<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
Commission File Number 0-13270
UNB Corp.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-1442295
- --------------------------------------- ------------------
State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
220 Market Avenue South, Canton, Ohio 44701
- --------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 454-5821
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Stated Value
--------------------------------
(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 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
--- ---
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 15, 1997: $185,548,573.
The number of shares outstanding of each of the Registrant's common stock, as of
March 15, 1997: 5,798,393 shares of $1.00 per share stated value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1996 UNB Corp. Annual Report to Shareholders (Exhibit 13) is
incorporated into Part I, Item 1(c), 1(e) and, Part II, Items 5, 6, 7, and 8.
Portions of the Definitive Proxy Statement of UNB Corp. dated February 21, 1997,
for the Annual Shareholders Meeting to be held on April 15, 1997, are
incorporated into Part III, Items 10, 11, 12, and 13.
Total Number of Pages is 90
---------
Exhibit Index is on Page 21
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UNB CORP.
FORM 10-K
1996
PART I
- ------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1 Business 3
Item 2 Properties 16
Item 3 Legal Proceedings 16
Item 4 Submission of Matters to a Vote of Security Holders 17
PART II
- -------
Item 5 Market Price of and Dividends on the Common Equity and Related
Shareholder Matters 17
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 18
PART III
- --------
Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners and Management 19
Item 13 Certain Relationships and Related Transactions 19
PART IV
- -------
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
</TABLE>
2
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PART I
Item 1 - Business
- -----------------
a. General Development of Business
-------------------------------
UNB Corp. (Registrant) was incorporated under the laws of the State of
Ohio during 1983. Its principal business is to act as a bank holding
company for the United National Bank & Trust Company (Bank). Effective
October 1, 1984, in a transaction accounted for as an internal
reorganization, the Registrant acquired all of the outstanding stock of
the United National Bank & Trust Company. The Corporation exchanged two
shares of common stock for each previously outstanding share of the
United National Bank & Trust Company. The Registrant did not have any
operations prior to the business combination. UNB Corp. is registered
under the Bank Holding Company Act of 1956, as amended. A substantial
portion of UNB Corp.'s revenue is derived from cash dividends paid by
the Bank.
b. Financial Information About Industry Segments
---------------------------------------------
The Registrant and its subsidiary bank are engaged in commercial and
retail banking. Reference is hereby made to Item 1(e), "Statistical
Disclosure", and Item 8 of this Form 10-K for financial information
pertaining to the Registrant's banking business.
c. Description of UNB Corp.'s Business
-----------------------------------
The Bank is a full-service bank offering a wide range of commercial and
personal banking services primarily to customers in northern Stark and
southern Summit Counties of Ohio. These services include a broad range
of loan, deposit and trust products and various miscellaneous services.
Loan products include commercial and commercial real estate loans, a
variety of mortgage and construction loan products, installment loans,
home equity lines of credit, MasterCard lines of credit, accounts
receivable, lease and floor plan financing. Deposit products include
interest and non-interest bearing checking accounts, various savings
accounts, certificates of deposit, and IRAs. The Trust Department
provides fiduciary services in the areas of employee benefit trusts,
personal trusts and investment management services. Miscellaneous
services offered include safe deposit boxes, night depository, United
States savings bonds, traveler's checks, money orders and cashier
checks, bank-by-mail and bank-by-phone services, wire transfer service,
utility bill payments and collections and notary services. Services
provided for Bank customers through third party vendors include those of
discount brokerage and the sale of mutual funds, annuities and life
insurance. In addition, the Bank has correspondent relationships with
major banks in New York, Pittsburgh and Detroit pursuant to which the
Bank receives various financial services.
The Bank's primary lending area consists of Stark County, Ohio, and its
contiguous counties. Loans outside the primary lending area are
considered for creditworthy applicants. Lending decisions are made in
accordance with written loan policies designed to maintain loan quality.
Retail lending products are comprised of credit card loans, overdraft
lines, personal lines of credit and installment loans. Credit cards are
unsecured credit accounts, on which the credit limits are determined by
analysis of two primary criteria, the borrowers debt service and gross
income. Overdraft lines of credit are lines attached to checking
accounts to cover overdrafts and/or allow customers to write themselves
a loan. Credit limits are based on
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a percentage of gross income and average deposits. Personal lines of
credit include lines secured by junior mortgages (home equity) and
Private Banking lines which are generally secured by junior mortgages
but may be unsecured or secured by other collateral. The lines have a
five year draw period and may then be renewed or amortized over ten
years. Credit limits are determined by comparing three criteria,
appraised value, debt service and gross income. Criteria for determining
credit limits on private banking products also consider the applicant's
annual income, net worth and average deposits. Installment loans include
both direct and indirect loans. The term can range from three to 180
months, depending upon the collateral which includes new and used
automobiles, boats and recreational vehicles as well as junior mortgages
and unsecured personal loans. Retail lending underwriting guidelines
include evaluating the entire credit using the Five C's of Credit,
character, capacity, capital, condition and collateral. Credit scoring,
analysis of credit bureau ratings and debt to income ratios are the
major tools used by the lender in the underwriting process.
The Bank offers several mortgage loan programs, including a variety of
fixed and adjustable rate mortgages with maturities ranging from 120 to
360 months. The Bank also offers some specialty products such as jumbo
mortgages, Mortgage Assistance Programs for low income individuals,
construction and bridge loans. The underwriting guidelines include those
for consumer loans and those necessary to meet secondary market
guidelines. The Bank may originate loans for sale to the secondary
market when it deems it profitable and desirable to do so. Residential
real estate decisions focus on loan to value limits, debt to income
ratio, housing to income ratio, credit history, and in some cases,
whether private mortgage insurance is obtained.
Business credit products include commercial loans and commercial real
estate loans, Business Manager and leases. Commercial loans include
lines and letters of credit, fixed, and adjustable rate term loans,
demand and time notes. Commercial real estate loans include fixed and
adjustable mortgages. Loans are generally to owner occupied businesses.
The portfolio also includes loans to churches, residential rental
property, shopping plazas and residential development loans. Loans to
businesses often entail greater risk because the primary source of
repayment is typically dependent upon adequate cash flow. Cash flow of a
business can be subject to adverse conditions in the economy or a
specific industry. Should cash flow fail, the lender looks to the assets
of the business and/or the ability of the comakers to support the debt.
Commercial lenders consider the Five C's of Credit, character, capacity,
capital, condition and collateral in making commercial credit decisions.
Business Manager is a system which the Bank uses to assist creditworthy
businesses with accounts receivable management. It is a hybrid program
combining funding and billing with cash management, monitoring and
reporting functions. The Bank purchases creditworthy receivables at full
recourse with a flexible reserve. The Bank may earn a discount, interest
and/or fees. The Bank has provided both direct and indirect leasing on a
limited basis. The direct leases are for specific equipment and may be
open-end or closed-end. Indirect leases are established by granting a
lease line to a dealer, while the Bank holds title and files a UCC lien
for an assignment of the lease. Each vehicle has its own amortization.
In addition to the underwriting guidelines followed for specific loan
types, the Bank has underwriting guidelines common to all loan types.
With regard to collateral, the Bank follows supervisory limits set forth
in Regulation H for transactions secured by real estate. Loans in excess
of these guidelines are reported to the Board of Directors on a monthly
basis. Loans not secured by real estate are analyzed on a loan by loan
basis, based on collateral type guidelines set forth in the loan policy.
Appraisal policies follow and comply
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with provisions outlined under Title XI of FIRREA. All appraisals are
done by outside independent appraisers approved by the Board of
Directors. The Bank, as a general rule, gets an appraisal on all real
estate transactions even when not required by Title XI. The Bank may
occasionally rely on a tax appraisal. Senior Loan Committee has the
option of requiring equipment appraisals. Approval procedures include
loan authorities approved by the Board of Directors for individual
lenders and loan committees. Retail and residential loans are centrally
underwritten by their respective departments. Business credits can be
approved by the individual commercial lender or taken to Loan Committee
if it exceeds individual approval limits. Senior Loan Committee approves
aggregate loan commitments in excess of the lender's authority up to $1
million. Executive Loan Committee approves aggregate loan commitments in
excess of $1 million up to the Bank's legal lending limit. Loans to
Directors and Executive Officers are approved by the Board of Directors.
Business loans within a lender's authority are reported in the Senior
Loan Committee minutes. Retail and residential real estate loan
transactions are also reported to Senior Loan Committee at certain
dollar limits. Exceptions and/or overrides are tracked and reported to
Senior Loan Committee.
The Loan Quality Review Committee meets on a monthly basis. The
Committee reviews Bank lending trends, the Past Due Report, the Watch
List and various other reports in order to monitor and maintain credit
quality. The Committee also reviews on a relationship basis, customers
on the Bank's Watch List and credits with aggregate commitments in
excess of $1 million.
Revenues from loans accounted for 78%, 75%, and 73% of consolidated
revenues in 1996, 1995, and 1994, respectively. Revenues from interest
and dividends on investment and mortgage-backed securities accounted for
11%, 14%, and 13%, of consolidated revenues in 1996, 1995, and 1994,
respectively.
The Registrant formed the United Credit Life Insurance Company (United
Credit Life) to engage in the underwriting of credit life and credit
accident and health insurance directly related to the extension of
credit by the Bank to its customers. United Credit Life commenced
business in May, 1986. The insurance is currently written by Union
Fidelity Life Insurance Company; however, United Credit Life has entered
into reinsurance treaties with Union Fidelity Life Insurance Company
whereby United Credit Life assumes up to $25,000 of liability on each
life policy.
In September, 1994, the Bank purchased four branch offices of the former
TransOhio Federal Savings Bank headquartered in Cleveland, Ohio, from
the Resolution Trust Corporation (RTC). Included in this purchase were
$70.4 million in deposits and other liabilities assumed and $0.6 million
in cash, premises and equipment, and other assets. The intangible assets
acquired in the transaction amounted to $6.6 million.
During 1996, Management evaluated the benefits attributable to operating
a finance company as an affiliate of the Corporation. Upon Board of
Director approval, application was made in November with the State of
Ohio, Department of Commerce, Division of Consumer Finance for a license
to operate a finance company. Management believes that the addition of a
finance company will contribute to its continuing efforts to maximize
shareholder value. It is anticipated that the finance company will not
have a material impact on earnings in 1997.
The business of the Registrant is not seasonal to any material degree,
nor is it dependent upon a single or small group of customers whose loss
would result in a material adverse effect on the Registrant or its
subsidiaries.
5
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Regulation and Supervision
--------------------------
UNB Corp. is a bank holding company under the Bank Holding Company Act
of 1956, as amended, which restricts the activities of the Corporation
and the acquisition by the Corporation of voting stock or assets of any
bank, savings association or other company. The Corporation is also
subject to the reporting requirements of, and examination and regulation
by, the Board of Governors of the Federal Reserve system (Federal
Reserve Board). Subsidiary banks of a bank holding company are subject
to certain restrictions imposed by the Federal Reserve Act on
transactions with affiliates, including any loans or extensions of
credit to the bank holding company or any of its subsidiaries,
investments in the stock or other securities thereof and the taking of
such stock or securities as collateral for loans to any borrower; the
issuance of guarantees, acceptances or letters of credit on behalf of
the bank holding company and its subsidiaries; purchases or sales of
securities or other assets; and the payment of money or furnishing of
services to the bank holding company and other subsidiaries. Banks and
bank holding companies are prohibited from engaging in certain tie-in
arrangements in connection with extensions of credit or provision of
property or services.
Bank holding companies are prohibited from acquiring direct or indirect
control of more than 5% of any class of voting stock or substantially
all of the assets of any bank holding company without the prior approval
of the Federal Reserve. In addition, acquisitions across state lines are
limited to acquiring banks in those states specifically authorizing such
interstate acquisitions. However, in September 1995, federal law
permitted interstate acquisitions of banks, if the acquired bank retains
its separate charter.
As a national bank, United National Bank & Trust Co. is supervised and
regulated by the Comptroller of the Currency (Comptroller). The deposits
of the Bank are insured by the Bank Insurance Fund (BIF) while deposits
purchased from savings and loans in 1994 and 1991 are insured by the
Savings Association Insurance Fund (SAIF) of the Federal Deposit
Insurance Corporation (FDIC). The Bank is subject to the applicable
provisions of the Federal Deposit Insurance Act. Various requirements
and restrictions under the laws of the United States and the State of
Ohio affect the operations of the Bank, including requirements to
maintain reserves against deposits, restrictions on the nature and
amount of loans which may be made and the interest which may be charged
thereon, restrictions relating to investments and other activities,
limitations on credit exposure to correspondent banks, limitations on
activities based on capital and surplus, limitations on payment of
dividends, and limitations on branching. Under current laws, the Bank
may establish branch offices throughout the State of Ohio. Pursuant to
recent federal legislation, the Bank may branch across state lines, if
permitted by the law of the other state. In addition, effective June
1997, such interstate branching by the Bank will be authorized, unless
the law of the other state specifically prohibits the interstate
branching authority granted by federal law.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The risk-based capital guidelines include both a
definition of capital and a framework for calculating risk-based assets
by assigning assets and off-balance sheet items to broad risk
categories. The required minimum ratio of capital to risk-weighted
assets (including certain off-balance sheet items, such as standby
letters of credit) was 8.00% at December 31, 1996 as disclosed in Note
15 of UNB Corp.'s 1996 Annual Report (See Exhibit 13). At least half of
the total regulatory capital is to be comprised of common stockholders'
equity, including retained earnings, noncumulative perpetual preferred
stock, a limited amount of cumulative
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perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries less goodwill (Tier 1 capital). The remainder
(Tier 2 capital) may consist of, among other things, mandatory
convertible debt securities, a limited amount of subordinated debt,
other preferred stock and a limited amount of allowance for loan and
lease losses. The Federal Reserve Board has also imposed a minimum
leverage ratio (Tier 1 capital to total assets) of 4% for bank holding
companies that meet certain specified conditions, including no
operational, financial or supervisory deficiencies, and including those
having the highest regulatory (CAMEL) rating. The minimum leverage ratio
is 1.0-2.0% higher for other holding companies based on their particular
circumstances and risk profiles and those experiencing or anticipating
significant growth. National banks are subject to similar capital
requirements adopted by the Comptroller.
UNB Corp. and its subsidiaries currently satisfy all regulatory capital
requirements. Failure to meet the capital guidelines could subject a
banking institution to a variety of enforcement remedies available to
federal regulatory authorities, including dividend restrictions and the
termination of deposit insurance by the FDIC.
Under an outstanding proposal of the Comptroller and the FDIC, the Bank
may be required to have additional capital if its interest rate risk
exposure exceeds acceptable levels provided for in the regulation. In
addition, those regulators have established regulations governing prompt
corrective action to resolve capital deficient banks. Under these
regulations, banks which become undercapitalized become subject to
mandatory regulatory scrutiny and limitations, which increase as capital
continues to decrease. Such banks are also required to file capital
plans with their primary federal regulator, and their holding companies
must guarantee the capital shortfall up to 5% of the assets of the
capital deficient bank at the time it becomes undercapitalized.
The ability of UNB Corp. to obtain funds for the payment of dividends
and for other cash requirements is largely dependent on the amount of
dividends which may be declared by the Bank. However, the Federal
Reserve expects UNB Corp. to serve as a source of strength to its
subsidiaries, which may require it to retain capital for further
investment in the subsidiaries, rather than for dividends for
shareholders of the Corporation. Generally, United National Bank & Trust
Co. must have the approval of its regulatory authority if a dividend in
any year would cause the total dividends for that year to exceed the sum
of current year's net profits and retained net profits for the preceding
two years, less required transfers to surplus. A national bank may not
pay a dividend in an amount greater than its net profits then on hand
after deducting its losses and bad debts or, if less than 1/10 of net
profits for the preceding six months, for a quarterly or semiannual
dividend, or the preceding year for an annual dividend, was transferred
to surplus. The Bank may not pay dividends to the Corporation if, after
such payment, it would fail to meet the required minimum levels under
the risk-based capital guidelines and the minimum leverage ratio
requirements. Payment of dividends by the Bank may be restricted at any
time at the discretion of the regulatory authorities, if they deem such
dividends to constitute an unsafe and/or unsound banking practice or if
necessary to maintain adequate capital for the bank. These provisions
could have the effect of limiting the Corporation's ability to pay
dividends on its outstanding common shares.
Management is not aware of any recommendations by regulatory authorities
which, if they were to be implemented, would have a material effect on
the Registrant.
7
<PAGE> 8
Government Monetary Policies
----------------------------
The earnings and growth of UNB Corp. are affected not only by general
economic conditions, but also by the fiscal and monetary policies of the
federal government and its agencies and regulatory authorities,
particularly the Federal Reserve Board. Its policies influence the
growth and mix of bank loans, investments and deposits and the interest
rates earned and paid thereon, and thus have an effect on earnings of
the Corporation.
Due to the changing conditions in the economy and the activities of
monetary and fiscal authorities, no predictions can be made regarding
future changes in interest rates, credit availability or deposit levels.
Competition
-----------
The Bank competes with eight state and national banks located in Stark
and Summit Counties as well as an additional four in Summit County
alone. The Bank also competes with a large number of other financial
institutions, such as savings and loan associations, savings banks,
insurance companies, consumer finance companies, credit unions, mortgage
banking companies, and commercial finance and leasing companies, for
deposits, loans and financial services business. Mergers between
financial institutions have added to the competitive pressure. In
addition, money market mutual funds, brokerage houses, and similar
organizations provide many of the financial services offered by the
Bank. Many competitors have substantially greater resources than the
Bank. In the opinion of management, the principal methods of competition
are the rates of interest charged for loans, the rates of interest paid
for deposits and borrowing, the fees charged for services, the
availability and quality of services provided and the convenience of its
branch locations.
Effects of Compliance with Environmental Regulations
----------------------------------------------------
Compliance with Federal, State and local provisions regulating the
discharge of materials into the environment, or otherwise relating to
the protection of the environment has not had a material effect upon the
capital expenditures, earnings or competitive position of the Registrant
or its subsidiaries. The Registrant anticipates, based on the nature of
its business, that it will have no material capital expenditures for the
purpose of protecting the environment in the foreseeable future. From
time to time the Bank may be required to make capital expenditures for
environmental control facilities related to properties acquired through
foreclosure proceedings. Currently the Bank owns such a parcel, 7.62
acres of OREO property located in the northwest quadrant of Stark
County. A large national petroleum company, owner of the facility at the
date it was taken out of service, is the party responsible for the
contamination cleanup according to the State of Ohio's Bureau of
Underground Storage Tanks (BUSTER) regulations. Several environmental
assessments by the Bank and the petroleum company have been filed with
the State agency. A remediation plan was prepared by the petroleum
company's engineering consultants, however it was not released to the
Bank or filed with BUSTER by the required due date of November 1, 1996.
A decision by BUSTER was anticipated after the filing of the plan,
however cutbacks in the agency's staffing levels have added to the delay
in the resolution of this matter. The Bank, through legal counsel, has
made numerous unsuccessful attempts to contact the petroleum company to
move forward with its responsibility to clean up the site. The Bank is
considering filing some form of legal action in an effort to gain the
company's attention and prioritize this project. In the interim, the
Bank has listed the property for sale. The estimated cleanup costs,
should they become the responsibility of the Bank, are not material to
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the business or financial condition of the Registrant and have been set
up as an allowance against the property's value on the Bank's
Consolidated Balance Sheet.
Employees
---------
As of December 31, 1996, UNB Corp. and its subsidiaries had 274
full-time employees and 59 part-time employees. UNB Corp. and its
subsidiaries are not a party to any collective bargaining agreement and
management considers its relationship with its employees to be good.
d. Financial Information About Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales
-----
The Registrant and its subsidiaries do not have any offices located in
foreign countries and they have no foreign assets, liabilities, or
related income and expense for the years presented.
e. Statistical Disclosure
----------------------
The following section contains certain financial disclosures related to
the Registrant as required under the Securities and Exchange
Commission's Industry Guide 3, "Statistical Disclosures by Bank Holding
Companies", or a specific reference as to the location of the required
disclosures in the Registrant's 1996 Annual Report to Shareholders,
portions of which are incorporated in this Form 10-K by reference.
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UNB CORP.'S STATISTICAL INFORMATION
-----------------------------------
I. DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY; INTEREST
-----------------------------------------------------------------------
RATES AND INTEREST DIFFERENTIAL
-------------------------------
A. The average balance sheet information and the related analysis of net
& interest earnings for the years ending December 31, 1996, 1995, and 1994
B. are included in Table 4 - "Average Balance Sheet and Related Yields",
within Management's Discussion and Analysis of Financial Condition and
Results of Operations found on page 37 of the Registrant's 1996 Annual
Report to Shareholders and is incorporated into this Item I by
reference.
All interest is reported on a fully taxable equivalent basis using a
marginal tax rate of 35%. Nonaccruing loans, for the purpose of the
computations, are included in the daily average loan amounts
outstanding. Loan fees in the amount of $3,477,766, $2,901,438 and
$2,535,284 are included in interest on loans for the years ended
December 31, 1996, 1995, and 1994.
C. Tables setting forth the effect of volume and rate changes on interest
income and expense for the years ended December 31, 1996 and 1995 are
included in Table 2 - "Changes in Net Interest Differential -
Rate/Volume Analysis", within Management's Discussion and Analysis of
Financial Condition and Results of Operations found on Page 35 of the
Registrant's 1996 Annual Report to Shareholders and is incorporated into
this Item I by reference. For purposes of these tables, changes in
interest due to volume and rate were determined as follows:
Volume Variance - change in volume multiplied by the previous
year's rate.
Rate Variance - change in rate multiplied by the previous year's
volume.
Rate/Volume Variance - change in volume multiplied by the change in
rate.
The rate/volume variance was allocated to volume variance and rate
variance in proportion to the relationship of the absolute dollar amount
of the change in each.
II. INVESTMENT PORTFOLIO
--------------------
A. Investment Securities
The carrying value of investment and mortgage-backed securities at the
dates indicated are summarized below:
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Treasury securities and securities
of U.S. government agencies and corporations $ 75,817 $ 53,991 $ 63,070
Obligations of states and political subdivisions 1,051 1,238 3,439
Mortgage-backed securities 42,907 63,087 61,586
Other securities 13,111 9,900 11,414
------- --------- --------
Total investment and mortgage-backed securities $132,886 $128,216 $139,509
======= ======= ========
</TABLE>
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B. The carrying value and weighted average interest yield for each
investment category listed in Part A at December 31, 1996 which are due
(1) in one year or less, (2) after one year through five years, (3)
after five years through ten years, and (4) after ten years are
presented in Note 3 - Securities, found on page 23 in the Notes to
Consolidated Financial Statements in the Registrant's 1996 Annual Report
to Shareholders and is incorporated herein by reference. The weighted
average yields have been computed by dividing the total interest income
adjusted for amortization of premiums or accretion of discount over the
life of the security by the par value of the securities outstanding. The
weighted average yields of tax exempt obligations are presented on a
non-taxable basis, prior to adjustment to a fully taxable equivalent
basis or consideration of related non-deductible interest expense.
C. Excluding those holdings of the investment portfolio in U.S. Treasury
securities and other agencies and corporations of the U.S. government,
there were no investments in securities of any one issuer which exceeded
10% of the consolidated shareholder's equity of the Registrant at
December 31, 1996.
III. LOAN PORTFOLIO
--------------
A. Types of Loans - Total loans on the balance sheet are comprised of the
following classifications at December 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial $ 78,293 $ 64,811 $ 61,094 $ 61,209 $ 69,935
Commercial real estate 65,875 60,478 53,252 46,723 n/a
Residential real estate 242,652 172,283 115,354 81,495 110,957
Consumer loans 230,782 221,158 182,822 161,041 140,046
------- ------- ------- ------- -------
Total loans $617,602 $518,730 $412,522 $350,468 $320,938
======= ======= ======= ======= =======
</TABLE>
The dollar amounts of loans contained in the Commercial real estate
category are not available for the year ending December 31, 1992.
Balances for this category of loans are included in the Commercial and
Residential real estate loan categories for that year.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates - The
following is a schedule of contractual maturities and repayments
excluding residential real estate mortgage and consumer loans, as of
December 31, 1996:
<TABLE>
<CAPTION>
(Dollars in thousands)
Commercial and
Commercial Real Estate
----------------------
<S> <C>
Due in one year or less $ 31,388
Due after one year, but within five years 68,122
Due after five years 44,658
--------
Total $144,168
========
</TABLE>
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The following is a schedule of fixed rate and variable rate commercial
and commercial real estate loans due after one year (variable rate loans
are those loans with floating or adjustable interest rates):
<TABLE>
<CAPTION>
(Dollars in thousands)
Fixed Variable
Interest Rates Interest Rates
-------------- --------------
<S> <C> <C>
Total commercial, and commercial real estate
loans due after one year $70,501 $42,279
</TABLE>
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans - The following
schedule summarizes nonaccrual, past due, and restructured loans:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994 1993 1992
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 709 $1,066 $1,039 $ 605 $ 29
Accrual loans past due 90 days 130 254 19 40 200
Restructured loans 237 212 375 689 530
------ ------ ------ ------- ------
Total 1,076 1,532 1,433 1,334 759
Potential problem loans 1,699 1,075 5,386 5,521 2,855
----- ----- ------ ----- -----
Total $2,775 $2,607 $6,819 $ 6,855 $ 3,614
====== ====== ====== ======= =======
</TABLE>
For the year ended December 31, 1996, $8,754 of interest income
would have been earned under the original terms of those loans
classified as nonaccrual. The policy for placing loans on
nonaccrual status is to cease accruing interest on loans when
management believes that the collection of interest is doubtful,
or when loans are past due as to principal or interest ninety days
or more. The loans must be brought current and kept current for
six consecutive months before being removed from nonaccrual
status. When loans are charged-off, any accrued interest recorded
in the current fiscal year is charged against interest income. The
remaining balance is treated as a loan charge-off.
The Corporation adopted Statements of Financial Accounting
Standards (SFAS) No. 114 and SFAS No. 118 effective January 1,
1995. At December 31, 1996, loans totaling $268 thousand were
classified as impaired. All loans classified as impaired at
December 31, 1996 were also classified as nonaccrual loans, and
therefore the adoption of SFAS No. 114 and SFAS NO. 118 had no
effect on the comparability of non-performing assets at December
31, 1996 to prior periods.
2. Potential Problem Loans - As shown in the table above, at December
31, 1995, there are approximately $1.7 million of loans not
otherwise identified which are included on management's watch
list. Management's watch list includes both loans which management
has some doubt as to the borrowers' ability to comply with the
present repayment terms and loans which management is actively
monitoring due to changes in the borrowers financial condition.
These loans and their potential loss exposure have been considered
in management's analysis of the adequacy of the allowance for loan
losses.
3. Foreign Outstandings - There were no foreign outstandings at
December 31, 1996, 1995, or 1994.
4. Loan Concentrations - As of December 31, 1996, indirect
installment loans comprise 33.4% of loans. The dealer network from
which indirect loans were purchased in 1996 included 127 dealers
in a 15 county area, the largest of
12
<PAGE> 13
which was responsible for 6% of total indirect volume for 1996.
There are no additional concentrations of loans greater than 10%
of total loans which are not otherwise disclosed as a category of
loans pursuant to Item III. A. above. Also refer to the Note 1,
Concentrations of Credit Risk, found on Page 21 of the 1996 Annual
Report incorporated herein by reference.
5. No material amount of loans that have been classified by
regulatory examiners as loss, substandard, doubtful, or special
mention have been excluded from the amounts disclosed as
nonaccrual, past due 90 days or more, restructured, or potential
problem loans.
D. Other Interest Bearing Assets - As of December 31, 1996, there are no
other interest bearing assets that would be required to be disclosed
under Item III C.1 or 2 if such assets were loans. The Registrant had
Other Real Estate Owned at December 31, 1996, in the amount of $529,841.
IV. SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------
A. The following schedule presents an analysis of the allowance for loan
losses, average loan data, and related ratios for the years ended
December 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Average loans outstanding during the
period (net of unearned income) $582,418 $464,314 $385,618 $339,468 $306,718
======== ======== ======== ======== ========
Allowance for loan losses
at beginning of year $ 7,242 $ 6,348 $ 6,056 $ 4,355 $ 3,221
Loans charged off:
Commercial 106 26 13 37 518
Commercial real estate 0 20 52 11 n/a
Residential real estate 156 71 3 11 37
Consumer loans 2,900 1,441 1,095 822 1,313
-------- -------- -------- -------- --------
Total charge-offs 3,162 1,558 1,163 881 1,868
Recoveries:
Commercial 5 29 52 69 187
Commercial real estate 39 26 7 -- n/a
Residential real estate 71 71 11 7 --
Consumer loans 1,000 576 365 311 315
-------- -------- -------- -------- --------
Total recoveries 1,115 702 435 387 502
-------- -------- -------- -------- --------
Net charge-offs 2,047 856 728 494 1,366
Additions from loans acquired - - - - -
Addition to provision for loan
loss charged to operations 3,140 1,750 1,020 2,195 2,500
-------- -------- -------- -------- --------
Allowance for loan losses at end of year $ 8,335 $ 7,242 $ 6,348 $ 6,056 $ 4,355
======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans, net of unearned income 0.35% 0.18% 0.19% 0.15% 0.45%
======== ======== ======== ======== ========
</TABLE>
The allowance for loan losses balance and the provision charged to
expense are judgmentally determined by management based upon the
periodic review of the loan portfolio, an analysis of impaired loans,
past loan loss experience, economic conditions, anticipated loan
portfolio growth, and various other circumstances which are subject to
change over time. In making this judgment, management reviews selected
large loans as well as delinquent loans, nonaccrual loans, problem
loans, and loans to industries experiencing economic difficulties. The
collectibility of these loans is evaluated after considering the
current financial position of the borrower, the estimated market value
of the collateral, guarantees, and the Company's collateral position
versus other creditors. Judgments, which are necessarily subjective, as
to the probability of loss and the amount of such loss, are formed on
these loans, as well as
13
<PAGE> 14
other loans in the aggregate.
B. The following schedule is a breakdown of the allowance for loan losses
allocated by type of loan and related ratios:
<TABLE>
<CAPTION>
Allocation of the Allowance for Loan Losses
---------------------------------------------------------------------
Percentage Percentage
of Loans of Loans
in Each in Each
Allowance Category to Allowance Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
December 31, 1996 December 31, 1995
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Commercial $2,064 12.7% $ 2,160 12.5%
Commercial real estate 663 10.7 782 11.7
Residential real estate 244 39.3 129 33.2
Consumer 4,420 37.3 2,174 42.6
Unallocated 944 -- 1,997 --
------- ------ ------- ------
Total $8,335 100.0% $ 7,242 100.0%
====== ====== ======= ======
December 31, 1994 December 31, 1993
------------------------- --------------------------
Commercial $1,660 14.9% $1,638 17.5%
Commercial real estate 840 13.0 701 13.3
Residential real estate 1,257 28.2 1,230 23.2
Consumer 2,129 43.9 1,412 46.0
Unallocated 462 -- 1,075 -
------ ------ ----- ------
Total $6,348 100.0% $6,056 100.0%
===== ====== ===== ======
December 31, 1992
--------------------------
Commercial $ 877 21.8%
Commercial real estate N/A N/A
Residential real estate 953 34.6
Consumer 1,490 43.6
Unallocated 1,035 -
----- ------
Total $4,355 100.0%
===== ======
</TABLE>
A comparison of allocations of the allowance for loan losses between
December 31, 1996 and prior year ends shows a significant shift in the
dollars allocated to each of the four loan categories. During the third
quarter of 1995, a change in the methodology used to determine the
allocation of the allowance for loan losses among the various loan
categories was approved by the Executive Committee of the Board of
Directors and instituted by management. Management will continue to use
the same three methodologies it has historically used to determine the
allocation of the allowance, however, it will select the single
methodology that results in the highest aggregate calculation for
allocation of the allowance among the various loan categories, and not
the highest specific allocation for each loan category from among the
three methodologies. Management believes this change reflects a more
reliable analysis of the Bank's risk of loan loss.
