<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, 1999
{ } 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 14,1999 is 1,935,112
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 3
Consolidated Statement of Cash Flows 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 5-10
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,
1999 1998
------------------ ------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 6,922,443 $ 6,867,629
Interest bearing deposits with banks
26,172 280,817
Federal funds sold
1,328,631 7,716,140
Investment securities available for sale-at fair value 77,731,992 76,804,462
Investment securities held to maturity-at amortized cost - fair value of
$28,963,543 (1999) and $22,382,238 (1998) 31,630,293 22,006,195
Loans 173,082,281 163,464,538
Less: allowance for credit losses (1,802,263) (1,772,895)
------------------ ------------------
Loans - net 171,280,018 161,691,643
Premises and equipment
4,189,243 4,326,226
Accrued interest receivable
1,879,140 1,699,794
Goodwill
2,196,895 -
Other assets
3,190,674 2,520,529
------------------ ------------------
TOTAL ASSETS $ 300,375,501 $ 283,913,435
------------------ ------------------
------------------ ------------------
LIABILITIES
Deposits:
Noninterest bearing deposits $27,438,403 $28,247,301
Interest bearing deposits $209,179,293 198,090,078
------------------ ------------------
TOTAL DEPOSITS 236,617,696 226,337,379
Short-term borrowings 17,270,638 13,577,689
Federal Home Loan Bank Borrowing 20,000,000 20,000,000
Accrued expenses and other liabilities
1,769,335 1,761,688
------------------ ------------------
TOTAL LIABILITIES 275,657,669 261,676,756
------------------ ------------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par; 10,000,000 shares authorized;
1,932,629 shares on June 30,1999 1,851,458 shares on
December 31,1998 issued and outstanding
19,326 18,514
Capital surplus 16,578,672 13,570,913
Accumulated other comprehensive income/(expense) (1,334,147)
203,833
Retained earnings
9,453,981 8,443,419
------------------ ------------------
TOTAL STOCKHOLDERS' EQUITY 24,717,832 22,236,679
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $300,375,501 $283,913,435
------------------ ------------------
------------------ ------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME Three Months Ended Six Months Ended
(Unaudited) June 30, June 30,
1999 1998 1999 1998
INTEREST INCOME:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 3,620,207 $ 3,650,614 $ 7,119,445 $ 7,237,219
Interest and dividends on investment securities:
Taxable interest on mortgage backed securities 846,484 701,788 1,630,693 1,224,811
Other taxable interest & dividends 582,315 462,751 1,033,062 977,670
Nontaxable interest 224,532 107,459 447,923 181,464
Interest on deposits in other banks 155 680 525 1,176
Interest on federal funds sold 66,931 173,878 205,550 353,081
------------ ----------- ----------- ----------
TOTAL INTEREST INCOME 5,340,624 5,097,170 10,437,198 9,975,421
------------ ----------- ----------- ----------
INTEREST EXPENSE:
Interest on deposits:
Time certificates of deposit of $100,000 and more 221,727 260,564 532,514 535,846
Other deposits 1,831,295 1,791,744 3,529,282 3,512,831
------------ ----------- ----------- ----------
Total interest on deposits 2,053,022 2,052,308 4,061,796 4,048,677
Interest on short-term borrowings 187,090 182,068 313,747 330,807
Interest on Federal Home Loan Bank borrowings 285,822 151,681 568,302 289,692
------------ ----------- ----------- ----------
TOTAL INTEREST EXPENSE 2,525,934 2,386,057 4,943,845 4,669,176
------------ ----------- ----------- ----------
Net Interest Income 2,814,690 2,711,113 5,493,353 5,306,245
Provision for Credit Losses 15,000 41,000 74,000 126,000
------------ ----------- ----------- ----------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 2,799,690 2,670,113 5,419,353 5,180,245
------------ ----------- ----------- ----------
NONINTEREST INCOME:
Service charges on deposit accounts 292,952 270,318 561,242 525,345
Other service charges 58,818 89,313 146,248 188,958
Insurance service activities 114,417 114,417
Other income 19,584 10,468 40,131 35,795
------------ ----------- ----------- ----------
TOTAL NONINTEREST INCOME 485,771 370,099 862,038 750,098
------------ ----------- ----------- ----------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,219,009 1,185,148 2,370,497 2,274,591
