<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1997
Commission File Number 000-22523
UNION NATIONAL BANCORP, INC.
Maryland 52-0514247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification number)
117 East Main Street, Westminster, MD 21157 (410) 848-7200
(Address of principal executive offices) (Telephone number)
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
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy of information statement
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K [ ]
As of March 17, 1998, Union National Bancorp had 1,674,870 shares of common
stock outstanding, par value $.01.
Documents Incorporated by Reference
Portions of the Union National Bancorp. Inc. 1997 Annual Stockholders
Report for the year ended December 31, 1997 , Parts I,II, IV
Portions of Union National Bancorp Inc. Proxy Statement dated March 24,
1998, Part III
<PAGE>
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, hereunto duly authorized.
Union National Bancorp, Inc.
Date: March 24, 1998 by: /s/ Virginia W. Smith
President and Chief Executive Officer
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.
Date: March 24, 1998 by: /s/ K. Wayne Lockard
Director & Chairman of the Board
Date: March 24, 1998 by: /s/ Donald C. Essich
<PAGE>
Director & Vice Chairman
Date: March 24, 1998 by: /s/ Kenneth B. Wright
Director
Date: March 24, 1998 by: /s/ Robert T. Scott
Director
Date: March 24, 1998 by: /s/ Larry A. Van Sant, Sr.
Director
Date: March 24, 1998 by: /s/ Joseph H. Beaver, Jr.
Director
Date: March 24, 1998 by: /s/ Wesley D. Blakeslee
Director
Date: March 24, 1998 by: /s/ Dean H. Griffin
Director
Date: March 24, 1998 by: /s/ Ethan A. Seidel
Director
Date: March 24, 1998 by: /s/ Ellen Willis Miller
Director
Date: March 24, 1998 by: /s/ William R. Klinger
Director
Date: March 24, 1998 by: /s/ Bernard L. Jones, Sr.
Director
Date: March 24, 1998 by: /s/ Robert L. Bullock
Director
Date: March 24, 1998 by: /s/ David L. Brauning
Director
Date: March 24, 1998 by: /s/ Gabrielle M. Peregoy
Vice President & Controller
<PAGE>
EXHIBIT INDEX
(3). Charter and Bylaws
(3a.) Articles of Incorporation of Union National is
incorporated by reference form Union National's Form 10, filed with the
Commission of May 5, 1997, and Form 10/A, file with the Commission on August
21,1997 (Registration No. 0-22523)
(3b.) Bylaws of union national is incorporated by reference
form Union National's Form 10, filed with the Commission of May 5, 1997, and
Form 10/A, file with the Commission on August 21,1997 (Registration No.
0-22523)
(10) Material Contracts
(10a.) Employment Agreement between the Union National Bank of
Westminster and Virginia W. Smith, President, is incorporated by reference form
Union National's Form 10, filed with the Commission of May 5, 1997, and Form
10/A, file with the Commission on August 21,1997 (Registration No. 0-22523)
(10b.) 1997 Stock Option Plan is incorporated by reference
form Union National's Form 10, filed with the Commission of May 5, 1997, and
Form 10/A, file with the Commission on August 21,1997 (Registration No. 0-22523)
(10c.) Leases between The Union National Bank of Westminster
and K. Wayne Lockard, Director, dated October 1, 1997, is incorporated by
reference form Union National's Form 10, filed with the Commission of May 5,
1997, and Form 10/A, file with the Commission on August 21,1997 (Registration
No. 0-22523)
(10b.) Key employee retention plan
Union National Bank
Key Employee Retention Plan
1. Purpose. The purpose of this Key Employee Retention Plan ("Plan")
is to further the interests of Union National Bank ("Bank") by providing
incentives to attract and retain key employees.
2. Administration. The Plan shall be administered by the Board of
Directors of the Bank or a committee designated by the Board (the
"Administrator"). Subject to the provisions of the Plan and applicable law,
the Board is authorized to interpret the Plan, to adopt, amend and rescind
rules and regulations relating to the Plan, and to make all other
determinations necessary or advisable for the administration of the Plan
(except such determinations which conflict with the authority or power of the
Board). No Director or member of any committee administering the Plan shall
vote upon or decide any matter relating solely to himself/herself (or member
of his/her immediate family), or solely to any of his/her rights or benefits
(or rights or benefits of a member of his/her immediate family) under the
Plan.
3. Plan Participation. The Board shall determine and designate from
time to time those employees of the Bank who shall be eligible to participate
in the Plan (each a "Participant") and the category of separation payments
for which each Participant will be eligible. Participation in the Plan shall
not confer upon any Participant any right of continuation of service as an
employee or officer of the Bank or other rights of employment except as
expressly stated herein.
4. Defined Terms. The following terms used in the plan shall have the
following meanings:
<PAGE>
(a) "Change in Control" means the occurrence of any one or
more of the following events: (i) the acquisition of "beneficial ownership"
by a person or entity, including any "group" (as such terms are defined under
Section 13(d) of the Securities Exchange Act of 1934), of 50% or more of the
outstanding shares of common stock of the Bank or of its parent company (the
"Parent"); (ii) the sale or other disposition of all or substantially all of
the assets of the Bank or the Parent in one transaction or a series of
transactions; (iii) a merger, consolidation or share exchange involving the
Bank or the Parent and any other person or entity, in which the Bank or the
Parent is not the surviving entity or in which the outstanding shares of
capital stock of the Bank or the parent do not continue to be outstanding;
and (iv) any other "business combination" (as defined in Section 3-601(e) of
the Maryland General Corporation Law) involving the Bank or the parent and
any person or entity, whether or not such person or entity is an "interested
stockholder" under that statute.
(b) "Qualifying Termination" means:
(i) the termination of employment of a Participant by the
Bank in anticipation of or within 18 months after a Change in Control, or
(ii) the resignation of a Participant within 18 months after
a Change in Control as a direct result of any of the following action taken by
the Bank with respect to a Participant in anticipation of or after a Change in
Control:
(A) the demotion of a Participant or the reduction of a
Participant's regular base salary below the amount in effect
immediately prior to the Change in Control;
(B) the substantial curtailment of the rights, duties and
responsibilities of a Participant as compared to those
possessed by the Participant prior to the Change in Control;
or
(C) the reassignment of a Participant, or relocation of the
office or facility to which he/she shall report, to a
location that is more than 25 miles from the Participant's
place of employment prior to the Change in Control.
(c) A Qualifying Termination shall not include the following:
(i) Termination of the Participant for cause. "Cause"
includes an action or failure to act by the Participant constituting:
(A) fraud, misappropriation or intentional material damage
to the property or business of the Bank, the commission of
an act of deliberate and material dishonesty, a material
breach of the Bank's corporate code of ethics, commission of
a crime, or causing the Bank to commit a crime; or
(B) continued failure by the participant to satisfactorily
perform his/her duties or job functions after written notice
to the Participant by the Board of Directors specifying such
failure; provided that such "cause" shall have been found by
a majority vote of the board of Directors after notice to
the Participant specifying the cause and an opportunity for
the Participant to be heard by the Board of Directors; or
<PAGE>
(ii) A transfer of employment of the Participant to the parent or a
subsidiary of the Parent or of the Bank (collectively, a "Related Entity") in
anticipation of or after a Change in Control, in which case the Participant
shall continue to be a Participant under the Plan.
5. Plan Benefits. Subject to the compliance by the Participant with the
conditions specified in Paragraph 6, in the event of a Qualifying Termination of
the Participant, the Participant shall be entitled to the following benefits
("Plan Benefits"):
(a) Separation Payments. A Participant will be entitled to receive an
amount equal to his/her base salary (at the amount in effect at the time of the
Qualifying Termination) for the applicable number of weeks set forth below.
Separation payments will be paid on the Bank's regular pay days and will be
subject to standard withholdings and deductions. For purposes of determining the
number of full years of service under this Plan, a Participant shall be credited
with all time that he/she was continuously employed by the Bank or any Related
Entity regardless of any transfers of employment among them.
Category I. Participants in this category will be entitled to
receive separation payments for 78 weeks (18 months) plus one
additional week for each full year of service he/she has completed
with the Bank, up to a maximum of 130 weeks (30 months).
A Participant under Category I shall be obligated to seek
employment. The first 52 weeks (12 months) of the Participants
separation payments will be guaranteed and the remaining weeks will be
reduced by 50% if the Participant receives or is entitled to receive
any amount from other employment, including self-employment, during or
in respect of such weeks.
Category II. Participants in this category will be entitled to
receive separation payments for 52 weeks (12 months) plus one
additional week for each full year of service he/she has completed
with the Bank, up to a maximum of 104 weeks (24 months).
A Participant under Category II shall be obligated to seek
employment. The first 52 weeks (12 months) of the Participants
separation payments will be guaranteed and the remaining weeks will be
reduced by 50% if the Participant receives or is entitled to receive
any amount from other employment, including self-employment, during or
in respect of such weeks.
Category III. Participants in this category will be entitled to
receive separation payments for 26 weeks (6 months) plus one
additional week for each full year of service he/she has completed
with the Bank, up to a maximum of 78 weeks (18 months).
A Participant under Category III shall be obligated to seek
employment. The first 26 weeks (6 months) of the Participants
separation payments will be guaranteed and the remaining weeks will be
reduced by 50% if the Participant receives or is entitled to receive
any amount from other employment, including self-employment, during or
in respect of such weeks.
Category IV. Participants in this category will be entitled to
receive separation payments for 13 weeks (3 months) plus one
additional week for each full year of service he/she has completed
with the Bank, up to a maximum of 52 weeks (12 months).
A Participant under Category IV shall be obligated to seek
employment. The first 26 weeks (6 months) of the Participants
separation payments will be guaranteed and the remaining weeks will be
reduced by 50% if the Participant receives or is entitled to receive
any amount from other employment, including self-employment, during or
in respect of such weeks.
(b) Health Insurance. A Participant will be entitled to continue
to receive health insurance benefits from the Bank on the same basis, as if
he/she were actively employed, for a period of six months. Months of
continued coverage hereunder will not be counted towards the number of months
of continued coverage to which the Participant (and any of his/her covered
dependents) is entitled pursuant to COBRA or any similar law.
<PAGE>
(c) Notwithstanding anything to the contrary, the Plan Benefits
shall be reduced by any other severance type or other benefits which the
Participant receives or is entitled to receive from the Bank or a Related
Entity pursuant to any other plan, a contract, or otherwise.
6. Conditions to Plan Benefits. All Plan Benefits provided or to be
provided under this Plan are subject to the continued compliance of the
Participant with the following conditions:
(a) Release of Claims. The Participant will release the Bank and
its Related Entities (and their officers, directors, employees and agents)
from and against all claims that he/she may have against them and will
convenant not to bring, and shall not bring, any action in respect of any
claim so released.
(b) Non-Competition. For a period of one year following a
Qualifying Termination, the Participant will not directly or indirectly,
either individually or as owner, partner, agent, employee, consultant or
otherwise, for himself or any other person or entity, solicit, enter into or
attempt to establish any business relationship, competitive with the business
of the Bank or any Related Entity, with any person or entity that was a
customer of the Bank or any Related Entity within 12 months of the date of
the Qualifying Termination.
(c) Confidential Information. The Participant will not, either
directly or indirectly, use, disclose or communicate to any person or entity
any trade secret or confidential or proprietary information of the Bank or
any Related Entity. For purposes of this Agreement, "trade secret or
confidential or proprietary information" means any information concerning the
Bank or any Related Entity which he/she learned during his/her employment and
which is not generally known or available to sources outside the Bank and
Related Entities; such information shall include (without limitation)
information, whether written or otherwise, regarding earnings, expenses,
plans, strategies, prospective and executed contracts, and other business
arrangements.
(d) Return of Property/Amounts Owed. The Participant will promptly
return all property of the Bank and Related Entities. The Participant promptly
will reimburse the Bank and Related Entities for any personal telephone calls,
credit card charges, and other expenses and pay all amounts due to such entity.
(e) Breach by Participant. In the event the Participant breaches
any of the conditions set forth in this Section, in addition to any other
remedies it may have, the Bank shall not be required to provide any of the
Plan Benefits, and the Participant shall be obligated to return to the Bank,
upon demand, an amount equal to all Plan Benefits that he/she received under
this Plan.
(f) Agreement. The Participant will, upon request, sign an
agreement satisfactory to the Bank which includes the conditions set forth in
this Section 6.
7. Death of Participant. Upon the death of a Participant receiving Plan
Benefits, the beneficiary(ies) of the Participant (whom he/she designated for
purposes of group life insurance benefits) shall be entitled to receive the
Plan Benefits through the end of the month in which the Participant's death
occurred.
8. Administration of the Plan.
(a) Administrator. The Administrator shall have full power to
administer the Plan. The Plan shall be administered in accordance with its
terms, for the exclusive benefit of Participants. The Administrator shall be
entitled to appoint persons to assist it in administering the Plan, and shall
be entitled to delegate, in writing, its responsibilities to other persons.
<PAGE>
The Administrator shall have full discretionary authority to interpret
the Plan and to decide all questions concerning the Plan. Its interpretation
shall be binding on all concerned.
(b) Indemnification. The Bank agrees to indemnify and to defend to the
fullest extent permitted by law any person who performs or has performed
administrative functions for the Administrator against any liabilities and
expenses (including attorneys' fees and amounts paid in settlement of any claims
approved by the Bank) occasioned by any act or omission in connection with the
Plan which occurred in good faith.
(c) Appeal of a Denied Claim.
(i) If a Participant believes that he/she is entitled to
benefits under the Plan, the Participant may submit a claim to the
administrator within 2 months after the date of the event which he/she
believes is a Qualifying Termination. The Administrator will either grant the
claim, deny it, or extend the time for processing it. Any extension will not
be longer than 180 days from the date the claim was submitted.
(ii) If a claim arising under this Plan is wholly or partially
denied, notice of the decision shall be furnished to the Participant within
90 days after receipt of the claim by the Administrator. If special
circumstances require an extension of time for processing the claim, written
notice of the extension shall be furnished to the Participant prior to the
end of the initial 90 day period. In no event shall such extension exceed a
period of 90 days from the end of such initial period. The extension notice
shall indicate the special circumstances requiring an extension of time and
the date by which the Administrator expects to render the final decision. The
written notice to the Participant regarding a denied claim for benefits shall
include (A) the specific reason(s) for the denial; (B) specific reference to
pertinent Plan provisions which the denial is based; (C) a description of any
additional material or information necessary for the Participant to perfect
the claim and an explanation of why such material or information is
necessary; (D) that the Participant or his/her duly authorized representative
has a reasonable opportunity to appeal the denial of the claim, including but
not limited to: requesting a review upon written application to the Plan;
reviewing pertinent documents; and submitting issues and comments in writing;
and (E) appropriate information as to the steps to be taken if the
Participant wishes to appeal the denial of the claim.
(iii) The Administrator's decision regarding the appeal shall
be made not later than 60 days after the receipt of the appeal, unless
special circumstances require an extension of time, in which case the
Participant shall be notified of the extension and a decision shall be
rendered as soon as possible, but not later than 120 days after receipt of
the appeal. The decision regarding the appeal shall be in writing and shall
include specific reasons for the decision, written in a manner calculated to
be understood by the Participant, as well as specific references to the
pertinent Plan provisions on which the decision is based. The Administrator's
decision regarding the appeal will be final and binding on all concerned.
9. Amendments and Termination. The Board of Directors may amend,
suspend, discontinue or terminate the plan, but no such action shall, without
the consent of each Participant, alter or impair the Plan benefits to be
provided to such Participant under the Plan.
10. Binding Effect.
(a) This Plan shall inure to the benefit of each Participant. This
Plan shall be binding upon the Bank, its successors and assigns, including any
person or entity that acquires the business or assets of the Bank pursuant to a
Change in Control (a "transferee"); provided, however, that no such transfer or
assignment shall relieve the Bank from its obligations hereunder.