14
<PAGE> 15
At December 31, 1996, and 1995, $135,000 and $188,000, respectively,
was specifically allocated to commercial loans in connection with the
adoption of SFAS No. 114. Because management's analysis of problem
loans would have provided a similar allocation prior to adopting SFAS
No. 114, the adoption of SFAS No. 114 had no impact on the
comparability of the December 31, 1996 and 1995 allowance for loan loss
allocation to prior periods.
While management's periodic analysis of the adequacy of the allowance
for loan loss may allocate portions of the allowance for specific
problem loan situations, the entire allowance is available for any loan
charge-offs that occur.
V. DEPOSITS
--------
The following is a schedule of average deposit amounts and average
rates paid on each category for the periods included:
<TABLE>
<CAPTION>
(Dollars in thousands) Years Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 71,263 - $ 66,329 - $ 58,788 -
Interest bearing
demand deposits 71,078 1.98% 68,361 1.92% 66,667 1.91%
Savings 157,662 2.85 151,229 2.63 151,768 2.47
Certificates and other
time deposits 271,351 5.73 216,187 5.67 149,771 4.40
------- ------- -------
$571,354 $502,106 $426,994
======= ======= =======
</TABLE>
The following table summarizes time deposits issued in amounts of
$100,000 or more as of December 31, 1996 by time remaining until
maturity:
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
Maturing in:
Under 3 months $ 10,272
Over 3 to 6 months 10,914
Over 6 to 12 months 7,212
Over 12 months 8,081
--------
$ 36,479
========
</TABLE>
15
<PAGE> 16
VI. RETURN ON EQUITY AND ASSETS
---------------------------
Information required by this section is incorporated by reference to
the information appearing in the table under the caption "Five-Year
Summary of Selected Data" located on Page 44 of the Registrant's 1996
Annual Report to Shareholders.
VII. SHORT-TERM BORROWING
--------------------
Information required by this section is incorporated by reference to
Note 8 - "Short-term Borrowing" on Page 25 of the 1996 Annual Report to
Shareholders incorporated herein by reference.
Item 2 - Properties
- -------------------
UNB Corp.'s executive offices as well as the executive offices and the
main branch office of United National Bank are located in the United
Bank Building at 220 Market Avenue South, Canton, Ohio. This property
is leased through 2003 with five three-year options extending through
the year 2018. The properties occupied by thirteen of the Bank's
branches are owned by the Bank, while properties occupied by its
remaining seven branches are leased with various expiration dates
running through the year 2017 with renewal options. In March of 1996,
the Bank's Hartville South Prospect Branch location was sold with a
lease back arrangement in effect until the completion of a new Bank
owned, branch facility in Hartville into which the two existing
Hartville branch facilities would be consolidated. The new branch was
occupied in February, 1997.
The Bank's Operations Center, at 624 Market Avenue North, Canton, Ohio,
is owned by the Bank which leases approximately 13,000 square feet of
this facility to a law firm. There is no mortgage debt owing on any of
the above property owned by the Bank. A listing of all branch offices
is located under the caption "Banking Centers" found on page 14 of the
Registrant's 1996 Annual Report to Shareholders, and is incorporated
herein by reference. With the new Hartville facility, relocation of the
Amherst Branch to a more accessible leased facility within the Amherst
Shopping Center, the anticipated opening of the new leased Portage and
Frank Branch in mid-1997 and two planned in-store leased branch
facilities in the Green and Alliance communities scheduled for opening
in the late third quarter of 1997, management considers its properties
to be satisfactory for its current operations.
Item 3 - Legal Proceedings
- --------------------------
The nature of UNB Corp.'s business results in a certain amount of
litigation. Accordingly, the corporation and its subsidiaries are
subject to various pending and threatened lawsuits in which claims for
monetary damages are asserted in the ordinary course of business. While
any litigation involves an element of uncertainty, in the opinion of
management, liabilities, if any, arising from such litigation or threat
thereof will not have a material effect on the Company.
In June 1996, as a result of threats to block and barricade ingress and
egress to the Lake Cable branch of the Bank by the partnership which
then owned the Cable Shores Shopping Center, the Bank and other
adjacent property owners commenced an action in the Stark County Common
Pleas Court for a temporary restraining order and an injunction
prohibiting the threatened interference and for a court declaration
that the Bank, other property owners, and their
16
<PAGE> 17
customers have the right to such access. The temporary restraining
order was granted. A counterclaim was filed against the Bank by the
partnership which seeks compensatory damages of one million dollars and
punitive damages of two million dollars from the Bank for alleged
trespass arising from the use of the entrance driveway by the Bank and
its customers. Although this matter remains in litigation and the
issues have not yet been resolved at trial, it is the position of
management and counsel that the Bank has defenses to the counterclaim
and that the Bank's use of the driveway does not constitute trespass.
Item 4 - Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
During the fourth quarter of the year ended December 31, 1996, there
were no matters submitted to a vote of security holders.
PART II
Item 5 - Market Price of and Dividends on the Common Equity and Related
- -----------------------------------------------------------------------
Shareholder Matters
- -------------------
The information required under this item is incorporated by reference
to the information appearing under the caption "Market Price Ranges for
Common Stock" located on Page 43 of the Registrant's 1996 Annual Report
to Shareholders. In addition, attention is directed to the caption
"Capital Resources" within Management's Discussion and Analysis located
on page 40 of the Registrant's 1996 Annual Report to Shareholders and
to Note 15 "Dividend and Regulatory Capital Requirements" located on
page 29 therein. Such information is incorporated herein by reference.
Item 6 - Selected Financial Data
- --------------------------------
The information required under this item is incorporated by reference
to the information appearing under the caption "Five Year Summary of
Selected Data" located on page 44 of the 1996 Annual Report to
Shareholders. See Note 1 under the caption "Allowance for Loan Losses"
on page 20 and Note 4 - "Loans" on page 24 of the 1996 Annual Report to
Shareholders, incorporated herein by reference for a discussion of the
impact of the adoption on January 1, 1995 of SFAS No. 114 and No. 118,
"Accounting by Creditors for Impairment of a Loan". See Note 2,
"Acquisition and Intangible Assets" on page 22 of the 1996 Annual
Report to Shareholders for a discussion of the impact on the Registrant
of the acquisition of certain assets and assumption of certain deposits
and other liabilities of the former TransOhio Federal Savings Bank from
the Resolution Trust Company in 1994.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" appears on pages 33 through 42 of the
Registrant's 1996 Annual Report to Shareholders and is incorporated
herein by reference.
Item 8 - Financial Statements and Supplementary Financial Data
- --------------------------------------------------------------
The Registrant's Report of Independent Auditors and Consolidated
Financial Statements and accompanying notes are listed below and are
incorporated herein by reference to UNB Corp.'s 1996 Annual Report to
Shareholders (Exhibit 13), pages 15 through 32. The supplementary
financial information specified by Item 302 of Regulation S-K, selected
quarterly financial data, is included in Note
17
<PAGE> 18
19 to the consolidated financial statements found on page 32.
Report of Independent Auditors
Consolidated Balance Sheets
December 31, 1996 and 1995
Consolidated Statements of Income
For the three years ended December 31, 1996
Consolidated Statements of Changes in Shareholders' Equity
For the three years ended December 31, 1996
Consolidated Statements of Cash Flows
For the three years ended December 31, 1996
Notes to Consolidated Financial Statements
Item 9 - Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
--------------------
Crowe, Chizek and Company LLP, Certified Public Accountants, served as
independent public accountants for the purpose of auditing the
Corporation's Annual Consolidated Financial Statements and for the
preparation of consolidated tax returns for the fiscal years ending
December 31, 1996, 1995, and 1994. The appointment of independent
public accountants is approved annually by the Board of Directors. For
the year 1997, the Board of Directors has again authorized the
engagement of Crowe, Chizek and Company LLP as independent auditors.
PART III
Information relating to the following items is included in the Registrant's
definitive proxy statement for the annual meeting of shareholders to be held
Tuesday, April 15, 1997, ("1996 Proxy Statement") filed with the Commission
pursuant to Section 14(A) of the Securities Exchange Act of 1934 and is
incorporated by reference into this Form 10-K Annual Report (Exhibit 22).
Item 10 - Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Item 11 - Executive Compensation
- --------------------------------
Item 12 - Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Item 13 - Certain Relationships and Related Transactions
- --------------------------------------------------------
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
A. Financial Statement Schedules
-----------------------------
1. Financial Statements
--------------------
The following consolidated financial statements of the Registrant
appear in the 1996 Annual Report to Shareholders (Exhibit 13) on
the pages referenced and are specifically incorporated by
reference under Item 8 of this Form 10-K:
18
<PAGE> 19
<TABLE>
<CAPTION>
Annual Report
Page Numbers
------------
<S> <C>
Report of Independent Auditors 15
Consolidated Balance Sheets, December 31, 1996 and 1995 16
Consolidated Statements of Income,
For the three years ended December 31, 1996 17
Consolidated Statements of Changes in Shareholders' Equity,
For the three years ended December 31, 1996 18
Consolidated Statements of Cash Flows,
For the three years ended December 31, 1996 19
Notes to Consolidated Financial Statements 20-32
</TABLE>
2. Financial Statement Schedules
-----------------------------
Financial statement schedules are omitted as they are not
required or are not applicable, or the required information is
included in the financial statements found in the Registrant's
1996 Annual Report to Shareholders.
3. Exhibits
--------
Reference is made to the Exhibit Index which is found on Page 22
of this Form 10-K.
B. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the last quarter of the year
ending December 31, 1996.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
UNB Corp.
By /s/ Robert L. Mang
----------------------------------
Robert L. Mang, President and CEO
Date March 26, 1997
--------------------------------
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Robert L. Mang President, CEO March 26, 1997
- ---------------------------------- and Director ----------------------
Robert L. Mang (Principal Executive Officer)
/s/ James J. Pennetti Vice President March 26, 1997
- ---------------------------------- and Treasurer ----------------------
James J. Pennetti (Principal Financial
and Accounting Officer)
/s/ Donald W. Schneider Chairman of March 13, 1997
- ---------------------------------- the Board ----------------------
Donald W. Schneider
/s/ E. Lang D'Atri Director March 13, 1997
- ---------------------------------- ----------------------
E. Lang D'Atri
/s/ Edgar W. Jones, Jr. Director March 13, 1997
- ---------------------------------- ----------------------
Edgar W. Jones, Jr.
/s/ James A. O'Donnell Director March 13, 1997
- ---------------------------------- ----------------------
James A. O'Donnell
</TABLE>
20
<PAGE> 21
EXHIBIT INDEX
-------------
Exhibit Number Exhibit Description
- -------------- -----------------------------------------
11 Statement regarding Computation of Per
Share Earnings (included in Note 1 to the
Consolidated Financial Statements, 1996
Annual Report to Shareholders under the
caption "Earnings and Dividends Declared
Per Share").
13 Annual Report to Shareholders of UNB
Corp. for the Fiscal Year Ended December
31, 1996.
21 Subsidiaries of the Registrant (exhibit
is filed herewith).
22 Proxy Statement of UNB Corp. dated
February 21, 1997, for the Annual Meeting
of Shareholders on April 15, 1997.
27 Financial Data Schedule (submitted as
part of electronic filing only)
21
<PAGE> 1
UNB
CORP
1996
ANNUAL
REPORT
<PAGE> 2
1
SUMMARY OF SELECTED DATA
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
FOR THE YEAR 1996 1995 % OF CHANGE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Total Interest Income $59,189,176 $49,758,657 18.95%
Total Interest Expense 27,826,197 21,805,511 27.61%
Net Income 8,154,673 7,379,466 10.50%
AT YEAR END
- --------------------------------------------------------------------------------
Assets $809,978,920 $699,643,837 15.77%
Deposits 600,664,002 547,187,160 9.77%
Total Net Loans 609,266,850 511,487,786 19.12%
Securities 132,886,376 128,216,265 3.64%
Shareholders' Equity 71,334,140 65,326,883 9.20%
PER COMMON SHARE*
- --------------------------------------------------------------------------------
Net Income $1.38 $1.26 9.52%
Cash Dividends Paid 0.59 0.525 12.38%
Book Value 12.33 11.37 8.49%
PERFORMANCE RATIOS
- --------------------------------------------------------------------------------
Return on Assets 1.08% 1.14% -5.26%
Total Risk-Based Capital 15.32% 12.67% 20.92%
Capital Leverage 7.55% 8.26% -8.60%
Allowance for Loan
Losses/Total Loans 1.35% 1.40% -3.60%
<FN>
*Per share data has been adjusted for any stock dividends and splits.
</TABLE>
<TABLE>
<CAPTION>
UNB CORP. AT YEAR END
COMMON STOCK 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Market Value - Bid $30.00 $22.00 $19.25 $14.50
Market-to-Book Premium 243.3% 193.6% 188.4% 147.5%
</TABLE>
For Investor Relations, call (330) 438-1206.
Table Of Contents
President's Message .........................2
Board of Directors..........................12
Community Advisory Boards...................12
Management..................................13
Banking Centers.............................14
Report of Management........................15
Report of Independent Auditors..............15
Consolidated Financial Statements...........16
Notes to Consolidated Financial Statements..20
Management's Discussion and Analysis........33
Market Price Ranges for Common Stock........43
Five Year Summary of Selected Data..........44
<PAGE> 3
PRESIDENT'S MESSAGE TO SHAREHOLDERS
Since I began signing the letter to shareholders in the 1985 Annual Report, it
has been my pleasure to announce an increase in net income every year. Once
again, I am pleased to report that net income for UNB Corp. reached an all-time
high of $8.2 million for 1996. This represents an increase of 10.5% over a year
ago. Cash dividends were $.59 per share in 1996, representing a 12.4% increase
over a year ago adjusted for the 100% stock dividend declared in April. Every
year since 1985, I have also been able to report that the value of UNB Corp.
common stock has increased over the prior year, and 1996 was no exception. At
year-end, the market value had increased to $30 per share, an increase of 36.4%
over a year ago. The total return to shareholders in 1996, including dividends
and appreciation, was 39.1%.
UNB Corp.'s total assets at year-end were $810.0 million, an increase of 15.8%
over the same period a year ago. Total deposits grew to $600.7 million, or 9.8%
over 1995. Favorable interest rates and excellent performance in all of the
lending areas combined to increase the total loan portfolio of United Bank to a
total of $617.6 million, an increase of 19.1% over 1995. The consumer loan
portfolio accounted for $230.8 million or 37.4% of total loans. The Bank's
Equity100(TM) home equity line of credit, which now enables customers to borrow
up to 100% of the equity in their home, accounted for $21.8 million or 3.5% of
total loans. Commercial loans grew to $78.3 million and represented 12.7% of the
total loan portfolio.
For the second year in a row, United Bank was Stark County's leading mortgage
lender as reported by the credit bureau's mortgage industry report. The Mortgage
Department added $70.4 million to the loan portfolio in 1996 to lead all other
financial institutions and mortgage companies that originated loans in Stark
County. An additional mortgage originator was added in 1996 to assist with the
loan growth created by a strong local housing market. Excellent growth was also
seen in the Mortgage Assistance Program (MAP) which provides mortgage assistance
for families with low-to-moderate incomes in the communities we serve.
Our Trust Department continued its long record of achievement with an 18.9%
increase in managed assets. Through prudent long-term investment and exceptional
portfolio management, Trust assets grew to $581.5 million in 1996. This
impressive annual growth reflects the high rate of return earned on managed
funds and our commitment to individualized portfolio management.
As with many banks, our net interest margin continued to decrease in 1996.
Additional fee income from new and existing products and services became very
important to offset the decreased margin. In June, we entered into a
relationship with American Express Financial Advisors Inc., a Minneapolis-based
division of American Express. Five Financial Advisors conduct business out of
the Bank's 20 offices, working closely with our employees to identify customers
who can benefit from the financial planning, products and services American
Express Financial Advisors Inc. has to offer. These include mutual fund,
annuity, and insurance products. In addition, 34 Bank employees are licensed to
sell fixed rate annuities to customers.
In 1996, we began construction on a new state-of-the-art financial center in
Hartville. On February 3, 1997, the two existing Hartville offices were merged
into the new facility. The new financial center features a drive-up ATM,
drive-up tellers and a 24-hour electronic banking lobby. The 24-hour lobby
provides customers with a walk-up ATM and kiosks that offer access to the Bank's
web site on the Internet (www.united-bank.com) and their accounts on-line. In
addition, a telephone kiosk provides telephone access to account information and
employees who can open new accounts over the telephone.
<PAGE> 4
3
United Bank's presence continues to grow to meet the opportunities in our
expanding market. In addition to the new Hartville financial center, the Bank is
constructing a new financial center at the intersection of Portage and Frank
streets in rapidly growing Jackson Township. The Bank's Mortgage Department will
also be moving to this new location to be closer to the growing demand for
housing and mortgage loans in this part of our market. In 1996, the Bank entered
into agreements to open sales/service centers in the new Wal*Mart Supercenter in
Alliance and the new Olzeski's IGA grocery store in Green. It is our intention
to capitalize on the growing consumer demand for banking in non-traditional
environments by operating in these locations.
UNB Corp.'s Board of Directors has authorized the formation of a finance company
which will be a wholly owned subsidiary of the Corporation. This consumer
finance company will provide personal secured and unsecured loans for varied
purposes. The first office is targeted to open in the second quarter of 1997,
and additional offices will be opened as growth dictates.
All of the achievements of 1996 would not have been possible without the hard
work and dedication of many people. I would like to thank the members of the
Boards of Directors for UNB Corp. and United National Bank & Trust Co. and the
members of the Bank's Community Advisory Boards for their direction and counsel,
the shareholders for their continued support and confidence in UNB Corp., and
the employees of United Bank who strive every day to provide outstanding
customer service to the loyal people who are our customers.
I would also like to take this opportunity to thank two members of the Boards of
Directors of UNB Corp. and United National Bank & Trust Co. who retired this
year. John D. Regula, Partner and Manager of Regula Brothers Transportation,
served on both boards for eight years. James P. Rodman, retired Professor of
Applied Physics & Astrophysics at Mount Union College and presently Chief
Engineer of Rodman Research, provided his service on the boards for 30 years.
Their advice and counsel over the years have been invaluable, and their presence
on our boards will be missed.
During November of 1996, Honorary Director Emeritus John F. Andrews passed away.
At the time of his passing, he was serving on the Beach City/Brewster Community
Advisory Board. We extend our deepest sympathy to his family.
This will be my last letter to the shareholders, as I plan to retire on June 1,
1997. I have had the pleasure of being a community banker for almost 31 years.
The last 21 years have been with UNB Corp. and United National Bank & Trust Co.
and have been most gratifying and fulfilling for me and my family. Our company
has an outstanding group of directors, officers, and employees. Their loyalty,
support, and dedication to me will not be forgotten.
I am pleased and proud to say that UNB Corp. has never been financially stronger
and more profitable than it is today. The Company is well positioned to continue
its growth and profitability in the years ahead, and as a member of the Boards
of Directors, I plan to continue to play a leadership role in its future.
Sincerely,
/s/ Robert L. Mang
Robert L. Mang [Picture of
President Robert L. Mang
Chief Executive Officer President]
<PAGE> 5
In the 1976 Annual Report's President's Message, former President James
A. O'Donnell stated, "Robert L. Mang joined us as Executive Vice President and
Director to assume overall responsibility in the areas of lending, branch
administration and marketing for the Bank." Bob Mang has continued the long
tradition of successful management that was established at United Bank over
years of dedicated teamwork by the Board of Directors, Management and employees.
Now after more than 20 years of his own dedicated service and considerable
growth of United National Bank & Trust Co., Mr. Mang will retire in early
summer. It is with great respect and appreciation that we dedicate a portion of
the 1996 Annual Report to review the 20 years of United Bank's history that
encompass Mr. Mang's career.
Highlights from the 1976 Annual Report for United National Bank & Trust
Co. showed that assets were $113,850,872, deposits were $103,767,967, and net
income was $575,959. President O'Donnell stated that United Bank "is one of the
strongest capitalized financial institutions in our area." Two new offices had
just been added, Belden Village and Lake Cable, which brought the total to 10
offices. Stated clearly were goals that are still part of the Bank today; to
improve customer service by providing new products and services, to increase
long-term shareholder value, and to remain a locally owned and independent
community bank serving Stark and contiguous counties.
In 1977, regulatory oversight was dramatically increasing in the
banking industry. The interest rates that banks could offer their customers were
still restricted, and the money markets provided stiff competition. Despite the
burden of new regulatory requirements, United Bank continued to grow. The
capital accounts exceeded $10 million for the first time, a milestone for the
Bank. In April, a 3 for 2 stock split was announced to shareholders. At that
time, 76% of the shares were owned by Stark Countians, a tradition that
continues to this day. The Trust Department, which was becoming an increasingly
important part of the company, adopted a prototype pension and profit plan for
corporate clients and continued to make inroads into personal trust services.
In 1978, Ohio banking law was changed to permit banks to establish
branches in contiguous counties and to allow mergers with banks located in other
Ohio counties, with the merged bank becoming a branch office of the acquirer. To
reinforce being a locally owned bank, an advertising campaign with the slogan
"Not so big is better" was introduced. Also introduced in 1978 was a new Money
Market Certificate which offered higher interest rates to depositors and the
"All in One" statement. The All in One statement was the first bank statement in
Stark County to combine all a customer's accounts on one
[Picture of Robert L. Mang as Executive Vice President 1976]
1976 Robert L. Mang begins 20-year career at United Bank as Executive Vice
President and Director.
<TABLE>
<CAPTION>
1976 FINANCIAL RESULTS
<S> <C>
Assets $113,850,872
Deposits $ 10,776,967
Income $ 575,959
</TABLE>
[Picture of Lake Cable Office Construction 1976]
1976 Lake Cable Office under construction
[Picture of Robert L. Mang Introducing "All In One Statement"]
1978 "All in One" statement introduced
<PAGE> 6
5
monthly statement. To help sell the new and existing accounts and services, new
sales training was launched for branch personnel. This new approach to customer
service was the beginning of today's sales & service philosophy at United Bank.
The Bank celebrated a landmark anniversary on July 19, 1979 to mark 150
years in business. The theme line of "Locally owned and growing with Stark
County" was selected to promote the event and reinforce the Bank's community
bank image. By now, United Bank had become the largest locally owned bank in
Stark County with more than $150 million in assets; net income exceeded $1
million for the first time. Many other firsts occurred in 1979 including the
opening of the Raff/West Tusc. Office, the addition of an automated accounting
system for Trust, and a new on-line teller system--the largest equipment
purchase by the Bank at the time. Additionally, orders were placed for one of
the most revolutionary technologies to arrive in banking, Automated Teller
Machines (ATMs). Two new programs were instituted to increase the quality of
employees at the Bank. First, a two year Management Training Program was
developed to train new management candidates in all areas of the Bank. Second,
an internal job posting program was launched to encourage promotion of employees
from within the Bank.
By 1980, inflation was a major factor for all businesses. The prime
rate hit an all-time high of 21.5%; the six month Money Market Certificate was
paying 15.70%. Fortunately, deregulation of interest rates was enabling banks to
become more competitive with non-banking financial institutions. NOW Accounts,
checking accounts that paid interest on deposits, were legalized. United Bank
continued its growth during these difficult times. Six ATMs were installed and
promoted to customers as the "24-Hour Express Stations," Stark County's most
advanced ATMs. The Bank's eleventh office opened at 34th Street in Canton, and
the Belden Office was renovated to accommodate the growing number of customers
in that area.
In 1981, the suffering local economy received a shot in the arm from
the Timken Company which announced plans to invest $500 million in a new steel
complex in Perry Township. Despite the poor economy, United Bank's net loans
[Employees Dressed as Railroad Engineers to Promote 24-Hour Express ATM Network
1980]
1980 Employees dress as railroad engineers to promote the new 24-hour Express
ATM network.
[Picture of United Bank Billboard]
1979 United Bank becomes Stark's largest locally owned bank
[Picture of a Woman at ATM]
1980 United Bank installs revolutionary ATMs
<PAGE> 7
outstanding increased to $92.1 million, though high interest rates had a
negative impact on earnings for the year. As part of its commitment to the
community, United Bank introduced the "Dollars & Sense" personal money
management course to local schools. Bank employees taught "Dollars & Sense" to
grammar school students to familiarize them with basic banking concepts and was
well received by students, teachers, and parents.
As the Bank entered 1982, it became clear that interest rates would not
moderate quickly. Therefore, Management began to shift the focus from interest
income to fee income from products and services. In an effort to increase fee
income, the Bank introduced an employee incentive plan in 1982 to emphasize the
importance of sales and cross sales of Bank accounts and services. Expansion of
the branch network continued with the opening of the Wales Square office, the
first United Bank office in Massillon and western Stark County.
By 1983, the Bank had outgrown the existing operations center and moved
into a newly renovated location on Market Avenue North in Canton. The former
Polsky's department store had been purchased, renovated and provided three
floors of office space of which the Bank occupied two. As the move into the new
operations center was completed, plans for United Bank to relocate its
headquarters were announced. United Bank would take part in the ambitious
Newmarket project designed to revitalize downtown Canton which included
construction of the 11-story, 135,000 square foot United Bank Building, a Hilton
Hotel, and a large parking deck. Deregulation of the banking industry continued
in 1983 and the Bank introduced Super NOW accounts which paid a higher rate of
interest on deposits. As interest rates increased, savings as a percent of
deposits more than doubled. The new rate environment led to the establishment of
an asset and liability management policy and an Asset & Liability Management
Committee that met to monitor the Bank's asset and liability position on a
regular basis. In lending, United Bank increased its focus on local medical and
professional lending and introduced a commercial leasing program for its
corporate customers.
By 1984, assets of United Bank exceeded $200 million. Net loans
exceeded $100 million, an outstanding increase of 21.5% over the previous
year-end. The Trust Department added Personal Financial Planning and 401(k)
accounts to its services and was managing $75 million in assets. In light of the
growth of the Bank, UNB Corp., a one-bank holding company, was established.
Senior Management was reorganized and Robert L. Mang was named Executive Vice
President and Chief Operating Officer of United National Bank & Trust Co., and
Vice President of UNB Corp. United Bank dedicated itself to
[Picture of Polsky's Department Store]
1983 United Bank purchases and renovates the former Polsky's department store to
serve as the new operations center.
[Picture of Wales Square Office]
1982 Wales Square office is the bank's first in Massillon
<TABLE>
<CAPTION>
1984 Landmark Financial Results
<S> <C>
Assets $200+ million
Loans $100+ million
</TABLE>
[Picture of UNB Corporate Seal]
1984 UNB Corp., a one bank holding company is formed
<PAGE> 8
7
providing all the financial services customers needed and reinforced this "one
stop shopping" concept in banking by offering discount brokerage services to
customers for the first time.
During 1985, Mr. Mang became the Senior Officer of United Bank. He
announced in the Annual Report that the UNB Corp. stock price had increased an
unprecedented 33.3% in the last 12 months. He also announced the formation of
United Credit Life Insurance Services as a subsidiary of UNB Corp. This new
company would allow the Bank to offer credit life insurance to the growing
number of consumer loan customers obtained through the Bank's expanding
automobile loan business.
The Bank's commitment to being a locally owned and independent bank was
solidified in 1986 when it became a part of the Bank's Mission Statement. The
commitment to the local community was also reinforced with the establishment of
the Outstanding Volunteer of the Year Award. The award was presented annually to
the United Bank employee who demonstrated his or her outstanding participation
in the community as a volunteer. The Bank also showed its local support by
purchasing 42 pieces of fine art created by local Ohio artists and installing
them in its new headquarters at the Newmarket office which several departments
and Senior Management moved into in 1986. Robert L. Mang was named President and
CEO of UNB Corp. and Executive Vice President and CEO of United National Bank &
Trust Co. during the year.
One of the most dramatic events on the stock exchange since the 1929
crash occurred in October of 1987 when the market took a dramatic downturn. One
of the benefits of being locally owned was highlighted during this time as UNB
Corp. stock continued its annual increase in market value of nearly 19% over the
previous year-end. In addition, UNB Corp. had split 3 for 2 during this
turbulent time on Wall Street sending a positive message to shareholders. The
Bank added $10 million in deposits when it acquired the Brewster office of
AmeriTrust during the year. The new Mount Union office in Alliance was completed
and featured an electronic message center on its outdoor sign. During all this
growth, Mr. Mang was named President of United National Bank & Trust Co.
[Picture of United Bank's Newmarket Building]
1986 The new United Bank building, part of the Newmarket revitalization project,
graces the downtown Canton skyline.
[Picture of Robert L. Mang and Outstanding Volunteer of 1986]
1986 Employees honored with Outstanding Volunteer of the Year award
[Picture of Mount Union Office]
1987 New Mount Union office constructed in traditional colonial style
<PAGE> 9
In 1988, UNB Corp. amended the Articles of Incorporation and Code
Regulations to emphasize the commitment to remain independent and locally owned.
A Corporate Code of Ethics was also finalized and approved by the Board. The
Bank launched a new product which offered checking customers overdraft
protection through a MasterCard(R) line of credit. By year-end, the Bank's
assets had achieved a new landmark by exceeding $300 million.
In 1989, UNB Corp. purchased the Hartville and Canal Fulton offices of
First American Savings Bank which increased the Bank's market share in northern
Stark County. Sales continued to be of major importance to the Bank, so eight
Sales & Service Consultants were established. Their main goal was to provide
customer service by opening new accounts and visiting customers at their
businesses or homes. To enhance the sales environment, a cross-sell ratio
measurement system was undertaken to measure sales success within the Bank. Two
new personal checking accounts, Passport Gold and Passport Blue, were
introduced. The new accounts offered many banking and non-banking features which
resulted in widespread customer acceptance. In the Trust Department, managed
assets exceeded $200 million for the first time.
The importance of the sales culture of the Bank was reinforced in 1990
when branch managers became known as "Sales & Service Managers." In the
Commercial Loan Department, a focus on family owned and closely held companies
helped increase loan volume. A new mortgage loan that provided assistance to
families in the community with low-to-moderate incomes was established. Known as
the MAP loan for Mortgage Assistance Program, the new loan program generated
nearly $1 million in the first year. More than 100 United Bank employees
volunteered at organizations in the communities that the Bank served in 1990,
including Habitat for Humanity and the J. R. Coleman Outreach Center. The
continued growth of the Bank led to the announcement of a 5% stock dividend to
shareholders in April.
In 1991, United Bank greatly increased its presence in western Stark
County when it purchased four offices of First Savings & Loan Company in
Massillon from the Resolution Trust Corporation (RTC). This quickly helped
assets grow to $475 million. In April, shareholders were the beneficiaries of a
5% stock dividend for the second year in a row. As the Bank continued to focus
on increased income from fees, a new relationship began with a third-party
insurance company to offer
[Picture of Volunteers Working on Habitat for Humanity Home]
1993 United Bank employees volunteered more than 1,000 hours of their own time
to build a Habitat For Humanity home.
[Picture of Sales and Service Consultants]
1989 Sales & Service Consultants call at home or office
[Picture of United Bank's Massillon Office Building]
1991 United Bank solidifies Massillon market with S&L purchase
<PAGE> 10
9
mutual funds and annuities. Through this alliance, customers could purchase a
variety of investment products from representatives at the Bank's branches.
United Bank employees made excellent referrals and helped to make the sales of
these investments an important fee income generator. To provide enhanced service
to customers, United Bank converted to the Green Machine ATM network which
provided access to more ATMs locally and to thousands more across the country.