Occupancy expense 221,830 206,199 443,279 414,366
Equipment expenses 173,992 98,971 322,376 192,385
Other expenses 619,906 583,376 1,161,071 1,161,518
------------ ----------- ----------- ----------
TOTAL NONINTEREST EXPENSES 2,234,737 2,073,694 4,297,223 4,042,860
------------ ----------- ----------- ----------
INCOME BEFORE INCOME TAXES 1,050,724 966,518 1,984,168 1,887,483
PROVISION FOR INCOME TAXES 292,905 283,572 543,923 571,229
------------ ----------- ----------- ----------
NET INCOME $ 757,819 $ 682,946 $ 1,440,245 $ 1,316,254
------------ ----------- ----------- ----------
------------ ----------- ----------- ----------
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.45 $ 0.41 $ 0.86 $ 0.79
------------ ----------- ----------- ----------
------------ ----------- ----------- ----------
COMPREHENSIVE STATEMENTS OF INCOME (Unaudited)
Net Income $ 757,819 $ 682,946 $ 1,440,245 $ 1,316,254
OTHER COMPREHENSIVE INCOME/(LOSS), BEFORE TAX:
Unrealized holding gains/(loss) arising during period (1,895,716) (45,203) (2,505,670) 4,629
Less: reclassification adjustment for gains
Included in net income 0 21,277 0 0
------------ ----------- ----------- ----------
Other comprehensive income/(loss), before tax (1,895,716) (23,926) (2,505,670) 4,629
Income tax (expense) benefit related to items of other
Comprehensive income 732,126 15,369 967,690 1,574
------------ ----------- ----------- ----------
Other comprehensive income/(loss), net of taxes (1,163,590) (8,557) (1,537,980) 6,203
------------ ----------- ----------- ----------
COMPREHENSIVE INCOME (LOSS) ($ 405,771) $ 674,389 ($ 97,735) $ 1,322,457
------------ ----------- ----------- ----------
------------ ----------- ----------- ----------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
UNION NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ending
June 30,
1999 1998
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $1,440,245 $1,316,253
Adjustments to reconcile net income to net cash
Provided by operating activities:
Provision for credit losses 74,000 126,000
Depreciation and amortization 414,090 323,650
Deferred income taxes (967,667) 6,215
Net decrease (increase) in accrued interest receivable (179,346) 273,318
Net increase (decrease) in accrued expenses & other liabilities 7,647 8,684
Other - net 1,995,442 446,814
------------------- ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,784,411 2,500,934
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities (18,987,610) (41,538,738)
Purchases of held to maturity securities (10,994,387) (7,112,341)
Proceeds from maturities of available for sale securities 15,493,390 26,902,630
Proceeds from maturities of held to maturity securities 1,396,637 2,416,246
Net increase in loans (9,662,375) (2,980,335)
Bank premises and equipment acquired (277,107) (299,238)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (23,031,452) (22,611,776)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 10,280,316 13,907,684
Proceeds from dividend reinvestment plan 112,623 108,845
Net increase (decrease) in short-term borrowings 3,692,949 10,000,000
Cash dividends paid (426,187) (352,213)
------------------- ------------------
------------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 13,659,701 23,664,316
------------------- ------------------
Net Increase (Decrease) In Cash and Cash Equivalents (6,587,340) 3,553,474
Cash and Cash Equivalents At Beginning Of Year 14,864,586 13,967,953
------------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $8,277,246 $17,521,427
------------------- ------------------
------------------- ------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $4,912,632 $4,669,176
------------------- ------------------
------------------- ------------------
Income taxes paid 544,000 573,000
------------------- ------------------
------------------- ------------------
NON-CASH INVESTING ACTIVITIES
Transfer from loans to foreclosed real estate
- 218,731
Transfer from available for sale securities
to held to maturity securities
-
-------------------
</TABLE>
4
<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 Statement of
Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and
Hedging" for the year ending on or after June 15, 1999. Union National Bancorp
has reviewed this pronouncement and will adopt this standard when it is
applicable to its operations 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.
