29-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses
In the normal course of business, banks recognize that a
relatively small percentage of the loans they make will eventually
be charged off. These future charge-offs are currently provided
for through the allowance for loan losses. Additions made to this
allowance are charged to operating expenses as the provision for
loan losses. Loans are charged against the allowance when they are
deemed to be uncollectible. Recoveries are credited directly to
the allowance.
The required level for the allowance for loan losses is
determined by management on the basis of a detailed review of the
risk factors affecting the loan portfolio. In addition to
evaluating the financial condition of individual borrowers,
management assesses the entire portfolio as to past loan loss
experience, volumes, mix and maturity, concentration of credit,
prevailing economic conditions, both locally and nationally, and
off-balance sheet risk. Management specifically reviews all under-
performing assets of $100,000 or more for loan loss adequacy as
well as for potential partial or complete charge-off. The results
of these reviews along with the other above factors enable
management to establish the allowance at a level considered
adequate to absorb loan losses.
At September 30, 1994, the allowance for loan losses was
$5,334,000, or 1.44% of outstanding loans. This compares with
$4,400,000, or 1.48%, reported at December 31, 1993. The reduction
in the percentage between December 31, 1993 and September 30, 1994,
is due to the increased portfolio size from the merger acquisition
of First Community. A majority of the loans acquired in the merger
were 1-4 performing first mortgage real estate loans which require
a smaller allowance. Net charge-offs for the first nine months of
1994 were $1,227,000, or .35% of average net loans. This compares
with net charge-offs of $1,002,000, or .29% of average net loans
for the same period in the preceding year.
Based upon managements detailed review and analysis of the
loan portfolio at September 30, 1994, the allowance for loan losses
was set at a level of $5,334,000 as management's 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.
-A30-
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Capital Resources
Stockholders' equity increased $4,314,000, or 10.6%, to
$45,130,000 at September 30, 1994, from the $40,816,000 reported at
December 31, 1993. The ratio of equity capital to total assets was
6.9% at September 30, 1994, compared to 7.7% for December 31, 1993.
This decrease was the result of increased levels of total assets
from the merger acquisition of First Community on April 4, 1994.
The dividend payout ratio was 6.9% for the first nine months of
1994. It is UBI's policy to maintain an appropriate balance
between earnings returned to stockholders in the form of dividends
and earnings retained to provide internal capital growth.
Risk-based capital guidelines established by the Federal
Reserve Bank (FRB), UBI's primary regulator, started in 1991. Under
these guidelines, the FRB will monitor three ratios for capital
levels. They are Tier I capital, Tier II capital and a Leverage
ratio. Currently the FRB is requiring a minimum Tier I capital
guideline of 4.00%, a Tier II capital guideline of 8.00%, and a
Leverage ratio of 3.00%. At September 30, 1994, UBI had a 9.6%
Tier I capital ratio, a 10.9% Tier II capital ratio, and a 6.1%
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.
-A31-
<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 September 30, 1994, loan repayments and scheduled
loan maturities within one year or less totaled $108,129,000. At
September 30, 1994, investment securities, federal funds sold, FHLB
overnight deposits, securities purchased under resale agreements
and other investments, all of which are maturing within one year or
less, totaled $55,329,000. These short term investment funds
equaled 9.4% 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
September 30, 1994, dividends of approximately $8,557,000 were
available from the bank subsidiary without such approval. UBI also
has available for cash flow needs a $1,000,000 line-of-credit with
Harris Trust and Savings Bank of Chicago. As of September 30, 1994
the line-of-credit had a $0 balance.
-A32-
<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 September 30, 1994 (in thousands). Yields and
rates shown in the table are interest income and expense only.
Factors such as loan fees are not included in the summary.
