SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 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
December 31, 1994, was 358,190.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for the Special Meeting of Stockholders to be
held March 29, 1995, is incorporated by reference into Part III of
this report.
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Table of Contents
PART I
ITEM PAGE
1 Business 2 - 4
2 Properties 5
3 Legal Proceedings 5
4 Submission of Matters to a Vote of Security Holders 5
PART II
5 Market for the Registrant's Common Stock and Related
Stockholder Matters 6
6 Selected Financial Data 6
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
8 Financial Statements and Supplementary Data 6
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 7
PART III
10 Directors and Executive Officers of the Registrant 7
11 Executive Compensation 7
12 Security Ownership of Certain Beneficial Owners and
Management 7
13 Certain Relationships and Related Transactions 7
PART IV
14 Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 8
Signatures 9
Financial Information Appendix A
- 1 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
PART I
Item 1. Business
Union Bancshares, Inc. (UBI) is a bank holding company formed
in 1982 under the laws of the State of Kansas. In connection with
this formation, UBI acquired all of the common stock of Union
National Bank of Wichita (UNB) by exchange for UBI Class A common
stock on a share for share basis. In 1987, UBI formed Union
Boulevard National Bank (UBNB), a wholly-owned subsidiary, to
acquire from the Federal Deposit Insurance Corporation certain
assets and liabilities previously owned by Boulevard State Bank.
UBNB was merged into UNB in 1989. In April 1990, UBI acquired
certain assets and liabilities from the Resolution Trust
Corporation (RTC) of the former First Federal Savings and Loan
Association of Hutchinson. UBI acquired two branch locations in
this purchase. One of these branches was closed on January 12,
1991. In November 1990, UBI acquired certain assets and
liabilities from the RTC of the former Valley Savings, A Federal
Savings and Loan Association of Hutchinson. UBI began operations
from two branch locations in this purchase. One branch location
was closed on January 12, 1991. The second branch was moved from
its initial operational site to a new site on June 30, 1992. On
February 16, 1991, UBI acquired from the RTC, certain assets and
liabilities of the Derby branch of the former Mid Kansas Savings
and Loan, F.A. of Wichita. UBI purchased the Derby branch location
from the RTC on June 21, 1991. In April 1994, UBI through merger,
acquired the assets and assumed certain liabilities of First
Community Federal Savings and Loan Association, Winfield, Kansas
("First Community"). First Community had operations in Winfield,
Arkansas City and Derby, Kansas. First Community was merged into
UNB with its three locations becoming branches of UNB.
At December 31, 1994, UBI had three active, wholly-owned
subsidiaries: UNB, UBI Growth Capital, Inc. (UBIGC), a venture
capital company, and UBI Financial Services, Inc. (UBIFS), a
community development company. In addition, UNB owns all of the
outstanding common stock of Union Center, Inc. (UCI), a Kansas
corporation formed in 1956 to purchase and operate the building
mainly occupied by UNB. At December 31, 1994, UBI and its
subsidiaries had 411 FTE (full-time equivalent) employees.
UBI and its subsidiaries are engaged primarily in commercial
banking and related activities authorized by the Bank Holding
Company Act of 1956, as amended, or determined by the Board of
Governors of the Federal Reserve System to be so closely related to
the business of banking as to be proper incident thereto. UBI and
its subsidiaries, therefore, did not engage in material operations
in separate reportable industry segments for the last three years.
- 2 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 1. Business (Continued)
UBI offers a wide range of financial services in the Wichita
and Derby, Sedgwick County, Hutchinson, Reno County, and Winfield
and Arkansas City, Cowley County, Kansas, areas through UNB, its
subsidiary bank. These services include deposit accounts;
commercial, installment and real estate loans; trust, investment
and escrow services; and a network of automated teller machines.
UNB has fourteen locations and 19 ATMs situated within the city
limits of Wichita, Hutchinson, Derby and Winfield. UNB is the
third largest bank in Wichita, the second largest bank in
Hutchinson and Derby, and the largest bank in Winfield and Arkansas
City. In addition, customers may also access UNB services at 450
ATMs throughout the State of Kansas and at over 110,000 ATMs
throughout the United States and Canada through UNB participation
in Kansas Electronic Transfer Systems, Inc. (KETS), VIA, Cirrus,
and Plus ATM switching companies.
UNB faces competition from banks and other financial
institutions located in Sedgwick, Reno and Cowley County, Kansas.
There are approximately 97 other financial institutions within the
Sedgwick, Reno, and Cowley County areas.
UBI and its subsidiary bank are principally affected by the
monetary policy of the Board of Governors of the Federal Reserve
System and other federal banking regulators. UBI, being a bank
holding company, is primarily regulated by the Federal Reserve
Bank. UNB, being a national bank, is primarily regulated by the
Comptroller of the Currency. UNB is also subject to regulation by
the Federal Deposit Insurance Corporation because of deposit
insurance. The bank operates under the guidance of its board and
officers, implementing policies as to lending practices, interest
rates, service charges, and other banking functions. These
policies guide the bank in serving the communities in which it
operates.
In 1989, Congress enacted the "Financial Institutions Reform,
Recovery, and Enforcement Act" (FIRREA), which allowed bank holding
companies to acquire savings and loan associations, either in or
outside of Kansas. It also allowed the acquisition of savings and
loan associations by out-of-state bank holding companies. The
FIRREA Act also abolished the Federal Savings and Loan Insurance
Corporation, making the Federal Deposit Insurance Corporation
(FDIC) the single insurer of deposits for financial institutions.
This resulted in higher insurance premium rates, which had a
negative impact on non-interest expense of UBI starting in 1991.
An analysis of non-interest expense is discussed in greater detail
starting on page A-38.
- 3 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 1. Business (Continued)
Beginning July 1, 1992, bank holding companies located in
Arkansas, Colorado, Iowa, Missouri, Nebraska, and Oklahoma were
permitted to acquire banks and bank holding companies located in
Kansas after obtaining the approval of the Kansas State Banking
Board. No applications can be approved unless the laws of the
state, or jurisdiction in which the applicant bank holding company
is located, permit Kansas bank holding companies to acquire banks
and bank holding companies in that state or jurisdiction on
substantially the same terms as established under Kansas law. This
has brought greater competition to Kansas and potentially to the
communities in which UBI and its subsidiaries operate. There have
been several institutions that have made acquisitions in the state.
In October of 1994 the "Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 " banking bill was passed and
signed into law by the President. This law will allow financial
institutions beginning partially in 1996 and fully in 1997 to
branch into any state unless the state specifically opts out. This
will bring further competition to the state of Kansas. It is not
anticipated that many states will opt out.
On November 1, 1994 UBI signed an Agreement and Plan of Merger
with Commerce Bancshares, Inc. ("Commerce"). Commerce,
headquartered in Missouri, is a $8 billion registered bank holding
company with banking operations in Missouri, Illinois, and Kansas.
Commerce has a credit card bank in Nebraska, a mortgage banking
company, a credit life insurance company, a small business
investment company, a property and casualty insurance agency and a
company primarily engaged in holding bank-related real property.
The merger with Commerce, which is subject to regulatory and
stockholder approval, will bring expanded products and services and
additional capital resources to meet the needs of the current and
potential customers of UBI and to meet the competition of the new
emerging financial industry under the new banking law.
UBI and its subsidiaries continually evaluate the changes in
legislation pending before the federal and state governments which
may have an effect on their business. It is difficult to predict
what proposals might be adopted and what, if any, effect they may
have on UBI and its subsidiaries.
The principal source of UBI's cash revenues is dividends from
UNB. The ability of UNB to pay such cash dividends is limited by
federal regulations. Approval of the Comptroller of the Currency
is required if total dividends declared by a national bank in any
calendar year exceed the bank's net profits for that year combined
with its retained profits for the preceding two years. At December
31, 1994, dividends of approximately $8,456,000 were available from
the bank subsidiary without such approval.
- 4 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 2. Properties
UBI uses the main offices of UNB, 200 Union Center Building,
150 North Main, Wichita, Kansas, for its offices. Presently, UBI
pays no rental to UNB, although UBI may pay to UNB a fair and
reasonable charge for all facilities and services furnished by UNB
at such time as UBI requires separate facilities.
The Union Center Building is a 10-story structure which was
completed and occupied by UNB in 1956. The building is owned by
UNB's subsidiary, UCI. Approximately 81,508 square feet, or 68.0%,
of the rentable space in the building is leased by UNB. In 1994
UNB paid a monthly rent of $77,760 to UCI. UNB owns two of the
thirteen lots comprising the site of the Union Center Building, and
leases two others for a term expiring no earlier than the year
2053. UCI owns three of the lots comprising the Union Center
Building site, and leases the remaining six lots for terms expiring
no earlier than 2047. There are no mortgages or liens outstanding.
UNB owns thirteen separate bank facilities and the land on
which they are located. These are at the following locations in
Wichita, Hutchinson, Derby, Winfield and Arkansas City, Kansas:
<TABLE>
<CAPTION>
Kansas Square
Branch Address Community Feet
<C> <C> <C> <C>
Boulevard 2300 E. Lincoln Wichita 28,088
Broadway 1701 S. Broadway Wichita 1,704
East 6424 E. 13th Wichita 4,800
Pavilion 456 N. Main Wichita 4,000
West 6920 W. Central Wichita 6,100
Woodlawn 1250 S. Woodlawn Wichita 3,394
Northwest 8878 W. 21st Wichita 3,640
Main at 9th 825 N. Main Hutchinson 11,420
30th Avenue 101 E. 30th Hutchinson 1,704
Madison 201 E. Madison Derby 2,400
Buckner 1257 N. Buckner Derby 3,000
Winfield 310 E. 10th Winfield 17,350
Arkansas City 625 N. Summit Arkansas City 2,000
</TABLE>
Aggregate annual rental paid during 1994 with respect to all
leased real estate to third party lessors amounted to $149,000.
Item 3. Legal Proceedings
There were no legal proceedings pending during the last fiscal
year to which UBI or its subsidiaries was a party, other than
ordinary routine litigation incidental to their business.
Item 4. Submission of Matters to a Vote of Security Holders
No information is required in response to this Item as no
matters were submitted to a vote of UBI's security holders during
the fourth quarter of 1994.
- 5 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
There is no established public trading market for UBI Common
Stock, Class A. Therefore, the high and low bid prices for UBI
stock cannot be determined. The number of stockholders on record
for the Company as of December 31, 1994 was 340. Dividend
information for the stock is as follows:
<TABLE>
<CAPTION>
Quarter 1994 1993
<C> <C> <C>
1st $ .30 $ .30
2nd .30 .30
3rd .30 .30
4th .30 .80
</TABLE>
UNB, the principal subsidiary of UBI, must follow regulatory
guidelines on the payment of dividends. See the last paragraph of
Item 1. Business.
Item 6. Selected Financial Data
The information required by Item 301 of Regulation S-K is
contained on page A-51 of the attached Appendix under the caption
"Five-Year Summary of Operations".