Union National Bancorp, Inc. (`the Company") began operations as the
parent company of its sole subsidiary, The Union National Bank of Westminster,
("the Bank") in 1994. Union National Bank has conducted the business of banking
since 1816. The Bank is the primary possession of the holding company. Union
National Bank provides a full range of banking and certain non-banking services
to individuals and businesses. The Banks principal market area includes Carroll
County, Maryland and the surrounding regions. The assets and liabilities of the
holding company are mainly its investment in Union National Bank. Union National
Bancorp's principal source of income is from dividends received from Union
National Bank.
On June 18, 1999, the Company acquired all of the outstanding shares of
common stock of Barnes-Bollinger Insurance Services, Inc., for a cash price of
approximately $3.0 million. Barnes-Bollinger Insurance Services, Inc., is a
local insurance agency in Carroll County. This acquisition was a stock for stock
transaction and has been accounted for under the purchase method of accounting
and the results of the operations of Barnes-Bollinger have been included in the
consolidated financial statements since the date of June 1, 1999. Excess of the
purchase price over the fair value of net assets acquired of $2.2 million was
recognized as goodwill and is being amortized on a straight-line basis over 25
years. Amortization expense charged to operations for 1999 was approximately
$4,863.
<TABLE>
<CAPTION>
BARNES-BOLLINGER FINANCIALS JUNE 30, 1999
(Unaudited)
<S> <C>
ASSETS
Cash and due from banks $257,938
Premises and equipment 138,159
Goodwill 2,196,895
Other assets 752,352
-------
Total Assets $3,345,344
-----------
-----------
LIABILITIES
Other liabilities 416,101
-----------
Total $416,101
-----------
-----------
Liabilities
Capital surplus 2,895,018
Retained earnings 34,225
-----------
Total Capital $2,929,243
-----------
Total Liabilities & Capital $3,345,344
-----------
-----------
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
NONINTEREST INCOME:
Insurance Commissions $114,417
---------
Total Income $114,417
---------
NONINTEREST EXPENSES:
Salaries and employee benefits 62,139
Occupancy expense 4,863
Equipment expenses 5,970
Other expenses 7,220
-----
Total Expense $80,192
---------
NET INCOME $34,225
---------
---------
</TABLE>
Total assets were $300.4 million at June 30, 1999, an increase of $16.5
million or 5.8% over year-end December 31, 1998. The primary funding source for
the asset growth is strong growth in investments which was funded from our
customers increase in sweep accounts and certificates of deposit. Loan volumes
have continued to increase throughout 1999. Additionally, the assets acquired
from Barnes-Bollinger are reflected in the asset growth. 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 $123,991 or 9.4% in the first six months of 1999 to
$1,440,245 from net income of $1,316,254 in the same period of 1998. The
annualized return on average assets for the six month period ended June 30, 1999
and 1998 was 1.00% and 1.03%, respectively. The annualized return on average
equity was 12.71% for the six months ended June 30, 1999 and was 12.87% for the
six months ended June 30, 1998.
SECURITIES PORTFOLIO
Total holdings in the investment portfolio at June 30, 1999 were
$109,362,285 and at year-end 1998 were $98,810,657. In aggregate, investment
securities increased $10,551,628 or 10.7% in the first six months of 1999. The
investment portfolio is comprises of investment securities available for sale,
and investment securities held to maturity. Available for sale represent those
securities that 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. Held to maturity represent securities that are intended to be held until
they mature. The total portfolio has a duration of 4.89 years on June 30, 1999.
This represents estimates of the actual life on investment instruments.
Union National Bank formed a passive investment company in June of 1998,
Union National Delaware Holding, Inc., (UNDH). First Union is administering
general services for Union National Delaware Holding. Union National Bank has in
aggregate in its portfolio $42,839,782 as of June 30, 1999. Union National
Delaware Holding has in aggregate in its portfolio $66,522,503 as of June 30,
1999. The passive investment company will reduce cost, producing a benefit to
Union National Bank's net income.