The Bank's efforts to provide equal access to mortgage loans to
everyone in the community was rewarded in 1992 when it received the first annual
Fair Housing Award sponsored by the Stark County Association of Realtors and the
Community Housing Resource Board. The award for outstanding achievement and
leadership for providing mortgage assistance to low-to-moderate income families
was a direct result of the Bank's MAP loan. More than $2 million in MAP loans
were made during the year. Total net loans for the year exceeded $300 million
and deposits grew to over $400 million. For the third year in a row,
shareholders received a 5% stock dividend.
The strength of local investors' confidence in United Bank's
performance was illustrated in 1993 when the public and shareholders were
offered 300,000 shares of UNB Corp. stock. The offering, which raised $7.5
million, was oversubscribed by 50%. Previously that year, a 100% stock dividend
had been paid to shareholders. The community's acceptance of United Bank was
undoubtedly supported by the many hours of volunteer service provided by
employees and encouraged by Management. Mr. Mang himself led by example by
serving as Chairman of the Board for the Canton Regional Chamber of Commerce, as
well as serving on the boards of Timken Mercy Medical Center, Stark Development
Board, Canton Rotary, Canton Art Institute and Mount Union College. United Bank
employees volunteered 1,000 hours to build a Habitat for Humanity home. To help
the Bank ensure that it was serving all members of the community, a full-time
position was created to direct and monitor its community banking performance.
Net income grew to more than $6 million in 1993.
In 1994, assets exceeded $600 million and net loans grew to over $400
million. For the 20th consecutive year, the value of UNB Corp. stock exceeded
the value of the previous year. The Bank continued to grow with the purchase of
four former offices of TransOhio from the RTC in September. One of the offices
in Manchester was the first United Bank office outside of Stark County and
opened the door to Summit County for the Bank. Two important programs were
undertaken
[Picture of Master Money ATM Card 1995]
1995 MasterMoney, an ATM card that enables purchases to be directly deducted
from checking, makes shopping easier for customers.
[Picture of Wall Street]
1991 Mutual funds and annuities made available to customers
[Picture of ATM Green Machine]
1991 ATM network expanded by joining Green Machine
<PAGE> 11
internally. First, the Strategic Planning Committee was created to help plan the
Bank's direction for future growth and updated the Mission Statement. Second, a
new bank wide employee incentive model was created to reward the achievement of
enhanced performance goals.
As the Bank entered 1995, customers were asking for many types of new
products that were becoming popular in the banking industry. Several personal
and commercial accounts were analyzed and implemented. The Bank introduced the
Business Manager product, which enables a company to increase its cash flow by
allowing United Bank to purchase its receivables. In addition, a new abbreviated
commercial loan application, Rapid App, was developed to provide faster review
and approval of business loans and lines of credit. The home equity line of
credit was revised to allow customers to borrow up to 100% of the equity in
their home. The new line of credit, called Equity100(TM), also featured
competitive interest rates based on prime rate and a lower minimum monthly
payment. A new MasterMoney card was also introduced to customers. This enhanced
ATM card enables customers to make purchases everywhere MasterCard is accepted
while the purchase amount is deducted directly from their checking account.
Perhaps the greatest accomplishment of 1995 came when United Bank became the #1
mortgage lender in Stark County as measured by the Realty industry's PACE
report. At year end 1995, net income exceeded $7 million, deposits exceeded $540
million and net loans exceeded $510 million all for the first time.
As this retrospective illustrates, United Bank has provided
shareholders with many years of consecutive growth and 1996 was no exception.
Once again, net income for UNB Corp. hit an all-time high reaching $8.2 million.
Assets at year-end 1996 reached nearly $810 million. For the 22nd consecutive
year, the value of UNB Corp. stock was greater than the previous year-end. For
the second year in a row, United Bank was the #1 mortgage lender in the county.
The Trust Department finished the year with more than $580 million in managed
assets. As in years past, the narrowing net interest margin continued to make
income from fees more important. Therefore, a new relationship with American
Express Financial Advisors Inc. was established to provide financial planning
and to enhance the sale of mutual funds, annuities, and life insurance to
customers. Five Financial Advisors now offer sales through the Bank's twenty
offices. Several new electronic products such as PC banking, automated bill
payment, and telephone banking were analyzed over the course of the year and
plans to launch them in 1997 are underway. In addition,
[Artist's Rendering of Hartville Financial Center 1997]
1997 The new Hartville Financial Center offers 24-hour banking through ATMs,
computer and telephone kiosks.
[Picture of Family in Front of House 1995]
1995 United Bank becomes Stark County's #1 mortgage lender
[Picture of UNB Corp. Stock Certificate]
1997 For the twenty-second consecutive year, UNB Corp. stock value increases
<PAGE> 12
11
investments in new equipment were made to update the information systems that
support these new products, and new PC-based teller and platform equipment is
being installed to increase customer service in the branches. New
state-of-the-art financial centers will open in Hartville and Jackson Township
during the first quarter of 1997 and agreements were established to open two new
sales and service centers in the Alliance Wal*Mart Supercenter and the new
Olzeski's IGA in Green which will bring the total number of offices in the
United Bank system to 21.
All of the achievements of United Bank are owed to the dedication of
the Board of Directors, Management, and staff who remain committed to the
principles that have guided the Bank to its current success. We all remain
dedicated to the mission of UNB Corp.
We are proud to recognize the hard work, dedication, and commitment
shown by the directors, Management and employees of United Bank over the last 20
years. It is through their efforts that the Bank continues to grow and serve the
people and businesses of the communities in our market. We salute Robert L. Mang
for his leadership role in the success of United Bank over his 20 year career
and wish him a long and fulfilling retirement.
UNB Corp.
Mission Statement
As an independent financial services holding company, our mission is to enhance
long-term shareholder value by:
- - demonstrating in meaningful ways our commitment to the communities we
serve;
- - providing support to affiliates and subsidiaries which maximizes
productivity, efficiency, service quality, and profitability;
- - identifying and capitalizing on opportunities through geographic and
business line diversification and expansion;
- - creating a strong, positive corporate culture which promotes and rewards
employee initiative, development, and contribution;
- - raising, allocating, and managing capital.
[Picture of Phone and Computer]
1997 Telephone and PC Banking launches in first quarter
<TABLE>
<CAPTION>
1996 Record levels of financial results continue
<S> <C>
Assets $809,978,920
Deposits $600,664,002
Loans $609,266,850
</TABLE>
<PAGE> 13
BOARD OF DIRECTORS
UNB CORP. AND UNITED NATIONAL BANK & TRUST CO.
<TABLE>
<S> <C> <C>
DONALD W. SCHNEIDER RUSSELL W. MAIER JOSEPH J. SOMMER
Chairman of the Board United National Bank & Trust Co. United National Bank & Trust Co.
UNB Corp. & United National Bank & Trust Co. Chairman and Chief Executive Officer, Retired Attorney, Government Leader, and
President, Schneider Lumber Co. Republic Engineered Steels, Inc. Businessman
LOUIS V. BOCKIUS III ROBERT L. MANG ABNER A. YODER
United National Bank & Trust Co. President and Chief Executive Officer, United National Bank & Trust Co.
Chairman, Bocko, Inc. UNB Corp. President, Stark Truss Co.
President and Chief Executive Officer,
E. LANG D'ATRI United National Bank & Trust Co. HONORARY DIRECTORS EMERITI
UNB Corp. & United National Bank & Trust Co. Robert L. Hammond
Attorney at Law, JAMES A. O'DONNELL F. E. Henry III
Day, Ketterer, Raley, Wright & Rybolt UNB Corp. & United National Bank & Trust Co. Edgar W. Jones
Retired President, Thomas C. Lavery
EDGAR W. JONES, JR. United National Bank & Trust Co. Richard O. Parker
UNB Corp. & United National Bank & Trust Co. David W. Reed, Jr.
President, Hal Jones Construction Co. JOHN D. REGULA Joseph C. Sommer
UNB Corp. & United National Bank & Trust Co. W. W. Steele, Jr.
HAROLD M. KOLENBRANDER, Ph.D. Partner and Manager, George N. Swallow
United National Bank & Trust Co. Regula Brothers Transportation Leroy L. Zang
President, Mount Union College
JAMES P. RODMAN
UNB Corp. & United National Bank & Trust Co.
Chief Engineer, Rodman Research
</TABLE>
COMMUNITY ADVISORY BOARDS
<TABLE>
<S> <C> <C> <C>
ALLIANCE Milo J. Miller Joseph J. Sommer MASSILLON
Thomas C. Lavery, Chairman John D. Regula Glen E. Swigart Randall A. Hutsell, Chairman
Carol A. Barnett C. Waid Spidell Scott VanDenberg Deborah J. Bachtel
Carol L. Cardinal George F. Stertzbach Marilyn L. Fogle
W. Jeffrey Egli David E. Stucki LAKE TOWNSHIP Robert J. Groenke, Jr.
Richard C. Elliott John A. Yoder George N. Swallow, Chairman Thomas L. Jackson
Bradley Goris E. Lang D'Atri Nancy A. Johnson
Mark M. Henschen CANAL FULTON Edward DiGiacomo Jacque E. Jones
Harold M. Kolenbrander George C. Mizarek, Chairman Rosalee Haines Richard G. Leffler, Jr.
David C. McAlister Donald W. Aaron Daniel K. Hanlon Mark R. Percival
Richard C. Sherer Corita C. Childs Hall B. Miles, Jr. James D. Snively
George K. Weimer, Jr. Janet M. Dixon Howard Miller, Jr. Joseph J. Sommer
Benjamin R. Easterling Christian D. Ramsburg Walter J. Telesz
BEACH CITY/BREWSTER David C. Ewing Lynn E. Stuhldreher Robert K. Yund
Robert W. Andrews, Chairman James F. Kling Jane Tortola
Dorothy G. Beals Roland C. Lindsay, Sr. David A. Vanderkaay
Marion Belloni Gail Mizeres Barbara K. Wentz
Charles B. Hawk Ken L. Schalmo Jeffrey W. Zellers
</TABLE>
<PAGE> 14
MANAGEMENT
<TABLE>
<S> <C> <C> <C>
UNB CORP. Randall W. Geis CREDIT AND TRUST SERVICES GROUP
Assistant Vice President LOAN REVIEW Robert M. Sweeney
Robert L. Mang Business Development Officer Jeffery Hasapis Senior Vice President
President Vice President Executive Officer
Chief Executive Officer Edward C. Koch
Assistant Vice President Paul J. Durbak, Jr. Robert J. Barnes
James J. Pennetti Business Development Officer Assistant Vice President Vice President
Vice President Loan Review Officer Trust Investment Manager
Treasurer Eileen G. Halter
Assistant Vice President MORTGAGE LENDING Phillip L. Francis
Robert M. Sweeney Scott E. Dodds Vice President
Secretary Catherine Dluzyn-Hegarty Vice President Managing Trust Officer, Alliance
Business Development Officer
UNITED NATIONAL Electronic Banking FINANCIAL GROUP Marc B. Inboden
BANK & TRUST CO. Charles J. Berry Vice President
Cynthia S. Griffith Senior Vice President Trust Investment Officer
EXECUTIVE OFFICER Branch Operations Officer Chief Financial Officer
Robert L. Mang Marcia L. Kendle
President SECURITY/COMPLIANCE Sheldon F. Everhart Vice President
Chief Executive Officer Duane J. Shamp Vice President Personal Trust Manager
Vice President Methods Analyst
BANK ADMINISTRATION Samuel M. Lincoln
GROUP Monica J. Graves Loretta M. Higgins Vice President
James J. Pennetti CRA Officer Vice President Employee Benefits Trust Manager
Senior Vice President Finance and Accounting
Executive Officer BANKING GROUP Mary L. Lee
Leo E. Doyle INVESTMENTS Assistant Vice President
ADMINISTRATIVE Senior Vice President Vanessa M. Richards Trust Operations Manager
SERVICES Executive Officer Assistant Vice President
John J. Kennedy Investments Perry S. Lazich
Vice President COMMERCIAL LENDING Trust Investment Officer
Richard F. Kress Raymond Hannan
Susan L. Dragich Vice President Investment Operations Officer Richard J. Reiland,Jr.
Assistant Vice President Employee Benefits Trust Officer
Ronald P. Dezenzo HUMAN RESOURCES GROUP
OPERATIONS Vice President Candice L. Follen Robert L. Hammond
Wendy S. Blackburn Vice President Trust Investment Officer
Assistant Vice President Robert P. Nelson
Vice President Barbara M. Heinricher AUDIT
Rebecca A. Geis Assistant Vice President Robert L. Young
Assistant Vice President David M. Roberts Vice President
Vice President SALES GROUP Chief Internal Auditor
Paula J. Lightbody Don A. Sultzbach
Assistant Vice President William F. Schumacher Senior Vice President Tammy R. Predragovic
Vice President Audit Operations Officer
Betsy J. Cinson MARKETING
Operations Officer CONSUMER LENDING Stephen J. Badman Thomas L. Friedman
Daryl L. Marshall Vice President Senior Auditor
Richard D. Gamary Vice President
Wide Area Network Officer Sarah E. Howes William F. Haldi
Kevin W. Nelson Marketing Officer Auditor
RETAIL SALES AND SERVICE/ Assistant Vice President
BUSINESS DEVELOPMENT Constance M. West
Derek G. Williams Deborah A. Davis Direct Marketing Officer
Vice President Collection Officer
Charleen A. Davidson Paul E. Ibsen
Assistant Vice President Consumer Loan Officer
Business Development Officer
</TABLE>
<PAGE> 15
BANKING CENTERS
<TABLE>
<CAPTION>
CANTON ALLIANCE MASSILLON
<S> <C> <C>
United Bank Plaza Office Mount Union Office Downtown Office
Julie A. Schlemmer Velma A. Traphagen Jayne A. Fererro
Sales and Service Officer Assistant Vice President Sales and Service Officer
Sales and Service Officer
Rotunda Office Amherst Office
Karen J. Mathes BEACH CITY Regina L. Kinlow-Thompson
Sales and Service Officer Sales and Service Manager
Beach City Office
Raff/West Tusc. Office Ruth M. Wisselgren Perry Office
Dan M. Friedman Assistant Vice President Ruth A. Patterson
Assistant Vice President Sales and Service Officer Sales and Service Manager
Sales and Service Officer
BREWSTER Wales Square Office
Belden Village Office Regina L. Kinlow-Thompson
Scott H. Berkeley Brewster Office Sales and Service Manager
Sales and Service Officer Ruth M. Wisselgren
Assistant Vice President NORTH CANTON
Hillsdale Office Sales and Service Officer
Terri L. King North Canton Office
Sales and Service Officer CANAL FULTON Peggy J. Leno
Sales and Service Officer
Lake Cable Office Canal Fulton Office
Patricia A. Hoopes Deborah J. Miller UNIONTOWN
Assistant Vice President Sales and Service Officer
Sales and Service Officer Uniontown Office
HARTVILLE Joyce A. Midkiff
34th & Cleveland Office Sales and Service Manager
Susan L. Kraus Hartville Office
Sales and Service Officer Toni L. Kutz
Sales and Service Officer
MANCHESTER
Manchester Office
Deborah J. Miller
Sales and Service Officer
</TABLE>
<PAGE> 16
REPORT OF
MANAGEMENT
The Management of UNB Corp. is responsible for the preparation, accuracy and
fair presentation of the financial statements and related information presented
in the Annual Report.
The Corporation maintains a system of internal controls designed to provide
reasonable assurance that assets are safeguarded. These controls include written
policies and procedures which establish and maintain effective internal controls
through proper delegation of authority and division of responsibility, proper
recording of transactions and fair presentation of financial results in
accordance with generally accepted accounting principles. These systems of
controls are reviewed by our internal auditors and independent auditors who have
free access to the Audit Committee.
Management assessed the Corporation's internal control structure and believes
that the system provides reasonable assurances that financial transactions are
recorded properly, and that the Corporation is in compliance with federal and
state laws and regulations as well as safety and soundness laws and regulations.
/s/ Robert L. Mang
Robert L. Mang
President and Chief Executive Officer
UNB Corp. and United National Bank & Trust Co.
/s/ Charles J. Berry
Charles J. Berry
Senior Vice President and Chief Financial Officer
United National Bank & Trust Co.
REPORT OF
INDEPENDENT
AUDITORS
Board of Directors and Shareholders
UNB Corp. [CROWE CHIZEK LOGO]
Canton, Ohio
We have audited the accompanying consolidated balance sheets of UNB Corp. as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with general accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of UNB Corp. as of December 31, 1996
and 1995, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note 1, the Corporation changed its method of accounting
for impaired loans in 1995 to comply with new accounting guidance.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Cleveland, Ohio
January 23, 1997
<PAGE> 17
Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1996 and 1995 1996 1995
- -------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents (Note 14) $ 34,762,137 $ 31,735,149
Federal funds sold 6,800,000 4,300,000
Interest bearing deposits with banks 156,867 514,509
Securities (Fair value:
1996 - $89,995,803; 1995 - $65,115,982) (Note 3) 89,979,291 65,129,167
Mortgage-backed securities (Fair value:
1996 - $43,057,869; 1995 - $63,398,898) (Note 3) 42,907,085 63,087,098
Loans:
Total loans (Notes 4 and 9) 617,601,749 518,729,789
Less allowance for loan losses (Note 5) (8,334,899) (7,242,003)
- -------------------------------------------------------------------------------------------
Net loans 609,266,850 511,487,786
Premises and equipment, net (Note 6) 10,043,636 8,810,551
Intangible assets (Note 2) 6,353,328 7,376,421
Accrued interest receivable and other assets 9,709,726 7,203,156
- -------------------------------------------------------------------------------------------
TOTAL ASSETS $ 809,978,920 $ 699,643,837
===========================================================================================
LIABILITIES
Deposits:
Noninterest bearing demand deposits $ 81,554,075 $ 73,707,817
Interest bearing deposits (Note 7) 519,109,927 473,479,343
- -------------------------------------------------------------------------------------------
Total deposits 600,664,002 547,187,160
Short-term borrowings (Note 8) 68,407,783 49,659,159
FHLB advances (Note 9) 62,603,188 31,360,000
Accrued taxes, expenses, and other liabilities 6,969,807 6,110,635
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES 738,644,780 634,316,954
===========================================================================================
Commitments and contingencies (Note 14)
SHAREHOLDERS' EQUITY (Note 1)
Common stock - $1.00 stated value, 15,000,000 shares
authorized; 5,785,605 and 2,873,977 shares issued and
outstanding at December 31, 1996 and 1995, respectively 5,785,605 2,873,977
Paid-in capital 32,497,228 31,603,160
Retained earnings 31,878,579 30,004,825
Unrealized gain on securities available for sale, net 1,172,728 844,921
- -------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 71,334,140 65,326,883
- -------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 809,978,920 $ 699,643,837
===========================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 18
17
<TABLE>
<CAPTION>
Consolidated Statements of Income
For the three years ended December 31, 1996 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
Taxable $50,950,925 $41,217,982 $31,476,499
Tax-exempt 225,456 274,256 304,755
Interest and dividends on investments
and mortgage-backed securities:
Taxable 7,341,251 7,561,905 5,275,683
Tax-exempt 58,215 142,382 199,014
Interest on deposits with banks 110,217 100,957 290,471
Interest on federal funds sold 503,112 461,175 153,153
- ----------------------------------------------------------------------------------------------
Total interest income 59,189,176 49,758,657 37,699,575
- ----------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits (Note 7) 21,437,683 17,534,235 11,617,580
Interest on short-term borrowings 2,784,428 2,233,608 1,018,039
Interest on FHLB advances 3,604,086 2,037,668 872,537
- ----------------------------------------------------------------------------------------------
Total interest expense 27,826,197 21,805,511 13,508,156
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME 31,362,979 27,953,146 24,191,419
PROVISION FOR LOAN LOSSES (NOTE 5) 3,140,000 1,750,000 1,020,000
- ----------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 28,222,979 26,203,146 23,171,419
OTHER INCOME:
Service charges on deposits 2,377,883 2,367,481 2,420,938
Trust department income 2,713,977 2,508,601 2,162,962
Other operating income 896,901 667,627 817,067
Gains on loans originated for resale -- 67,087 38,031
Investment securities gains, net 368,693 6,189 204,804
- ----------------------------------------------------------------------------------------------
Total other income 6,357,454 5,616,985 5,643,802
- ----------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and wages 8,632,002 8,013,393 7,533,070
Retirement and other employee benefits (Note 10) 2,173,761 2,130,255 1,643,954
Occupancy expense 1,169,969 1,213,108 1,125,680
Equipment expense 2,595,030 2,225,466 1,976,455
Other operating expenses (Note 12) 7,581,789 7,072,953 6,531,085
- ----------------------------------------------------------------------------------------------
Total other expenses 22,152,551 20,655,175 18,810,244
- ----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 12,427,882 11,164,956 10,004,977
PROVISION FOR INCOME TAXES (NOTE 13) 4,273,209 3,785,490 3,376,888
- ----------------------------------------------------------------------------------------------
NET INCOME $ 8,154,673 $ 7,379,466 $ 6,628,089
==============================================================================================
EARNINGS PER COMMON SHARE (NOTE 1):
Primary $ 1.38 $ 1.26 $ 1.16
Fully diluted $ 1.38 $ 1.26 $ 1.11
==============================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
For the three years ended December 31, 1996
Unrealized
Gain/(Loss)
on Securities Total
Common Paid-in Retained Available Shareholders'
Stock Capital Earnings for Sale Equity
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $ 2,833,634 $ 30,511,161 $21,756,351 $ 604,887 $55,706,033
Net income for year 6,628,089 6,628,089
Cash dividends ($0.48 per share) (2,742,404) (2,742,404)
Shares issued through dividend
reinvestment plan 22,595 716,453 739,048
Stock options exercised 2,906 26,094 29,000
Stock issued for benefit plans 11,248 314,944 326,192
Change in unrealized gain (loss) on
securities available for sale (2,045,516) (2,045,516)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 2,870,383 31,568,652 25,642,036 (1,440,629) 58,640,442
Net income for year 7,379,466 7,379,466
Cash dividends ($0.525 per share) (3,016,677) (3,016,677)
Stock options exercised 3,594 34,508 38,102
Change in unrealized gain (loss) on
securities available for sale 2,285,550 2,285,550
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 2,873,977 31,603,160 30,004,825 844,921 65,326,883
Net income for year 8,154,673 8,154,673
100% stock dividend 2,880,856 (2,880,856)
Cash dividends ($0.59 per share) (3,400,063) (3,400,063)
Shares issued through dividend
reinvestment plan 27,908 870,529 898,437
Stock options exercised 2,864 23,539 26,403
Change in unrealized gain (loss) on
securities available for sale 327,807 327,807
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ 5,785,605 $ 32,497,228 $31,878,579 $ 1,172,728 $71,334,140
=================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 20
19
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
For the three years ended December 31, 1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,154,673 $ 7,379,466 $ 6,628,089
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 779,836 789,359 636,647
Provision for loan losses 3,140,000 1,750,000 1,020,000
Net securities gains (368,693) (6,189) (204,804)
Net accretion on securities (289,944) (461,821) (90,869)
Amortization of intangible assets 1,023,093 1,094,337 641,665
Deferred income tax benefit (784,833) (309,785) (43,127)
Net change in loans held for sale -- 211,287 3,414,012
Changes in:
Interest receivable (59,480) (505,356) (812,429)
Interest payable 414,052 1,017,789 145,706
Other assets and liabilities, net (1,380,552) 627,463 655,922
Deferred income (5,455) (5,464) 11,294
- -------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 10,622,697 11,581,086 12,002,106
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net change in interest bearing deposits with banks 357,642 (347,140) 3,613,954
Net change in federal funds sold (2,500,000) (3,700,000) 200,000
Investment and mortgage-backed securities:
Proceeds from sales of securities available for sale 14,008,834 4,722,672 3,272,621
Proceeds from maturities of securities held to maturity 22,034,928 38,952,889 17,250,053
Proceeds from maturities of securities available for sale 32,977,573 30,133,841 20,373,878
Purchases of securities held to maturity (20,902,968) (38,258,110) (52,024,592)
Purchases of securities available for sale (81,296,813) (32,273,495) (48,065,388)
Principal payments received on
mortgage-backed securities held to maturity 9,250,128 7,819,035 1,171,428
Principal payments received on
mortgage-backed securities available for sale 20,413,521 4,126,844 15,085,208
Net increase in loans made to customers (98,817,445) (103,205,753) (60,188,481)
Loans purchased (2,251,100) (4,065,650) (399,700)
Purchases of premises and equipment, net (2,012,921) (1,002,580) (698,290)
Purchases of assets to be leased -- -- (193,958)
Principal payments received under leases 149,481 140,539 145,935
- -------------------------------------------------------------------------------------------------------------------
Net cash from investing activities (108,589,140) (96,956,908) (100,457,332)
- -------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 53,476,842 60,416,645 13,536,682
Cash and cash equivalents received in
assumption of deposits, net of assets acquired (Note 2) -- -- 63,517,056
Cash dividends paid, net of shares issued
through dividend reinvestment (2,501,626) (3,016,677) (2,003,356)
Proceeds from issuance of stock 26,403 38,102 355,192
Net increase in short-term borrowings 18,748,624 14,762,217 8,568,157
Proceeds from FHLB advances 47,000,000 25,000,000 28,345,000
Repayments of FHLB advances (15,756,812) (10,300,000) (20,505,000)
- -------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 100,993,431 86,900,287 91,813,731
- -------------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,026,988 1,524,465 3,358,505
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,735,149 30,210,684 26,852,179
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 34,762,137 $ 31,735,149 $ 30,210,684
===================================================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE> 21
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of UNB Corp. (Corporation) and its wholly owned subsidiaries, the
United National Bank & Trust Company (Bank), 620 Market Community Urban
Development Corp. and United Credit Life Insurance Company. All significant
intercompany balances and transactions have been eliminated in consolidation.
INDUSTRY SEGMENT INFORMATION: UNBCorp. is a bank holding company engaged in
the business of commercial and retail banking and trust and investment services,
with operations conducted through its main office and branches located
throughout Stark and southern Summit Counties of Ohio. The majority of the
Corporation's income is derived from commercial and retail business lending
activities and investments.
CASH AND CASH EQUIVALENTS: Cash equivalents include cash and noninterest
bearing deposits with banks. UNB Corp. reports net cash flows for interest
bearing deposits with banks, federal funds sold, customer loan transactions,
deposit transactions and short-term borrowings.
For the years ended December 31, 1996, 1995 and 1994, the Corporation paid
interest of $27,412,145, $20,787,722 and $13,362,450, respectively, and income
taxes of $5,110,000, $4,290,000 and $3,560,250, respectively.
INVESTMENT AND MORTGAGE-BACKED SECURITIES: The Corporation classifies debt
and equity securities as held to maturity, available for sale or trading.
Securities classified as held to maturity are those that management has the
positive intent and ability to hold to maturity. Securities classified as
available for sale are those that management intends to sell or that could be
sold for liquidity, investment management, or similar reasons, even if there is
not a present intention for such a sale. Trading securities are purchased
principally for sale in the near term and are reported at fair value with
unrealized gains and losses included in earnings. During 1996 and 1995, the
Corporation held no trading securities.
Securities held to maturity are stated at cost, adjusted for amortization
of premiums and accretion of discounts. Securities available for sale are
carried at fair value with unrealized gains and losses included as a separate
component of shareholders' equity, net of tax. Gains or losses on dispositions
are based on net proceeds and the adjusted carrying amount of securities sold,
using the specific identification method.
LOANS HELD FOR SALE: Residential mortgage loans originated by the Bank and
intended for sale in the secondary market are carried at the lower of cost or
estimated market value in the aggregate. Net unrealized losses are recognized in
a valuation allowance by charges to income. To mitigate interest rate risk, the
Bank generally obtains fixed price commitments on loans held for sale. The Bank
retains the servicing rights on loans sold and incurs no recourse obligation in
connection with the loan sales or servicing activities.
SERVICING RIGHTS: Prior to adopting Financial Accounting Standard (SFAS)
No. 122 at the start of 1996, servicing right assets were recorded only for
purchased rights to service mortgage loans. Subsequent to adopting this
standard, servicing rights represent both purchased rights and the allocated
value of servicing rights retained on loans sold. Servicing rights are expensed
in proportion to, and over the period of, estimated net servicing revenues.
Impairment is evaluated based on the fair value of the rights, using groupings
of the underlying loans as to interest rates and then, secondarily, as to
geographic and prepayment characteristics. Any impairment of a grouping is
reported as a valuation allowance.
Excess servicing receivable is reported when a loan sale results in
servicing in excess of normal amounts, and is expensed over the life of the
servicing on the interest method.
ALLOWANCE FOR LOAN LOSSES: Because some loans may not be repaid in full, an
allowance for loan losses is recorded. This allowance is increased by provisions
charged to earnings and is reduced by loan charge-offs, net of recoveries.
Estimating the risk of loss on any loan is necessarily subjective. Accordingly,
the allowance is maintained by Management at a level considered adequate to
cover possible losses that are currently anticipated based on Management's
evaluation of several key factors including information about specific borrower
situations, their financial position and collateral values, current economic
conditions, changes in the mix and levels of the various types of loans, past
charge-off experience and other pertinent information. While Management may
periodically allocate portions of the allowance for specific problem situations,
the entire allowance is available for any charge-offs that occur. Charge-offs
are made against the allowance for loan losses when Management concludes that
loan amounts are likely to be uncollectible. After a loan is charged-off,
collection efforts continue and future recoveries may occur.
SFAS Nos. 114 and 118 were adopted January 1, 1995 and require recognition
of loan impairment. Loans are considered impaired if full principal or interest
payments are not anticipated. Impaired loans are carried at the present value of
expected cash flows discounted at the loan's effective interest rate or at the
fair value of the collateral if the loan is collateral dependent. A portion of
the allowance for loan losses is allocated to impaired loans. The effect of
adopting these standards is included in the 1995 and 1996 provision for loan
losses, and was not material.
Management analyzes loans on an individual basis and classifies a loan as
impaired when an analysis of the borrower's operating results and financial
condition indicates that underlying cash flows are not adequate to meet its debt
service requirements. Often this is associated with a delay or shortfall in
payments of 30 days or more. Smaller-balance homogeneous loans are evaluated for
impairment in total. Such loans include residential first mortgage loans secured
by one-to four-family residences, residential construction loans and consumer
automobile, boat, home equity and credit card loans with balances less than
$300,000. In addition, loans held for sale and leases are excluded from
consideration as impaired. Loans are generally moved to nonaccrual status when
90 days or more past due. These loans are often also considered impaired.
Impaired loans, or portions thereof, are charged off when deemed uncollectible.
The nature of disclosures for impaired loans is considered generally comparable
to prior nonaccrual and renegotiated loans and non-performing and past-due asset
disclosures.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
calculated over the estimated useful lives of the assets, limited in the case of
leasehold improvements to the lease terms, or useful lives, whichever is less,
using primarily the straight-line method. Maintenance and repairs are charged to
expense as incurred and major improvements are capitalized.
<PAGE> 22
21
OTHER REAL ESTATE: Other real estate owned is included in other assets on
the consolidated balance sheets at the lower of cost or fair value, less
estimated costs to sell. Any reduction in fair value is reflected in a valuation
allowance account established by a charge to income. Costs incurred to carry the
real estate are charged to expense. Other real estate, net of the valuation
reserve totaled $529,841 and $325,000 at December 31, 1996 and 1995,
respectively.
GOODWILL AND IDENTIFIED INTANGIBLES: Goodwill is the excess of purchase
price over identified net assets in business acquisitions. Goodwill is expensed
on the straight-line method over no more than 10 years. Identified intangibles
represent the value of depositor relationships purchased and are expensed on
accelerated methods over 8 to 10 years. Goodwill and identified intangibles are
assessed for impairment based on estimated undiscounted cash flows, and written
down if necessary.
