<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 September 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) (IRS 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 October
6,1999 is 1,964,128 shares.
<PAGE>
Table Of Contents
Union National Bancorp, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Comprehensive Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 6-11
PART II - OTHER INFORMATION 12
Item 6. Exhibits and Reports on Form 8-K
1
<PAGE>
PART 1 FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS
UNION NATIONAL BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 5,861,689 $ 6,867,629
Interest bearing deposits with banks 10,025 280,817
Federal funds sold 8,954,643 7,716,140
Investment securities available for sale-at fair value 74,054,974 76,804,462
Investment securities held to maturity-at amortized cost - fair value of
$32,089,176 (1999) and $22,382,238 (1998) 33,073,384 22,006,195
Loans 176,294,474 163,464,538
Less: allowance for credit losses (1,793,456) (1,772,895)
------------- -------------
Loans - net 174,501,018 161,691,643
Premises and equipment 4,114,566 4,326,226
Accrued interest receivable 2,152,205 1,699,794
Goodwill 2,227,499 --
Other assets 3,678,746 2,520,529
------------- -------------
TOTAL ASSETS $ 308,628,749 $ 283,913,435
============= =============
LIABILITIES
Deposits:
Non-interest bearing deposits $ 23,103,473 $ 28,247,301
Interest bearing deposits $ 199,680,557 198,090,078
------------- -------------
TOTAL DEPOSITS 222,784,030 226,337,379
Short-term borrowings 33,764,606 13,577,689
Federal Home Loan Bank Borrowing 25,000,000 20,000,000
Accrued expenses and other liabilities 1,828,889 1,761,688
------------- -------------
------------- -------------
TOTAL LIABILITIES 283,377,525 261,676,756
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - $.01 par; 10,000,000 shares authorized;
1,962,814 shares on September 30,1999 1,851,458 shares on
December 31,1998 issued and outstanding 19,628 18,514
Capital surplus 16,797,380 13,570,913
Accumulated other comprehensive income/(expense) (1,664,736) 203,833
Retained earnings 10,098,952 8,443,419
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 25,251,224 22,236,679
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 308,628,749 $ 283,913,435
============= =============
</TABLE>
2
<PAGE>
UNION NATIONAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 3,759,510 $ 3,698,091 $ 10,878,955 $ 10,935,310
Interest and dividends on investment securities:
Taxable interest on mortgage backed securities 822,702 691,000 2,453,395 1,915,811
Other taxable interest & dividends 636,631 507,294 1,669,693 1,484,964
Nontaxable interest 224,355 192,550 672,278 374,014
Interest on deposits in other banks 644 1,879 1,169 3,055
Interest on federal funds sold 31,482 172,480 237,032 525,561
------------ ------------ ------------ ------------
TOTAL INTEREST INCOME 5,475,324 5,263,294 15,912,522 15,238,715
------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits:
Time certificates of deposit of $100,000 and more 237,024 351,764 769,538 887,610
Other deposits 1,798,356 1,738,880 5,327,638 5,251,711
------------ ------------ ------------ ------------
Total interest on deposits 2,035,380 2,090,644 6,097,176 6,139,321
Interest on short-term borrowings 318,626 267,901 632,373 598,708
Interest on Federal Home Loan Bank borrowings 282,682 281,583 850,984 571,275
------------ ------------ ------------ ------------
TOTAL INTEREST EXPENSE 2,636,688 2,640,128 7,580,533 7,309,304
------------ ------------ ------------ ------------
Net Interest Income 2,838,636 2,623,166 8,331,989 7,929,411
Provision for credit losses 105,000 60,000 179,000 186,000
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
2,733,636 2,563,166 8,152,989 7,743,411
------------ ------------ ------------ ------------
NONINTEREST INCOME:
Service charges on deposit accounts 343,529 280,999 904,771 806,344
Other service charges 46,701 41,799 192,949 209,480
Net gain on securities -- -- -- 21,281
Insurance service activities 357,374 -- 471,791 --
Other income 12,304 14,002 52,435 49,797
------------ ------------ ------------ ------------
TOTAL NONINTEREST INCOME 759,908 336,800 1,621,946 1,086,902
------------ ------------ ------------ ------------
NONINTEREST EXPENSES:
Salaries and employee benefits 1,343,910 1,174,636 3,714,407 3,449,227
Occupancy expense 227,205 236,878 670,484 651,244
Equipment expenses 209,481 112,277 531,857 304,662