<PAGE>
(b) All obligations of the Bank under this Plan are subject to
applicable statutes and regulations. The Bank shall use its reasonable best
efforts to obtain all consents and approvals necessary to comply with the
provisions of this Plan.
ADOPTED BY UNION NATIONAL BANK ON January 13, 1998.
(11) Statements re computation of per share earnings
a. The per share earning is calculated by dividing the 1997
and 1996 net income of $2,400,102 and $1,830,028, respectively, by the number of
shares outstanding for 1997 and 1996 of $1,674,870 and $834,000, respectively.
Primary and fully diluted were the same for both 1997 and 1996.
(12) Statements re computation of ratios
a. The percentage ratio of net income to average total
assets is calculated by dividing the 1997 and 1996 net income of $2,400,102
and $1,830,028, respectively, by the average total assets for 1997 and 1996
of $234,206,000 and $221,146,000, respectively.
b. The percentage ratio of net income to average shareholders'
equity is calculated by dividing the 1997 and 1996 net income of $2,400,102 and
$1,830,028, respectively, by the average shareholders' equity for 1997 and 1996
of $18,884,000 and $17,242,000, respectively.
c. The percentage ratio of average shareholders' equity to
average total assets is calculated by dividing the 1997 and 1996 average
shareholders' equity of $18,884,000 and $17,242,000, respectively, by the
average total assets for 1997 and 1996 of $234,206,000 and $221,146,000,
respectively.
d. The percentage ratio of cash dividends declared to net
income is calculated by dividing the 1997 and 1996 cash dividend of $592,120 and
$660,380, respectively, by the net income for 1997 and 1996 of $2,400,102 and
$1,830,028, respectively.
(13) Annual report to stockholders
Filed herewith
(16) Letter re change in certifying accountants
Is incorporated by reference from Union National's 8-K file
with the Commission on October 6, 1997.
(21) Subsidiaries of the Registrant
Is incorporated by reference form Union National's Form 10,
filed with the Commission of May 5, 1997, and Form 10/A, file with the
Commission on August 21,1997 (Registration No. 0-22523)
(23) Consents of Experts & Counsel
(23a.) Keller Bruner & Co.
<PAGE>
117 EAST MAIN STREET
WESTMINSTER, MARYLAND 21157
410-848-7200
UNION NATIONAL
BANCORP, INC.
UNB
<PAGE>
FINANCIAL HIGHLIGHTS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
% Change From Prior Year
------------------------
FOR THE YEARS ENDING DECEMBER 31: 1997 1996 1995 1997/96 1996/95
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INCOME ............................. $ 2,400 $ 1,830 $ 1,760 31.2% 4.0%
Net Interest Income .................... $ 9,821 $ 9,262 $ 8,999 6.0% 2.9%
Noninterest Income ..................... 1,327 1,086 977 22.2 11.1
Noninterest Expense .................... (7,309) (7,255) (7,114) 0.7 2.0
Provision for Loan Losses .............. (275) (329) (212) (16.4) 55.2
Return on Average Assets ............... 1.02% 0.83% 0.82%
Return on Average Equity ............... 12.71% 10.61% 11.34%
AVERAGE BALANCES:
Assets ................................. $ 234,206 $ 221,146 $ 214,620 5.9% 3.0%
Deposits ............................... 199,435 193,895 182,201 2.9 6.4
Gross Loans ............................ 148,586 146,479 144,642 1.4 1.3
Stockholders' Equity ................... 18,884 17,242 15,513 9.5 11.1
AT DECEMBER 31:
Assets ................................. $ 250,781 $ 225,131 $ 218,891 11.4% 2.9%
Deposits ............................... 205,639 199,291 193,462 3.2 3.0
Gross Loans ............................ 158,348 147,351 146,822 7.5 0.4
Stockholders' Equity ................... 20,064 17,900 16,421 12.1 9.0
PER SHARE DATA:
Net Income ............................. $ 1.43 $ 1.10 $ 1.06 30.0% 3.8%
Dividends .............................. 0.34 0.29 0.26 19.3 9.6
Stockholders' Equity ................... 11.98 10.73 9.84 11.6 9.1
RATIOS AND KEY DATA
Loans (% of Deposits) .................. 77.00% 73.94% 75.89%
Allowance for Credit Losses (% of Loans) 1.13% 1.20% 1.20%
Net Charge-Offs (% of Average Loans) ... 0.17% 0.22% 0.08%
Offices at year end .................... 8 8 7
Employees (Full-time equivalent) ....... 118 114 113 3.5% 0.9%
Shares Outstanding ..................... 1,674,800 1,668,000 1,668,000
Shareholders ........................... 442 445 442
Average Equity to Average Assets ....... 8.06% 7.80% 7.23%
Total Risk-based Capital Ratio ......... 12.78% 12.80% 11.92%
</TABLE>
SUMMARY:
EARNINGS: In 1997, earnings grew 31.2% to a record $2,400,102, up 18.8% after
adjusting for a non-recurring expense in 1996.
DIVIDENDS: Grew 19.3% to $.34 per share, from $.29 in 1996.
REVENUES: Total revenues were $11,148,034, up 7.7%, or $799,906.
Net interest income remains the major source of revenue at $9,821,344
and was up 6%, or $559,006.
Noninterest income, on the other hand, grew 22.1% to $1,326,700.
EXPENSES: Noninterest expense growth was held to .7%.
Salaries and benefits represented our largest expense and were up 4.6%.
Legal and consulting fees were down dramatically to offset the
increase.
ASSETS: Grew to over $250 million, up 11.4% from year-end 1996.
Loans by year-end, were $158 million, up 7.5%.
Deposits were up 3.2%, to $205.6 million.
<PAGE>
UNION NATIONAL BANCORP, INC
PRESIDENT'S MESSAGE
1997 for Union National was a year of transition, preparation and growth.
Internally, we rebuilt our infrastructure, repositioning under new management
and retooling to compete and enhance our efficiencies. At the same time, we
focused on building banking relationships, expanding our market share and
increasing value for our shareholders, customers, employees and our community.
Despite restrictive regulations and stiff competition in the banking environment
and growth constraints in Carroll County, we were successful in generating new
sources of income while controlling expenses. These efforts resulted in record
earnings of $2,400,102, up 31% from 1996.
KEY TO OUR ACCOMPLISHMENTS WERE FIVE STRATEGIC INITIATIVES:
1. WE EXPANDED OUR PRODUCT LINE TO COMPETE AS A FULL FINANCIAL SERVICES
PROVIDER. Today's banking landscape is intensely competitive, as non-banks -- be
they mutual fund, captive finance companies of car dealers, or insurance
companies -- are aggressively picking off the most profitable pieces of bank
business. Given these challenges, we decided to compete by capitalizing on what
UNB does best: relationship and service. Having made our decision, we are
confident we will win -because UNB can provide the entire package of financial
services through one source, which non banks can't do and do not want. We do.
Thus, to traditional banking services, we added investments and retirement
services to become a convenient, competitive "one-stop-shop" for all of our
customers' financial needs. To direct our efforts, we hired Becky Lynch, a
10-year brokerage firm veteran, and developed a partnership with PrimeVest, a
national broker through which our customers can select from more than 200 mutual
funds and 10 annuities. Sixteen employees were trained and licensed to sell
mutual funds or annuities, producing more than $200,000 in commissions. We were
able to develop attractive home equity products and the techniques to market
them, thereby shrinking our reliance on indirect loans. We also expanded
offerings for our commercial customers. Among the range of non-credit services
added were retirement services, direct deposit, payroll processing, electronic
ZBAs and sweep accounts.
2. TO ACCOMPLISH THE FIRST INITIATIVE, WE NEEDED TO REINVEST IN OUR PEOPLE.
Banks have traditionally been transaction-based. Today, customers want more.
They want help and information -- which requires training. Under the leadership
of Steve Stewart, our new VP of branches and marketing from Leggett, we improved
service by retraining our employees in new services and coaching them to help
customers find the services they need to meet their financial objectives.
3. WE OUTSOURCED SOME SERVICES. Technology has made it possible for smaller
banks like UNB to provide services faster
[GRAPHIC]
<PAGE>
ANNUAL REPORT 1997
and at competitive costs. By outsourcing selected services, we were able to take
advantage of industry expertise and state-of-the-art economies of scale and, in
so doing, continue to reduce our operating expenses -- up only 0.1% this year.
Our outsourcing partners include FiServe (account processing); Guardian
(employee benefits, including health insurance); Nova (merchant services); and
MBNA (credit cards and check cards).
4. WE EXPANDED OUR SERVICE DELIVERY. Five new remote ATMs, a bank call center
and telephone banking (voice response) brought bank services "home" to customers
and gave them convenient access to their accounts, when they wanted it. The
opening of our Eldersburg branch gained us a much-needed presence in one of the
county's fastest growing communities. In January 1998, the Mt. Airy branch was
opened for business.
5. WE RECONNECTED WITH THE COMMUNITY. Like branches, Advisory Boards offer us
excellent opportunities to enhance our presence in the community and build
strong banking relationships. This year, we welcomed Melvin L. Anderson, Gregory
C. Maier, Robert L. Moser and Margaret A. Miller to our Finksburg and Hampstead
advisory boards. Melvin Mills, R. Kyle Pritts and David S. Bollinger have joined
the new Westminster advisory board. The new Mt. Airy advisory board is taking
shape.
These five important initiatives were the foundation of a 4-year plan
developed by our board and management team to direct UNB growth and enhance
shareholder value. The plan was based on a strategic analysis of our
environments. Key to our analysis was determining whether remaining an
independent bank was our best course to enhance shareholder value.
To provide an objective assessment of our plan, we engaged as our
consultant Sandler O'Neill, one of the country's premier investment banking
firms specializing in community banks. They confirmed our business plan and
earnings projections but also recommended that to remain independent we needed
to improve stock performance. This involved increasing liquidity and ensuring an
efficient market in the stock. (See page 4 for more details.)
RECOGNITIONS
UNB is focused clearly on the future, yet we remain grateful to those who have
helped us achieve our current success. Two loyal employees, Doris Schultz at the
West Main branch and Shirley Zumbrum at the Hampstead branch, have retired. We
thank them for their 41 years of dedicated service.
On a sadder note, we mark the passing of Caroline R. Taylor, 93, whose
legacy with UNB spanned her lifetime. Her father, James Pearre Wantz, Sr., was
president of the bank when she was born. In 1960 Her brother, James Pearre
Wantz, Jr., became President. Mrs. Taylor, who created her own unique place at
Union National, died in May 1997.
Finally, I want to thank Board Chairman K. Wayne Lockard and the board once
again for their many hours of dedicated service to the bank. I also want to
thank the management team and staff whose enthusiasm and commitment allowed us
to deal so successfully with change, while improving earnings.
LOOKING AHEAD
In 1998, we are confident that earnings will increase 13%, and 13-15% over the
next three years. We expect the ROE to be above 13%. These gains are
sustainable. We are reaping the benefits of major initiatives in commercial
lending with the average loan growth expected to be impressive next year -- in
the 14% range. Much of the growth will come from our entry into South Carroll,
one of the fastest growing markets in the state.
Lastly, I believe that the many changes we've made this year have enabled
us to deliver better service and better banking products at a competitive price
- -- while we keep our genuine commitment to the community we serve. UNB has
become high-tech, while remaining high touch, by adhering to our strategies --
and to our principles --
I am convinced that we will continue to grow, gain market share and create
the value that our stakeholders expect.
Sincerely,
Virginia W. Smith
<PAGE>
ANNUAL REPORT 1997
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION
AND RESULTS OF OPERATION
INFORMATION IN THE "MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" OTHER THAN HISTORICAL
INFORMATION, MAY CONTAIN FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO, THE COMPANY'S INTEREST RATE RISK
POSITION, CREDIT AND ECONOMIC TRENDS ON BOTH A REGIONAL AND NATIONAL BASIS,
TECHNOLOGICAL CHANGE, THE NUMBER AND SIZE OF COMPETITORS IN THE COMPANY'S
MARKET, AND THE IMPACT OF FUTURE LEGAL AND REGULATORY ACTIONS, INCLUDING THE
ESTABLISHMENT OF FEDERAL DEPOSIT INSURANCE RATES. IT IS IMPORTANT TO NOTE THAT
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN
FORWARD LOOKING STATEMENTS.
OVERVIEW
Union National Bancorp produced record earnings in 1997. Net income for the year
was $2,400,102 or 31.2% over 1996's $1,830,028. The Company experienced a one
time charge to earnings in 1996 as a result of legal expenses related to the
termination of merger activity. Excluding this one time charge of $190,827 in
1996, the 1997 increase in net earnings was $379,248 or 18.8%. Net interest
income was up $559,000 or 6% due to strong performance in investments and loans.
Loans rose dramatically in the fourth quarter. Much of this growth came from Mt.
Airy and our Home Equity Promotion. Noninterest income was up $241,000 over
1996. Noninterest expense was held to a .74% growth.
Total assets were $250.8 million as of December 31, 1997, an increase of
$25.6 million or 11.4% over the previous year. We experienced strong growth in
investments from our customers in Sweep accounts and CD's. We also rolled out a
new Non-Profit deposit product in the fourth quarter that showed respectable
growth. Non-traditional bank product sales were up 235% over last year.
Return on average assets in 1997 was 1.02% as compared to .83% in 1996 and
.82% in 1995. The return on average equity was 12.71% in 1997 as compared to
10.61% in 1996 and 11.34% in 1995.
Dividends on common stock rose to $.34 in 1997 from $.285 in 1996 and $.26
in 1995. This represents a 19.3% increase over 1996.
NET INTEREST INCOME
Net interest income remains the major component of the Company's earnings, and
consists of the excess interest income from earning assets over the expense of
interest-bearing liabilities. Earning assets are composed primarily of loans and
securities, while deposits and short-term borrowings represent the major portion
of interest-bearing liabilities. Changes in the volume and mix of these assets
and liabilities, as well as changes in the yields earned and rates paid, are
determinants of the changes in net interest income.
[graphic]
[graphic]
<PAGE>
Net interest income was $9,821,344 in 1997, $9,262,338 in 1996, and
$8,999,263 in 1995. The trend has shown continual improvement due to loan and
investment growth. Net interest income on a tax-equivalent basis was
$10,080,000, $9,502,000, and $9,240,000 in 1997, 1996, and 1995, respectively.
The net interest spread dropped to 3.92% in 1997, from 3.95% in 1996 and 4.01%
in 1995. Surprisingly, we were able to hold the net interest margin as a
percentage of earning assets at 4.53%, the same as it was in 1996, but down
slightly from 4.56% in 1995.
Average earning assets were $222,332,000 in 1997, up 6.16% from
$209,433,000 in 1996 which was 3.37% more than the $202,610,000 in 1995. Total
interest income on a tax-equivalent basis was up 4.9% to $18,473,000 over 1996
at $17,601,000. Tax-equivalent yield on earning assets fell to 8.31% from the
8.40% in 1996, which was down from 1995's 8.55%.
Non-performing assets were down to $1,470,202 by year-end and several are
in the process of resolution and are well secured.
Average interest-bearing liabilities were $191,091,000 in 1997 up 5.06%
from $181,884,000 in 1996 which was up 2.10% from $178,139,000 in 1995. These
funds made up 81.59% of average assets in 1997 compared to 82.25% in 1996, and
83.01% in 1995. Total interest expense was $8,393,000 in 1997, up $294,000 or
3.64% from $8,099,000 in 1996 which was 0.08% higher than the 1995 level.