INTEREST AND FEES ON LOANS: Interest income on loans is accrued primarily
over the term of the loans based on the principal balances of loans out
standing. Loan origination fees and certain direct origination costs are
deferred and amortized over the contractual life of the related loan using the
level yield method. The net amount of fees and costs deferred is reported in the
consolidated balance sheets as a part of loans.
The accrual of interest on loans is suspended when, in Management's
opinion, the collection of all or a portion of the loan principal has become
doubtful. When a loan is placed on non-accrual status, accrued and unpaid
interest at risk is charged against income. Payments received on non-accrual
loans are applied against principal until recovery of the remaining balance is
reasonably assured. The carrying value of loans classified as impaired is
periodically adjusted to reflect cash payments, revised estimates of future cash
flows and increases in the present value of expected cash flows due to the
passage of time. Cash payments representing interest income are reported as such
and other cash payments are reported as reductions in carrying value. Increases
or decreases in carrying value due to changes in estimates of future payments or
the passage of time are reported as reductions or increases in the provision for
loan losses.
FEDERAL INCOME TAXES: Income tax expense is the sum of the current year
income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of assets and liabilities, computed using enacted tax rates. A valuation
allowance, if needed, reduces deferred tax assets to the amount expected to be
realized.
CONCENTRATIONS OF CREDIT RISK: The Corporation, through its subsidiary
Bank, grants residential, consumer, and commercial financing to customers
located primarily in Stark County. Commercial loans, commercial real estate
loans, mortgage loans and consumer loans and leases comprise 12.6%, 10.7%, 39.3%
and 37.4% of total loans, respectively at December 31, 1996. Indirect loans
accounted for 79.0% of consumer loans at December 31, 1996.
EARNINGS AND DIVIDENDS PER SHARE: Primary and fully diluted earnings per
share are computed based on the weighted average shares outstanding during the
period. Primary earnings per common share has been computed assuming the
exercise of stock options less the treasury shares assumed to be purchased from
the proceeds using the average market price of UNB Corp.'s stock for the years
presented. Fully diluted earnings per common share represents the additional
dilution related to the stock options due to the use of the market price as of
the year-end.
The primary weighted average shares were 5,909,157, 5,857,444 and 5,712,342
for 1996, 1995 and 1994, respectively. Fully diluted weighted average shares
were 5,927,146, 5,872,538 and 5,977,696 for 1996, 1995 and 1994, respectively.
The Corporation declared a 100% stock dividend in 1996 which was recorded
by a transfer, equal to the stated value of the shares issued, from retained
earnings to common stock. All per share data has been adjusted for the stock
dividend.
STOCK OPTIONS: The excess of the option price over the par value of the
shares issued is added to paid-in capital when exercised. Any tax benefit
realized by the Corporation from the exercise of non-qualified stock options is
added to paid-in capital.
Expense for employee compensation under stock option plans is based on APB
No. 25, with expense reported only if options are granted below market price at
grant date. Pro forma disclosures of net income and earnings per share are
provided as if the fair value method of SFAS No. 123 were used for stock-based
compensation.
DIVIDEND REINVESTMENT PLAN: The dividend reinvestment plan, effective March
30, 1989, authorized the sale of 578,812 shares of the Corporation's authorized
but previously unissued common shares to shareholders who choose to invest all
or a portion of their cash dividends. Shares totalling 33,385 and 45,190 were
issued by the Corporation pursuant to the plan in 1996 and 1994, respectively,
after giving effect to the 1996 stock dividend. In 1995, stock was purchased in
the open market at the current market price. The shares issued were purchased
from the Corporation with reinvested dividends at the current market price,
which was the average of the closing bid and asked prices for the last business
day immediately preceding the purchase date. The number of shares has been
adjusted to reflect the 1996 stock dividend.
TRUST DEPARTMENT ASSETS AND INCOME: Property held by the Corporation in a
fiduciary or other capacity for its trust customers is not included in the
accompanying consolidated financial statements since such items are not assets
of the Corporation. Income from the Trust Department is reported on the accrual
basis of accounting.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS: Management must
make estimates and assumptions in preparing the consolidated financial
statements that affect the amounts reported and the disclosures provided. These
estimates and assumptions may change in the future and future results could
differ.
Areas involving the use of Management's estimates and assumptions include
the allowance for loan losses, the realization of deferred tax assets, fair
value of certain securities, the determination and carrying value of impaired
loans, the post retirement benefit obligation, the determination of
other-than-temporary reductions in the fair value of securities, depreciation of
premises and equipment, the carrying value and amortization of intangibles, the
fair value of financial instruments, the actuarial present value of pension
benefit obligations and the net periodic pension expense and prepaid pension
costs recognized in the Corporation's consolidated financial statements.
Estimates that are more susceptible to change in the near term include the
allowance for loan losses and the fair value of certain securities.
<PAGE> 23
FAIR VALUES OF FINANCIAL INSTRUMENTS: Fair values of financial instruments
are estimated using relevant market information and other assumptions, as more
fully disclosed separately. Fair value estimates involve uncertainties and
matters of significant judgment regarding interest rates, credit risk,
prepayments, and other factors, especially in the absence of broad markets for
particular items. Changes in assumptions or in market conditions could
significantly affect the estimates. The fair value estimates of existing on- and
off-balance sheet financial instruments do not include the value of anticipated
future business or the values of assets and liabilities not considered financial
instruments.
FINANCIAL STATEMENT PRESENTATION: Certain previously reported consolidated
financial statement amounts have been reclassified to conform to the 1996
presentation.
NOTE 2 - ACQUISITIONS AND INTANGIBLE ASSETS
Effective September 16, 1994, the Bank acquired from the Resolution Trust
Corporation (RTC) certain assets and assumed certain deposits and other
liabilities of the former Transohio Federal Savings Bank, (Transohio),
headquartered in Cleveland, Ohio, in accordance with a purchase and assumption
agreement of the same date.
The Transohio acquisition has been accounted for using the purchase method
of accounting. Accordingly, the assets acquired and liabilities assumed have
been recorded based on their estimated fair market values at the date of
acquisition. A summary of assets acquired and liabilities assumed follows:
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents received $ 375,000
Premises and equipment 224,000
Accrued interest receivable and other assets 2,000
Funds receivable from Resolution Trust Corporation 63,142,000
Intangible assets/purchase premium paid 6,630,000
- ----------------------------------------------------------------
Total Assets $70,373,000
================================================================
Deposit liabilities $69,244,000
Accrued interest payable and other liabilities 1,129,000
================================================================
Total Liabilities $70,373,000
================================================================
</TABLE>
The effect of the Transohio acquisition is included in the results of
operations prospectively from the date of acquisition. The pro forma effect of
this acquisition on prior periods is not shown herein due to a lack of
continuity of operations and the fact that the assistance received by Transohio
from the RTC reduces the relevance of past information.
The intangible assets arising from acquisitions and included in intangible
assets in the accompanying consolidated balance sheets are summarized as follows
at December 31, net of accumulated amortization:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------
<S> <C> <C>
Core deposit intangible $1,888,042 $2,262,062
Goodwill 4,465,286 5,114,359
- ---------------------------------------------------
Total intangible assets $6,353,328 $7,376,421
===================================================
</TABLE>
Amortization expense for intangible assets totaled $1,023,095, $1,094,337,
and $641,665 in 1996, 1995, and 1994, respectively.
NOTE 3 - SECURITIES
The amortized cost and estimated fair value of investment and
mortgage-backed securities available for sale and held to maturity, as presented
in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities $ 23,061,844 $ 64,622 $ (40,957) $ 23,085,509
Obligations of U.S. government agencies
and corporations 52,366,026 50,039 (44,578) 52,371,487
Securities held to maturity:
U.S. Treasury securities 360,284 4,644 -- 364,928
Obligations of state and political subdivisions 1,050,725 4,439 -- 1,055,164
Corporate bonds and other debt securities 826,211 7,429 -- 833,640
- ---------------------------------------------------------------------------------------------------------------
Total debt securities 77,665,090 131,173 (85,535) 77,710,728
Equity securities available for sale 10,513,891 1,771,184 -- 12,285,075
- ---------------------------------------------------------------------------------------------------------------
Total investment securities 88,178,981 1,902,357 (85,535) 89,995,803
Mortgage-backed securities available for sale 29,430,676 89,018 (112,468) 29,407,226
Mortgage-backed securities held to maturity 13,499,859 150,784 -- 13,650,643
- ---------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 42,930,535 239,802 (112,468) 43,057,869
- ---------------------------------------------------------------------------------------------------------------
Total investment and mortgage-backed securities $131,109,516 $2,142,159 $(198,003) $133,053,672
===============================================================================================================
</TABLE>
<PAGE> 24
23
<TABLE>
<CAPTION>
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities available for sale:
U.S. Treasury securities $ 22,093,333 $ 111,329 $ (33,222) $ 22,171,440
Obligations of U.S. government agencies
and corporations 28,965,997 72,388 (225,932) 28,812,453
Securities held to maturity:
Obligations of U.S. government agencies
and corporations 3,007,410 -- (3,124) 3,004,286
Obligations of state and political subdivisions 1,237,673 5,828 -- 1,243,501
Corporate bonds and other debt securities 2,130,532 9,541 (25,430) 2,114,643
- ---------------------------------------------------------------------------------------------------------------
Total debt securities 57,434,945 199,086 (287,708) 57,346,323
Equity securities available for sale 6,275,302 1,494,357 -- 7,769,659
- ---------------------------------------------------------------------------------------------------------------
Total investment securities 63,710,247 1,693,443 (287,708) 65,115,982
Mortgage-backed securities available for sale 40,496,523 139,201 (277,935) 40,357,789
Mortgage-backed securities held to maturity 22,729,309 319,271 (7,471) 23,041,109
- ---------------------------------------------------------------------------------------------------------------
Total mortgage-backed securities 63,225,832 458,472 (285,406) 63,398,898
- ---------------------------------------------------------------------------------------------------------------
Total investment and mortgage-backed securities $126,936,079 $2,151,915 $(573,114) $128,514,880
===============================================================================================================
</TABLE>
Mortgage-backed securities consist of fixed and variable rate CMOs and
government guaranteed mortgage-backed securities issued by FHLMC, FNMA, and
GNMA. CMOs totaled $30,206,776 and $56,411,659 and government guaranteed
mortgage-backed securities totaled $12,700,309 and $6,675,439 at December 31,
1996 and 1995, respectively.
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996
Estimated Weighted
Amortized Fair Average
Cost Value Yield
<S> <C> <C> <C>
- -----------------------------------------------------------------
Securities available for sale:
U.S. Treasuries
Due in one year or less $ 9,003,031 $ 9,011,353 5.73%
Due after one year
through five years 14,058,813 14,074,156 5.88
- -----------------------------------------------------------------
Total 23,061,844 23,085,509 5.82
- -----------------------------------------------------------------
U.S. government agencies
and corporations
Due in one year or less 49,366,026 49,347,126 5.57
Due after one year
through five years 3,000,000 3,024,361 6.90
- -----------------------------------------------------------------
Total 52,366,026 52,371,487 5.65
- -----------------------------------------------------------------
Total securities
available for sale $75,427,870 $75,456,996 5.70%
=================================================================
Securities held to maturity:
U.S. Treasuries
Due in one year or less $ 360,284 $ 364,928 5.03%
- -----------------------------------------------------------------
Total 360,284 364,928 5.03
- -----------------------------------------------------------------
Obligations of state and
political subdivisions
Due in one year or less $ 745,725 $ 747,392 4.32%
Due after one year
through five years 305,000 307,772 4.65
- -----------------------------------------------------------------
Total 1,050,725 1,055,164 4.42
- -----------------------------------------------------------------
Corporate bonds and other
debt securities
Due in one year or less 82,313 82,313 --
Due after one year
through five years 743,898 751,327 8.44
- -----------------------------------------------------------------
Total 826,211 833,640 7.60
- -----------------------------------------------------------------
Total securities
held to maturity $ 2,237,220 $ 2,253,732 5.69%
=================================================================
Mortgage-backed
and collateralized
mortgage obligations
available for sale $29,430,676 $29,407,226 5.78%
- -----------------------------------------------------------------
Mortgage-backed and
collateralized mortgage
obligations held
to maturity 13,499,859 13,650,643 7.50
- -----------------------------------------------------------------
Total mortgage-backed
and debt securities $42,930,535 $43,057,869 6.32%
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Sales of available for sale securities were as follows:
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Debt and mortgage-backed securities:
Proceeds $13,238,764 $4,722,672 $3,020,246
Gross gains 2,183 6,189 4,309
Gross losses 94,860 -- --
Equity Securities:
Proceeds $ 770,070 -- $ 252,375
Gross gains 461,370 -- 200,495
</TABLE>
<PAGE> 25
At December 31, 1996, there were no holdings of securities of any one
issuer, other than the U.S. government and its agencies and corporations, in an
amount greater than 10% of shareholders' equity.
Investments with a carrying value of approximately $93.7 million and $84.6
million as of December 31, 1996 and 1995, respectively, were pledged to secure
public funds or other obligations.
NOTE 4 - LOANS
Loans are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Commercial, financial
and agricultural $ 78,292,700 $ 64,810,976
Commercial real estate 65,874,692 60,478,074
Real estate 242,652,354 172,282,619
Consumer 230,782,003 221,158,120
- ---------------------------------------------------------------
Total loans $617,601,749 $518,729,789
===============================================================
</TABLE>
Impaired loans were as follows:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------
<S> <C> <C>
Year-end loans with no
allowance for loan losses
allocated $ 63,135 $378,693
Year-end loans with allowance
for loan losses allocated 204,925 187,576
Amount of
allowance allocated 135,000 187,576
- ---------------------------------------------------
Average of impaired loans
during the year $309,089 $603,068
Interest income recognized
during impairment 28,319 53,130
Cash-basis interest
income recognized 28,230 52,300
</TABLE>
Loans with carrying values of $213,700 were transferred to foreclosed real
estate in 1996. No loans were transferred to foreclosed real estate in 1995.
Certain directors, executive officers and principal shareholders of UNB
Corp. and its subsidiaries were loan customers of the subsidiary bank. A summary
of aggregate related party loan activity, for loans aggregating $60,000 or more
to any one related party, is as follows for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 8,417,000 $ 12,492,000
New loans 7,290,000 1,639,000
Repayments (1,572,000) (5,714,000)
- ---------------------------------------------------
Balance, December 31 $ 14,135,000 $ 8,417,000
===================================================
</TABLE>
NOTE 5 - ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the years ended December
31, are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1 $ 7,242,003 $ 6,348,219 $ 6,055,843
Provision charged
to expense 3,140,000 1,750,000 1,020,000
Loans charged off (3,161,720) (1,558,440) (1,162,972)
Recoveries on
loans previously
charged off 1,114,616 702,224 435,348
- ----------------------------------------------------------------
Balance at
end of year $ 8,334,899 $ 7,242,003 $ 6,348,219
================================================================
</TABLE>
NOTE 6 - PREMISES AND EQUIPMENT
The components of premises and equipment at December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Land $ 1,752,363 $ 1,766,353
Buildings 5,388,182 5,639,090
Furniture and fixtures 8,474,204 6,423,172
Leasehold improvements 1,308,192 1,294,017
- --------------------------------------------------------------
Total premises and
equipment 16,922,941 15,122,632
Accumulated depreciation
and amortization (6,879,305) (6,312,081)
- --------------------------------------------------------------
Premises and
equipment, net $ 10,043,636 $ 8,810,551
==============================================================
</TABLE>
At December 31, 1996, the Corporation was obligated for the next five years
for rental commitments under non-cancelable operating leases on the main and
branch offices and equipment as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $1,449,921
1998 1,359,361
1999 1,365,446
2000 934,888
2001 423,530
- --------------------------------------------------------------
Total $5,533,146
==============================================================
</TABLE>
Rental expense amounted to approximately $1,465,000, $1,043,000 and $943,000
in 1996, 1995 and 1994, respectively.
NOTE 7 - INTEREST BEARING DEPOSITS
Total interest bearing deposits as presented on the consolidated balance
sheets are comprised of the following classifications:
<TABLE>
<CAPTION>
December 31,
1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Interest bearing demand $ 73,153,887 $ 74,201,892
Savings 168,832,823 151,069,955
Time:
In denominations
under $100,000 240,644,107 212,828,971
In denominations of
$100,000 or more 36,479,110 35,378,525
- ---------------------------------------------------------------
Total interest bearing
deposits $ 519,109,927 $ 473,479,343
===============================================================
</TABLE>
<PAGE> 26
25
At year-end 1996, stated maturities of time deposits with a remaining term
greater than one year were:
<TABLE>
<CAPTION>
<S> <C>
1997 $173,740,083
1998 45,428,650
1999 19,900,481
2000 20,628,843
2001 15,598,676
Thereafter 1,826,484
- --------------------------------------------------------------
Total $277,123,217
==============================================================
</TABLE>
Related party deposits totaled $2,430,410 at year-end 1996.
Interest expense on deposits is summarized below:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest bearing
demand $ 1,408,767 $ 1,316,274 $ 1,274,616
Savings 4,488,018 3,969,075 3,747,474
Time:
In denominations
under $100,000 13,266,050 10,681,937 5,977,108
In denominations of
$100,000 or more 2,274,848 1,566,949 618,382
- ---------------------------------------------------------------
Total interest
on deposits $21,437,683 $17,534,235 $11,617,580
===============================================================
</TABLE>
NOTE 8 - SHORT-TERM BORROWINGS
Federal funds purchased, securities sold under agreements to repurchase,
and treasury tax and loan deposits are financing arrangements. Physical control
is maintained for securities sold under repurchase agreements. Information
concerning all short term borrowings is summarized as follows, at December 31:
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------
<S> <C> <C>
Securities sold under
repurchase agreements $61,618,339 $44,372,238
Federal funds purchased 1,628,000 1,451,000
U.S. Treasury tax and
loan notes 5,161,444 3,835,921
- -----------------------------------------------------------
Total short-term
borrowings $68,407,783 $49,659,159
===========================================================
Weighted average interest
rate at period end 4.9% 5.0%
- -----------------------------------------------------------
Average amount outstanding
during year $58,642,000 $44,852,000
===========================================================
Approximate weighted average
interest rate during the year 4.8% 5.0%
- -----------------------------------------------------------
Maximum amount outstanding
as of any month-end $68,407,783 $50,588,103
===========================================================
</TABLE>
NOTE 9 - FHLB ADVANCES
The Bank has entered into various borrowing agreements with the Federal
Home Loan Bank (FHLB) of Cincinnati. Pursuant to collateral agreements with the
FHLB, advances are secured by all stock invested in the FHLB and qualifying
first mortgage loans. At December 31, 1996, FHLB advances were comprised of the
following:
<TABLE>
<CAPTION>
MATURITY INTEREST RATE AMOUNT
- -------------------------------------------------------------------------
<S> <C> <C>
1997 5.15% - 6.70% $ 7,163,402
1998 5.35% - 7.85% 9,997,849
1999 5.50% - 7.95% 30,348,131
2000 6.00% - 8.00% 11,225,612
2001 6.10% - 6.70% 3,188,194
2002 6.25% 330,000
2003 6.25% 350,000
- -------------------------------------------------------------------------
TOTAL $ 62,603,188
=========================================================================
</TABLE>
NOTE 10 - RETIREMENT PLANS
PENSION PLAN - The Corporation has a noncontributory defined benefit
pension plan covering substantially all of its employees. In general, benefits
are based on years of service and the employee's compensation. The Corporation's
policy is to fund the plan sufficiently to meet the minimum funding requirement
set forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Corporation may determine to be appropriate up to the
maximum amount that can be deducted for federal tax purposes. Contributions are
intended to provide not only for benefits attributed to service date but also
for those expected to be earned in the future. For financial reporting purposes,
pension expense is calculated using the projected unit cost method. The
following table sets forth the plan's funded status and amounts recognized in
the Corporation's consolidated financial statements at December 31,
respectively:
<TABLE>
<CAPTION>
December 31,
1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation,
including vested benefits of
$3,998,421 and $3,445,045 at
December 31, 1996 and 1995,
respectively $ 4,109,732 $ 3,518,992
- -----------------------------------------------------------------
Plan assets at fair value, primarily
U.S. government securities,
corporate bonds and invest-
ment in equity funds 6,260,201 5,191,462
Actuarial present value of
projected benefit obligation
for services rendered to date (6,281,864) (5,423,923)
- -----------------------------------------------------------------
Projected benefit obligation
in excess of plan assets (21,663) (232,461)
Unrecognized net loss 508,291 510,757
Unrecognized transition asset,
net of amortization (78,800) (110,700)
Unrecognized prior service cost 90,834 97,604
- -----------------------------------------------------------------
Prepaid pension asset $ 498,662 $ 265,200
=================================================================
</TABLE>
<PAGE> 27
Net pension expense included the following:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during
the year $ 414,691 $ 371,991 $ 337,877
Interest cost on
benefit obligation 399,106 352,562 362,939
Return on plan assets (829,882) (922,074) 125,516
Net amortization
and deferral 381,011 607,062 (508,135)
- --------------------------------------------------------------
Net pension expense $ 364,926 $ 409,541 $ 318,197
==============================================================
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
Significant assumptions used:
<S> <C> <C> <C>
Discount rate 7.5% 7.5% 7.5%
Rate of increase in
compensation levels 5.0% 5.0% 5.0%
Long-term rate
of return on assets 7.5% 7.5% 7.5%
</TABLE>
PROFIT SHARING PLAN - The UNB Tax-Deferred Savings Plan covers all
qualified employees. The annual plan expense is based upon discretionary
matching of employees' voluntary pre-tax contributions. The Corporation's
contributions are invested in UNB Corp. common stock, and become vested after
three years of service. Employee voluntary contributions are fully vested at all
times. Employee contributions are invested in a money market fund, a balanced
stock and bond fund, or in UNB Corp. common stock based on employee investment
elections. The expense related to this plan totaled $225,000, $219,000 and
$231,000 in 1996, 1995 and 1994, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Corporation sponsors a
defined benefit postretirement medical plan. Employees who retire on or after
completion of 10 years of service and attainment of age 55 are eligible to
receive postretirement medical benefits. The retiree may also receive coverage
for dependents. Prior to the attainment of age 65, coverage is provided under
the Corporation's group major medical insurance plan. At age 65, coverage is
provided under a Medicare supplement plan.
The Corporation's plan is contributory. Retirees under age 65 pay a lower
premium than retirees who have attained age 65.
The following table sets forth the plan's funded status reconciled with the
amounts shown in the Corporation's consolidated balance sheets at December 31:
Accumulated postretirement benefit obligation:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------
<S> <C> <C>
Retirees $ (200,832) $ (238,720)
Fully eligible active
plan participants (336,944) (314,901)
Other active plan participants (1,197,871) (1,020,835)
- --------------------------------------------------------------
Accumulated postretirement
benefit obligation (1,735,647) (1,574,456)
Unrecognized gain (487,934) (539,090)
Unrecognized transition
obligation 1,146,076 1,222,480
- --------------------------------------------------------------
Accrued postretirement
benefit $(1,077,505) $ (891,066)
==============================================================
</TABLE>
Net periodic postretirement benefit expense for 1996, 1995 and 1994 included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
attributed to service
during the period $ 105,577 $ 93,431 $ 82,683
Interest cost on
accumulated postretire-
ment benefit obligation 110,212 100,050 77,908
Amortization of transition
obligation over 20 years 76,404 76,404 76,404
- ---------------------------------------------------------------
Total $ 292,193 $ 269,885 $ 236,995
===============================================================
</TABLE>
Benefit payments of $54,598, $48,317 and $42,759 were made for
postretirement medical benefits in 1996, 1995 and 1994, respectively.
For measurement purposes, a 13% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1996, 1995 and 1994. The
rate was assumed to gradually decrease to 7% after three years in 1996, 7% after
four years in 1995 and 7% after six years in 1994. The health care cost trend
assumption has a significant effect on the amounts reported. An increase in the
assumed health care cost trends rates by 1% in each year would increase the
accumulated postretirement benefit obligation by approximately $226,000 and
$205,000 at December 31, 1996 and 1995, respectively, and the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for the year then ended by approximately $28,000, $25,000 and $23,000 for 1996,
1995 and 1994, respectively.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% at December 31, 1996, 1995 and 1994.
<PAGE> 28
27
NOTE 11 - STOCK OPTION AND PERFORMANCE UNIT PLAN
In 1987, the shareholders approved a Stock Option and Performance Unit Plan
reserving 382,020 shares of common stock, adjusted for stock dividends and
splits, for the granting of options to executive officers and other senior
Management personnel. Options are not exercisable for at least three years from
the date of grant and are not fully exercisable until five years from the date
of grant. The duration of the exercise period is ten years. As such options are
exercised, shareholders' equity will be credited with the proceeds.
SFAS No. 123, which became effective for 1996, requires pro forma
disclosures for companies that do not adopt its fair value accounting method for
stock-based employee compensation. Accordingly, the following pro forma
information presents net income and earnings per share had the Standard's fair
value method been used to measure compensation cost for stock option plans.
Compensation cost actually recognized for stock options was $0 for 1996 and
1995.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------
<S> <C> <C>
Net income as reported $8,154,673 $7,379,466
Pro forma net income 8,124,388 7,362,069
Primary earnings per
share as reported $1.38 $1.26
Pro forma primary
earnings per share 1.38 1.26
Fully diluted earnings
per share as reported 1.38 1.26
Pro forma fully diluted
earnings per share 1.37 1.25
</TABLE>
In future years, the pro forma effect of not applying this standard is
expected to increase as additional options are granted.
<TABLE>
<CAPTION>
Number of Shares
---------------------------------------------
Available Weighted-average Range of Option
for Grant Exercised Outstanding exercise price Price per Share
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 106,284 32,230 243,506 $ 9.55 $ 6.70 $12.00
Granted (23,196) -- 23,196 14.50 14.50 14.50
Exercised -- 6,950 (6,950) 7.13 6.70 8.39
- ---------------------------------------------------------------------------------
Balance, December 31, 1994 83,088 39,180 259,752 10.06 7.02 14.50
Granted (23,844) -- 23,844 19.25 19.25 19.25
Exercised -- 8,388 (8,388) 7.33 7.02 9.53
- ---------------------------------------------------------------------------------
Balance, December 31, 1995 59,244 47,568 275,208 10.94 7.02 19.25
Granted (27,682) -- 27,682 22.00 22.00 22.00
Forfeited 800 -- (800) 22.00 22.00 22.00
Exercised -- 4,700 (4,700) 7.76 7.02 12.00
- ---------------------------------------------------------------------------------
Balance, December 31, 1996 32,362 52,268 297,390 $11.99 $ 7.02 $22.00
=================================================================================
</TABLE>
Options exerciseable at year-end are as follows:
<TABLE>
<CAPTION>
Number Weighted-average
of options Exercise price
- ------------------------------------------------------------
<S> <C> <C>
1994 70,035 $7.42
1995 93,866 7.77
1996 137,156 8.66
============================================================
</TABLE>
The weighted average remaining option life for options outstanding at
year-end 1996 was 5.4 years.
For options granted during 1996, the weighted-average fair values at grant
date are as follows:
<TABLE>
<CAPTION>
Exercise Price Fair value
- ---------------------------------------------------------------
<S> <C> <C>
Options granted at market price $22.00 $2.95
===============================================================
</TABLE>
The fair value of options granted during 1996 and 1995 is estimated using
the following weighted-average information: risk-free interest rate of 5.6% and
8.0%, expected life of 7 years, expected volatility of stock price of 7.8% and
9.3%, and expected dividends of 3.09% and 3.18% per year.
<PAGE> 29
NOTE 12 - OTHER OPERATING EXPENSES
Other operating expenses are summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
FDIC deposit
insurance $ 811,537 $ 691,872 $ 902,432
Ohio franchise and
other taxes 807,530 724,387 691,405
Stationery, supplies
and postage 891,930 1,017,029 908,607
Marketing expense 578,854 573,016 556,842
Contributions 49,658 191,808 55,883
Professional fees 727,242 531,766 366,370
Intangible
amortization 1,023,093 1,094,337 641,665
Other expenses 2,691,945 2,248,738 2,407,881
- -------------------------------------------------------------------------------------
Total other
operating expenses $7,581,789 $7,072,953 $6,531,085
=====================================================================================
</TABLE>
NOTE 13 - INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense $ 5,058,042 $ 4,095,275 $ 3,420,015
Deferred tax benefit (784,833) (309,785) (43,127)
- --------------------------------------------------------------
Total income taxes $ 4,273,209 $ 3,785,490 $ 3,376,888
==============================================================
</TABLE>
The sources of gross deferred tax assets and gross deferred tax liabilities
are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Items giving rise to
deferred tax assets:
Allowance for loan
losses in excess of
tax reserve $ 2,674,769 $ 2,183,861 $ 1,800,426
Deferred loan
fees and costs -- 24,736 91,176
Postretirement benefits 415,000 333,400 255,200
OREO writedown 94,180 94,180 94,180
Unrealized loss on
securities available
for sale -- -- 742,143
Deferred compensation 236,586 111,540 --
Intangible amortization 188,712 104,058 16,478
Other 53,629 28,783 43,552
Items giving rise to
deferred tax liabilities:
Depreciation (804,744) (775,211) (788,503)
Deferred loan
fees and costs (208,424) -- --
Loan basis
from acquisition (340,683) (429,148) (362,745)
FHLB Stock (285,824) (162,234) (61,764)
Unrealized gain
on securities
available for sale (604,132) (435,262) --
Other (93,115) (368,712) (252,532)
- -------------------------------------------------------------------------------------------
Net deferred tax asset $ 1,325,954 $ 709,991 $ 1,577,611
===========================================================================================
</TABLE>
Based on prior taxes paid, the deferred tax asset is more likely than not
to be realized.
The difference between the provision for income taxes and amounts computed
by applying the statutory income tax rate of 34% to income before taxes is as
follows:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes computed
at the statutory tax rate
on pretax income $ 4,225,480 $ 3,796,085 $3,401,692
Add tax effect of:
Tax exempt income (81,910) (123,336) (154,035)
Other 129,639 112,741 129,231
- -------------------------------------------------------------------------------
Total income
taxes $ 4,273,209 $ 3,785,490 $3,376,888
===============================================================================
</TABLE>
Taxes attributable to net securities gains approximated $125,356 in 1996
and $2,104 in 1995 and $69,633 in 1994.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
RESERVE REQUIREMENTS: The Corporation's subsidiary bank is required to
maintain approximately $9.9 million of cash on hand or on deposit with the
Federal Reserve to meet regulatory reserve requirements at December 31, 1996.
These funds do not earn interest.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK: The Corporation is a
party to financial instruments in the normal course of business to meet the
financial needs of its customers. The contract or notional amounts of these
instruments are not included in the consolidated financial statements. The
exposure to credit loss in the event of nonperformance by the other party to the
financial instruments for commitments to make loans is represented by the
contractual amounts of these instruments. The Corporation does not anticipate
any material losses from these transactions. The contract or notional amounts of
these instruments on December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Fixed rate commitments to
extend credit $ 30,954,000 $ 18,259,000
Variable rate commitments
to extend credit 104,168,000 106,570,000
Variable rate standby letters
of credit and financial guarantees 5,974,000 6,362,000
Interest rate swaps -
notional amount 5,150,000 6,625,000
</TABLE>
The amounts above represent contracts entered into by the Corporation, net
of amounts participated to other financial institutions.
The Corporation uses the same credit policies in extending commitments and
letters of credit and financial guarantees as it does for on-balance-sheet
financial instruments. The Corporation controls its exposure to loss from these
agreements through credit approval processes and monitoring procedures. Letters
of credit and commitments to extend credit are generally issued for one year or
less. The total commitment amounts do not necessarily represent future cash
disbursements, as many of the commitments expire without being drawn upon. The
Corporation may require collateral in extending commitments, which may include
cash, accounts receivable, securities, and real or personal property.