<TABLE>
<CAPTION>
0-3 3-6 6-12 1-5 5+ Non-Rate
Repricing Maturity Months Months Months Years Years Sensitive Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $123,881 $ 15,681 $ 38,116 $141,922 $49,887 $ 0 $369,487
Securities-Taxable 14,155 9,889 24,360 104,212 20,239 0 172,855
Securities-Nontaxable 2,930 255 3,683 18,903 18,682 0 44,453
Fed Funds Sold 0 0 0 0 0 0 0
Nonearning Assets 0 0 0 0 0 66,216 66,216
Total Assets 140,966 25,825 66,159 265,037 88,808 66,216 653,011
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 2,415 2,415 4,830 38,628 32,184 0 80,472
Savings Deposits 3,546 3,603 7,206 57,624 48,029 0 120,008
Other Time Deposits 47,438 36,350 49,021 72,772 19,776 0 225,357
Short-term Borrowings 26,481 0 0 0 0 0 26,481
Long-term Borrowings 18,268 529 8,362 31,237 4,226 0 62,622
Noncosting Liabilities 0 0 0 0 0 92,941 92,941
Stockholders' Equity 0 0 0 0 0 45,130 45,130
Total Liabilities and
Stockholders' Equity 98,148 42,897 69,419 200,261 104,215 138,071 653,011
Repricing Gap $ 42,818 $(17,072) $ (3,260) $64,776 $(15,407) $(71,855) $ 0
Cumulative Repricing Gap $ 42,818 $ 25,746 $ 22,486 $87,262 $71,855 $ 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 8.81% 8.62% 8.45% 8.47% 7.89% 8.51%
Securities-Taxable 6.52 5.06 5.26 5.50 5.50 5.53
Securities-Nontaxable (1) 7.98 7.80 8.27 8.83 8.15 8.44
Fed Funds Sold 0.00 0.00 0.00 0.00 0.00 0.00
Nonearning Assets 0.00 0.00
Total Assets 8.56 7.25 7.26 7.33 7.40 0.00 6.85
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 1.99 1.99 1.99 1.99 1.99 1.99
Savings Deposits 2.27 2.27 2.27 2.27 2.27 2.27
Other Time Deposits 3.82 4.01 4.55 5.50 6.07 4.75
Short-term Borrowings 4.83 0.00 0.00 0.00 0.00 4.83
Long-term Borrowings 5.38 8.03 7.25 7.50 8.03 6.89
Noncosting Liabilities 0.00 0.00
Stockholders' Equity 0.00 0.00
Total Liabilities and
Stockholders' Equity 4.28 3.80 4.46 4.21 3.14 0.00 3.16
Net Yield 4.28% 3.45% 2.80% 3.12% 4.26% 0.00% 3.69%
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
-A33-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 35,560
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 45
<INVESTMENTS-HELD-FOR-SALE> 58,556
<INVESTMENTS-CARRYING> 158,707
<INVESTMENTS-MARKET> 156,062
<LOANS> 369,487
<ALLOWANCE> 5,334
<TOTAL-ASSETS> 653,011
<DEPOSITS> 510,256
<SHORT-TERM> 51,381
<LIABILITIES-OTHER> 8,522
<LONG-TERM> 37,722
<COMMON> 3,582
0
0
<OTHER-SE> 41,248
<TOTAL-LIABILITIES-AND-EQUITY> 653,011
<INTEREST-LOAN> 23,554
<INTEREST-INVEST> 8,392
<INTEREST-OTHER> 76
<INTEREST-TOTAL> 32,022
<INTEREST-DEPOSIT> 10,014
<INTEREST-EXPENSE> 12,980
<INTEREST-INCOME-NET> 19,042
<LOAN-LOSSES> 1,815
<SECURITIES-GAINS> 419
<EXPENSE-OTHER> 18,960
<INCOME-PRETAX> 6,454
<INCOME-PRE-EXTRAORDINARY> 6,454
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,608
<EPS-PRIMARY> 12.86
<EPS-DILUTED> 12.86
<YIELD-ACTUAL> 3.25
<LOANS-NON> 1,230
<LOANS-PAST> 975
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,400
<CHARGE-OFFS> 1,617
<RECOVERIES> 390
<ALLOWANCE-CLOSE> 5,334
<ALLOWANCE-DOMESTIC> 5,334
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