The following table illustrates average balances of assets, liabilities,
and stockholders' equity, as well as the related income and expense for each
item and the average yields and cost for the years 1995 through 1997:
<PAGE>
ANNUAL REPORT 1997
AVERAGE BALANCE SHEETS AND YIELD ANALYSIS
<TABLE>
<CAPTION>
(IN THOUSANDS-TAX EQUIVALENT BASIS) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans:
Real estate:
Mortgage ............................. $ 94,804 $ 8,997 9.49% $ 90,443 $ 8,728 9.65% $ 86,718 $ 8,412 9.70%
Construction ......................... 3,653 351 9.60 1,843 184 9.98 3,527 351 9.95
Installment ............................. 24,190 2,039 8.43 22,039 1,903 8.64 23,147 2,025 8.75
Commercial .............................. 22,718 2,063 9.08 30,482 2,783 9.13 30,055 2,800 9.32
Tax-exempt .............................. 3,221 306 9.50 1,672 164 9.79 1,195 112 9.38
--------- --------- --------- -------- -------
TOTAL LOANS ............................. 148,586 13,756 9.26 146,479 13,762 9.39 144,642 13,700 9.47
--------- --------- --------- ------- -------- -------
Investment securities available for sale:
Taxable ................................. 49,233 3,235 6.57 31,609 1,942 6.14 27,342 1,698 6.21
Tax-exempt .............................. 591 73 12.35 598 65 10.89 3,729 327 8.78
--------- --------- --------- ------- -------- -------
TOTAL SECURITIES AVAILABLE FOR SALE ..... 49,824 3,308 6.64 32,207 2,007 6.23 31,071 2,025 6.52
--------- --------- --------- ------- -------- -------
Investment securities held to maturity:
Taxable ................................. 9,985 559 5.60 15,198 859 5.65 20,819 1,164 5.59
Tax-exempt .............................. 5,275 387 7.34 6,350 482 7.59 3,222 270 8.37
--------- --------- --------- ------- -------- -------
TOTAL SECURITIES HELD TO MATURITY ....... 15,260 946 6.20 21,548 1,341 6.22 24,041 1,434 5.96
--------- --------- --------- ------- -------- -------
Interest-bearing deposits in other banks .. 58 4 6.90 1,101 61 5.54 328 20 6.10
Federal funds sold ........................ 8,604 459 5.33 8,098 430 5.31 2,528 153 6.05
--------- --------- --------- ------- -------- -------
TOTAL EARNING ASSETS ................. 222,332 18,473 8.31% 209,433 17,601 8.40% 202,610 17,332 8.55%
--------- ------- -------
Less: allowance for credit losses ......... (1,832) (1,768) (1,759)
Cash and due from banks ................... 5,850 5,838 6,034
Bank premises and equipment, net .......... 3,980 3,854 3,596
Other assets .............................. 3,876 3,789 4,139
--------- --------- --------
TOTAL ASSETS ......................... $ 234,206 $ 221,146 $214,620
--------- --------- --------
--------- --------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing demand deposits .......... $ 19,787 403 2.04% $ 18,462 379 2.05% $ 16,357 373 2.28%
Regular savings deposits .................. 31,470 859 2.73 33,190 909 2.74 38,182 1,177 3.08
Money market savings deposits ............. 17,919 566 3.16 18,528 586 3.16 18,357 586 3.19
Time deposits ............................. 107,410 5,872 5.47 102,739 5,829 5.67 89,308 5,056 5.66
--------- --------- --------- ------- -------- -------
TOTAL INTEREST-BEARING DEPOSITS ........... 176,586 7,700 4.36 172,919 7,703 4.45 162,204 7,192 4.43
Other borrowings .......................... 14,505 693 4.78 8,965 396 4.42 15,935 900 5.65
--------- --------- --------- ------- -------- -------
TOTAL INTEREST-BEARING LIABILITIES 191,091 8,393 4.39 181,884 8,099 4.45 178,139 8,092 4.54
--------- ------- -------
NET INTEREST SPREAD .................. $ 10,080 3.92% $ 9,502 3.95% $ 9,240 4.01%
--------- ------- -------
--------- ------- -------
Non interest-bearing demand deposits ...... 22,849 20,976 19,997
Accrued expenses and other liabilities .... 1,382 1,044 971
Stockholders' equity ...................... 18,884 17,242 15,513
--------- --------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ................. $ 234,206 $ 221,146 $214,620
--------- --------- --------
--------- --------- --------
Net interest income / earning assets ...... 8.31% 8.40% 8.55%
Net interest expense / earning assets ..... 3.78 3.87 3.99
----- ---- -----
NET INTEREST MARGIN ....................... 4.53% 4.53% 4.56%
</TABLE>
1. LOAN FEE INCOME OF $410,000, $483,000 AND $273,000 IN 1997,1996 AND
1995, RESPECTIVELY, HAS BEEN INCLUDED IN INTEREST INCOME AND YIELDS ARE
STATED TO INCLUDE ALL INCOME EARNED.
2. BALANCES OF NONACCRUAL LOANS AND RELATED INCOME HAVE BEEN INCLUDED FOR
COMPUTATIONAL PURPOSES.
3. TAX-EXEMPT INCOME HAS BEEN CONVERTED TO A TAX-EQUIVALENT BASIS USING AN
INCREMENTAL RATE OF 34%.
<PAGE>
UNION NATIONAL BANCORP, INC
RATE AND VOLUME ANALYSIS
The following table reflects the impact on net interest income caused by changes
in average balances and rates.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------
1997 compared to 1996 1996 compared to 1995 1995 compared to 1994
----------------------------- ---------------------------- ----------------------------
Increase Change Due To Increase Change Due To Increase Change Due To
(IN THOUSANDS-TAX EQUIVALENT BASIS) (Decrease) Rate Volume (Decrease) Rate Volume (Decrease) Rate Volume
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans:
Real estate:
Mortgage .............................. $ 269 $ (152) $ 421 $ 316 $ (45) $ 361 $ 442 $ 165 $ 277
Construction .......................... 167 (14) 181 (167) 1 (168) (52) 8 (60)
Installment ............................. 136 (50) 186 (122) (25) (97) 694 122 572
Commercial .............................. (720) (11) (709) (17) (57) 40 651 272 379
Tax-exempt .............................. 142 (10) 152 52 7 45 (15) (12) (3)
------- -------- ------- ------- ------ ------- ------- ------- --------
TOTAL LOANS ............................. (6) (237) 231 62 (119) 181 1,720 555 1,165
------- -------- ------- ------- ------ ------- ------- ------- --------
Investment securities available for sale:
Taxable ............................. 1,293 210 1,083 244 (21) 265 (226) 185 (411)
Non-taxable ......................... 8 9 (1) (262) 13 (275) (102) (24) (78)
------- -------- ------- ------- ------ ------- ------- ------- --------
TOTAL SECURITIES AVAILABLE FOR SALE ..... 1,301 219 1,082 (18) (8) (10) (328) 161 (489)
------- -------- ------- ------- ------ ------- ------- ------- --------
Investment securities held to maturity:
Taxable ............................. (300) (5) (295) (305) 9 (314) 446 50 396
Non-taxable ......................... (95) (13) (82) 212 (50) 262 8 (25) 33
------- -------- ------- ------- ------ ------- ------- ------- --------
TOTAL SECURITIES HELD TO MATURITY ....... (395) (18) (377) (93) (41) (52) 454 25 429
------- -------- ------- ------- ------ ------- ------- ------- --------
Time deposits with other banks .......... (57) 1 (58) 41 (6) 47 20 -- 20
Federal funds sold ...................... 29 2 27 277 (60) 337 80 59 21
------- -------- ------- ------- ------ ------- ------- ------- --------
TOTAL INTEREST INCOME .............. 872 (33) 905 269 (234) 503 1,946 800 1,146
------- -------- ------- ------- ------ ------- ------- ------- --------
Interest Expense:
Interest-bearing demand deposits ........ 24 (3) 27 6 (42) 48 (30) (27) (3)
Regular savings deposits ................ (50) (3) (47) (268) (114) (154) (396) (88) (308)
Money market savings deposits ........... (20) (1) (19) -- (5) 5 (32) 29 (61)
------- -------- ------- ------- ------ ------- ------- ------- --------
Time deposits ........................... 43 (222) 265 773 13 760 1,705 912 793
TOTAL INTEREST-BEARING DEPOSITS ... (3) (229) 226 511 (148) 659 1,247 826 421
------- -------- ------- ------- ------ ------- ------- ------- --------
Other borrowings ........................ 297 52 245 (504) (110) (394) 526 276 250
------- -------- ------- ------- ------ ------- ------- ------- --------
TOTAL INTEREST EXPENSE ............ 294 (177) 471 7 (258) 265 1,773 1,102 671
------- -------- ------- ------- ------ ------- ------- ------- --------
NET INTEREST INCOME ..................... $ 578 $ 144 $ 434 $ 262 $ 24 $ 238 $ 173 $ (302) $ 475
------- -------- ------- ------- ------ ------- ------- ------- --------
------- -------- ------- ------- ------ ------- ------- ------- --------
</TABLE>
1. THE CHANGE IN INTEREST DUE TO BOTH VOLUME AND RATE HAS BEEN ALLOCATED
TO VOLUME AND RATE CHANGES IN PROPORTION TO THE RELATIONSHIP OF THE
ABSOLUTE DOLLAR AMOUNTS OF THE CHANGE IN EACH.
2. BALANCES OF NONACCRUAL LOANS AND RELATED INCOME HAVE BEEN INCLUDED FOR
COMPUTATIONAL PURPOSES.
3. TAX-EXEMPT INCOME HAS BEEN CONVERTED TO A TAX-EQUIVALENT BASIS USING AN
INCREMENTAL RATE OF 34%.
4. TAX-EQUIVALENT ADJUSTMENTS OF $157,000 FOR 1997, $186,000 FOR 1996 AND
$203,000 FOR 1995 ARE INCLUDED IN THE CALCULATION OF TAX-EXEMPT
INVESTMENT SECURITIES RATE VARIANCES.
5. TAX-EQUIVALENT ADJUSTMENTS OF $103,000 FOR 1997, $55,000 FOR 1996 AND
$38,000 FOR 1995 ARE INCLUDED IN THE CALCULATION OF TAX-EXEMPT LOAN
RATE VARIANCES.
<PAGE>
ANNUAL REPORT 1997
NONINTEREST INCOME
Total noninterest income was $1,326,700 in 1997, up $240,900 or 22.2% from
$1,085,800 in 1996 which was $108,250 or 11.1% higher than in 1995.
Service charge income on deposit accounts was $1,023,404 in 1997, up
$226,914 or 28.5% from $796,490 in 1996 which was $73,469 or 10.2% higher than
1995. In 1997, five new remote automatic teller machines (ATM) were added,
resulting in an increase in ATM fee income. ATM fee income was $132,733 in 1997,
up $49,566 or 59. 6% from $83,167 in 1996 which was $21,712 or 35.3% higher than
1995. Non-sufficient funds and overdraft fees were $619,320 in 1997, up $166,980
or 36.9% from $452,340 in 1996 which was $87,369 or 22.6% higher than 1995.The
1997 increase is a result of a change in the order in which items are posted and
processed. Service fee income was $162,104 in 1997, up $9,339 or 6.1% from
$152,765 in 1996 which was $5,581 or 3.5% less than 1995.
NONINTEREST EXPENSE
Noninterest expense in 1997 was $7,309,044, an increase of $54,066 or 0.7% from
$7,254,978 in 1996 which was $140,533 or 2.0% over $7,114,445 in 1995. These
increases are generally direct reflections of the growth in assets as well as
the related investment in services and expansion of facilities.
Salaries and benefits totaled $4,057,005 in 1997, up $177,682 or 4.6% from
$3,879,323 in 1996 which was $157,893 or 4.2% over 1995. Personnel expense
represented 55.5% of total noninterest expense in 1997 compared to 53.5% in 1996
and 52.3% in 1995. Full-time equivalent employees at year end were 118 in 1997,
114 in 1996, and 113 in 1995. Salaries in 1997 were $3,474,757, up $309,305 or
9.8% over 1996. The expense increase was due mainly to a full year of expense
relating to branch expansion and the addition of an internal item processing
unit. While the total staff has generally grown, the average assets per employee
have increased from $1.90 million in 1995 to $1.94 million in 1996 and $1.98
million in 1997. The efficiency ratio has also improved from 71.3% in 1995 to
70.1% in 1996 and 65.6% in 1997.
Occupancy and equipment expense totaled $1,186,869 in 1997 an increase
of $49,290 or 4.3% from $1,137,579 in 1996 which was $129,778 or 12.9% over
1995. The increase in 1997 is related to depreciation expense due to branch
expansion. Deprecation expense was $641,442 in 1997, up $76,426 or 13.5% from
$565,016 in 1996 which was up $94,091 or 19.9% over 1995.
INCOME TAXES
Income tax expense was $1,163,898 in 1997, $934,132 in 1996, and $890,395 in
1995. The Company's effective tax rate was 32.7% of income before taxes in 1997,
33.8% in 1996 and 33.6% in 1995. Federal income tax accounted for 89.0% of total
tax in 1997 compared to 81.9% in 1996 and 78.9% in 1995. See note 11 to the
consolidated financial statements for a reconciliation of expected income taxes
at stationary rates to actual income taxes and effective tax rates for the past
three years.
<PAGE>
UNION NATIONAL BANCORP, INC
SECURITIES PORTFOLIO
INVESTMENT SECURITIES PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury securities and obligations of U.S. government agencies $37,890,940 $26,115,700 $18,082,210
Obligations of states and political subdivisions ................... 5,811,063 6,250,734 7,362,851
Mortgage-backed securities ......................................... 27,093,435 22,368,159 25,791,958
Other securities ................................................... 1,395,161 1,205,179 1,183,512
----------- ----------- -----------
TOTAL INVESTMENT SECURITIES .................................... $72,190,599 $55,939,772 $52,420,531
----------- ----------- -----------
----------- ----------- -----------
Available for Sale (Fair Value) .................................... $58,770,760 $38,866,761 $27,040,617
Held to Maturity (Amortized Cost) .................................. 13,419,839 17,073,011 25,379,914
----------- ----------- -----------
TOTAL INVESTMENT SECURITIES .................................... $72,190,599 $55,939,772 $52,420,531
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SECURITIES PORTFOLIO
Total holdings in the investment portfolio at year-end were $72,190,599 in
1997, $55,939,772 in 1996, and $52,420,531 in 1995. During 1997, the
investment portfolio increased due to lack of growth in the loan portfolio in
the first three quarters. The spread between overnight funds and the treasury
curve widened and it was advantageous to invest longer term. The total
portfolio had an average maturity of 2.1 years on December 31, 1997 compared
with 2.9 years in 1996 and 3.8 years in 1995. These maturities represent
estimates of the actual life of the instruments considering mortgage-back pay
downs and calls of tax-exempt securities.
In 1997, there were $58,770,760 classified as available for sale and
$13,419,839 as held to maturity compared with $38,866,761 and $17,073,011,
respectively, in 1996. In 1996, declines in some rates caused a small
increase in values, and the Company reported a net unrealized gain on
securities of $438,854 by year end. In 1997, further declines in rates caused
an additional increase in values, and net unrealized gains rose to $639, 723.