The table below presents the securities portfolios mix as June 30, 1999
when compared to year-end 1998.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
June 30,1999 December 31,1998 June 30,1999 December 31,1998
------------ ---------------- ------------ -----------------
<S> <C> <C> <C> <C>
U.S. government securities and agencies $25,498,587 $28,264,301 $10,493,546 $173,592
State & county municipals 537,500 556,250 18,365,102 17,875,549
Government mortgaged-backed 47,872,465 44,046,647 2,771,645 3,957,054
Other securities
3,823,440 3,937,264 - -
----------- ----------- ----------- -----------
Total Investment Securities $77,731,992 $76,804,462 $31,630,293 $22,006,195
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
6
<PAGE>
LOAN PORTFOLIO
Total loans outstanding on June 30, 1999 were $173,082,281 and on December
31, 1998 were $163,464,538. The loan portfolio increased $9,617,743 or 5.9% in
the first six months of the year. The loan portfolio represented 57.6% of total
assets on June 30, 1999 and 57.6% of total assets on December 31, 1998. The
table below presents the loan portfolios mix as of June 30, 1999 compared to
year ended 1998.
<TABLE>
<CAPTION>
June 30,1999 December 31,1998
------------ ----------------
<S> <C> <C>
Construction and land development $2,609,526 $4,646,007
Residential real estate - mortgages 46,259,228 43,044,848
Commercial real estate - mortgages 67,539,288 66,904,070
Commercial 33,498,665 31,170,049
Consumer 23,439,644 18,020,174
---------- ----------
Gross Loans 173,346,351 163,785,148
Net deferred loan fees and cost (264,070) (320,610)
--------- ---------
Total Loans 173,082,281 163,464,538
----------- -----------
----------- -----------
</TABLE>
Union National Bancorp's loan portfolio is comprised 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 have 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. Union National Bancorp 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 collateralized. 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 six automobile dealerships and two farm supply equipment dealer.
In 1999, the consumer portfolio has increased significantly due to strategies
changes in the overall consumer loan area. Better relationships have been
established with indirect dealers. Product and price was made to be competitive
with our peer banks. Union National Bank's call center activity selling loans on
the phone with same day approval. Continued emphasis during the first six months
of 1999 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. Union National Bancorp does not engage in foreign lending, and
involvement with speculative real estate and land development is minimal. Union
National Bancorp strives to meet the needs of the community by lending in it's
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 30,1999 was $1,802,263 and on
December 31, 1998 was $1,772,895. The ratio of allowance to total loans was
1.04% for the first six months of 1999 compared to 1.08% at year-end 1998.
<TABLE>
<CAPTION>
Analysis of the Allowance for Credit Losses
Description Amount
<S> <C> <C>
Balance at beginning of period 1/1/99 $1,772,895
----------
Loans charged off (68,509)
Recoveries 23,877
Provision charged to operating expenses 74,000
------
Balance at end of period 6/30/99 $1,802,263
----------
----------
Net Charge-offs as a percentage of average total loans First six months .03%
</TABLE>
The methodology used in determining the allowance is calculated quarterly
and is applied in accordance with Banking Circular 201. Its assesses risk based
on the following categories: (1) levels of and trends in delinquencies and
nonaccruals, (2) trends in volume and terms of loans, (3) effects of any change
in lending policies and procedures, (4) experience, ability, and depth of
lending management and staff, (5) national and local economic trends and
conditions, and (6) concentrations of credit that may effect loss experience. In
addition, historical loss data is also considered. A "reserve range" is
determined from this process. A comparison is
7
<PAGE>
then made of the actual allowance balance to the estimated potential loss in the
entire portfolio to determine the adequacy of the current reserve as well as a
current period provision for credit losses.
DEPOSITS
Union National Bancorp uses deposits as the primary source for funding
asset growth. Union National Bancorp has experienced continuous growth of
deposits, especially in certificates of deposit. Union National Bancorp 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 that Union National
Bancorp serves.
