<PAGE>
United States Securities and Exchange Commission Washington, DC 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER: 000-22523
UNION NATIONAL BANCORP, INC. (Exact name of registrant as specified in its
charter)
Maryland 52-0514247
(State of incorporation) (I.R.S. identification number)
117 East Main Street, Westminster, MD 21157 (410) 848-7200
(Address of principal executive offices) (Telephone number)
Indicated 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 { }
The number of shares of common stock outstanding as of July 16,1998 is
1,681,390 shares.
<PAGE>
Table Of Contents
Union National Bancorp, Inc.
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet 2
Consolidated Statement of Income 3
Consolidated Comprehensive Statement of Income 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 6-10
PART II - OTHER INFORMATION 11
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
1
<PAGE>
Part 1 Financial Information Item 1 Financial Statements
Union National Bancorp, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 7,094,831 $ 7,870,449
Interest bearing deposits in other banks 5,892 25,108
Federal funds sold 10,420,705 6,072,396
Investment securities available for sale-at fair value 73,143,835 58,770,760
Investment securities held to maturity-at
amortized cost - fair value of $18,099,067 (1998)
and $13,647,089 (1997) 18,126,443 13,419,839
Loans 160,939,290 158,347,687
Less: allowance for credit losses (1,749,110) (1,793,112)
------------- -------------
Loans - net 159,190,180 156,554,575
Premises and equipment 4,181,412 4,205,824
Foreclosed real estate 433,731 215,000
Accrued interest receivable 1,750,023 1,708,814
Other assets 1,426,139 1,938,115
------------- -------------
TOTAL ASSETS $ 275,773,191 $ 250,780,880
------------- -------------
------------- -------------
LIABILITIES
Deposits:
Non-interest bearing deposits $ 26,075,081 $ 26,096,600
Interest bearing deposits 190,645,976 179,542,196
------------- -------------
Total deposits 216,721,057 205,638,796
Short-term borrowings 16,601,796 13,776,373
Other Bank Borrowing 20,000,000 10,000,000
Accrued expenses and other liabilities 1,310,069 1,301,385
------------- -------------
Total liabilities 254,632,922 230,716,554
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par; 10,000,000
shares authorized; 1,679,359 shares
in June 1998 1,674,800 shares in 1997
issued and outstanding 16,794 16,748
Capital surplus 8,581,296 8,469,115
Accumulated other comprehensive income 12,389,984 149,136
Retained earnings 152,195 11,429,327
------------- -------------
Total stockholders' equity 21,140,269 20,064,326
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 275,773,191 $ 250,780,880
------------- -------------
------------- -------------
</TABLE>
2
<PAGE>
Union National Bancorp, Inc.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,650,614 $3,387,604 $7,237,219 $6,734,470
Interest and dividends on investment securities:
Taxable interest on mortgage backed securities 701,788 316,979 1,224,811 646,958
Other taxable interest & dividends 462,751 605,831 977,670 1,140,245
Nontaxable interest
107,459 75,353 181,464 152,931
Interest on deposits in other banks
680 517 1,176 2,756
Interest on federal funds sold
173,878 109,422 353,081 199,897
---------- ---------- ---------- ----------
Total interest income 5,097,170 4,495,706 9,975,421 8,877,257
---------- ---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits:
Time certificates of deposit of $100,000 and more 260,564 270,731 535,846 575,569
Other deposits 1,791,744 1,687,560 3,512,831 3,238,282
---------- ---------- ---------- ----------
Total interest on deposits 2,052,308 1,958,291 4,048,677 3,813,851
Interest on short-term borrowings 182,068 99,248 330,807 231,706
Interest on Federal Home Loan Bank borrowings 151,681 -- 289,692 --
---------- ---------- ---------- ----------
Total interest expense 2,386,057 2,057,539 4,669,176 4,045,557
---------- ---------- ---------- ----------
NET INTEREST INCOME 2,711,113 2,438,167 5,306,245 4,831,700
PROVISION FOR CREDIT LOSSES 41,000 55,000 126,000 115,000
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES 2,670,113 2,383,167 5,180,245 4,716,700
