<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
June 26, 1995
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
CNB BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-11510 35-1568731
- --------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
20 N.W. THIRD STREET, EVANSVILLE, INDIANA 47739-0001
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (812) 464-3400
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
Exhibit Index on Page 5
<PAGE>
Item 5. Other Events
- --------------------
On December 12, 1994, the Registrant and UF Bancorp, Inc., headquartered in
Evansville, Indiana ("UFB"), entered into an Agreement and Plan of Merger which
provides for the Registrant's acquisition of UFB by means of the merger of UFB
into a wholly-owned subsidiary of the Registrant.
Submitted herewith is a copy of UFB's Quarterly Report on Form 10-Q/A
(Second Amendment) for the quarter ended March 31, 1995.
2
<PAGE>
Item 7. Financial Statements and Exhibits
- ------------------------------------------
(a) Financial Statements of Business Acquired
-----------------------------------------
Not Applicable
(b) Pro Forma Financial Information
-------------------------------
Not Applicable
(c) Exhibits
--------
The following exhibits are submitted herewith:
Exhibit 99(a) UF Bancorp, Inc.'s Quarterly Report on Form 10-Q/A (Second
Amendment) for the quarter ended March 31, 1995.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 26, 1995
CNB BANCSHARES, INC.
By: /s/ David L. Knapp
-------------------
David L. Knapp
Executive Vice President
4
<PAGE>
EXHIBIT INDEX
-------------
Exhibit 99(a) UF Bancorp, Inc.'s Quarterly Report on Form 10-Q/A (Second
Amendment) for the quarter ended March 31, 1995.
5
<PAGE>
FORM 10-Q/A (Second Amendment)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1995
___________________________
Commission File Number 0-19523
____________
UF Bancorp, Inc.
_______________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 35-1833698
________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
501 Main Street, Evansville, Indiana 47708
________________________________________________________________
(Address of principal executive office) (Zip Code)
(812) 425-7111
________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
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 Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
As of May 12, 1995, there were outstanding 1,627,139 common shares, with $.01
par value, of the registrant.
<PAGE>
UF BANCORP, INC.
FORM 10-Q/A
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Condensed Statement of Financial
Condition..................................... 1
Consolidated Statement of Operations............ 2
Consolidated Condensed Statement
of Changes in Stockholders' Equity............ 3
Consolidated Condensed Statement of Cash Flows.. 4
Notes to Consolidated Financial Statements...... 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 8-19
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.. 20
Item 5. Other Information.................................... 20
Item 6. Exhibits and Reports on Form 8-K..................... 20,22
Signatures.................................................... 21
<PAGE>
UF BANCORP, INC and SUBSIDIARY CORPORATIONS
Form 10-Q/A
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENT OF FINANCIAL CONDITION
(In thousands) MARCH 31, JUNE 30,
(Unaudited) 1995 1994
------------ ------------
(Restated) (Restated)
<S> <C> <C>
ASSETS
Cash $ 10,542 $ 13,021
Federal funds sold 5,200 3,300
Short-term interest bearing deposits 1,014 11,681
------------ ------------
Cash and cash equivalents 16,756 28,002
Investments:
Securities held to maturity 26,544
(market value $26,384)
Securities available for sale 35,606
Mortgage-backed securities:
Mortgage-backed securities held to maturity 243,563
(market value $240,710)
Mortgage-backed securities available for sale 261,151
Loans receivable, net 200,505 167,917
Mortgage loans held for sale 8,913 9,623
Real estate acquired in settlement of loans, net 828 1,472
Premises and equipment 8,748 9,166
Federal Home Loan Bank stock, at cost 7,749 6,101
Interest receivable 3,878 2,955
Prepaid expenses and other assets 8,907 8,540
------------ ------------
Total assets $553,041 $503,883
============ ============
LIABILITIES
Deposits $359,150 $382,916
Advances from Federal Home Loan Bank 146,926 68,800
Interest payable 2,185 1,424
Other liabilities 6,061 4,358
------------ ------------
Total liabilities 514,322 457,498
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value:
Authorized and unissued--1,000,000 shares
Common Stock, $.01 par value:
Authorized - 4,000,000 shares
Issued 1,872,463 and 1,858,463 shares 19 19
Additional paid-in capital 17,810 17,334
Retained earnings--substantially restricted 30,815 34,852
------------ ------------
48,644 52,205
Less:
Treasury stock-at cost-264,770 shares (5,308) (5,308)
Reduction for ESOP loan guarantee (133) (272)
Unearned compensation (150) (240)
Unrealized loss on securities available for sale (4,334)
------------ ------------
Total stockholders' equity 38,719 46,385
------------ ------------
Total liabilities and stockholders' equity $553,041 $503,883
============ ============
</TABLE>
See notes to consolidated financial statements
-1-
<PAGE>
UF BANCORP, INC. and SUBSIDIARY CORPORATIONS
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- ----------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Interest Income (Restated)
Loans $3,987 $3,718 $11,232 $11,461
Mortgage-backed securities 4,578 3,307 13,324 10,698
Other interest and dividends 806 266 2,152 757
Loans held for resale 263 278 731 1,684
----------- ----------- ----------- -----------
9,634 7,569 27,439 24,600
----------- ----------- ----------- -----------
Interest Expense
Deposits 3,840 3,691 10,997 11,417
FHLB of Indianapolis advances 2,473 704 6,037 2,852
----------- ----------- ----------- -----------
6,313 4,395 17,034 14,269
----------- ----------- ----------- -----------
Net Interest Income 3,321 3,174 10,405 10,331
Provision for loan losses 50 83 1,065 247
----------- ----------- ----------- -----------
Net Interest Income After Provision
for Loan Losses 3,271 3,091 9,340 10,084
----------- ----------- ----------- -----------
Other Income
Gain (loss) on:
Sale of subsidiary 0 195 0 880
Sale of investment securities 0 0 (533) 0
Mortgage-backed securities available
for sale 82 0 (768) 0
Service charges on deposit accounts 196 192 641 605
Mortgage loan origination fees 293 780 1,040 2,938
Mortgage loan servicing fees 406 468 1,281 1,500
Insurance commissions 67 69 242 193
Other operating income 78 78 133 246
----------- ----------- ----------- -----------
1,122 1,782 2,036 6,362
----------- ----------- ----------- -----------
Other Expenses
Salaries and employee benefits 1,557 1,668 4,470 5,192
Premises and equipment expense 325 382 1,015 1,079
Deposit insurance 210 218 652 654
Data processing 117 130 334 374
Communication, supplies, etc. 182 239 556 648
Advertising 110 120 344 344
Warranty losses on sold loans 0 0 2,514 176
Professional fees 12 8 745 31
Other operating expenses 549 596 1,917 1,819
----------- ----------- ----------- -----------
3,062 3,361 12,547 10,317