Total deposits were $236,617,696 on June 30, 1999 and $226,337,379 on
December 31, 1998. This represents an increase of $10,280,317 or 4.54% in the
first 6 months of 1999. Certificates of deposits, which grew $5.9 million or
5.0%, represents 49.6% of the total deposit portfolio as of June 30, 1999. In
addition, checking accounts, money market, and regular savings experienced an
increase of 10.3 million or 9.4%. Management continues to develop competitive
products and rates to spur continuous growth in core deposits, as well as
relationships.
SHORT-TERM BORROWINGS
Short-term borrowings consist of federal funds purchased, repurchase
agreements, and borrowings from the Federal Home Loan Bank and correspondent
bank lines.
Securities sold under agreement to repurchase have averaged $15,627,402
during the first six months of 1999 compared to $18,423,018 at year-end 1998. At
June 30, 1999 they totaled $11,270,638, and $13,577,689 at year-end 1998.
Union National Bank has borrowed $20,000,000 from the Federal Home Loan
Bank, and $6,000,000 from correspondent bank line. 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 Union National Bank's net
interest margin.
LIQUIDITY
Traditionally, Union National Bank has maintained a strong liquidity
position due to its concentration of core deposits such as regular savings and
checking accounts. Union National Bank considers a high percentage of its money
market accounts and certificates of deposit as core deposits. Federal funds sold
are Union National Bank's most liquid earning asset. Other sources include
securities classified as available for sale. In addition to these sources, Union
National Bank has lines of credit totaling $50 million available from
correspondent banks as of June 30, 1999, of which 26 million are already in use.
On June 30, 1999 securities available for sale and federal funds sold
totaled $79,060,623 compared with $84,520,602 on December 31, 1998. Liquidity is
also provided by managing the maturity's 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
1999 1998 Adequacy Purposes
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital to risk weighted assets 11.8% 12.1% 4.0%
Total capital to risk weighted assets 12.8% 13.1% 8.0%
Capital leverage ratio 7.8% 8.2% 4.0%
</TABLE>
NET INTEREST INCOME
Net interest income is the major component of Union National 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
8
<PAGE>
savings from tax-exempt loans and investments) divided by average earning assets
and represents Union National Bank's net yield on its earning assets.
For the first six months net interest income before provision for loan
losses were $5,493,353 in 1999 and $5,306,245 for the same period in 1998. This
represents an increase of $187,108 or 3.5% for 1999. Managing the net interest
margin is one of the primary focuses of the Asset / Liability Committee.
Monthly, the committee examines the "gap" and its assumptions for their
validity, and assesses the margins movement relative to these factors. The net
interest spread, the difference between the yield on earning assets and the cost
of interest bearing liabilities, improved slightly to 3.76% in the first six
months of 1999 from 3.69% at December 31, 1998.
For the three months ended June 30, 1999, net interest income before
provision for loan losses were $2,814,690 and $2,711,113 for the three months
ended June 30, 1998. This is a $103,577 increase or 3.8% for this period.
<TABLE>
<CAPTION>
UNION NATIONAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS June 30, 1999 December 31, 1998
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $7,016,851 $6,897,873
Investments 103,188,945 82,240,228
Federal funds sold 7,136,448 13,393,191
Net loans 164,294,960 158,383,628
Other assets 7,911,507 7,699,302
------------------ ----------------------
TOTAL ASSETS $289,548,711 $268,614,222
------------------ ----------------------
------------------ ----------------------
LIABILITIES
Deposits 227,997,940 214,379,906
Other borrowings 37,068,342 31,599,533
Other liabilities 1,820,537 1,469,880
------------------ ----------------------
TOTAL LIABILITIES $266,886,819 $247,449,319
------------------ ----------------------
------------------ ----------------------
Common stock 18,672 17,223
Capital surplus 14,055,348 9,831,039
Retained earnings 8,887,771 11,128,727
Accumulated other comprehensive income (299,899) 187,914
------------------ ----------------------
TOTAL CAPITAL $22,661,892 $21,164,903
------------ -----------
TOTAL LIABILITIES & CAPITAL $289,548,711 $268,614,222
------------------ ----------------------
------------------ ----------------------
</TABLE>
NONINTEREST INCOME
Total noninterest income for the first six months of 1999 was $862,038 up
$111,940 or 14.9% from $750,098 for the first six months in 1998. Total
noninterest income for the three months ended June 30, 1999 and 1998
respectfully were $485,771 and $370,099 an increase of $115,672 or 31.3%.