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The information required by Item 303 of Regulation S-K is
contained on pages A-29 thru A-31 of the attached Appendix under
the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
Item 8. Financial Statements and Supplementary Data
Set forth below are the consolidated financial statements of
UBI and its subsidiaries appearing on pages A-4 to A-27 of the
attached Appendix A.
a. Consolidated Statement of Condition
b. Consolidated Statement of Income
c. Consolidated Statement of Stockholders' Equity
d. Consolidated Statement of Cash Flows
e. Notes to Consolidated Financial Statements
f. Independent Auditors' Reports
- 6 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
UBI filed a Form 8-K dated October 20, 1993, under Item 4.,
"Change in Registrant's Certifying Accountants". This discussed
the change from Coopers & Lybrand as UBI's independent accountants
to Allen, Gibbs & Houlik effective for the fiscal year ending
December 31, 1993. There were not any disagreements between
Coopers & Lybrand and the management of UBI as defined in Item 304
(a)(1)(v) A-D. The decision to change accountants was recommended
and approved by the Audit Committee of the Board of Directors of
UBI.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 401 of Regulation S-K appears
on pages 4,5 and 7 of the 1994 Proxy Statement under the caption
"Directors of UBI" and "UBI Executive Officers" is hereby
incorporated by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K appears
on pages 9 and 10 of the 1994 Proxy Statement under the caption
"Compensation of UBI Directors and Executive Officers" and is
hereby incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Item 403 of Regulation S-K appears
on page 8 of the 1994 Proxy Statement under the caption "Security
Ownership of UBI Management" and is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 404 of Regulation S-K appears
on page 11 of the 1994 Proxy Statement under the caption
"Transactions with UBI Management" and is hereby incorporated by
reference.
- 7 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
The financial statements, notes, and
accountant's report are described in
Item 8 to which reference is hereby
made.
(2) Financial Statement Schedules
None
(3) Exhibits
None
(b) Reports on Form 8-K
An 8-K/A No.1, dated April 4, 1994 was filed
under Item 2., "Acquisition or Disposition of
Assets" and Item 7., "Financial Statements and
Exhibits" and discussed the execution of the
merger agreement between UBI, UNB and First
Community.
- 8 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, Union Bancshares, Inc. has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
UNION BANCSHARES, INC.
/S/ WILLIAM G. WATSON /S/ STEVEN C. WORRELL
By: William G. Watson By: Steven C. Worrell
President & Chief Vice President,
Executive Officer Treasurer & Chief
Financial Officer
(Principal Executive Officer) (Principal Accounting Officer)
February 15, 1995 February 15, 1995
Date Date
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated:
/S/ JACK B. HINKLE February 15, 1995
Jack B. Hinkle, Director Date
/S/ RANDOLPH D. LOVE February 15, 1995
Randolph D. Love, Director Date
/S/ ROBERT D. LOVE February 15, 1995
Robert D. Love, Director Date
/S/ DEREK L. PARK February 15, 1995
Derek L. Park, Director Date
/S/ DONALD H. PRATT February 15, 1995
Donald H. Pratt, Director Date
/S/ WILLIAM G. WATSON February 15, 1995
William G. Watson, Director Date
- 9 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Financial Information
APPENDIX A
FINANCIAL INFORMATION
- A1 -
PAGE
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
- A2 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Index to 1994 Financial Information
Page
Financial Statements
Consolidated Statement of Condition A-4
Consolidated Statement of Income A-5
Consolidated Statement of Stockholders' Equity A-6
Consolidated Statement of Cash Flows A-6 to A-7
Notes to Consolidated Financial Statements A-8 to A-25
Independent Auditors' Reports A-26 to A-27
Management's Report on Financial Statements and
Internal Accounting Control A-28
Management's Discussion and Analysis of Financial
Condition and Results of Operations A-29 to A-51
Consolidated Statement of Condition - Average
Balances and Interest Rates A-32 to A-33
Five-Year Summary of Operations A-51
- A3 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Condition
<TABLE>
(In thousands)
<CAPTION>
At December 31,
1994 1993
<S> <C> <C>
Assets
Cash and due from banks $37,729 $26,819
Federal funds sold and securities
purchased under resale agreements 100 --
Total cash and cash equivalents 37,829 26,819
Investment securities:
Held to maturity 150,510 190,901
Available for sale 53,092 --
Total investment securities
(market value-$198,567 and $194,872) 203,602 190,901
Trading account securities 49 --
Loans 393,026 298,062
Less: Allowance for loan losses (5,500) (4,400)
Net loans 387,526 293,662
Premises and equipment 15,535 12,124
Other assets 21,136 9,351
Total assets $665,677 $532,857
Liabilities and Stockholders' Equity
Deposits:
Non-interest-bearing demand $ 89,552 $ 86,708
Interest-bearing demand 75,256 75,111
Interest-bearing savings 110,099 107,393
Interest-bearing time under $100,000 211,889 152,396
Interest-bearing time over $100,000 19,852 12,208
Total deposits 506,648 433,816
Federal funds purchased and securities
sold under agreements to repurchase 39,227 24,493
Other short-term borrowings 3,490 4,034
FHLB advances 51,077 16,900
Long-term borrowings 13,213 8,000
Other liabilities 6,373 4,798
Total liabilities 620,028 492,041
Preferred stock, Class A, par value $100 per share
100,000 shares authorized, no shares outstanding -- --
Preferred stock, Class B, par value $100 per share
100,000 shares authorized, no shares outstanding -- --
Common stock, Class A, par value $10 per share;
1,000,000 shares authorized, 358,190 and 350,690
shares outstanding 3,582 3,507
Common stock, Class B, par value $10 per share;
1,000,000 shares authorized, no shares outstanding -- --
Capital surplus 3,789 3,527
Retained earnings 39,045 33,782
Unrealized gain (loss) on securities
available for sale, net (767) --
Total stockholders' equity 45,649 40,816
Total liabilities and stockholders' equity $665,677 $532,857
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
- A4 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Income
(In thousands except per share data)
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $32,089 $27,181 $28,538
Interest and dividends on investment securities:
U.S. Treasury 1,082 1,782 2,507
Federal agencies 4,526 3,752 1,928
Mortgage-backed securities 2,598 2,712 5,716
State and municipal 2,459 2,369 2,297
Corporate securities 207 299 450
Other investments 530 427 856
Interest on Federal funds sold and securities
purchased under resale agreements 87 113 445
Total interest income 43,578 38,635 42,737
Interest expense:
Interest on deposits 13,751 12,808 17,971
Interest on Federal funds purchased and
securities sold under agreements to repurchase 1,044 581 557
Interest on other short-term borrowings 94 80 86
Interest on FHLB advances 2,291 477 77
Interest on long-term borrowings 964 776 819
Total interest expense 18,144 14,722 19,510
Net interest income 25,434 23,913 23,227
Provision for loan losses 2,312 2,412 2,569
Net interest income after
provision for loan losses 23,122 21,501 20,658
Other income 10,226 7,904 7,923
Other expense 25,712 22,163 22,566
Income before income tax expense 7,636 7,242 6,015
Income tax expense 1,947 2,050 1,715
Net income $5,689 $5,192 $4,300
Earnings per share data:
Net income $16.07 $14.81 $12.28
Dividends $1.20 $1.70 $1.70
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
- A5 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
<TABLE>
(In thousands except number of shares)
<CAPTION>
Common Stock
Number Capital Retained
of Shares Amount Surplus Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1991 349,690 $3,497 $3,502 $25,481 $32,480
Net income -- -- -- 4,300 4,300
Issuance of Common Stock 1,000 10 25 -- 35
Cash dividends (1.70 per share) -- -- -- (595) (595)
Balance, December 31, 1992 350,690 3,507 3,527 29,186 36,220
Net income -- -- -- 5,192 5,192
Cash dividends (1.70 per share) -- -- -- (596) (596)
Balance, December 31, 1993 350,690 3,507 3,527 33,782 40,816
Net income -- -- -- 5,689 5,689
Issuance of Common Stock 7,500 75 262 -- 337
Cash dividends (1.20 per share) -- -- -- (426) (426)
Unrealized gain (loss) on
securities available for
sale, net -- -- -- (767) (767)
Balance, December 31, 1994 358,190 $3,582 $3,789 $38,278 $45,649
</TABLE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
<TABLE>
(In thousands)
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,689 $5,192 $4,300
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 2,545 2,148 1,871
Amortization of purchase premiums 522 364 486
Provision for loan losses 2,312 2,412 2,569
Provision for deferred income taxes (627) (339) (398)
Gain on sale of investment securities
available for sale (420) -- --
Gain on sale of investment securities -- (20) (359)
Gain on sale of trading account securities (29) (24) (68)
Gain on sale of loans (1,782) -- --
(Gain) loss on abandonment of premises
and equipment (17) 28 84
Net (increase) decrease in trading account
securities (20) 269 (55)
Net increase in other assets
net of effects of purchase (1,095) (1,127) (160)
Net (decrease) increase in other liabilities
net of effects of purchase (1,594) 1,465 (626)
Net cash provided by operating activities 5,484 10,368 7,644
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
- A6 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Continued)
<TABLE>
(In thousands)
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 40,191 -- --
Proceeds from maturities and paydowns of
investment securities available for sale 28,885 -- --
Purchases of investment securities available
for sale net of effects of purchase (9,448) -- --
Proceeds from the sale of investment securities -- 121 13,441
Proceeds from maturities and paydowns of
investment securities held to maturity 37,442 123,081 208,617
Purchases of investment securities held
to maturity net of effects of purchase (48,072) (117,899) (211,531)
Mark to market adjustment for securities
available for sale 1,204 -- --
Net increase in loans net of
effects of purchases (30,288) (15,709) (6,578)
Proceeds from the sale of loans 13,577 -- --
Purchases of premises and equipment
net of effects of purchase (3,802) (1,622) (2,601)
Proceeds from sales of premises and equipment 32 4 21
Purchase of institution, net of cash acquired (12,337) -- --
Net cash provided (used) by
investing activities 17,384 (12,024) 1,369
Cash flows from financing activities:
Net (decrease) increase in demand deposits and
savings accounts net of effects of purchase (23,032) (9,711) 34,686
Net decrease in time deposits net of effects
of purchase (3,516) (32,100) (48,806)
Net increase (decrease) in Federal funds
purchased and securities sold under
agreements to repurchase 14,734 7,370 (2,568)
Net increase (decrease) in other short-term
borrowings (544) 356 (372)
Net (decrease) increase in long-term borrowings 5,213 (2,000) --
Net (decrease) increase in FHLB advances
net of effects of purchase (3,858) 14,600 2,300
Issuance of common stock 338 -- 35
Adjustment to stockholders' equity for mark
to market adjustment on securities available
for sale (767) -- --
Cash dividends paid (426) (596) (596)
Net cash used by financing activities (11,858) (22,081) (15,321)
Net increase (decrease) in cash
and cash equivalents 11,010 (23,737) (6,308)
Cash and cash equivalents at January 1 26,819 50,556 56,864
Cash and cash equivalents at December 31 $37,829 $26,819 $50,556
Supplemental Disclosures:
Cash payments for:
Interest $17,842 $15,022 $19,983
Income taxes $2,683 $3,022 $2,437
</TABLE>
[FN]
The accompanying notes are an integral part of these financial statements.
- A7 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements in 1994, 1993 and 1992
include UBI and its wholly-owned subsidiaries, UNB, UBIGC and
UBIFS. All significant intercompany accounts and transactions have
been eliminated.