<PAGE>
ANNUAL REPORT 1997
MATURITY OF THE INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
1 Year or Less 1-5 Years 5-10 Years Over 10 Years Totals
-------------- --------------- --------------- ---------------- ---------------
Book Average Book Average Book Average Book Average Book Average
Value Yield Value Yield Value Yield Value Yield Value Yield
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
U.S. Treasury securities and
obligations of U.S. government
agencies ..................... $ 496,411 6.30% $ 382,971 5.37% $ -- -- % $ -- -- % $ 879,382 5.89%
Obligations of states and
political subdivisions ....... 251,265 9.52 2,019,396 6.89 2,963,002 7.31% -- -- 5,233,663 7.24
----------- ----------- ----------- --------- -----------
Mortgage-backed securities ..... 2,664,594 7.15 4,607,910 7.76 -- -- 34,290 4.74% 7,306,794 7.54
----------- ----------- ----------- --------- -----------
TOTAL HELD TO MATURITY ....... 3,412,270 7.20% 7,010,277 7.38% 2,963,002 7.31% 34,290 4.74% 13,419,839 7.31%
----------- ----------- ----------- --------- -----------
Available for Sale:
U.S. Treasury securities and
obligations of U.S. government
agencies ..................... 4,997,459 5.39% 16,928,179 6.96% 14,991,582 6.83% -- -- 36,917,220 6.69%
Obligations of states and
political subdivisions ....... -- -- -- -- 500,000 14.57 -- -- 500,000 14.57
Mortgage-backed securities ..... 3,585,292 6.46 6,870,454 6.33 3,405,658 6.61 5,822,207 7.08% 19,683,61 6.62
Equity securities .............. -- -- -- -- -- -- 1,257,456 6.40 1,257,456 6.40
TOTAL AVAILABLE FOR SALE ..... 8,582,751 5.84% 23,798,633 6.78% 18,897,240 7.00% 7,079,663 6.96% 58,358,287 6.73%
----------- ----------- ----------- --------- -----------
TOTAL SECURITIES ........... $11,995,021 6.22% $30,808,910 6.91% $21,860,242 7.04% $ 7,113,953 6.95% $71,778,126 6.84%
----------- ----------- ----------- --------- -----------
----------- ----------- ----------- --------- -----------
</TABLE>
LOAN PORTFOLIO
Total loans outstanding on December 31, 1997 were $158,347,687 compared with
$147,350,540 in 1996. The portfolio represented 63.20% of total assets on
December 31, 1997 compared with 65.5% in 1996.
The Company's loan portfolio mix has remained relatively constant over
the years and is composed of commercial loans, residential loans, and
consumer installment loans (including indirect auto). At December 31, 1997,
the commercial portfolio (including commercial real estate) represents 60.6%
of the total portfolio and is comprised of commercial real estate mortgages,
lines of credit, tax-exempt loans through local municipalities, and demand
notes for various purposes, including but not limited to, working capital and
equipment purchases. The great majority of commercial loans are
collateralized by some form of real estate. The residential portfolio at
December 31, 1997 represents 18.8% of the overall loan portfolio and is a mix
of well-seasoned mortgages along with more recent loans. Only a minimal
number of these loans have a loan to value ratio greater than 80%. Most
residential mortgages are kept "in house", however the Company is involved in
selling mortgages on the secondary market. The consumer portfolio at December
31, 1997 makes up the remaining 20.6%. Included in the consumer portfolio are
direct installment loans for purposes such as vehicle purchases, debt
consolidation, home improvements, and indirect installment loans purchased
from approximately six auto dealerships, and one farm equipment dealer. In
1997, indirect lending decreased significantly as a percentage of the total
consumer portfolio. Home equity loans (fixed term and variable rate lines of
credit) offset this decline and continue to increase as a percentage of the
consumer portfolio. Unsecured personal lines of credit and personal time and
demand loans comprise the remainder of the portfolio. The Company does not
engage in foreign lending, and involvement in speculative real estate and
land development is minimal. It is the Company's practice to lend primarily
in the Carroll County market area and to meet the needs of the community.
<PAGE>
UNION NATIONAL BANCORP, INC
Some risk is involved in all types of lending. The Company, however,
attempts to minimize potential losses in all portfolios. Concentrations in
commercial loans continue to be minimal except in the general area of real
estate secured loans. Although some losses have resulted from recent devaluation
of property values, the remaining portion of such loans at risk is not large,
barring any future major economic crises. Additionally, the Company continues to
expand the financial analysis and credit functions to enhance its capability of
identifying potential risk in the commercial portfolio. Residential loans are
generally well secured. Standard debt to income ratios are adhered to, and loan
to value ratios greater than 80% require private mortgage insurance to reduce
risk. The largest segment of the consumer portfolio is secured by motor
vehicles. Use of debt to income ratios and recent Credit Bureau scores have
assisted in the approval process. The collection department works delinquent
accounts quickly and attempts to minimize losses in the consumer portfolio. Net
charge-offs were reduced in 1997, compared to 1996, as a result of these
efforts.
The following table summarizes the composition of the loan portfolio for
the periods indicated:
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial ..................... $ 27,239,983 $ 27,563,398 $ 28,929,165 $ 28,265,832 $ 26,132,068
Real Estate-- construction ..... 5,893,105 1,842,538 2,494,150 4,147,476 4,147,986
Real Estate-- mortgage ......... 103,041,363 91,262,059 89,709,340 85,709,692 84,728,316
Installment .................... 22,609,757 27,219,780 26,368,732 22,313,141 14,259,506
------------- ------------- ------------- ------------- ------------
GROSS LOANS .................. 158,784,208 147,887,775 147,501,387 140,436,141 129,267,876
Net deferred loan fees and costs (436,521) (537,235) (679,793) (706,234) (769,906)
------------- ------------- ------------- ------------- ------------
GROSS LOANS (NET OF DEFERRED
FEES AND COSTS) ............ 158,347,687 147,350,540 146,821,594 139,729,907 128,497,970
Allowance for loan losses ...... (1,793,112) (1,772,433) (1,769,077) (1,670,940) (1,503,371)
------------- ------------- ------------- ------------- ------------
------------- ------------- ------------- ------------- ------------
NET LOANS .................... $ 156,554,575 $ 145,578,107 $ 145,052,517 $ 138,058,967 $ 126,994,599
</TABLE>
MATURITY SCHEDULE OF LOANS
<TABLE>
<CAPTION>
Over One
- ----------------------------------------------------------------------------------------------------------------
One year or less Within Five years Over Five years Total
<S> <C> <C> <C> <C>
Commercial ......................... $ 18,018,715 $ 7,870,000 $ 1,351,268 $ 27,239,983
Real Estate-construction ........... 4,870,926 1,022,179 -- 5,893,105
Real Estate-mortgage ............... 43,387,095 53,798,207 5,856,061 103,041,363
Installment ........................ 6,653,833 15,955,045 879 22,609,757
------------ ------------ ------------ ------------
TOTAL ............................ $ 72,930,569 $ 78,645,431 $ 7,208,208 $158,784,208
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Total Loans with Predetermined Rates $ 5,436,602 $ 63,844,483 $ 7,207,329 $ 76,488,414
------------ ------------ ------------ ------------
Total Loans with Variable Rates .... 67,493,967 14,800,948 879 82,295,794
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
TOTAL ............................ $ 72,930,569 $ 78,645,431 $ 7,208,208 $158,784,208
</TABLE>
<PAGE>
ANNUAL REPORT 1997
ALLOWANCE FOR CREDIT LOSSES AND MANAGEMENT OF CREDIT RISK
A comparative analysis of the allowance for credit losses, including charge-off
activity, is present below:
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average total loans ..................... $148,586,476 $146,478,690 $144,641,805 $130,920,960 $130,726,190
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Balance, beginning of period ............ $ 1,772,433 $ 1,769,077 $ 1,670,940 $ 1,503,371 $ 1,365,464
------------ ------------ ------------ ------------ ------------
Less charge-offs:
Commercial ............................ 174,899 263,682 84,063 87,845 26,429
Installment ........................... 127,434 123,050 122,824 116,007 236,044
Residential real estate ............... 9,047 -- -- 32,483 69,247
------------ ------------ ------------ ------------ ------------
TOTAL CHARGE-OFFS ................... 311,380 386,732 206,887 236,335 331,720
------------ ------------ ------------ ------------ ------------
Plus recoveries:
Commercial ............................ 21,891 17,051 2,668 1,249 12,359
Installment ........................... 35,160 44,037 37,356 60,655 32,268
Residential real estate ............... 8 -- 53,000 -- --
------------ ------------ ------------ ------------ ------------
TOTAL RECOVERIES .................... 57,059 61,088 93,024 61,904 44,627
------------ ------------ ------------ ------------ ------------
Net charge-offs ......................... 254,321 325,644 113,863 174,431 287,093
------------ ------------ ------------ ------------ ------------
Provision for loan losses ............... 275,000 329,000 212,000 342,000 425,000
------------ ------------ ------------ ------------ ------------
Balance, end of period .................. $ 1,793,112 $ 1,772,433 $ 1,769,077 $ 1,670,940 $ 1,503,371
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Allowance for credit losses to period-end
gross loans - net ..................... 1.13% 1.20% 1.21% 1.20% 1.17%
Allowance for credit losses to
nonaccrual loans ...................... 252.78 140.72 322.48 716.00 478.92
Net charge-offs to average total loans .. 0.17 0.22 0.08 0.13 0.22
</TABLE>
The following table allocates the allowance for credit losses by loan type.
This allocation does not limit the amount of the allowance available to
absorb losses from any type of loan and should not be viewed as an indicator
of the specific amount or specific categories in which future charge-offs may
ultimately occur.
ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial .......................... $1,140,580 $ 853,418 $ 455,916 $ 572,029 $ 255,993
Real Estate-construction ............ -- -- 4,095 -- --
Real Estate-mortgage ................ 160,978 302,760 110,694 163,717 156,327
Installment ......................... 271,757 309,883 355,320 467,891 245,136
Unallocated Portion ................. 219,797 306,372 843,052 467,303 845,915
---------- ---------- ---------- ---------- ----------
TOTAL ALLOWANCE FOR CREDIT LOSSES $1,793,112 $1,772,433 $1,769,077 $1,670,940 $1,503,371
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
LOAN CATEGORIES BY PERCENTAGES
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial ............ 60% 57% 57% 56% 56%
Residential real estate 19 22 22 23 28
Installment ........... 21 21 21 21 16
---- ---- ---- ---- ----
TOTAL ............. 100% 100% 100% 100% 100%
---- ---- ---- ---- ----
---- ---- ---- ---- ----
</TABLE>
An increase in the level of the allowance is warranted because of the
increase in the size of the loan portfolio and the risk factors of the loans.
Management uses a detailed analyses of the portfolio to determine the
adequacy of the allowance for credit losses. Prior loss history along with
current trends, both nationally and locally, are taken into consideration.
Additionally: (i) specific reserves are established on all classified loans
where a loss seems imminent; (ii) a general reserve is established on
identified problem loans where specific potential losses are not yet
determined, but likely; (iii) smaller reserves are also established on
criticized loans that have identifiable weaknesses but are not yet
classified; and (iv) a general overall reserve is calculated on the entire
remainder of the portfolio by loan type and included as an unallocated
reserve allowance. It is the Company's practice to manage the risk elements
of lending through rigorous credit evaluation of prospective borrowers,
continuous review of the portfolio, diversification of the types of
borrowers, and by maintaining a well collateralized portfolio.
<PAGE>
UNION NATIONAL BANCORP, INC
The following table details information concerning nonaccrual,
restructured, and past due loans, as well as foreclosed assets. It is the
policy of the Company to consider a loan not in process of collection when
there is doubt of the full repayment of the principal and interest or when
the loan is 90 days past due. When either event occurs, the loan is placed on
nonaccrual status, any previously accrued income is charged against income,
and no future income is accrued until performance is restored.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans .................................. $ 709,348 $1,259,558 $ 548,578 $ 233,373 $ 313,911
Restructured loans ................................ -- -- -- -- --
Loans past due 90 or more days accruing interest .. 545,854 40,192 -- -- 585,044
---------- ---------- ---------- ---------- ----------
TOTAL NONPERFORMING LOANS ....................... 1,255,202 1,299,750 548,578 233,373 898,955
---------- ---------- ---------- ---------- ----------
Foreclosed Assets ................................. 215,000 391,236 183,067 288,960 159,844
---------- ---------- ---------- ---------- ----------
TOTAL NONPERFORMING ASSETS ...................... $1,470,202 $1,690,986 $ 731,645 $ 522,333 $1,058,799
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Nonperforming loans to gross loans at period-end .. 0.79% 0.88% 0.37% 0.17% 0.70%
Nonperforming assets to period-end gross loans plus
foreclosed assets ............................... 0.93% 1.14% 0.50% 0.37% 0.82%
</TABLE>
NONPERFORMING ASSETS
The loans listed above as nonaccrual are significantly past due and not
considered to be in the process of collection. Income was recorded on these
loans in the amount of $38,709, $41,050 and $24,774 compared to income
expected under the original loan agreements of $132,144, $136,213 and $66,798
for the years ended December 31, 1997, 1996 and 1995, respectively. Once the
collection is deemed to be unlikely over the foreseeable future, a loan is
charged-off. Even though a loan is charged-off, the Company continues to work
with a borrower to collect the entire balance whenever possible. In addition
to the above loans, certain other loans, estimated to aggregate $5,956,078 at
December 31, 1997, are currently being paid out in accordance with their
terms but, in the opinion of management, there is doubt as to the ability of
the borrowers to comply with the repayment terms in the future. Although this
total has increased significantly from $3,921,754 at December 31,1996, the
increase is attributed to one relationship and is not indicative of any
deterioration of total loan portfolio quality. While management does not
anticipate any loss not previously provided for on these loans, changes in
the financial condition of these borrowers may necessitate future
modifications in the repayment terms.
DEPOSITS
The Company uses deposits as the primary funding source of its assets.The
Company has experienced continuous growth of deposits, especially in
certificates of deposit. The Company offers individuals, businesses and
non-profit organizations a variety of accounts. These accounts, including
checking, savings, money market, and CD's, are obtained primarily from the
communities which the Company serves. The following table details the average
amount, the average rate paid on, and the percent of the total, of the following
primary deposit categories for the past three years:
AVERAGE DEPOSIT COMPOSITION AND COST
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- -------------------------- ------------------------
Average % of Average % of Average % of
(IN THOUSANDS) Balance Rate Total Balance Rate Total Balance Rate Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST BEARING DEMAND
DEPOSITS ...................... $ 22,849 -- 11.46% $ 20,976 -- 10.82% $ 19,997 -- 10.98%
-------- ------ -------- ------ -------- ------
Interest-bearing demand deposits 19,787 2.04% 9.92 18,462 2.05% 9.52 16,357 2.28% 8.98
Regular savings deposits ........ 31,470 2.73 15.78 33,190 2.74 17.12 38,182 3.08 20.95
Money market savings deposits ... 17,919 3.16 8.98 18,528 3.16 9.56 18,357 3.19 10.07
Time deposits ................... 107,410 5.47 53.86 102,739 5.67 52.98 89,308 5.66 49.02
-------- ---- ------ -------- ---- ------ -------- ---- ------
TOTAL INTEREST-BEARING DEPOSITS $176,586 4.36 88.54 $172,919 4.45 89.18 $162,204 4.43 89.02
-------- ---- ------ -------- ---- ------ -------- ---- ------
TOTAL DEPOSITS .............. $199,435 3.86% 100.00% $193,895 3.97% 100.00% $182,201 3.95% 100.00%
-------- ---- ------ -------- ---- ------ -------- ---- ------
-------- ---- ------ -------- ---- ------ -------- ---- ------
</TABLE>
Total deposits were $205,638,796 on December 31, 1997 as compared to
$199,291,435 one year earlier. The main source of deposits in 1997 was
certificates of deposit which grew $1.7 million or 1.9% over year-end 1996. In
addition, checking accounts rose $4.6 million or 7.7%. Regular savings and money
market accounts generally remained the same with less than .1% increases. The
main source in 1996 was certificates of deposit which grew $5.6 million or 5.6%
over December 31, 1995. Checking accounts increased $4.5 million or 11.2% as
compared to one year earlier. This growth was partially offset by declines in
regular savings of $2.2 million or 6.6%, and $2.0 million or 10.4% in money
market accounts.