Noninterest income is divided into two areas, service charge income and service
fee income. In comparison to 1998 figures, service charges on deposit accounts
increases $35,897 in the first half of 1999 and $22,634 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 noninterest income. The
increase in the second quarter in noninterest income is primarily due to
insurance service commissions from the Barnes-Bollinger acquisition. Commissions
from non-funded mortgages that are sold on the secondary market are down $11,089
in the first half of 1999, and $3,827 for the three months ended June 30, 1999.
The mortgage area has focused on portfolio loans in 1999, and as the market
warrants Union National Bank will continue to originate loans to sell.
NONINTEREST EXPENSE
Noninterest expense for the first six months of 1998 was $4,297,223 an
increase of $254,363 or 6.3% from $4,042,860 in 1998. Noninterest expense for
the three months ended June 30th was $2,234,737 an increase of $161,043 or 7.8%
from $2,073,694 for the same time period of 1998. Three major areas that make up
noninterest expense are salaries and benefits, occupancy and expense, and other
expense. Management has concentrated on reducing noninterest expense while still
providing quality products and customer service.
9
<PAGE>
Salaries and benefits for the first six months of 1999 totaled
$2,370,497, up $95,905 or 4.2% from $2,274,592 in the first six months of 1998.
For the three months ended June 30, 1999, salaries and benefits were $1,219,009,
up $33,861 or 2.9% from $1,185,148 for the three months ended June 30,1998.
Personnel expense, the largest segment of noninterest expense, represented 55.2%
of the total for the six months ended June 30, 1999. Management believes that
training existing staff in investment service will improve mutual fund and
annuities services, and increasing technology will increase efficiency. This has
allowed Union National Bank to control personnel expense.
Occupancy and equipment expenses for the first six months totaled $765,655
in 1999, an increase of $158,904 or 26.2% from $606,751 for the first six months
of 1998. For the three months ended June 30,1998, occupancy and equipment was
$395,822, up $90,652 or 29.7% from $305,170 for the three months ended June 30,
1990. Depreciation expense represents 53.4% of occupancy and equipment expense.
Depreciation expense for the first half of 1999 was $408,848 up $88,848 or 27.8%
from $320,000 in the same period on 1998. Additional technology in such areas as
telephone banking, debit card services, local area networking / wide area
networking communications, and year 2000 upgrades are some of the improvements
that have attributed to the depreciation expense increase. It is felt that each
of these improvements will add value in asset growth, growth of income, and
customer relations.
Other expense totaled $1,161,071 for the first six months of 1999, a
slight decrease of $447 from $1,161,518 for the first six months of 1998. For
the three months ended June 30, 1999, other expense was $619,906, up $36,530 or
6.3% from $583,376 for the three months ended June 30,1998. Computer service
fees is the largest component of other expense representing 24.7% of the other
expense area. Computer service fees remained relatively unchanged in the first
half of 1999, it totaled $286,831 up $24,842 or 9.5% from $261,989 for the same
period of 1998.
YEAR 2000
Union National Bank continues to address the many aspects of Year 2000 as they
relate to the Company. The initial assessments of risk associated with
suppliers, service providers, third parties and material commercial customers
are complete. Plans call for ongoing communications with these providers and
customers over the course of the project to monitor their Year 2000 progress.
Testing of our mission critical vendors and systems is complete. Fiserv,
Incorporated and Information Technology, Incorporated provide the core account
software and processing environment used to calculate and process customer
transactions. Testing at the Fiserv data center confirmed that this core
software successfully processes dates in and beyond the Year 2000. Our Diebold
and NCR ATMs and the telephone banking systems were upgraded and tested. Testing
of other critical systems, such as teller systems and personal computers,
confirms that dates in the Year 2000 are processed without complications.
Systems with embedded microprocessors, including elevators and security
equipment, were evaluated and are not impacted by the Year 2000.