The 1993 and 1992 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. Securities are
classified as "held-to maturity" when management has the intent and
UBI has the positive ability to hold the securities to maturity.
Held-to-maturity securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts, both computed
on straight line method which approximates the constant yield
method. The prepayment history of each mortgage-backed security
pool is used to recalculate the yield used to amortize and accrete
the premium and discount on these securities
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.
- A8 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Investment and Trading Account Securities (Continued)
Gains or losses on security transactions are recognized upon
realization and are reported as a separate component of non-
interest income. The specific identification method is used in
determining the cost of investment securities sold. For 1993,
investment securities were stated at cost, adjusted for
amortization of premium and accretion of discount.
Prior to 1994, securities were classified as "Investment
Securities" when management had the intent and ability to hold the
securities for the foreseeable future. Normal operations did not
require the sale of investment securities for liquidity purposes.
Trading account securities are classified as such primarily
based on the intent of management at the time the securities are
purchased. The securities are held for resale to customers.
Trading account securities are stated at market value. Gains or
losses on the sale of trading account securities are considered a
normal part of operations and are included in other income.
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.
- A9 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
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 is reported as a reduction of total loans. Annual
fees on bankcard loans are amortized on a straight-line basis over
a twelve month period, and the unamortized balance of these fees is
included in other liabilities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by straight-line and
accelerated methods over the estimated useful lives of the assets.
When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts, and
any resulting gain or loss is reflected in 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 takes into consideration all
expected future events other than enactments of changes in the tax
law or rates. Previously, UBI used the Financial Accounting
Standards No. 96 asset and liability approach, which gave no
recognition to future events other than the recovery of assets and
settlement of liabilities at their carrying amounts. Management
has determined that there was no significant financial statement
impact to UBI with the implementation of FAS 109 for 1993.
- A10 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 (FAS 107),
"Disclosures about Fair Value of Financial Instruments", became
effective for financial statements issued for fiscal years ending
after December 15, 1992. FAS 107 requires disclosure of fair value
information about financial instruments, whether or not recognized
in the balance sheet, for which it is practicable to estimate that
value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected
by the assumptions used, including the discount rate and estimates
of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate
settlement of the instrument. FAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of UBI.
The following methods and assumptions were used by UBI in
estimating the fair value of its financial instruments as noted in
Note 16:
Cash and cash equivalents: The book values reported in the balance
sheet for cash and short-term instruments approximate their fair
values.
Investment securities (including mortgage-backed securities): Fair
value for investment securities is based on quoted market prices,
where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments.
Trading account assets: Fair values for UBI's trading account
assets, which also are the amounts recognized in the balance sheet,
are based on quoted market prices where available. If quoted
market prices are not available, fair values are based on quoted
market prices of comparable instruments.
- A11 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
Loans receivable: For variable rate loans that reprice frequently
and with no significant change in credit risk, fair values
approximate their book value. The fair values for fixed rate
mortgage loans (primarily one-to-four family residential), are
based on quoted market prices of similar loans sold in conjunction
with securitization transactions, adjusted for differences in loan
characteristics. The fair values for other loans (primarily
commercial real estate and rental property mortgage loans,
commercial and industrial loans, financial institution loans,
agricultural loans, and consumer loans) are estimated using
discounted cash flow analyses, using interest rates currently being
offered for loans with similar terms to borrowers with similar
credit quality. The fair value of credit card loans is estimated
to be the book value due to the short-term nature considered to
exist in this portfolio. The book value of accrued interest
receivable approximates its fair value.
Deposit liabilities: The estimated fair value of non-interest-
bearing deposits, NOW accounts, savings accounts and money market
accounts is equal to their book value, which represents the amount
payable on demand at the reporting date. The book value for
variable rate money market and savings accounts approximates their
fair values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
certificates of similar remaining maturities to a schedule of
aggregated expected monthly maturities on time deposits.
Short-term borrowings: The book value of federal funds purchased,
borrowings under repurchase agreements, and other short-term
borrowings approximates their fair values at the reporting date.
FHLB advances: The estimated fair value of variable rate FHLB
advances is the balance sheet book value. The estimated fair value
of fixed rate advances has been determined using rates currently
available to UNB for advances with similar terms and remaining
maturities.
Long-term borrowings: The fair values of UBI's long-term borrowings
(other than deposits) are estimated using discounted cash flow
analyses, based on UBI's current incremental borrowing rates for
similar types of borrowing arrangements.
- A12 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Mergers and Acquisition
First Community Federal Savings and Loan Association, Winfield, Ks.
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 was accounted for as a purchase, was financed
with a $7,000,000 loan from Harris Bank and Trust in Chicago and
the remaining $5,795,000 from internal funds.
First Community was a savings and loan institution with total
assets as of April 4, 1994 of $149,000,000, 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 are being run 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 which is being amortized on a straight line basis over
fifteen years.
The following proforma consolidated data (in thousands),
reflects the net effect of acquiring First Community in 1994, as if
it was acquired on January 1, 1993, as compared to actual results
shown in the Consolidated Statement of Income on page A-5.
- A13 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
2. Mergers and Acquisitions (Continued)
<TABLE>
1994 1993
<S> <C> <C>
Gross revenue $36,980 $37,098
Net income 5,906 6,060
Net income per share 16.68 17.28
</TABLE>
Gross revenue in the above table is the sum of "Net interest
income" and "Total non-interest income."
Commerce Bancshares, Inc, Kansas City, Mo.
On November 1, 1994 UBI signed an Agreement and Plan of Merger
with Commerce. The transaction is subject to UBI Stockholder and
Regulatory approvals. Commerce is an $8 billion bank holding
company headquartered in Missouri, with bank operations in
Missouri, Illinois and Kansas. The transaction provides for the
conversion of each outstanding share of UBI Class A Common Stock,
$10 par value per share, into the right to receive the sum of
$242.00 in cash. The transaction will be accounted for as a
purchase of UBI by Commerce in accordance with generally accepted
accounting principles.
3. Cash and Due From Banks
Federal Reserve Bank regulations require the subsidiary bank to
maintain certain reserve balances relating to deposits. The
reserves may be maintained in the form of vault cash or balances
maintained with a Federal Reserve Bank. For the two-week reserve
period inclusive of December 31, 1994, UNB maintained daily average
reserves of $10,463,000. For the two-week reserve period inclusive
of December 31, 1993, the daily average reserves maintained were
$10,553,000.
4. 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>
December 31, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $15,319 $ 6 $ (628) $14,697
U.S. government corporations
and agencies 84,899 1 (3,831) 81,069
Obligations of states
and political subdivisions 39,079 696 (930) 38,845
Corporate securities 3,017 -- (13) 3,004
Mortgage-backed securities 8,146 -- (336) 7,810
Other investments 50 -- -- 50
Total $150,510 $ 703 $(5,738) $145,475
</TABLE>
- A14 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
4. Investment Securities (Continued)
<TABLE>
<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>
December 31, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $37,694 $37,005
Due after one year through five years 92,571 88,847
Due after five years through ten years 19,136 18,440
Due after ten years 1,109 1,183
Total $150,510 $145,475
</TABLE>
- A15 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
4. Investment Securities (Continued)
Investment Securities Available For Sale
The book value and estimated market values of investments in
securities available for sale are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1994
Gross Estimated
Book Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $2,038 $ -- $ (30) $2,008
U.S. government corporations
and agencies 5,692 -- (102) 5,590
Obligations of states
and political subdivisions 3,178 6 (139) 3,045
Corporate securities -- -- -- --
Mortgage-backed securities 34,063 19 (956) 33,126
Other investments 9,323 -- -- 9,323
Total $54,294 $ 25 $(1,227) $53,092
</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>
December 31, 1994
Estimated
Book Market
Value Value
<S> <C> <C>
Due in one year or less $13,566 $13,303
Due after one year through five years 23,582 22,886
Due after five years through ten years 7,823 7,580
Due after ten years 9,323 9,323
Total $54,294 $53,092
</TABLE>
Gross realized gains and losses from the sale of investment
securities available for sale for the year ended December 31, 1994
are as follows:
<TABLE>
<CAPTION>
December 31,
1994
<S> <C>
Realized gains $ 527
Realized losses (107)
</TABLE>
Investment securities being held to maturity with a book value
of $50,905,000 and $41,322,000 were pledged to secure deposits of
public funds at December 31, 1994, and December 31, 1993
respectively. No investment securities available for sale were
pledged to secure deposits of public funds at December 31, 1994.
Total pledgings required at December 31, 1994, and December 31,
1993, were $16,754,000 and $17,038,000, respectively.
- A16 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
5. Loans
Major classifications of loans are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
At December 31,
1994 1993
<S> <C> <C>
Commercial, financial, and agricultural $110,755 $97,923
Installment 155,414 104,479
Bankcard 33,070 46,375
Real estate:
Mortgage 90,803 47,523
Other 2,984 1,762
$393,026 $298,062
</TABLE>
Changes in the allowance for loan losses were as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Balance at January 1 $4,400 $3,400 $3,050
Provision charged to expense 2,312 2,412 2,569
Recoveries of amounts charged off 541 528 885
Losses charged to the allowance (2,100) (1,940) (3,104)
Allowance acquired in merger 347 -- --
Balance at December 31 $5,500 $4,400 $3,400
</TABLE>
In the ordinary course of business, UBI and its subsidiary
bank has, and expects to have, transactions, including borrowings
with its officers, directors, and their affiliates. Loans, net of
participations sold, made to such borrowers are summarized as
follows (in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1993 $2,244
Additions 794
Repayments (190)
Other changes (267)
Balance, December 31, 1994 $2,581
</TABLE>
The "Other changes" category are loans that were outstanding
to directors and their related parties as of December 31, 1993, but
who were no longer directors at December 31, 1994.
6. Premises and Equipment
Premises and equipment are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Accumulated Book
At December 31, 1994 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,530 $ -- $ 2,530
Building and improvements 18,463 8,993 9,470
Furniture and equipment 7,673 4,138 3,535
$28,666 $13,131 $15,535
</TABLE>
- A17 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
6. Premises and Equipment (Continued)
<TABLE>
<CAPTION>
Accumulated Book
At December 31, 1993 Cost Depreciation Value
<S> <C> <C> <C>
Land $ 2,150 $ -- $ 2,150
Building and improvements 15,820 8,288 7,532
Furniture and equipment 5,804 3,362 2,442
$23,774 $11,650 $12,124
</TABLE>
Depreciation expense amounted to $1,660,000 in 1994, $1,355,000 in
1993 and $1,175,000 in 1992.
7. Short-term Borrowings
Short-term borrowings of UBI consist of the following (in
thousands):
<TABLE>
<CAPTION>
At December 31,
1994 1993
<S> <C> <C>
Demand note collateralized by stock of UNB at
lender's prime rate of 8.50% at December 31, 1994
and 5.50% at December 31, 1993 $ -- $ --
Treasury tax and loan demand note collateralized
by pledged U.S. Treasury securities 3,490 4,034
$3,490 $4,034
</TABLE>
8. FHLB Advances
Federal Home Loan Bank (FHLB) advances outstanding at December
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. 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 at December 31, 1994, are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Rate Amount
<C> <C> <C>
1995 6.58 29,820
1996 7.84 11,111
1997 6.68 7,170
1998 6.60 2,976
6.87% $51,077
</TABLE>
9. Long-term Borrowings
At December 31, 1994, and 1993, UBI had a note payable to
Harris Bank for $13,213,000 and $8,000,000, respectively. At
December 31, 1994, $6,000,000 was at a fixed rate of 8.03% with
$7,213,000 at a floating rate of LIBOR plus 1.75%. At December 31,
1993, all $8,000,000 was at a fixed rate of 8.28%. At April 1
1995, the rate will float on the total outstanding amount 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 final
payment due on March 31, 2001. Interest is payable quarterly.