<PAGE>
ANNUAL REPORT 1997
The following is a summary of the maturity distribution of certificates of
deposit in the amount of $100,000 or more as of December 31, 1997:
MATURITIES OR REPRICING OF CD'S OF $100,000 OR MORE ON DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ----------------- -----------------
(IN THOUSANDS) Amount Percent Amount Percent Amount Percent
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maturing in:
Three months or less ................ $ 4,689 23.42% $ 3,176 13.56% $13,255 60.87%
Over three months through six months 2,559 12.78 4,983 21.29 1,370 6.29
Over six months through twelve months 3,692 18.44 11,195 47.83 2,596 11.92
Over twelve months .................. 9,084 45.36 4,053 17.32 4,556 20.92
------ ------- ------ ------- ------ -------
$20,024 100.00% $23,407 100.00% $21,777 100.00%
------ ------- ------ ------- ------ -------
------ ------- ------ ------- ------ -------
</TABLE>
OTHER BORROWINGS
Short-term borrowings consist of federal funds purchased, repurchase agreements,
and borrowings from the Federal Reserve Bank or the Federal Home Loan Bank. In
September of 1997 management drew down $10,000,000 on its line of credit with
the Federal Home Loan Bank to fund increased loan growth and securities
purchases. Because deposit and loan growth occurred at different times, borrowed
funds were utilized increasingly during 1995, but borrowing was curtailed in
1996.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENT TO REPURCHASE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total outstanding at year end ................ $13,776,373 $ 6,808,596 $ 3,140,710
Average amount outstanding during the year ... 11,771,647 8,555,503 9,827,284
Maximum outstanding at any month-end ......... 21,670,304 17,802,839 21,103,781
Weighted average interest rate at year-end ... 5.02% 4.50% 5.94%
Weighted average interest rate during the year 4.56% 4.30% 5.49%
</TABLE>
LIQUIDITY
Assuring adequate liquidity involves meeting future cash flow needs. This
liquidity can be provided by reducing asset balances, increasing deposits and
short-term borrowings, or a combination of both may be employed. Traditionally,
the Company has maintained a strong liquidity position because core deposit
growth has been able to match loan growth. Federal funds sold is the bank's most
liquid earning asset. Other sources include money market instruments and
securities classified as available-for-sale. In addition to these sources, the
Bank has unused credit lines of $33 million available from correspondent banks.
On December 31, 1997 securities available for sale and federal funds sold
totaled $64,843,156 compared with $47,749,311 in 1996 and $30,090,617 in 1995.
These funds averaged $58,427,657 in 1997, $40,304,499 in 1996, and $33,599,064
in 1995. Asset liquidity is also provided by managing the maturities of loans,
securities, and certificates of deposit.
INTEREST RATE SENSITIVITY
An important element of both earnings performance and in the maintenance of
sufficient liquidity is maintaining an appropriate balance between
rate-sensitive assets and rate-sensitive liabilities. Interest rate sensitivity
analysis is a measure of the vulnerability of net interest income to changes in
the level of rates. An interest rate sensitivity gap results when assets and
liabilities reprice at different intervals. If the gap is negative or liability
sensitive, the impact on earnings is negative if rates rise. A positive or asset
sensitive gap implies the risk of lower earnings if rates decline. To offset
this risk, the Company regularly forecasts its exposure to rate changes and
monitors its performance. In addition, the net interest margin is calculated
weekly so that interest rate changes and asset restructuring may be made as
needed.
The Company's rate-sensitivity position reflected in the following table,
"Interest Rate Sensitivity Analysis," shows an asset sensitive gap. This table
presents a position that existed at a particular point in time and although this
position can change continually, it is similar to positions maintained at other
times as well. This analysis makes several assumptions. First, both
noninterest-bearing and savings accounts are not rate sensitive. However,
management projects a potential 4% run-off in savings accounts over a three
month period and for money market and interest checking they project a potential
30% run-off of balances over a three month period. Convertible CD's are shown by
their maturity dates and in a rapidly rising rate environment, this category
would exhibit additional sensitivity. Second, mortgage-backed securities are
projected at the average levels experienced over the most recent three months.
Finally, repayment of loan principal is projected at the most recent level.
<PAGE>
UNION NATIONAL BANCORP, INC
INTEREST RATE SENSITIVITY ANALYSIS-DECEMBER 31, 1997
<TABLE>
<CAPTION>
Maturing or repricing in:
-------------------------------------------------------------
1-90 91-180 181-365 1-5 Over 5
(IN THOUSANDS) Days Days Days Years Years
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE-SENSITIVE ASSETS
Loans ...................................................... $ 45,353 $ 14,077 $ 24,897 $ 55,257 $ 18,764
Securities ................................................. 10,111 12,723 8,948 21,529 18,905
Federal funds sold ......................................... 6,072 -- -- -- --
--------- --------- --------- --------- ---------
TOTAL RATE-SENSITIVE ASSETS .............................. $ 61,536 $ 26,800 $ 33,845 $ 76,786 $ 37,669
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cumulative rate-sensitive assets ........................... $ 61,536 $ 88,336 $ 122,181 $ 198,967 $ 236,636
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATE-SENSITIVE LIABILITIES
Interest-bearing checking .................................. $ 6,555 $ -- $ -- $ -- $ 15,299
Money market deposits ...................................... 5,373 -- -- -- 12,542
Regular savings ............................................ 1,263 -- -- -- 30,288
Certificates of deposits ................................... 17,240 14,107 21,929 54,670 276
Other borrowings ........................................... 13,776 -- -- 10,000 --
--------- --------- --------- --------- ---------
TOTAL RATE-SENSITIVE LIABILITIES ......................... $ 44,207 $ 14,107 $ 21,929 $ 64,670 $ 58,405
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cumulative rate-sensitive liabilities ...................... $ 44,207 $ 58,314 $ 80,243 $ 144,913 $ 203,318
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Period gap ................................................... $ 17,329 $ 12,693 $ 11,916 $ 12,116 $ (20,736)
Cumulative gap ............................................... $ 17,329 $ 30,022 $ 41,938 $ 54,054 $ 33,318
Cumulative rate-sensitive assets to rate-sensitive liabilities 139.20% 151.4 152.26% 137.30% 116.39%
Cumulative gap to total assets ............................... 6.91% 11.97% 16.72% 21.55% 13.29%
</TABLE>
PRINCIPAL AMOUNT MATURING IN:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1998 1999-2000 2001-2002 THEREAFTER TOTAL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Fixed interest rate loans ....... $ 3,661 $ 13,033 $ 24,475 $ 32,089 $ 73,258
Average interest rate ......... 8.87% 8.97% 8.73% 8.39% 8.63%
Variable interest rate loans .... $ 15,090 $ 12,324 $ 4,741 $ 52,935 $ 85,090
Average interest rate ......... 9.73% 9.77% 10.60% 9.30% 9.52%
Fixed interest rate securities .. $ 6,989 $ 1,945 $ 20,256 $ 39,705 $ 68,895
Average interest rate ......... 5.64% 5.65% 6.73% 6.47% 6.44%
Variable interest rate securities $ 500 -- $ 366 $ 2,430 $ 3,296
Average interest rate ......... 5.89% -- 5.96% 5.95% 5.94%
Other interest bearing assets ... $ 6,072 -- -- -- $ 6,072
Average interest rate ......... 5.34% -- -- -- 5.34%
</TABLE>
<TABLE>
<CAPTION>
1998 1999-2000 THEREAFTER TOTAL
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RATE SENSITIVE LIABILITIES:
Noninterest-bearing checking ........ $ -- $ -- $ -- $ 26,097 $ 26,097
Average interest rate ............. -- -- -- -- --
Savings and interest bearing checking -- -- $ 71,319 $ 71,319 $ 71,319
Average interest rate ............. -- -- 2.64% 2.64% 2.64%
Time deposits ....................... $ 38,855 $ 46,811 $ -- $ 23,557 $ 108,223
Average interest rate ............. 4.96% 5.66% -- 6.11% 5.52%
Fixed interest rate borrowings ...... -- -- -- $ 10,000 $ 10,000
Average interest rate ............. -- -- -- 5.66% 5.66%
Variable interest rate borrowings ... $ 13,776 -- -- -- $ 13,776
Average interest rate ............... 4.55% -- -- -- 4.55%
</TABLE>
<PAGE>
ANNUAL REPORT 1997
CAPITAL MANAGEMENT
Banking regulatory authorities have implemented strict capital guidelines
directly related to the credit risk associated with an institution's assets.
Banks and bank holding companies are required to maintain capital levels based
on their "risk-adjusted" assets so that categories of assets with higher
"defined credit risks" will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
Capital is classified as Tier I (common stockholders' equity less certain
intangible assets as defined in the regulations) and Total capital (Tier I plus
the allowance for credit losses). Minimum required levels must at least equal 4%
for Tier I capital and 8% for Total capital. In addition, institutions must
maintain a minimum of a 4% leverage capital ratio (Tier I capital to average
total assets).
The Company's capital position is presented in the following table:
<TABLE>
<CAPTION>
December 31,
--------------------- Regulatory
1997 1996 Requirement
------ ------ -----------
<S> <C> <C> <C>
Tier 1 capital to risk weighted assets ....... 11.7% 11.6% 4.0%
Total capital to risk weighted assets ........ 12.8% 12.8% 8.0%
Capital leverage ratio ....................... 8.0% 8.1% 4.0%
</TABLE>
RECENT STOCK PRICE RANGES AND DIVIDENDS
The Company's stock is sold and exchanged principally among area residents.
There were 442 stockholders of record as of December 31, 1997. The table below
shows the range from the lowest price paid to the highest along with dividend
payments each quarter.
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ---------------------------- -----------------------------
Price Range Price Range Price Range
------------------ Dividends ------------------ Dividends ----------------- Dividends
Low High Declared Low High Declared Low High Declared
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter(1) $16.00 $18.50 $.075 $14.00 $14.00 $.070 $13.00 $13.50 $.065
2nd Quarter(1) 16.50 18.625 .080 15.50 16.00 .070 13.25 13.50 .065
3rd Quarter(1) 16.625 18.50 .090 15.00 16.875 .070 14.50 15.125 .065
4th Quarter(1) 16.625 19.00 .095 16.00 17.94 .075 15.00 15.00 .065
</TABLE>
(1) The quarterly stock prices and dividends have been restated for the effects
of a two-for-one stock split effected in the form of a 100% stock dividend that
was declared on January 27, 1998.
INFLATION
The effect of changing prices on financial institutions is typically different
than on non-banking companies since virtually all of a bank's assets and
liabilities are monetary in nature. In particular, interest rates are
significantly affected by inflation, but neither the timing nor magnitude of the
changes are directly related to price level indices; therefore, the Company can
best counter inflation over the long term by managing net interest income and
controlling net increases in noninterest income and expenses.
YEAR 2000 CONVERSION AND COMPLIANCE
The Company has conducted a comprehensive review of computer systems to identify
the systems that could be affected by the "Year 2000" issue and is developing an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failure or miscalculations. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems.
The Company's Year 2000 conversion project addresses all necessary
renovations, testing and implementation. Project completion is planned for the
middle of 1999. Based on current analysis and projections, management believes
that the cost to convert the Company's information to year 2000 compliance will
not have a material impact on the Company's consolidated financial statements.
Although the date conversion project considers timely compliance of other
companies on which the Company relies, there can be no assurance that the
systems of other companies will be timely converted or that any such failure to
convert by another company would not have an adverse effect on the Company. The
Company expects its Year 2000 date conversion project to be completed on a
timely basis.
SECURITIES AND EXCHANGE COMMISSION WEB SITE INFORMATION
The Securities and Exchange Commission maintains a web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission, including the Company;
that address is: HTTP:\\WWW.SEC.GOV.
<PAGE>
UNION NATIONAL BANCORP, INC
SELECTED FINANCIAL DATA 1993-1997
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
RESULTS FROM OPERATIONS
Interest Income ....................................... $18,214 $17,361 $17,091 $15,109 $14,789
Interest Expense ...................................... 8,393 8,099 8,092 6,289 6,170
------ ------ ------ ------ ------
Net Interest Income ................................. 9,821 9,262 8,999 8,820 8,619
Provision for Credit Losses ........................... 275 329 212 342 425
------ ------ ------ ------ ------
Net Interest Income after Provision for Credit Losses 9,546 8,933 8,787 8,478 8,194
Noninterest Income .................................... 1,327 1,086 977 1,314 1,029
Noninterest Expense ................................... 7,309 7,255 7,114 6,849 6,224
------ ------ ------ ------ ------
Income Before Income Taxes .......................... 3,564 2,764 2,650 2,943 2,999
Provisions for Income Taxes ......................... 1,164 934 890 970 992
------ ------ ------ ------ ------
NET INCOME ......................................... $2,400 $1,830 $1,760 $1,973 $2,007
------ ------ ------ ------ ------
------ ------ ------ ------ ------
FINANCIAL CONDITION
Total assets .......................................... $250,781 $225,131 $218,891 $207,281 $192,324
Investment securities (including available for sale) .. 72,191 55,940 52,421 54,938 48,724
Loans, net of unearned income ......................... 158,348 147,351 146,822 139,730 128,498
Allowance for loan losses ............................. 1,793 1,772 1,769 1,671 1,503
Deposits .............................................. 205,639 199,291 193,462 182,533 172,816
Stockholders' equity .................................. 20,064 17,900 16,421 13,858 13,999
PER SHARE DATA
Net income (basic and diluted) ........................ $1.43 $1.10 $1.06 $1.18 $1.20
Dividends ............................................. 0.34 0.29 0.26 0.25 0.23
Stockholders' equity .................................. 11.98 10.73 9.84 8.31 8.39
PERFORMANCE RATIOS
Return on average assets .............................. 1.02% 0.83% 0.82% .99% 1.09%
Return on average equity .............................. 12.71 10.61 11.34 14.22 15.42
Net interest margin on average earning assets ......... 4.53 4.53 4.56 4.83 5.12
Efficiency (noninterest expense / (net interest
income + noninterest income) ........................ 65.56 70.11 71.30 67.58 67.48
LIQUIDITY AND CAPITAL RATIOS
Stockholders' equity (% assets) ....................... 8.00% 7.95% 7.50% 6.69% 7.28%
Risk-based:
Tier 1 Capital ...................................... 11.73 11.60 10.78 10.35 10.57
Total Capital ....................................... 12.78 12.80 11.92 11.69 10.89
Dividends (% net income) .............................. 23.79 25.98 24.64 21.14 18.86
Loans to deposits ..................................... 77.00 73.94 75.89 76.55 74.36
ASSET QUALITY RATIOS
Allowance for credit losses to total loans ............ 1.13% 1.20% 1.20% 1.20% 1.17%
Allowance for credit losses to non-performing loans ... 142.85 136.34 322.24 717.14 167.23
Net loan charge-offs to average total loans ........... 0.17 0.22 0.08 0.13 0.22
</TABLE>
<PAGE>
ANNUAL REPORT 1997
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Union National Bancorp, Inc.
Westminster, Maryland
We have audited the accompanying consolidated balance sheet of Union National
Bancorp, Inc. and its subsidiary as of December 31, 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Union National Bancorp, Inc. and its subsidiary as of December 31, 1997, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
Frederick, Maryland
January 14, 1998, except for Note 20 as to which the date is January 27, 1998
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
Union National Bancorp, Inc.
Westminster, Maryland
We have audited the accompanying consolidated balance sheet of Union National
Bancorp, Inc. and subsidiary as of December 31, 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1996 and 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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 referred to above
present fairly, in all material respects, the consolidated financial position of
Union National Bancorp, Inc. and subsidiary as of December 31, 1996, and the
consolidated results of their operations and cash flows for the years ended
December 31, 1996 and 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, an error resulting in an
understatement of the previously reported accrued liability for deferred
directors' compensation was discovered by management of the Company during 1997.
Accordingly, the financial statements for the years ended December 31, 1996 and
1995 as well as retained earnings as of January 1, 1995 have been restated to
correct this error.