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes and Cumulative
Effect of Change in Accounting Method 1,331 1,512 (1,171) 6,129
Income Taxes 437 487 2,187 2,285
Net Income (Loss) Before Cumulative Effect of ----------- ----------- ----------- -----------
Change in Accounting Method 894 1,025 (3,358) 3,844
Cumulative Effect of Change in Accounting Method 0 0 0 300
----------- ----------- ----------- -----------
Net Income (Loss) $894 $1,025 ($3,358) $4,144
=========== =========== =========== ===========
Per Share:
Net Income (loss) before cumulative effect of
change in accounting method $0.52 $0.61 ($1.96) $2.23
Net income (loss) $0.52 $0.61 ($1.96) $2.40
Dividends $0.150 $0.125 $0.425 $0.360
Average common and common equivalent
shares outstanding 1,724,580 1,686,993 1,710,132 1,727,752
</TABLE>
See notes to consolidated financial statements
-2-
<PAGE>
UF BANCORP, INC. and SUBSIDIARY CORPORATIONS
<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Nine months ended
March 31,
-------------------------
1995 1994
---------- ----------
(Restated)
<S> <C> <C>
Balance, June 30 $46,385 $44,519
Adoption of FAS 115 - Unrealized loss on available for sale
securities at July 1 (1,844)
ESOP Loan repayments 139 653
Amortization of Deferred Compensation 90 90
Sale of additional 14,000 shares of stock 476
Purchase of treasury stock (2,238)
Net change in unrealized loss on available for sale securities (2,490)
Dividends paid (679) (588)
Net income (loss), nine months ended March 31 (3,358) 4,144
---------- ----------
Balance, March 31 $38,719 $46,580
========== ==========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
UF BANCORP, INC and SUBSIDIARY CORPORATIONS
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (Restated)
Net income ($3,358) $4,144
Adjustments to reconcile net income to
net cash used by operating activities:
Provision for loan losses 1,065 247
Provision for warranty losses on sold loans 2,514 176
Depreciation and amortization 521 570
Decrease (Increase) in mortgage loans held for sale 710 (5,062)
Other adjustments, net 1,295 3,570
------------- ------------
Net cash provided (used) by operating activities 2,747 3,645
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of mortgage backed securities held to maturity (36,637) (28,272)
Proceeds from held to maturity mortgage-backed securities
maturities and principal repayments 9,263 52,421
Purchase of available for sale mortgage-backed securities (29,004)
Proceeds from available for sale mortgage-backed securities
maturities and principal repayments 31,605
Purchase of held to maturity investment securities (29,754) (8,413)
Proceeds from held to maturity investment securities
maturities and principal repayments 8,825
Proceeds from sale of held to maturity investment securities 14,210
Proceeds from available for sale investment securities
maturities and principal repayments 6,857
Net change in loans (2,741) 7,118
Purchase of loans (31,122) (2,930)
Proceeds from sale of real estate owned 737 315
Purchases of premises and equipment (103) (462)
Purchase of FHLB of Indianapolis stock (1,648) (1,101)
------------- ------------
Net cash provided (used) by investing activities (68,337) 27,501
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
deposits, NOW accounts and savings accounts (17,855) 14,541
Net increase (decrease) in certificates of deposit (5,911) (5,946)
Repayment of FHLB of Indianapolis advances (26,007) (95,000)
Proceeds obtained from FHLB of Indianapolis advances 104,133 62,800
Net increase (decrease) in advances
by borrowers for taxes and insurance 187 106
Proceeds from sale of common stock 476
Purchase of treasury stock (2,238)
Cash dividends (679) (588)
------------- ------------
Net cash provided (used) by financing activities 54,344 (26,325)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11,246) 4,821
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 28,002 22,027
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $16,756 $26,848
============= ============
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest:
Advances $5,676 $2,628
Deposits 10,524 11,278
Income taxes paid 1,460 1,300
Reclassification of available for sale mortgage-backed
securities and investments 194,134
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
UF BANCORP, INC.
AND SUBSIDIARY CORPORATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Significant Accounting Policies
The consolidated financial statements include the accounts of UF Bancorp, Inc.
(the "Company") and its wholly-owned subsidiary, Union Federal Savings Bank
("the Bank"), and the Bank's three wholly-owned subsidiaries, Unifin, Inc.,
Community Insurance Associates, Inc., and Union Financial Corp. ("UFC").
The significant accounting policies followed by the Company and its subsidiaries
for interim financial reporting are consistent with those followed for annual
financial reporting.
All adjustments, consisting of normal accruals which in the opinion of
management are necessary for a fair presentation of the financial results, have
been included in the consolidated financial statements. The interim results of
operations presented are not necessarily indicative of the results that may be
expected for the full year. The June 30, 1994, statement of financial
condition is derived from the audited financial statements of June 30, 1994.
Reclassifications: Certain amounts in the June 30, 1994 consolidated financial
statements have been reclassified to conform to the March 31, 1995 presentation.
NOTE 2: Change in Accounting Method
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), Accounting for Certain
Investments in Debt and Equity Securities. This statement requires that
securities be classified in three categories and provides specific accounting
treatment for each. "Trading" securities are bought and held primarily for sale
in the near term and are carried at fair value, with unrealized gains and losses
included in earnings; "held-to-maturity" securities, for which the intent is to
hold to maturity, are carried at amortized cost; and "available-for-sale"
securities are all others and are carried at fair value with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity. The Company adopted SFAS No. 115 on July 1, 1994. At
that date, investment securities with an approximate carrying value of
$6,718,000 and mortgage-backed securities with an approximate carrying value of
$177,800,000 were reclassified as available for sale. These reclassifications
resulted in a decrease in total stockholders' equity net of taxes, of
$1,844,000. All other investment and mortgage-backed securities were classified
as "held to maturity". At March 31, 1995, mortgage-backed securities with a
fair value of $261,151,000 and investment securities of $35,606,000 were
classified as available for sale. At March 31, 1995, the net unrealized loss on
these "available for sale" securities of $4,334,000 was recorded as a reduction
of stockholder's equity.
NOTE 3: Merger Agreement
On December 13, 1994 CNB Bancshares, Inc. (CNB) and UF Bancorp, Inc. (UFBI),
jointly announced the execution of a definitive merger agreement whereby CNB
would acquire UF Bancorp. (the "Merger Agreement".)