- A18 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
9. Long-term Borrowings (Continued)
The note payable agreement with Harris Bank contains a
restriction on the amount of dividends that UBI can declare or pay
during any one calendar year without the prior written consent of
Harris Bank. Dividends declared or paid may not exceed 25% of
consolidated net income for the calendar year. Other restrictions
include minimum capital levels and maximum nonperforming asset
ratios.
Maturities of this note payable at December 31, 1994, are as
follows (in thousands):
<TABLE>
<CAPTION>
Remaining
Maturities for:
<C> <C>
1995 2,114
1996 2,114
1997 2,114
1998 2,114
1999 2,114
2000 2,114
2001 529
$13,213
</TABLE>
10. Income Taxes
Applicable income taxes include deferred income taxes arising
primarily from differences between financial and tax reporting of
the provision for loan losses, depreciation, loan fees and items
related to the acquisition. The consolidated provisions for income
taxes applicable to net income are as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Current:Federal $1,712 $2,340 $1,617
State 531 649 496
Total 2,243 2,989 2,113
Deferred:Federal (232) (801) (348)
State (64) (138) (50)
Total (296) (939) (398)
Total income tax expense $1,947 $2,050 $1,715
</TABLE>
The table at the top of the following page is a summary of
the source of differences between income tax expense and income
taxes computed at the statutory federal income tax rate of 34% (in
thousands):
- A19 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
10. Income Taxes (Continued)
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Normal tax on income before
income tax expense $2,597 $2,462 $2,045
State income tax, net of federal
income tax benefit 308 337 294
Tax benefit from interest on
tax-exempt securities and loans (827) (789) (763)
Non-deductible interest for
carrying tax-exempt securities 82 68 79
Other (213) (28) 60
Income tax expense $1,947 $2,050 $1,715
</TABLE>
Deferred income taxes arise from temporary differences in the
recognition of revenues, expenses, and tax credits for tax and
financial reporting purposes.
Cumulative temporary differences resulted in a net deferred
income tax asset of $1,063,000 and $339,000 at December 31, 1994
and December 31, 1993, respectively. The gross deferred tax asset
and the gross deferred tax liability are included in other assets
and other liabilities respectively in the 1994 Consolidated
Statement of Condition. Deferred tax liabilities (assets) are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
At December 31, 1994 1993
<S> <C> <C>
Depreciation expense $ 637 $ 862
Discount accretion 57 42
FHLB stock dividends 749 323
Gross deferred tax liability 1,443 1,227
Provision for loan losses (1,305) (1,159)
Deferred loan fees (265) (354)
Deferred compensation (338) --
Purchase accounting adjustments-investment securities,
deposits, FHLB advances and loans (54) --
FAS 115 adjustment (436) --
Other (108) (53)
Gross deferred tax asset (2,506) (1,566)
Net deferred tax asset $(1,063) $ (339)
</TABLE>
- A20 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
11. Financial Instruments with Off-Balance-Sheet Risk
UBI is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include commitments
to extend credit and standby letters of credit.
UBI's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. UBI uses the
same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit
risk at December 31, 1994, and 1993, include (in thousands):
<TABLE>
<CAPTION>
At December 31,
1994 1993
<S> <C> <C>
Commitments to extend credit:
Credit card lines $130,657 $208,695
Standby letters of credit 4,378 2,191
Other loan commitments 52,290 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.
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.
- A21 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
12. Dividend Availability
Approval of the Comptroller of the Currency is required if
total dividends declared by a national bank in any calendar year
exceed the bank's net profits for that year combined with its
retained profits for the preceding two years. At December 31,
1994, dividends of approximately $8,456,000 were available from the
bank subsidiary without such approval.
13. Retirement Plan
UBI's bank subsidiary has an employee thrift plan covering
substantially all of its employees after one year of service.
Contributions are made based on a percentage of each participant's
contribution. The total expense for the years ended December 31,
1994, 1993, and 1992, amounted to $252,000, $201,000, and $184,000
respectively.
14. Net Income per Share
Net income per share is computed by dividing net income by the
weighted average number of shares of stock outstanding during the
year. The weighted average number of shares was 354,080 in 1994,
350,690 in 1993 and 350,190 in 1992.
15. Supplementary Income Statement Information
Items included on the Consolidated Statement of Income under
the captions of other income and other expense which exceed one
percent of gross income are as follows (in thousands):
<TABLE>
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Other income:
Bankcard fees $ 2,409 $2,979 $3,004
Service charges 2,624 2,452 2,271
Trust fees 1,571 1,352 1,188
Gain on sale of investment securities
available for sale 420 -- --
Gain on sale of investment securities -- 20 359
Gains on sale of bankcard loans 1,718 -- --
Other 1,484 1,101 1,101
$10,226 $7,904 $7,923
Other expense:
Salaries and benefits $11,960 $10,119 $9,597
Bankcard fees 1,956 2,137 2,024
Data processing 1,260 1,159 1,385
Equipment 1,970 1,621 1,395
Occupancy, net of revenues of
$440, $432 and $437 1,591 1,353 1,311
Postage 595 626 673
Marketing 660 421 862
Supplies 925 818 935
Amortization of purchase premium 522 364 486
FDIC insurance 1,122 1,034 1,097
Other 3,151 2,511 2,801
$25,712 $22,163 $22,566
</TABLE>
- A22 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
16. Disclosures About Fair Value of Financial Instruments
The estimated fair values of UBI's financial instruments are
as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
1994 1993
Book Fair Book Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 37,829 $ 37,829 $ 26,819 $ 26,819
Investment securities 204,804 198,567 190,901 194,872
Trading account assets 49 49 -- --
Loans, net 387,526 381,319 291,049 294,517
Financial liabilities:
Deposits 506,648 505,398 433,816 437,603
Short-term borrowings 42,717 42,717 28,527 28,527
FHLB advances 51,077 48,862 16,900 16,928
Long-term debt 13,213 13,265 8,000 8,258
</TABLE>
The above table should be read in conjunction with footnote 1
on pages A-11 and A-12. The item for "unrecognized financial
instruments" was not presented in the above table due to the amount
of fees from commitments to extend credit being insignificant in
amount.
17. Parent Company Only Financial Statements
Union Bancshares, Inc.
Statement of Condition (Parent Only)
<TABLE>
(In thousands)
<CAPTION>
At December 31,
1994 1993
<S> <C> <C>
Assets
Cash $ 678 $ 1,328
Loans, net 1,521 --
Investment in subsidiaries 57,029 47,910
Other assets 50 6
Total assets $59,278 $49,244
Liabilities and Stockholders' Equity
Short-term borrowings $ 20 $ 20
Long-term borrowings 13,213 8,000
Other liabilities 396 408
Total liabilities 13,629 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 39,045 33,782
Unrealized gain (loss) on securities
available for sale, net (767) --
Total stockholders' equity 45,649 40,816
Total liabilities and
stockholders' equity $59,278 $49,244
</TABLE>
- A23 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Only Financial Statements (Continued)
Union Bancshares, Inc.
Statement of Income (Parent Only)
<TABLE>
(In thousands)
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $3,915 $3,000 $2,500
Interest income 25 40 53
Total income 3,940 3,040 2,553
Expenses:
Interest expense 964 776 819
Other expense 866 569 397
Total expenses 1,830 1,345 1,216
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 2,110 1,695 1,337
Income tax benefit 738 443 409
Income before equity in undistributed
net income of subsidiaries 2,848 2,138 1,746
Equity in undistributed net
income of subsidiaries 2,841 3,054 2,554
Net income $5,689 $5,192 $4,300
</TABLE>
[FN]
Note:Parent company only Statement of Stockholders' Equity is the same as
the Consolidated Statement of Stockholders' Equity.
- A24 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
17. Parent Company Only Financial Statements (Continued)
Union Bancshares, Inc.
Statement of Cash Flows (Parent Only)
<TABLE>
(In thousands)
<CAPTION>
Years ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $5,689 $5,192 $4,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed earnings
of subsidiaries (2,841) (3,054) (2,554)
(Increase) decrease in other assets (44) 2 --
Increase (decrease) in other liabilities (12) 226 (197)
Net cash provided by operating activities 2,792 2,366 1,549
Cash flows from investing activities:
Net (increase) decrease in loans (1,521) 304 127
Net cash provided (used) by
investing activities (1,521) 304 127
Cash flows from financial activities:
Net decrease in short-term borrowings -- (50) --
Increase (decrease) in long-term borrowings 5,213 (2,000) --
Issuance of common stock 337 -- 35
Purchase of UNB stock (7,000) -- --
Purchase of UBI Financial Services stock (45) (10) --
Cash dividends paid (426) (596) (596)
Net cash used by financing activities (1,921) (2,656) (561)
Net (decrease) increase in cash (650) 14 1,115
Cash at January 1 1,328 1,314 199
Cash at December 31 $678 $1,328 $1,314
</TABLE>
- A25 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Independent Auditor's Report
ALLEN, GIBBS & HOULIK, L.C.
Certified Public Accountants & Consultants
Epic Center, 301 N. Main, Suite 1700
Wichita, Kansas 67202-4868
(316) 267-7231, Fax (316) 267-0339
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Union Bancshares, Inc.
We have audited the consolidated statements of condition of Union
Bancshares, Inc. and Subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of income, stockholders'
equity and cash flows for the years then ended, and the separate
financial statements of Union Bancshares, Inc. which are included
in Note 17 to the consolidated financial statements. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Union
Bancshares, Inc. and Subsidiaries and Union Bancshares, Inc. as of
December 31, 1994 and 1993, and the results of their respective
operations and their respective cash flows for the years then ended
in conformity with generally accepted accounting principles.
/S/ Allen, Gibbs & Houlik, L.C.
Wichita, Kansas
January 27, 1995
AGH Member: The McGladrey Network and RSM International
- A26 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Independent Auditor's Report
Coopers certified public accountants
&Lybrand
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Union Bancshares, Inc.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows for Union Bancshares, Inc. and
Subsidiaries for the year ended December 31, 1992, and the separate
statements of income, stockholders' equity and cash flows for Union
Bancshares, Inc. for the year ended December 31, 1992, which are
included in Note 17 to the consolidated financial statements.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and
cash flows of Union Bancshares, Inc. for year ended December 31,
1992, in conformity with generally accepted accounting principles.
/S/ Coopers & Lybrand
Omaha, Nebraska
January 29, 1993
- A27 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Report on Financial Statements and Internal Accounting
Control
The financial statements, management's discussion and
analysis, and statistical data of UBI and subsidiaries contained
herein have been prepared in conformity with generally accepted
accounting principles at the direction of management, which has the
responsibility for these representations. In preparing the
financial information, management makes informed judgments and
estimates of the expected effects of events and transactions that
are currently being accounted for and is cognizant of the
materiality of those events and transactions.