Baltimore, Maryland
January 8, 1997, except as to Note 2, which is dated January 16, 1998
UNB 27
<PAGE>
UNION NATIONAL BANCORP, INC
UNION NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks .................................................... $7,870,449 $6,910,561
Interest bearing deposits with banks ....................................... 25,108 160,821
Federal funds sold ......................................................... 6,072,396 8,882,550
Investment securities available for sale-at fair value ..................... 58,770,760 38,866,761
Investment securities held to maturity-at amortized cost - fair value of
$13,647,089 in 1997 and $17,304,150 in 1996 .............................. 13,419,839 17,073,011
Loans ...................................................................... 158,347,687 147,350,540
Less: allowance for credit losses .......................................... (1,793,112) (1,772,433)
------------ ------------
Loans - net ................................................................ 156,554,575 145,578,107
------------ ------------
Premises and equipment ..................................................... 4,205,824 3,928,561
Foreclosed real estate ..................................................... 215,000 391,236
Accrued interest receivable ................................................ 1,708,814 1,292,194
Other assets ............................................................... 1,938,115 2,047,669
TOTAL ASSETS ............................................................. $250,780,880 $225,131,471
------------ ------------
------------ ------------
LIABILITIES
Deposits:
Noninterest-bearing deposits ............................................. $26,096,600 $23,694,607
Interest-bearing deposits ................................................ 179,542,196 175,596,828
------------ ------------
TOTAL DEPOSITS ......................................................... 205,638,796 199,291,435
Short-term borrowings ...................................................... 13,776,373 6,808,596
Federal Home Loan Bank borrowings .......................................... 10,000,000 --
Accured expenses and other liabilities ..................................... 1,301,385 1,131,100
------------ ------------
TOTAL LIABILITIES ...................................................... 230,716,554 207,231,131
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par; 10,000,000 shares authorized;
1,674,800 shares in 1997 and 834,000 shares in 1996 issued and outstanding 16,748 8,340
Surplus .................................................................... 8,469,115 8,342,055
Unrealized gain (loss) on securities available for sale .................... 149,136 (58,586)
Retained earnings .......................................................... 11,429,327 9,608,531
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ............................................. 20,064,326 17,900,340
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................. $250,780,880 $225,131,471
------------ ------------
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ANNUAL REPORT 1997
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans .......................... $ 13,652,870 $ 13,707,367 $ 13,661,957
Interest and dividends on investment securities:
Taxable interest on mortgage backed securities .... 1,361,956 1,453,544 1,530,218
Other taxable interest and dividends .............. 2,432,532 1,346,903 1,330,984
Nontaxable interest ............................... 303,532 361,482 394,366
Interest on deposits at other banks ................. 3,762 61,229 20,400
Interest on federal funds sold ...................... 459,479 430,342 153,442
------------ ------------ ------------
TOTAL INTEREST INCOME ............................. 18,214,131 17,360,867 17,091,367
------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits:
Certificates of deposits of $100,000 and more ..... 1,021,731 1,097,504 959,967
Other deposits .................................... 6,677,699 6,604,581 6,232,214
------------ ------------ ------------
TOTAL INTEREST ON DEPOSITS ...................... 7,699,430 7,702,085 7,192,181
Interest on short-term borrowings ................... 537,058 370,144 513,642
Interest on Federal Home Loan Bank borrowings ....... 156,299 26,300 386,281
------------ ------------ ------------
TOTAL INTEREST EXPENSE .......................... 8,392,787 8,098,529 8,092,104
------------ ------------ ------------
Net interest income ................................. 9,821,344 9,262,338 8,999,263
Provision for credit losses ...................... 275,000 329,000 212,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 9,546,344 8,933,338 8,787,263
------------ ------------ ------------
NONINTEREST INCOME:
Service charges on deposit accounts ............... 1,023,404 796,490 723,021
Other service charges ............................. 162,104 152,765 158,346
Gain on sale of loans ............................. -- 19,791 4,300
Net securities losses ............................. -- -- (1,065)
Other income ...................................... 141,192 116,754 92,948
------------ ------------ ------------
TOTAL NONINTEREST INCOME ........................ 1,326,700 1,085,800 977,550
------------ ------------ ------------
NONINTEREST EXPENSE:
Salaries and employee benefits .................... 4,057,005 3,879,323 3,721,430
Occupancy expense ................................. 756,231 802,443 666,070
Equipment expenses ................................ 430,638 335,136 341,731
Computer service fees ............................. 418,459 598,147 597,656
FDIC assessment ................................... 24,559 2,000 208,912
Legal and professional ............................ 173,399 199,965 290,716
Check clearing fees ............................... 71,031 40,784 103,913
Expenses related to terminated merger activities .. -- 287,824 --
Other expenses .................................... 1,377,722 1,109,356 1,184,017
------------ ------------ ------------
TOTAL NONINTEREST EXPENSES ...................... 7,309,044 7,254,978 7,114,445
------------ ------------ ------------
INCOME BEFORE INCOME TAXES .......................... 3,564,000 2,764,160 2,650,368
------------ ------------ ------------
PROVISION FOR INCOME TAXES .......................... 1,163,898 934,132 890,395
------------ ------------ ------------
NET INCOME .......................................... $ 2,400,102 $ 1,830,028 $ 1,759,973
------------ ------------ ------------
------------ ------------ ------------
BASIC AND DILUTED EARNINGS PER COMMON SHARE ......... $ 1.43 $ 1.10 $ 1.06
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
UNB 29
UNION NATIONAL BANCORP, INC
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
on Securities
Common Available Retained
Stock Surplus for Sale Earnings Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995, AS
PREVIOUSLY REPORTED ................. $ 8,340 $ 8,342,055 $ (1,414,122) $ 7,012,169 $ 13,948,442
Adjustment (Note 2) ................... -- -- -- (84,578) (84,578)
------------ ------------ ------------ ------------ ------------
BALANCE AT JANUARY 1, 1995, AS RESTATED 8,340 8,342,055 (1,414,122) 6,927,591 $ 13,863,864
Net income ............................ -- -- -- 1,759,973 1,759,973
Cash dividends ($.26 per share) ....... -- -- -- (433,681) (433,681)
Unrealized appreciation on securities
available for sale (net of tax) ..... -- -- 1,231,047 -- 1,231,047
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1995 .......... 8,340 8,342,055 (183,075) 8,253,883 $ 16,421,203
Net income ............................ -- -- -- 1,830,028 1,830,028
Cash dividends ($.285 per share) ...... -- -- -- (475,380) (475,380)
Unrealized appreciation on securities
available for sale (net of tax) ..... -- -- 124,489 -- 124,489
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1996 .......... 8,340 8,342,055 (58,586) 9,608,531 $ 17,900,340
Net income ............................ -- -- -- 2,400,102 2,400,102
Cash dividends ($.34 per share) ...... -- -- -- (567,120) (567,120)
Dividend reinvestment plan ............ 34 127,060 -- (3,812) 123,282
Two-for-one stock split effected in
the form of a 100% stock dividend ... 8,374 -- -- (8,374) --
Unrealized appreciation on securities
available for sale (net of tax) ..... -- -- 207,722 -- 207,722
------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 1997 .......... $ 16,748 $ 8,469,115 $ 149,136 $ 11,429,327 $ 20,064,326
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
ANNUAL REPORT 1997
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net Income ................................................................. $ 2,400,102 $ 1,830,028 $ 1,759,973
Adjustments to reconcile net income to net cash provided by operating
activities:
Provisions for credit losses ............................................... 275,000 329,000 212,000
Depreciation and amortization .............................................. 641,442 565,016 470,925
Net losses on available for sale securities ................................ -- -- 1,065
Gain on sale of other real estate and other assets ......................... (21,128) (50,227) (39,507)
Provision for deferred income taxes ........................................ (21,378) (29,433) (104,705)
Provision for foreclosed properties ........................................ 75,000 -- --
Non-cash contribution ...................................................... 1,571 -- --
Net decrease (increase) in accrued interest receivable ..................... (416,620) 108,996 (52,032)
Net increase (decrease) in accrued expenses & other liabilities ............ 170,285 263,979 (138,098)
Other - net ................................................................ 26,689 201,992 507,482
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ............................... 3,130,963 3,219,351 2,617,103
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale securities ................................. (34,962,184) (18,009,500) (6,373,418)
Proceeds from sale of available-for-sale securities ........................ -- -- 2,856,390
Proceeds from maturities of available-for-sale securities .................. 15,235,953 6,176,022 4,119,062
Purchase of held-to-maturity securities .................................... -- (650,000) (3,492,632)
Proceeds from maturities of held-to-maturity securities .................... 3,785,800 9,272,045 6,854,751
Proceeds from sale of other real estate and other assets ................... 537,364 351,413 265,940
Net increase in loans ...................................................... (11,666,468) (1,301,595) (7,410,114)
Premises and equipment acquired .......................................... (918,705) (642,719) (1,040,722)
Foreclosed real estate acquired ............................................ -- (124,451) (111,540)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES .................................... (27,988,240) (4,928,785) (4,332,283)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits ................................................... 6,347,360 5,829,593 10,928,790
Net increase (decrease) in short-term borrowings ........................... 6,967,776 3,667,886 (6,736,602)
Proceeds from Federal Home Loan Bank borrowings ............................ 10,000,000 -- 18,000,000
Repayments of Federal Home Loan Bank borrowings ............................ -- (5,000,000) (13,000,000)
Dividend reinvestment plan ................................................. 123,282 -- --
Cash dividends paid ........................................................ (567,120) (475,380) (433,681)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................ 22,871,298 4,022,099 8,758,507
------------ ------------ ------------
Net Increase (Decrease) In Cash And Cash Equivalents ....................... (1,985,979) 2,312,665 7,043,327
Cash And Cash Equivalents At Beginning Of Year ............................. 15,953,932 13,641,267 6,597,940
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................... $ 13,967,953 $ 15,953,932 $ 13,641,267
------------ ------------ ------------
------------ ------------ ------------
Supplemental Disclosure Of Cash Flow Information:
Interest paid ............................................................ $ 8,367,151 $ 8,112,787 $ 8,291,567
------------ ------------ ------------
------------ ------------ ------------
Income taxes paid ........................................................ $ 1,490,000 $ 922,000 $ 1,076,040
------------ ------------ ------------
------------ ------------ ------------
Non-Cash Investing Activites
Transfer from loans to foreclosed real estate ............................ $ 415,000 $ 384,904 $ --
------------ ------------ ------------
Transfer from available for sale securities to held to maturity securities $ -- $ -- $ 6,300,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
UNB 31
<PAGE>
UNION NATIONAL BANCORP, INC
UNION NATIONAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Union National Bancorp, Inc (the "Parent Company") is one bank holding company
that provides a full range of banking and certain non-banking services to
individuals and businesses through its wholly-owned subsidiary Union National
Bank (the Bank) The Bank's primary deposit products include certificates of
deposit and demand, savings, NOW, and money market accounts. Its primary loan
products include commercial and consumer loans and real estate mortgages. The
Bank's principal market area encompasses Carroll County, Maryland and the
surrounding region. Additionally, the Bank maintains correspondent banking
relationships and transacts daily federal funds sales on an unsecured basis with
regional correspondent banks.
The accounting and reporting policies of Union National Bancorp, Inc. and its
wholly-owned subsidiary (collectively the "Company") conform to generally
accepted accounting principles and to general practices in the banking industry.
Certain reclassifications have been made to amounts previously reported to
conform with the classifications made in the current year. The following is a
summary of the Company's significant accounting policies:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Parent Company
and the Bank. All significant intercompany transactions and balances have been
eliminated in consolidation. In the Parent Company's unconsolidated financial
statements the investment in subsidiary is accounted for using the equity method
of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for credit losses and valuation
allowances for real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of these allowances,
management may obtain independent appraisals for significant properties.
While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowances for credit losses and foreclosed real estate. Such agencies
may require the Company to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Securities available for sale represent those securities which management may
sell as part of its asset/liability management strategy or that may be sold in
response to changing interest rates or liquidity needs. Investment securities
available for sale are carried at fair value, with any unrealized gains and
losses reported, net of related income tax effects, in stockholders' equity. The
cost of securities sold is recognized using the specific identification method.
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities to be held to maturity are those the Company has the
ability and intent to hold until maturity. These investments are carried at cost
adjusted for amortization of premiums and accretion of discounts.
INTEREST ON LOANS
Loans are carried at their current unpaid balance. Interest income on loans is
accrued at the contractual rate on the principal amount outstanding. Loan
origination and commitment fees and certain direct loan origination costs are
being deferred and the net amount amortized over the contractual life of the
loan as a yield adjustment.
Loans are placed on nonaccrual when a loan is specifically determined to be
impaired or when principal or interest is delinquent for 90 days or more. Any
unpaid interest previously accrued on those loans is reversed from income.
Interest payments received on such loans generally are applied as a reduction of
the loan principal balance unless the likelihood of further loss is remote.
<PAGE>
ANNUAL REPORT 1997
IMPAIRED LOANS
Loans are considered impaired when, based on current information, it is probable
that the Company will not collect all principal and interest payments according
to the loans' contractual terms. Generally, loans are considered impaired once
principal or interest payments become 90 days or more past due and they are
placed on nonaccrual status. Management considers the financial condition of the
borrower, loan cash flows and the value of the related collateral when
evaluating loan impairment. Impaired loans do not include large groups of
smaller balance homogeneous loans such as residential real estate and consumer
installment loans which are evaluated collectively for impairment. Loans
specifically reviewed for impairment are not considered impaired during periods
of "minimum delay" in payment (90 days or less) provided eventual collection of
all amounts due is expected. Impairment of a loan is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, or the fair value of collateral, if repayment is expected to be
provided by the collateral. The majority of the Company's impaired loans are
measured by reference to the fair value of the collateral. Interest income on
impaired loans is recognized on the cash basis when the likelihood of further
loss is remote.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
Management's evaluation of the loan portfolio, considers the nature of the
portfolio, credit concentrations, trends in historical loss experience, specific
impaired loans, and economic conditions. The allowance is increased by a
provision for credit losses, which is charged to expense, and reduced by
charge-offs, net of recoveries.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization of properties are computed using the
straight-line method over the estimated useful lives of the properties.
Expenditures for maintenance and repairs are charged to operations. Expenditures
for improvements which extend the life of an asset are capitalized and
depreciated over the asset's remaining useful life.
FORECLOSED REAL ESTATE
Real estate acquired through foreclosure is carried at the lower of cost or fair
market value minus estimated cost of disposal. Fair market value is based on
independent appraisals and other relevant factors. At the time of acquisition,
any excess of the loan balance over fair market value is charged to the
allowance for credit losses. Gains and losses on sales of foreclosed real estate
are included in other operating income.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable for the
current year and deferred income taxes on temporary differences between the
amount of taxable income and pretax financial income and between tax bases of
assets and liabilities and their reported amounts in the financial statements.
Deferred tax assets and liabilities are included in the financial statements at
current enacted tax rates and represent the future tax return consequences of
temporary differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled.
BASIC AND DILUTED EARNINGS PER COMMON SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
("SFAS")No. 128, "Earnings per Share." This Statement establishes new standards
for computing and presenting earnings per share ("EPS"). It replaces the former
presentation of primary EPS with a presentation of basic EPS and, when
applicable, requires the dual presentation of basic and diluted EPS. Basic EPS
is computed by dividing net income by the weighted-average number of common
shares for the period. Diluted EPS reflects the potential dilution that could
occur if other contracts to issue common stock were exercised. Per share amounts
are based on weighted-average number of shares outstanding during each year as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Basic EPS weighted-average shares outstanding . 1,668,009 1,668,000 1,668,000
Effect of stock options ....................... -- -- --
--------- --------- ---------
Diluted EPS weighted-average shares outstanding 1,668,009 1,668,000 1,668,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
CASH FLOWS
The Company has defined cash and cash equivalents as those amounts included in
the balance sheet captions Cash and due from banks, Interest bearing deposits
with banks and Federal funds sold.
<PAGE>
UNB 33
UNION NATIONAL BANCORP, INC
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
During the year ended December 31,1997, it was discovered that the liability for
deferred directors' compensation was understated on a cumulative pretax basis by
$248,170 during the years 1992 through 1996. Management of the Company has
elected to restate previously issued financial statements. Accordingly, the
financial statements for the years ended December 31, 1996 and 1995 as well as
retained earnings as of January 1, 1995 included in this report have been
restated to reflect the additional accrual, net of related tax benefit. The
reduction in net income was $30,348 and $34,255 for 1996 and 1995, respectively,
or $.02 per share in both 1996 and 1995.