<PAGE> 30
29
INTEREST RATE SWAP: The Corporation has entered into an agreement to assume
variable interest payments in exchange for fixed interest payments (interest
rate swaps). The notional amounts of the interest rate swaps do not represent
amounts exchanged by the parties. The amounts exchanged are determined by
reference to the notional amounts and the other terms of the interest rate swap.
The agreement calls for quarterly reductions in the notional amount with a final
expiration of November 26, 2000. Variable interest payments received are based
on the 3 month LIBOR rate which is adjusted on a quarterly basis. The net income
(cost) of this agreement for 1996, 1995 and 1994, was approximately $158,000,
$219,000, and ($152,000), respectively, which was included in income.
CONTINGENCIES: The nature of the Corporation's business results in a
certain amount of litigation. Management, after reviewing with counsel all
actions and proceedings pending against or involving UNB Corp. and its
subsidiaries, considers that the aggregate liability or loss, if any, resulting
from them will not be material to the Corporation's consolidated financial
position.
NOTE 15 - DIVIDEND AND REGULATORY CAPITAL REQUIREMENTS
Dividends paid by the Bank are the primary source of funds available to the
Corporation for payment of dividends to shareholders and for other working
capital needs. The payment of dividends by the subsidiary bank to the
Corporation is subject to restrictions by regulatory authorities. These
restrictions generally limit dividends to the current and prior two year's
retained earnings. At December 31, 1996, approximately $1,055,074 of the Bank's
retained earnings were available for dividends to the Corporation under these
guidelines. In addition to these restrictions, as a practical matter, dividend
payments cannot reduce regulatory capital levels below the Corporation's
regulatory capital requirements and minimum regulatory guidelines. These
restrictions do not presently limit the Corporation from paying normal
dividends.
The Company and Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the consolidated financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although these
terms are not used to represent overall financial condition. If adequately
capitalized, regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets Tier 1 capital
Total Tier 1 to average assets
- ----------------------------------------------------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
At year-end, actual capital levels (in millions) and minimum required
levels were:
<TABLE>
<CAPTION>
Minimum Required
Minimum Required To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
Total capital (to risk weighted assets)
Consolidated $71.3 13.0% $44.0 8.0% $55.1 10.0%
Bank $59.9 11.0% $43.7 8.0% $54.6 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $64.4 11.7% $22.0 4.0% $33.0 6.0%
Bank $40.1 7.3% $21.8 4.0% $32.7 6.0%
Tier 1 capital (to average assets)
Consolidated $64.4 7.6% $34.1 4.0% $42.7 5.0%
Bank $40.1 5.1% $31.3 4.0% $39.2 5.0%
1995
Total capital (to risk weighted assets)
Consolidated $63.4 12.7% $40.0 8.0% $50.0 10.0%
Bank $51.7 10.5% $39.5 8.0% $49.3 10.0%
Tier 1 capital (to risk weighted assets)
Consolidated $57.1 11.4% $20.0 4.0% $30.0 6.0%
Bank $45.5 9.2% $19.7 4.0% $29.6 6.0%
Tier 1 capital (to average assets)
Consolidated $57.1 8.2% $27.7 4.0% $34.6 5.0%
Bank $45.5 6.8% $26.6 4.0% $33.3 5.0%
The Corporation and Bank at year-end 1996 were categorized as well capitalized.
</TABLE>
<PAGE> 31
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND SHORT-TERM INVESTMENTS - For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES - For investment securities and mortgage backed
securities, fair values are based on quoted market prices or dealer quotes.
LOANS - The fair value of loans is estimated by discounting future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. The fair
value of unrecorded commitments was not material at December 31, 1996 and 1995.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts,
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated by discounting future cash flows using the rates currently offered for
deposits of similar remaining maturities.
INTEREST RATE SWAPS - The fair value of the interest rate swap reflects
the amount that the Corporation would receive or pay to terminate the swap at
the reporting date based on a dealer quote. Below are the estimated fair values
of the Corporation's financial instruments at December 31, 1996 and 1995,
respectively:
<TABLE>
<CAPTION>
1996 ESTIMATED 1995 Estimated
CARRYING FAIR Carrying Fair
VALUE VALUE Value Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash equivalents $ 34,762,137 $ 34,762,137 $ 31,735,149 $ 31,735,149
Short-term investments 6,956,867 6,956,867 4,814,509 4,814,509
Securities 132,886,376 133,053,672 128,216,265 128,514,880
Loans, net 609,266,850 574,775,000 511,487,786 473,519,000
Accrued interest receivable 4,229,576 4,229,576 4,170,096 4,170,096
Financial liabilities:
Demand and savings deposits (323,540,785) (323,540,785) (298,979,664) (298,979,664)
Time deposits (277,123,217) (277,542,000) (248,207,496) (250,823,000)
Repurchase agreements (61,618,339) (61,618,339) (44,372,238) (44,372,238)
Other short-term borrowings (6,789,444) (6,789,444) (5,286,921) (5,286,921)
FHLB advances (62,603,188) (63,673,000) (31,360,000) (32,352,000)
Accrued interest payable (3,748,262) (3,748,262) (3,334,210) (3,334,210)
Off-balance-sheet instruments:
Commitments to extend credit 135,122,000 135,122,000 124,829,000 124,829,000
Standby letters of credit 5,974,000 5,974,000 6,362,000 6,362,000
Interest rate swaps - 293,763 - 367,544
</TABLE>
NOTE 17 - PARENT COMPANY
Condensed financial information of UNB Corp. (parent company only) follows:
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1996 and 1995
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,305,691 $ 638,609
Interest bearing deposits in subsidiary bank 38,303 36,545
Other securities 5,036,448 9,473,050
Marketable equity securities 3,498,578 2,677,263
Investment in subsidiaries, at equity in underlying
value of net assets 46,940,357 53,209,263
Other assets 12,514,763 (705,267)
- -------------------------------------------------------------------------------------------------------
Total Assets $ 71,334,140 $ 65,329,463
=======================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Other Liabilities - $ 2,580
Shareholders' equity $ 71,334,140 65,326,883
- -------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 71,334,140 $ 65,329,463
=======================================================================================================
</TABLE>
<PAGE> 32
31
<TABLE>
<CAPTION>
Condensed Statements of Income
For the three years ended December 31, 1996 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Cash dividends from subsidiary $ 14,010,000 $ 2,128,900 $3,740,500
Interest on deposits in subsidiary bank 1,758 3,046 13,891
Dividends on marketable equity securities 99,531 49,352 33,134
Interest on investments and mortgage-backed securities 406,540 569,140 421,578
Other interest income 74,877 -- --
Securities gains 461,370 (25) 200,495
- ------------------------------------------------------------------------------------------------------------
Total income 15,054,076 2,750,413 4,409,598
- ------------------------------------------------------------------------------------------------------------
EXPENSES
Other expenses 283,272 237,236 149,188
- ------------------------------------------------------------------------------------------------------------
Total expenses 283,272 237,236 149,188
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE FEDERAL INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES 14,770,804 2,513,177 4,260,410
FEDERAL INCOME TAX EXPENSE 230,161 113,945 176,769
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES 14,540,643 2,399,232 4,083,641
EQUITY IN UNDISTRIBUTED NET INCOME OF SUBSIDIARIES (6,385,970) 4,980,234 2,544,448
- ------------------------------------------------------------------------------------------------------------
NET INCOME $ 8,154,673 $ 7,379,466 $6,628,089
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements of Income
For the three years ended December 31, 1996 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,154,673 $ 7,379,466 $ 6,628,089
Equity in undistributed net income of subsidiaries 6,385,976 (4,980,234) (2,544,448)
Net securities (gains)/losses (461,370) 25 (200,495)
Other, net (464,109) 171,926 77,305
- -----------------------------------------------------------------------------------------------------------
Net cash from operating activities 13,615,170 2,571,183 3,960,451
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase)/decrease in interest
bearing deposits in subsidiary bank (1,758) (1,769) 884,830
Proceeds from sale and maturities of securities 23,931,307 36,483,943 13,547,439
Investment in subsidiary bank subordinated note (13,000,000) -- --
Purchase of securities (19,402,414) (35,631,589) (16,610,710)
- -----------------------------------------------------------------------------------------------------------
Net cash from investing activities (8,472,865) 850,585 (2,178,441)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends (3,400,063) (3,016,677) (2,742,404)
Proceeds from shares issued through
dividend reinvestment plan 898,437 -- 739,048
Proceeds from issuance of stock 26,403 38,102 355,192
- -----------------------------------------------------------------------------------------------------------
Net cash from financing activities (2,475,223) (2,978,575) (1,648,164)
- -----------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,667,082 443,193 133,846
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 638,609 195,416 61,570
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,305,691 $ 638,609 $ 195,416
===========================================================================================================
</TABLE>
<PAGE> 33
NOTE 18 - PENDING ACCOUNTING CHANGES
Financial Accounting Standard No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, was issued by
the Financial Accounting Standards Board in 1996. It revises the accounting for
transfers of financial assets, such as loans and securities, and for
distinguishing between sales and secured borrowings. It is effective for some
transactions in 1997 and others in 1998. The effect on the financial statements
has not yet been determined.
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a consolidated summary of quarterly information:
<TABLE>
<CAPTION>
In thousands (except for per share data)
Quarters Ended
March 31 June 30 September 30 December 31
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
INTEREST INCOME $13,925 $14,649 $14,990 $15,625
NET INTEREST INCOME 7,681 7,904 7,915 7,863
PROVISION FOR LOAN LOSSES 630 800 920 790
NET INCOME 2,022 2,190 1,754 2,189
EARNINGS PER COMMON SHARE:
PRIMARY 0.34 0.37 0.30 0.37
FULLY DILUTED 0.34 0.37 0.30 0.37
1995
Interest income $11,321 $12,281 $12,748 $13,409
Net interest income 6,731 6,933 7,003 7,286
Provision for loan losses 360 380 480 530
Net income 1,602 1,791 1,964 2,022
Earnings per common share:
Primary 0.27 0.30 0.34 0.35
Fully diluted 0.27 0.30 0.34 0.35
1994
Interest income $ 8,460 $ 8,822 $ 9,526 $10,892
Net interest income 5,653 5,854 6,061 6,623
Provision for loan losses 300 240 240 240
Net income 1,409 1,639 1,734 1,846
Earnings per common share:
Primary 0.25 0.29 0.30 0.32
Fully diluted 0.23 0.28 0.29 0.31
All per share data has been adjusted for any stock dividends and splits.
</TABLE>
<PAGE> 34
33
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
INTRODUCTION
The following is Management's discussion and analysis of the financial
condition and results of the operations of UNB Corp. (Corporation). It should be
read in conjunction with the Consolidated Financial Statements, related Notes,
and the Five Year Summary of Selected Data included in this report.
UNB Corp. of Canton, Ohio is a locally owned and operated one-bank holding
company whose principal subsidiary is the United National Bank and Trust Company
(Bank). The Bank is a full service commercial bank offering a complete range of
personal, trust, and business financial products and services through its twenty
branch network located in Stark and southern Summit Counties.
On September 16, 1994, UNB Corp., acting through the Bank, successfully
acquired four branches of the former Transohio Federal Savings Bank (Transohio)
from the Resolution Trust Corporation (RTC). Transohio was a federal savings and
loan association headquartered in Cleveland, Ohio, which was placed in
receivership by the Office of Thrift Supervision and operated by the RTC as
conservator. The Bank acquired certain assets of cash and options to acquire
certain fixed assets and received cash from the RTC equal to the difference
between the liabilities assumed by the Bank and the value of the assets
purchased. The Bank assumed approximately $70.4 million in deposit liabilities
and received certain assets and cash from the RTC less a premium paid to the
RTC. Performance in 1995 reflected a full year of the impact of this
acquisition.
During 1996, Management evaluated the benefits attributable to operating a
finance company as a wholly owned subsidiary of the Corporation. Upon Board of
Directors approval, application was made in November with the State of Ohio,
Department of Commerce, Division of Consumer Finance for a license to operate a
finance company. Management believes that the addition of a finance company will
contribute to its continuing efforts to maximize shareholder value. It is
anticipated that the finance company will not have a material impact on earnings
in 1997.
RESULTS OF OPERATIONS
UNB Corp.'s net income for 1996 was $8,154,673, which represents a 10.5%
increase over 1995 net income of $7,379,466, which in turn represented a 11.3%
increase over 1994 net income of $6,628,089. Return on average assets was 1.08%,
1.14%, and 1.24% for 1996, 1995 and 1994, respectively. The Corporation's return
on average equity, which is to a great extent negatively effected by its strong
capital base, was 11.89%, 11.98% and 11.45% for the same periods.
Primary earnings per share for 1996 was $1.38, an increase of $.12 per
share from 1995, whereas 1995 primary earnings per share of $1.26 represented a
$.10 increase from 1994. On a fully diluted basis, earnings per share for 1996
were $1.38, compared to $1.26 for 1995 and $1.11 for 1994, respectively. The
Corporation's stock performance has more than equaled its earnings performance,
increasing to $30.00 per share at December 31, 1996, from $22.00 at December 31,
1995, an increase of 36.4%. This reflects a market to book premium of 243.3%, an
increase of 25.7% since year-end 1995. All per share information has been
adjusted for the April 30, 1996, 100% stock dividend.
NET INTEREST INCOME
Net interest income, the primary source of earnings for the Corporation, is
the difference between interest and loan fee income generated on earning assets
and the interest expense paid on deposits and borrowed funds (Table 1). For
1996, net interest income increased to $31,362,979 from $27,953,146 in 1995, an
increase of 12.2%. For 1995, net interest income increased to $27,953,146 from
$24,191,419 in 1994, an increase of 15.5%. These annual increases are primarily
attributable to the growth in average interest earning assets of 19.5% and 21.1%
for 1996 and 1995, respectively.
Net interest margin is the measure of the net yield on average earning
assets on a fully taxable basis and is calculated by dividing net interest
income on a fully taxable basis by average earning assets. The net interest
margin is affected by the level and mix of earning assets and supporting
deposits and borrowings and the interest rate spread between them. The
Corporation's net interest margin decreased to 4.38% in 1996 from 4.68% in 1995
and 4.92% in 1994 (Table 1). The most significant impact on the net interest
margin in 1996 has been in the Bank's cost of funds. The overall rate paid on
interest bearing liabilities increased 30 basis points, or 7.0% in 1996 versus
1995. The new Money Market Access product, paying a tiered rate based on the 13
Week U.S. Treasury Bills has attracted some funds out of the lower rate money
market account as well as
<TABLE>
<CAPTION>
NET INCOME millions of dollars
<S> <C>
92 4.779
93 6.338
94 6.628
95 7.379
96 8.155
</TABLE>
<TABLE>
<CAPTION>
RETURN ON EQUITY percent
<S> <C>
92 12.32
93 12.63
94 11.45
95 11.98
96 11.63
</TABLE>
<TABLE>
<CAPTION>
EARNINGS PER SHARE dollars
<S> <C>
92 *1.02
93 *1.19
94 *1.16
95 *1.26
96 *1.38
<FN>
* Adjusted for any stock dividends and splits
</TABLE>
<PAGE> 35
<TABLE>
<CAPTION>
Table 1
Net Interest Income Years ended December 31,
(In thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $59,189 $49,759 $37,699
Interest expense 27,826 21,806 13,508
- -------------------------------------------------------------------------------
Net interest income 31,363 27,953 24,191
Tax equivalent adjustments* 88 139 183
===============================================================================
Net interest income (FTE) $31,451 $28,092 $24,374
Net interest income (FTE)
as percent of average earning assets 4.38% 4.68% 4.92%
<FN>
*The tax equivalent adjustment is computed by stating non-taxable income on a
fully tax equivalent basis (FTE) using the statutory tax rate of 35% and
adjusted for non-deductible interest expense for 1996, 1995 and 1994.
</TABLE>
out of regular savings products. Rates offered on certificates of deposit
throughout 1996 were kept at very competitive levels within the local market to
attract funding for strong loan demand. This coupled with a decrease in rates
paid on savings products early in 1996 caused some savings balances to switch
into certificates of deposit, thus increasing their cost. Due to depositors'
aversion to extend maturities in the deposit markets and loan growth outpacing
deposit growth, the Bank turned to alternative funding sources such as brokered
certificates of deposit and Federal Home Loan Bank advances to lengthen
liability maturities and lock in spreads on assets being funded. Included in
interest expense on FHLB advances is a prepayment penalty of approximately
$241,000 on $5 million of a $10 million advance paying an interest rate of 8.0%
and a maturity of 37 months. The prepayment will have a positive effect on net
interest margin in 1997.
While the cost of funds increased, the overall yield on earning assets
between the 1996 and 1995 remained relatively flat. Returns on the investment
portfolio decreased, the result of repricing of variable rate mortgage-backed
securities and the rollover of maturities at lower market rates. Overall yields
in the loan portfolio decreased slightly from 1995 to 1996, led by the repricing
of commercial, commercial real estate and home equity loans tied to the Prime
rate, and were partially offset by an increase in yields in the installment loan
portfolio due to a partial shift in consumer originations from new to used
vehicles. The yield on earning assets declined only slightly from 1995 due to
the decrease in yields in the loan portfolio which was somewhat offset by the
change in earning asset mix from the investment portfolio to higher yielding
loans. See Table 4 for a more detailed analysis on net interest margin including
average balances and associated yields.
OTHER INCOME
Other income for 1996 totaled $6,357,454, an increase of $740,469, or
13.2%, from 1995. This compares to a decrease of $26,817, or less than 1.0% from
1994 to 1995 (Table 3). Service charges on deposits increased $10,402, or less
than 1% from 1995. During the year, depositors took advantage of the opportunity
to avoid service charges on their transaction accounts by switching between
deposit products or increasing their minimum balances. While this kept service
charge income relatively flat compared to 1995, average account balances in
various categories of transaction accounts have increased. From 1994 to 1995,
service charges decreased $53,457, or 2.2%, a result of revised service charge
structures on transaction accounts.
The Trust Department generated fee income of $2,713,977, an increase of
$205,376, or 8.2%, from 1995. Revenues in 1995 increased 16.0% from those in
1994. Results for 1996 are a direct impact of a strong stock market and new
business efforts which pushed the value of assets held to $581.5 million, an
increase of 18.9% from the value of assets held at year-end 1995. A new trust
product introduced in late 1996, the Professional Asset Management Account
(PAMA) is expected to have a positive impact on 1997 trust fees. This tiered fee
account is designed to give young professionals, with less than optimal
investable assets for a conventional trust account, access to trust services at
a cost substantially less than average mutual fund fees.
Other operating income for 1996 was $896,901, an increase of $229,274, or
34.3%, compared to 1995. During the first quarter of 1996, the Bank recognized a
gain of $42,000 on the sale of its Hartville South Prospect Branch building
which was sold in anticipation of the consolidation of its two Hartville
locations in one new branch currently under construction. During 1996, the Bank
experienced a reduction from 1995 levels in fee income from the sales of
annuities and mutual funds investments of $24,000. During the second quarter of
1996, the Bank finalized an agreement with a new vendor, American Express
Financial Advisors Inc., to provide a full range of financial and insurance
products and financial planning services through a staff of financial advisors
dedicated exclusively to servicing Bank customers. Management expects this
source of fee income to reach beyond levels achieved in the past due to this
vendor's experience and reputation in the market.
During 1996, there were no gains recognized on the sale of mortgage loans
in the secondary market due to Management's decision to retain all originations,
the majority of which were adjustable rate loans or non-conforming fixed rate
loans. In 1995, $67,087 was earned on such sales. The 1997 budget anticipates
the resumption of sales of mortgage loans in the secondary market. In 1996, the
Corporation recognized a net gain of $368,693 on the sale of available for sale
securities, an increase of $362,504 over gains taken in 1995. Included in this
net gain was the sale of $11.3 million in available for sale securities in the
Bank which were sold at a net loss of $96,400. The yield on securities sold was
4.88% while proceeds from the sale were reinvested in securities earning 7.00%,
a yield improvement of 212 basis points.
<PAGE> 36
OTHER EXPENSE
Total other expense of $22,152,551 in 1996 was an increase over 1995 of
$1,497,376, or 7.2%. From 1994 to 1995, other expenses increased by $1,844,931,
or 9.8% (Table 3). As a percentage of average assets, other expense was 2.93% in
1996 compared to 3.20% in 1995 and 3.52% in 1994, reflecting a more efficient
use of resources as the Corporation has grown.
Total employee compensation, including salaries, wages and benefits, grew
6.5% from 1995. From 1994 to 1995, the increase was 10.5%. The major reasons for
this increase in 1996 were increased salary expense of $619,000, primarily due
to merit increases and an increase of $153,569 in expense related to the Bank's
incentive payout from the performance based Stakeholder Program. While salary
and benefits increased in 1996, total employee compensation equaled only 1.5% of
average earning assets compared to 1.7% in 1995 and 1.9% in 1994. Management
monitors employee compensation closely through a well defined salary
administration program and merit increases tied to the Bank's "pay for
performance" program.
Occupancy expenses declined by $43,139, or 3.6% from 1995 to 1996, while
they increased from 1994 to 1995 by $87,428, or 7.8%. The 1996 decline was
primarily due to a refund on real estate taxes from the revaluation of several
of the Bank's properties and the sale and leaseback of the Hartville South
Prospect Branch. Management anticipates increases in occupancy expenses in 1997
with a full year's impact of depreciation on the renovations of United Bank
Center, completion of the new Hartville Branch, in addition to two planned
in-store branch facilities in the Green and Alliance communities as well as a
new branch to be located in the Portage & Frank area of northern Stark county,
all to be completed in 1997.
Equipment expense increased $369,564, or 16.6%, for 1996 compared to 1995.
The majority of this increase represents lease payments on a new computer
mainframe, wide area network (WAN), teller and platform computer systems and
related software which have improved and will continue to improve operating
efficiencies and position the Bank to take advantage of advances in technology
through the end of the decade, in addition to offering new products and services
to its customers through traditional telephone and new high-tech delivery
systems. Management expects this trend in equipment expense to continue into
1997 with a full year of expenses on this new technology as well as increased
depreciation expense on $2.1 million of budgeted capital expenditures for 1997.
Other operating expense increased $508,836 from 1995 to 1996, an increase
of 7.2%. Other operating expense increased $541,868, or 8.3%, from 1994 to 1995.
The major reason for the increase in 1996 was the increase in FDIC premiums paid
from 1995 to 1996 of $119,665, or 17.3%. This is due to the one-time assessment
paid to the Federal Deposit Insurance Corporation (FDIC) of $593,000 to
recapitalize the Savings Association Insurance Fund (SAIF) which insures
approximately $127 million in deposits which the Bank acquired in "Oaker
transactions" from the Resolution Trust Company (RTC) in the First Savings and
Loan Company, F.A. of Massillon and the Transohio Federal Savings Bank branch
acquisitions. This was partially offset by the elimination of premiums paid by
the Bank on deposits insured by the Bank Insurance Fund (BIF), which is directly
attributable to the Bank's strong capital level, supervisory ratings and the
overcapitalization of the BIF fund. Management expects that in 1997 the Bank's
regular assessment on SAIF insured deposits would be similar to the current
premiums being paid on deposits insured under the BIF of the FDIC which are
determined on the basis of capital adequacy and other regulatory risk
assessments. Additionally, in 1997 the Bank will be subject to FICO assessments
for the payment of interest on bonds issued to finance the takeover of unsafe
thrift institutions by the Resolution Trust Company. These annual
<TABLE>
<CAPTION>
Table 2
Changes In Net Interest Differential - Rate/Volume Analysis
December 31, 1996, 1995 and 1994
(In thousands of dollars) 1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Increase (Decrease)
Due To Change In Due To Change In
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest bearing deposits with other banks $ 25 $ (16) $ 9 $ (230) $ 39 $ (191)
Federal funds sold 93 (51) 42 241 67 308
Investment securities:
Taxable 118 79 197 378 287 665
Tax exempt (88) (26) (114) (56) (25) (81)
Other investments 94 (22) 72 110 62 172
Mortgage-backed securities (359) (130) (489) 1,105 345 1,450
Loans 10,404 (742) 9,662 6,892 2,801 9,693
- ---------------------------------------------------------------------------------------------------------------------
Total interest income 10,287 (908) 9,379 8,440 3,576 12,016
INTEREST EXPENSE:
Interest bearing demand deposits 51 41 92 34 8 42
Savings 175 344 519 (13) 235 222
Certificates and other time deposits 3,158 134 3,292 3,433 2,220 5,653
Short-term borrowings 677 (126) 551 590 626 1,216
Long-term borrowings 1,394 172 1,566 937 228 1,165
- ---------------------------------------------------------------------------------------------------------------------
Total interest expense 5,455 565 6,020 4,981 3,317 8,298
- ---------------------------------------------------------------------------------------------------------------------
Net interest income $ 4,832 $ (1,473) $ 3,359 $ 3,459 $ 259 $ 3,718
=====================================================================================================================
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
Table 3
Other Income and Other Expense Years ended December 31,
(In thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER INCOME:
Service charges on deposits $ 2,378 $ 2,368 $ 2,421
Trust Department income 2,714 2,509 2,163
Other operating income 897 667 817
Gains on loans originated for resale -- 67 38
Investment securities gains, net 368 6 205
- ------------------------------------------------------------------------
Total other income $ 6,357 $ 5,617 $ 5,644
========================================================================
OTHER EXPENSE:
Salaries and wages $ 8,632 $ 8,013 $ 7,533
Retirement and other employee benefits 2,174 2,130 1,644
Occupancy expense 1,170 1,213 1,126
Equipment expense 2,595 2,226 1,976
Other operating expense 7,582 7,073 6,531
- ------------------------------------------------------------------------
Total other expense $22,153 $20,655 $18,810
========================================================================
</TABLE>
assessments will be approximately 1.29 cents per $100 of deposits insured under
BIF and 6.44 cents per $100 of deposits insured by SAIF. Management estimates
the FDIC insurance expense will be approximately $150,000 in 1997.
PROVISION AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained by Management at a level
considered adequate to cover possible future losses. The amount of the provision
for loan losses charged to operating expense is the amount necessary, in the
opinion of Management, to maintain the balance in the allowance for loan losses
at an adequate level. Adequacy of the allowance is assessed based on historical
experience, changes in portfolio size and mix, the relative quality of the loan
portfolio and current and expected rates of loan growth. Information about
specific borrower situations, including their financial position and collateral
values, are also important as well as assessments of current and future economic
conditions, and other factors and estimates, which are subject to change over
time. While Management's periodic analysis of the allowance for loan losses may
dictate portions of the allowance be allocated to specific problem loans, the
entire amount is available for any loan charge-offs that may occur.
The allowance for loan losses on December 31, 1996, was $8,334,899, or
1.35% of outstanding loans, compared to $7,242,003, or 1.40%, at year-end 1995,
and $6,348,219, or 1.54%, at year-end 1994.
The provision for loan losses charged to operating expense was $3,140,000
in 1996 compared to $1,750,000 in 1995 and $1,020,000 in 1994. The increase in
1996 was a result of loan portfolio growth and increased net charge-offs. Net
charge-offs for 1996 were $2,047,000, an increase $1,191,000 or 139.1% from the
1995 level of $856,000. Net charge-offs for 1995 increased $128,000, or 17.7%
over 1994. Net charge-offs as a percentage of average loans outstanding for 1996
was 0.35% compared to 0.18% in 1995 and 0.19% for 1994. The consumer loan
portfolio experienced the greatest volume of increases in net charge-offs with
an increase of 131% over 1995. The Bank's experience followed national trends of
deteriorating credit quality in consumer loans brought on by record levels of
consumer debt, straining debt-to-income ratios and a rise in personal bankruptcy
filings. Budgeted losses in 1997 are anticipated at close to 1996 levels. The
implementation of stricter underwriting guidelines put in place in mid-1996 as
well as better trend analyses resulting in earlier detection of delinquent
accounts and more proactive collection efforts on potential problem credits
should begin to have a positive impact on charge-offs by late 1997. The increase
in provision in 1995 compared to 1994 was a direct result of strong loan growth
experienced in 1995.
Impaired loans totaled $268,060 at December 31, 1996 compared to $566,269
at year-end 1995. Non-performing loans at year-end 1996 were $838,400 compared
to $1,320,000 at year-end 1995 and $1,061,000 at year-end 1994. Non-performing
loans consist of loans past due 90 days or more and loans which have been placed
on nonaccrual status. The ratio of non-performing loans to total loans was 0.14%
for 1996 versus 0.25% for 1995 and 0.26% for 1994. This ratio compares very
favorably to that of the Bank's peer group at 0.83%. Due to anticipated loan
growth built into the 1997 budget, Management anticipates increasing the
provision to maintain a similar reserve-to-loan ratio to that of the past year.
On January 1, 1995, the Corporation adopted Financial Accounting Standards
Board (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS
No. 114 and 118 address the accounting by creditors for impairment of all loans
identified for evaluation, collateralized as well as uncollateralized, except
for large groups of small balance, homogenous loans that collectively are
evaluated for impairment.
Under SFAS 114, when Management determines that a loss is possible, a full
or partial charge-off is recorded for the amount the book value of the impaired
loan exceeds the present value of the cash flows or the fair value of the
collateral, for collateral dependent loans. Under SFAS 118 which requires the
disclosure of information about the investment in certain impaired loans as well
as how interest income on impaired loans is recognized, Management has
classified all impaired loans as nonaccrual status. Loans which were classified
as nonaccrual and have been brought current must remain current for six months
before removal from nonaccrual status and are not considered impaired for
purposes of these Statements.
INCOME TAXES
The provision for income taxes for 1996 was $4,273,209, an increase from
$3,785,490 and $3,376,888 in 1995 and 1994, respectively. The Corporation's
effective tax rates were 34.4%, 33.9% and 33.8% for the years of 1996, 1995 and
1994, respectively. This increase in effective rate is the result of a greater
percentage of earnings taxed at the marginal tax rate of 35% as well as lower
tax-exempt income generated from the loan and investments portfolio in 1996.
<PAGE> 38
FINANCIAL CONDITION
Total assets were $809,978,920 at December 31, 1996, compared to
$699,643,837 at December 31, 1995, an increase of $110,335,083, or 15.8%, over
1995. Earning assets at December 31, 1996 were $757,444,992, an increase of
$105,684,429, or 16.2%, over 1995 year-end. Earning assets equaled 93.5% of
total assets at year-end for 1996 compared to 93.2% at year-end 1995. The
composition of earning assets changed slightly from 1995 to 1996, with
securities and loans comprising 17.5% and 81.5% of earning assets, respectively,
in 1996 compared to 19.7% and 79.6%, respectively, at year-end 1995.
At December 31, 1996, federal funds sold were $6,800,000, an increase of
$2,500,000 from December 31, 1995. Total securities increased $4,670,111, or
3.6%, from 1995. Total loans increased $98,871,960, or 19.1%, over 1995 with
growth concentrated in the areas of mortgage and consumer installment loans.
Earning asset growth was funded through a combination of liability sources,
the most significant being total deposits which were $600,664,002 at December
31, 1996 compared to $547,187,160 at year-end 1995, a 9.8% increase. Short-term
borrowings, which include securities sold under agreement to repurchase,
increased $18,748,624, or 37.8% over year-end 1995, with the majority of growth
occurring in the first quarter of the year. Federal Home Loan Bank advances were
relied upon during the second and third quarters of 1996, with growth in
outstanding balances of $31,243,188, or 99.6%, from year-end 1995. More than
half of the advances drawn have been five year, amortizing instruments. The cash
flows on amortizing advances more closely match those of the assets they are
funding, while their rates are lower than single maturity advances due to their
amortizing feature. The remainder were taken at fixed rates with three year
maturities.
LOANS
At December 31, 1996, total loans outstanding were $617,601,749 compared to
$518,729,789 at year-end 1995, an increase of $98,871,960, or 19.1%. This
compares with a growth in total loans of $106,207,561, or 25.7%, in 1995 from
1994.