Management estimates the total project will cost $85,373. This expense will not
have a material impact on future operating results or our financial condition.
As of June 30, 1999, we spent $58,134 to evaluate, upgrade and test our systems
and to communicate Year 2000 progress to our customers. The project is ongoing
and actual results could differ from what has been anticipated.
One of the most significant risks that we face is the potential for liquidity
issues resulting from public panic or Year 2000 related financial difficulties
of commercial customers. In anticipation of this possibility, we implemented a
comprehensive consumer awareness program that includes:
- - customer and employee educational seminars
- - informational brochures
- - statement inserts
- - posters
- - direct mail pieces
In addition, we issue a quarterly "Year 2000 Readiness Disclosure" to report our
progress to customers. The Year 2000 Readiness Disclosure is available at all of
our branch locations. Customers can request the report through our call center
and on our web page. Relationship managers meet with material commercial
customers to raise awareness and to evaluate the progress of their projects. The
Financial Manager and Chief Operating Officer are addressing the potential
increase on liquidity demands in our contingency plans.
Union National Bank developed contingency plans that outline the steps we will
take to restore major bank functions if Year 2000 related interruptions should
occur. These plans will be tested at numerous intervals throughout the remainder
of the year to verify they provide satisfactory results and maintain adequate
service levels for our customers.
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 20, 1999.
The election of directors and external accounting firm were brought to a vote.
Vote pertaining to directors was as follows:
<TABLE>
<CAPTION>
Wesley D. Blakeslee Dean H. Griffin Ethan A. Seidel Ellen Miller
<S> <C> <C> <C> <C>
For 1,494,550 1,482,711 1,494,550 1,491,853
Withheld 2,513 14,352 2,513 5,210
</TABLE>
All directors listed above services were retained after the shareholders
meeting.
Vote pertaining to independent auditors was as follows:
Keller Bruner & Company, LLP
For 1,502,004
Against 2,150
Abstained 6,900
Item 6. Exhibits and Reports on Form 8-K
(20) Other documents or statements to security holders
Entered into a definitive agreement with Barnes-Bollinger Insurance
Services, Inc. is incorporated by reference from Union National Bancorp's Form
8-K, file with the Commission on June 1, 1999 (Registration No. 000-22523)
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, 1999 BY: /S/ VIRGINIA W. SMITH
-------------------------
Virginia W. Smith
President and Chief Executive Officer
August 12,1999 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, 1999 and is
qualified in it's entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,922,443
<INT-BEARING-DEPOSITS> 26,172
<FED-FUNDS-SOLD> 1,328,631
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77,731,992
<INVESTMENTS-CARRYING> 31,630,293
<INVESTMENTS-MARKET> 0
<LOANS> 173,082,281
<ALLOWANCE> 1,802,263
<TOTAL-ASSETS> 300,375,501
<DEPOSITS> 236,617,696
<SHORT-TERM> 17,270,638
<LIABILITIES-OTHER> 1,769,335
<LONG-TERM> 20,000,000
0
0
<COMMON> 19,326
<OTHER-SE> 24,698,506
<TOTAL-LIABILITIES-AND-EQUITY> 300,375,501
<INTEREST-LOAN> 7,119,445
<INTEREST-INVEST> 3,111,678
<INTEREST-OTHER> 206,075
<INTEREST-TOTAL> 10,437,198
<INTEREST-DEPOSIT> 4,061,796
<INTEREST-EXPENSE> 4,943,845
<INTEREST-INCOME-NET> 5,493,353
<LOAN-LOSSES> 74,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,297,223
<INCOME-PRETAX> 1,984,168
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,440,245
<EPS-BASIC> 0.86
<EPS-DILUTED> 0.86
<YIELD-ACTUAL> 7.63
<LOANS-NON> 396,315
<LOANS-PAST> 359,073
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,525,809
<ALLOWANCE-OPEN> 1,772,895
<CHARGE-OFFS> 68,509
<RECOVERIES> 23,877
<ALLOWANCE-CLOSE> 1,802,263
<ALLOWANCE-DOMESTIC> 1,802,263
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