Under the terms of the agreement, shareholders of UF Bancorp will receive 1.366
shares of CNB common stock for each of the 1,607,693 outstanding common shares
of UF Bancorp, assuming CNB's market price just prior to closing is not less
than $26.66 per share or more than $36.06 per share. In addition, CNB will
reserve shares for future issuance pursuant to the outstanding UF Bancorp
options. The merger is subject to approval by the UF Bancorp shareholders, the
receipt of
-5-
<PAGE>
appropriate regulatory approvals and certain other conditions.
Under certain circumstances, should UF Bancorp not complete this transaction, it
may become obligated to pay CNB a termination fee of $2 million.
During the quarter ending December 31, 1994, professional fees of approximately
$700,000 were incurred in connection with the proposed merger with CNB.
NOTE 4: Federal Home Loan Bank Advances
During the nine months ended March 31, 1995, the Bank increased its borrowings
from the FHLB of Indianapolis by $78.1 million. $76 million of the new advances
have original terms to maturity of six months to two years, variable interest
rates, and $40 million may be prepaid without penalty. $2.1 million of the new
advances are community low income housing advances which have fixed rates and
are to be amortized over a 20 year term.
NOTE 5: Deferred Tax Liability
At June 30, 1994 retained earnings included approximately $8,163,000 for which
no deferred federal income tax liability had been recognized. This amount
represented an allocation of income to bad debt deductions as of December 31,
1987 for tax purposes only. The unrecorded deferred income tax liability on the
above amount was approximately $2,775,000.
The Company's intention is to convert Union Federal to commercial bank status
even if the merger with CNB is not completed. Accordingly, the deferred income
tax liability of $2,775,000 was recorded with a corresponding increase in income
tax expense during the quarter ending December 31, 1994.
NOTE 6: Increase in Loan Loss Reserves
The Company recorded a loan loss provision of $1,065,000 for the nine months
ended March 31, 1995 and had net chargeoffs of $658,000. The allowance for loan
losses at March 31, 1995, was $1,942,000 or .97 percent of loans at that date.
NOTE 7: Warranty Loss Provisions
For the nine months ended March 31, 1995, the Company provided for $2,514,000 of
warranty losses and had net chargeoffs of $1,343,000 in connection with
warranties made to purchasers and insurers of mortgage loans and the purchasers
of servicing rights by its former California mortgage banking subsidiary, USM.
The balance in the reserve for warranty losses account at March 31, 1995 was
$2,537,000, which management considers adequate to cover all future losses.
Note 8: Loss On Sale of Held to Maturity Securities
With the Company's intention to convert Union Federal to commercial bank status
(see Note 5 above), and with the current regulatory environment discouraging
"structured notes", it was determined to revise the Bank's investment policy.
Accordingly, during the quarter ending December 31, 1994, the Company
restructured its "held to maturity" investment portfolio primarily by selling
its entire portfolio of federal agency "step up" securities, which are a form of
"structured notes". A loss of $533,000 was recorded on the sale of the $14.2
million amortized cost and principal amount of these securities. As a result of
this transaction, the Company reclassified its investments and mortgage-backed
securities previously classified as "held to maturity" to "available for sale."
-6-
<PAGE>
Note 9: Loss on Available for Sale Mortgage-Backed Securities
During the current nine month period, the Company recorded a net loss of
$768,000 on available for sale mortgage-backed securities for which the Company
determined to be no longer eligible as 20% risk based capital qualifying items
under the Secondary Mortgage Market Enhancement Act ("SMMEA") provisions.
Note 10: Capital Contribution to Union Federal
During the quarter ending December 31, 1994, the Company made a capital
contribution of $5 million to its principal subsidiary, Union Federal Savings
Bank. The purpose of the contribution was to maintain Union Federal's
classification of "well capitalized" under FDIC and FEDICIA guidelines.
Note 11: Restatement
The Company has restated its September 30, 1994 and December 31, 1994 quarterly
earnings as follows:
<TABLE>
<CAPTION>
As Previously
Reported As Restated
------------- -----------
<S> <C> <C>
Three months ended September 30, 1994
- -------------------------------------
Provision for loan losses $ 60,000 $ 895,000
Warranty losses on sold loans 324,000
Three months ended December 31, 1994
- -------------------------------------
Provision for loan losses $2,040,000 $ 120,000
Warranty losses on sold loans 3,600,000 2,190,000
</TABLE>
-7-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
Total assets were $553.0 million at March 31, 1995 compared to $503.9 million at
June 30, 1994. This $49.1 million increase resulted primarily from increases in
mortgage-backed securities of $20.9 million, loans of $31.5 million, investment
securities of $9.1 million and FHLB stock of 1.6 million, offset by a decrease
in cash and cash equivalents of $11.3 million. The net asset increase was
funded primarily by increases in FHLB advances of $78.1 million offset by a
decline in deposits of $23.8 million.
The Company recorded net income of $894,000 or $.52 per share for the three
months ended March 31, 1995 compared to net income of $1,025,000 or $.61 per
share for the comparable period of 1994.
The earnings performance in the current quarter, when compared to the 1994
quarter, was negatively affected by declines in mortgage loan origination fees
of $487,000 and loan servicing fees of $62,000. Additionally, last year's
quarter included a $195,000 gain on the sale of the Company's West Coast
mortgage banking subsidiary ("USM"). Positively affecting the comparable
results was an increase in net interest income of $147,000 and a decline in
operating expenses of $299,000. (See "Condensed Consolidating Income
Statement", "Other Income", "Net Interest Income", and "Other Expense".)
For the nine months ended March 31, 1995, the Company recorded a net loss of
$3,358,000 or $1.96 per share compared to net income of $4,144,000 or $2.40 per
share for the 1994 period. The primary factors of this $7,502,000 decrease in
after tax income were:
(a) The recognition of a deferred tax liability of $2,775,000 and a
corresponding increase in income tax expense in connection with previous
allocations of income to tax bad debt reserves. (See Note 5 of "Notes to
Consolidated Financial Statements" and "Income Taxes".)
(b) An increase in general loan loss reserves via a provision of $1,065,000
for loan losses in the nine month period ended March 31, 1995 versus
$247,000 provision in the prior year's comparable period. (See Note 6 of
"Notes to Consolidated Financial Statements" and "Provision for Loan
Losses".)
(c) An increase in reserve for warranty losses via a provision of $2,514,000
in the current nine month period as compared to $176,000 in last year's
comparable period. (See Note 7 of "Notes to Consolidated Financial
Statements" and "Other Expenses".)
(d) Losses of $533,000 and $768,000, respectively, on the sale of held to
maturity investment securities and loss on available for sale mortgage-
backed securities in the nine month period ended March 31, 1995. (See
Notes 8 and 9 of "Notes to Consolidated Financial Statements" and "Other
Income".)