---------- ---------- ---------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 270,318 234,512 525,345 460,852
Other service charges 68,036 66,334 167,681 91,333
Gain on sale of securities 21,277 -- 21,277 --
Other operating income 10,468 14,806 35,795 84,170
---------- ---------- ---------- ----------
Total noninterest income 370,099 315,652 750,098 636,355
---------- ---------- ---------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,185,148 1,041,316 2,274,591 2,064,670
Occupancy expense of bank premises 206,199 182,584 414,366 358,585
Equipment expenses 98,971 105,849 192,385 197,008
Other operating expenses 583,376 489,351 1,161,518 982,872
---------- ---------- ---------- ----------
Total noninterest expenses 2,073,694 1,819,100 4,042,860 3,603,135
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 966,518 879,719 1,887,483 1,749,920
PROVISION FOR INCOME TAXES 283,572 289,081 571,230 575,195
---------- ---------- ---------- ----------
NET INCOME $ 682,946 590,638 1,316,253 $1,174,725
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.40 $ 0.35 $ 0.79 $ 0.70
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
3
<PAGE>
Comprehensive Statements of Income (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Net Income $ 682,946 $ 590,638 $ 1,316,253 $ 1,174,725
Other comprehensive income, before tax:
Unrealized holding gains (losses) arising during period (23,926) 428,120 25,910 144,376
Less: reclassification adjustment for gains included in
net income 21,277 0 21,277 0
----------- ----------- ----------- -----------
Other comprehensive income (loss), before tax (45,203) 428,120 4,633 144,376
Income tax (expense) benefit related to items of other
comprehensive income 15,369 (165,340) (1,574) (49,088)
----------- ----------- ----------- -----------
Other comprehensive income (loss), net of taxes (29,834) 262,780 3,059 95,288
COMPREHENSIVE INCOME $ 653,112 $ 853,418 $ 1,319,312 $ 1,270,013
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
4
<PAGE>
Union National Bancorp
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ending
June 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,316,253 $ 1,178,231
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses 126,000 115,000
Depreciation and amortization 323,650 319,187
Gain on sales of other real estate and other assets -- (19,157)
Deferred income taxes 6,215 (18,190)
Net decrease (increase) in accrued interest receivable 41,209 (544,903)
Net increase (decrease) in accrued expenses & other liabilities 8,684 8,930
Other - net 678,923 (2,433,311)
------------ ------------
Net cash provided (used) by operating activities 2,500,934 (1,394,213)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities (41,538,738) (10,930,000)
Purchases of held to maturity securities (7,112,341) --
Proceeds from maturities of available for sale securities 26,902,630 2,241,584
Proceeds from maturities of held to maturity securities 2,416,246 3,327,466
Proceeds from sales of other real estate and other assets -- 137,510
Net increase in loans (2,980,334) (1,056,698)
Bank premises and equipment acquired (299,238) (343,858)
Forclosed real estate acquired -- (124,451)
------------ ------------
Net cash used in investing activities (22,611,775) (6,748,447)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 11,082,261 6,339,086
Proceeds from dividend reinvestment plan 108,845 --
Net increase (decrease) in short-term borrowings 12,825,423 3,705,101
Cash dividends paid (352,213) (258,540)
------------ ------------
Net cash provided by financing activities 23,664,316 9,785,647
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,553,475 1,642,987
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,967,953 15,953,932
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,521,428 $ 17,596,919
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,942,494 $ 684,103
------------ ------------
------------ ------------
Income taxes paid 573,000 515,000
------------ ------------
------------ ------------
NON-CASH INVESTING ACTIVITIES
Transfer from loans to forclosed real estate 218,731 375,000
</TABLE>
5
<PAGE>
Union National Bancorp, Inc.