<TABLE>
<CAPTION>
Table 4
Average Balance Sheet and Related Yields
Years ended December 31, 1996, 1995 and 1994
(In thousands of dollars) 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE Average Average
BALANCE INTEREST RATE* Balance Interest Rate* Balance Interest Rate*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest earning deposits $ 2,204 $ 110 4.99% $ 1,735 $ 101 5.82% $ 5,784 $ 292 5.05%
Federal funds sold 9,592 503 5.24 7,877 461 5.85 3,518 153 4.35
Investment securities:
Taxable 55,923 3,172 5.67 53,827 2,975 5.53 46,673 2,310 4.95
Tax-exempt 1,166 76 6.52 2,452 190 7.75 3,146 271 8.61
Other securities 13,424 801 5.97 11,858 729 6.15 10,008 557 5.57
Mortgage-backed securities 52,521 3,369 6.41 58,067 3,858 6.64 40,963 2,408 5.88
Loans (net of unearned interest) 582,418 51,246 8.80 464,314 41,584 8.96 385,619 31,891 8.27
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets 717,248 59,277 8.26 600,130 49,898 8.31 495,711 37,882 7.64
- ---------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS:
Cash and due from banks 23,427 25,120 23,858
Other nonearning assets 23,542 26,441 21,100
Allowance for loan losses (7,923) (6,829) (6,246)
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 756,294 $ 644,862 $ 534,423
=================================================================================================================================
INTEREST BEARING LIABILITIES:
Demand deposits $ 71,078 $ 1,409 1.98% $ 68,361 $ 1,315 1.92% $ 66,667 $ 1,275 1.91%
Savings deposits 157,662 4,488 2.85 151,229 3,970 2.63 151,768 3,747 2.47
Time deposits 271,351 15,541 5.73 216,187 12,249 5.67 149,771 6,595 4.40
Short-term debt 59,097 2,784 4.71 44,858 2,234 4.98 30,572 1,018 3.33
Long-term debt 50,183 3,604 7.18 30,620 2,038 6.66 16,019 873 5.45
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 609,371 27,826 4.57 511,255 21,806 4.27 414,797 13,508 3.26
- ---------------------------------------------------------------------------------------------------------------------------------
NONINTEREST BEARING LIABILITIES
Demand deposits 71,263 66,329 58,788
Other liabilities 7,069 5,661 2,944
Shareholders' equity 68,591 61,617 57,894
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity $756,294 $ 644,862 $ 534,423
=================================================================================================================================
Net interest income $ 31,451 $ 28,092 $24,374
=================================================================================================================================
Net yield on earning assets 4.38% 4.68% 4.92%
=================================================================================================================================
<FN>
*Average rates of all categories including tax-free income are stated on a fully
taxable equivalent basis.
</TABLE>
<PAGE> 39
The product mix in the loan portfolio shows consumer loans, mortgage loans,
commercial loans and commercial real estate comprising 37.3%, 39.3%, 12.7% and
10.7%, respectively, at December 31, 1996, compared with 42.6%, 33.2%, 12.5%,
and 11.7%, respectively, at December 31, 1995. Loan yield was 8.80% in 1996, 16
basis points lower than 1995 and 54 basis points higher than the average rate
for total earning assets. The Bank continued to stress the strategy of loan
growth through the retail loan portfolio in the areas of consumer and mortgage
lending. Commercial loan balances have shown growth despite the increased
competition for quality loans from other financial institutions strengthening
their presence in the Bank's geographical market through merger activities in
1995 and 1996. The loan portfolio is diverse, encompassing a wide range of
borrowers, without significant concentration in any one particular industry or
group of industries.
At year-end 1996, consumer loans outstanding were $230,512,205, an increase
of $9,773,365, or 4.4%, from year-end 1995. This growth is net of a one time
reclassification of approximately $7.2 million in business installment loans to
the commercial loan portfolio. Due to the national trends of increased loan
delinquencies and losses in consumer loans, Management made a decision in
mid-1996 to slow the growth in the indirect consumer portfolio by tightening
credit standards and concentrating growth in higher quality credits. As a
result, growth in this portfolio was much less than the 21.1% growth experienced
in 1995. The Bank continues to maintain significant relationships in the auto,
marine and RV indirect business, with loans purchased from 127 dealers in a 15
county area during 1996. Indirect loans comprise 79.0% of the consumer loan
portfolio at December 31, 1996 compared to 78.5% at December 31, 1995.
The balance in home equity lines of credit was $21,545,708 at December 31,
1996, an increase of 20.4% over year-end 1995. Management's goal is to continue
to grow this product by promoting it to the Bank's existing mortgage loan
customer base and by offering competitive rates and products which have strong
appeal to borrowers due to its tax advantages.
Residential mortgage loans increased to $242,652,354 at December 31, 1996,
an increase of 40.8% from year-end 1995 balances of $172,282,619. In 1996, the
Bank's realtor base continued to expand with emphasis on construction lending.
Correspondent programs allowed further expansion into Summit and Tuscarawas
Counties. The offering of very competitive rates, a wide range of mortgage
products and accessible, personalized service by an experienced team of
originators and processors helped the Bank's Mortgage Loan Department attain the
distinction of being Stark County's number one mortgage lender for the second
consecutive year. In 1996, the Bank's Mortgage Assistance Program provided
approximately $2.0 million in loans to low-to-moderate income individuals to
purchase homes. This program now has approximately $9.9 million in loans
outstanding. In 1997, Management anticipates the resumption of sales of mortgage
loans in the secondary market.
Commercial loans at December 31, 1996 were $78,292,700, compared to
$64,810,976 at year-end 1995, an increase of $13,481,724, which includes a one
time reclassification of approximately $7.2 million in business installment
loans from the consumer loan portfolio. Commercial real estate loans outstanding
at December 31, 1996 were $65,874,692, an increase of $5,396,618, or 8.9%, from
year-end 1995 levels. The Bank continues to maintain its commitment to privately
held businesses in the community by expanded marketing of its loan products
including the Business Manager product introduced in 1995 as well as the Rapid
Application Loan product. Both have assisted in meeting the financing needs of
many locally owned businesses by increasing funds availability with faster
response times and a minimum of paperwork. In addition, the Bank has been
designated as a Certified Lender by the Small Business Administration (SBA),
which guarantees quicker turnaround time on loan requests from the SBA.
In December, 1996 the Bank became the first bank in Ohio to introduce an
automated loan machine (ALM) to the public. An ALM is a stand alone machine
which allows customers to apply and receive personal loans 24 hours a day, 7
days a week. The new technology was made available at the True Value Hardware
store in Hartville, Ohio, and is the first of several planned installations. The
ALM, which resembles an automated teller machine (ATM), prompts the customer to
provide the same information as on a traditional loan application, then analyzes
the credit worthiness of the customer. If the loan is approved, the machine
prints a check or deposits the funds directly to the customer's checking
account. Management views the ALM as an innovative alternative to gaining even
greater penetration in the Bank's lending market.
INVESTMENTS
The securities portfolio serves a primary role in the overall context of
balance sheet management by the Corporation. The decision to purchase or sell
securities is based upon the current assessment of economic and financial
conditions, including the interest rate environment and other on- and
off-balance sheet positions. The portfolio's scheduled maturities and the
expected cash flows from the mortgage backed securities represent a significant
source of liquidity for the Corporation.
The Bank's investment portfolio consists primarily of U.S. Treasury and
Agency Securities, various types of Mortgage-Backed
<TABLE>
<CAPTION>
Table 5
Total Loans Years ended December 31, Increase or (Decrease)
(In thousands of dollars) 1996 1995 Dollars Percentage
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial $ 78,293 $ 64,811 $ 13,482 20.8%
Commercial Real Estate 65,875 60,478 5,397 8.9%
Real Estate 242,652 172,283 70,369 40.8%
Consumer 230,782 221,158 9,624 4.4%
- ----------------------------------------------------------------------------------------------
Total loans $617,602 $518,730 $ 98,872 19.1%
==============================================================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL ASSETS millions of dollars
<S> <C>
92 488.3
93 497.6
94 601.1
95 699.6
96 810.0
</TABLE>
<PAGE> 40
39
<TABLE>
<CAPTION>
Table 6
Securities YEARS ENDED DECEMBER 31, INCREASE OR (DECREASE)
(In thousands of dollars) 1996 1995 Dollars Percentage
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 23,446 $ 22,171 $ 1,275 5.7%
U.S. Government agencies and corporations 52,371 31,820 20,551 64.6%
Mortgage-backed securities 42,907 63,087 (20,180) -32.0%
Obligations of state and political subdivisions 1,051 1,238 (187) -15.1%
Corporate bonds and other securities 13,111 9,900 3,211 32.4%
- ----------------------------------------------------------------------------------------------------------------------
Total investment securities $132,886 $128,216 $ 4,670 3.6%
======================================================================================================================
</TABLE>
Securities and Collateralized Mortgage Obligations, and various short term money
market instruments. At December 31, 1996, the Corporation's investment portfolio
was $132,886,376 versus $128,216,265 at December 31, 1995, a 3.6% increase.
The Bank purchases securities which are eligible to be pledged against the
deposited funds of public entities and for use as collateral in repurchase
agreements. At year-end 1996, there were $93.7 million of securities pledged for
these purposes compared to $84.6 million at year-end 1995.
During the first half of the year, maturities and principal repayments on
asset-backed securities were used to fund loan growth. As the Bank experienced a
seasonal slowing of loan demand late in the year, funds were invested primarily
in shorter term securities that will provide a source of funds for additional
loans in 1997. Late in the year, the Bank sold approximately $11,300,000 of
lower yielding securities at a loss of $96,400, the proceeds of which are
expected to be reinvested at substantially higher yields to improve the net
interest margin in 1997. The Corporation took advantage of the market
appreciation on the equity portfolio to realize a gain of $463,000.
Under the requirements of Financial Accounting Standards Board Statement
No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the
securities in the Corporation's portfolio are classified as either
available-for-sale or held-to-maturity. Securities in the available for sale
account are marked to market at the end of each quarter, with the unrealized
gain or loss, net of deferred tax, shown as an adjustment to shareholders'
equity. At year-end 1996, the adjustment to shareholders' equity for the net
unrealized gain on the portfolio was $1,172,728, compared to a net unrealized
gain of $844,921 at year-end 1995.
DEPOSITS
Deposits continue to be the Bank's primary source for funding its earning
assets. The Bank offers a wide variety of products designed to attract and
retain its customers, with a primary focus on core deposits. Total deposits at
December 31, 1996 were $600,664,002, an increase of $53,476,842, or 9.8% from
1995. Again in 1996, Management actively worked to retain and expand the Bank's
Certificate of Deposit base by offering competitive rates to attract new
certificates as well as rate incentives to existing customers with maturing
certificates to keep or add new funds to their balances in the Bank. The
Anniversary CD product offered for the first five months of 1996 as well as a
special 24 month certificate were instrumental in this effort. Direct mail
marketing programs were targeted toward non-bank customers to increase awareness
of the Bank's deposit products, especially the Money Market Access account.
Introduced in the fourth quarter of 1995, this account has a tiered interest
rate indexed to the 13-week Treasury Bill rate. This product, which offers
customers liquidity as well as a competitive rate of return, has experienced
growth from approximately $1.9 million in balances at year-end 1995 to $34.9
million at year-end 1996.
The Bank's non-interest bearing checking account balances increased from
$73,707,817 at December 31, 1995, to $81,554,075 at December 31, 1996, an
increase of 10.6%. Interest bearing NOW Accounts declined by $1,048,005, or 1.4%
from year-end 1995. Savings balances which include passbook, statement, money
market savings and Money Market Access accounts totaled $168,832,823, an
increase of 11.8% from year-end 1995. Balances raised through Money Market
Access were partially offset by transfers from passbook and statement savings
accounts. Certificates of Deposit reached $277,123,217, an increase of 11.6%
over year-end 1995. Included in these balances are approximately $15 million in
brokered certificates with maturities of three, four and five years issued
through Merrill Lynch in the first quarter of 1996. Depositors' aversion to
extending maturities on deposits as well as the ability to raise deposits at
relatively attractive rates with longer maturities in the national market will
encourage the future use of brokered deposits to fund balance sheet growth.
Core deposit growth remains a primary objective of the Bank's deposit
strategy for 1997. As in the past, the level and direction of interest rates, as
well as competitive pressure from the local market and national non-bank
financial institutions offering non-traditional alternative forms of
investments, will play a key role in the levels of growth and deposit mix in
1997.
<TABLE>
<CAPTION>
Table 7
Deposits YEARS ENDED DECEMBER 31, INCREASE OR (DECREASE)
(In thousands of dollars) 1996 1995 Dollars Percentage
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest bearing $ 81,554 $ 73,708 $ 7,846 10.6%
Interest bearing:
Demand 73,154 74,202 (1,048) -1.4%
Savings 168,833 151,070 17,763 11.8%
Time 277,123 248,207 28,916 11.6%
- ---------------------------------------------------------------------------------------------
Total Deposits $600,664 $547,187 $ 53,477 9.8%
=============================================================================================
</TABLE>
<PAGE> 41
CAPITAL RESOURCES
Total shareholders' equity was $71,334,140 at December 31, 1996 compared to
$65,326,883 at December 31, 1995, an increase of $6,007,257, or 9.2%. This
increase was primarily attributable to net income of $8,154,673, less dividends
to shareholders, net of dividend reinvestment, of $2,501,626, and an increase in
the unrealized gains, net of deferred tax, on available for sale securities from
year-end 1995 to year-end 1996 of $327,807. The book value per share of stock
was $12.33 at year-end 1996 compared to $11.37 at year-end 1995, an 8.4%
increase, adjusted for the April 30, 1996, 100% stock dividend.
Cash dividends paid to shareholders of UNB Corp. during the year ended
December 31, 1996 totaled $3,400,063 or $0.59 per share. This compared to
$3,016,677, or $0.525 per share for the year ended December 31, 1995. In
addition to the regular fourth quarter dividend of $0.15 per share, a special
cash dividend of $0.025 per share was declared by the Board of Directors and
paid in December, 1996. The dividends per share represent an increase of 12.4%
over 1995. Dividends paid in 1996 represented a payout ratio of 41.7% of net
income compared to 40.9% in 1995. Both ratios are within the guidelines
established by UNB Corp.'s Board of Directors for a dividend payout ratio of 35%
to 45% of net income. In addition to cash dividends paid in 1996, the Board of
Directors approved a 100% stock dividend to its shareholders which was paid on
April 30, 1996. Including dividends and appreciation, the stock returned 39.1%
to shareholders during 1996. At year-end 1996, the market value of the stock was
243.3% of the year-end book value compared to 193.6% at year-end 1995.
As discussed in Note 15 to the Consolidated Financial Statements, the
Corporation's primary source of funds for the payment of dividends is its Bank
subsidiary. During 1996, the Bank paid $14.01 million in dividends to the
Corporation. Of this amount, $1.01 million was used to fund the fourth quarter's
dividend to shareholders. The remainder, $13.0 million, was upstreamed to the
Corporation in order for it to have sufficient capital to take advantage of
future acquisition opportunities being examined, to pay future dividends, to
fund potential stock buybacks as well as for tax planning opportunities. In
order for the Bank to fund its balance sheet and remain well capitalized, the
Corporation and the Bank entered into a subordinated debt agreement for $13
million, payable on January 1, 2007 at an interest rate of 6.00%. The Bank,
which is limited by regulation as to the amount of dividend which it can pay,
remains within these regulatory guidelines. Currently this restriction will not
preclude the Bank from paying sufficient dividends to fund, as needed, the usual
quarterly dividends paid to the Corporation's shareholders.
Under regulations issued by the Federal Reserve and Comptroller of the
Currency, banks and bank holding companies are required to maintain certain
minimum capital ratios in order to be considered "well capitalized." These
guidelines require a minimum total risk-based capital ratio of 10%, a Tier 1
capital ratio of 6% and leverage ratio of 5%. All of the Corporation's assets,
which include various risk-weighted percentages of assets on the balance sheet,
as well as off-balance sheet exposures, are expressed as a percentage of
risk-adjusted assets and compared to its capital. Tier 1 capital consists of
shareholders' equity and other items such as mandatory convertible debt and the
allowance for loan losses. As of December 31, 1996, UNB Corp. had a total
risk-based capital ratio of 13.0%, with a Tier 1 capital ratio of 11.71%
compared to 12.67% and 11.42%, respectively, at December 31, 1995. Both of these
risk-based capital ratios are well above minimum regulatory requirements. In
addition to risk-based capital, a leverage ratio test must also be met. This
ratio evaluates capital adequacy on the basis of Tier 1 capital-to-total assets
(unadjusted for risk). On December 31, 1996, UNB Corp.'s leverage ratio was
7.55%, which substantially exceeds the Corporation's minimum regulatory
requirement. For additional information on the Corporation and Bank's capital
ratios, refer to Note 15 - Dividend and Regulatory Capital Requirements.
UNB Corp. continues to offer is shareholders a Dividend Reinvestment Plan
which generates additional capital for the Corporation while allowing
shareholders to increase their holdings of stock without paying brokers' fees
and commissions. This plan allows shareholders to reinvest all or a portion of
their dividends automatically in the purchase of additional shares. Currently,
there are 1,100 shareholders participating with 34.4% of the dividend paid being
reinvested in the plan.
ASSET AND LIABILITY MANAGEMENT
In the normal course of business, the Bank is exposed to interest rate risk
caused by the differences in cash flows and repricing characteristics that occur
in various assets and liabilities as a result of changes in interest rates. The
asset and liability management process is designed to measure and manage that
risk to maintain consistent levels of net interest income and net present value
of equity under any interest rate scenario.
The Bank uses a dynamic computer model to generate earnings simulations,
duration and net present value forecasts and gap analyses, each of which
measures interest rate risk from a different perspective. The model incorporates
a large number of assumptions, including the absolute level of
<TABLE>
<CAPTION>
NET LOANS millions of dollars
<S> <C>
92 316.1
93 344.3
93 403.3
95 511.5
96 609.3
</TABLE>
<TABLE>
<CAPTION>
TOTAL DEPOSITS millions of dollars
<S> <C>
92 410.6
93 404.1
93 486.8
95 547.2
96 600.7
</TABLE>
<PAGE> 42
41
future interest rates, the slope of the yield curve, various rate spread
relationships, prepayment speeds, repricing opportunities and changes in the
volume of multiple loan, investment and deposit categories. Management believes
that individually and in the aggregate these assumptions are reasonable, but the
complexity of the simulation modeling process and the inherent limitations of
the various methodologies results in a sophisticated estimate, not a precise
calculation of exposure. The Asset and Liability Management Committee reviews
updated interest rate risk position information monthly in addition to regular
weekly monitoring of changes in balance sheet volume, pricing and mix.
At December 31, 1996, assuming an immediate, parallel 200 basis point shift
in market yields, the Bank's net interest income for the next twelve months was
calculated to vary by less than 1%, implying a fairly neutral interest rate risk
position. For the same period, the net present value of equity was forecasted to
increase by 3.3% or less, denoting some negative exposure in the Bank's balance
sheet. The duration of total assets exceeded the duration of total liabilities
by 6.8 months, indicating that liabilities would reprice sooner than assets,
consistent with a bias toward negative interest rate sensitivity. The modified
twelve months cumulative gap was -8.64% of total assets, indicating a higher
balance of rate sensitive liabilities than of rate sensitive assets. Overall,
the results of the analyses concurred that the Bank had a slight exposure to
rising interest rates.
The strategies that the Bank uses to manage interest rate risk encompass a
number of wholesale funding sources including Federal Home Loan Bank advances
and brokered deposits, and derivative products such as interest rate swaps, caps
and floors in addition to changes in the pricing, maturity and mix of the Bank's
existing balance sheet categories of loans, securities and deposits. Any
strategy to counteract an undesirable level of interest rate risk is evaluated
in terms of its effectiveness and cost and presented to the Asset and Liability
Management Committee for its approval prior to implementation. In general, the
Bank uses wholesale funding as a cost effective method of extending deposit
maturities beyond the terms preferred by the majority of customers, while
derivative products are typically used to offset existing balance sheet
positions that exhibit higher than acceptable risk. These strategies supplement
the ongoing changes in pricing on deposits and loans that form the basis of the
Bank's risk reduction efforts.
At year-end 1996, the Bank was paying a fixed rate of 2.88% and receiving a
variable rate of 5.50% on an interest rate swap with a notional principal
balance of $5,150,000. The variable rate resets quarterly at three-month LIBOR,
and the notional principal amortizes quarterly according to a predetermined
schedule that corresponds to the expected prepayments on the underlying pool of
mortgage loans being hedged. During the year, the Bank also issued $15,000,000
of brokered certificates of deposit with maturities of three, four and five
years to reduce the Bank's liability sensitive position by extending the average
duration of certificates of deposit. As other funding needs occurred throughout
the year the Bank obtained advances with varying maturities and repayment
schedules from the Federal Home Loan Bank.
LIQUIDITY MANAGEMENT
Management ensures that the liquidity position of the Corporation is
adequate to meet the credit needs and cash demands of its borrowers and
depositors in a timely and cost-effective manner.
Through the Bank's Asset and Liability Management Committee, Management
actively analyzes and manages the Corporation's liquidity. Principal sources of
liquidity for the Corporation and the Bank are cash and cash equivalents,
federal funds sold, short-term money market investments and the cash flows
provided by maturities and amortizations in the loan and investment portfolios.
The ability to raise funds in the market place is provided by the Bank's branch
network, in addition to the availability of Federal Home Loan Bank (FHLB)
advance borrowings, brokered deposits, Federal Funds purchased and securities
sold under agreement to repurchase.
During 1996, Management took steps through revision of its loan policy to
redefine internal guidelines for measuring the Bank's overall liquidity level to
include all deposits and FHLB advance borrowings. In this way, Management is
acknowledging what has become an industry norm, dependence on advance borrowings
as a source of balance sheet funding considered less volatile than deposits.
Advances with varying maturities and flexible repayment options are considered
more stable than the most stable of bank deposits, certificates of deposit,
which are liable to early withdrawal and are difficult to attract in longer
maturity ranges even at rates competitive to other market instruments. It is for
this reason, in addition to strong loan growth experienced in 1996, that the
Corporation's gross loan to deposit ratio (including FHLB advances) at December
31, 1996 has increased to 93.1% from 89.7% at year-end 1995.
On December 31, 1996, cash and cash equivalents equaled $34,762,137, or
4.3%, of total assets. The change in cash and cash equivalents is shown in the
Consolidated Statement of Cash Flows and arises from operating, investing and
financing activities. These activities are summarized for the three years ended
December 31, 1996 in Table 8. During 1996, the Corporation generated
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
PER SHARE dollars
<S> <C>
92 *8.58
93 *9.83
94 *10.22
95 *11.36
96 *12.33
<FN>
*Adjusted for any stock dividends and splits
</TABLE>
<TABLE>
<CAPTION>
CASH DIVIDENDS
PER SHARE dollars
<S> <C>
92 *.365
93 *.440
94 *.480
95 *.525
96 *.590
<FN>
*Adjusted for any stock dividends and splits
</TABLE>
<TABLE>
<CAPTION>
MARKET VS. BOOK
VALUE dollars
<S> <C>
M 92 *12.00
B 92 * 8.58
M 93 *14.50
B 93 * 9.83
M 94 *19.25
B 94 *10.22
M 95 *22.00
B 95 *11.37
M 96 *30.00
B 96 *12.33
<FN>
*Adjusted for any stock dividends and splits
</TABLE>
<PAGE> 43
net cash flows from operating activities of $10,622,697, including $8,154,673 in
net profits. The major portion of cash flows from investing activities were
concentrated in a net source of cash in the investment portfolio of $3,514,797
coupled with a net use of $101,068,545 to fund purchases and additions to the
loan portfolio. Net cash from financing activities totaled $100,993,431. The
major cash sources from financing activities in 1996 were net increases in
deposits, FHLB borrowings and short-term borrowings, $53,476,842, $31,243,188
and $18,748,624, respectively. The payment of $2,501,626 in net cash dividends
was the only use of cash from financing activities. The net result of these cash
flows was an increase of cash and cash equivalents from year-end 1995 to 1996 of
$3,026,988.
The liquidity needs of the Holding Company, primarily cash dividends, are
met through cash, short term investments and dividends from the Bank. Management
is not aware of any trend or event which will result in or that is reasonably
likely to occur that would result in the Corporation being unable to meet all
current and projected cash needs.
IMPACT OF FDICIA
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) applies
to banks with total assets in excess of $500 million. During 1995 and 1996,
Management spent considerable time ensuring compliance with requirements for
documenting internal control reporting. This year's Annual Report contains a
statement from Management attesting to the internal control structure of the
Corporation, including policies, procedures and compliance with laws and
regulations within the Banking industry. In addition, the Bank's independent
public accountant has attested to the accuracy of Management's assertions
regarding internal control systems over financial reporting.
IMPACT OF INFLATION
Consolidated financial data included herein has been prepared in accordance
with generally accepted accounting principles (GAAP). Presently, GAAP requires
UNB Corp. to measure financial position and operating results in terms of
historical dollars, except for securities available for sale which are carried
at fair value. Changes in the relative value of money due to inflation or
recession are generally not considered.
In Management's opinion, changes in interest rates affect the financial
condition of UNB Corp. to a far greater degree than changes in the inflation
rate. While interest rates are greatly influenced by changes in the inflation
rate, they do not move concurrently. Rather, interest rate volatility is based
on changes in the expected rate of inflation, as well as changes in monetary and
fiscal policy. A financial institution's ability to be relatively unaffected by
changes in interest rates is a good indicator of its capability to perform in
today's volatile economic environment. In an effort to protect itself from the
effects of interest rate volatility, UNB Corp. reviews its interest rate risk
position frequently, monitoring its exposure and taking necessary steps to
minimize any detrimental effects on the Corporation's profitability.
<TABLE>
<CAPTION>
Table 8
Liquidity Management
(In thousands of dollars) 1996 1995 1994
<S> <C> <C> <C>
Net income $ 8,155 $ 7,379 $ 6,628
Adjustments to reconcile net income to net cash from operating activities 2,468 4,202 5,374
- --------------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 10,623 11,581 12,002
Net cash used in investing activities (108,589) (96,957) (100,457)
Net cash from financing activities 100,993 86,900 91,814
- --------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 3,027 1,524 3,359
Cash and cash equivalents at beginning of year 31,735 30,211 26,852
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 34,762 $ 31,735 $ 30,211
==========================================================================================================================
</TABLE>
<PAGE> 44
43
Market Price Ranges for Common Stock
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 BID
--------
QUARTER HIGH LOW DIVIDEND RATE
<S> <C> <C> <C>
FIRST $ 23.63 $ 22.00 $.135
SECOND 26.75 23.63 .140
THIRD 28.25 26.75 .140
FOURTH 30.00 28.25 .175
1995 BID
--------
QUARTER HIGH LOW DIVIDEND RATE
First $ 19.25 $ 19.25 $.120
Second 19.50 19.25 .125
Third 20.00 19.50 .125
Fourth 22.00 20.00 .155
<FN>
The shares of Common Stock, stated value $1.00 per share, of UNB Corp. are
traded on the over-the-counter market primarily with brokers in the
Corporation's service area.
The above quoted market prices reflect inter-dealer prices, without adjustments
for retail markups, markdowns, or commissions and may not represent actual
transactions.
As of December 31, 1996, UNB Corp. had 1,384 shareholders of record.
</TABLE>
<PAGE> 45
Five Year Summary of Selected Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands of dollars, except per share data)
Years ended December 31,
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net interest income $ 31,363 $ 27,953 $ 24,191 $ 22,721 $ 22,465
Provision for possible loan losses 3,140 1,750 1,020 2,195 2,500
Income before federal income taxes 12,428 11,165 10,005 8,895 7,136
Federal income taxes 4,273 3,785 3,377 2,911 2,357
Net income 8,155 7,379 6,628 6,338 4,779
Cash dividends declared 3,400 3,017 2,742 2,388 1,712
PER SHARE DATA:*
Net income-primary $ 1.38 $ 1.26 $ 1.16 $ 1.19 $ 1.02
Net income-fully diluted 1.38 1.26 1.11 1.14 0.96
Cash dividends 0.59 0.53 0.48 0.44 0.37
Book value per share 12.33 11.37 10.22 9.83 8.58
AVERAGE BALANCES:
Total assets $ 756,294 $ 644,862 $ 534,423 $ 490,326 $ 472,582
Total earning assets 717,248 600,130 495,710 449,784 435,352
Total deposits 500,091 435,777 426,994 404,626 398,487
Net loans 582,418 464,314 385,618 339,468 306,718
Shareholders' equity 68,591 61,617 57,894 50,172 38,779
FINANCIAL RATIOS:
Net income as a percentage of:
Average assets 1.08% 1.14% 1.24% 1.29% 1.01%
Average shareholders' equity 11.89 11.98 11.45 12.63 12.32
Cash dividends as a percentage of net income 41.69 40.88 41.37 37.68 35.81
Average shareholders' equity as a percentage
of average assets 9.07 9.56 10.83 10.23 8.21
Net loans/assets 75.22 72.51 67.57 69.17 64.73
Gross loans/deposits** 93.12 89.66 81.94 84.88 78.05
Allowance for loan losses/total loans 1.35 1.40 1.54 1.73 1.36
Net loans/equity 8.54 X 7.83 x 6.93 x 6.18 x 7.38 x
Deposits/equity 8.42 X 8.38 x 8.30 x 7.25 x 9.59 x
YEAR-END BALANCES:
Total assets $ 809,979 $ 699,644 $ 601,084 $ 497,821 $ 488,334
Long-term debt 62,603 31,360 16,660 8,820 -
Total shareholders' equity 71,334 65,327 58,640 55,706 42,811
<FN>
Note: This summary should be read in conjunction with the related consolidated
financial statements and notes included herein.
*Per share data has been adjusted for any stock dividends and splits.
**Deposits include FHLB advances.
</TABLE>
FORM 10-K
A copy of form 10-K, as filed with the Securities and Exchange Commission, will
be furnished, free of charge, to shareholders, upon written request to the
Secretary of UNB Corp., P.O. Box 24190, Canton, Ohio 44701.
<PAGE> 1
Exhibit 21
Subsidiaries of UNB Corp.
Registrant Percent of Ownership
---------- --------------------
I. UNB Corp.
A. United National Bank & Trust Company 100%
(National Banking Association)
1. 620 Market Community Redevelopment Corporation 100%
B. United Credit Life Insurance Company 100%
<PAGE> 1
UNB Corp.
United Bank Plaza
220 Market Avenue South
Canton, Ohio 44702
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 15, 1997
The 1997 Annual Meeting of the Shareholders of UNB Corp. (the
"Corporation") will be held in the Ballroom of the Canton Hilton, 320 Market
Avenue South, Canton, Ohio, on Tuesday, April 15, 1997, at 12:30 p.m., for the
following purposes:
(1) To elect five directors, each to serve for a term of three years.
(2) To adopt the UNB Corp. 1997 Stock Option Plan.
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only those Shareholders of record at the close of business February 13,
1997, shall be entitled to notice of and to vote at said meeting or any
adjournment thereof.
We urge you to sign and return the enclosed proxy card as promptly as
possible whether or not you plan to attend the meeting in person. If you do
attend the meeting, you may then withdraw your proxy.
/s/ Robert M. Sweeney
-----------------------------------
ROBERT M. SWEENEY
Secretary
Canton, Ohio
February 21, 1997
1
<PAGE> 2
UNB Corp.
United Bank Plaza
220 Market Avenue South
Canton, Ohio 44702
VOTING AND PROXY SOLICITATION MATTERS
This statement is furnished to Shareholders of UNB Corp. in connection
with the solicitation of proxies for use at the Annual Meeting of Shareholders
to be held in the Ballroom of the Canton Hilton, 320 Market Avenue South,
Canton, Ohio, on Tuesday, April 15, 1997, at 12:30 p.m.