In meeting its responsibility for the reliability of the
financial statements, management depends on UBI's system of
internal accounting control. This system is designed to provide
reasonable assurance that transactions are executed in accordance
with management's authorization and recorded properly to permit the
preparation of financial statements in accordance with generally
accepted accounting principles and that assets are safeguarded.
Such a system includes the communication of policies and procedures
to appropriate personnel, the careful selection and training of
qualified personnel, the assignment of authority and
responsibility, the accountability for performance, and a strong
program of internal audits. The concept of reasonable assurance is
based on the recognition that the cost of a system of internal
accounting control should not exceed the benefits expected to be
derived and that the evaluation of those factors requires estimates
and judgments by management.
Management has confidence that the internal accounting
controls currently in place, along with its strong audit programs,
provide reasonable assurance that the financial statements
presented herein and transactions underlying such statements are in
accordance with management's authorization and generally accepted
accounting principles.
- A28 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations
For the year 1994, UBI's net income was $5,689,000, up 9.56%
from the $5,192,000 earned in 1993. The earnings for 1994 produced
a return on average assets of .92% and a return on average equity
of 13.13%. This compares to a .97% return on average assets and a
13.50% return on average equity for 1993. The increase in earnings
for the year was due to a combination of factors. Those factors
included an increase in the dollar amount of the net interest
margin, a small reduction in the provision for loan losses, gains
from the sale of two bankcard loan portfolios, and gains on the
sale of securities available for sale. These factors are discussed
in further detail in the following paragraphs.
On April 4, 1994 UNB, UBI's wholly-owned banking subsidiary,
acquired the assets and liabilities of First Community Federal
Savings and Loan Association through merger. The addition of the
approximate $149,000,000 in assets is the major reason for the
dollar increase in the net interest margin. The net interest
margin was up $1,521,000 in 1994. The interest rate spread, that
is the rate earned on interest earning assets less the rate paid on
interest bearing liabilities, declined in 1994, putting pressure on
the net interest margin. This resulted from the increase in
interest rates paid on deposits as the Federal Reserve drove
interest rates up, and the local market pressures that kept
interest rates charged on loans low. Management looks for
continued pressures on the next interest margin in 1995 due to
market conditions.
The $100,000 reduction in the loan loss provision was directly
related to the lowest net charge-off percentage level (.44% of
average loans) since 1982. While management believes its systems
for monitoring, reviewing and analyzing credits contributed to this
low number, it also believes an improved economic environment
assisted in holding this number down. Management believes that
this number will continue to remain low in 1995.
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. The
affinity group was exercising their rights under the agreement
between them and UNB, at its expiration, to seek continued
servicing from any provider, including UNB, if they so desired.
Another institution won the bid for servicing and was required to
purchase the outstanding portfolio balances from UNB. The total
outstandings 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. This is a nonrecurring gain. The sale of the portfolio
had a negative impact on the net interest margin in 1994, and will
continue to have a negative impact to the net interest margin in
1995.
- A29 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
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.
Trust fees and service charge income were up in 1994 compared
to 1993 due to increased business. Trust fees were up 16.2% while
service charge income was up 7.0%. UNB continues to look for
increased fee income through new products and services, new markets
and new sales.
Non-interest expense for 1994 was up 16.0% over 1993. The
main reason for the increase was 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 in 1994, up $1,841,000. Salaries
and benefits of approximately $900,000 was attributable to the
First Community acquisition. The remaining increase was due to
normal salary and benefit increases.
In 1993, UBI earned $5,192,000, an increase of 20.7% over the
$4,300,000 earned in 1992. This was a .97% return on average
assets and a 13.50% return on average equity. This compares to a
.79% return on average assets and a 12.45% return on average equity
in 1992. The increased earnings in 1993 resulted from a higher net
interest margin, a lower loan loss provision and higher non-
interest income levels. The net interest margin was up due to
increased volumes of earning assets and a change in the mix of
assets from investments to loans.
In 1992, UBI earned $4,300,000, an increase of 22.8% over the
$3,502,000 earned in 1991. This was a .79% return on average
assets and a 12.45% return on average equity. This compares to a
.63% return on average assets and a 11.59% return on average equity
in 1991. The increased earnings in 1992 was also the result of a
higher net interest margin and some higher non-interest income
levels. The net interest margin was up 8.8% in 1992 over 1991 due
to increased volumes of earning assets and again a change in the
mix of assets from investments to loans.
- A30 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
The balance sheet was up on average $84,025,000 over 1993 due
to the merger of First Community into UNB. 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 stock and mutual funds. Increased
rates on deposits in the later part of 1994 slowed the deposit
reduction and began increases in deposits in late 1994. This has
been an industry trend.
Management anticipates 1995 to be a very competitive year.
Margins will continue to be pressured by competitive markets
causing management to rely on further deployment of investment
assets to loan assets to maintain margins. Management will look to
increased sales of products and services in 1995 to improve
earnings over 1994. They will also continue to look for
technological improvements and efficiencies to take on additional
volumes at current costs or to reduce costs where applicable.
UBI through its Community Development Corporation subsidiary,
UBI Financial Services, Inc. ("UBIFS"), 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 and a senior citizens center on 21st
Street in 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. UBIFS continues to
look for similar projects in all the communities it serves.
UBI anticipates that the merger agreement with Commerce will
be approved by its stockholders and all regulatory bodies. It is
anticipated that the merger will take place late first quarter or
early second quarter of 1995. The merger will provide new products
and services to its customers as well as larger capital resources.
Management will continue to look for acquisition opportunities in
South Central Kansas.
The significant elements of income and expense affecting net
income are detailed separately and in greater detail in the ensuing
analyses.
- A31 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Condition - Average Balances and Interest
Rates
<TABLE>
(Tax-equivalent basis in thousands of dollars)
<CAPTION>
Year Ended December 31, 1994
Interest
Average Income\ Average
Balance Expense Rates
Assets
<S> <C> <C> <C>
Loans (1)(2) $355,289 $32,104 9.04%
Investment securities:
Taxable 163,159 8,985 5.51
Nontaxable (2) 43,666 3,660 8.38
Trading account securities 25 2 6.67
Federal funds sold and securities
purchased under resale agreements 2,062 87 4.24
Total earning assets 564,201 44,838 7.95
Cash and due from banks 31,354
Premises and equipment 14,458
Other assets 16,576
Allowance for loan losses (5,120)
Total assets $621,469
Liabilities & Stockholders' Equity
Interest-bearing demand deposits $ 81,340 1,582 1.94
Interest-bearing savings deposits 118,583 2,590 2.18
Interest-bearing time deposits under $100,000 196,341 9,034 4.60
Interest-bearing time deposits over $100,000 12,745 545 4.28
Federal funds purchased and securities
sold under agreements to repurchase 25,874 1,044 4.04
Other short-term borrowings 2,474 94 3.81
FHLB advances 41,339 2,291 5.54
Long-term borrowings 12,656 964 7.62
Total costing liabilities 491,352 18,144 3.69
Non-interest-bearing demand 79,370
Other liabilities 7,424
Total liabilities 578,146
Stockholders' equity 43,323
Total liabilities and
stockholders' equity $621,469
Interest spread $26,694 4.26%
Net interest margin (3) 4.73%
</TABLE>
[FN]
(1) Includes nonaccrual loans at principal amount outstanding.
Interest on loans includes loan fees of $1,025 in 1994, $739 in 1993, and
$566 in 1992.
(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.
- A32 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Consolidated Statement of Condition - Average Balances and Interest
Rates
<TABLE>
<CAPTION>
1993 1992
Interest Interest
Average Income\ Average Average Income/ Average
Balance Expense Rates Balance Expense Rates
<C> <C> <C> <C> <C> <C>
$287,040 $27,197 9.56% $277,961 $28,559 10.34%
159,120 9,038 5.68 171,990 11,536 6.71
39,070 3,486 8.92 34,194 3,352 9.80
50 3 6.59 121 9 7.32
3,734 113 3.01 12,793 445 3.48
489,014 39,837 8.19 497,059 43,901 8.86
31,353 33,897
11,983 11,502
9,113 9,419
(4,019) (4,128)
$537,444 $547,749
$ 75,234 1,579 2.10 $ 71,804 2,141 2.98
111,182 2,581 2.32 107,330 3,514 3.27
168,883 8,289 4.91 196,188 11,317 5.77
9,347 359 3.84 22,778 999 4.39
22,792 581 2.55 17,717 557 3.14
2,841 80 2.82 2,562 86 3.35
13,826 477 3.45 1,361 77 5.66
9,154 776 8.48 10,000 819 8.19
413,259 14,722 3.56 429,740 19,510 4.54
79,718 77,544
6,010 5,936
498,987 513,220
38,457 34,529
$537,444 $547,749
$25,115 4.63% $24,391 4.32%
5.16% 4.92%
</TABLE>
- A33 -
<PAGE>
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Net Interest Income
Net interest income, the most significant element of UBI's
earnings, represents the difference between the interest earned on
loans and other investments and the interest incurred for deposits
and other sources of funds. For purposes of the analysis below,
net interest income is adjusted to convert tax-exempt income to a
fully 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 years 1992 to 1994 (in thousands):
<TABLE>
<CAPTION>
Net Interest Income
Change
1994 1993 1992 1994/93 1993/92
<S> <C> <C> <C> <C> <C>
Interest income $43,578 $38,635 $42,737 $4,943 $(4,102)
Tax-equivalent adjustment 1,260 1,202 1,164 58 38
Interest income--
tax-equivalent basis (1) 44,838 39,837 43,901 5,001 (4,064)
Interest expense 18,144 14,722 19,510 3,422 (4,788)
Net interest income (1) $26,694 $25,115 $24,391 $1,579 $ 724
Average earning assets $564,201 $486,539 $495,331 $77,662 $(8,792)
Net interest income on
average earning assets (1) 4.73% 5.16% 4.92% (.43)% .24%
</TABLE>
[FN]
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
On a tax-equivalent basis, net interest income for 1994 was
$26,694,000, representing an increase over the previous year of
$1,579,000 or 6.3%. 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. The rise in interest rates in 1994 due to pressures from the
Federal Reserve, caused deposit interest rates to rise while local
market competition caused loan interest rates to rise more slowly.
This combination of factors caused interest rate spreads to decline
putting pressures on net interest margins. For the year 1995, it
is anticipated that margins will continue to be squeezed from these
same conditions.
Interest expense in 1994 increased by $3,422,000, or 23.2%,
from 1993. This increase was due mainly from increased interest
expense on deposits and FHLB advances acquired through the merger
with First Community. Average interest costing liabilities were
$491,352,000 representing an increase of $78,093,000, or 18.9%,
above 1993. Average time deposits less than $100,000 rose
$27,458,000, or 16.3%, in the current year. Deposits also began to
increase in late 1994 and will add to higher interest costs in
1995.
- A34 -
PAGE
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
- A35 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income
The following table analyzes the increase in tax-equivalent
net interest income in terms of the respective amounts attributable
to changes in interest rates, changes in average balances, and
changes in both rates and balances.