(e) Professional fees of approximately $700,000 were incurred this period in
connection with the proposed merger with CNB. (See Note 3 of "Notes to
Consolidated Financial Statements" and "Other Expenses".)
(f) Mortgage loan origination fees in the current nine month period were
$1,040,000, a decline of $1,898,000 from last year's figure of
$2,938,000. This was primarily a result of declines in loan origination
and sales of UFC. (See "Other Income".)
-8-
<PAGE>
(g) The 1994 nine month period includes a $880,000 gain on the sale of the
California mortgage operations, with no comparable item included in this
year's financials. (See "Other Income".)
(h) The 1994 nine month period includes a $300,000 increase in net income
relating to a change in accounting method. (The Company adopted "FAS 109
Accounting for Income Taxes", effective July 1, 1993.)
RESULTS OF OPERATIONS
- ---------------------
AVERAGE BALANCES, INTEREST RATES AND YIELDS. The following tables present for
the periods indicated the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities, expressed both in dollar
amounts and rates, and the net interest margin. The tables do not reflect any
effect of income taxes. All average balances are daily average balances and
include the balances of non-accruing loans. The yields and costs for the
periods indicated include fees which are considered adjustments to yield.
-9-
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
($ thousands)
1995 1994
----------------------------------- ---------------------------------------
INTEREST INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
----------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
LOANS $187,317 $11,232 8.00% $178,984 $11,461 8.54%
MORTGAGE-BACKED SECURITIES 276,772 13,324 6.42% 237,236 10,698 6.01%
INVESTMENT SECURITIES 26,916 1,443 7.15% 6,692 189 3.77%
OTHER INTEREST-EARNING ASSETS 25,172 1,440 7.63% 51,518 2,252 5.83%
----------- ---------- --------- ----------- ---------- ---------
TOTAL INTEREST-EARNING ASSETS $516,177 $27,439 7.09% $474,430 $24,600 6.91%
----------- ---------- --------- ----------- ---------- ---------
OTHER ASSETS 24,118 28,321
----------- -----------
TOTAL ASSETS $540,295 $502,751
=========== ===========
INTEREST-BEARING LIABILITIES:
DEPOSITS $351,859 $10,997 4.17% $374,177 $11,417 4.07%
FHLB ADVANCES 128,904 6,037 6.24% 68,241 2,852 5.57%
----------- ---------- --------- ----------- ---------- ---------
TOTAL INTEREST-BEARING
LIABILITIES $480,763 $17,034 4.72% $442,418 $14,269 4.30%
----------- ---------- --------- ----------- ---------- ---------
NON-INTEREST-BEARING LIABILITIES 18,383 14,976
STOCKHOLDERS' EQUITY 41,149 45,357
----------- -----------
TOTAL LIAB & EQUITY $540,295 $502,751
=========== ===========
NET INTEREST INCOME/INTEREST
RATE SPREAD $10,405 2.36% $10,331 2.61%
========== ========= ========== =========
NET INTEREST MARGIN (1) 2.69% 2.90%
========= =========
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------
($ thousands)
1995 1994
----------------------------------- ---------------------------------------
INTEREST INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
BALANCE PAID RATE BALANCE PAID RATE
---------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
LOANS $199,561 $3,987 7.99% $176,815 $3,718 8.41%
MORTGAGE-BACKED SECURITIES 274,262 4,578 6.68% 229,093 3,307 5.77%
INVESTMENT SECURITIES 23,069 462 8.01% 6,427 58 3.61%
OTHER INTEREST-EARNING ASSETS 29,591 607 8.21% 40,233 486 4.83%
----------- ---------- --------- ----------- ---------- ---------
TOTAL INTEREST-EARNING ASSETS $526,483 $9,634 7.32% $452,568 $7,569 6.69%
----------- ---------- --------- ----------- ---------- ---------
OTHER ASSETS 24,857 29,093
TOTAL ASSETS ----------- -----------
$551,340 $481,661
=========== ===========
INTEREST-BEARING LIABILITIES:
DEPOSITS $343,251 $3,840 4.47% $378,502 $3,691 3.90%
FHLB ADVANCES 149,432 2,473 6.62% 40,990 704 6.87%
TOTAL INTEREST-BEARING ----------- ---------- --------- ----------- ---------- ---------
LIABILITIES $492,683 $6,313 5.13% $419,492 $4,395 4.19%
----------- ---------- --------- ----------- ---------- ---------
NON-INTEREST-BEARING LIABILITIES 19,229 16,215
STOCKHOLDERS' EQUITY 39,428 45,954
TOTAL LIAB & EQUITY ----------- -----------
$551,340 $481,661
=========== ===========
NET INTEREST INCOME/INTEREST
RATE SPREAD $3,321 2.19% $3,174 2.50%
NET INTEREST MARGIN (1) ========== ========= ========== =========
2.52% 2.81%
========= =========
(1) Net interest margin is net interest income
divided by average interest-earning assets
</TABLE>
-10-
<PAGE>
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
- -------------------------------------------
The following schedule presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in rate (i.e.,
changes in rate multiplied by prior volume) and (ii) changes in volume (i.e.,
changes in volume multiplied by prior rate). Changes attributable to both rate
and volume which cannot be segregated have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
----------------------------- -----------------------------
1995 VS 1994 1995 VS 1994
----------------------------- -----------------------------
($ thousands) ($ thousands)
INCREASE INCREASE
(DECREASE) (DECREASE)
DUE TO TOTAL DUE TO TOTAL
------------------ INCREASE --------------- INCREASE
VOLUME RATE (DECREASE) VOLUME RATE (DECREASE)
-------- ------ --------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
LOANS $ 480 $(211) $ 269 $ 543 $ (772) $ (229)
MORTGAGE-BACKED SECURITIES 649 622 1,271 1,777 849 2,626
INVESTMENT SECURITIES 150 254 404 572 682 1,254
OTHER INTEREST-EARNING ASSETS (129) 250 121 (1,152) 340 (812)
------ ----- ------ ------- ------ ------
TOTAL INTEREST-EARNING ASSETS 1,150 915 2,065 1,740 1,099 2,839
------ ----- ------ ------- ------ ------
INTEREST-BEARING LIABILITIES:
DEPOSITS (353) 502 149 (686) 266 (420)
FHLB ADVANCES 1,862 (93) 1,769 2,536 649 3,185
------ ----- ------ ------- ------ ------
TOTAL INTEREST-BEARING
LIABILITIES 1,509 409 1,918 1,850 915 2,765
------ ----- ------ ------- ------ ------
(DECREASE) IN NET INTEREST
INCOME $ (359) $ 506 $ 147 $ (110) $ 184 $ 74
====== ===== ====== ======= ====== ======
</TABLE>
-11-
<PAGE>
CONDENSED CONSOLIDATING INCOME STATEMENTS
- -----------------------------------------
The following are condensed consolidating income statements for the three and
nine months ended March 31, 1995 and March 31, 1994, showing the operations of
the Company, the Bank and other subsidiaries ("Company and other subsidiaries")
separately from the operations of the mortgage banking subsidiary, Union
Financial Corp. ("UFC").