Other expenses 529,089 572,916 1,690,160 1,734,434
------------ ------------ ------------ ------------
TOTAL NONINTEREST EXPENSES 2,309,685 2,096,707 6,606,908 6,139,567
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,183,859 803,259 3,168,027 2,690,746
PROVISION FOR INCOME TAXES 308,500 172,042 852,423 743,275
------------ ------------ ------------ ------------
NET INCOME $ 875,359 $ 631,217 $ 2,315,604 $ 1,947,471
============ ============ ============ ============
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 0.45 $ 0.34 $ 1.18 $ 1.05
============ ============ ============ ============
</TABLE>
3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
COMPREHENSIVE STATEMENTS OF INCOME
(Unaudited)
Net Income $ 875,359 $ 631,217 $ 2,315,604 $ 1,947,471
OTHER COMPREHENSIVE INCOME/(LOSS), BEFORE TAX:
Unrealized holding gains/(loss) arising during period (525,073) 175,520 (3,030,743) 158,873
Less: reclassification adjustment for gains
included in net income -- -- -- 21,281
------------ ------------ ------------ ------------
Other comprehensive income/(loss), before tax (525,073) 175,520 (3,030,743) 180,154
Income tax (expense) benefit related to items of other
comprehensive income 194,484 (59,677) 1,162,174 (61,252)
------------ ------------ ------------ ------------
Other comprehensive income/(loss), net of taxes (330,589) 115,843 (1,868,569) 118,902
------------ ------------ ------------ ------------
COMPREHENSIVE INCOME $ 544,770 $ 747,060 $ 447,035 $ 2,066,373
============ ============ ============ ============
</TABLE>
4
<PAGE>
UNION NATIONAL BANCORP
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ending
September 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,315,604 $ 1,947,471
Adjustments to reconcile net income to net cash
provided by operating activities:
Provisions for credit losses 179,000 186,000
Depreciation and amortization 624,036 513,551
Provision for deferred income taxes (1,179,491) (132,301)
Net decrease (increase) in accrued interest receivable (452,411) (116,552)
Net increase (decrease) in accrued expenses & other liabilities 67,202 29,654
Other - net 2,104,408 437,561
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,658,348 2,865,384
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities (19,237,610) (44,853,695)
Purchases of held to maturity securities (12,994,387) (11,743,300)
Proceeds from maturities of available for sale securities 18,834,672 35,381,100
Proceeds from maturities of held to maturity securities 1,953,197 3,357,879
Proceeds from sale of available for sale securities -- 4,547,969
------------ ------------
Net increase in loans (12,988,376) (3,980,544)
Bank premises and equipment acquired (412,376) (458,644)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (24,844,880) (17,749,235)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits (3,553,350) 7,880,814
Proceeds from dividend reinvestment plan 169,622 220,660
Net increase (decrease) in short-term borrowings 25,186,917 18,779,593
Cash dividends paid (654,886) (537,169)
------------ ------------
NET CASH PROVIDED BY FINACING ACTIVITIES 21,148,303 26,343,898
------------ ------------
Net Increase (Decrease) In Cash and Cash Equivalents (38,229) 11,460,047
Cash and Cash Equivalents At Beginning Of Year 14,864,586 13,967,953
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,826,357 $ 25,428,000
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 7,611,232 $ 7,288,581
============ ============
Income taxes paid 812,000 797,000
============ ============
NON CASH INVESTING ACTIVIES
Purchase of insurance subsidiary $ 3,052,772 $ --
============ ============
</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 does 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 Union National Bancorp's (`the Company') 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. began operations as the parent company
of its sole subsidiary, The Union National Bank of Westminster, ("the Bank") in
1994. The 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, Union National Bank 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 Insurance
Services, Inc., have been included in the consolidated financial statements
since the date of June 1, 1999. Excess of the purchase price over 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
for 1999 was approximately $30,101. The effects of the Barnes-Bollinger purchase
on the Union National Bancorp's financials are represented in the table below.