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - The accompanying unaudited consolidated financial statements for Union
National Bancorp, Inc. ("Company") have been prepared in accordance with the
instructions for Form 10-Q and, therefore do not include all information and
footnotes required by generally accepted accounting principles for complete
financial statements. The interim financial statements have been prepared
utilizing the interim basis of reporting and, as such, reflect all adjustments
which are normal and recurring in nature and are, in the opinion of management,
necessary for fair presentation of the results for the periods presented. The
results of operations for the interim periods are not necessarily indicative of
the results for the full year.
Note 2 - Recent accounting pronouncements: The FASB has issued Statements of
Financial Accounting Standards No. 128 "Earning Per Share" in February 1997 for
the year ending on or after December 15, 1997, and No. 130 "Reporting
Comprehensive Income" in June 1997, with an effective date for years beginning
after December 15, 1997. The Company has adopted both of these standards as
required.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
This section of the report contains forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, including
statements relating to the Company's beliefs, expectations, anticipations and
plans regarding, among other things, general economic trends. interest rates,
product expansions and other matters. Such statements are subject to numerous
uncertainties, such as federal monetary policy, inflation, employment,
profitability and consumer confidence levels, the health of the real estate and
construction market in the Company's market area, the Company's ability to
develop and market new products and to enter new markets, and other factors, and
as such, there can be no assurance that future events will develop in accordance
with the forward looking statements contained herein.
In 1994, Union National Bancorp, Inc. commenced operations as the
parent company of its sole subsidiary, The Union National Bank of Westminster,
("Bank") which has conducted the business of banking since 1816. Since the Bank
is the primary possession of the holding company, the assets and liabilities of
the holding company are made up almost entirely of its investment in the Bank.
The Company's principal source of income is from dividends received from the
bank.
Total assets were $275.7 million at June 30, 1998, an increase of $40.2
million or 17.0% over one year earlier. The primary funding source for the asset
growth is strong growth in investments from our customers in sweep accounts and
certificates of deposit. Loan volumes has continued to increase throughout 1998.
As demand increases other funding sources are being explored to sustain this
growth. For example, the Bank has taken advantage of competitive rate on
borrowings from the Federal Home Loan Bank.
Net income rose $141,528 or 12.05% in the first six months of 1998 to
$1,316,253 from net income of $1,174,725 in the same period of 1997. The
annualized return on average assets for the six month period ended June 30, 1998
and 1997 was 1.03% and 1.04%, respectively. The annualized return on average
equity was 12.87% for the six months ended June 30, 1998 and was 12.84% for the
six months ended June 30, 1997.
Securities Portfolio
Total holdings in the investment portfolio at June 30, 1998 were
$91,270,278 and at year-end were $72,190,599 in 1997. In aggregate, investment
securities increased $19,079,679 or 26.43% in the first six months of 1998. The
substantial increase in the security portfolio is due to management's decision
to utilize borrowed funds from the Federal Home Loan Bank. We leveraged our
equity by putting on the books a matched position of $10,000,000 with an after
tax spread of 1%. The total portfolio has an duration of 3.53 years on June
30,1998. These maturities represent estimates of the actual life on instruments
considering mortgaged-backed paydowns and puts for tax free securities.
Union National Bank has formed a new passive investment company, Union
National Delaware Holding, Inc., (UNDH). First Union is administering general
services for UNDH. The Bank has dividended $41,207,245 in various securities to
UNDH in June of 1998. The passive investment company will reduce cost, producing
a benefit to the Banks net income.
The table below presents the securities portfolios mix as June 30, 1998
when compared to year-end 1997.