This proxy statement and proxy are being mailed on or about February 21,
1997. The accompanying proxy is solicited by the Board of Directors. It is
contemplated that solicitation of proxies will be by use of the mails only.
However, in addition, solicitation may be made by telephone, telegraph, or
facsimile by officers or by employees of UNB Corp., or by officers or by
employees of the United National Bank & Trust Co. (the "Bank"). The cost of such
solicitation will be borne by the Corporation. UNB Corp. may reimburse brokerage
firms and nominees for reasonable expenses incurred by them, and approved by UNB
Corp., in forwarding proxy materials to beneficial owners. You may revoke your
proxy at any time prior to its exercise at the Annual Meeting by giving written
or oral notice to the secretary of the meeting.
Shareholders of record at the close of business on February 13, 1997, are
entitled to notice of and to vote at the meeting. Shareholders of record will be
entitled to one vote for each share held by them on the record date for all
matters which come before the meeting. Shareholders have no cumulative voting
rights. The number of no par value shares outstanding as of January 31, 1997,
including 185,529 shares acquirable within sixty days through the exercise of
stock options, was 5,969,614.
The Trust Department of the United National Bank & Trust Co. holds shares
of UNB Corp. stock with voting authority in various fiduciary capacities. The
total number of shares held by the Trust Department on January 31, 1997, was
1,230,440 shares representing 20.6% of the shares outstanding. The number of
shares held by the Trust Department as sole trustee or executor, which will not
be voted in the election of directors, was 62,778 shares (1.1% of the shares
outstanding). Voting rights of the remaining 1,167,662 shares (19.6% of the
shares outstanding) will be passed through to the various trust donors,
beneficiaries, or others pursuant to the terms of the Trust documents. All
directors and officers as a group beneficially own 889,138 shares (14.9% of the
shares outstanding). This includes 185,529 shares which are acquirable within
sixty days through the exercise of stock options. No individual beneficially
owns over 5% of the shares outstanding.
ELECTION OF DIRECTORS
Under the Code of Regulations of UNB Corp., the Board of Directors is
divided into three classes, designated as Class I, Class II, and Class III, with
each class consisting of approximately one-third of the total number of
directors as fixed from time to time by the Board of Directors. Currently, that
number has been fixed at twelve. The directors serve staggered three-year terms,
so that directors of only one class are elected at each Annual Meeting. At the
forthcoming Annual Meeting, the Shareholders will be asked to elect five
directors of Class III. Those nominees receiving the greatest number of votes
will be elected as directors. There is no minimum number of votes required to
elect a director.
The nominees for election at the forthcoming Annual Meeting are Messrs.
Louis V. Bockius III, Harold M. Kolenbrander, Russell W. Maier, Joseph J.
Sommer, and Abner A. Yoder. The nominees are not presently directors of the
Corporation. However, each of the nominees has served on the Board of Directors
of the Bank and has served on various committees in that capacity.
The persons named in the enclosed form of proxy will vote the proxy in
accordance with the choices specified. If no choices are specified, it is the
intention of the persons named in the enclosed form of proxy to vote for the
five nominees named above. Proxies cannot be voted for a greater number of
persons than the number of nominees named.
2
<PAGE> 3
INFORMATION AS TO NOMINEES
The names of the nominees for the election as directors, together with
specific information about the nominees, are as follows:
<TABLE>
<CAPTION>
UNB Corp.
Shares % of
Owned Board and
Year of Beneficially(1) Committee
Principal Occupation Initial (January 31, % of Meetings
Name Age (Past Five Years) Election 1997) Outstanding Attended
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class III
(Term expires in 2000)
Louis V. Bockius III 61 Chairman, 1997 38,664 .65% 68%
Bocko, Inc.
Harold M. Kolenbrander 58 President, 1997 2,807 .05% 96%
Mt. Union College
Russell W. Maier 60 Chairman and Chief 1997 8,301 .14% 55%
Executive Officer,
Republic Engineered
Steels, Inc.
Joseph J. Sommer 69 Retired Attorney, 1997 55,846(2) .94% 68%
Government Leader,
and Businessman
Abner A. Yoder 64 President, 1997 19,575 .33% 88%
Stark Truss Co.
</TABLE>
INFORMATION AS TO DIRECTORS WHOSE TERMS OF OFFICE WILL
CONTINUE AFTER THE 1997 ANNUAL MEETING
The names of the remaining directors, together with specific information about
the directors, are as follows:
<TABLE>
<CAPTION>
UNB Corp.
Shares % of
Owned Board and
Year of Beneficially(1) Committee
Principal Occupation Initial (January 31, % of Meetings
Name Age (Past Five Years) Election 1997) Outstanding Attended
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class I
(Term expires in 1998)
Edgar W. Jones, Jr. 54 President, Hal Jones 1979 74,127 1.24% 89%
Construction Co.
James A. O'Donnell 66 Retired President 1969 5,788 .10% 67%
of UNB Corp.
Retired President
of the United National
Bank & Trust Co.
Donald W. Schneider 66 President, Schneider 1967 214,118 3.59% 91%
Lumber Company
</TABLE>
3
<PAGE> 4
INFORMATION AS TO DIRECTORS WHOSE TERMS OF OFFICE WILL
CONTINUE AFTER THE 1997 ANNUAL MEETING
The names of the remaining directors, together with specific information about
the directors, are as follows:
<TABLE>
<CAPTION>
UNB Corp.
Shares % of
Owned Board and
Year of Beneficially(1) Committee
Principal Occupation Initial (January 31, % of Meetings
Name Age (Past Five Years) Election 1997) Outstanding Attended
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class II
(Term expires in 1999)
E. Lang D'Atri 58 Attorney at Law, Day, 1978 42,200 .71% 88%
Ketterer, Raley, Wright
& Rybolt
Robert L. Mang 64 Director, President, 1976 154,962(3) 2.60% 95%
and Chief Executive
Officer of UNB Corp.
Director, President,
and Chief Executive
Officer of the
United National Bank &
Trust Co.
Director, President of
United Credit Life
Insurance Company
</TABLE>
(1) Included in the shares set forth in the tables above are shares owned
by the nominee or director, his wife, minor children, and certain other
family members, and shares over which the nominee or director has full,
or shares, voting control and power of disposition. Percentages of
outstanding shares are calculated using 5,784,085 shares outstanding
plus 185,529 shares acquirable within sixty days through the exercise
of stock options.
(2) Includes 24,076 shares for which Mr. Sommer has voting power. Mr.
Sommer disclaims any beneficial ownership of said shares.
(3) Includes 93,034 shares which Mr. Mang has the right to acquire within
sixty days through the exercise of stock options.
UNB CORP. 1997 STOCK OPTION PLAN
The Board of Directors of the Corporation is proposing that the
Shareholders of the Corporation approve the UNB Corp. 1997 Stock Option Plan
(the "Plan"), the general terms of which are summarized below. This summary is
qualified in its entirety by, and reference is made to, the full text of the
Plan which is attached to this Proxy Statement as Exhibit A. Shareholders are
strongly urged to read the Plan in its entirety. The Board of Directors of the
Corporation is proposing the adoption of the Plan under which certain key
employees and directors ("Optionees") of the Corporation or the Bank would be
eligible to receive Options to purchase a certain number of the shares of the
Corporation's common stock subject to certain conditions. The purpose of the
Plan is to advance the interests of the Corporation and the Bank by giving key
employees and directors of the Corporation or the Bank additional incentive to
promote the success of the Corporation and to remain in the Corporation's or the
Bank's service. It is believed this can be accomplished by providing such
persons the opportunity to acquire additional equity interest in the
Corporation, therefore further aligning their interests with those of the other
Shareholders. In addition, the Plan will enable the Corporation to offer an
attractive incentive compensation program to key employees of prospective
acquisition candidates. The Corporation believes that this is an important
factor in promoting its long-term growth.
Under the Plan, officers and other executive, supervisory, and management
employees of the Corporation or the Bank, who, in the sole discretion of a
committee comprised of nonemployee directors appointed by the Board of
Directors, have substantial responsibility for the direction and management of
the Corporation or the Bank and/or are in a position to contribute materially to
the Corporation's continued growth, development, and long-term success may, from
time to time, be granted Options to purchase a given number of shares of the
Corporation's stock, subject to certain terms and conditions.
The Plan contemplates the award of both Incentive Stock Options (ISO's)
under the Internal Revenue Code of 1986, as amended, as well as Nonqualified
Stock Options (NQSO's). The classification of an Option as an ISO provides
certain tax benefits to the Optionee, most notably a deferral of taxation from
the date of exercise (when Nonqualified Stock Options would
4
<PAGE> 5
ordinarily be taxable) to the date of the sale of the underlying shares acquired
by the exercise of such Option. When exercised, the holder of an ISO recognizes
no taxable income, and the Corporation can claim no deduction. NQSO's are
Options which do not receive special tax treatment under the Internal Revenue
Code. When exercised, the holder of an NQSO recognizes taxable income on the
difference between the price paid for the Option shares pursuant to the Option
and the fair market value of the shares purchased pursuant to the Option on the
date of the exercise.
The Plan provides for specific grants of Options to the Corporation's
directors, directors of subsidiaries of the Corporation, directors of
subsidiaries of the Bank, and the Corporation's Chief Executive Officer. At the
initiation of the Plan, each nonemployee director of the Corporation and the
Corporation's Chief Executive Officer shall receive Options for 1,000 shares.
Each person who is a director of any subsidiary of the Corporation, or any
subsidiary of the Bank and is not a director of the Corporation, shall receive
Options for 700 shares. In years subsequent to the initiation of the Plan, new
directors meeting the definitions above shall be awarded Options for 1,000
shares and 700 shares, respectively, upon becoming a director, and returning
directors shall receive Options for 500 shares and 350 shares, respectively. In
subsequent years, a person who becomes the Corporation's Chief Executive Officer
shall receive Options for 500 shares.
A committee comprised of nonemployee directors of the Board of Directors
of the Corporation shall have full authority and sole discretion with respect to
administration of the Plan. In this regard, a committee comprised of nonemployee
directors shall have sole discretion, subject to the specific grants contained
and terms set forth in the Plan, as to: (a) the persons to whom Options will be
granted, when such Options will be granted, and the number of shares and terms
with respect to such Options; (b) prescribe rules and regulations for
administering the Plan; and (c) decide any question arising as to the
interpretations or applications of any provisions under the Plan. All Options
granted under the Plan shall be required to be exercised within ten (10) years
of the date of the grant of the Options.
Under the Plan, a committee comprised of nonemployee directors may grant
Options on up to 500,000 shares which are available to be optioned under the
Plan. The price to be paid under the Plan shall be the fair market value per
share of the Corporation's common stock on the date the Option is granted. No
Option shall be exercisable after the expiration of ten (10) years after the
date of the grant of such Option. ISO's granted to a person who owns greater
than ten (10) percent of the common stock of the Corporation must be granted at
a price equal to 110% of the fair market value per share of the Corporation's
common stock on the date the Option is granted and must be exercised within five
(5) years of the date of such grant. No person presently owns ten (10) percent
of the Corporation's common stock. In addition, the Plan contains a limitation
which provides that the aggregate fair market value, as determined at the time
of the grant of such Options, for which ISO's are exercisable for the first time
under the terms of the Plan, by the employee during any calendar year, cannot
exceed $100,000.
Except in certain limited circumstances as set forth in the Plan,
Optionees of ISO's must be employees of the Corporation or the Bank at the time
of the exercise of any Options, and all Options not exercised at the time that
any such Optionee ceases to be an employee of the Corporation or the Bank shall
be canceled and the shares subject to such Options shall be made available to be
optioned under the Plan again.
Further, any person eligible for participation in the Plan,
notwithstanding such status, shall not acquire any rights, as a result of such
eligibility, to retain their employee status with the Corporation or the Bank
for any specific period of time.
All persons to whom Options are granted under the Plan shall be given
written notice of such grant and shall be required to execute a separate Stock
Option Agreement with the Corporation before such Options will take effect. In
order to exercise the Options, the Optionee shall be required to provide a
written notice of intent to exercise to the Corporation accompanied by full
payment for the shares being acquired as provided under the Plan. No Optionee
shall acquire any shareholder rights with respect to the shares purchased
pursuant to the exercise of such Options until the Corporation has issued a
certificate or certificates evidencing those shares to the exercising Optionee.
The Plan also provides for the award of Stock Appreciation Rights (SAR's)
in tandem with an Option to purchase shares of the Corporation under the Plan.
An SAR provides the Optionee with a cash benefit equal to the excess of the fair
market value for a share of the Corporation's common stock on the exercise date
over the fair market value for a share of stock on the date that the SAR was
granted. The total appreciation available to an Optionee from any exercise of an
SAR is equal to the number of SAR's being exercised times the amount of
appreciation per SAR. An Optionee may exercise an SAR only in conjunction with
the exercise of the Option to which the SAR is attached, and it may be exercised
only at such times and by such persons as may exercise Options under the Plan.
The Board of Directors adopted the Plan on January 16, 1997, subject to
the Shareholders' ratification. The affirmative vote of a majority of the
shares represented at the meeting is required to ratify the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS TO THE SHAREHOLDERS THE
ADOPTION OF THE UNB CORP. 1997 STOCK OPTION PLAN.
5
<PAGE> 6
THE BOARDS OF DIRECTORS AND THEIR COMMITTEES
In 1996, there were a total of six regularly scheduled or special
meetings of the Board of Directors of UNB Corp. All UNB Corp. Board members
served on the Board of Directors of the United National Bank & Trust Co., the
Corporation's wholly owned subsidiary. Also, Messrs. Louis V. Bockius III,
Abner A. Yoder, Harold M. Kolenbrander, Russell W. Maier, and Joseph J. Sommer
served on the Board of Directors of the United National Bank & Trust Co. In
1996, there were a total of twelve regularly scheduled or special meetings of
the Board of Directors of the Bank.
Messrs. D'Atri, Mang, Schneider, Yoder, and Sommer also served on the
Board of Directors of the United Credit Life Insurance Company, a wholly owned
subsidiary of UNB Corp. This Board met one time in 1996.
The Executive Committee of UNB Corp. consisted of Messrs. Schneider,
Mang, and D'Atri. The Committee met one time in 1996.
The Nominating Committee of UNB Corp. consisted of Messrs. Mang,
Schneider, and D'Atri. The Nominating Committee will consider nominees
recommended by Shareholders and submitted in writing to Mr. Mang. No nominees
for director will be accepted from the floor at the Annual Meeting. The
Committee met three times in 1996.
The Compensation and Pension Committee of UNB Corp. consisted of Messrs.
Bockius III, and Schneider. The Committee met three times in 1996.
The United National Bank & Trust Co. has an Audit Committee, a
Compensation and Pension Committee, a Trust Committee, a Nominating Committee,
an Executive Committee, an Acquisition Committee, and a Succession Committee.
The Audit Committee consisted of Messrs. Maier, Kolenbrander, Regula, and
Schneider. The functions of the Audit Committee are to review the results of the
external audit performed by Crowe, Chizek and Company, to oversee the scope and
results of the audit procedures performed by the internal audit staff, and to
review the adequacy of the Corporation's and the Bank's system of internal
controls. The Committee met four times in 1996.
The Compensation and Pension Committee consisted of Messrs. Yoder, Bockius
III, and Schneider. The function of the Compensation and Pension Committee is to
review salaries and benefits of officers and employees. The Committee met three
times in 1996.
The Trust Committee included Messrs. Maier, Mang, D'Atri, and Bockius III.
The Trust Committee oversees the Trust Department function. The Committee met
four times in 1996.
The Nominating Committee consisted of Messrs. D'Atri, Schneider, and
Mang. The function of the Nominating Committee is to recommend nominees for the
Board of Directors of the Bank. The Committee met three times in 1996.
The Executive Committee consisted of Messrs. Schneider, Sommer, Mang,
D'Atri, and Yoder. The Executive Committee of the Bank is authorized to act in
the absence of the Board of Directors in all Board-related matters. The
Committee met thirty-five times in 1996.
The Acquisition Committee consisted of Messrs. D'Atri, Regula, Sommer,
Yoder, Maier, Mang, and Schneider. The function of the Acquisition Committee is
to develop and implement the Board of Directors' acquisition strategy for the
Corporation and the Bank. The Committee met two times in 1996.
The Succession Committee consisted of Messrs. Bockius III, D'Atri,
Kolenbrander, Mang, and Schneider. The function of the Succession Committee is
to plan for management succession to ensure the continued successful operation
of the Corporation and the Bank. The Committee met six times in 1996.
Each nonemployee director of UNB Corp.'s Board of Directors is paid $300
per UNB Corp. Board meeting attended. Nonemployee members of all UNB Corp.
Committees receive $100 per committee meeting attended. The Bank pays each
nonemployee director $300 per month plus $250 per Bank Board meeting attended.
Each nonemployee member of the Bank's Executive Committee also receives $350
per month. Nonemployee members of all other committees receive $100 per
committee meeting attended. The Chairman of the Boards of Directors of UNB Corp.
and the United National Bank & Trust Co. receives a fee of $2,000 per month.
6
<PAGE> 7
COMPENSATION AND PENSION COMMITTEE REPORT
February 1997
The Compensation and Pension Committee's Report to the Shareholders
which follows was approved and adopted by the Committee on February 11, 1997,
and approved by the Board of Directors on February 13, 1997. The members of the
Compensation and Pension Committee are all independent directors.
UNB Corp. did not incur any salary expense in 1996 nor did it provide
pensions, profit sharing, tax-deferred savings plans, an incentive compensation
plan, or any other benefits to any of its officers or directors. All such
expenses are paid for, and any type of compensation or benefit plan is provided
by, UNB Corp.'s wholly owned subsidiary, the United National Bank & Trust Co.
All executive officers of the Corporation are also executive officers of the
Bank.
The Compensation Plan for the executive officers listed in the table
below consisted of these components: a base salary; the United Bank Stakeholder
Incentive Plan; and the 1987 Stock Option and Performance Unit Plan. Also, the
executive officers listed below are eligible for the UNB Tax-Deferred Savings
Plan and the UNB Corp. and Affiliates Deferred Compensation Plan.
On November 18, 1993, the Board of Directors of the United National Bank &
Trust Co. adopted the United Bank Stakeholder Incentive Plan. This Plan, which
is based on the achievement of multiple financial and other goals by the Bank
and individual Bank departments, will allow all United Bank employees an
opportunity to earn an incentive over and above their base salary. In 1996, the
performance of the executive officers listed in the table below was evaluated
under the United Bank Stakeholder Incentive Plan.
The base salary and the cash incentive paid under the United Bank
Stakeholder Incentive Plan to the Chief Executive Officer are based on the
achievement of specific performance objectives established by the Compensation
and Pension Committee and approved by the Board of Directors. The Chief
Executive Officer's performance objective is related directly to corporate
performance as measured by the Corporation's Return on Equity and the actual net
income of the Corporation compared to a targeted net income figure as approved
by the Board of Directors upon recommendation of the Compensation and Pension
Committee.
Base salaries and cash incentives paid under the United Bank Stakeholder
Incentive Plan to the other executive officers also are determined, in part, by
the overall performance of the Corporation as measured by the Corporation's
Return on Equity and the achievement of net income and other objectives. In
addition, executive officers' salaries and cash incentives are based on the
achievement of specific functional, managerial, and individual objectives which
are established each year by the Chief Executive Officer and approved by the
Compensation and Pension Committee.
The United Bank Stakeholder Incentive Plan provides for a percentage of
the Bank's income to be available for distribution to all eligible employees of
the Bank based on achieving a certain level of net income and on other key
performance indicators. The underlying principle of this Plan is to reward for
specific performance. Eligibility and allocation of incentive awards are
determined by the Compensation and Pension Committee and approved by the Board
of Directors; incentive awards are paid in February of the year following the
year in which the performance objectives were achieved.
The 1987 Stock Option and Performance Unit Plan was designed to benefit
the Corporation and its Shareholders by enabling the Corporation and the Bank to
attract and retain a strong management group. It is a long-term incentive
compensation plan designed to provide a competitive incentive and reward program
for the participants who remain with the company on a long-term basis; the Stock
Option and Performance Unit Plan's grants do not fully vest until five (5) years
after being awarded. The grants are based on the achievement of corporate goals
which are established by the Compensation and Pension Committee and approved by
the Board of Directors.
Effective October 1, 1984, the Bank established the UNB Tax-Deferred
Savings Plan (401-K) to which it may make contributions. Qualification of the
Plan was received on May 22, 1987. All full-time employees are eligible to
participate in the Plan, subject to certain eligibility requirements established
by the Plan. The Chief Executive Officer and the other executive officers are
participants in the Plan on the same basis as all other eligible employees.
Participants are permitted to make voluntary contributions to their accounts in
the Plan. Participants' contributions are invested, by their choice, in one of
four funds. All employees of UNB Corp., or its subsidiaries, as of December 31,
1989, are 100% vested in the Bank's future contributions. All employees hired
after December 31, 1989, must accumulate three years of service to achieve 100%
vesting of the Bank's contributions.
The UNB Corp. and Affiliates Deferred Compensation Plan provides an
opportunity for the participants to accumulate supplemental funds for
retirement on a tax-deferred basis. The purpose of this Plan is to aid the
Corporation and the Bank in attracting and retaining senior officers and
directors of exceptional ability by providing such individuals with the
benefits of deferring compensation under such a Plan. There is no financial
contribution to this Plan by either UNB Corp. or the Bank. Mr. Mang is
currently participating in this Plan.
Louis V. Bockius III, Chairman Donald W. Schneider Abner A. Yoder
7
<PAGE> 8
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
Securities
Underlying
Name and Other Restricted Options/Stock Long-Term All
Principal Annual Stock Appreciation Incentive Other
Position Year Salary Bonus Compensation Awards Rights (#)* Plan Payouts Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert L. Mang, 1996 $214,162 $70,946 $3,929 -0- -0- options $-0- $21,689(1)
President & Chief 1995 $199,728 $60,282 $4,063 -0- -0- options $-0- $21,089(2)
Executive Officer 1994 $190,217 $51,896 $4,339 -0- -0- options $-0- $21,239(3)
UNB Corp. and
United National Bank
& Trust Co.
Leo E. Doyle, 1996 $113,300 $21,300 $ -0- -0- 6,000 options $-0- $ 5,524(4)
Senior Vice 1995 $107,905 $24,494 $ -0- -0- 5,832 options $-0- $ 5,112(4)
President and 1994 $102,767 $19,900 $ -0- -0- 5,668 options $-0- $ 5,596(4)
Executive Officer
United National Bank
& Trust Co.
James J. Pennetti, 1996 $108,860 $20,466 $ -0- -0- 5,760 options $-0- $ 5,308(4)
Vice President 1995 $103,676 $23,534 $ -0- -0- 5,596 options $-0- $ 4,911(4)
Treasurer 1994 $ 98,739 $19,100 $ -0- -0- 5,440 options $-0- $ 5,392(4)
UNB Corp.
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
Robert M. Sweeney, 1996 $ 95,932 $20,434 $ -0- -0- 5,428 options $-0- $ 4,713(4)
Secretary 1995 $ 93,138 $21,608 $ -0- -0- 5,276 options $-0- $ 4,375(4)
UNB Corp. 1994 $ 91,312 $15,800 $ -0- -0- 5,128 options $-0- $ 4,905(4)
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
</TABLE>
*NOTE: THERE WERE NO STOCK APPRECIATION RIGHTS GRANTED IN THE FISCAL YEARS
ENDING DECEMBER 31, 1996, 1995, AND 1994.
(1) The total represents $14,489 paid by the Bank under a split-dollar life
insurance arrangement and $7,200 paid by the Bank under the UNB Tax-
Deferred Savings Plan.
(2) The total represents $14,489 paid by the Bank under a split-dollar life
insurance arrangement and $6,600 paid by the Bank under the UNB Tax-
Deferred Savings Plan.
(3) The total represents $14,489 paid by the Bank under a split-dollar life
insurance arrangement and $6,750 paid by the Bank under the UNB Tax-
Deferred Savings Plan.
(4) The total represents payments by the Bank under the UNB Tax-Deferred
Savings Plan.
FIVE YEAR SHAREHOLDER RETURN COMPARISON
The Securities and Exchange Commission requires that UNB Corp. include in
this proxy statement a line graph presentation comparing cumulative, five-year
shareholder returns on an indexed basis with a broad equity market index and
either a nationally recognized industry standard or an index of peer companies
selected by the Corporation.
8
<PAGE> 9
COMPARISON OF FIVE YEAR CUMULATIVE RETURN(1) AMONG UNB CORP.,
THE S&P 500 STOCK INDEX, AND THE DOW JONES REGIONAL BANK INDEX
[LINE GRAPH]
<TABLE>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Dow Jones Regional Bank Index(2) $100 $133.67 $140.69 $135.39 $216.53 $297.52
S&P 500 Stock Index(2) $100 $107.62 $118.46 $120.02 $165.14 $203.05
UNB Corp.(2) $100 $130.07 $162.31 $221.62 $259.92 $362.20
</TABLE>
(1) Assumes a reinvestment of dividends and a $100 initial investment on
December 31, 1991, in UNB Corp., the S&P 500 Stock Index, and the Dow
Jones Regional Bank Index.
(2) Based on quarterly dividends and quarterly closing stock prices.
1987 STOCK OPTION AND PERFORMANCE UNIT PLAN
Pursuant to its 1987 Stock Option and Performance Unit Plan (the "Stock
Option Plan"), which was approved by the Shareholders at the 1987 Annual
Meeting, there are outstanding Options to purchase an aggregate of 296,046
shares of common stock of UNB Corp. at a price equal to 100% of the fair market
value of the common stock on the respective dates on which the Options were
granted. The outstanding Options expire ten years from the date of grant.
The Compensation and Pension Committee of the Bank's Board of Directors
has exclusive power to determine which employees participate in the Stock Option
Plan and the type and amount of awards to be made under the Stock Option Plan.
Options granted under the Stock Option Plan qualify as Incentive Stock Options
as determined under the Internal Revenue Code. No awards may be made under the
Stock Option Plan after February 11, 1997.
Once awarded, each Option cannot be exercised sooner than three years from
the date of grant nor later than ten years from the date of grant. An Option may
be exercised only while an Optionee is an employee of the Corporation (or a
subsidiary) or within ninety days after termination of employment for any reason
other than death or total disability, but only to the extent that it was
exercisable at the date of termination. If the Optionee is terminated by reason
of total disability, his Options may be exercised in full or in part, to the
extent not previously exercised, within one year following termination of
employment (but not later than the expiration date of such Options). If the
Optionee shall cease to be employed by the Corporation by reason of normal
retirement (as defined in the Corporation's Pension Plan), the Options shall
terminate and may no longer be exercised, except that within the period of
ninety days following such retirement, but not later than the expiration date of
the Options, the Options may be exercised in full or in part to the extent not
previously exercised. If an Optionee's employment is terminated by death or if
he dies within ninety days after cessation of employment, a person entitled by
will or by the laws of descent and distribution to exercise the Options may
exercise the Options in full or in part at any time prior to the expiration date
of the Options to the extent not previously exercised.
Once an Option is awarded, the Optionee, after the third consecutive year
of employment following the grant, may exercise the Option and purchase up to
25% of the total number of shares allowed by the Option. After the fourth
consecutive
9
<PAGE> 10
year of employment following the grant, the Optionee may exercise the Option and
purchase up to 50% of the total number of shares allowed by the Option. The
Option shall be fully exercisable and the Optionee may exercise the Option and
purchase 100% of the total number of shares allowed by the Option after the
fifth consecutive year of employment following the grant.
Payment for shares upon exercise of an Option under the Stock Option Plan
may be made in cash or by delivery of previously issued shares of common stock
of the Corporation having a fair market value equal to the exercise price, or a
combination of cash and shares. There is reserved for issuance upon exercise of
stock options granted under the Stock Option Plan a total of 382,020 common
shares of the Corporation.
OPTIONS/STOCK APPRECIATION RIGHTS GRANTED IN 1996
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option Term
- --------------------------------------------------------------------------------------------------------------------------------
% of Total
Number of Options/Stock
Securities Underlying Appreciation
Options/Stock Rights Granted
Appreciation to Employees Exercise Expiration
Name Rights Granted (#)* in 1996 Price Date 5% 10%
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Leo E. Doyle, 6,000 options 21.7% $22.00/ January 18, 2006 $ 82,860 $ 210,360
Senior Vice share
President and
Executive Officer
United National Bank
& Trust Co.
James J. Pennetti, 5,760 options 20.8% $22.00/ January 18, 2006 $ 79,546 $ 201,946
Vice President share
Treasurer
UNB Corp.
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
Robert M. Sweeney, 5,428 options 19.6% $22.00/ January 18, 2006 $ 74,961 $ 190,306
Secretary share
UNB Corp.
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
</TABLE>
*NOTE: THERE WERE NO STOCK APPRECIATION RIGHTS GRANTED IN THE FISCAL YEAR
ENDING DECEMBER 31, 1996.
10
<PAGE> 11
AGGREGATED OPTIONS/STOCK APPRECIATION RIGHTS EXERCISED IN 1996 AND
FISCAL YEAR-END 1996 OPTIONS/STOCK APPRECIATION RIGHTS VALUES
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options/Stock In-The-Money Options/
Appreciation Rights* at Stock Appreciation Rights*
Shares Fiscal Year-End 1996 (#) at Fiscal Year-End 1996
Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Mang, -0- $ -0- 69,407 57,745 $1,461,752 $1,055,633
President & Chief
Executive Officer
UNB Corp. and
United National Bank
& Trust Co.
Leo E. Doyle, -0- $ -0- 23,707 24,441 $ 517,286 $ 330,427
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
James J. Pennetti, 2,324 $43,602 20,769 23,455 $ 450,888 $ 317,078
Vice President
Treasurer
UNB Corp.
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
Robert M. Sweeney, 1,400 $23,032 18,583 22,109 $ 402,378 $ 298,890
Secretary
UNB Corp.
Senior Vice
President and
Executive Officer
United National Bank
& Trust Co.
</TABLE>
*NOTE: THERE WERE NO STOCK APPRECIATION RIGHTS EXERCISED IN 1996 NOR WERE
THERE ANY STOCK APPRECIATION RIGHTS OUTSTANDING AT FISCAL YEAR-END 1996.
PENSION PLAN
UNB Corp. does not have an Employee Pension Plan. However, executive
officers of UNB Corp. and the United National Bank & Trust Co. are participants
in the United National Bank & Trust Co.'s Pension Plan (the "Plan") which is a
Defined Benefit Plan for all eligible full-time employees as defined by the
Plan.
The following table sets forth retirement benefits at various levels of
compensation and years of service based upon retirement at age 65. For this
table, benefits are based on 1996 Plan provisions using a male born in 1935.
11
<PAGE> 12
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION YEARS OF SERVICE
------------ ----------------
15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$125,000 $38,854 $51,806 $64,757 $64,757 $64,757
$150,000 $47,291 $63,055 $78,819 $78,819 $78,819
$175,000 $47,291 $63,055 $78,819 $78,819 $78,819
$200,000 $47,291 $63,055 $78,819 $78,819 $78,819
$225,000 $47,291 $63,055 $78,819 $78,819 $78,819
$250,000 $47,291 $63,055 $78,819 $78,819 $78,819
$300,000 $47,291 $63,055 $78,819 $78,819 $78,819
$400,000 $47,291 $63,055 $78,819 $78,819 $78,819
$450,000 $47,291 $63,055 $78,819 $78,819 $78,819
$500,000 $47,291 $63,055 $78,819 $78,819 $78,819
</TABLE>
NOTE: BENEFITS LISTED DO NOT INCLUDE SOCIAL SECURITY BENEFITS.
THE MAXIMUM ANNUAL SALARY ALLOWABLE FOR 1996 IS $150,000 FOR A DEFINED
BENEFIT PLAN.