In addition Union National Bancorp consolidated statement of cash flows and
deferred income tax has been impacted by the acquisition.
<TABLE>
<CAPTION>
BARNES-BOLLINGER FINANCIALS SEPTEMBER 30, 1999
(Unaudited)
<S> <C>
ASSETS
Cash and due from banks $ 381,363
Premises and equipment 135,363
Goodwill 2,227,499
Other assets 756,213
----------
Total Assets $3,500,438
==========
LIABILITIES
Other liabilities 317,898
----------
Total Liabilities $ 317,898
==========
Capital surplus 3,052,772
Retained earnings 129,768
----------
Total Capital $3,182,540
----------
Total Liabilities & Capital $3,500,438
==========
NONINTEREST INCOME:
Insurance Commissions $ 471,791
----------
Total Income $ 471,791
----------
NONINTEREST EXPENSES:
Salaries and employee benefits 251,391
Occupancy expense 20,453
Equipment expenses 33,904
Other expenses 36,275
----------
Total Expense $ 342,023
----------
NET INCOME $ 129,768
==========
</TABLE>
6
<PAGE>
Total assets were $308.6 million at September 30, 1999, an increase of
$24.7 million or 8.7% over year-end December 31, 1999. The primary funding
source for the asset growth is related to the strong growth in investments from
our customers 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 loan 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 increased $368,133 or 18.9% in the first nine months of 1999 to
$2,315,604 from net income of $1,947,471 in the same period of 1998. The
annualized return on average assets for the six month period ended September 30,
1999 and 1998 was 1.05% and .98%, respectively. The annualized return on average
equity was 13.09% for the nine months ended September 30, 1999 and was 12.51%
for the nine months ended September 30, 1998.
SECURITIES PORTFOLIO
Total holdings in the investment portfolio at September 30, 1999 were
$107,128,358 and at year-end 1998 were $98,810,657. In aggregate, investment
securities increased $8,317,701 or 8.4% in the first nine months of 1999. The
investment portfolio is comprised 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 4.8 years on September 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 $40,068,657 as of September 30, 1999. Union National
Delaware Holding has in aggregate in its portfolio $67,059,701 as of September
30, 1999. The passive investment company has reduced cost, producing a benefit
to Union National Bank's net income.
The table below presents the securities portfolios mix as September 30,
1999 when compared to year-end 1998.