<TABLE>
(In thousands)
<CAPTION>
1994 vs. 1993
Change attributable to
Total Rate/
Change Rate Volume Volume
<S> <C> <C> <C> <C>
Increase (decrease) in:
Interest income:
Loans (1) $4,906 $(1,484) $6,759 $(369)
Investment securities:
Taxable (52) (275) 229 (6)
Nontaxable (1) 174 (211) 410 (25)
Trading account securities (1) (2) -- (2) --
Federal funds sold and securities
purchased under resale agreements (25) 46 (50) (21)
Total 5,001 (1,924) 7,346 (421)
Interest expense:
Interest-bearing demand deposits 3 (116) 128 (9)
Interest-bearing savings deposits 9 (153) 172 (10)
Interest-bearing time deposits
under $100,000 745 (518) 1,348 (85)
Interest-bearing time deposits
over $100,000 186 41 130 15
Federal funds purchased and securities
sold under agreements to repurchase 463 338 79 46
Other short-term borrowings 14 28 (10) (4)
FHLB advances 1,814 289 949 576
Long-term borrowings 188 (79) 297 (30)
Total 3,422 (170) 3,093 499
Increase in net interest income (1) $1,579 $(1,754) $4,253 $(920)
</TABLE>
[FN]
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
- A36 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Changes in Tax-equivalent Net Interest Income (Continued)
<TABLE>
<CAPTION>
1993 vs. 1992
Change attributable to
Total Rate/
Change Rate Volume Volume
<C> <C> <C> <C>
$(1,362) $(2,159) $ 862 $(65)
(2,498) (1,767) (863) 132
134 (301) 478 (43)
(6) (1) (5) --
(332) (59) (315) 42
(4,064) (4,287) 157 66
(562) (634) 102 (30)
(933) (1,022) 126 (37)
(3,028) (1,688) (1,575) 235
(640) (124) (589) 73
24 (105) 159 (30)
(6) (14) 9 (1)
400 (30) 705 (275)
(43) 28 (69) (2)
(4,788) (3,589) (1,132) (67)
$ 724 $ (698) $1,289 $133
</TABLE>
- A37 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-interest Income
Non-interest income for 1994 was $10,226,000, representing an
increase of $2,322,000, or 29.4% from the same period in the
preceding year. This increase resulted primarily from the gain on
the sales of two bankcard portfolios. See page A 29 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 19.1%. This is a result of the two
bankcard portfolio sales in 1994 and from reduced fees charged to
card holders as competition has almost eliminated annual fees. All
other categories remained relatively unchanged.
Non-interest income in 1993 was $7,904,000, representing a
decrease of $19,000, or .2%, under the preceding year. The largest
decrease came from the security gains category which decreased
$339,000 from 1992. This was due to the 1992 sale of
collateralized mortgage obligations resulting from accelerated
repayments and small principal sums remaining in certain issues.
Increases in service charges and trust fees categories for 1993
helped offset the decreases in non-interest income caused by the
security gains category. All other categories remained relatively
unchanged.
Each major category of non-interest income is analyzed in the
following table (in thousands):
<TABLE>
<CAPTION>
Non-interest Income
Percent Change
1994 1993 1992 1994/93 1993/92
<S> <C> <C> <C> <C> <C>
Bankcard fees $ 2,409 $2,979 $3,004 (19.1)% (.8)%
Service charges 2,624 2,452 2,271 7.0 8.0
Trust fees 1,571 1,352 1,188 16.2 13.8
Gain on sale of investment
securities available for sale 420 -- -- -- --
Gain on sale of investment
securities -- 20 359 -- (94.4)
Gain on sale of bankcard loans 1,718 -- -- -- --
Other 1,484 1,101 1,101 34.8 0.0
Total non-interest income $10,226 $7,904 $7,923 29.4% (.2)%
</TABLE>
Analysis of Non-interest Expense
Non-interest expense for 1994 totaled $25,712,000, an increase
of $3,549,000 or 16.0% from 1993. 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, as discussed on page A30, normal pay increases
and the increasing costs of employee benefits and training.
- A38 -
<PAGE> <PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Non-interest Expense (Continued)
Equipment and occupancy expenses were up primarily due to the
merger acquisition of First Community . 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.
Non-interest expense in 1993 totaled $22,163,000, a decrease
of $403,000, or 1.8%, under 1992. The largest decrease in non-
interest expense occurred in marketing expenses. In 1992 there was
extensive media advertising that took place that did not occur in
1993. Several other non-interest expense categories decreased in
1993 due to efforts to control costs in UBI. The largest dollar
increase in non-interest expense came from salaries and benefits
expenses. The increase of $522,000 was due to normal salary and
benefits increases.
Each major category of non-interest expense is detailed in the
following table (in thousands):
<TABLE>
<CAPTION>
Non-interest Expense
Percent Change
1994 1993 1992 1994/93 1993/92
<S> <C> <C> <C> <C> <C>
Salaries and benefits $11,960 $10,119 $9,597 18.2% 5.4%
Bankcard fees 1,956 2,137 2,024 (8.5) 5.6
Data processing 1,260 1,159 1,385 8.7 (16.3)
Equipment 1,970 1,621 1,395 21.5 16.2
Occupancy, net of revenues of
$440, $432 and $437 1,591 1,353 1,311 17.6 3.2
Postage 595 626 673 (5.0) (7.0)
Marketing 660 421 862 56.8 (51.2)
Supplies 925 818 935 13.1 (12.5)
Amortization of purchase premium 522 364 486 43.4 (25.1)
FDIC insurance 1,122 1,034 1,097 8.5 (5.7)
Other 3,151 2,511 2,801 25.5 (10.4)
Total non-interest expense $25,712 $22,163 $22,566 16.0% (1.8)%
</TABLE>
Analysis of Investment Securities
The book value of investment securities at December 31, 1994,
1993, and 1992, is presented below (in thousands):
<TABLE>
<CAPTION>
Investment Securities
Held to Maturity
1994 1993 1992
<S> <C> <C> <C>
U.S. Treasury securities $ 15,319 $ 24,500 $ 29,177
U.S. government corporations
and agencies 84,899 85,899 63,091
Obligations of states and
political subdivisions 39,079 42,555 37,072
Corporate securities 3,017 4,107 6,710
Mortgage-backed securities 8,146 28,126 50,246
Other investments 50 5,714 11,236
Total $150,510 $190,901 $197,532
</TABLE>
- A39 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Investment Securities (Continued)
<TABLE>
<CAPTION>
Investment Securities
Available For Sale
1994 1993 1992
<S> <C> <C> <C>
U.S. Treasury securities $ 2,008 $ -- $ --
U.S. government corporations
and agencies 5,590 -- --
Obligations of states and
political subdivisions 3,045 -- --
Corporate securities -- -- --
Mortgage-backed securities 33,126 -- --
Other investments 9,323 -- --
Total $53,092 $ -- $ --
</TABLE>
Except for total U.S. Treasury and U.S. Agency Obligations, no
investment in a single issuer exceeds 10% of stockholders' equity.
State and municipal securities make up approximately 20.7% of
the total investment portfolio. UNB's investment policy states
that out-of-state municipal securities purchased shall have an A
rating or better by either Standard & Poor's or Moody's rating
service or be approved by the Investment Committee if municipal
securities with less than an A rating are considered. The quality
ratings on Kansas municipal bonds shall be left to the investment
officer.
At December 31, 1994, $11,496,000, or 27.3%, of the state and
municipal securities were nonrated with $6,255,000, or 54.4%, of
the nonrated municipal securities being Kansas issues. The
majority of the nonrated municipal securities are smaller bond
issues that are not rated by Standard & Poors or Moody's but are
considered to be of appropriate investment quality and actively
traded in a liquid market.
A complete breakout of the ratings for state and municipal
securities at December 31, 1994, is shown below (in thousands):
<TABLE>
<CAPTION>
Carrying % of
Value Rating Total
<C> <C> <C>
$12,407 AAA 29.5%
5,151 AA 12.2
13,070 A 31.0
11,496 NR 27.3
$42,124 100.0%
</TABLE>
The maturity distribution of UBI's investment securities at
December 31, 1994, is presented below. In addition, the weighted
average yield of each maturity range of 1994 is presented on a
fully tax-equivalent basis.
- A40 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Investment Securities (Continued)
<TABLE>
<CAPTION>
Maturity Distribution of Investment Securities
(In thousands)
After After
One But Five But
Within Within Within After
One Five Ten Ten
Year Years Years Years Total
<S> <C> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury securities $ 3,011 $12,308 $ -- $ -- $15,319
U.S. government corporations
and agencies 23,967 55,932 5,000 -- 84,899
Obligations of states and
political subdivisions 5,992 17,842 14,136 1,109 39,079
Corporate securities 3,017 -- -- -- 3,017
Mortgage-backed securities 1,657 6,489 -- -- 8,146
Other investments 50 -- -- -- 50
Total 37,694 92,571 19,136 1,109 150,510
Percent of held to maturity
portfolio 25% 61% 13% 1% 100%
Weighted average yield
(fully tax-equivalent) 5.21% 5.82% 6.60% 7.24% 5.78%
Available for Sale
U.S. Treasury securities 1,005 1,003 -- -- 2,008
U.S. government corporations
and agencies 3,000 2,590 -- -- 5,590
Obligations of states and
political subdivisions 290 556 2,199 -- 3,045
Corporate securities -- -- -- -- --
Mortgage-backed securities 9,008 18,737 5,381 -- 33,126
Other investments -- -- -- 9,323 9,323
Total 13,303 22,886 7,580 9,323 53,092
Percent of available for sale
portfolio 25% 43% 14% 18% 100%
Weighted average yield
(fully tax-equivalent) 5.18% 4.92% 4.48% 5.55% 5.03%
Total investment securities $50,998 $115,456 $26,716 $10,432 $203,602
Percent of total portfolio 25% 57% 13% 5% 100%
Weighted average yield
(fully tax-equivalent) 5.23% 5.67% 6.04% 5.73% 5.61%
</TABLE>
Mortgage-backed securities have been included in the maturity
table based on their expected life. However, this classification
may not be indicative of the interest rate risk characteristics of
the portfolio.
At December 31, 1994, the held-to-maturity mortgage-backed
securities category was comprised totally of fixed-rate mortgage-
backed securities and included no collateralized mortgage
obligations (CMOs). The average expected life of the $8,146,000 in
the held-to-maturity mortgage-backed securities was approximately
2.5 years and does not present UBI with significant interest rate
or prepayment risk.
- A41 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Investment Securities (Continued)
The December 31, 1994, available-for-sale mortgage-backed
securities portfolio was comprised principally of securities issued
and guaranteed by various U.S. government agencies with an
estimated average maturity of approximately 3.5 years. Included in
the December 31, 1994 available-for-sale mortgage-backed securities
were $5,460,000 in CMOs. Of the $33,126,000 in available-for-sale
mortgage-backed securities, approximately $22,000,000 are floating-
rate mortgage-backed securities. The yields on these floating rate
securities float on a short-term (less than one year) basis with
various reported indices, which reduces the interest rate risk
associated with these investments.