6
<PAGE>
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
June 30,1998 December 31,1997 June 30,1997 December 31,1997
------------ ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
U.S. government securities and agencies $33,511,595 $37,011,558 $ 776,580 $ 879,382
State & county municipals 566,250 577,400 5,318,686 5,233,663
Government mortgaged-backed 37,643,794 19,786,641 12,031,177 7,306,794
Other securities 1,422,196 1,395,161 -- --
----------- ----------- ----------- -----------
Total Investment Securities $73,143,835 $58,770,760 $18,126,443 $13,419,839
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Loan Portfolio
Total loans outstanding on June 30, 1998 were $160,939,290 and on December
31,1997 were $158,347,687. The loan portfolio increased $2,591,603 in the first
six months of the year. The loan portfolio represented 58.4% of total assets on
June 30, 1998 and 63.1% of total assets on December 31,1997. The table below
presents the loan portfolios mix as of June 30, 1998 compared to year ended
1997.
<TABLE>
<CAPTION>
June 30,1998 December 31,1997
------------ ----------------
<S> <C> <C>
Construction and land development $ 7,774,180 $ 5,893,105
Residential real estate - mortgages 41,380,774 43,761,573
Commercial real estate - mortgages 63,433,583 57,485,007
Commercial 28,678,203 29,034,766
Consumer 20,067,136 22,609,757
------------- -------------
Gross Loans 161,333,876 158,784,208
Net deferred loan fees and cost (394,585) (436,521)
------------- -------------
Total Loans 160,939,291 158,347,687
------------- -------------
------------- -------------
</TABLE>
The Company's loan portfolio is composed of commercial and residential real
estate secured loans, commercial loans, and consumer installment loans. Most
residential mortgages are held for investment purposes and the majority has a
loan to value ratio of less than 80%. For those having a loan to value ratio
greater than 80%, Private Mortgage Insurance is required to reduce risk. The
Company is involved in selling mortgages on the secondary market. Commercial
real estate-secured, lines of credit, tax-exempt loans through local
municipalities, and demand notes consist of well-seasoned credits and new
ventures that are well collaterlized. The consumer portfolio is comprised of
installment loans for purposes such as vehicle purchases, debt consolidation,
home improvement, and indirect auto loans purchased from approximately seven
dealerships. In 1997, indirect lending decreased significantly as a percentage
of the total consumer portfolio. Continued emphasis during the first six months
of 1998 has been in home equity loans (fixed term and variable rate lines of
credit) which are secured by the borrower's residence. Use of debt to income
ratios and recent Credit Bureau scores assist to minimize losses in the consumer
portfolio. The Company does not engage in foreign lending, and involvement with
speculative real estate and land development is minimal. The Company strives to
meet the needs of the community by lending in the Carroll County market area.
Management continues to review rates, terms, and alternative opportunities to
remain competitive in our market, while continuing to assess credit worthiness
and risk.
Allowance for Credit Losses
The allowance for credit losses on June 30,1998 was $1,749,111 and on
December 31,1997 was $1,793,112. The ratio of allowance to total loans was 1.10%
for the first half of 1998 and 1.13% for the year-ended 1997.
Analysis of the Allowance for Credit Losses
<TABLE>
<CAPTION>
Description Amount
<S> <C> <C>
Balance at beginning of period 1/1/98 $1,793,112
----------
Loans charged off (218,439)
Recoveries 48,438
Provision charged to operating expenses 126,000
Balance at end of period 6/30/98 $1,749,111
----------
----------
Net Charge-offs as a percentage of
average total loans First six months 1.10%
</TABLE>
7
<PAGE>
The methodology used in determining the allowance is calculated quarterly
and is applied in accordance with Banking Circular 201 and assesses risk based
on the following categories: levels of and trends in delinquencies and non
accruals, trend in volume and terms of loans, effects of any change in lending
policies and procedures, experience, ability, and depth of lending management
and staff, national and local economic trends and conditions, and concentrations
of credit that may effect loss experience. In addition, historical loss data for
both our bank and peers are considered. A "reserve range" is determined from
this process. A comparison is than made of the actual allowance balance to the
estimated potential loss in the entire portfolio and portfolio growth to
determine current period provision for credit losses.