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
September 30,1999 December 31,1998 September 30,1999 December 31,1998
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
U.S. government securities and obligations
of U.S. governmental agencies $23,457,558 $28,264,301 $12,493,645 $ 173,592
Obligations of states and political
subdivisions 534,648 556,250 18,359,213 17,875,549
Mortgaged-backed securities 46,036,106 44,046,647 2,220,526 3,957,054
Equity securities 4,026,662 3,937,264 -- --
----------- ----------- ----------- -----------
Total Investment Securities $74,054,974 $76,804,462 $33,073,384 $22,006,195
=========== =========== =========== ===========
</TABLE>
LOAN PORTFOLIO
Total loans outstanding on September 30, 1999 were $176,294,474 and on
December 31, 1998 were $163,464,538. The loan portfolio has increased
$12,829,936 or 7.8% in the first nine months of this year. The loan portfolio
represented 57.1% of total assets on September 30, 1999 and 57.6% of total
assets on December 31, 1998. The table below presents the loan portfolios mix as
of September 30, 1999 compared to year ended 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30,1999 DECEMBER 31,1998
<S> <C> <C>
Construction and land development $ 3,894,506 $ 4,646,007
Residential real estate - mortgages 49,114,953 43,044,848
Commercial real estate - mortgages 64,674,779 66,904,070
Commercial 33,735,627 31,170,049
Consumer 25,143,178 18,020,174
------------- -------------
Gross Loans 176,563,043 163,785,148
Net deferred loan fees and cost (268,569) (320,610)
------------- -------------
Total Loans 176,294,474 163,464,538
============= =============
</TABLE>
7
<PAGE>
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 has a loan to value ratio of less than 80%. For those mortgages
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 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 six automobile dealerships and two farm supply
equipment dealers. In 1999, the consumer portfolio has increased dramatically
due to strategic changes in the overall consumer loan area. Better relationships
have been established with indirect dealers. Product improvements as well as
"tiered" pricing has improved our competitive position with peer banks. Union
National Bank's call center is actively selling loans on the phone with same day
approval. Continued emphasis during the first nine 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 conservative debt to income and
credit scores assist in minimizing 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 its 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 September 30, 1999 was $1,793,456 and
on December 31, 1998 was $1,772,895. The ratio of allowance to total loans was
1.02% for the first nine months of 1999 compared to 1.08% at year-end 1998.
Analysis of the Allowance for Credit Losses
<TABLE>
<CAPTION>
Description Amount
<S> <C> <C>
Balance at beginning of period 1/1/99 $1,772,895
----------
Loans charged off (186,440)
Recoveries 28,001
Provision charged to operating expenses 179,000
-------
Balance at end of period 9/30/99 $1,793,456
==========
Net Charge-offs as a percentage of average total loans First Nine months .09%
</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 affect loss experience. In
addition, historical loss data is also considered. A "reserve range" is
determined from this process. A comparison is 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 $223,111,035 on September 30, 1999 and $226,337,379 on
December 31, 1998. This represents an decrease of $3,226,344 or 1.4% in the
first nine months of 1999. Certificates of deposit, which grew $5.2 million or
5.3%, represent 46.5% of the total deposit portfolio as of September 30, 1999.
In addition, interest bearing checking accounts and IRA (individual retirement
accounts) have experienced a small increase throughout 1999. Non-interest
bearing checking, money market, and regular saving accounts have declined $9.8
million or 11.1% in the third quarter of 1999. Typically Union National
experiences a drop in deposits in the third quarter, but this drop rebounds
throughout the fourth quarter. Management continues to develop competitive
products and rates to spur continuous growth in core deposits, as well as
relationships.
8
<PAGE>
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 $17,666,802
during the first nine months of 1999 compared to $18,423,018 at year-end 1998.
At September 30, 1999 they totaled $33,764,606, and $13,577,689 at year-end
1998.
Union National Bank has borrowed $25,000,000 from the Federal Home Loan
Bank. 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 borrowings, and investment return in the loan and securities portfolios
will increase Union National Bank's net interest income.
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 September 30, 1999, of which $25 million are already
in use.
On September 30, 1999 securities available for sale and federal funds
sold totaled $83,009,617 compared with $84,520,602 on December 31, 1998.
Managing the maturities of loans, securities, and certificates of deposit also
provides liquidity.
CAPITAL MANAGEMENT
The Company's capital position is presented in the following table:
<TABLE>
<CAPTION>
September 30, December 31 For Capital
1999 1998 Adequacy Purposes
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tier 1 capital to risk-weighted assets 11.3% 12.1% 4.0%
Total capital to risk-weighted assets 12.2% 13.1% 8.0%
Tier 1capital to average assets 7.7% 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 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 nine months, net interest income before provision for loan
losses was $8,331,989 in 1999 and $7,929,411 for the same period in 1998. This
represents an increase of $402,578 or 5.1% for 1999. Managing the net interest
margin is one of the primary focuses of the Asset / Liability Committee (ALCO).