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31,1995 MARCH 31,1994
--------------------------------------- ---------------------------------------
(thousands) (thousands)
Company Company
and other and other
subsidiaries UFC Total subsidiaries UFC Total
------------ ---------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $3,200 $121 $3,321 $3,202 ($28) $3,174
Provision for loan losses $50 50 $83 83
----------- --------- ----------- ------------ --------- -----------
Net interest income after
provision for loan losses $3,150 $121 $3,271 $3,119 ($28) $3,091
----------- --------- ------------ ------------ --------- -----------
Other income 808 314 1,122 993 789 1,782
Other Expense 2,259 803 3,062 2,408 953 3,361
----------- --------- ------------ ------------ --------- -----------
Income before taxes 1,699 (368) 1,331 1,704 (192) 1,512
Income taxes 569 (132) 437 556 (69) 487
----------- --------- ------------ ------------ --------- -----------
Net income (loss) before
acccounting method change 1,130 (236) 894 1,148 (123) 1,025
----------- --------- ------------ ------------ --------- -----------
Cumulative effect of change
in accounting method
----------- --------- ------------ ------------ --------- -----------
Net income (loss) $1,130 ($236) $894 $1,148 ($123) $1,025
=========== ========= ============ =========== ========= ===========
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1995 MARCH 31, 1994
--------------------------------------- ----------------------------------------
(thousands) (thousands)
Company Company
and other and other
subsidiaries UFC Total subsidiaries UFC Total
------------ --------- ------------ ----------- --------- ---------
Net interest income $10,043 $362 $10,405 $10,388 ($57) $10,331
Provision for loan losses $1,065 1,065 $247 247
----------- --------- ------------ ----------- ---------- ---------
Net interest income after
provision for loan losses $8,978 $362 $9,340 $10,141 ($57) $10,084
----------- --------- ------------ ----------- ---------- ---------
Other income 916 1,120 2,036 3,502 2,860 6,362
Other Expense 10,138 2,409 12,547 7,453 2,864 10,317
----------- --------- ------------ ----------- ---------- ---------
Income before taxes (244) (927) (1,171) 6,190 (61) 6,129
Income taxes 2,521 (334) 2,187 2,308 (23) 2,285
----------- --------- ------------ ----------- ----------- ---------
Net income (loss) before
acccounting method change (2,765) (593) (3,358) 3,882 (38) 3,844
----------- --------- ------------ ----------- ----------- ---------
Cumulative effect of change
in accounting method 300 300
----------- --------- ------------ ----------- ----------- ---------
Net income (loss) ($2,765) ($593) ($3,358) $4,182 ($38) $4,144
=========== =========== ============ =========== =========== =========
</TABLE>
-12-
<PAGE>
NET INTEREST INCOME
- -------------------
Net interest income is the Company's largest component of income and represents
the difference between interest and fees earned on loans, mortgage-backed
securities, loans held for sale and investments and the interest paid on
interest bearing deposits and FHLB of Indianapolis advances. Net interest income
was $10,405,000 for the nine months ended March 31, 1995, compared to
$10,331,000 for the same period in 1994, an increase of $74,000 or 0.7%. Net
interest income was $3,321,000 and $3,174,000 for the three months ended March
31, 1995 and 1994, respectively.
The Company's net interest margin decreased to 2.52% and 2.69%, respectively,
for the three months and nine months ended March 31, 1995, from 2.81% and 2.90%
for the comparable 1994 periods. Offsetting the effect of the decreased net
interest margins were the increases in average interest earning assets for the
periods. (See "Results of Operations" and "Rate/Volume Analysis of Net
Interest Income".)
The Company's net interest margin peaked in early 1993 and has since been
erratically but slowly decreasing. The Company believes that the net interest
margin will continue to decrease in the near future, due to the following
factors: (i) the cost of funds is rising, (ii) a significant portion of the
adjustable rate mortgage-backed securities is tied to a lagging index (the
Eleventh District Cost of Funds), and (iii) low introductory rates on new
portfolio loans.
INTEREST INCOME
- ---------------
For the three and nine months ended March 31, 1995, the effect of overall
increasing yields and the increased average balances of interest-earning assets,
resulted in increases in interest income of $2,065,000 and $2,839,000,
respectively, when compared to the comparable 1994 periods. The Company's
effective average yield on earning assets was 7.32% and 7.09% for the three and
nine months ended March 31, 1995 respectively, compared to 6.69% and 6.91% for
the comparable periods of 1994. (See "Results of Operations", and "Rate/Volume
Analysis of Net Interest Income".)
The increase in average interest earning assets of $73.9 million and $41.7
million, respectively, for the three and nine months ended March 31, 1995, over
the comparable 1994 periods was due primarily to increased average balances of
mortgage-backed securities ($45.2 million and $39.5 million increases),
investment securities ($16.6 million and $20.2 million increases) and loans
($22.7 million and $8.3 million increases), offset by declines in average other
interest earning assets of $10.6 million and $26.3 million, respectively. The
decrease in average balance of "Other Interest Earning Assets" over the
comparable periods of 1994 was mainly due to the decreased average balance of
its primary component, "Mortgage Loans Held for Sale", primarily because of a
decline in the volume of business at UFC, the Company's mortgage banking
subsidiary. (See "Results of Operations", and "Rate/Volume Analysis of Net
Interest Income" and the table in part (b) of "Other Income".)
INTEREST EXPENSE
- ----------------
The $1,918,000 and $2,765,000 increases in interest expense for the three and
nine months ended March 31, 1995, respectively, compared to the same periods of
1994 were due to overall increases in total interest bearing liabilities and an
overall increase in rates paid on total interest bearing liabilities. (The
effect of the increased average balances of FHLB advances and increased average
rates paid on FHLB advances offset the effect of the decline in average deposits
for the nine months ended March 31, 1995 when compared to the comparable 1994
periods.) With the increases in market interest rates which began in early
1994, it is expected that the Company's overall cost of funds will continue to
increase. (See "Results of Operations", and "Rate/Volume Analysis of Net
Interest Income".)