A participant's remuneration covered by the Plan is his or her annual
compensation as defined by the Plan averaged over the three highest consecutive
compensation periods as defined in the Plan. For the named executives as of the
end of the last calendar year, the covered compensation is: Mang, $150,000;
Doyle, $130,089; Pennetti, $125,106; Sweeney, $112,072. The estimated years of
service for each named executive is as follows: Mang, twenty years; Doyle,
twenty years; Pennetti, twenty-four years; Sweeney, twenty-seven years. Benefits
are computed as a straight-life annuity beginning at age 65.
Mr. Mang and the Bank are parties to a Supplemental Deferred Compensation
Agreement (the "Agreement"). The Agreement provides for deferred compensation to
be paid to Mr. Mang equal to the amount of the annual benefit Mr. Mang was
unable to receive from the Plan as a result of the $150,000 salary limitation
required by Section 415 of the Internal Revenue Code for the calculation of
retirement benefits. This amount is payable in equal monthly installments for a
period of 15 years to Mr. Mang or his beneficiary or in any other manner
provided for in the Plan as elected by Mr. Mang or his beneficiary. The current
estimated annual benefit payable to Mr. Mang under the Agreement, upon his
retirement at age 65 based upon 20 years of accredited service and $246,996.33
of average annual compensation, is $39,669.24.
CHANGE OF CONTROL AGREEMENTS
On November 16, 1995, the Boards of Directors of the Corporation and the
Bank approved the recommendation of the Compensation and Pension Committee and
adopted and entered into Change of Control Agreements (the "Agreements") with
the four executive officers of the Bank, namely Robert L. Mang, Leo E. Doyle,
James J. Pennetti, and Robert M. Sweeney. The Agreements become effective only
upon a change of control of the Corporation as defined in the Agreements. If,
prior to a change of control, the executive's employment with the Corporation
or the Bank is terminated by death, retirement, disability, resignation, or
dismissal for any reason, the Agreements will terminate.
The Boards of Directors approved and adopted these Agreements in order to
help to assure the objectivity of these executive officers in evaluating a
potential change of control and in advising the Board of Directors of the
Corporation whether or not a potential change of control would be in the best
interests of the Corporation and its Shareholders. Further, these Agreements
will help to assure the present and future continuity of executive management
and will be an inducement for these four key officers to remain in the
employment of the Corporation and the Bank should a change of control occur.
The Change of Control Agreements provide that upon termination of
employment, as defined in the Agreements, within two years following a change of
control, unless the executive is terminated for good cause as defined in the
Agreements, the executive will be entitled to severance compensation. The
Agreements also provide that if the executive voluntarily terminates employment
not earlier than six months and not later than nine months following a change of
control, the executive will be entitled to severance compensation.
In the event of the termination of the executive's employment as described
above, the executive shall be entitled to receive either a lump sum cash payment
equal to two years of compensation (base salary plus incentive) or upon the
executive's election, two years of compensation (base salary plus incentive)
payable in equal monthly payments, in cash, without interest.
Following the termination of the executive's employment, the Corporation
shall continue the executive's coverage in the Bank's health, disability, and
life insurance plans, at the same levels that had been provided the executive
immediately prior to his termination of employment, for a period of two years.
12
<PAGE> 13
Payments made to an executive under the terms of the Agreements shall be
included within the definition of compensation for all qualified and
nonqualified retirement plans of the Corporation or the Bank. The benefit
period as defined in the Agreements shall be included within the computation of
any and all years of service and/or age requirements for the determination of
the amount of or vesting of benefits under the Corporation's or the Bank's
qualified and nonqualified retirement plans.
In the event of the termination of employment of the executive as defined
in the Agreements, the executive shall be entitled to one year of out-placement
services following termination of employment. All costs of such services shall
be paid for by the Corporation.
Under the terms of the Agreements, the Corporation and the executive agree
to arbitrate any issue, misunderstanding, disagreement, or dispute in connection
with the terms of the Agreements in accordance with the rules of the American
Arbitration Association. Any and all costs associated with the executive's
enforcement of the provisions of the Agreements through arbitration shall be
borne by the Corporation.
TRANSACTIONS WITH MANAGEMENT AND RELATED PARTIES
Some of the directors and officers of UNB Corp., and the companies with
which they are associated, were customers of the Bank, and had banking
transactions with the Bank in the ordinary course of business during 1996, and
expect to have such banking transactions in the future. All loans and
commitments for loans included in such transactions were made in the ordinary
course of business, on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
other persons, and in the opinion of the management of the Bank, did not involve
more than normal risk of collectibility or present other unfavorable features.
The aggregate amount of such loans and commitments outstanding at December 31,
1996, was $4,956,765, or 7.0%, of the Corporation's equity at year-end 1996.
Director E. Lang D'Atri is a partner in the law firm Day, Ketterer, Raley,
Wright & Rybolt. In the ordinary course of business, UNB Corp. and the United
National Bank & Trust Co. have retained the legal services of this firm in the
past and may retain its services in the future. In 1996, the Corporation and the
Bank paid a total of $28,856 to Day, Ketterer, Raley, Wright & Rybolt for legal
services rendered by the firm.
In 1996, the Bank paid $413,108 to Hal Jones Construction Co. Director
Jones is the President of that Company, and it was the general contractor for
the construction of the Bank's new Hartville branch which was opened on February
3, 1997. The Bank put this construction project out for competitive bids, and
Hal Jones Construction Co. was the low bidder.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
During the fiscal years ended December 31, 1996, 1995, and 1994, no
director, officer, or other person required to file such reports failed to file
reports required by Section 16(a) of the Exchange Act or failed to file such
reports in a timely manner.
LEGAL PROCEEDINGS
In June 1996, as a result of threats to block and barricade ingress and
egress to the Lake Cable branch of the Bank by the partnership which then owned
the Cable Shores Shopping Center, the Bank and other adjacent property owners
commenced an action in the Stark County Common Pleas Court for a temporary
restraining order and an injunction prohibiting the threatened interference and
for a court declaration that the Bank, other property owners, and their
customers have the right to such access. The temporary restraining order was
granted. A counterclaim was filed against the Bank by the partnership which
seeks compensatory damages of one million dollars and punitive damages of two
million dollars from the Bank for alleged trespass arising from the use of the
entrance driveway by the Bank and its customers. Although this matter remains in
litigation and the issues have not yet been resolved at trial, it is the
position of management and counsel that the Bank has defenses to the
counterclaim and that the Bank's use of the driveway does not constitute
trespass.
There are no other pending legal proceedings, other than ordinary routine
litigation incidental to the business of UNB Corp. and the United National Bank
& Trust Co., to which the Corporation or the Bank is a party. There are no
pending legal proceedings to which any director, officer, affiliate of the
Corporation, any owner of record, or beneficiary of more than five percent (5%)
of the common stock of the Corporation, or any associate of any such director,
officer, affiliate of the Corporation, or security holder is a party adverse to
the Corporation or any of its subsidiaries or has an interest adverse to that of
the Corporation or any of its subsidiaries.
13
<PAGE> 14
INDEPENDENT PUBLIC ACCOUNTANTS
Crowe, Chizek and Company, Certified Public Accountants, served as
independent public accountants for the purposes of auditing the Corporation's
Annual Consolidated Financial Statements and for the preparation of consolidated
tax returns for the fiscal year ended December 31, 1996. The appointment of
independent public accountants is approved annually by the Board of Directors.
The decision of the Board of Directors is based on the recommendation of the
Audit Committee. In making its recommendation, the Audit Committee reviewed both
the audit scope and estimated fees for professional services for the coming
year. On January 16, 1997, the Board of Directors authorized the engagement of
Crowe, Chizek and Company as independent public accountants for the year 1997.
One or more representatives of Crowe, Chizek and Company will attend the
Annual Meeting and will have the opportunity to make a statement if they so
desire. They will also be available to respond to appropriate questions.
SHAREHOLDERS' PROPOSALS
Proposals of Shareholders which are to be presented at the 1998 Annual
Meeting of Shareholders of the Corporation must be received by the Corporation
no later than October 24, 1997, for inclusion in the Corporation's proxy
statement and form of proxy relating to such meeting. Proposals should be sent
by certified mail, return receipt requested, to Robert M. Sweeney, Secretary,
UNB Corp., P.O. Box 24190, Canton, Ohio 44701.
OTHER BUSINESS
Management, at present, knows of no other business to be brought before
the meeting. If any other business is presented at such meeting, the proxy will
be voted in accordance with the recommendations of the Board of Directors.
By order of the Board of Directors,
/s/ Robert M. Sweeney
---------------------
Canton, Ohio ROBERT M. SWEENEY
February 21, 1997 Secretary
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS
POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO
ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY.
14
<PAGE> 15
APPENDIX A
UNB CORP.
1997 STOCK OPTION PLAN
ARTICLE I
Definitions
Section 1.1 Definitions. As used herein, the following terms shall have the
meaning set forth below, unless the context clearly requires otherwise:
(a) "Applicable Event" shall mean (i) the expiration of a tender offer or
exchange offer (other than an offer by the Company) pursuant to which
more than 30% of the Company's issued and outstanding Stock has been
purchased, or (ii) the approval by the shareholders of the Company of
an agreement to merge or consolidate the Company with or into another
entity where the Company is not the surviving entity, an agreement to
sell or otherwise dispose of all or substantially all of the Company's
assets (including a plan of liquidation), or the approval by the
shareholders of the Company of an agreement to merge or consolidate the
Company with or into another entity where the Company is the surviving
entity, pursuant to which more than 25% of the Company's issued and
outstanding Stock has been transferred.
(b) "Bank" shall mean the United National Bank and Trust Co., and any
subsidiary of the United National Bank and Trust Co. or UNB Corp.
(c) "Committee" shall mean a Committee consisting of the members of the
Board of Directors of the Company or Bank, who are not employees of the
Bank or the Company.
(d) "Company" shall mean UNB Corp.
(e) "Director" shall mean a member of the Board of Directors of the Company
and/or the Bank.
(f) "Effective Date" with respect to the Plan shall mean the date specified
in Section 2.3 as the Effective Date.
(g) "Fair Market Value" with respect to a share of Stock shall mean the
fair market value of the Stock, as determined by application of such
reasonable valuation methods as the Committee shall adopt or apply. The
Committee's determination of Fair Market Value shall be conclusive and
binding on the Company and the Optionee. The Committee shall take into
account the valuation performed for the 401(k) plan maintained for the
benefit of the employees of the Bank.
(h) "Option" shall mean an option to purchase Stock granted pursuant to the
provisions of the Plan. Options granted under the Plan shall be either
Nonqualified Stock Options or Incentive Stock Options. An Incentive
Stock Option shall mean an Option to purchase shares of Stock which is
designated as an Incentive Stock Option by the Committee and is
intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended. Nonqualified Stock Options shall mean
an Option to purchase shares of Stock which is not an Incentive Stock
Option.
(i) "Optionee" shall mean a Director, officer or employee of the Bank or
the Company to whom an Option has been granted.
(j) "Plan" shall mean the UNB Corp. 1997 Stock Option Plan, the terms of
which are set forth herein.
(k) "Plan Year" shall mean the twelve-month period beginning on the
Effective Date, and each twelve-month period thereafter beginning on
the anniversary date of the Effective Date.
(1) "Stock" shall mean the Common Stock of the Company or, in the event
that the outstanding shares of Stock are changed into or exchanged for
shares of a different stock or securities of the Company or some other
entity, such other stock or securities.
15
<PAGE> 16
(m) "SAR" or "Stock Appreciation Right" shall mean a right to receive cash
in an amount equal to the excess of the fair market value of a share of
Stock on the exercise date over the fair market value of a share of
Stock on the date the Stock Appreciation Right is granted pursuant to
the provisions of the Plan.
(n) "Stock Option Agreement" shall mean the agreement between the Company
and the Optionee under which the Optionee may purchase Stock pursuant
to the terms of the Plan.
ARTICLE II
The Plan
Section 2.1 Name. This plan shall be known as the "UNB Corp. 1997 Stock Option
Plan".
Section 2.2 Purpose. The purpose of the Plan is to advance the interests of the
Company and its shareholders by affording to Directors and officers of the
Company and the Bank an opportunity to acquire or increase their proprietary
interest in the Company by the grant to such persons of Options under the terms
set forth herein. By encouraging such persons to become owners of the Company,
the Company seeks to attract, motivate, reward and retain those highly competent
individuals upon whose judgment, initiative, leadership and efforts the success
of the Company depends.
Section 2.3 Effective Date and Term. The Plan was approved by the Board of
Directors of the Company on January 16, 1997, and shall be effective
retroactively on March 1, 1997, as approved by a majority of the shareholders of
the Company present in person or by proxy at the meeting of shareholders of the
Company held on April 15, 1997. The Plan shall terminate upon the tenth
anniversary of the Effective Date.
ARTICLE III
Administration
Section 3.1 Administration.
(a) The Plan shall be administered by the Committee. Subject to the express
provisions of the Plan, the Committee shall have sole discretion and
authority to determine from time to time the individuals to whom Options
may be granted, the number of shares of Stock to be subject to each
Option, the period during which such Option may be exercised and the price
at which such Option may be exercised.
(b) Meetings of the Committee shall be held at such times and at such places
as shall be determined from time to time by the Committee. A majority of
the members of the Committee shall constitute a quorum for the transaction
of business and the vote of a majority of those members present at any
meeting shall decide any question brought before the meeting. In addition,
the Committee may take any action otherwise proper under the Plan by the
affirmative vote, taken without a meeting, of a majority of the members.
(c) No member of the Committee shall be liable for any act or omission of any
other member of the Committee or for any act of omission on his own part,
including, but not limited to, the exercise of any power or discretion
given to him under the Plan, except those resulting from his own gross
negligence or willful misconduct. All questions of interpretations and
application with respect to the Plan, or Options granted thereunder, shall
be subject to the determination, which shall be final and binding, of a
majority of the whole Committee.
(d) In addition, the Committee shall have the sole discretion and authority to
determine whether an Option shall be an Incentive Stock Option or a
Nonqualified Stock Option, or both types of Options, provided that
Incentive Stock Options may be granted only to persons who are employees
of the Company or the Bank.
16
<PAGE> 17
Section 3.2 Company Assistance. The Company and the Bank shall supply full and
timely information to the Committee on all matters relating to eligible
employees, their employment, death, retirement, disability or other termination
of employment and such other pertinent facts as the Committee may require. The
Company and the Bank shall furnish the Committee with such clerical and other
assistance as is necessary in the performance of its duties.
ARTICLE IV
Optionees
Section 4.1 Eligibility. Directors and officers of the Company and the Bank
shall be eligible to participate in the Plan. The Committee may grant Options
to any eligible individual subject to the provisions of Section 5.1.
ARTICLE V
Shares of Stock Subject to the Plan
Section 5.1 Grant of Options and Limitations.
(a) Initial Plan Year. For the initial Plan Year, the Committee shall grant
Options according to the following schedule:
1. Each person who is a Director of the Company and not actively
employed by the Company or the Bank as of the Effective Date
shall receive Options for 1,000 shares of Stock;
2. Each person who is a Director of one or more Banks and is not
a Director of the Company or actively employed by the Company
or Bank as of the Effective Date shall receive Options for 700
shares of Stock;
3. The Company's CEO, determined as of the Effective Date, shall
receive Options for 1,000 shares of Stock;
4. Such other individuals, excluding individuals identified in
Section 5.1(a)(1) or (2), as are designated by the Committee
shall be eligible to receive Options for the number of shares
of Stock as determined by the Committee.
(b) Subsequent Years. As of the first day of each subsequent Plan Year, Options
shall be granted according to the following schedule:
1. Each person who is a Director of the Company and not actively
employed by the Company or Bank, who has never received
Options as a result of being a Director, shall receive Options
for 1,000 shares of Stock; however, if the Company's CEO,
determined as of the Effective Date, becomes eligible under
this Subsection (b)(l) he shall receive Options for 500
shares of Stock;
2. Each person who is a Director of the Company, has previously
received Options as a result of being a Director, and is not
actively employed by the Company or the Bank shall receive
Options for 500 shares of Stock;
3. Each person who is a Director of one or more Banks, and is not
a Director of the Company or actively employed by the Company
or Bank, who has never received Options as a result of being a
Director, shall receive Options for 700 shares of Stock;
4. Each person who is a Director of one or more Banks, has
previously received Options as a result of being a Director,
and is not a Director of the Company or actively employed by
the Company or Bank shall receive Options for 350 shares of
Stock;
5. Such other individuals as are designated by the Committee
shall be eligible to receive Options for the number of shares
of Stock as determined by the Committee.
17
<PAGE> 18
(c) Stock Available for Options. Subject to adjustments pursuant to the
provisions of Section 9.3 hereof, the aggregate number of shares with
respect to which Options may be granted during the term of the Plan shall
not exceed 500,000 shares of Company Stock as determined as of the
Effective Date. Shares with respect to which Options may be granted may be
either authorized and unissued shares or shares issued and thereafter
acquired by the Company.
Section 5.2 Options Under the Plan. Shares of Stock with respect to which an
Option granted hereunder shall have been exercised shall not again be available
for grant hereunder. If Options granted hereunder shall expire, terminate, or be
canceled for any reason without being wholly exercised, new Options may be
granted hereunder covering the number of shares to which such Option expiration,
termination or cancellation related.
ARTICLE VI
Options
Section 6.1 Option Grant and Agreement. Each Option granted hereunder shall be
evidenced by minutes of a meeting or the written consent of at least a majority
of the members of the Committee and by a written Stock Option Agreement dated as
of the date of grant and executed by the Company and the Optionee. The Stock
Option Agreement shall set forth such terms and conditions as may be determined
by the Committee consistent with the Plan.
Section 6.2 Option Price. The exercise price of the Stock subject to each Option
shall not be less than the Fair Market Value of the Stock on the date the Option
was granted.
Section 6.3 Option Grant and Exercise Periods. No Option may be granted after
the tenth anniversary of the Effective Date. The period for exercise of each
Option shall be determined by the Committee, but in no instance shall such
period extend beyond the tenth anniversary of the date of grant of the Option.
The period of exercise for each Incentive Stock Option granted to an Optionee,
who owns Stock possessing more than 10% of the total combined voting power of
all classes of Stock of the Company, may not be more than five (5) years from
the date of grant of the Option.
Section 6.4 Option Exercise.
(a) The Company shall not be required to sell or issue shares under any Option
if the issuance of such shares shall constitute or result in a violation
by the Optionee or the Company of any provisions of any law, statute, or
regulation of any governmental authority. Specifically, in connection with
the Securities Act of 1933, (the "Act"), upon exercise of any Option, the
Company shall not be required to issue such shares unless the Committee
has received evidence satisfactory to it to the effect that registration
under the Act or applicable state securities laws is not required, unless
the offer and sale of securities under the Plan is registered or qualified
under the Act or applicable state laws. Any determination in this
connection by the Committee shall be final, binding and conclusive. If
shares are issued under any Option without registration under the Act or
applicable state securities laws, the Optionee may be required to accept
the shares subject to such restrictions in transferability as may, in the
reasonable judgment of the Committee, be required to comply with
exemptions from registration under such laws. The Company may, but shall
in no event be obligated to, register any securities covered hereby
pursuant to the Act or applicable state securities laws. The Company shall
not be obligated to take any other affirmative action in order to cause
the exercise of an Option or the issuance of shares pursuant thereto to
comply with any law or regulation of any governmental authority.
(b) Subject to Section 6.4(c), and such terms and conditions as may be
determined by the Committee in its sole discretion upon the grant of an
Option, an Option may be exercised in whole or in part and from time to
time by delivering to the Company at its principal office written notice
of the intent to exercise the Option with respect to a specified number of
shares. In the case of an Incentive Stock Option, the aggregate fair
market value of the shares (under all plans of the Company), with respect
to which such options are exercisable for the first time by an Optionee
during any calendar year, may not exceed $100,000. The aggregate fair
market value of the shares is determined on the date of grant.
18
<PAGE> 19
(c) An Option shall be exercisable according to the following vesting schedule:
20% after one year from the date of grant;
40% after two years from the date of grant;
60% after three years from the date of grant;
80% after four years from the date of grant;
100% after five years from the date of grant.
Provided, however, that upon the earlier of (i) the Optionee's 62nd birth date,
(ii) the occurrence of an Applicable Event, (iii) the death of the Optionee, or
(iv) total disability, all Options granted to the Optionee shall be fully
exercisable in accordance with the terms of the Plan. For purposes of this Plan,
an Optionee is totally disabled if he is receiving disability benefits under the
Social Security Act as the result of a total and permanent disability, or is
determined to be totally disabled under any long-term disability plan sponsored
by the Bank or the Company.
If the number of shares subject to Options granted to an Optionee during a Plan
Year ever exceeds 5,000 shares, then the vesting schedule can be determined at
the discretion of the Committee, but in no event would the vesting schedule
exceed ten years from the date of the grant.
At the discretion of the Committee, all or a portion of the Options previously
granted to an Optionee can be amended to reduce the vesting schedule or
immediately 100% vest such Options.
(d) Subject to such terms and conditions as may be determined by the Committee
in its sole discretion upon grant of any Options, payment for the shares
to be acquired pursuant to exercise of the Options shall be made as
follows:
1. By delivering to the Company at its principal office a check payable
to the order of the Company, in the amount of the Option price for
the number of shares of Stock with respect to which the Option is
then being exercised; or
2. By delivering to the Company at its principal office certificates
representing Stock, duly endorsed for transfer to the Company,
having an aggregate Fair Market Value as of the date of exercise
equal to the amount of the Option price, for the number of shares of
Stock with respect to which the Option is then being exercised; or
3. By any combination of payments delivered pursuant to paragraphs
(d)(l) and (d)(2) above.
Section 6.5 Rights as Shareholder. An Optionee shall have no rights as a
Shareholder with respect to any shares subject to such Options prior to the
exercise of the Options and the purchase of such shares.
Section 6.6 Limited Rights. Within the earlier of (i) the occurrence of an
Applicable Event, or (ii) 30 days following the date on which the Company
obtains knowledge of and notifies an Optionee of an Applicable Event, an
Optionee shall have the right (without regard to the limitation on the exercise
of Options set forth in Section 6.4(c) of the Plan and similar limitations in
the Stock Option Agreement) to exercise Options and Stock Appreciation Rights
then held, or to surrender unexercised Options in exchange for a cash amount.
Such cash amount shall be equal to the total appreciation from any exercise of
Stock Appreciation Rights, plus the product of (1) the number of shares of Stock
subject to the Option, or the portion thereof which is surrendered, multiplied
by (2) the amount by which the highest price paid or to be paid per share,
pursuant to an Applicable Event, exceeds the exercise price.
ARTICLE VII
Stock Appreciation Rights
Section 7.1 Stock Appreciation Rights. The Board of Directors may, upon
recommendation of the Committee, grant Stock Appreciation Rights to Optionees at
the same time as such Optionees are awarded Options under the Plan. Such Stock
19
<PAGE> 20
Appreciation Rights shall be evidenced by an agreement in such form as the
Committee shall from time to time approve. Such agreement, shall comply with,
and be subject to, the following terms and conditions:
(a) Grant. Each Stock Appreciation Right shall relate to a specific Option
under the Plan and shall be awarded to an Optionee concurrently with the
grant of such Option. The number of Stock Appreciation Rights granted to
an Optionee shall be equal to a proportion of the number of shares that
the Optionee is entitled to receive pursuant to the Plan.
(b) Grant of Parallel Award. In that each Stock Appreciation Right is parallel
to an Option, the exercise of all or a portion of the Options shall cause
an equal exercise of the same proportion of Stock Appreciation Rights
granted under the Plan. A Stock Appreciation Right can only be exercised
in conjunction with the exercise of the parallel Option.
(c) Calculation of Appreciation. Each Stock Appreciation Right shall entitle
an Optionee to the excess of the fair market value of a share of Stock on
the exercise date over the fair market value of a share of Stock on the
date the Stock Appreciation Right was granted. The total appreciation
available to an Optionee from any exercise of Stock Appreciation Rights
shall be equal to the number of Stock Appreciation Rights being exercised
times the amount of appreciation per Stock Appreciation Right.
(d) Payment of Appreciation. The total appreciation available to an Optionee
from an exercise of Stock Appreciation Rights shall be paid in cash.
(e) Exercise Limitations. An Optionee may exercise a Stock Appreciation Right
only in conjunction with the exercise of the Option to which the Stock
Appreciation Right is attached. Stock Appreciation Rights may be exercised
only at such times and by such persons as may exercise Options under the
Plan.
ARTICLE VIII
Termination, Amendment and Modification of the Plan
Section 8.1 Termination. The Plan shall expire with respect to the granting of
Stock Options or Stock Appreciation Rights at the close of business on February
28, 2007. The Board of Directors of the Company may at any time and from time to
time and in any respect amend, modify or terminate the Plan; provided, however,
that absent the approval of shareholders representing a majority of the voting
shares of Stock of the Company, no such action may:
(a) increase the total number shares of Stock or Stock Appreciation Rights
subject to the Plan, except as contemplated in Section 9.4 hereof; or
(b) withdraw the administration of the Plan from the Committee; or
(c) change the terms by which an Option or Stock Appreciation Right may be
exercised, in whole or in part, as described in Section 6.4 of the
Plan; or
(d) change the limitation on the price at which Options or Stock
Appreciation Rights may be granted hereunder as provided by Section
6.2; or
(e) affect any Stock Option Agreement or Stock Appreciation Right Agreement
previously executed pursuant to the Plan without the consent of the
Optionee.
ARTICLE IX
Miscellaneous
Section 9.1 Transferability. During the Optionee's lifetime, any Option or Stock
Appreciation Right may be exercised only by the Optionee or any guardian or
legal representative of the Optionee, and the Option shall not be transferable
except, with
20
<PAGE> 21
respect to both Nonqualified Stock Options and Incentive Stock
Options, in the case of the death of the Optionee, by will or the laws of
descent and distribution, and with respect to Nonqualified Stock Options; (i) as
specifically permitted by and solely to the extent permitted in the Stock Option
Agreement, or (ii) to an immediate family member, a partnership consisting
solely of immediate family members, or trusts for the benefit of immediate
family members.
Section 9.2 Designation of Beneficiary. An Optionee may file a written
designation of a beneficiary who is to receive any Stock and/or cash. Such
designation of beneficiary may be changed by the Optionee at any time by written
notice to the Treasurer of the Company. Upon the death of an Optionee and upon
receipt by the Company of proof of identity and the existence at the time of the
Optionee's death of a beneficiary validly designated by the Optionee under the
Plan, the Company shall deliver such Stock and/or cash to such beneficiary. In
the event of the death of an Optionee and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such Optionee's
death, the Company shall deliver such Stock and/or cash to the executor or the
administrator of the estate of the Optionee, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such Stock and/or cash to the spouse or to any
one or more dependents of the Optionee as the Company may designate. No
beneficiary shall, prior to the death of the Optionee by whom he has been
designated, acquire any interest in the Stock or cash credited to the Optionee
under the Plan.
Section 9.3 Effect of Termination of Employment or Death.
(a) If an Optionee's status as a Director or as an employee of the Company or
the Bank terminates for any reason, other than the death, disability or
termination of service after attainment of age 65, before the date of
expiration of Nonqualified Stock Options and Stock Appreciation Rights
held by such Optionee, such Nonqualified Stock Options and Stock
Appreciation Rights shall become null and void on the 90th day following
the date of such termination. An Optionee who terminates employment with
the Company or the Bank, but retains his status as a Director is not
considered terminated for purposes of this Section 9.3. The date of such
termination shall be the date the Optionee ceases to be a Director or an
employee of the Company or the Bank.
(b) If an Optionee dies before the expiration of Nonqualified Stock Options
and Stock Appreciation Rights held by the Optionee, such Nonqualified
Stock Options and Stock Appreciation Rights shall terminate on the earlier
of (i) the date of expiration of the Nonqualified Stock Options and Stock
Appreciation Rights, or (ii) one year following the date of the Optionee's
death. The executor or administrator or personal representative of the
estate of a deceased Optionee, or the person or persons to whom
Nonqualified Stock Options and Stock Appreciation Rights granted hereunder
shall have been validly transferred by the executor or the administrator
or the personal representative of the Optionee's estate, shall have the
right to exercise the Optionee's Nonqualified Stock Options and Stock
Appreciation Rights. To the extent that such Nonqualified Stock Options
and Stock Appreciation Rights would otherwise be exercisable under the
terms of the Plan and the Optionee's Stock Option Agreement and Stock
Appreciation Rights Agreement, such exercise may occur at any time prior
to the termination date specified in this paragraph.
(c) If an Optionee separates from service after attainment of age 65, before
the expiration of Nonqualified Stock Options and Stock Appreciation Rights
held by the Optionee, such Nonqualified Stock Options and Stock
Appreciation Rights shall terminate on the earlier of (i) the date of
expiration of the Nonqualified Stock Options and Stock Appreciation
Rights, or (ii) three years following the date of the Optionee's
termination of service.
(d) If an Optionee becomes totally disabled before the expiration of
Nonqualified Stock Options and Stock Appreciation Rights held by the
Optionee, such Nonqualified Stock Options and Stock Appreciation Rights
shall terminate on the earlier of (i) the date of expiration of the
Nonqualified Stock Options and Stock Appreciation Rights, or (ii) one year
following the date of the Optionee's termination of service due to
disability.
(e) In the case of Incentive Stock Options, if an Optionee's status as an
employee of the Company or the Bank terminates for any reason, other than
disability, before the date of expiration of Incentive Stock Options held
by such Optionee, such Incentive Stock Options shall become null and void
on the date three months following the date of such termination. For an
Optionee who terminates employment with the Company due to disability, as
defined in the Internal Revenue Code Section 22(c)(3), the three-month
period specified in the prior sentence shall become one year.
21
<PAGE> 22
Section 9.4 Antidilution. The provisions of subsections (a) and (b) shall apply
in the event that the outstanding shares of Stock are changed into or exchanged
for a different number or kind of shares or other securities of the Company or
another entity by reason of any merger, consolidation, reorganization,
recapitalization, reclassification, combination, stock split or stock dividend.
(a) The aggregate number and kind of shares subject to Options and Stock
Appreciation Rights which may granted hereunder shall be adjusted
appropriately.
(b) Where dissolution or liquidation of the Company or any merger or
combination in which the Company is not the surviving company is involved,
each outstanding Option and Stock Appreciation Right granted hereunder
shall, subject to Section 6.6, terminate.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined solely by the Committee and any such adjustments
may provide for the elimination of fractional share interests.
Section 9.5 Application of Funds. The proceeds received by the Company from
the sale of Stock pursuant to Options shall be used for general corporate
purposes.
Section 9.6 Tenure. Nothing in the Plan or in any Options or Stock Appreciation
Rights granted hereunder, or in any Stock Option Agreements or Stock
Appreciation Rights Agreements relating thereto, shall confer upon any Director,
or upon any officer or any employee, the right to continue in such position with
the Company or the Bank.
Section 9.7 Other Compensation Plans. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or the Bank, nor shall the Plan preclude the Company or the Bank
from establishing any other forms of incentive or other compensation for
Directors, officers, or employees of the Company or the Bank.
Section 9.8 No Obligation to Exercise Options. The granting of an Option or
Stock Appreciation Right shall impose no obligation upon the Optionee to
exercise such Option or Stock Appreciation Right.
Section 9.9 Plan Binding on Successors. The Plan shall be binding upon the
successors and assigns of the Company.
Section 9.10 Singular, Plural Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun shall include the
feminine.
Section 9.11 Headings, Etc., No Part of Plan. Headings of Articles and Sections
hereof are inserted for convenience of reference; they constitute no part of the
Plan.
Section 9.12 Governing Law. Except as otherwise required by law, the validity,
construction and administration of this Plan shall be determined under the laws
of the State of Ohio.
22
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