Monthly, the committee examines the "gap" and its assumptions for their
validity, and assesses the margin's movement relative to these factors. The net
interest spread, the difference between the yield on earning assets and the cost
of interest bearing liabilities, decreased slightly to 3.66% in the first nine
months of 1999 from 3.79% at December 31, 1998, but is within guidelines set by
the ALCO committee.
For the nine months ended September 30, 1999, net interest income before
provision for loan losses were $2,838,636 and $2,623,166 for the nine months
ended September 30, 1998. This is a $215,470 increase or 8.2% for this period.
9
<PAGE>
UNION NATIONAL BANCORP, INC.
AVERAGE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,119,298 $ 6,897,873
Investments 104,985,586 82,240,228
Federal funds sold 5,588,289 13,393,191
Net loans 167,288,947 158,383,628
Other assets 9,297,716 7,699,302
------------- -------------
TOTAL ASSETS $ 294,279,836 $ 268,614,222
============= =============
LIABILITIES
Deposits 228,319,229 214,379,906
Other borrowings 40,518,449 31,599,533
Other liabilities 1,856,772 1,469,880
------------- -------------
TOTAL LIABILITIES $ 270,694,450 $ 247,449,319
============= =============
Common stock 18,962 17,223
Capital surplus 14,864,679 9,831,039
Retained earnings 9,418,889 11,128,727
Accumulated other comprehensive income (717,144) 187,914
------------- -------------
TOTAL CAPITAL $ 23,585,386 $ 21,164,903
------------- -------------
TOTAL LIABILITIES & CAPITAL $ 294,279,836 $ 268,614,222
============= =============
</TABLE>
NONINTEREST INCOME
Total noninterest income for the first nine months of 1999 was $1,621,946
up $535,044 or 49.2% from $1,086,902 for the first nine months in 1998. Total
noninterest income for the three months ended September 30, 1999 and 1998
respectfully were $759,908 and $336,800 an increase of $423,108 or 125.6%.
Noninterest income is divided into two areas, service charge income and service
fee income. In comparison to 1998 figures, service charges on deposit accounts
increased $98,437 through the third quarter of 1999 and $62,530 for the three
months ended September 30th. This increase is do to additional off sight ATM's
and foreign ATM activity that has generated $33,897 in additional revenue over
the same nine month period in 1998. Service fee income increased $455,260
through the third quarter of 1999, and increased $362,276 for the three months
ended September 30, 1999. The increase in the third quarter is primarily due to
insurance service commissions from Barnes-Bollinger. Noninterest income from
insurance activity is $471,791 for the first nine months of 1999. A strong
emphasis on increasing debit card services will help to continue to increase
noninterest income. Commissions from non-funded mortgages that are sold on the
secondary market are down $15,890 through the third quarter of 1999, and $4,807
for the nine months ended September 30, 1999. The mortgage area has focused on
portfolio loans in 1999. Agreements has been signed with various mortgage
companies to purchase conforming mortgages. As the market warrants Union
National Bank will continue to originate loans to sell, this will further
service fee income in the future.
NONINTEREST EXPENSE
Noninterest expense for the first nine months of 1999 was $6,606,908 a
increase of $467,341 or 7.6% from $6,139,567 in 1998. Noninterest expense for
the three months ended September 30th was $2,309,685 a increase of $212,978 or
10.2% from $2,096,707 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.