-13-
<PAGE>
PROVISIONS FOR LOAN LOSSES
- --------------------------
The Company provided $1,065,000 for loan losses for the nine months ended March
31, 1995. The Company had net charge-offs of $658,000 for the current nine
months, which brought the allowance for loan losses to $1,942,000 at March 31,
1995. (During the previous quarter, a commercial real estate loan in the amount
of $835,000 began experiencing cash flow problems and became delinquent on
payments. The Company determined that collectibility on the entire loan amount
was doubtful and charged $535,000 of the loan to the loan loss reserve.) The
balance at March 31, 1995 compares to $1,889,000 at December 31, 1994,
$1,535,000 at June 30, 1994 and $800,000 at June 30, 1993.
The allowance for loan losses at March 31, 1995, of $1,942,000 represents .97%
of total loans. The $1,535,000 of allowance for loan losses at June 30, 1994 was
.91% of total loans at the same date.
OTHER INCOME
- ------------
Other income decreased by $660,000 and $4,326,000, respectively, for the three
and nine months ended March 31, 1995, from the corresponding periods in 1994.
The primary components of the decreases were:
(a) For the three and nine months ended March 31, 1994, the Company had
gains on the sale of its California mortgage operations of $195,000 and
$880,000, respectively, while there were no corresponding items in the
current periods.
(b) Mortgage loan origination fees of $293,000 and $1,040,000 for the three
and nine months ended March 31, 1995, respectively, were down $487,000
and $1,898,000 (62% and 65%) from the prior year's periods. The
decreases primarily represent declines in loan origination volume at UFC
in the 1995 periods when compared to 1994. The following table
summarizes the loan sales of UFC: ($000's)
<TABLE>
<CAPTION>
Quarter Servicing Servicing
Ending Retained Released Total
------- --------- --------- --------
<S> <C> <C> <C>
March 31, 1994 $27,675 $ 80,240 $107,915
December 31, 1993 31,878 146,051 177,529
September 30, 1993 4,286 76,509 80,795
------- -------- --------
9 Mos.Ended 3/31/94 $63,839 $302,800 $366,639
March 31, 1995 $ 2,623 $ 18,080 $ 20,703
December 31, 1994 4,787 21,224 26,011
September 30, 1994 14,750 18,191 32,941
------- -------- --------
9 Mos.Ended 3/31/95 $22,160 $ 57,495 $ 79,655
</TABLE>
The Company believes that the higher market interest rates in the
current three and nine months in relation to the prior year's market
rates have severely lessened the demand for the fixed rate loans which
UFC originates, sells and services. Unless UFC can increase its market
share of what is a very competitive market, or unless overall demand
increases, loan origination fees are likely to remain at levels
insufficient to produce operating profits at UFC. (See also "Condensed
Consolidating Income Statements".)
(c) The Company restructured its held to maturity investment portfolio in
the quarter ending December 31, 1994, by selling its entire portfolio of
agency multi-step callable bonds. With the increases in market interest
rates which occurred after the initial purchase of the bonds, a loss of
$533,000 was incurred on the sale. Additionally, the Company recorded a
loss of $768,000 on the sale of available for sale mortgage-backed
securities for which the Company determined no longer to be SMMEA
eligible. (No longer eligible as a 20% risk based capital qualifying
item.)
-14-
<PAGE>
OTHER EXPENSES
- --------------
Other expenses decreased by $299,000 in the three months ended March 31, 1995
from the comparable period in 1994. A decrease in salaries and benefits expense
of $111,000 was the largest component of the decrease. The decrease in salaries
and benefits expense at UFC for the quarter was $145,000, accounting for more
than 100% of the decrease. The decrease at UFC relates to its decreased volume
of business activity. (See "Other Income", and "Condensed Consolidated Income
Statement".)
Other expenses increased by $2,230,000 for the nine months ended March 31, 1995,
when compared to the comparable 1994 period. The primary components of this
increase were increases in warranty losses on sold loans ($2,338,000) and
professional fees ($714,000) offset by decreased salaries and benefits expense
of $722,000. The December 31, 1994, quarter's provision of $2,190,000 for
warranty losses on sold loans and approximately $700,000 in professional fees
relating to the proposed merger with CNB were the primary components of these
increases. (See Notes 7 and 3 of "Notes to Consolidated Financial Statements".)
Effective June 1, 1993, the Bank sold complete ownership of its then wholly
owned subsidiary, Union Security Mortgage, Inc. ("USM"), to the Knight
Corporation ("Knight"). While the Bank owned USM, USM originated, sold and
services conventional single family residential loans through its offices in
Santa Ana and Woodland Hills, California. USM customarily sold all of the loans
that it originated to buyers in the secondary market on a non-recourse basis,
either as individual whole loans or as a packaged pool of loans. However,
subsequent to the sale of the loans it originated USM remained potentially
liable for losses incurred by a purchaser, including unpaid principal and
interest, under certain representations and warranties made to the purchaser at
the time of sale. In certain circumstances (for example, when the debtor made
fraudulent misrepresentations to USM in the origination process), USM was liable
for a purchaser's losses on a defaulted loan, regardless of whether the loan was
recourse or non-recourse, if there had been a breach of the representations and
warranties made to the purchaser by USM. Such fraud might occur with respect to
tax returns, employment verifications, and deposits and appraisals provided at
the time of origination. In connection with the sale of USM on June 1, 1993,
the Bank contractually assumed liability for losses to the Knight Corporation
and repurchase demands resulting from breaches of the representations and
warranties. Moreover, in certain cases the Bank separately guaranteed USM's
obligations to loan purchasers pursuant to guarantees signed by the Bank prior
to the sale of USM. Although USM dissolved in 1994, and the Bank is less likely
to be asked to indemnify the Knight Corporation for claims against USM for any
breach of the representations and warranties, the Bank does remain obligated
under certain of the separate guarantees to loan purchasers for losses relating
to USM's prior operations.
When fraud claims relating to loans originated by USM began to surface in fiscal
1993, they were thought to be aberrational. However, additional repurchase
claims arose in 1994, and the Company discovered that these claims, some of
which were based on fraud, were arising in California because of the prior sharp
increases in the value of single family homes. During 1990 and 1991, borrowers
not capable of meeting mortgage payments obtained loans based on fraud with the
apparent expectation that they could profit from the resale of the homes in the
rising home market. However, the California economy deteriorated and housing
values dropped sharply. As a result, borrowers were unable to sell their homes
at a profit and pay off the mortgage loans. As borrowers defaulted, the fraud
was discovered and the repurchase and warranty loss claims occurred. By fiscal
1994, lenders and the public were generally aware of the fraud schemes in
California and the California housing market had stabilized.