Deposits
The Company uses deposits as the primary source for funding asset growth.
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 certificates of deposits, are obtained
primarily from the communities which the Company serves.
Total deposits were $216,721,057 on June 30, 1998 and $205,638,796 on
December 31, 1997. Certificates of deposits, which grew $5.1 million or 4.5%,
represents 52.4% of the total deposit portfolio. In addition, checking accounts,
money market, regular savings, and public fund accounts maintained steady growth
of $6.0 million or 5.8%. Management continues to develop competitive products
and rates to spur continuous growth in core deposits.
Short-Term Borrowings
Short-term borrowings consist of federal funds purchased, repurchase
agreements, and borrowings from the Federal Reserve Bank or the Federal Home
Loan Bank and correspondent bank lines.
Securities sold under agreement to repurchase have averaged $14,511,784
during the first six months of 1998 compared to $11,771,647 at the year-ended
1997. At June 30, 1998 they totaled $16,601,796 and at year-end 1997, they
totaled $13,776,373.
The Bank has borrowed $10,000,000 from the Federal Home Loan Bank in the
second quarter of 1998. These funds were obtained to promote further growth in
the loan and security portfolios. Management believes the spread between the
cost of funds on these borrowing and investment return in the loan and
securities portfolios will increase the Bank's net interest margin.
Liquidity
Traditionally, the Bank has maintained a strong liquidity position due to
its concentration of core deposits such as regular savings and checking
accounts. The Bank considers a high percentage of its money market accounts and
certificates of deposit as core deposits. Federal funds sold are the Bank's most
liquid earning asset. Other sources include securities classified as available
for sale. In addition to these sources, the Bank has lines of credit totaling
$33 million available from correspondent banks as of June 30, 1998.
On June 30, 1998 securities available for sale and federal funds sold
totaled $83,564,540 compared with 64,843,156 on December 31, 1997. These funds
averaged $67,063,174 during the six months ended June 30, 1998 and $58,427,657
for the year ended December 31, 1997. Liquidity is also provided by managing the
maturities of loans, securities, and certificates of deposit.
Capital Management
The Company's capital position is presented in the following table:
<TABLE>
<CAPTION>
June 30, December 31 For Capital
1998 1997 Adequacy Purposes
-------- ----------- -----------------
<S> <C> <C> <C>
Tier 1 capital to risk weighted assets 12.6% 11.7% 4.0%
Total capital to risk weighted assets 13.8% 12.8% 8.0%
Capital leverage ratio 8.1% 8.0% 4.0%
</TABLE>
8
<PAGE>
Net Interest Income
Net interest income is the major component of the Bank's earnings, and
it consists of the excess of interest income from earning assets less 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. The net interest
margin is calculated based on tax-equivalent net interest income (income plus
the tax savings from tax-exempt loans and investments) divided by average
earning assets and represents the Bank's net yield on its earning assets.
For the first six months net interest income before provision for loan
losses was $5,306,245 in 1998, and $4,831,700 in 1997. This represents an
increase of $474,545 or (9.8%) for 1998. For the second quarter of 1998 net
interest income before provision for loan losses was $2,711,113 up $272,946
(11.2%) from $2,438,167 for the second quarter 1997. Managing the net interest
margin is one of the primary focuses of the Asset / Liability Committee.
Monthly, the committee examines the "gap" and it's assumptions for their
validity, and assesses the margins movement relative to these factors. The net
interest spread represents the different between the yield on earning assets and
the cost of interest bearing liabilities, which declined slightly to 3.84% in
the first six months of 1998 from 3.92% at December 31, 1997.