Analysis of Loans
Outstanding loans distinguished by selected categories at
December 31 for each of the last five years, their maturities, and
interest sensitivity of those loan categories at year-end December
31, 1994, are set forth in the following analyses (in thousands):
<TABLE>
<CAPTION>
Loans by Category
At December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $110,755 $ 97,923 $ 87,256 $ 88,114 $ 94,267
Installment 155,414 104,479 91,873 71,926 58,799
Bankcard 33,070 46,375 52,656 55,379 55,882
Real estate:
Mortgage 90,803 47,523 50,500 60,438 67,431
Other 2,984 1,762 694 1,033 940
Total $393,026 $298,062 $282,979 $276,890 $277,319
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution of Loans
(In thousands)
After
One But
Within Within After
One Five Five
At December 31, 1994 Year Years Years Total
<S> <C> <C> <C> <C>
Commercial, financial,
and agricultural $ 60,020 $ 34,646 $ 16,089 $110,755
Installment 41,568 89,101 24,745 155,414
Bankcard -- 33,070 -- 33,070
Real estate:
Mortgage 3,595 16,870 70,338 90,803
Other 2,984 -- -- 2,984
Total $108,167 $173,687 $111,172 $393,026
Loans with fixed interest rates $ 46,906 $127,968 $ 63,613 $238,487
Loans with floating interest rates 61,261 45,719 47,559 154,539
Total $108,167 $173,687 $111,172 $393,026
</TABLE>
- A42 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Loans (Continued)
UBI has had a significant increase in installment loans
starting in 1991 through 1994. UBI has been aggressively pursuing
indirect dealer loan business during this period. UBI will
continue to emphasize this area of the retail market in the future
because of the potential to generate additional loan growth for
UBI.
In 1988, when UNB began emphasizing mortgage loans, Sedgwick
County, Kansas was defined as the market area. The acquisitions in
1990 expanded the mortgage lending market to Reno County, Kansas
with a few loans in counties adjacent to Sedgwick and Reno
counties. In 1994 with the acquisition of First Community, UNB
expanded into the mortgage lending market of Cowley County, Kansas.
UNB considers Sedgwick, Reno and Cowley counties as its primary
mortgage loan markets. The majority of these loans are 1-4 family
residential mortgage loans. At December 31, 1994, approximately
45% are adjustable rate mortgages with the remaining 55% being
fixed rate. Bankcard loans decreased due to the two portfolio
sales as discussed on page A-29.
Analysis of Underperforming Assets
UBI continues to place strong emphasis on the close monitoring
of underperforming assets. It is UBI's policy to treat as
underperforming assets (a) loans that are accounted for on a
nonaccrual basis, (b) loans, the terms of which have been
renegotiated to provide for a reduction or deferral of interest or
principal because of a deterioration in the financial position of
the borrower, (c) other real estate, and (d) loans which are past
due 90 days or more and still accruing interest.
Under-performing assets at December 31, 1994, were $2,253,000,
an increase of $40,000 from $2,213,000 at December 31, 1993.
Nonaccrual loans increased $464,000, while loans 90 days past due
decreased $505,000 over the prior year. At December 31, 1993,
underperforming assets were $156,000 higher than the $2,057,000
reported at December 31, 1992. The increase at December 31, 1993,
was not substantial and the level of underperforming assets to
total loans and the allowance for loan losses remain at very
acceptable levels. The decrease in 1991, was attributable to
reduced levels of past due loans and charge-offs of loans
classified as underperforming in 1990. All underperforming loans
of $100,000 or more are specifically reviewed by management in
analyzing the adequacy of the allowance for loan losses. This is
discussed additionally on pages A-9 and A-44 under Allowance for
Loan Losses.
Loans are placed on nonaccrual status when principal or
interest is due and has remained unpaid for 90 days or more unless
the loan is well secured and/or in the process of collection.
- A43 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Underperforming Assets (Continued)
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.
Loans on which the accrual of interest has been discontinued
amounted to $1,149,000 at December 31, 1994. If interest on these
loans had been accrued, such income would have approximated $98,000
in 1994. No interest was recognized on these loans after
transferring them to nonaccrual status.
Underperforming assets for five-year period ended December 31,
1994, are set forth in the following table (in thousands):
<TABLE>
<CAPTION>
Underperforming Assets
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,149 $ 685 $1,087 $ 613 $1,347
Past due loans (90 days or more) 964 1,469 939 568 402
2,113 2,154 2,026 1,181 1,749
Other real estate held 140 59 31 332 803
Total $2,253 $2,213 $2,057 $1,513 $2,552
</TABLE>
Analysis of Allowance for Loan Losses
In the normal course of business, banks recognize that a
relatively small percentage of the loans they make will eventually
be charged off. These future charge-offs are currently provided
for through the allowance for loan losses. Additions made to this
allowance are charged to operating expenses under the provision for
loan losses. Loans are charged against the allowance when they are
deemed to be uncollectible. Recoveries are credited directly to
the allowance.
The required level for the allowance for loan losses is
determined by management on the basis of a detailed review of the
risk factors affecting the loan portfolio. In addition to
evaluating the financial condition of individual borrowers,
management assesses the entire portfolio as to past loan loss
experience, volumes, mix and maturity, concentration of credit,
prevailing economic conditions, both locally and nationally, and
off-balance sheet risk. Management specifically reviews all
underperforming assets of $100,000 or more for loan loss adequacy
as well as for potential partial or complete charge-off. The
results of these reviews along with the other above factors enable
management to establish the allowance at a level considered
adequate to absorb loan losses.
- A44 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses (Continued)
At December 31, 1994, the allowance for loan losses was
$5,500,000, or 1.40%, of outstanding loans. This compares with
$4,400,000, or 1.48%, of outstanding loans reported at the end of
1993. The provision for loan losses totaled $2,312,000 in the
current year, a decrease of $100,000 from the $2,412,000 reported
a year earlier. The reduction in the allowance to loans percentage
between December 31, 1993 and December 31, 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 during 1994 amounted to $1,559,000, or
.44%, of average net loans, the lowest net charge off percentage
level since 1982. This compares with net charge-offs of
$1,412,000, or .49%, of average net loans for the preceding year.
Based upon managements detailed review and analysis of the
loan portfolio at December 31, 1994, the allowance for loan losses
was set at a level of $5,500,000 as managements best estimate of
the potential losses which might be present in the loan portfolio
at that point in time. Management believes it is important to take
a conservative approach in evaluating the risk profile of the
company.
The activity in the allowance for loan losses during each of
the past five years is presented in the following analysis: (In
thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Total loans at end of year $393,026 $298,062 $282,979 $276,890 $277,319
Average of total loans $355,289 $287,040 $277,961 $265,741 $251,744
Allowance for loan losses:
Balance at beginning of year $4,400 $3,400 $3,050 $2,800 $2,750
Provision charged to expense 2,312 2,412 2,569 2,647 2,495
Allowance acquired through
merger 347 -- -- -- --
Charge-offs:
Commercial, financial,
and agricultural 54 -- 1,525 609 860
Real estate 17 -- 13 8 --
Installment 965 832 700 1,251 1,004
Bankcard 1,064 1,108 866 952 764
2,100 1,940 3,104 2,820 2,628
Recoveries:
Commercial, financial,
and agricultural 111 212 118 136 33
Real estate -- -- -- -- --
Installment 241 165 676 190 76
Bankcard 189 151 91 97 74
541 528 885 423 183
Net charge-offs 1,559 1,412 2,219 2,397 2,445
Balance at end of year $5,500 $4,400 $3,400 $3,050 $2,800
</TABLE>
- A45 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Allowance for Loan Losses (Continued)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net charge-offs to:
Average loans .44% .49% .80% .90% .97%
Provision for loan losses 67.43% 58.54% 86.38% 90.56% 98.00%
Allowance for loan losses to:
Year-end loans 1.40% 1.48% 1.20% 1.10% 1.01%
Net charge-offs 3.53x 3.12x 1.53x 1.27x 1.15x
Underperforming assets 2.44x 1.99x 1.65x 2.02x 1.10x
</TABLE>
The following tables allocate UBI's allowance for loan losses
in dollars and percentages among the various loan categories based
upon managements review and analysis of the potential risk in the
loan portfolio at year-end.
Allocation of the allowance for loan losses between loan
categories is shown in the following table (in thousands). This
allocation is not fixed, and UBI considers the entire allowance
available to absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural $1,200 $1,000 $1,100 $1,000 $1,000
Real estate 700 100 100 100 150
Installment 2,300 1,600 1,100 850 650
Bankcard 1,300 1,700 1,100 1,100 1,000
$5,500 $4,400 $3,400 $3,050 $2,800
</TABLE>
The following tables compare the percentage of loans in each
loan category to total loans and the allocation of the allowance
for loan losses by type expressed as a percentage of the total
allowance for loan losses:
<TABLE>
<CAPTION>
Percent of loans in each category to total loans
At December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 28.18% 32.85% 30.83% 31.82% 33.99%
Real estate 23.10 15.94 17.85 21.83 24.52
Installment 39.54 35.05 32.47 25.98 21.20
Bankcard 8.41 15.56 18.61 20.00 20.15
Other .77 .60 .24 .37 .14
100.00% 100.00% 100.00% 100.00% 100.00%
<CAPTION>
Allocation of allowance for loan losses as a percentage
of total allowance for loan losses
At December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial, financial,
and agricultural 21.82% 22.73% 32.35% 32.79% 35.71%
Real estate 12.73 2.27 2.95 3.28 5.36
Installment 41.82 36.36 32.35 27.87 23.22
Bankcard 23.63 38.64 32.35 36.06 35.71
100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
- A46 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Deposits
Deposits at December 31, 1994, were $506,648,000, representing
an increase of $72,832,000, or 16.8%, above 1993. On average for
the year, deposits were $488,379,000, up $44,015,000 over 1993.
The increase in deposits during 1994 came from acquiring deposits
through the merger with First Community.
The maturity of time deposits of $100,000 or more is set forth
in the following table (in thousands):
<TABLE>
<CAPTION>
Maturities of Domestic
Time Deposits of
$100,000 or more
At December 31,
1994 1993
<S> <C> <C>
Three months or less $ 4,876 $ 4,102
Over three through six months 3,564 1,369
Over six through twelve months 4,506 1,431
Over twelve months 6,906 5,306
Total $19,852 $12,208
</TABLE>
Analysis of Short-term Borrowings
Information for each category of short-term borrowings for
which the average balance outstanding for the period was at least
30 percent of stockholders' equity at the end of the period is
presented below (in thousands):
<TABLE>
<CAPTION>
Short-term Borrowings
1994 1993 1992
<S> <C> <C> <C>
Federal funds purchased:
Outstanding at year-end $19,605 $12,543 $ 5,357
Average interest rate at year-end 5.37% 2.88% 3.00%
Average outstanding for the year $12,190 $ 9,946 $ 6,694
Weighted average interest rate 4.18% 2.81% 3.24%
Highest outstanding balance at any month-end $20,829 $17,237 $ 7,148
Securities sold under agreements to repurchase:
Outstanding at year-end $19,622 $11,950 $11,766
Average interest rate at year-end 5.12% 2.48% 2.58%
Average outstanding for the year $13,684 $12,846 $11,024
Weighted average interest rate 3.89% 2.35% 3.08%
Highest outstanding balance at any month-end $24,213 $15,061 $13,316
FHLB advances:
Outstanding at year-end $51,077 $16,900 $ 2,300
Average interest rate at year-end 6.87% 3.40% 5.76%
Average outstanding for the year $41,339 $13,826 $ 1,361
Weighted average interest rate 5.54% 3.45% 5.66%
Highest outstanding balance at any month-end $51,077 $17,300 $ 2,400
</TABLE>
- A47 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Capital Resources
Stockholders' equity increased $4,833,000, or 11.8%, to
$45,649,000 at December 31, 1994, from the $40,816,000 reported at
December 31, 1993. The ratio of equity capital to total assets was
6.9 % at December 31, 1994, compared to 7.7% for the same period in
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 of 7.5% is consistent with UBI's
policy of maintaining an appropriate balance between earnings
returned to stockholders in the form of dividends and earnings
retained to provide internal capital growth.