3. CASH AND DUE FROM BANKS
The Federal Reserve requires banks to maintain certain minimum cash balances
consisting of vault cash and deposits in the Federal Reserve Bank or in other
commercial banks. The amount of such reserves totaled $1,600,000 and $1,035,000
at December 31, 1997 and 1996, respectively. The average daily reserve balance
maintained during 1997 and 1996 was $1,322,000 and $1,769,656 respectively.
4. INVESTMENT SECURITIES
The amortized cost and estimated fair values of securities available for sale at
December 31, were as follows:
AVAILABLE-FOR-SALE:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies ..................... $36,917,220 $ 112,812 $ 18,474 $37,011,558
Obligations of states and political subdivisions 500,000 77,400 -- 577,400
Mortgage-backed securities ..................... 19,683,611 167,942 64,912 19,786,641
----------- ----------- ----------- -----------
Total debt securities .......................... 57,100,831 358,154 83,386 57,375,599
Equity securities .............................. 1,257,456 137,705 -- 1,395,161
----------- ----------- ----------- -----------
TOTAL .......................................... $58,358,287 $ 495,859 $ 83,386 $58,770,760
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1996
U.S. Treasury securities and obligations of
U.S. government agencies ..................... $23,498,767 $ 104,588 $ 38,405 $23,564,950
Obligations of states and political subdivisions 496,150 106,350 -- 602,500
Mortgage-backed securities ..................... 13,570,902 75,132 151,902 13,494,132
----------- ----------- ----------- -----------
Total debt securities .......................... 37,565,819 286,070 190,307 37,661,582
Equity securities .............................. 1,093,227 111,952 -- 1,205,179
----------- ----------- ----------- -----------
TOTAL .......................................... $38,659,046 $ 398,022 $ 190,307 $38,866,761
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
ANNUAL REPORT 1997
The amortized cost and estimated fair values of securities to be held to
maturity at December 31, were as follows:
HELD-TO-MATURITY:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
1997 Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government agencies ..................... $ 879,382 $ 2,819 $ 2,394 $ 879,807
Obligations of states and political subdivisions 5,233,663 104,824 265 5,338,222
Mortgage-backed securities ..................... 7,306,794 123,858 1,592 7,429,060
----------- ----------- ----------- -----------
TOTAL .......................................... $13,419,839 $ 231,501 $ 4,251 $13,647,089
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1996
U.S. Treasury securities and obligations of
U.S. government agencies ..................... $ 2,550,750 $ 4,908 $ 5,770 $ 2,549,888
Obligations of states and political subdivisions 5,648,234 46,370 2,455 5,692,149
Mortgage-backed securities ..................... 8,874,027 188,086 -- 9,062,113
----------- ----------- ----------- -----------
TOTAL .......................................... $17,073,011 $ 239,364 $ 8,225 $17,304,150
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Gross realized gains and losses on sales of securities available for sale for
the years ended December 31, were:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
GROSS REALIZED GAINS: .............. $ -- $ -- $23,940
------ ------ -------
------ ------ -------
GROSS REALIZED LOSSES: ............. $ -- $ -- $25,005
------ ------ -------
------ ------ -------
</TABLE>
The scheduled maturities of securities held to maturity and securities
available for sale at December 31,1997, were as follows:
<TABLE>
<CAPTION>
Securities held to maturity Securities available for sale
--------------------------- -----------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less ....... $ 3,412,270 $ 3,419,756 $ 8,582,752 $ 8,597,704
Due from one year to five years 7,010,277 7,149,425 23,798,632 23,886,913
Due from five to ten years .... 2,963,002 3,043,756 18,897,240 19,014,269
Due after ten years ........... 34,290 34,152 5,822,207 5,876,713
----------- ----------- ----------- -----------
TOTAL DEBT SECURITIES ......... $13,419,839 $13,647,089 $57,100,831 $57,375,599
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
For the purposes of the maturity table, mortgage-backed securities, which are
not due at a single maturity date, have been allocated over maturity groupings
based on the weighted-average contractual maturities of underlying collateral.
The mortgage-backed securities may mature earlier than their weighted-average
contractual maturities because of principal prepayments.
Securities with an amortized cost book value of $26,990,800 at December 31,
1997 and $22,241,003 at December 31, 1996 were pledged as collateral for certain
deposits and repurchase agreements as required or permitted by law.
There were no state, county and municipal securities whose book value, as to
any issuer, exceeded ten percent of stockholders' equity at December 31, 1997 or
1996.
<PAGE>
UNB 35
UNION NATIONAL BANCORP, INC
5. LOANS AND ALLOWANCES FOR CREDIT LOSSES At December 31, 1997 and 1996 loans
were as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Real estate:
Construction ........................... $ 5,893,105 $ 1,842,538
Conventional mortgages ................. 101,246,580 91,262,210
Loans to farmers ......................... 3,135,651 1,638,900
Commercial and industrial loans .......... 22,715,372 22,551,859
Loans to individuals ..................... 22,379,555 27,111,321
Tax-exempt loans to political subdivisions 3,183,743 3,372,488
All other loans .......................... 230,202 108,459
------------- -------------
Gross loans ............................ 158,784,208 147,887,775
Net deferred loan fees and costs ......... (436,521) (537,235)
------------- -------------
TOTAL LOANS ............................ $ 158,347,687 $ 147,350,540
------------- -------------
------------- -------------
</TABLE>
Changes in the allowance for credit losses for the years ended December 31,
1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year .......... $ 1,772,433 $ 1,769,077 $ 1,670,940
Provision charged to operating expenses 275,000 329,000 212,000
Recoveries ............................ 57,059 61,088 93,024
Loans charged off ..................... (311,380) (386,732) (206,887)
----------- ----------- -----------
BALANCE AT END OF YEAR ................ $ 1,793,112 $ 1,772,433 $ 1,769,077
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Information regarding impaired loans for the years ending December 31, 1997,
1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Impaired loans with a valuation allowance ................................ $3,557,871 $ 109,495 $ 73,043
Impaired loans without a valuation allowance ............................. -- 1,150,063 475,535
---------- ---------- ----------
TOTAL IMPAIRED LOANS ................................................... $3,557,871 $1,259,558 $ 548,578
---------- ---------- ----------
---------- ---------- ----------
Allowance for credit losses related to impaired loans .................... $ 221,178 $ 96,314 $ 52,748
Allowance for credit losses related to other than impaired loans 1,571,934 1,676,119 1,716,329
---------- ---------- ----------
TOTAL ALLOWANCE FOR CREDIT LOSSES ...................................... $1,739,112 $1,772,433 $1,769,077
---------- ---------- ----------
---------- ---------- ----------
Average impaired loans for the year ...................................... $1,281,158 $ 965,871 $ 437,223
---------- ---------- ----------
---------- ---------- ----------
Interest income on impaired loans recognized on a cash basis ............. $ 63,256 $ -- $ 24,774
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's loans are widely dispersed among individuals and industries. On
December 31, 1997, there was no concentration of loans in any single industry
that exceeded 5% of total loans.
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit.
The Company's exposure to credit loss in the event of nonperformance by the
other party to these financial instruments is represented by the contractual
amount of the instruments. The Company uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments.
The Company generally requires collateral or other security to support
financial instruments with credit risk. The amount of collateral or other
security is determined based on management's credit evaluation of the
counterparty.
<PAGE>
ANNUAL REPORT 1997
The contract amounts of financial instruments which represent credit risk at
December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commitments to extend credit $29,376,732 $17,438,032
Standby letters of credit .. 2,237,699 2,308,082
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amount does not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
6. PREMISES AND EQUIPMENT
Premises and equipment consist of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Land .................................... $ 204,756 $ 204,756
Buildings and leasehold improvements .... 5,124,858 4,827,439
Equipment ............................... 3,226,904 2,605,618
----------- -----------
8,556,518 7,637,813
Accumulated depreciation and amortization (4,350,694) (3,709,252)
----------- -----------
TOTAL ................................... $ 4,205,824 $ 3,928,561
----------- -----------
----------- -----------
</TABLE>
Depreciation and amortization charged to operations amounted to $641,442 in
1997, $565,016 in 1996, and $470,924 in 1995.
7. DEPOSITS
Interest-bearing deposits include certificates of deposit and other time
deposits in denominations of $100,000 or more which totaled $20,024,381 and
$23,406,549 at December 31,1997 and 1996 respectively.
At December 31, 1997, the maturity distribution of certificates of deposit is
as follows:
Maturing in:
<TABLE>
<S> <C>
1998 ..................................... $50,872,154
1999 ..................................... 16,755,604
2000 ..................................... 30,916,171
2001 ..................................... 2,364,942
2002 ..................................... 1,410,948
Thereafter ............................... 276,814
------------
TOTAL .................................... $102,596,633
------------
------------
</TABLE>
Interest on deposits for the years ended December 31, 1997, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Saving deposits .......................... $1,828,015 $1,873,911 $2,136,685
Certificates of deposit ($100,000 or more) 1,021,731 1,097,504 959,967
Other deposits ........................... 4,849,684 4,730,670 4,095,529
---------- ---------- ----------
TOTAL AT DECEMBER 31 ..................... $7,699,430 $7,702,085 $7,192,181
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
UNB 37
UNION NATIONAL BANCORP, INC
8. SHORT-TERM BORROWINGS
Short-term borrowings include federal funds purchased and securities sold under
agreements to repurchase. Selected information at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Average amount outstanding during year ... $11,771,647 $ 8,555,503
Weighted average interest rate during year 4.56% 4.30%
Amount outstanding at year end ........... $13,776,373 $ 6,808,596
Weighted average interest rate at year-end 5.02% 4.50%
Highest amount outstanding during the year $21,670,304 $17,802,839
</TABLE>
At December 31,1997, the Company had unused lines of credit in the total
amount of $33,000,000.
9. FEDERAL HOME LOAN BANK BORROWINGS
At December 31,1997, the Company had received an advance from the Federal Home
Loan Bank in the amount of $10,000,000 which is due September 24, 2002, callable
in September 1999, bearing interest at 5.66%. The Company has pledged
$22,000,000 of conventional mortgage loans as collateral on advances from this
source.
10. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION:
The Company sponsors a defined benefit pension plan covering substantially all
employees. Benefits are based on years of service and the employee's
compensation. The Company's funding policy is to contribute the maximum amount
deductible for income tax purposes. Contributions provide not only for benefits
attributed to service to date, but also for those expected to be earned in the
future. Net pension cost for the years ended December 31, 1997, 1996 and 1995
includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the year $ 83,251 $ 86,195 $ 71,154
Interest cost on projected benefit obligation 65,815 84,964 88,382
Actual return on plan assets ................ (93,269) (103,395) (139,897)
Net amortization and deferral ............... 61,321 54,406 76,498
--------- --------- ---------
$ 117,118 $ 122,170 $ 96,137
Additional expense related to settlement of
pension obligations ....................... 88,718 155,612 --
--------- --------- ---------
TOTAL ....................................... $ 205,836 $ 277,782 $ 96,137
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1997 and 1996, the Company's defined benefit pension plan made lump
sum payments to plan participants which met the criteria for a settlement of
pension obligations as defined in SFAS No. 88 "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Plans and for Termination
Benefits." This settlement resulted in additional pension expense of $88,718 and
$155,612 for the years ended December 31, 1997 and 1996, respectively.
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7.25% for 1997 and 7.50% in 1996
and 1995. The expected long-term rate of return on assets was 7.25% for 1997 and
7.50% in 1996 and 1995.
<PAGE>
ANNUAL REPORT 1997
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1997 and
1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$676,150 in 1997 and $779,681 in 1996 .......................... $ 691,160 $ 786,243
----------- -----------
Plan assets at fair value, primarily in debt and equity securities 688,437 832,418
Projected benefit obligation for service rendered to date ........ (1,035,496) (1,160,553)
----------- -----------
Projected benefit obligation in excess of plan assets ............ (347,059) (328,135)
Unrecognized net gain from past experience different from that
assumed and effects of changes in assumptions .................. 205,652 252,538
Prior service cost not yet recognized in net periodic pension cost (278) (616)
Unrecognized net obligation at December 15, 1988 being
recognized over 15 years ....................................... 23,309 29,136
----------- -----------
Accrued pension cost ............................................. $ (118,376) $ (47,077)
----------- -----------
----------- -----------
</TABLE>
EMPLOYEE SAVINGS AND INVESTMENT PLAN:
The Company has an Employee Savings and Investment Plan in which substantially
all employees are eligible to participate. Under the terms of the Plan, the
Company will match 50% of employee contributions up to 6% of compensation. The
Company's contributions to the Plan were $62,564 for 1997, $56,314 for 1996, and
$56,978 for 1995.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN:
The Company has entered into supplemental executive retirement agreements with
certain executive officers and members of its Board of Directors to provide
retirement benefits. The present value of the benefits to be paid by the Company
upon retirement is being accrued over the number of years remaining to the
retirement date of those individuals. The expense (income)
recognized for this plan was $(9,754) in 1997, $116,129 in 1996, and $107,916
in 1995.
STOCK OPTION PLAN:
On April 15, 1997 the Company established the 1997 Key Employee Stock Option
Plan (the "1997 Plan"). The Plan is accounted for in accordance with Accounting
Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees,"
and related interpretations.
Had compensation expense for the 1997 Plan been determined based on the fair
value of each option on the date of grant using an option-pricing model as
prescribed in SFAS No. 123, "Accounting for Stock-Based Compensation," there
would have been no effect on the Company's net income and basic and diluted
earnings per share for the year ended December 31, 1997.
The 1997 Plan provides that 60,000 shares of the Company's common stock will
be reserved for the granting of both incentive stock options (ISO) and
non-qualified stock options (NQSO) to purchase these shares. At December 31,
1997, reserved shares remaining for future grants under this Plan totaled
40,100. The exercise price per share for incentive stock options and
non-qualified stock options shall be equal to the fair market value on the date
the options are granted. However, in the case of incentive stock options, if at
the time the options are granted the participant owns shares possessing more
than 10% of the total combined voting power of all classes of stock of the
Company, then the exercise price shall not be less than 110% of the fair market
value of the shares on the date the options are granted.
The options granted will become exercisable in increments of 20% on each
anniversary date of the grant of the options, so that the options will become
fully exercisable on the fifth anniversary of the date the options were granted.
<PAGE>
UNB 39
UNION NATIONAL BANCORP, INC
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for the year ended December 31, 1997:
<TABLE>
<S> <C>
Dividend yield .................................................. 2.00%
Expected volatility ............................................. 9.90%
Risk free interest rate ......................................... 5.74%
Expected life, in years ......................................... 10 years
Weighted-average fair value of options granted during the year .. $5.43
</TABLE>
During 1997, the Company granted options to purchase 19,900 shares with an
exercise price of $21. None of these shares were exercisable at December 31,
1997. These options were not included in the computation of diluted EPS because
their exercise price was greater than the average market price of the common
shares.