Average Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 6,295,794 $ 5,849,500
Investments 74,502,754 65,083,925
Federal funds sold 12,752,424 8,603,533
Net loans 156,912,965 146,754,495
Other assets 7,807,634 7,915,022
------------- -------------
TOTAL ASSETS $ 258,271,571 $ 234,206,475
------------- -------------
------------- -------------
LIABILITIES
Deposits 211,115,682 199,434,803
Other borrowings 24,898,524 14,505,347
Other liabilities 1,627,257 1,381,852
------------- -------------
TOTAL LIABILITIES $ 237,641,463 $ 215,322,002
------------- -------------
------------- -------------
Common stock 16,771 9,041
Surplus 8,525,516 8,352,643
Retained Earnings 11,902,109 10,536,738
Accumulated other comprehensive income 185,712 (13,949)
------------- -------------
TOTAL CAPITAL $ 20,630,108 $ 18,884,473
TOTAL LIABILITIES & CAPITAL $ 258,271,571 $ 234,206,475
------------- -------------
------------- -------------
</TABLE>
Non-interest Income
Total non-interest income for the first six months of 1998 was $750,098 up
$113,748 or 17.9% from $636,355 for the first six months in 1997. Total
non-interest income for the three months ended June 30, 1998 and 1997
respectfully were $370,099 and $315,652 an increase of $54,447 or 17.2%. In
comparison to 1997 figures, service charges on deposit accounts increases
$64,493 in the first half of 1998 and $35,806 for the three months ended June
30th. This increase is as a result of the Bank beginning to charge foreign ATM
activity, a practice all other local competitors have been practicing.
Additional off sight ATM's further increase non-interest income. A strong
emphasis on increasing debit card services will help to continue to increase
non-interest income in the third and forth quarters of 1998. Early in 1998
management decided to concentrate on originating mortgages for sale on the
secondary market. In the first half of 1998 commissions from non-funded loans
were $49,605 from $1,355 for the first half of 1997. Plans are to continue to in
the secondary market to further other operating income.
9
<PAGE>
Noninterest Expense
Noninterest expense for the first six months of 1998 was $4,042,860 an
increase of $439,725 or 12.2% from $3,603,135 in 1997. Non-interest expense for
the three months ended June 30th was $2,073,694 an increase of $254,594 or 14.0%
from $1,819,100 for the same time period of 1997. Three major areas that make up
noninterest expense are salaries and benefits, occupancy and expense, and other
operating expense.
Salaries and benefits for the first six months of 1998 totaled
$2,274,591, up $209,921 or 10.2% from $2,064,670 in the first six months of
1997. For the three months ended June 30, 1998, salaries and benefits were
$1,185,148, up $143,832 or 13.8% from $1,041,316 for the three months ended June
30,1997. Personnel expense is the largest segment of noninterest expense. It
represented 56.2% of the total for the six-month ended June 30, 1998. Additional
personnel in the investment services area and temporary summer employees are the
main components of the increase in the second half of the year. Management
believes that the addition of investment service personal will improve mutual
fund and annuities services, and the increase in personal expense will be more
than offset by the reduction in occupancy expense from the revenues generated.
Occupancy and equipment expenses for the first six months totaled $606,751
in 1998, an increase of $51,158 or 9.2% from $555,593 for the first six months
of 1997. For the three months ended June 30,1998, occupancy and equipment was
$305,170, up $16,737 or 5.8% from $288,433 for the three months ended June 30,
1997. Rent expense and depreciation of fixed assets are the largest segments of
occupancy and equipment. The increase is primarily due to expanding our branch
network into the Mount Airy area, which increase rent expenses. Rent increased
for the first six months $20,005 or 15.8% from $126,266 in 1997 to $146,271 in
1998.
Other operating expense totaled $1,116,518 for the first six months of
1998, an increase of $133,646 or 13.6% from $982,872 for the first six months of
1997. For the three months ended June 30, 1998, other operating was $583,376, up
$94,025 or 19.2% from $489,351 for the three months ended June 30,1997.