In June, 1994, the Company identified eight loans with an aggregate outstanding
loan balance of $1,048,000, which had been sold to the Federal Home Loan
Mortgage Corporation and a loan sold to Federal National Mortgage Corporation
("FNMA") with a loan balance of $141,700, which appeared to have involved broker
fraud. No claims had been made at March 31, 1995 with respect to these loans.
In connection with its merger negotiations in November and December, 1994, the
Company and CNB Bancshares, Inc. undertook an extensive investigation and
analysis of pending and potential warranty claims relating to USM's operations.
The Company contacted each entity which had outstanding loans purchased from USM
to determine the number of loans outstanding,
-15-
<PAGE>
the balance outstanding for such loans, the delinquency status for such loans,
and the number of loans involving fraud (regardless of their delinquency
status). Of the $1.8 billion of loans originated by USM, the Company estimates
the remaining balance of the loans to be approximately $1.3 billion.
During the quarter ended March 31, 1995, the Bank received warranty loss claims
for two loans, one of which was determined to lack validity. The other claim
received during the quarter ended March 31, 1995 was for $39,000 on a $154,000
loan.
During the nine months ended March 31, 1995, the Bank incurred approximately
$543,000 in losses relating to warranty claims on five (5) loans, and entered
into an $800,000 settlement with one of the largest purchasers of USM's loans to
cover five pending claims and all future losses with respect to that purchaser.
At March 31, 1995, the Company had 3 warranty loss claims pending and the
estimated potential loss from these known claims and a claim expected to be made
as a result of a recent foreclosure on the FNMA loan referred to above, totaled
$275,000. In addition to the pending claims, there were $1,189,700 of FHLMC or
FNMA potential problem loans discussed above and one loan with a principal
balance of $256,000 for which the Company received oral indication of fraud and
potential repurchase.
Until the fourth quarter of 1994, the Company believed each of the warranty
claims received to be aberrational and that future warranty claims would not be
significant. However, during the fourth quarter of 1994, after settling with one
investor and contacting many of the other significant investors, the Company
believed that the warranty claims would continue to surface. Because of the
increases in warranty claims occurring in a relatively brief period of time,
past loss experience of over $2.0 million (of which $1,114,000 was incurred in
the fourth quarter), current known and potential claims and current economic
conditions in California, the Company believed it appropriate to provide for
future additional losses. Consequently, the Company provided $1,290,000 for
warranty losses in the December 1994 quarter. The Company's allowance for
warranty losses was $2,537,000 at March 31, 1995, which management considers
adequate to cover pending and future warranty claims for its mortgage banking
operations.
A summary of the activity in the reserve for warranty losses follows: ($000's)
<TABLE>
<CAPTION>
Three Months Nine Months Year Ended
Dec. 31, 1994 March 31, 1995 June 30, 1994
------------- -------------- -------------
<S> <C> <C> <C>
Beginning Balance $1,461 $1,366 $ 0
Provision 2,190 2,514 1,482
Losses recognized 1,114 1,343 116
------ ------ ------
Ending Balance $2,537 $2,537 $1,366
</TABLE>
The decreases in salaries and benefits expense relate primarily to the
decreased volume of business activity of UFC's mortgage banking operations.
(See "Other Income", and "Condensed Consolidating Income Statements".)
INCOME TAXES
- ------------
Included in income tax expense for the nine months ended March 31, 1995, is the
provision for $2,775,000 relating to previously untaxed bad debt reserves. (See
Note 5 of "Notes to Consolidated Financial Statements" and "Overview", Item
"a".) Offsetting the major portion of the $2,775,000 provision are credits at
regular tax rates for the losses before income taxes for the nine months ended
March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Bank's principal sources of funds are deposits, advances from the FHLB of
Indianapolis, amortization and prepayment of loan principal (including mortgage-
backed securities) and, to a lesser extent, maturities of investment securities,
mortgage-backed securities, and short-term investments
<PAGE>
and operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are influenced
to a great degree by interest rates, general economic conditions, and
competition.
Federal regulations historically have required the Bank to maintain minimum
levels of liquid assets. The required percentage has varied from time to time
based upon economic conditions and savings flows and is currently 5% of net
withdrawable savings deposits and borrowings payable on demand or in one year or
less during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U. S. Government and corporate
securities and other obligations generally having remaining maturities of less
than five years. The Bank has historically maintained its liquidity ratio at
levels in excess of those required. For March 1995, the Bank's liquidity ratio
was 7.7%.
Liquidity management is both a daily and long-term responsibility of management.
The Company adjusts its investments in liquid assets based upon management's
assessment of (i) expected loan demand, (ii) the projected amount of loans to be
originated by the mortgage banking subsidiary and held for re-sale, (iii)
expected deposit flows, (iv) yields available on interest-bearing deposits, and
(v) the objective of its asset/liability management program. Excess liquidity is
invested generally in interest-bearing overnight deposits and other short-term
government and agency obligations. If the Company requires funds beyond its
ability to generate them internally, the Bank has additional borrowing capacity
with the FHLB and collateral eligible for reverse repurchase agreements.
The Company anticipates that it will have sufficient funds available to meet
current loan commitments. At March 31, 1995, the Bank, excluding UFC, had
outstanding commitments to extend credit which amounted to $9.3 million. UFC had
commitments to fund loans of $38.1 million at March 31, 1995.
Savings institutions insured by the Federal Deposit Insurance Corporation are
required by FIRREA to meet three regulatory capital requirements. If a
requirement is not met, regulatory authorities may take legal or administrative
actions, including restrictions on growth or operations, or, in extreme cases,
seizure. Institutions not in compliance may apply for an exemption from the
requirements and submit a recapitalization plan.
During the quarter ending December 31, 1994, the Company made a capital
contribution of $5 million to its principal subsidiary, Union Federal Savings
Bank. The purpose of the contribution was to maintain Union Federal's
classification of "well capitalized" under FDIC and FEDICIA guidelines.