Risk-based capital guidelines established by the Federal
Reserve Bank (FRB), UBI's primary regulator, started in 1991.
Under these guidelines, the FRB will monitor three ratios for
capital levels. They are Tier I capital, Tier II capital and a
Leverage ratio. Currently the FRB is requiring a minimum Tier I
capital guideline of 4.00%, a Tier II capital guideline of 8.00%,
and a Leverage ratio of 3.00%. At December 31, 1994, UBI had a
9.6% Tier I capital ratio, a 10.9% Tier II capital ratio, and a
6.2% Leverage ratio. All the regulatory capital ratios are down
from the levels recorded at 1993. The declines are primarily due
to the merger acquisition of First Community which resulted in
increased levels of risk based assets with no increase in equity
capital. The acquisition also increased intangible assets which
are deducted from equity capital in calculating risk based capital
ratios. All of UBI's capital ratios are above the regulatory
guidelines and placed UBI in the "well capitalized" category
currently defined by regulators. Well capitalized institutions are
defined as those institutions having a Tier I capital level of
6.0%, a Tier II capital level of 10.0% and a Leverage ratio of
5.0%. This is the highest capital level category defined by
regulators.
- A48 -
PAGE
<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Liquidity
Liquidity for UBI's bank subsidiary, UNB, is represented by
UNB's ability to generate a continuing stream of funds to satisfy
its financial needs and the credit and deposit demands of its
customers. Liquidity and interest sensitivity are managed in a
coordinated asset/liability management program within the bank.
Asset liquidity is derived from loan repayments and scheduled
maturities of loans and other assets, primarily investment
securities. At December 31, 1994, loan repayments and scheduled
loan maturities within one year or less totaled $115,284,000. At
December 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 $51,360,000. These short-term investment funds
equaled 8.6% of aggregate interest-earning assets. This liquidity
provides UNB with a substantial capacity to fund customers' new
credit demands, internal financial needs, deposit payouts and to
take advantage of other attractive market conditions as they arise.
On the liability side, the most significant sources of
liquidity for UNB consist of customers' new savings and time
deposits under $100,000 and the renewal of customers' maturing
deposits. Other sources of liquidity include customers'
certificates of deposit of $100,000 or more, FHLB advances, and the
purchase of federal funds and securities sold under agreements to
repurchase.
UBI relies on dividends and tax benefit payments from its
subsidiaries and borrowings from unaffiliated banks to generate
cash flow. Federal regulations restrict the payment of dividends
by national banks by requiring approval of the Comptroller of the
Currency if total dividends declared by a national bank in any
calendar year exceed the bank's net profits for that year combined
with its retained profits for the preceding two years. At December
31, 1994, dividends of approximately $8,456,000 were available from
the bank subsidiary without such approval. UBI also has available
for cash flow needs a $1,000,000 line-of-credit with Harris Bank
and Trust Company of Chicago. As of December 31, 1994, the line of
credit had a $0 balance.
- A49 -
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<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 December 31, 1994. Yields and rates shown in
the table are interest income and expense only. Other factors such
as loan fees are not included in the summary.
<TABLE>
<CAPTION>
0-3 3-6 6-12 1-5 5+ Non-Rate
Repricing Maturity Months Months Months Years Years Sensitive Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans $138,026 $ 19,880 $ 39,307 $139,726 $ 56,087 $ 0 $393,026
Securities-Taxable 18,692 12,662 21,795 97,545 11,318 0 162,012
Securities-Nontaxable 552 1,244 4,486 17,929 17,428 0 41,639
Fed Funds Sold 100 0 0 0 0 0 100
Nonearning Assets 0 0 0 0 0 68,900 68,900
Total Assets 157,370 33,786 65,588 255,200 84,833 68,900 665,677
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 2,256 2,256 4,512 36,127 30,105 0 75,256
Savings Deposits 2,622 3,327 6,654 53,177 44,319 0 110,099
Other Time Deposits 48,166 37,574 55,536 69,523 20,942 0 231,741
Short-term Borrowings 42,717 0 0 0 0 0 42,717
Long-term Borrowings 20,529 5,790 5,617 29,713 2,641 0 64,290
Noncosting Liabilities 0 0 0 0 0 95,925 95,925
Stockholders' Equity 0 0 0 0 0 45,649 45,649
Total Liabilities and
Stockholders' Equity 116,290 48,947 72,319 188,540 98,007 141,574 665,677
Repricing Gap $ 41,080 $(15,161) $(6,731) $ 66,660 $(13,174) $(72,674) $ 0
Cumulative Repricing Gap $ 41,080 $ 25,919 $19,188 $ 85,848 $ 72,674 $ 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 9.23% 8.61% 8.74% 8.70% 7.85% 8.76%
Securities-Taxable 5.27 5.00 5.30 5.62 5.54 5.48
Securities-Nontaxable (1) 7.53 8.61 8.68 8.69 8.18 8.46
Fed Funds Sold 5.63 0.00 0.00 0.00 0.00 5.63
Nonearning Assets 0.00 0.00
Total Assets 8.75 7.26 7.60 7.52 7.61 0.00 7.04
Liabilities and
Stockholders' Equity:
Interest-Bearing Demand
Deposits 1.99 1.99 1.99 1.99 1.99 1.99
Savings Deposits 2.36 2.36 2.36 2.36 2.36 2.37
Other Time Deposits 4.14 4.52 5.07 5.60 6.18 5.04
Short-term Borrowings 5.65 0.00 0.00 0.00 0.00 5.65
Long-term Borrowings 6.25 7.57 7.34 7.49 8.03 7.11
Noncosting Liabilities 0.00 0.00
Stockholders' Equity 0.00 0.00
Total Liabilities and
Stockholders' Equity 4.99 4.62 4.80 4.29 3.21 0.00 3.42
Net Yield 3.76% 2.64% 2.79% 3.23% 4.39% 0.00% 3.62%
<FN>
(1) Tax-equivalent basis is calculated using a marginal federal tax rate of 34%.
</TABLE>
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<PAGE>
Union Bancshares, Inc. and Subsidiaries
Analysis of Interest Sensitivity (Continued)
UBI has a positive cumulative repricing gap in the one-year
horizon. Consequently, it is more sensitive to a decreasing rate
environment which, if it occurred, would adversely impact the net
interest margin. Simulation modeling has demonstrated that a
sudden and large decrease in rates or a dramatic narrowing in the
spread between asset yields and liability costs would result in an
adverse impact on the net interest margin; however the adverse
impact is more moderate if interest rates decrease gradually.
Five-Year Summary of Operations
<TABLE>
(In Thousands of Dollars Except Per Share Amounts)
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Condensed Statement of Income
Interest income $43,578 $38,635 $42,737 $48,387 $45,534
Interest expense 18,144 14,722 19,510 27,035 26,765
Net interest income 25,434 23,913 23,227 21,352 18,769
Provision for loan losses 2,312 2,412 2,569 2,647 2,495
Other income 10,226 7,904 7,923 8,361 8,289
Other expense 25,712 22,163 22,566 22,152 20,735
Income before income tax expense 7,636 7,242 6,015 4,914 3,828
Income tax expense 1,947 2,050 1,715 1,412 943
Net income $5,689 $5,192 $4,300 $3,502 $2,885
Per Share Data
Net income $16.07 $14.81 $12.28 $10.03 $8.27
Cash dividends declared 1.20 1.70 1.70 1.20 1.20
Financial Ratios
Net income as a percent
of average assets .92% .97% .79% .63% .59%
Net income as a percent
of average equity 13.13 13.50 12.45 11.59 10.25
Average equity as a percent
of average assets 6.97 7.16 6.30 5.41 5.76
Tier I Capital to risk-based assets 9.61 11.79 10.44 9.61 8.53
Tier II Capital to risk-based assets 10.90 13.10 11.46 10.57 9.43
Leverage ratio-Tier I Capital
to total assets 6.23 7.40 6.39 5.48 4.83
Dividend payout ratio 7.48% 11.48% 13.85% 12.00% 14.51%
Balance Sheet Items
Average assets $621,469 $537,444 $547,749 $558,818 $488,657
Average investment securities 206,825 198,190 206,184 215,221 132,889
Average loans, net 355,289 287,040 277,961 265,741 251,744
Average deposits 488,379 444,364 475,644 490,911 422,600
Average capital notes -- -- -- 454 750
Average long-term borrowings 12,656 9,154 10,000 55 --
Average stockholders' equity 43,323 38,457 34,529 30,218 28,145
Year-end assets 665,677 532,857 548,309 560,259 564,983
Year-end investment securities 203,602 190,901 197,532 209,037 167,753
Year-end loans, net 387,526 293,662 279,579 273,840 274,519
Year-end deposits 506,648 433,816 475,627 489,747 496,951
Year-end capital notes -- -- -- -- 600
Year-end long-term borrowings 13,213 8,000 10,000 10,000 --
Year-end stockholders' equity 45,649 40,816 36,220 32,480 29,373
</TABLE>
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 37,729
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 100
<TRADING-ASSETS> 49
<INVESTMENTS-HELD-FOR-SALE> 53,092
<INVESTMENTS-CARRYING> 150,510
<INVESTMENTS-MARKET> 198,567
<LOANS> 393,026
<ALLOWANCE> 5,500
<TOTAL-ASSETS> 665,677
<DEPOSITS> 506,648
<SHORT-TERM> 72,417
<LIABILITIES-OTHER> 6,373
<LONG-TERM> 34,590
<COMMON> 3,582
0
0
<OTHER-SE> 42,067
<TOTAL-LIABILITIES-AND-EQUITY> 665,677
<INTEREST-LOAN> 32,089
<INTEREST-INVEST> 11,402
<INTEREST-OTHER> 87
<INTEREST-TOTAL> 43,578
<INTEREST-DEPOSIT> 13,751
<INTEREST-EXPENSE> 18,144
<INTEREST-INCOME-NET> 25,434
<LOAN-LOSSES> 2,312
<SECURITIES-GAINS> 420
<EXPENSE-OTHER> 25,712
<INCOME-PRETAX> 7,636
<INCOME-PRE-EXTRAORDINARY> 7,636
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,689
<EPS-PRIMARY> 16.07
<EPS-DILUTED> 16.07
<YIELD-ACTUAL> 4.26
<LOANS-NON> 1,149
<LOANS-PAST> 964
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,400
<CHARGE-OFFS> 2,100
<RECOVERIES> 541
<ALLOWANCE-CLOSE> 5,500
<ALLOWANCE-DOMESTIC> 5,500
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