Salaries and benefits for the first nine months of 1999 totaled
$3,714,407, up $265,180 or 7.7% from $3,449,227 in the first nine months of
1998. For the nine months ended September 30, 1999, salaries and benefits were
$1,343,910, up $169,274 or 14.4% from $1,174,636 for the three months ended
September 30,1998. Personnel expense, the largest segment of noninterest
expense, represented 56.2% of the total for the nine months ended September 30,
1999. The addition of Barns-Bollinger has increased personnel expense but the
efficiency ratio, which is noninterest expense divided by net interest income
and noninterest income, has continued to improve to a 66.3% for the first nine
months of 1999 from a 68.0% over the same period in 1998. 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.
10
<PAGE>
Occupancy and equipment expenses for the first nine months totaled
$1,202,341 in 1999, an increase of $246,435 or 25.8% from $955,906 for the first
nine months of 1998. For the nine months ended September 30, 1999, occupancy and
equipment was $436,686, up $87,531 or 25.1% from $349,155 for the three months
ended September 30, 1998. Depreciation expense represents 51.3% of occupancy and
equipment expense. Depreciation expense for the first nine months of 1999 was
$616,446 up $108,288 or 21.3% from $508,158 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 $1,690,160 for the first nine months of 1999,
a decrease of $44,274 or 2.6% from $1,734,434 for the first nine months of 1998.
For the three months ended September 30, 1999, other expense was $529,089, down
$43,827 or 7.6% from $572,916 for the nine months ended September 30,1998.
Computer service fees are the largest components of other expense. It represents
25.9% of the other expense area. Computer service fee expense has increased
$45,670 in the first nine months of 1999 compared to the same period in 1998.
YEAR 2000
Union National Bank is Y2K ready and confident as we enter the final
countdown to the new millennium. All major Year 2000 project phases, including
awareness, assessment, renovation, validation and implementation are complete.
Our mission critical systems are ready. 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.
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 and statement inserts
- - newspaper advertisements
- - direct mail to customers and shareholders
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.
Extensive contingency plans are in place to effectively deal with
temporary service interruptions. These contingency plans will continue to be
challenged through vigorous testing to ensure they provide the highest service
levels for our customers.
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 September 30, 1999, we spent $ 61,050 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.
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) there have been no reports on form 8-K filed by the company during the
quarter for which this report id filed
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)
November 10, 1999 By: /s/ Virginia W. Smith
----------------------------------------
Virginia W. Smith
President and Chief Executive Officer
November 10,1999 By: /s/ Gabrielle M. Peregoy
----------------------------------------
Gabrielle M. Peregoy
Vice President
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Union
Bancorp's 10-Q for the Nine months ended September 30, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,861,689
<INT-BEARING-DEPOSITS> 10,025
<FED-FUNDS-SOLD> 8,954,643
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 74,054,974
<INVESTMENTS-CARRYING> 33,073,384
<INVESTMENTS-MARKET> 0
<LOANS> 176,294,474
<ALLOWANCE> 1,793,456
<TOTAL-ASSETS> 308,628,749
<DEPOSITS> 222,784,030
<SHORT-TERM> 33,764,606
<LIABILITIES-OTHER> 1,828,889
<LONG-TERM> 25,000,000
0
0
<COMMON> 19,628
<OTHER-SE> 25,231,596
<TOTAL-LIABILITIES-AND-EQUITY> 308,628,749
<INTEREST-LOAN> 10,878,955
<INTEREST-INVEST> 4,795,366
<INTEREST-OTHER> 238,201
<INTEREST-TOTAL> 15,912,522
<INTEREST-DEPOSIT> 6,097,176
<INTEREST-EXPENSE> 7,580,533
<INTEREST-INCOME-NET> 8,331,989
<LOAN-LOSSES> 179,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,606,908
<INCOME-PRETAX> 3,168,027
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,315,604
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 7.47
<LOANS-NON> 269,188
<LOANS-PAST> 319,597
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 666,026
<ALLOWANCE-OPEN> 1,772,895
<CHARGE-OFFS> 186,440
<RECOVERIES> 28,001
<ALLOWANCE-CLOSE> 1,793,456
<ALLOWANCE-DOMESTIC> 1,793,456
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