Under these capital requirements, at March 31, 1995, the Bank had:
-17-
<PAGE>
<TABLE>
<CAPTION>
($ 000's) Tangible Capital Core Capital Risk Based Capital
------------------ --------------------- -------------------
Amount Percent Amount Percent Amount Percent
------------------ --------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Actual $37,825 6.81% $37,825 6.81% $39,148 18.65%
Required 8,331 1.50% 16,662 3.00% 16,796 8.00%
------------------ --------------------- ------------------
Excess $29,494 5.31% $21,163 3.81% $22,352 10.65%
================== ===================== ===================
</TABLE>
GENERAL ACCOUNTING ISSUES
- -------------------------
Accounting for Debt and Equity Securities. In 1993, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities ("SFAS No. 115"). SFAS No. 115 addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Those
investments are classified and accounted for as follows:
Debt securities that the holder has the positive intent and ability to hold
until maturity are classified as held for investment and reported at amortized
cost. Securities that can be held for indefinite periods of time, including
those that may be used in an asset/liability management strategy, are not
classified as held for investment. This means that securities that could be
sold in response to changing interest rates, changes in prepayment risks,
increased loan demand, general liquidity needs, or other similar factors are not
classified as held for investment. However, securities that are held for
investment could be sold before they mature if the issuer's creditworthiness
deteriorates significantly. Debt and equity securities classified as available
for sale are reported at fair value, or marked to market. Unrealized gains and
losses are not included in income and are reported as a separate component of
equity. Debt and equity securities classified as held for current resale are
classified as trading securities and reported at fair value with unrealized
gains and losses included in income. Transfers between categories should be
accounted for at fair value. For any sales or transfers of securities
classified as held for investment, the cost basis, the realized gain or loss,
and the circumstances leading to the decision to sell are disclosed. SFAS No.
115 was adopted by the Company on July 1, 1994. (See Note 2 of "Notes to
Consolidated Financial Statements".)
At the time of purchase of new securities, management of the Company makes a
determination as to the appropriate classification of securities as available
for sale or held to maturity. Debt and mortgage-backed securities purchased
with the positive intent and ability to hold to maturity are classified as held
to maturity. Securities may be transferred to held to maturity from available
for sale. Other debt and mortgage-backed securities that will be held for
indefinite periods of time, such as securities that may be sold in response to
interest rate change or anticipated liquidity needs, are classified as available
for sale.
Accounting for Impairment of Loans. In 1993, FASB issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan ("SFAS No. 114"). The purpose
of SFAS No. 114 is to eliminate inconsistencies in the accounting among
different types of creditors for loans with similar collection problems by
requiring a single method for measuring impaired loans. A loan is considered
impaired when, based on current information and events it is probable that
creditor will be unable to collect all amounts due according to the contractual
terms of the loan agreement. A bank will measure certain impaired loans
pursuant to SFAS No. 114 at a discounted amount on the balance sheet based on
the present value amount of the expected future cash flows using the loan's
effective interest rate. A valuation reserve should be recorded if the present
value of the expected cash flows is less than the recorded amount of the loan.
Formally restructured loans and loans evaluated as groups or pools of
homogeneous loans (e.g. single family residence) are excluded from SFAS No. 114.
In October, 1994, the FASB issued SFAS No. 118 ("SFAS No. 118"), entitled
Accounting by Creditors of Impairment of Loan - Income Recognition and
Disclosures. SFAS No. 118 amends the disclosure requirements in SFAS No. 114 to
require information about the recorded investment in certain impaired loans and
about how a creditor recognizes interest income related to those impaired loans.
The effective date of SFAS No. 114 and 118 is for fiscal years beginning after
December 31, 1994. The Company will adopt SFAS No. 114 and 118 July 1, 1995 and
management does not anticipate a material impact on earnings or financial
condition as a result of adoption.
Derivative Financial Statements and Fair Value Disclosures. In October, 1994,
FASB issued SFAS No. 119, Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments ("SFAS No. 119"). SFAS No. 119 requires
disclosures about derivative financial instruments--futures, forward, swap and
option contracts, and other financial instruments with similar characteristics
(e.g., interest rate caps or floors and loan commitments). The definition of
derivatives excludes all on-balance-sheet receivables and payables, including
those that "derive" their values or cash flows from the price of another
security or index, such as mortgage-backed securities, and interest-only and
principal-only obligations.
-18-
<PAGE>
This Statement requires disclosures about amounts, nature and terms of
derivatives that are not subject to SFAS No. 105 because they do not result in
off-balance-sheet risk of accounting loss. It requires that distinction between
and differing disclosure be made for financial instruments held or issued for
trading purposes and financial instruments held or issued for purposes other
than for trading. The required disclosures, either in the body of the financial
statements or in the footnote, include the face or contract amount (or notional
principal amount) and the nature and terms, including, at a minimum, a
discussion of (1) the credit and market risk of those instruments, (2) the cash
requirements of those instruments, and (3) the related accounting policy.
This Statement amends SFAS No. 105 and 107 to require disaggregation of
information about financial instruments with off-balance-sheet risk of
accounting loss and to require that fair value information be presented without
combining, aggregating, or netting the fair values of derivatives with the fair
value of nonderivatives and be presented together with the related carrying
amounts in the body of the financial statements, a single footnote, or a summary
table in a form that makes it clear whether the amounts represent assets or
liabilities. The Company will adopt SFAS No. 119 effective June 30, 1995. The
Company believes that SFAS No. 119 will not have a material impact on financial
position or results of operations.
-19-
<PAGE>
UF BANCORP, INC.
FORM 10-Q/A
PART II. OTHER INFORMATION
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
NONE
Item 5. Other Information
-----------------
NONE
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit 11, Statement regarding computation of per share earnings is
submitted herewith. No other exhibits are required to be filed.
________________________________________________________________________________
No other information is required to be filed under Part II of the form.
-20-
<PAGE>
UF BANCORP, INC.
FORM 10-Q/A (Second Amendment)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UF Bancorp, Inc.
____________________________
(Registrant)
Date: June 23, 1995 /s/ Donald A. Rausch
by: ____________________________
Donald A. Rausch
Chairman of the Board &
President
Date: June 23, 1995 /s/ Ennis R. Griffith
by: ____________________________
Ennis R. Griffith, Senior
Vice President, Chief
Financial Officer
(Principal Accounting
Officer)
-21-
<PAGE>
UF Bancorp, Inc.
Form 10-Q/A
Exhibit 11 - Computation of Per Share Earnings
(Treasury Stock Method)
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
March 31, March 31,
----------------------- ------------------------
1995 1994 1995 1994
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Average Shares:
Outstanding 1,607,693 1,593,693 1,599,526 1,632,368
Effect of stock options 116,887 93,300 110,606 95,384
---------- ---------- ----------- ----------
Average common and common
equivalent shares outstanding 1,724,580 1,686,993 1,710,132 1,727,752
========== ========== =========== ==========
Net income (loss) before cumulative effect of
change in accounting method $894,000 $1,025,000 $(3,358,000) $3,844,000
Cumulative effect of change in accounting method 300,000
---------- ---------- ----------- ----------
Net income (loss) $894,000 $1,025,000 $(3,358,000) $4,144,000
========== ========== =========== ==========
PER SHARE:
Net income (loss) before cumulative effect of
change in accounting method $0.52 $0.61 $(1.96) $2.23
Net income (loss) $0.52 $0.61 $(1.96) $2.40
</TABLE>
-22-