11. INCOME TAXES
The provision for income taxes for the years ended December 31, 1997, 1996
and 1995 consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------- -------------------------------- --------------------------------
Federal State Total Federal State Total Federal State Total
---------- -------- ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Currently payable $1,061,389 $123,887 $1,185,276 $788,837 $174,728 $963,565 $788,575 $206,525 $995,100
Deferred tax
(benefits) .... (25,491) 4,113 (21,378) (24,098) (5,335) (29,433) (85,726) (18,979) (104,705)
---------- -------- ---------- -------- -------- -------- -------- -------- --------
TOTAL ........... $1,035,898 $128,000 $1,163,898 $764,739 $169,393 $934,132 $702,849 $187,546 $890,395
---------- -------- ---------- -------- -------- -------- -------- -------- --------
---------- -------- ---------- -------- -------- -------- -------- -------- --------
</TABLE>
Deferred tax benefits resulting from temporary differences in the tax bases
of assets and liabilities for tax and financial statement purposes for the years
ended December 31, 1997, 1996 and 1995 are attributable to:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Provision for credit losses . $(8,267) $5,647 $(37,880)
Deferred loan fees .......... (3,918) 89,941 25,480
Depreciation and amortization (41,104) (49,801) (30,550)
Pension expense ............. 9,664 (22,933) (4,704)
Deferred compensation ....... 3,071 (40,148) (41,666)
Loan income ................. 9,770 (23,905) (16,008)
Health insurance ............ -- 23,638 --
Other ....................... 9,406 (11,872) 623
-------- -------- ---------
TOTAL DEFERRED TAX (BENEFIT) $(21,378) $(29,433) $(104,705)
-------- -------- ---------
-------- -------- ---------
</TABLE>
Accumulated deferred tax benefits of $1,105,089 at December 31, 1997 and
$1,234,653 at December 31, 1996 are included in other assets and consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Provision for credit losses ............................... $549,456 $541,189
Deferred loan fees ........................................ 181,450 177,532
Unrealized (gains) losses on investment securities (93,836) 36,924
Depreciation and amortization ............................. 217,738 205,602
Deferred compensation ..................................... 241,330 244,401
Pension expense ........................................... (26,363) (16,699)
Loan income ............................................... 36,110 45,880
Health insurance .......................................... -- --
Other ..................................................... (796) (176)
---------- ----------
NET DEFERRED TAX ASSET .................................... $1,105,089 $1,234,653
---------- ----------
---------- ----------
</TABLE>
<PAGE>
ANNUAL REPORT 1997
A reconciliation of the maximum statutory income tax to the provision for
income taxes included in the consolidated statements of income for the years
ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ----------------------- ------------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
---------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Computed tax at statutory rate $1,211,760 34.0% $939,815 34.0% $901,125 34.0%
Increases (decreases) in taxes
resulting from:
Tax-exempt interest income ................ (172,797) (4.8) (159,792) (5.8) (163,881) (6.2)
State income taxes, net of federal
income tax benefit ...................... 78,151 2.2 111,800 4.1 123,781 4.7
Nondeductible interest expense ............ 37,166 1.1 26,271 .9 22,919 .8
Officers and directors life insurance 4,936 .1 7,306 .3 1,452 --
Other ..................................... 4,682 .1 8,732 .3 4,999 .3
---------- ---- -------- ---- -------- ----
$1,163,898 32.7% $934,132 33.8% $890,395 33.6%
---------- ---- -------- ---- -------- ----
---------- ---- -------- ---- -------- ----
</TABLE>
Included in the above amounts are income tax benefits totaling $413, resulting
from net securities losses in 1995.
12. LEASES
The Company is obligated under noncancelable lease agreements for certain
premises. The leases generally contain renewal options and provide that the
Company pay property taxes, insurance and maintenance costs.
Future minimum lease payments under leases having initial or remaining
noncancelable lease terms in excess of one year are as follows:
<TABLE>
Years ending December 31, Amount
- ------------------------ ----------
<S> <C>
1998 ............................ $302,464
1999 ............................ 310,409
2000 ............................ 232,033
2001 ............................ 214,929
2002 ............................ 187,726
Thereafter ...................... 839,324
</TABLE>
The Company has entered into an agreement to lease a branch banking facility
from a director through 2001 at a minimum annual rental of $37,800. The lease
also contains one five-year renewal option. The Company also has an agreement
with an advisory board member to lease a branch facility through November, 2002
at minimum annual rental of $21,532.
13. STOCKHOLDERS' EQUITY RESTRICTIONS ON DIVIDENDS:
The amount of dividends that the Bank can pay to the Company without approval
is limited to its net profits for the current year plus its retained net
profits for the preceeding two years. Amounts available for the payment of
dividends during 1997 aggregated $5,015,000.
REPURCHASE PLAN:
On October 1, 1997, the Board of Directors authorized a stock repurchase
program. Pursuant to the terms of this program, the Company may repurchase up
to 6% of its common stock during the ten year period ending September 30,
2007. As of December 31, 1997 no shares had been purchased.
DIVIDEND REINVESTMENT PLAN:
The Company maintains a Dividend Reinvestment and Stock Purchase Plan for all
stockholders of the Company. This Plan provides that 300,000 shares, as
adjusted for stock distributions, of the Company's common stock will be
reserved for issuance under the Plan. At December 31, 1997, reserved shares
remaining for future issuance under this Plan totaled 293,130. The terms of
this Plan allow participating shareholders to purchase additional shares of
common stock in the Company by reinvesting the dividends paid on shares
registered in their name, by making optional cash payments, or both. Shares
purchased under the Plan
<PAGE>
UNB 41
UNION NATIONAL BANCORP, INC
with reinvested dividends or optional cash payment can be acquired at 97% of
current market prices. Optional cash payments to this Plan are limited and may
not exceed $10,000 in any calendar quarter. The Company reserves the right to
amend, modify, suspend or terminate this Plan at any time at its discretion.
CAPITAL:
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about components,
risk-weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Total and Tier 1 capital (as defined) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average
assets (as defined). Management believes as of December 31, 1997 that the
Company and the Bank meet all capital adequacy requirements to which they are
subject.
As of December 31,1997, the most recent notification from the regulatory
agency categorized the Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, the Bank
must maintain minimum Total risk-based, Tier 1 risk-based and Tier 1 leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
The Company's and the Bank's actual capital amounts and ratios are also
presented in the following table:
<TABLE>
<CAPTION>
To be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31,1997:
Total Capital (to risk-weighted assets)
Consolidated ....................... $21,708,111 12.8% $13,585,475 8.0% N/A
Union National Bank ................ $21,431,005 12.7% $13,565,425 8.0% $16,956,781 10.0%
Tier 1 Capital (to risk-weighted assets)
Consolidated ....................... $19,914,999 11.7% $6,792,738 4.0% N/A
Union National Bank ................ $19,637,893 11.6% $6,782,712 4.0% $10,174,069 6.0%
Tier 1 Capital (average assets)
Consolidated ....................... $19,914,999 8.0% $9,872,109 4.0% N/A
Union National Bank ................ $19,637,893 8.0% $9,865,349 4.0% $12,331,686 5.0%
As of December 31,1996:
Total Capital (to risk-weighted assets)
Consolidated ....................... $19,731,359 12.8% $12,332,099 8.0% N/A
Union National Bank ................ $19,590,689 12.7% $12,340,591 8.0% $15,425,739 10.0%
Tier 1 Capital (to risk-weighted assets)
Consolidated ....................... $17,958,926 11.6% $6,192,733 4.0% N/A
Union National Bank ................ $17,818,256 11.5% $6,197,654 4.0% $9,296,481 6.0%
Tier 1 Capital (average assets)
Consolidated ....................... $17,958,926 8.1% $8,868,605 4.0% N/A
Union National Bank ................ $17,818,256 8.0% $8,909,128 4.0% $11,136,410 5.0%
</TABLE>
N/A = NOT APPLICABLE
14. RELATED PARTY TRANSACTIONS
Certain members of the Board of Directors and senior officers had loan
transactions with the Bank. Such loans were made in the ordinary course of
business on substantially the same terms as those prevailing at the time for
comparable transactions with outsiders.
<PAGE>
ANNUAL REPORT 1997
The following schedule summarizes changes in the amount of loans outstanding
to directors and senior officers, both direct and indirect, during 1997.
<TABLE>
<S> <C>
Balance at January 1,1997 ........... $4,644,364
Additions ........................... 926,143
Repayments .......................... (380,020)
----------
Balance at December 31,1997 ......... $5,190,487
----------
----------
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information about financial instruments, whether or not
recognized in the statement of financial condition. In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instruments. This standard excludes all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value presented does not represent the underlying value of the
Company.
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as of December 31, 1997 and 1996:
Cash and due from banks: The carrying amounts reported in the balance sheets
approximate their fair value.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans receivable: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying values. The
fair values for other loans are estimated with discounted cash flow techniques,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amount of accrued interest
approximates its fair value.
Off-balance sheet instruments: Fair values for the Company's off-balance
sheet instruments, consisting entirely of lending commitments, are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
Deposit liabilities: The fair values disclosed for demand deposits (e.g.,
interest and noninterest checking, savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and certificates of deposits
approximate their fair values at the reporting date. Fair values for fixed-rate
certificates of deposit are estimated using a discounted cash flow technique
that applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.
Short-term borrowings: The carrying amounts of short-term borrowings
approximate their fair values.
Federal Home Loan Bank Borrowings: Fair value for these borrowings is based
on quoted market prices.
The estimated fair value of the Company's financial instruments were as
follows at:
<TABLE>
<CAPTION>
December 31, 1997 December 31,1996
--------------------------- ----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and due from banks, interest-bearing deposits
with banks, and federal funds sold ............. $13,967,953 $13,967,953 $15,953,932 $15,953,932
Investment securities available for sale ......... 58,770,760 58,770,760 38,866,761 38,866,761
Investment securities held to maturity ........... 13,419,839 13,647,089 17,073,011 17,304,150
Loans receivable ................................. 158,347,687 157,021,020 147,350,540 145,814,000
Accrued interest receivable ...................... 1,708,814 1,708,814 1,292,194 1,292,194
FINANCIAL LIABILITIES:
Deposit liabilities .............................. 205,638,796 209,204,688 199,291,435 199,964,000
Short-term borrowings ............................ 13,776,373 13,776,373 6,808,596 6,808,596
Federal Home Loan Bank borrowings ................ 10,000,000 10,159,000 -- --
</TABLE>
<PAGE>
UNB 43
UNION NATIONAL BANCORP, INC
16. PARENT COMPANY FINANCIAL INFORMATION
The Condensed financial statement for Union National Bancorp, Inc. (Parent Only)
pertaining to the periods covered by the Company's consolidated financial
statement are presented below:
<TABLE>
<CAPTION>
BALANCE SHEETS, DECEMBER 31, 1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks .......................................... $26,480 $9,007
Investment in subsidiary ......................................... 19,787,220 17,759,670
Other assets ..................................................... 136,082 23,220
Due from subsidiary .............................................. 114,544 108,443
----------- -----------
TOTAL ASSETS ................................................... $20,064,326 $17,900,340
----------- -----------
----------- -----------
LIABILITIES ........................................................ $ -- $ --
----------- -----------
STOCKHOLDERS' EQUITY
Common stock ..................................................... 16,748 8,340
Surplus .......................................................... 8,469,115 8,342,055
Unrealized gain (loss) on investment securities available for sale 149,136 (58,586)
Retained earnings ................................................ 11,429,327 9,608,531
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ..................................... 20,064,326 17,900,340
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $20,064,326 $17,900,340
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME, YEARS ENDED DECEMBER 31, 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income
Dividends from subsidiary ................................ $592,120 $660,380 $525,260
Expenses ................................................. 17,947 287,824 13,420
---------- ---------- ----------
Income before income taxes and equity in undistributed
income of subsidiary ................................... 574,173 372,556 511,840
Income tax expense (benefit) ............................. (6,102) (97,860) (4,563)
---------- ---------- ----------
Income before equity in undistributed income of subsidiary 580,275 470,416 516,403
Equity in undistributed income of subsidiary ............. 1,819,827 1,359,612 1,243,570
---------- ---------- ----------
NET INCOME ............................................. $2,400,102 $1,830,028 $1,759,973
---------- ---------- ----------
---------- ---------- ----------
STATEMENTS OF CASH FLOWS, YEARS ENDED DECEMBER 31, ......... 1997 1996 1995
---------- ---------- ----------
Cash Flows from Operating Activities:
Net Income ............................................... $2,400,102 $1,830,028 $1,759,973
Equity in undistributed income of subsidiary ............. (1,819,827) (1,359,612) (1,243,570)
Amortization of organization cost ........................ 10,419 13,181 10,419
Increase in amount due from subsidiary ................... (6,101) (97,860) --
Decrease in other assets ................................. -- 88,385 --
---------- ---------- ----------
Net cash provided by operating activities .............. 584,593 474,122 526,822
---------- ---------- ----------
Cash Flows from Investing Activities:
Expenditures related to proposed acquisition ............. -- -- (92,877)
---------- ---------- ----------
Net cash used in investing activities .................. -- -- (92,877)
---------- ---------- ----------
Cash Flows from Financing Activities:
Dividends paid ........................................... (567,120) (475,380) (433,680)
---------- ---------- ----------
Net cash used in financing activities .................. (567,120) (475,380) (433,680)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ....... 17,473 (1,258) 265
Cash and Cash Equivalents at Beginning of Year ............. 9,007 10,265 10,000
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................... $26,480 $9,007 $10,265
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
ANNUAL REPORT 1997
17. TERMINATION OF PROPOSED ACQUISITION
On October 25, 1995, the Company entered into a definitive agreement to acquire
Maryland Permanent Bank & Trust Company ("Maryland Permanent") of Owings Mills,
Maryland. On July 26, 1996, prior to the consummation of the merger the Company,
as provided in the definitive agreement, terminated negotiations with Maryland
Permanent. Costs associated with the proposed affiliation, consisting primarily
of professional fees totaling $287,824, were expensed in 1996.
18. CURRENT ACCOUNTING DEVELOPMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income," which will become effective for fiscal
years beginning after December 15, 1997. Comprehensive income, as defined by
SFAS No. 130, is the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. In
addition to an enterprise's net income, change in equity components under
comprehensive income reporting would also include such items as the net change
in unrealized gain or loss on available-for-sale securities and foreign currency
translation adjustments. SFAS No. 130 requires disclosure of comprehensive
income and its components with the same prominence as the Company's other
financial statements. The Company is currently evaluating the alternative format
for reporting comprehensive income in 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which will become effective for fiscal
years beginning after December 15, 1997. SFAS No. 131 establishes standards for
the manner in which a publicly-held enterprise reports certain information about
operating segments of their business in both annual and interim financial
reports provided to stockholders. The information required to be disclosed for
an entity's operating segments not only consists of financial information, but
also certain related disclosures on the segment's products and services,
geographic areas, and major customers. The requirements of the new standard are
being evaluated but the Company currently believes that it will not have any
segment reporting requirements related to this pronouncement.
<PAGE>
UNB 45
UNION NATIONAL BANCORP, INC
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the Company's unaudited quarterly results of
operations:
<TABLE>
<CAPTION>
1997 Three months ended
---------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) December 31 September 30 June 30 March 31
----------- ------------ -------- --------
<S> <C> <C> <C> <C>
Interest Income ............................................ $4,825 $4,511 $4,496 $4,382
Net Interest Income ........................................ 2,557 2,432 2,438 2,394
Provision for credit losses ................................ 130 30 55 60
Income before income taxes ................................. 880 929 882 873
Net Income ................................................. 594 628 592 586
Basic and diluted earnings per share(1) .................... 0.35 0.38 0.35 0.35
</TABLE>
<TABLE>
<CAPTION>
1996 Three months ended
---------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) December 31 September 30 June 30 March 31
----------- ------------ -------- --------
<S> <C> <C> <C> <C>
Interest Income ............................................ $4,361 $4,335 $4,356 $4,309
Net Interest Income ........................................ 2,304 2,335 2,348 2,275
Provision for credit losses ................................ 78 60 122 69
Income before income taxes ................................. 687 587 801 689
Net Income ................................................. 476 379 515 460
Basic and diluted earnings per share(1) .................... 0.29 0.23 0.31 0.28
</TABLE>
(1) BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN RESTATED FOR THE TWO-FOR-ONE
STOCK SPLIT EFFECTED IN THE FORM OF A 100% STOCK DIVIDEND THAT WAS DECLARED ON
JANUARY 27, 1998.
20. SUBSEQUENT EVENT
On January 27, 1998, the Company's Board of Directors declared a two-for-one
split effected in the form of a 100% stock dividend for stockholders of record
on January 30, 1998. Common shares outstanding and per common share data in the
consolidated financial statements have been retroactively adjusted to reflect
the effects of this transaction.