Advertising and computer service fees are the two largest components of other
operating expense. Various advertising campaigns such as the Mount Airy branch
opening, check card promotions, and year 2000 issues have increased advertising
expense for the first six months from $39,211 in 1997 to $94,907 in 1998. It is
felt that each of these campaigns will add value in asset growth, growth of
income, and customer relations.
Year 2000
Union National Bank is currently addressing the many aspects of Year
2000 as they relate to the Company. The Year 2000 Policy and action plans
provide that the Company will assess Year 2000 risks associated with suppliers,
service providers, third parties and material commercial customers. These
assessments will be completed by September 31, 1998.
Plans call for tests of systems to be substantially completed by
December 31, 1998. The Company is finalizing test plans with mission critical
vendors to conform to this timetable. An evaluation of software and hardware
components has determined that all of the production systems utilize "off the
shelf" software products with limited customization. The anticipated Year 2000
related costs, therefore, are not expected to have a material impact on future
operating results or the financial condition of the Company. As the evaluation
is ongoing, actual results could differ from what has been anticipated.
10
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of shareholders was held on Tuesday April 21, 1998.
The election of directors and external accounting firm were brought to a vote.
Vote pertaining to directors was as follows:
<TABLE>
<CAPTION>
K. Wayne Donald C Kenneth B. Robert T. Larry A. Virginia W.
Lockard Essich Wright Scott Van Sant, Sr. Smith
<S> <C> <C> <C> <C> <C> <C>
For 1,430,968 1,437,332 1,437,332 1,437,332 1,417,993 1,432,616
Withheld 8,128 1,764 1,764 1,764 21,103 6,480
</TABLE>
All directors listed above services were retained after the shareholders
meeting.
Vote pertaining to independent auditors was as follows:
Keller Bruner & Company, L.L.C.
<TABLE>
<S> <C>
For 1,438,304
Against 2,731
Abstained 8,061
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Union National Bancorp, Inc. (Registrant)
August 12, 1998 By: /s/ Virginia W. Smith
----------------------------
Virginia W. Smith
President and Chief Executive Officer
August 12,1998 By: /s/ Gabrielle M. Peregoy
----------------------------
Gabrielle M. Peregoy
Vice President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted for Union
National Bancorp's Form 10-Q for the six months ended June 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,094,831
<INT-BEARING-DEPOSITS> 5,892
<FED-FUNDS-SOLD> 10,420,705
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 73,431,559
<INVESTMENTS-CARRYING> 17,838,719
<INVESTMENTS-MARKET> 0
<LOANS> 160,939,290
<ALLOWANCE> 1,749,111
<TOTAL-ASSETS> 275,773,191
<DEPOSITS> 216,721,057
<SHORT-TERM> 16,601,796
<LIABILITIES-OTHER> 1,310,069
<LONG-TERM> 20,000,000
0
0
<COMMON> 16,794
<OTHER-SE> 21,123,475
<TOTAL-LIABILITIES-AND-EQUITY> 275,773,191
<INTEREST-LOAN> 7,237,219
<INTEREST-INVEST> 2,383,946
<INTEREST-OTHER> 354,256
<INTEREST-TOTAL> 9,975,421
<INTEREST-DEPOSIT> 4,048,677
<INTEREST-EXPENSE> 4,669,176
<INTEREST-INCOME-NET> 5,306,245
<LOAN-LOSSES> 126,000
<SECURITIES-GAINS> 21,281
<EXPENSE-OTHER> 4,042,860
<INCOME-PRETAX> 1,887,482
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,316,253
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<YIELD-ACTUAL> 8.18
<LOANS-NON> 326,845
<LOANS-PAST> 487,750
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,819,753
<ALLOWANCE-OPEN> 1,793,112
<CHARGE-OFFS> 218,439
<RECOVERIES> 48,438
<ALLOWANCE-CLOSE> 1,749,111
<ALLOWANCE-DOMESTIC> 1,749,111
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
